<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 30, 1996
Life Re Corporation
(Exact name of registrant as specified in its charter)
Delaware 1-11340 01-0437851
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
969 High Ridge Road, Stamford, Connecticut 06905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203)
321-3000
Not Applicable
(Former name or former address, if changed since last report.)
1<PAGE>
<PAGE>
Item 2. Acquisition or Disposition of Assets.
Effective June 30, 1996, Life Re Corporation, through its
subsidiary, Reassure America Life Insurance Company ("REALIC"),
completed its acquisition of 100% of the outstanding stock of each
of Modern American Life Insurance Company ("Modern American") and
Western Pioneer Life Insurance Company ("Western Pioneer") from
Bankers Multiple Line Insurance Company ("Bankers"), a subsidiary
of I.C.H. Corporation ("I.C.H."). This transaction was previously
reported in the Life Re Corporation: (i) Form 8-K, Date of Report
April 2, 1996, as filed with the Securities and Exchange
Commission on April 17, 1996, which included as an Exhibit the
Stock Purchase Agreement, dated as of April 2, 1996, by and
between Bankers Multiple Line Insurance Company and Reassure
America Life Insurance Company with respect to all of the
outstanding capital stock of Modern American Life Insurance
Company and Western Pioneer Life Insurance Company (the "Stock
Purchase Agreement"); (ii) Form 10-Q for the quarterly period
ended March 31, 1996, as filed with the Securities and Exchange
Commission on May 3, 1996; (iii) Form 8-K, Date of Report June 30,
1996, as filed with the Securities and Exchange Commission on July
16, 1996; and (iv) Form 10-Q for the quarterly period ended June
30, 1996, as filed with the Securities and Exchange Commission on
August 13, 1996. The purchase price, determined by arms'-length
negotiations, was approximately $16.0 million, the source of which
was internally generated funds. There is no material relationship
between I.C.H., Bankers, Modern American, or Western Pioneer and
Life Re Corporation other than the contractual relationship
established by the Stock Purchase Agreement. The fair value of
assets acquired, consisting primarily of invested assets, was
approximately $176.0 million and the liabilities assumed,
principally future policy benefits, aggregated approximately
$160.0 million. Also as of June 30, 1996, REALIC caused Modern
American to be redomesticated to the State of Illinois from the
State of Missouri and Western Pioneer was merged with and into
REALIC. The existing business of Modern American and Western
Pioneer will be managed by a third party administrator. Included
as Exhibits hereto are certain historical financial information
with respect to Modern American and Western Pioneer and certain
pro forma financial information.
2
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
Modern American Life Insurance Company and Western Pioneer
Life Insurance Company audited combined financial statements as of
and for the years ended December 31, 1995 and 1994 and unaudited
combined financial statements as of and for the six months ended
June 30, 1996 and 1995.
(b) Pro Forma Financial Information
Life Re Corporation and subsidiaries unaudited pro forma
condensed consolidated statements of income for the year ended
December 31, 1995 and the six months ended June 30, 1996.
(c) Exhibits
2.1 Stock Purchase Agreement, dated as of April 2, 1996, by and
between Bankers Multiple Line Insurance Company and Reassure
America Life Insurance Company with respect to all of the
outstanding capital stock of Modern American Life Insurance
Company and Western Pioneer Life Insurance Company,
incorporated by reference to Exhibit 2.1 of the Life Re
Corporation Current Report on Form 8-K, Date of Report
April 2, 1996, as filed with the Securities and Exchange
Commission on April 17, 1996.
23.1 Consent of Coopers & Lybrand L.L.P.
3
<PAGE>
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 hereunto duly authorized.
LIFE RE CORPORATION
Date: September 12, 1996 By:/s/Chris C. Stroup
Chris C. Stroup,
Executive Vice President and
Chief Financial Officer
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Modern American Life Insurance Company:
We have audited the accompanying combined balance sheets of Modern American
Life Insurance Company and Western Pioneer Life Insurance Company as of December
31, 1995 and 1994, and the related combined statements of earnings (loss),
business equity and cash flows for the years ended December 31, 1995 and 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Modern American
Life Insurance Company and Western Pioneer Life Insurance Company as of December
31, 1995 and 1994, and the combined results of their operations and their cash
flows for the years ended December 31, 1995 and 1994, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
September 4, 1996
F-1
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
COMBINED BALANCE SHEETS
as of December 31, 1995 and 1994
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Investments:
Fixed maturities available for sale at fair value ..... $105,043 $ 79,064
Equity securities available for sale at fair value .... 157 136
Mortgage loans on real estate at amortized cost ....... 8,607 2,888
Real estate at lower of cost or fair value ............ 15,686 24,404
Policy loans .......................................... 17,081 13,235
Cash and short-term investments ....................... 24,672 10,037
Other invested assets ................................. 1,267 1,383
-------- --------
Total investments ................................... 172,513 131,147
Investment in ICH common stock, at cost .................. -- 3,806
Due from reinsurers ...................................... 10,956 11,708
Due from affiliates ...................................... 2,019 664
Notes and accounts receivable and uncollected premiums ... 1,298 921
Accrued investment income ................................ 1,615 1,143
Deferred policy acquisition costs ........................ 7,164 3,885
Value of business acquired ............................... 848 1,041
Deferred income taxes .................................... -- 2,996
Federal income tax recoverable from tax settlement ....... 3,402 --
Other assets ............................................. 1,448 559
-------- --------
$201,263 $157,870
======== ========
</TABLE>
LIABILITIES AND BUSINESS EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Insurance liabilities:
Future policy benefits and other policy liabilities ... $ 78,078 79,204
Universal life and investment contract liabilities .... 92,981 51,629
Federal income taxes currently payable ................... 2,010 2,037
Due parent on assignment of tax benefits from settlement . 3,402 --
Other liabilities ........................................ 4,013 3,599
-------- --------
180,484 136,469
Commitments and contingencies
Business equity .......................................... 20,779 21,401
-------- --------
Total liabilities and business equity ............... $201,263 $157,870
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
STATEMENTS OF LOSS
for the Years Ended December 31, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues:
Premium income .................................. $ 3,288 $ 4,818
Interest sensitive policy product charges ....... 1,141 1,163
Net investment income ........................... 8,048 11,164
Realized investment losses ...................... (8,345) (7,219)
Other income .................................... 1,036 1,117
-------- --------
5,168 11,043
-------- --------
Benefits, expenses and costs:
Policyholder benefits ........................... 8,545 9,804
Amortization of deferred policy acquisition
costs and value of business acquired ......... 952 2,345
Other operating expenses ........................ 5,930 5,946
Litigation Settlement ........................... 4,000 --
-------- --------
19,427 18,095
-------- --------
Loss before income taxes ........................... (14,259) (7,052)
Income tax provision (credit) ..................... 450 (809)
-------- --------
Net loss ........................................... $(14,709) $ (6,243)
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF BUSINESS EQUITY
for the Years Ended December 31, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Balance at beginning of period ..................... $ 21,401 $ 39,449
Net loss ......................................... (14,709) (6,243)
Dividend of ICH bond ............................. -- (9,015)
Capital contributions ............................ 6,761 2,500
Deemed contribution from reinsurance
recapture with affiliate ....................... 1,080 --
Deemed contribution on gain from dividend
of ICH bond, net of taxes ...................... -- 217
Change in net unrealized investment gains ........ 6,246 (5,507)
-------- --------
Balance at end of period ........................... $ 20,779 $ 21,401
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF CASH FLOWS
for the Years Ended December 31, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................... $(14,709) $ (6,243)
Items not requiring (providing) cash:
Adjustments relating to universal
life and investment products:
Interest credited to account balances ......... 3,372 1,917
Charges for mortality and administration ..... (1,663) (1,137)
Depreciation and amortization .................. 2,566 485
Decrease in future policy benefits ............... (2,464) (11,102)
Decrease in deferred policy acquisition
costs and value of business acquired ........... 946 2,336
Decrease in currently payable taxes .............. (27) (5,375)
Increase (decrease) in policy liabilities, other
policyholder funds, accounts payable and
accrued expenses ............................... 1,752 (1,576)
Increase in notes and accounts receivable and accrued
investment income ............................. (849) (317)
Deferred income taxes ............................ (367) 1,496
Realized investment losses ....................... 8,345 7,219
Other, net ....................................... (88) 2,538
-------- --------
Net cash used by operating activities ............ (3,186) (9,759)
-------- --------
Cash flows from investing activities:
Sales of fixed maturities .......................... 1,456 3,314
Maturities and other redemptions of fixed maturities 12,417 7,126
Sales of other long-term assets ................... 4,126 3,302
Purchases of fixed maturities ...................... (2,571) (21,271)
Purchases of other long-term invested assets ....... (54) (222)
-------- --------
Net cash provided (used) by investing activities . 15,374 (7,751)
-------- --------
Cash flows from financing activities:
Policyholder contract deposits .................... 1,598 1,964
Policyholder contract withdrawals .................. (5,151) (3,397)
Capital contributions in cash from parent .......... 6,000 2,500
-------- --------
Net cash provided by financing activities ........ 2,447 1,067
-------- --------
Net increase (decrease) in cash and short-term
investments ........................................ 14,635 (16,443)
Cash and short-term investments at beginning of period. 10,037 26,480
-------- --------
Cash and short-term investments at end of period ...... $ 24,672 $ 10,037
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Organization and Basis of Presentation
The accompanying combined financial statements include the financial
statements of Modern American Life Insurance Company (Modern) and Western
Pioneer Life Insurance Company (Western) (collectively, the Companies). At
December 31, 1995, Modern and Western were wholly-owned subsidiaries of Bankers
Multiple Line Insurance Company (BML), and an indirect subsidiary of Care
Financial Corporation (CFC) and ICH Corporation (ICH) formerly Southwestern Life
Corporation (see Note 10). At December 31, 1994, Modern and Western were
wholly-owned subsidiaries of ICH. In September 1995, ICH contributed Modern and
Western to BML. The Companies are authorized to sell life, annuity and accident
and health insurance in thirty-six states and the District of Columbia.
Effective June 28, 1996, BML sold all of the outstanding capital stock of
Modern and Western to Reassure American Life Insurance Company (Reassure
America) (see Note 14).
All significant intercompany accounts and transactions have been
eliminated.
The Companies maintain their accounts in conformity with accounting
practices prescribed or permitted by state insurance regulatory authorities. In
the accompanying financial statements such accounts have been adjusted to
conform with generally accepted accounting principles (GAAP).
These financial statements have been presented on their historical GAAP
basis. No adjustments have been made to reflect any effects of the purchase by
Reassure America discussed above.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses during the reporting period. Accounts
that management of the Companies deem to be acutely sensitive to changes in
estimates include deferred policy acquisition costs, deferred income tax asset,
future policy benefits, policy and contract claims and value of business
acquired. In addition, the Companies must determine requirements for disclosure
of contingent assets and liabilities as of the date of the financial statements
based upon estimates. In all instances, actual results could differ from
estimates.
(b) Investments
Fixed maturity investments include bonds and preferred stocks with
mandatory redemption features. The Companies classify all fixed maturity
investments as available for sale securities which represent securities that may
be sold prior to maturity due to changes that might occur in market interest
rate risks, changes in the security's prepayment risk, management of the
Companies' income tax position, the Companies' general liquidity needs, the need
to increase regulatory capital or similar factors. Available for sale securities
are carried at fair value.
Anticipated prepayments on mortgage-backed securities are taken into
consideration in determining estimated future yields on such securities.
Equity securities include investments in common stocks and non-redeemable
preferred stocks and are carried at fair value. Policy loans are stated at their
current unpaid principal balance, net of unamortized discount, if any.
Short-term investments include commercial paper, invested cash and other
investments purchased with maturities generally less than three months and are
carried at amortized cost. The Companies consider all short-term investments to
be cash equivalents.
F-6
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies (Continued)
Mortgage loans are stated at the aggregate unpaid principal balances, less
unamortized discount and valuation allowances. Fees received and costs incurred
with origination of mortgage loans are deferred and amortized as yield
adjustments over the remaining lives of the mortgages. Real estate,
substantially all of which was acquired through foreclosure, is recorded at the
lower of fair value, minus estimated costs to sell, or cost. If the fair value
of the foreclosed real estate minus estimated costs to sell is less than cost,
a
valuation allowance is provided for the deficiency. Increases or decreases in
the valuation allowance are charged or credited to income. Other invested assets
include other miscellaneous investments carried at amortized cost.
The Companies regularly evaluate investments based on current economic
conditions, past credit loss experience and other circumstances. A decline in
net realizable value that is other than temporary is recognized as a realized
investment loss and a reduction in the cost basis of the investment. The
Companies discount expected cash flows in the computation of net realizable
value of its investments, other than certain mortgage-backed securities. In
those circumstances where the expected cash flows of residual interest and
interest-only mortgage-backed securities, discounted at a risk-free rate of
return, result in an amount less than the carrying value, a realized loss is
reflected in an amount sufficient to adjust the carrying value of a given
security to its fair value.
Net realized investment gains and losses are included in the determination
of net earnings. Unrealized investment gains and losses on available for sale
securities and marketable equity securities are charged or credited directly to
business equity. The specific identification method is used to account for the
disposition of investments.
(c) Due from Reinsurers
Amounts recoverable from reinsurers, including amounts equal to the assets
supporting insurance liabilities ceded to reinsurers and amounts due for the
reimbursement of related benefit payments, are reflected as receivables due from
reinsurers. Amounts due from reinsurers are evaluated as to their collectibility
and, if appropriate, reserves for doubtful collectibility are established
through a charge to earnings.
(d) Deferred Policy Acquisition Costs and Value of Business Acquired
Costs which vary with and are related to the acquisition of new business
have been deferred to the extent that such costs are deemed recoverable through
future revenues. These costs include commissions, certain costs of policy
issuance and underwriting and certain variable agency expenses. For traditional
life and health products, deferred costs are amortized with interest over the
premium paying period in proportion to the ratio of anticipated annual premium
revenue to the anticipated total premium revenue, using the same mortality,
morbidity and withdrawal assumptions used in computing liabilities for future
policy benefits. Deferred policy acquisition costs related to universal life,
interest-sensitive and investment products are amortized in relation to the
present value, using the assumed crediting rate, of expected gross profits on
the products, and retrospective adjustments of these amounts are made whenever
the Companies revise the estimates of current or future gross profits to be
realized from a group of policies.
The value of business acquired reflects the portion of the cost to acquire
such companies that was allocated to the value of the right to receive future
cash flows from insurance contracts existing at the dates of their acquisitions.
Such value represents the actuarially determined present value of the future
cash flows from the acquired policies, based on projections of future premium
collection, mortality, morbidity, surrenders, operating expenses, investment
yields, and other factors. The account is amortized with interest over the
estimated remaining life of the acquired policies.
Recoverability of deferred policy acquisition costs and the value of
business acquired is evaluated annually by comparing the current estimate of
discounted expected future cash flows to the unamortized asset balance by line
of insurance
F-7
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies (Continued)
business. If such current estimate indicates that the existing insurance
liabilities, together with the present value of future cash flows from the
business, will not be sufficient to recover the unamortized asset balance, the
difference is charged to expense. Amortization is adjusted in future years to
reflect the revised estimate of future profits.
Anticipated returns, including realized and unrealized gains and losses,
from the investment of policyholder balances are considered in determining the
amortization of deferred policy acquisition costs. When fixed maturities are
stated at their fair value, an adjustment is made to deferred policy acquisition
costs and unearned revenue reserves equal to the changes in amortization that
would have been recorded if those fixed maturities had been sold at their fair
value and the proceeds reinvested at current yields. Furthermore, if future
yields expected to be earned on fixed maturities decline, it may be necessary to
increase certain insurance liabilities. Adjustments to such liabilities are
required when their balances, in addition to future net cash flows including
investment income, are insufficient to cover future benefits and expenses.
(e) Future Policy Benefits and Other Policy Liabilities
The liability for future policy benefits of long duration contracts has
been computed by the net level premium method based on estimated future
investment yield, mortality, morbidity and withdrawal experience. Reserve
interest assumptions are graded and range from 6% to 10%. Mortality, morbidity
and withdrawal assumptions reflect the experience of the Companies modified as
necessary to reflect anticipated trends and to include provisions for possible
unfavorable deviations. The assumptions vary by plan, year of issue and
duration. The future policy benefit reserves include a provision for
policyholder dividends based upon dividend scales assumed at the date of
purchase of acquired companies or as presently contemplated.
Policy and contract claims, which are included in future policy benefits
and other policy liabilities, include provisions for reported claims in process
of settlement, valued in accordance with the terms of the related policies and
contracts, as well as provisions for claims incurred and unreported based on
prior experience of the Companies.
While management believes the estimated amounts included in financial
statements for reserves and claims are adequate, such estimates may be more or
less that the amounts ultimately paid when the claims are settled.
(f) Universal Life and Investment Contract Liabilities
Benefit reserves for universal life and investment products are determined
following the retrospective deposit method and consist principally of policy
account values before any surrender charges, plus certain deferred policy fees
which are amortized using the same assumptions and factors used to amortize
deferred policy acquisition costs.
(g) Income Taxes
Deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end.
(h) Participating Policies
The amount of dividends to be paid is determined annually by the boards of
directors of the Companies. A portion of the earnings of the Companies is
allocated to the participating policyholders and included in other policyholder
funds.
F-8
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies (Continued)
(i) Recognition of Premium Revenue and Related Expenses
Premium revenue for traditional life insurance products is reported as
earned when due. Accident and health premiums are earned over the period for
which premiums are paid. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the premium paying
period. This association is accomplished by means of a provision for future
policy benefit reserves and the amortization of deferred policy acquisition
costs.
Revenues for interest sensitive products such as universal life and annuity
contracts represent charges assessed against the policyholders' account balance
for the cost of insurance, surrenders and policy administration. Benefits
charged to expenses include benefit claims incurred during the period in excess
of policy account balances and interest credited to policy account balances.
(j) Fair Values of Financial Instruments
The following methods and assumptions were used by the Companies in
estimating their fair value disclosures for financial instruments:
Cash and Short-Term Investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment Securities: Fair values for fixed maturity securities
(including mandatorily redeemable preferred stocks) are based on quoted
market prices, where available. For fixed maturity securities not actively
traded, fair values are estimated using values obtained from independent
pricing services or are estimated based on expected future cash flows using
a current market rate applicable to the yield, credit quality, and maturity
of the investments. The fair values for equity securities are based on
quoted market prices (see Note 3).
Mortgages: The fair values for mortgage loans are estimated using
discounted cash flow analyses, based on interest rates currently being
offered for similar loans to borrowers with similar credit ratings. Loans
with similar characteristics are aggregated for purposes of the
calculations (see Note 3).
Policy Loans: Policy loans have no stated maturities and are usually
repaid by reductions to benefits and surrenders. Because of the numerous
assumptions which would have to be made to estimate fair value, the
Companies believe that such information would not be meaningful.
Investment Contracts: Fair values for the Companies' liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued (see Note 4).
2. Related Party Transactions
Modern and Western were parties to a management and service agreement with
Facilities Management Installation, Inc. (FMI). FMI provided substantially all
administrative, management, investment, personnel, data processing, facilities
and certain other services for ICH, its subsidiaries and affiliates and certain
other unrelated parties. Under the management and service agreement with FMI,
the Companies paid fees for personnel, data processing and other services equal
to the cost
F-9
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
2. Related Party Transactions (Continued)
of such services to FMI and a percentage markup. The following is the amount of
fees incurred in accordance with the agreement (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Modern ................................................... $2,798 $3,184
Western .................................................. 1,094 1,135
</TABLE>
Receivable from affiliates includes amounts recoverable for reimbursement
and allocation of various operating costs, net of amounts payable for management
fees. Balances are settled quarterly.
During 1995, Modern received a capital contribution of $4,000,000 in cash
from ICH for the settlement of a lawsuit (see Note 7). During 1995, Western
received capital contributions from its parents of approximately $2,761,000. BML
contributed $2,000,000 in cash and ICH contributed bonds valued at $72,000, real
estate valued at $54,000 and a mortgage loan with a principal amount outstanding
of approximately $635,000. In 1994, Western received a cash capital contribution
of $2,500,000 from ICH.
See Note 6 for a description of reinsurance agreements with affiliates.
At December 31, 1995 and 1994, the Companies owned 1,718,366 shares of ICH
common stock with a book value of approximately $3,806,000 and market value as
of December 31, 1994 of $4,403,000. During 1995, the Companies recognized
a permanent impairment of $3,806,000 on these shares in connection with
ICH's bankruptcy filing on October 10, 1995 (see Note 10).
As part of the corporate restructuring approved by various state regulators
in 1993, Modern agreed to dispose of its holdings in ICH's 11.25% Senior
Subordinated Notes due 1996 (ICH Bonds) by December 31, 1994. On June 15, 1994
Modern used ICH Bonds to pay a dividend of $5,874,000 to ICH. Modern realized
again of $739,000 on the disposal of these bonds which had a book value
of $5,135,000. On December 31, 1994, Modern used ICH Bonds to pay an
ordinary dividend of $3,115,000 to ICH. The bonds were distributed to ICH at
their market value and had a book value of $3,333,000, resulting in a
realized loss of $218,000. Also on December 21, 1994 ICH purchased Modern's
remaining ICH Bonds with a book value of $2,719,000 for their market value of
$2,533,000 resulting in a capital loss of $186,000. The net gain to Modern from
these transactions of $335,000, net of income taxes of $117,000 was reflected as
a deemed contribution in business equity. The amount of investment income
earned on the ICH bonds in 1994 was $1,032,000.
The Companies lease certain facilities included in investment real estate
to affiliates of ICH. Income earned from affiliates was $1,108,000 and
$1,127,000 for the years ended December 31, 1995 and 1994, respectively.
F-10
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
3. Investments
Investment income by type of investment is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Gross investment income:
Fixed maturities .................................... $ 5,785 $ 7,678
Mortgage loans ...................................... 513 287
Policy loans ........................................ 679 690
Short-term investments .............................. 707 607
Real estate ......................................... 3,060 3,418
Other ............................................... 751 1,271
------- -------
11,495 13,951
Less: Investment expenses ........................... 3,447 2,787
------- -------
Net investment income ............................. $ 8,048 $11,164
======= =======
</TABLE>
Following is an analysis of realized gains (losses) on investments (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Fixed maturities ................................. $ 19 $ 10
Collateralized mortgage obligations .............. -- (7,396)
Equity securities, affiliated .................... (3,806) --
Equity securities available for sale ............. -- 152
Mortgage loans ................................... (190) (26)
Investment real estate ........................... (4,368) 41
------- -------
$(8,345) $(7,219)
======= =======
</TABLE>
The following table reflects investment writedowns which are included in
realized investment gains or losses during each of the years ended December 31,
1995 and 1994, (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Collateralized mortgage obligations .............. $ -- $7,396
Equity securities, affiliated .................... 3,806 --
Mortgage loans ................................... 190 --
Investment real estate ........................... 3,722 29
------ ------
Total writedowns ............................ $7,718 $7,425
====== ======
</TABLE>
Collateralized Mortgage Obligation (CMO) writedowns consisted of other than
temporary writedowns of derivative CMO investments in Fund America Investors
Corporation II (Fund America Investment). During 1994, the ICH Companies
continued to evaluate their Fund America Investment in accordance with SFAS No.
115 and Emerging Issues Task Force (EITF) Issue No. 93-18, "Impairment
Recognition for a Purchased Investment in a Collateralized Mortgage Obligation
Investment or in a Mortgage-Backed Interest Only Certificate." Due primarily to
the rising interest rate environment
F-11
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
3. Investments (Continued)
experienced in 1994 and its effect on the projected future cash flows of the
Fund America Investment realized investment losses were triggered under the
provisions of EITF No. 93-18 on two occasions. At December 31, 1995 the Fund
America investment had a carrying value and fair market value of $1,298,000 and
an effective yield of 3.4%.
Writedowns of affiliated equity securities in 1995 reflect the Companies'
loss on their investment in ICH common stock as a result of ICH's filing for
bankruptcy (see Note 10). The mortgage loan writedown in 1995 reflects the
provision for mortgage loan losses. Investment real estate writedowns reflect
the general deterioration in real estate markets.
The amortized cost of investments and fixed maturities, the cost of equity
securities and the estimated values of such investments at December 31, 1995 and
December 31, 1994 by categories of securities are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Vaue
<S> <C> <C> <C> <C>
December 31, 1995:
Available for sale:
United States Government,
government agencies and
authorities ................... $ 6,702 $ 144 $ (5) $ 6,841
States, municipalities and
political subdivisions ........ 1,020 1 (52) 969
Public utilities ................ 10,574 303 (15) 10,862
Mortgage-backed securities ..... 67,821 1,119 (652) 68,288
All other corporate ............ 17,038 1,047 (2) 18,083
-------- -------- -------- -------
Subtotal, available for sale
fixed maturities ............. 103,155 2,614 (726) 105,043
-------- -------- -------- --------
Non-redeemable preferred stocks ... 2 64 -- 66
Common stocks ..................... 191 -- (100) 91
-------- -------- -------- --------
Subtotal, equity securities
available for sale .......... 193 64 (100) 157
-------- -------- -------- --------
Total fixed maturities and
equity securities ........... $103,348 $2,678 $ (826) $105,200
======== ======== ======== ========
</TABLE>
F-12
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
3. Investments (Continued)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1994:
Available for sale:
United States Government,
government agencies and
authorities ............ $ 5,307 $ 12 $ (131) $ 5,188
States, municipalities
and political
subdivisions ......... 20 -- (1) 19
Public utilities ..... 3,554 2 (259) 3,297
Mortgage-backed
securities ........... 68,233 18 (6,932) 61,319
All other corporate ... 9,650 5 (414) 9,241
------- ------- -------- ---------
Subtotal, available for
sale fixed maturities 86,764 37 (7,737) 79,064
------- ------- -------- ---------
Non-redeemable
preferred stocks ...... 2 22 -- 24
Common stocks .......... 191 -- (79) 112
------- ------- -------- ---------
Subtotal, equity securities
available for sale .... 193 22 (79) 136
------- ------- -------- ---------
Total fixed maturities
and equity securities . $86,957 $ 59 $ (7,816) $ 79,200
======= ======= ======== =========
</TABLE>
The amortized cost and estimated fair value of fixed maturities at December
31, 1995, by contractual maturity, is shown below (in thousands):
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
<S> <C> <C>
Available for sale:
Due in one year or less ........................ $ 863 $ 865
Due after one year through five years .......... 11,527 11,864
Due after five years through ten years ......... 14,270 15,092
Due after ten years ............................ 8,674 8,934
-------- --------
35,334 36,755
Mortgage-backed securities ..................... 67,821 68,288
-------- --------
$103,155 $105,043
======== ========
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Excluding scheduled maturities and sales related to the reinsurance
transactions discussed in Note 6, proceeds from sales of investments in debt
securities during 1995 and 1994 and the related gross gains and gross losses
realized on such sales were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Proceeds from sales................. ................ $1,456 $3,314
====== ======
Gross gains ......................................... $ 19 $ 10
====== ======
Gross losses ........................................ $ -- $ --
====== ======
</TABLE>
F-13
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
3. Investments (Continued)
Proceeds from sales in 1994 include $2,533,000 received on the sale of ICH
bonds to ICH but gross losses exclude the related loss of $186,000 as the loss
is reflected as a deemed dividend (see Note 2).
Following are changes in unrealized appreciation (depreciation) on
investments (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Investments carried at fair value:
Available for sale fixed maturities .............. $ 9,588 $(6,051)
Available for sale equity securities ............. 21 38
------- -------
9,609 (6,013)
Deferred income taxes ............................ (3,363) 506
------- -------
Change in unrealized investment gains and losses.......... $ 6,246 $(5,507)
======= =======
</TABLE>
The carrying values of non-income producing nonaffiliated invested assets
for 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Equity securities ......................................... $ 157
Investment real estate .................................... 1,956
Other invested assets ..................................... 232
------
$2,345
======
</TABLE>
Excluding investments in bonds or notes of the United States Government or
Government agencies or authorities, the carrying value and fair value of
investments by issuer which exceeded 10% of business equity at December 31, 1995
were as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Value Value
<S> <C> <C>
Office building, Houston, TX ..................... $9,100 $9,100
Resolution Trust Corporation CMO ................. 2,984 2,984
Colorado Interstate Debenture .................... 2,811 2,811
</TABLE>
At December 31, 1995 and 1994, the Companies held unrated or
noninvestment-grade fixed maturities with carrying values (fair values) of
$1,594,000 and $679,000, respectively. These holdings amounted to 1.5% and 0.9%
of the Companies fixed maturity investments at December 31, 1995 and 1994,
respectively and less than 1% of total cash and invested asset at December 31,
1995 and 1994. The holdings of noninvestment-grade securities include securities
of 7 issuers.
The Companies maintain their cash and short-term investments with high
credit quality institutions. At times, such investments may be in excess of the
FDIC limit.
At December 31, 1995 and 1994, the Companies held mortgage loans
principally involving commercial real estate with carrying values of $8,607,000
and $2,888,000, respectively, and estimated fair values of $10,374,000, and
$2,930,000, respectively. Approximately 46% of such mortgages involved property
located in Texas, consisting of first mortgage liens on completed
income-producing properties. No individual mortgage exceeds $1.9 million.
F-14
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
3. Investments (Continued)
The Companies are required to maintain certain amounts of assets on deposit
with state regulatory authorities. Such assets had an aggregate carrying value
of $25,718,000 and $23,191,000 at December 31, 1995 and 1994, respectively.
Real estate consists of the following at December 31, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cost of real estate ........................ $ 26,523 $ 33,069
Less accumulated depreciation .............. (3,629) (5,840)
Less reserve for losses .................... (7,208) (2,825)
-------- --------
$ 15,686 $ 24,404
======== ========
</TABLE>
The reserve for losses represent management's estimate of potential losses
on the Companies' real estate portfolio. These estimates take into consideration
the net operating income of the property, any recent offers for purchase and
internal appraisals of values.
Pursuant to the sale of the Companies to Reassure America effective June
28, 1996, the Companies distributed as a dividend to BML, real estate with
a
carrying value and fair value of approximately $10.1 million and other invested
assets, principally mineral interests, with carrying and fair values of
approximately $36,000 (see Note 14).
4. Insurance Liabilities
Insurance liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
Mortality or Interest
Withdrawal Morbidity Rate December 31, December 31,
Assumptions Assumptions Assumptions 1995 1994
<S> <C> <C> <C> <C> <C>
Future policy
benefits:
Traditional life
insurance contracts Company Company 6%-10% $ 64,979 $ 65,572
experience experience
Group life Company Company 6%-10% 493 631
experience experience
Individual accident
and health Company Company 6%-10% 1,176 1,224
experience experience
Unearned premiums N/A N/A N/A 191 209
Claims and benefits
payable N/A N/A N/A 971 847
Dividend and coupon
accumulations
and other N/A N/A N/A 10,268 10,721
-------- --------
78,078 79,204
Universal life
and annuities N/A N/A N/A 92,981 51,629
-------- --------
$171,059 $130,833
======== ========
</TABLE>
The estimated fair value of the liabilities for other investment contracts
is approximately equal to their carrying value at December 31, 1995 and 1994,
because interest rates credited to account balances approximate current rates
paid on similar investments and are generally not guaranteed beyond one year.
The fair values of liabilities under all insurance contracts are taken into
consideration in the Companies' overall management of interest rate risk, which
minimizes exposure to changing interest rates through the matching of investment
maturities with amounts due under insurance contracts.
F-15
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
4. Insurance Liabilities (Continued)
Activity in the liability for claims and benefits payable for the years
ended December 31, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Claims and benefits payable at beginning of year ...... $ 847 $ 1,531
Less reinsurance recoverables ....................... 1 27
------- -------
Net beginning balance ............................... 846 1,504
Add incurred losses net of reinsurance:
Current year ........................................ 1,082 1,260
Prior years ......................................... 266 (30)
------- -------
1,348 1,230
------- -------
Deduct payments for claims, net of reinsurance:
Current year ........................................ 857 826
Prior years ......................................... 366 1,062
------- -------
1,223 1,888
------- -------
Claims and benefits payable, net of related reinsurance
recoverables at end of year ......................... 971 846
Plus reinsurance recoverables ......................... -- 1
------- -------
Balance at end of year ................................ $ 971 $ 847
======= =======
</TABLE>
5. Business Equity and Restrictions
Generally, the net assets of the Companies available for transfer to their
parents are limited to the greater of the Companies' net gain from operations
during the preceding year or 10% of the Companies' net statutory surplus as of
the end of the preceding year as determined in accordance with accounting
practices prescribed or permitted by insurance regulatory authorities. Payment
of dividends in excess of such amounts requires approval by the regulatory
authorities. Management has given the regulatory authorities of their
domiciliary states assurance that the Companies will not declare and pay any
dividends without their approval.
The Companies prepare their statutory financial statements in accordance
with accounting practices prescribed or permitted by their respective state
insurance departments. Prescribed statutory accounting practices include state
laws, regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners (NAIC).
Permitted statutory accounting practices encompass all accounting practices that
are not prescribed; such practices differ from state to state, may differ from
company to company within a state, and may change in the future. Furthermore,
the NAIC has a project to codify statutory accounting practices, the result of
which is expected to constitute the only source of "prescribed" statutory
accounting practices. Accordingly, that project will likely change to some
extent prescribed statutory accounting practices and may result in changes to
the accounting practices that insurance enterprises use to prepare their
statutory financial statements.
On the basis of reporting as prescribed by insurance regulatory
authorities, the combined adjusted statutory capital and surplus of the
Companies, amounted to approximately $17,729,000 and $24,753,000 as of December
31, 1995 and 1994, respectively. Combined statutory net income was $2,917,000
and $8,639,000 for the years ended December 31, 1995 and 1994, respectively.
F-16
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
6. Reinsurance
The Companies have set their retention limit for acceptance of risk on
individual life insurance policies at $100,000. There are reinsurance agreements
with various unaffiliated companies whereby insurance in excess of the
Companies' retention limits is reinsured primarily on a yearly renewable term
basis. To the extent that reinsuring companies become unable to meet their
obligations under these agreements, the subsidiaries remain contingently liable.
Insurance in force ceded as of December 31, 1995 and 1994, under risk sharing
arrangements totaled approximately $116,600,000 and $131,900,000, respectively.
Reinsurance contracts do not relieve the Companies from their obligations
to policyholders. Therefore, the Companies are contingently liable for
recoverable unpaid claims and policyholder liabilities ceded to reinsurers in
the unlikely event that assuming reinsurers are unable to meet their
obligations. The Companies evaluate the financial condition of their reinsurers
to minimize the exposure to significant losses from reinsurer insolvencies. At
December 31, 1995 and 1994, the Companies have reflected in their combined
balance sheets an asset for amounts due from reinsurers totaling $10,956,000 and
$11,708,000, respectively, and have correspondingly increased their insurance
liabilities by the same amounts in each respective year. The effects of
reinsurance on policy revenue earned and the related benefits incurred for the
years ended December 31, 1995 and 1994 (in thousands) is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Direct policy revenues and amounts assessed
against policyholders ............................ $ 4,545 $ 5,173
Reinsurance assumed ................................ -- 972
Reinsurance ceded .................................. (116) (164)
------- -------
Net premiums and amounts earned .................... $ 4,429 $ 5,981
======= =======
Benefits and withdrawals ceded ..................... $ 569 $ 846
======= =======
</TABLE>
Effective December 28, 1994, Modern canceled two reinsurance treaties with
unaffiliated companies. Reserve liabilities totaling $4,700,000 were transferred
to the ceding companies along with an equivalent amount of assets.
Effective December 31, 1994, Western terminated the reinsurance treaties
with an unaffiliated company whereby the Company had assumed a block of life and
a block of health business. Assets transferred to the reinsurer totaled
$4,087,000 which equaled the amount of insurance liabilities transferred.
Modern entered into a modified coinsurance agreement with Southwestern Life
Insurance Company (Southwestern), an affiliate on September 29, 1993. Modern
ceded 100% of certain types of universal life insurance to Southwestern in
exchange for a $4,300,000 ceding fee. Reserve liabilities totaling $41,000,000
were transferred to Southwestern along with $36,700,000 in assets. Effective
October 1, 1995, Modern terminated the Southwestern coinsurance agreement. The
termination resulted in a transfer of assets to Modern of approximately
$44,214,000 and a transfer of reserve liabilities of approximately $43,134,000.
The assets received consisted of bonds, mortgage loans, and cash which were
transferred at their fair values and deferred policy acquisition costs which was
transferred at historical value. As of December 31, 1994, in force ceded under
this agreement totaled $455,700,000 and the reserve liability ceded totaled
$42,400,000. The net gain to Modern from the recapture of approximately
$1,080,000 is reflected as a deemed contribution.
7. Commitments, Litigation and Contingent Liabilities
Modern was a defendant in two lawsuits described therein as William D.
Castle, et al. V. Modern American Life Insurance Company, et al (the "Castle"
case) and Robert J. Meyer, et al, v. Jay Angoff, director of the Missouri
Department of Insurance and Modern American Life Insurance Company (the "Meyer"
case). On September 1, 1995, a Final Judgment
F-17
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
7. Commitments, Litigation and Contingent Liabilities (Continued)
Approving Settlement and Dismissing Case with Prejudice was entered by the
circuit Court of Jackson County, Missouri in the Castle case. Under the terms of
the settlement agreed to by the parties, Modern paid the Plaintiffs $4,000,000
cash and the Company's then-parent, ICH, delivered to Plaintiffs an unsecured
promissory note in the amount of $3,000,000. The $4,000,000 paid by Modern was
charged to operations. ICH contributed this amount to Modern in cash, and the
contribution was recorded as an increase to business equity. Therefore, there
was no net impact on Modern's business equity. Also, as a part of the settlement
of the Castle case, the Plaintiffs in the Meyer case agreed to the entry on
October 16, 1995, of a Stipulation of Dismissal and a Final Judgment in the
Circuit Court of Cole County, Missouri.
Modern has been notified of environmental issues involving two of its real
estate properties in which Modern has been named a potential responsible party.
At this time it is not possible to determine what costs may be incurred, if any,
regarding any needed expenditures to resolve the environmental issues. Based in
part upon the uncertainty as to the ultimate disposition of these matters and
managements belief that the liability, if any, will not be material, no amounts
have been recorded in these financial statements.
From time to time, assessments are levied on the Companies by life and
health guaranty associations in states in which they are licensed to do
business. Such assessments are made primarily to cover the losses of
policyholders of insolvent or rehabilitated insurers. In some states, these
assessments can be partially recovered through a reduction in future premium
taxes. The Companies paid assessments of $77,000 and $21,000 in the years 1995
and 1994, respectively. Based on information currently available the Companies
had accrued approximately $76,000 at December 31, 1995 for future assessments.
Various other lawsuits and claims are pending against the Companies. Based
in part upon the opinion of counsel as to the ultimate disposition of these
matters, management believes that the liability, if any, will not be material.
8. Federal Income Taxes
Prior to their sale in June 1996, the Companies were included in
a consolidated income tax return with ICH and substantially all of ICH's
other subsidiaries. The Consolidated Return Group was subject to a Tax
Allocation Agreement under which each member's tax liability equals or
approximates separate return calculations with current credit for net
losses utilized by other members of this group.
F-18
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
8. Federal Income Taxes (Continued)
The Companies' deferred federal income tax asset at December 31, 1995 and
1994, is comprised of the tax benefit (cost) associated with the following items
based on 35% tax rates in effect (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
<S> <C> <C>
Deferred tax assets:
Items subject to ordinary tax treatment:
Future policy benefits .......................$ 1,576 $ 485
Other assets and liabilities ................. 2,095 2,211
Alternative minimum tax carryforwards ....... -- 38
-------- --------
3,671 2,734
-------- --------
Invested assets, subject to capital gains
(loss) treatment:
Unrealized capital losses .................... -- 2,715
Invested assets .............................. 7,013 3,546
-------- --------
7,013 6,261
-------- --------
Deferred income tax asset ....................... 10,684 8,995
Deferred tax liabilities:
Unrealized capital gains ........................ (648) --
Deferred policy acquisition costs and
value of business acquired .................... (2,442) (2,613)
-------- --------
Deferred income tax liability .................. (3,090) (2,613)
Valuation allowance .............................. (7,594) (3,386)
-------- --------
Net deferred tax asset ........................... $ -- $ 2,996
======== ========
</TABLE>
The components of the provision (credit) for income taxes on operating
earnings (loss) are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Current tax provision (credit) .................... $ 817 $ (2,305)
Deferred tax provision (credit).................... (367) 1,496
-------- --------
Income tax provision (credit) ..................... $ 450 $ (809)
======== ========
</TABLE>
A reconciliation of the income tax provisions (credits) based on the
prevailing corporate tax rate of 35% to the provisions (credits) reflected in
the combined financial statements is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Computed expected income tax credit
at statutory regular tax rate ................... $ (4,991) $ (2,468)
Increase in deferred tax asset valuation
allowance ....................................... 4,208 333
Other .............................................. 1,233 1,326
-------- --------
Income tax provision (credit) .................... $ 450 $ (809)
======== ========
</TABLE>
At December 31, 1995, the Companies had no income tax carryforwards
available.
F-19
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
8. Federal Income Taxes (Continued)
Management has periodically assessed the ability of the Companies and
other members of their consolidated return group to produce taxable income in
future periods sufficient to fully utilize their operating book/tax
temporary differences and tax loss carryforwards. These assessments have
included actuarial projections under alternative scenarios of future profits
on the existing insurance in force of the Companies, including provisions for
adverse deviation and assumptions regarding new business. Valuation
allowances totaling $7,594,000 and $3,386,000 were provided against the
Companies' deferred tax assets at December 31, 1995 and 1994, respectively,
to reflect the uncertainties of realizing all of the benefits of temporary
differences and available tax loss carryforwards.
Included in the deferred income tax asset at December 31, 1994 are tax
effects totaling $2,715,000 associated with unrealized investment losses
included in business equity. Substantially all of such unrealized investment
losses at December 31, 1994, were attributable to the available for sale fixed
maturities. Management assessed the level of the Companies' cash and short-term
investments, the quality and duration of their available for sale fixed maturity
portfolios, and the likelihood that the Companies would be required to dispose
of a substantial portion of their available for sale fixed maturities and incur
net capital losses in order to meet their liquidity needs. These assessments
included a review of actuarial cash flow projections under various interest rate
scenarios and evaluations of historical data relative to benefits and surrender
activity. Management has concluded based on such assessment that it is unlikely
that the Companies would be required to incur significant capital losses to meet
anticipated liquidity needs over the near term and, accordingly, has reflected
a deferred tax asset relative to unrealized investment losses at December
31, 1994. Tax effects totaling $648,000 at December 31, 1995 associated
with unrealized investment gains are included in business equity.
ICH and its subsidiaries, including the Companies, have been under
examination by the Internal Revenue Service (IRS) for the tax years 1986 through
1992. The IRS subsequently expanded its examination to include the years 1993,
1994 and 1995. In 1994, the IRS issued Notices of Proposed Deficiencies in the
amount of $127.7 million to ICH's insurance subsidiaries for the tax years 1986
through 1989. In August 1995, the subsidiaries agreed to settle this matter by
paying $33.6 million of additional income taxes and $34.6 million of interest
(calculated through September 30, 1995), which settlement was approved by the
U.S. Congress Joint Committee on Taxation. The Companies reflected their portion
of the settlement, approximately $1,169,000, as a tax expense in 1994.
The IRS recently completed the examination of the tax years 1990 through
1995. On July 1, 1996, the IRS, ICH and Modern agreed on a tentative settlement
that will result in a net refund to Modern of approximately $3.4 million. The
settlement is subject to approval by the U.S. Congress Joint Committee on
Taxation and the U.S. Bankruptcy Court. The refund has been reflected in the
accompanying combined financial statements, as well as a payable to ICH, for the
assignment of tax benefits prior to January 1, 1995 (see Note 14).
The Companies, as former members of the ICH consolidated tax return, have
joint and several liability for taxes and interest deemed to be owed by the ICH
consolidated tax group. However, ICH has indemnified the Companies. Based upon
this indemnification, and the estimated refund from the IRS settlement, the
Companies have not reflected any provision in the accompanying combined
financial statements.
9. Participating Business
Participating policies comprise approximately 12% of the total amount of
insurance in force at December 31, 1995 and 1994. Premium income received on
participating policies was approximately 26% and 24% of total premium income for
the years ended December 31, 1995 and 1994, respectively. Dividends to
policyholders were $539,000 and $760,000 for the years ended December 31, 1995
and 1994, respectively.
F-20
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
10. Liquidity and Capital Resources of Parent Company
On October 10, 1995, ICH and three of its wholly-owned noninsurance
subsidiaries, FMI, CFC and SWL Holding Corporation (collectively, the
"Debtors"), filed voluntary petitions for relief under Chapter 11 of Title 11 of
the United States Bankruptcy Code (the "Bankruptcy Code") in the United States
Bankruptcy Court of the Northern District of Texas (the "Chapter 11
Proceedings"). Under the Chapter 11 Proceedings, certain claims against the
Debtors in existence prior to the filing of the petitions for relief under the
Bankruptcy Code are stayed while the Debtors continue business operations as
"debtors in possession." The Companies are not a party to the Chapter 11
Proceedings and are not subject to the jurisdiction of the Bankruptcy Court.
11. Industry Segment Data
Modern and Western are principally engaged in the sale and underwriting of
individual life and health insurance, and accumulation products. Total revenues
by segment reflect sales to unaffiliated customers. Operating earnings (loss)
equal total revenues less operating expenses.
Premium income and other considerations includes premium income, mortality
and administration charges, surrender charges and amortization of deferred
policy initiation fees. Net investment income and other income are allocated to
the segments based on rates ranging from 5% to 7% related to reserves generated
by each of the three insurance segments. Corporate revenues and operating
earnings include net investment income considered to be income applicable to the
investment of capital and surplus funds. Operating expenses are allocated to
each segment based on a number of assumptions and estimates and reported segment
operating results would change if different methods were applied. The mark-up
charged by FMI (see Note 2) and the litigation settlement (see Note 7) are
reflected as corporate expenses.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Revenues:
Individual life .............................. $ 11,203 $ 14,569
Individual health ............................ 625 925
Accumulation products ........................ 900 1,440
Corporate .................................... 785 1,328
Realized investment losses ................... (8,345) (7,219)
--------- ---------
Total revenues ............................. $ 5,168 $ 11,043
========= =========
Operating earnings (loss):
Individual life .............................. $ (984) $ (1,867)
Individual health ............................ (491) 1,109
Accumulation products ........................ (843) (282)
Corporate .................................... (3,596) 1,207
Realized investment losses ................... (8,345) (7,219)
--------- ---------
Operating loss before income taxes ......... $ (14,259) $ (7,052)
========= =========
Total assets:
Individual life .............................. $ 165,938 $ 117,938
Individual health ............................ 1,519 3,446
Accumulation products ........................ 17,348 17,474
Corporate .................................... 16,458 19,012
--------- ---------
$ 201,263 $ 157,870
========= =========
</TABLE>
F-21
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
12. Supplemental Data to Consolidated Statements of Cash Flows
Cash paid for income taxes was $825,000 and $3,106,000 for the years ended
December 31, 1995 and 1994, respectively.
13. Other Operating Information
Other operating costs and expenses for the years ended December 31, 1995
and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Non-deferrable commission expense ................ $ (425) $ (105)
Taxes, licenses and fees ......................... 456 298
General and administrative expenses .............. 5,899 5,753
------- -------
Other operating expenses ....................... $ 5,930 $ 5,946
======= =======
</TABLE>
Changes in the value of business acquired for the years ended December 31,
1995 and 1994, are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Balance, beginning of year ................... $ 1,041 $ 1,271
Amortization:
Cash flow realized ......................... (297) (357)
Interest capitalized ....................... 104 127
------- -------
Balance, end of year ......................... $ 848 $ 1,041
======= =======
</TABLE>
The interest accrual rate for the value of business acquired was 10% during
each of the two years in the period ended December 31, 1995.
14. Subsequent Event
Effective June 28, 1996, BML sold all of the outstanding common stock of
Modern and Western to Reassure America for approximately $16 million. Pursuant
to the sale, Modern and Western distributed to BML certain real estate with
a carrying value and fair value of approximately $10.1 million and
investment interests with a carrying value and fair value of approximately
$36,000. BML also received an assignment of any federal income tax refunds
payable to Modern for periods prior to January 1, 1996.
F-22
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
COMBINED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1996 1995
Investments:
(Unaudited)
<S> <C> <C>
Fixed maturities available for
sale at fair value ........................... $ 99,766 $105,043
Equity securities available for sale
at fair value ................................ 64 157
Mortgage loans on real estate at amortized cost 8,448 8,607
Real estate at lower of cost or fair value ..... 4,278 15,686
Policy loans ................................... 16,177 17,081
Cash and short-term investments ................ 24,595 24,672
Other invested assets .......................... 1,264 1,267
-------- --------
Total investments ........................... 154,592 172,513
Due from reinsurers .............................. 10,905 10,956
Due from affiliates ............................... 147 2,019
Notes and accounts receivable and
uncollected premiums ............................ 805 1,298
Accrued investment income ......................... 1,506 1,615
Deferred policy acquisition costs ................. 6,535 7,164
Value of business acquired ........................ 742 848
Deferred income taxes ............................. 902 --
Federal income tax recoverable from tax settlement. 3,402 3,402
Other assets ..................................... 333 1,448
-------- --------
$179,869 $201,263
======== ========
LIABILITIES AND BUSINESS EQUITY
Insurance liabilities:
Future policy benefits and other
policy liabilities .................. $75,183 $ 78,078
Universal life and investment
contract liabilities ................... 88,274 92,981
Federal income taxes currently payable ........ 643 2,010
Due parent on assignment of tax benefits
from settlement ............................ 3,402 3,402
Other liabilities ............................. 3,024 4,013
-------- --------
170,526 180,484
Commitments and contingencies
Business equity ............................... 9,343 20,779
-------- --------
Total liabilities and business equity .... $179,869 $201,263
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
UNAUDITED STATEMENTS OF EARNINGS (LOSS)
for the Six Months Ended June 30, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues:
Premium income ................................... $ 1,512 $ 1,672
Interest sensitive policy product charges ........ 1,153 611
Net investment income ............................ 5,169 4,145
Realized investment gains ........................ 985 5
Other income ..................................... 511 386
-------- --------
9,330 6,819
-------- --------
Benefits, expenses and costs:
Policyholder benefits ............................ 2,683 4,629
Amortization of deferred policy acquisition
costs and value of business acquired ........... 1,189 284
Other operating expenses ......................... 2,029 3,352
Litigation settlement ............................ -- 4,000
-------- --------
5,901 12,265
-------- --------
Earnings (loss) before income taxes ................. 3,429 (5,446)
Income tax provision (credit) ....................... 1,842 (559)
-------- --------
Net earnings (loss) ................................. $ 1,587 $ (4,887)
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
for the Six Months Ended June 30, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................ $ 1,587 $ (4,887)
Items not requiring (providing) cash:
Adjustments relating to universal
life and investment products:
Interest credited to account balances...... 2,089 1,024
Charges for mortality and administration........ (1,576) (556)
Depreciation and amortization................ 283 427
Decrease in future policy benefits.................(2,273) (2,022)
Decrease in deferred policy acquisition costs
and value of business acquired.... 735 277
Decrease in currently payable taxes............... (1,367) (1,288)
Increase (decrease) in policy liabilities,
other policyholder funds, accounts payable
and accrued expenses..................... (2,657) 5,662
Decrease in notes and accounts receivable
and accrued investment income ............ 455 110
Deferred income taxes........................ 649 (163)
Realized investment gains.................. (985) (5)
Other, net.................................. 4,061 (391)
----------- -----------
Net cash provided (used) by operating activities. 1,001 (1,812)
----------- -----------
Cash flows from investing activities:
Sales and maturities of fixed maturities 4,446 5,043
Sales of other long-term assets............. 2,420 90
Purchases of fixed maturities............... (3,573) (2,028)
----------- -----------
Net cash provided by investing activities... 3,293 3,105
----------- -----------
Cash flows from financing activities:
Policyholder contract deposits................ 2,138 1,014
Policyholder contract withdrawals........... (6,509) (1,678)
----------- -----------
Net cash used by financing activities....... (4,371) (664)
----------- -----------
Net increase (decrease) in cash and
short-term investments............... (77) 629
Cash and short-term investments at beginning
of period............................... 24,672 10,037
----------- -----------
Cash and short-term investments at end
of period.................................. $ 24,595 $ 10,666
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
MODERN AMERICAN LIFE INSURANCE COMPANY AND
WESTERN PIONEER LIFE INSURANCE COMPANY
Notes to Combined Financial Statements
1. Organization and Basis of Presentation
The accompanying combined financial statements include the financial
statements of Modern American Life Insurance Company ("Modern") and Western
Pioneer Life Insurance Company ("Western") (collectively the "Companies"). At
December 31, 1995, Modern and Western were wholly-owned subsidiaries of Bankers
Multiple Line Insurance Company ("BML"), and an indirect subsidiary of Care
Financial Corporation ("CFC") and ICH Corporation ("ICH") formerly Southwestern
Life Corporation. At December 31, 1994, Modern and Western were wholly-owned
subsidiaries of ICH. In September 1995, ICH contributed Modern and Western to
BML.
Effective June 28, 1996, BML sold all of the outstanding capital stock of
Modern and Western to Reassure America Life Insurance Company ("Reassure
America") (see Note 2).
All significant intercompany accounts and transactions have been
eliminated.
The Companies maintain their accounts in conformity with accounting
practices prescribed or permitted by state insurance regulatory authorities. In
the accompanying financial statements such accounts have been adjusted to
conform with generally accepted accounting principles ("GAAP").
These financial statements have been presented on their historical GAAP
basis. No adjustments have been made to reflect any effects of the purchase by
Reassure America discussed above.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses during the reporting period. Accounts
that management of the Companies deem to be acutely sensitive to changes in
estimates include deferred policy acquisition costs, deferred income tax asset,
future policy benefits, policy and contract claims and value of business
acquired. In addition, the Companies must determine requirements for disclosure
of contingent assets and liabilities as of the date of the financial statements
based upon estimates. In all instances, actual results could differ from
estimates.
In the opinion of management, the accompanying combined financial
statements contain all adjustments and accruals, necessary to present fairly the
financial position as of June 30, 1996, and the results of operations and cash
flows for the six month periods ended June 30, 1996 and 1995. Results of
operations for interim periods are not necessarily indicative of results of the
entire year.
2. Change in Ownership
Effective June 28, 1996, BML sold all of the outstanding common stock of
Modern and Western to Reassure America. Pursuant to the sale, Modern and Western
distributed to BML certain real estate with a carrying value and fair value of
approximately $10.1 million and mineral interests with a carrying value and fair
value of approximately $36,000. BML also received an assignment of any federal
income tax refunds payable to Modern for periods prior to January 1, 1996.
F-2
<PAGE>
LIFE RE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Effective as of June 30, 1996, Life Re Corporation ("Life Re"), through
it subsidiary Reassure America Life Insurance Company ("REALIC"), acquired all
of the outstanding common stock of Modern American Life Insurance Company and
Western Pioneer Life Insurance Company (collectively "MAL/WPL") from Bankers
Multiple Line Insurance Company, a subsidiary of I.C.H. Corporation, for
approximately $16,000,000.
MAL/WPL does not write new insurance policies and does not have any
employees. REALIC has engaged a third party administrator to administer the
acquired block of in force insurance for a fixed per policy and per
transaction fee. Life Re does not plan to market new insurance policies
through MAL/WPL.
The following unaudited pro forma condensed consolidated statements of
income of Life Re for the six months ended June 30, 1996 and the year ended
December 31, 1995 present consolidated operating results for Life Re as if the
acquisition of the common stock had occurred as of January 1, 1995. The
unaudited pro forma consolidated financial data do not purport to represent
what the results of operations actually would have been had the acquisition in
fact occurred on the dates indicated, or to project Life Re's results of
operations for any future period. The pro forma adjustments are based upon
available information and certain assumptions that management believes are
reasonable in the circumstances. The unaudited pro forma consolidated
financial information should be read in conjunction with the accompanying
notes thereto and with the separate historical financial statements of Life Re
as of and for the six months ended June 30, 1996, and for the year ended
December 31, 1995 which are contained in Life Re's Form 10-Q for the quarterly
period ended June 30, 1996 and in its Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, respectively.
The pro forma adjustments and combined amounts are provided for
informational purposes only. Life Re's financial statements reflect the
effects of the acquisition from June 30, 1996, the date the acquisition
occurred. The pro forma adjustments are applied to the historical
consolidated financial statements of Life Re and MAL/WPL to account for the
acquisition as a purchase. Under purchase accounting, the total purchase
price is allocated to MAL/WPL's assets and liabilities based on their relative
fair values. Allocations are subject to valuations as of the date of
acquisition.
1<PAGE>
<PAGE>
Life Re Corporation and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Year Ended December 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Combined
Life Re MAL/WPL Purchase Life Re
Historical Historical Adjustments Pro Forma
<S> <C> <C> <C> <C>
Revenues
Policy revenues $383,231 $ 4,429 $387,660
Investment income, net 98,616 8,048 ($1,200)a) 105,955
491 a)
Other 1,036 1,036
Realized investment gains
(losses) 3,702 (8,345) (4,643)
------- ------- ------ -------
Total revenues 485,549 5,168 (709) 490,008
------- ------- ------ -------
Benefits and expenses
Policy claims and benefits 281,518 5,172 2,759 b) 285,208
(4,241)b)
Commissions and allowances 91,071 334 (759)c) 90,646
Interest credited on annuity
and interest sensitive
life insurance products 21,241 3,373 24,614
Amortization of value
of business acquired 4,636 193 (193)d) 4,738
102 d)
Interest expense 10,743 10,743
Other operating expenses 21,552 10,355 (4,349)e) 27,558
------- ------ ------ -------
Total benefits and
expenses 430,761 19,427 (6,681) 443,507
------- ------ ------ -------
Income before income taxes 54,788 (14,259) 5,972 46,501
Provision for federal
income taxes 19,176 450 2,090 f) 21,716
------- ------ ------ -------
Income before extraordinary
charge 35,612 (14,709) 3,882 24,785
Extraordinary charge, net of
federal income tax benefit 1,004 1,004
------- ------ ------ ------
Net income $ 34,608 ($14,709) $3,882 $ 23,781
======= ====== ====== =======
Weighted average shares
oustanding 14,937 14,937
======= =======
Earnings per common share $2.32 $1.59
======= =======
</TABLE>
See accompanying notes 2
<PAGE>
Life Re Corporation and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Six Months Ended June 30, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Combined
Life Re MAL/WPL Purchase Life Re
Historical Historical Adjustments Pro Forma
<S> <C> <C> <C> <C>
Revenues
Policy revenues $205,195 $2,665 $207,860
Investment income, net 57,286 5,169 ($600)a) 62,101
246 a)
Other 511 511
Realized investment gains 14,710 985 15,695
------- ----- ----- -------
Total revenues 277,191 9,330 (354) 286,167
------- ----- ----- -------
Benefits and expenses
Policy claims and benefits 153,321 594 3,928 b) 155,656
(2,187)b)
Commissions and allowances 49,332 1,138 (976)c) 49,494
Interest credited on annuity
and interest sensitive
life insurance products 14,596 2,089 16,685
Amortization of value of
business acquired 2,685 106 (106)d) 2,847
162 d)
Interest expense 4,408 4,408
Other operating expenses 13,167 1,974 (871)e) 14,270
------- ----- ----- -------
Total benefits and
expenses 237,509 5,901 (50) 243,360
------- ----- ----- -------
Income before income taxes 39,682 3,429 (304) 42,807
Provision for federal
income taxes 9,149 1,444 (106)f) 10,487
------- ----- ----- -------
Net income $ 30,533 $1,985 ($198) $ 32,320
======= ===== ===== =======
Weighted average shares
outstanding 14,087 14,087
======= =======
Earnings per common share $2.17 $2.29
======= =======
</TABLE>
See accompanying notes 3<PAGE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
PRO FORMA PURCHASE ADJUSTMENTS
Pro forma increases (decreases) to income resulting from the allocation of
purchase price based on the relative fair values of underlying net assets, as
follows:
REVENUES
(a) Reduction in investment income related to the purchase price paid
of $16,000, based upon an assumed investment yield of 7.5% (1995: $(1,200);
1996: $(600)) and to reflect increased accretion of discount on fixed
maturities resulting from recording the MAL/WPL investment portfolio at fair
value (1995:$491; 1996:$246).
Benefits and Expenses
(b) Elimination of the historical change in policy reserves
pertaining to certain life insurance business (1995: $(2,759): 1996:
$(3,928)), and recording of reserve changes incorporating actuarial
assumptions for the acquisition reflecting mortality, persistency, expenses
and investment returns consistent with currently expected future experience
(1995: $4,241; 1996: $2,187).
(c) Elimination of historical amortization of deferred policy
acquisition costs (1995: $759; 1996: $976).
(d) Elimination of historical amortization of value of business
acquired (1995: $193; 1996: $106), and recording of the amortization of
actuarially determined present value of the life insurance and annuity
policies acquired, discounted at 15% (1995: $(102); 1996: $(162)). The value
of business acquired represents an estimate of the present value of future
profits expected from the insurance policies in force at the date of the
acquisition and is determined using assumptions as to mortality, persistence,
investment yields and expenses consistent with those used in the determination
of future policy benefits. The value of business acquired is amortized over
the premium paying period of the related policies in proportion to premium
income for traditional life insurance products and over the period policies
are assumed to be in force (generally thirty years) in proportion to the
present value of gross profits for universal life and deferred annuity
products.
(e) Elimination of MAL/WPL's historical operating expenses,
principally marketing and corporate administrative costs and the inclusion of
the estimated expenses to be incurred in the operation at MAL/WPL subsequent
to the acquisition, principally expenses attributable to a third party
administrator. Other operating expenses in 1995 include a $4,000 litigation
settlement charge which has not been eliminated. A summary of these costs is
as follows:
4
<PAGE>
<PAGE>
BENEFITS AND EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
1995 1996
------------ --------------
<S> <C> <C>
Elimination of MAL/WPL historical
operating expenses
(except litigation charge) $ 6,355 $1,974
Third party administration fees (1,352) (676)
Consulting fees (100) (50)
Premium taxes and other fees (454) (327)
Other (100) (50)
------ -----
$ 4,349 $ 871
====== =====
</TABLE>
(f) Pro forma income tax effects of the foregoing adjustments based
on the statutory tax rate of 35% (1995: $(2,090); 1996: $(106).
5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
pertaining to the Life Re Corporation Stock Investment Plan on Form S-8 (File
No. 33-54138), the Registration Statement pertaining to the Life Re
Corporation Stock Option Plan on Form S-8 (File No. 33-80251) and the
Registration Statement pertaining to the Life Re Corporation 1993 Non-Employee
Directors Stock Option Plan on form S-8 (File No. 33-80737) of our report
dated September 4, 1996, on our audits of the combined financial statements of
Modern American Life Insurance Company and Western Pioneer Life Insurance
company as of December 31, 1995 and 1994, and for the years then ended, which
report is included in this Form 8-K of Life Re Corporation.
By: /s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
September 12, 1996
