SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ......... to .........
Commission File Number 1-12540
WESTERN NATIONAL CORPORATION
(Exact name of registrant as specified in its articles of incorporation)
DELAWARE 75-2502064
(State of incorporation) (I.R.S. Employer Identification No.)
5555 SAN FELIPE ROAD, SUITE 900, HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 888-7800
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Shares of common stock outstanding as of March 31, 1996: 62,419,873
<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ --------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
- - -----------------------------------
Investments:
Fixed maturities - actively
managed at fair value (amortized
cost: 1996 - $7,943.2;
1995-$7,654.5) $7,986.2 $7,996.7
Fixed maturities - held to maturity
at amortized cost (fair value:
1996 - $2.0; 1995 - $2.1) 1.1 1.1
Equity securities at fair value (cost:
1996 - $0.8; 1995 - $0.8) 0.8 0.8
Mortgage loans 84.7 86.5
Credit-tenant loans 252.6 249.7
Policy loans 68.1 68.3
Other invested assets 34.3 24.5
Short-term investments 58.0 417.6
-------- --------
Total invested assets 8,485.8 8,845.2
Accrued investment income 151.6 131.7
Reinsurance receivables 1.7 1.8
Cost of policies purchased 69.4 35.8
Cost of policies produced 324.7 228.7
Deferred income taxes 10.7 8.9
Other assets 51.0 61.4
-------- --------
Total Assets $9,094.9 $9,313.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Liabilities:
Insurance liabilities $7,973.9 $7,915.8
Notes payable 147.9 147.8
Investment borrowings 66.1 257.3
Deferred income taxes 71.0 118.4
Other liabilities 128.0 88.6
-------- --------
Total Liabilities 8,386.9 8,527.9
Shareholders' Equity:
Common stock and additional
paid-in capital (par value $.001 per share,
500,000,000 shares authorized, issued and
outstanding: 1996 - 62,419,873;
1995 - 62,348,000 348.0 346.8
Net unrealized appreciation of securities,
net of applicable deferred income taxes:
1996 - $13.4; 1995 - $67.4 24.8 125.2
Retained earnings 335.2 313.6
-------- --------
Total Shareholders' Equity 708.0 785.6
-------- --------
Total Liabilities and
Shareholders' Equity $9,094.9 $9,313.5
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS - EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
-----------------
Ended March 31,
-----------------
1996 1995
------- --------
<S> <C> <C>
REVENUES:
Insurance policy and fee income $ 4.2 $ 5.9
Net investment income 171.7 161.4
Net realized investment gains (losses) 0.4 (32.8)
------- --------
Total revenues 176.3 134.5
BENEFITS AND EXPENSES:
Insurance policy benefits 28.1 30.5
Change in future policy benefits
and other liabilities (1.3) (4.4)
Interest expense on annuities
and financial products 91.5 88.8
Interest expense on notes payable 2.7 2.7
Interest expense on investment
and short-term borrowings 2.9 0.4
Amortization related to operations 9.8 7.6
Amortization and change in
future policy benefits related
to realized gains (losses) 0.3 (11.8)
Other operating costs and expenses 5.4 5.9
------ --------
Total benefits and expenses 139.4 119.7
Income before income taxes 36.9 14.8
Income tax expense 12.9 5.3
------ --------
Net income $ 24.0 $ 9.5
======= ========
EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE:
Weighted average shares 62.7 62.3
Net income $ 0.38 $ 0.15
====== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Common stock and
additional paid-in capital:
Balance, beginning of period $ 346.8 $ 346.3
Issuance of shares of common stock
related to restricted stock awards,
options and benefit plans
(1996 - 71,873 shares;
1995 - 48,000 shares) 1.2 0.5
-------- --------
Balance, end of period $ 348.0 $ 346.8
======== ========
Net unrealized appreciation
(depreciation) of securities:
Balance, beginning of period $ 125.2 $(322.1)
Change in unrealized
appreciation (depreciation) (100.4) 184.5
-------- --------
Balance, end of period $ 24.8 $(137.6)
======== ========
Retained earnings:
Balance, beginning of period $ 313.6 $ 316.3
Net income 24.0 9.5
Dividends on common stock
subsequent to the initial
public offering (2.4) (2.6)
-------- --------
Balance, end of period $ 335.2 $ 323.2
======== ========
Total shareholders' equity $ 708.0 $ 532.4
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
-----------------
Ended March 31,
-----------------
1996 1995
-------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 24.0 $ 9.5
Adjustments to reconcile net income
to net cash provided by operations:
Amortization and depreciation 11.2 (9.1)
Realized (gains) losses on
investments, net (2.3) 31.8
Income taxes 13.0 32.1
Increase in insurance liabilities 19.4 5.0
Interest credited to insurance
liabilities 93.1 90.2
Fees charged to insurance
liabilities (0.9) (1.2)
Accrual and amortization
of investment income (22.1) (7.1)
Deferral of cost of policies
produced (22.4) (12.1)
Other 63.0 (27.3)
-------- ----------
Net cash provided by
operating activities 176.0 111.8
-------- ----------
Cash flows from investing activities:
Sales of investments 592.4 981.0
Maturities and redemptions
of investments 98.6 54.5
Purchases of investments (984.3) (999.8)
-------- ----------
Net cash provided by (used
in) investing activities (293.3) 35.7
-------- ----------
Cash flows from financing activities:
Deposit to insurance liabilities 292.6 138.6
Withdrawals from insurance
liabilities (341.4) (264.0)
Dividends on common stock (2.4) (2.6)
Investment borrowings, net (191.1) (4.4)
----------
Net cash (used in)
financing activities (242.3) (132.4)
-------- ----------
Net increase (decrease) in
short-term investments (359.6) 15.1
Short-term investments -
beginning of period 417.6 28.0
-------- ----------
Short-term investments -
end of period $ 58.0 $ 43.1
======== ==========
Supplemental cash flow disclosure:
Income taxes (refunded)
paid, net $ (37.7) $ 4.6
======== ==========
Interest paid $ 5.5 $ 5.4
======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following notes should be read in conjunction with the notes to
consolidated financial statements contained in the 1995 Annual Report on Form
10-K of Western National Corporation (the "Company").
1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements as of March 31, 1996, and
for the three-month periods ended March 31, 1996 and 1995, reflect all
adjustments, consisting only of normal recurring items that are necessary in
the opinion of management to present fairly the Company's financial position,
results of operations and cash flows on a basis consistent with that of the
prior audited consolidated financial statements. Intercompany amounts and
transactions were eliminated.
2. ADJUSTMENT TO ACTIVELY MANAGED FIXED MATURITIES
The Company classifies fixed maturity investments into two categories in
accordance with SFAS No. 115. The categories are "actively managed", which
are carried at estimated fair value, and "held to maturity", which are carried
at amortized cost. The adjustment to carry actively managed fixed maturity
investments at fair value resulted in the following cumulative adjustments to
balance sheet accounts as of March 31, 1996 and December 31, 1995.
ADJUSTMENTS TO ACTIVELY MANAGED FIXED MATURITIES
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
---------------- -------------------
EFFECT OF EFFECT OF
COST FAIR VALUE CARRYING COST FAIR VALUE CARRYING
BASIS ADJUSTMENTS VALUE BASIS ADJUSTMENTS VALUE
----------- ---------------- ---------- ----------- ------------------- ----------
INVESTMENTS:
<S> <C> <C> <C> <C> <C> <C>
Actively managed
fixed maturities $ 7,943.2 $ 43.0 $ 7,986.2 $ 7,654.5 $ 342.2 $ 7,996.7
Equity securities 0.8 - 0.8 0.8 - 0.8
Other invested assets 23.3 11.0 34.3 13.5 11.0 24.5
----------- ---------------- ---------- ----------- ------------------- ----------
$ 7,967.3 $ 54.0 $ 8,021.3 $ 7,668.8 $ 353.2 $ 8,022.0
OTHER BALANCE SHEET ITEMS:
Cost of policies purchased $ 74.7 $ (5.3) $ 69.4 $ 75.8 $ (40.0) $ 35.8
Cost of policies produced 337.6 (12.9) 324.7 325.1 (96.4) 228.7
Insurance liabilities (7,969.3) (4.6) (7,973.9) (7,879.5) (36.3) (7,915.8)
Other liabilities (135.0) 7.0 (128.0) (100.8) 12.2 (88.6)
Deferred income taxes (57.6) (13.4) (71.0) (50.9) (67.5) (118.4)
---------------- -------------------
Unrealized appreciation
of investments, net $ 24.8 $ 125.2
================ ===================
</TABLE>
3. CHANGES IN COMMON STOCK
On March 1, 1996, the Company paid a common stock dividend of $.04 per
share. The total amount paid was $2.4 million for the quarter.
During the first three months of 1996, 800 common shares were issued
pursuant to the exercise of stock options, 54,000 shares of restricted stock
were awarded to certain executive officers, and 17,073 shares of newly-issued
common stock were contributed to employee benefit plans.
-6-
<PAGE>
4. CHANGES IN CALCULATION OF INVESTMENT SPREAD
In the first quarter 1996, Western revised the manner in which it reports
investment spread on insurance liabilities. Western began excluding
first-year bonus interest on certain deferred annuities, which is generally
paid in lieu of commissions, from its average crediting rate compilations.
Bonus interest is capitalized along with other acquisition expenses and
amortized over the lifetime of the block of business. Therefore, Western
believes that the exclusion of the capitalized bonus interest is more
consistent with the presentation of interest expenses and acquisition expenses
in its Statement of Operations.
Prior periods have been adjusted to reflect this change. The following
table sets forth investment spread as revised and as originally reported as of
the last day of each of the quarters indicated:
<TABLE>
<CAPTION>
Q1/96 Q4/95 Q3/95 Q2/95 Q1/95 Q4/94
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revised 1.99% 1.91% 1.98% 1.94% 1.93% 1.97%
As originally reported N/A 1.85% 1.89% 1.86% 1.86% 1.90%
</TABLE>
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
Western National Corporation (the "Company") is a Delaware corporation
organized in October 1993 to serve as the holding company for Western National
Life Insurance Company ("Western"), a Texas life insurance company founded in
1944. Western is a leading provider of retirement annuity products, with $8.6
billion of statutory assets at March 31, 1996. Unless the context otherwise
requires, references to the "Company" are references to Western National
Corporation and its consolidated subsidiaries.
Approximately 40% of the Company's outstanding common stock is owned by a
subsidiary of American General Corporation, a Texas corporation ("AGC").
References to "American General" are references to AGC and its direct and
indirect majority controlled subsidiaries.
RESULTS OF OPERATIONS
General
The Company's operating earnings are primarily a function of its
investment spread, the amount of its invested assets, and its operating
expenses. Accordingly, management's principal emphasis is on generating
profits through adequate pricing of its insurance products and maintaining
appropriate investment spreads over the life of the policies sold. Investment
spread is the excess of net investment income over interest credited to
insurance liabilities, and is a function of the level of, and yield on,
invested assets and the interest crediting rates on insurance liabilities. The
Company's investment spread over recent periods has been maintained through a
combination of active investment management and the ability to change rates
credited on a majority of its insurance liabilities. Management adjusts
crediting rates based upon pricing objectives, current investment performance,
market interest rates, and competitive factors. Although the Company has the
right to adjust interest crediting rates on most products, such adjustments to
crediting rates may not be sufficient to maintain targeted investment spreads
in all economic and market-rate environments. Furthermore, competitive and
other factors may limit the Company's ability to adjust crediting rates. A
narrowing of spreads may adversely affect operating results. Western believes
that its policy structure, which generally provides for resetting of policy
crediting rates at least annually and imposes withdrawal penalties during the
first five to ten years a policy is in force, mitigates substantially the
potentially adverse effects of interest rate changes, except in the case of
sudden and dramatic changes in market rates.
The spread between investment yield and the average crediting rate on
insurance liabilities was approximately 1.99% at March 31, 1996, compared to
1.91% at December 31, 1995, and 1.93% at March 31, 1995. Capitalized bonus
interest is excluded from Western's investment spread calculations. See Note
4 to the Unaudited Notes to Consolidated Financial Statements. Western
generally expects to maintain a spread within the range of spreads it has
achieved in recent quarters. The amount of the investment spread varies over
time as a result of market factors, competitive influences, and investment
yields.
Operating earnings (earnings excluding realized investment gains (losses)
net of applicable adjustments to amortization, expenses and taxes) for the
quarter were $23.9 million, or $.38 per share, up from $23.0 million, or $.37
per share in the first quarter 1995. Because the decision to realize
investment gains or losses lies to a great degree in management's discretion,
and may reflect tax or other considerations unrelated to core earning power,
management believes that operating earnings are the best indication of
earnings capacity for financial services organizations such as Western.
-8-
<PAGE>
The following table sets forth operating and net income for the period
ended March 31 (in millions):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1996 1995
------ -------
<S> <C> <C>
Operating Income:
- - -----------------
Operating revenues $175.9 $167.3
Benefits and expenses 139.1 131.5
------ -------
Pre-tax operating income 36.8 35.8
Income tax expense from operations 12.9 12.8
------ -------
Net operating income 23.9 23.0
Realized investment gains (losses) net of
amortization, expenses and taxes 0.1 (13.5)
------ -------
Net income $ 24.0 $ 9.5
====== =======
</TABLE>
Net investment income. Net investment income for the first quarter 1996
increased 6% to $171.7 million from $161.4 million in the first quarter 1995.
This category of earnings, net of interest expense on short-term investment
borrowings, was $168.8 million for the first quarter 1996 compared to $161.0
million for the first quarter 1995. The increase in net investment income for
the quarter is attributable to lower portfolio management expenses, an
increase in prepayment revenue, which is included in this category of
earnings, and an increase in invested assets. The Company's prepayment
revenue increased $2.4 million in the first quarter 1996 from the year-earlier
quarter. Additionally, net investment income for the first quarter 1996
included $2.1 million from Western's equity share of net income in the Conseco
Capital Partners II, L.P. investment ("CCPII"). No income resulting from
CCPII was reported in the first quarter 1995.
The first quarter average portfolio yield (calculated based on amortized
cost) decreased to approximately 8.2%, compared to 8.3% in the 1995 quarter.
The average amount of investable assets (calculated based on amortized cost)
for the first quarter 1996 increased from the year-earlier period by
approximately $250 million to approximately $8.4 billion.
Net realized investment gains (losses). Net realized investment gains
were $0.4 million in the first quarter 1996, compared to losses of $32.8
million in the corresponding 1995 period. Net realized gains adjusted for
amortization, reserves, related expenses, and taxes were $0.1 million for the
first quarter compared to losses of $13.5 million in the corresponding 1995
period. The amount of investment gains or losses fluctuates depending on
general market conditions and interest rates as well as the level of activity
in the portfolio. Western follows an active strategy in the management of its
portfolio, in which decisions to buy, sell, or hold securities are dictated
principally by relative value analysis, or other portfolio management
considerations, rather than the gain or loss to be realized on any given
trade. Western will generally report realized investment gains in periods
during which the market value of the portfolio exceeds amortized cost and
realized investment losses in periods in which market value is less than
amortized cost. Although Western's overall portfolio value exceeded amortized
cost during most of 1995, management elected to incur substantial realized
losses in 1995 in order to enhance portfolio yield and to utilize certain
capital loss tax carrybacks that would otherwise have expired at the end of
1995.
Amortization and change in future policy benefits related to realized
investment gains (losses). As described in Note 1 to the Consolidated
Financial Statements of the Company's 1995 Annual Report on Form 10-K, the
realization of investment gains and losses affects the timing of amortization
of the cost of policies purchased and amortization of the cost of policies
produced. As a result of the net realized investment gains (losses) from the
sales of fixed maturities, amortization of the cost of policies produced was
increased by $0.3 million in the first quarter 1996, compared to a decrease
of $11.8 million in the corresponding 1995 period.
-9-
<PAGE>
Insurance policy and fee income. Insurance policy and fee income was
$4.2 million and $5.9 million in the first quarters of 1996 and 1995,
respectively. This income relates primarily to premiums from products with
mortality and morbidity features such as traditional life insurance and certain
single premium immediate annuities (SPIAs). It also includes surrender charge
income, primarily from deferred annuities, and fee income from direct sales
operations. The decrease in this area of income is primarily attributable to
Western's de-emphasis of sales of products with mortality and morbidity
features. However, modest increases in this source of income are expected due
to Western's plan to introduce a Modified Endowment Contract ("MEC") in the
third quarter 1996.
Insurance policy benefits and other liabilities. Total first quarter
insurance policy benefits (including changes in future policy benefits), which
relate solely to policies with mortality and morbidity features, increased
$0.7 million from the year-earlier quarter. The first quarters of 1996 and
1995 reflected favorable mortality experience of $1.7 million and $2.5
million, respectively, on life contingent SPIA contracts.
Interest expense on annuities and financial products. Interest expense
on annuities and financial products increased by $2.7 million in the first
quarter 1996 compared to the corresponding year-earlier quarter. This
increase is primarily attributable to an increase in reserves to $8.0 billion
at March 31, 1996, from $7.7 billion at March 31, 1995. The average rate
credited on all insurance liabilities decreased to approximately 6.2% at March
31, 1996, from 6.4% a year earlier. Average crediting rates on annuities may
increase if market interest rates rise, or as lower cost policies lapse, are
repriced, or are replaced with policies having higher crediting rates.
Conversely, if market interest rates generally decrease, the average credited
rate will generally tend to decrease as well.
Amortization related to operations. Scheduled amortization, which
excludes the effects of realized gains and losses, of the cost of policies
produced and purchased increased by $2.2 million in the first quarter 1996
compared to the corresponding year-earlier period. The increase in scheduled
amortization is the result of increases in the amount of in-force business and
changes in assumptions made in the fourth quarter 1995 concerning crediting
rates on policyholder balances and expected lapses of certain
out-of-surrender-charge blocks of business. Asset balances and scheduled
amortization of costs of policies produced and purchased are reviewed annually
for products governed by SFAS 97 and may be reviewed more frequently if
circumstances dictate. This accounting standard requires that the asset
balances and future amortization be unlocked; i.e., recomputed based on actual
past experience and updated expectations of future experience. This unlocking
may result in both one-time adjustments related to prior amortization as well
as changes to ongoing amortization rates. No unlocking adjustments were made
in the first quarter 1996, compared to an unlocking adjustment of $0.8 million
in the first quarter 1995.
Other operating costs and expenses. Other operating costs and expenses
were $5.4 million for the first quarter 1996, which was a $0.5 million
decrease from the year-earlier quarter. Other operating costs and expenses
for the first quarter 1995 included a guaranty fund expense of $1.7 million;
whereas, no guaranty fund expenses were included in this category in the first
quarter 1996. Excluding guaranty fund expenses, this category of expenses
increased by $1.2 million in the first quarter 1996 compared to the
corresponding quarter in the prior year. This increase was primarily
attributable to a growth in Western's administrative infrastructure and an
increase in expenses relating to the Company's direct marketing subsidiary and
Western's policyholders conservation unit.
Western may be required under the solvency or guaranty laws of most
states in which it does business to pay assessments (up to certain prescribed
limits) to fund policyholder losses or liabilities of insurance companies that
become insolvent. At March 31, 1996, Western had a reserve for guaranty fund
assessments of $28.4 million, which it believes is adequate for all known
insolvencies.
Interest expense on notes payable and investment borrowings. Interest
expense of $5.6 million for the first quarter 1996 was up from $3.1 million in
the year-earlier quarter. First quarter 1996 interest expense consists of
$2.9 million in interest expense on investment and short-term borrowings and
$2.7 million in interest expense relating to the Senior Notes. The amount of
investment interest expense will vary substantially from time to time based on
the level of market interest rates and the volume of investment borrowings.
First quarter interest expense included approximately $1.0 million
attributable to $46.4 million of borrowings made in anticipation of receipt of
a tax refund related to the Company's 1995 realized loss/tax recovery program.
The refund was received in March 1996, and the corresponding borrowings were
repaid.
-10-
<PAGE>
Income taxes. First quarter income taxes increased to $12.9 million from
the first quarter 1995 level of $5.3 million, primarily as a result of a
higher level of net income reflecting the termination at the end of 1995 of
the Company's realized loss/tax recovery program. See "Net realized
investment gains (losses)", above.
The components of income tax included in the consolidated balance sheet
are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
(DOLLARS IN MILLIONS)
<S> <C> <C>
Deferred income tax liabilities:
Western's operations $57.6 $ 50.9
Unrealized appreciation 13.4 67.5
----- ------
Deferred income tax liabilities $71.0 $118.4
===== ======
Deferred income tax assets:
Company net operating loss carryforward $10.7 $ 8.9
----- ------
Deferred income tax assets $10.7 $ 8.9
===== ======
</TABLE>
The deferred income tax liability of $71.0 million at March 31, 1996, was
primarily the result of the temporary differences between tax and financial
bases of the cost of policies produced, the cost of policies purchased, and
insurance liabilities. The temporary differences between tax and financial
bases related to net unrealized appreciation of actively-managed fixed
maturities, which are carried at market value in accordance with the
requirements of SFAS 115, also contributed to the tax liability.
The deferred income tax asset of $10.7 million at March 31, 1996, was
attributable to net operating losses incurred by the Company that could not be
utilized by Western since each files separate federal income tax returns.
Net income. First quarter 1996 net income was $24.0 million, up from
$9.5 million for the prior year's first quarter. The increase was primarily
the result of the termination at the end of 1995 of the Company's realized
loss/tax recovery program.
INVESTMENTS
At March 31, 1996, Western had invested assets of approximately $8.5
billion after giving effect to a net positive mark-to-market adjustment under
SFAS No. 115 of $54.0 million. Western's invested assets consist principally
of actively managed fixed-income securities, as well as small volumes of
credit-tenant loans on commercial property, short-term investments, and other
investments.
The following table shows Western's investment performance for the three
months ended March 31, 1996, and March 31, 1995 (in millions and before giving
effect to SFAS No. 115 adjustment).
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Weighted average book value of invested assets(1) $8,408.0 $8,157.3
Net investment income(2) 168.8 161.0
Yield on average invested assets 8.2% 8.3%
<FN>
_______________
(1) Net of short-term investment borrowings.
(2) Net of interest expense on short-term investment borrowings.
</TABLE>
Although market interest rates have increased so far in 1996 from the
level prevailing in late 1995, changes in market rates affect the portfolio
yield only slowly due to the relatively small volume of new investments in any
one
-11-
<PAGE>
period in relation to the size of the overall portfolio. In addition, because
the portfolio includes a mix of securities with yields both above or below the
average portfolio yield (as well as both above and below current market
interest rates), changes in portfolio yield will not necessarily parallel
changes in market interest rates, except over longer periods of time.
Securities that are sold or otherwise redeemed, or that are partially prepaid,
may be yielding rates above or below the portfolio yield or current market
interest rates. As part of Western's realized loss/tax recovery program in
1994 and 1995, a majority of the portfolio sales transactions were
concentrated in lower yielding issues; therefore, average portfolio yield
remained relatively unchanged in 1995 despite the general decrease in market
interest rates.
The following table sets forth the composition of the Company's fixed
maturity portfolio as of the dates indicated:
<TABLE>
<CAPTION>
FIXED MATURITIES BY TYPE AT MARCH 31, AT DECEMBER 31,
(IN MILLIONS, BASED ON CARRYING VALUE) 1996 1995
- - --------------------------------------------------- ------------- ----------------
<S> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 24.0 $ 60.0
Obligations of states and political subdivisions 179.9 173.9
Public utility securities 1,279.9 1,376.0
Other corporate securities 4,197.2 4,033.0
Mortgage-backed securities 2,306.3 2,354.9
------------- ----------------
Total $ 7,987.3 $ 7,997.8
============= ================
</TABLE>
The following table sets forth the quality of Western's fixed maturities
(which do not include short-term investments) as of March 31, 1996, classified
in accordance with the highest rating by a nationally recognized statistical
rating organization or, as to fixed maturities not commercially rated, based
on ratings assigned by the National Association of Insurance Commissioners
("NAIC"):
<TABLE>
<CAPTION>
FIXED MATURITIES BY QUALITY RATING GAAP GAAP FAIR VALUE
------------
AT MARCH 31, 1996 (IN MILLIONS) CARRYING AMORTIZED FAIR AS % OF FIXED AS % OF AS % OF
- - -----------------------------------
VALUE COST VALUE MATURITIES INV. ASSETS AMORT. COST
--------- ---------- -------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
AAA $ 2,577.1 $ 2,576.1 $2,577.1 32.3% 30.3% 100.0%
AA 811.4 817.0 811.4 10.1 9.5 99.3
A 2,152.0 2,129.1 2,152.0 26.9 25.3 101.1
BBB+ 708.1 690.5 708.1 8.9 8.3 102.6
BBB 868.9 863.6 868.9 10.9 10.2 100.6
BBB - 456.1 453.3 456.1 5.7 5.3 100.6
--------- ---------- -------- -------------- ------------ ------------
Total investment grade 7,573.6 7,529.6 7,573.6 94.8 88.9 100.6
BB+ 86.7 87.0 86.7 1.1 1.0 99.6
BB 71.2 70.0 71.2 0.9 0.9 101.7
BB - 142.8 143.7 142.8 1.8 1.7 99.3
B+ and below 113.0 113.9 113.9 1.4 1.3 100.0
--------- ---------- -------- -------------- ------------ ------------
Total below investment
grade 413.7 414.6 414.6 5.2 4.9 100.0
Total fixed maturities $ 7,987.3 $ 7,944.2 $7,988.2 100.0% 93.8% 100.6%
========= ========== ======== ============== ============ ============
</TABLE>
-12-
<PAGE>
Investments in fixed maturity securities that are rated below investment
grade as determined by nationally recognized statistical rating organizations
(or, if not rated by such firms, with ratings below Class 2 assigned by the
NAIC) were 4.9% of total invested assets and 5.2% of total fixed maturity
investments at March 31, 1996. Western intends to maintain approximately the
present percentage of its portfolio invested in fixed maturity securities that
are rated below investment grade, although such percentages may vary by
several percentage points from time to time. Investments in below investment
grade corporate debt securities generally have greater risks than other
corporate debt investments. Risk of loss upon default by the borrower is
greater with such securities because they generally are unsecured and often
are subordinated to other creditors of the issuers. Furthermore, the issuers
usually have high levels of indebtedness and are more sensitive to adverse
economic conditions, such as recession or increasing interest rates, than are
investment grade issuers. Western is sensitive to its risk exposure and
carefully monitors its below investment grade securities.
None of Western's fixed maturity investments were in substantive default
(i.e., in default due to nonpayment of interest or principal) as of March 31,
1996, compared to $10.9 million in substantive default as of March 31, 1995.
Western recorded no writedowns of fixed maturity investments for credit
impairment during the first three months of 1996 or 1995.
At March 31, 1996, Western's actively managed fixed maturity portfolio
had net unrealized gains of $43.0 million. The net gain, which consisted of
$165.6 million of unrealized gains and $122.6 million of unrealized losses,
compares with net unrealized gains of $342.2 million at December 31, 1995.
Estimated fair values for managed fixed maturity investments are primarily
based on estimates from nationally recognized pricing services and
broker-dealer market makers. The amounts of unrealized gains and losses
fluctuate due to both credit factors and changes in market interest rates.
The market value of fixed income securities generally decreased during the
first three months of 1996, as a result of the rise in market interest rates.
Fixed maturity investments at March 31, 1996, consisted primarily of debt
securities of the U.S. government, public utilities and other corporations,
and mortgage-backed securities. Investments in mortgage-backed securities
include collateralized mortgage obligations ("CMOs") and mortgage-backed
pass-through securities.
At March 31, 1996, Western held mortgage loans with a carrying value of
$84.7 million (or 1.0% of total invested assets), exclusive of credit-tenant
loans which are accounted for as securities, and none of Western's mortgage
loans were 90 or more days past due at that date. Western recorded no
writedowns for credit impairment during the first three months of 1996.
The Company occasionally uses derivative financial instruments,
consisting primarily of interest rate swaps, to alter interest rate exposure
arising from mismatches between assets and liabilities. Under the terms of the
interest rate swaps, the Company agrees with other parties to exchange, at
specified intervals, the differences between fixed rate and floating-rate
interest amounts calculated by reference to an agreed notional amount. The
Company pays the floating rate and receives the fixed rate under the
contracts, with the net amount paid or received being charged or credited to
net investment income. At March 31, 1996, the Company had outstanding
interest rate swap agreements with notional contract amounts totaling $330.0
million. The agreements expire at various dates through 1999. Under the
agreements the Company principally received fixed rates averaging 7.3% and
paid floating rates, primarily based on LIBOR, averaging 5.4% during the first
three months of 1996. The swaps, which are marked to market in accordance
with SFAS 115, resulted in a $7.0 million decrease in other liabilities at
March 31, 1996.
For a discussion regarding the effects of changing interest rates on the
Company's investments, see the Company's 1995 Annual Report on Form 10-K,
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Effects of Changing Interest Rates on Investments".
SALES
Total premiums collected in the first quarter 1996 were $269.2 million,
up 100% from the level in the corresponding 1995 quarter and up 24% from the
fourth quarter 1995. Western utilizes four marketing distribution channels -
Financial Institutions, Personal Producing General Agents (PPGAs), Direct
Marketing, and Specialty.
-13-
<PAGE>
Additionally, Western markets a variable annuity product through its financial
institution, PPGA and direct marketing channels.
The following table sets forth premium generated by distribution channel:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1996 1995
(In millions)
PREMIUMS AND DEPOSITS COLLECTED:
<S> <C> <C>
Financial institutions
Retail $152.9 $ 85.7
Proprietary 49.1 -
------- -------
Total 202.0 85.7
------- -------
Personal producing general agents 33.4 37.0
Specialty sales 33.1 10.5
Direct marketing 1.1 1.7
------- -------
Total direct premiums and deposits
collected 269.6 134.9
Reinsurance ceded (0.4) (0.2)
------- -------
Net Premiums and Deposits Collected (1) $269.2 $134.7
======= =======
SALES PRODUCTION DATA:
Western National Life $269.2 $134.7
Independent Advantage Financial
and Insurance Services, Inc. (2) 7.7 12.6
------- -------
Total Sales Production $276.9 $147.3
======= =======
<FN>
(1) Effective January 1, 1996, the Company revised the way it reports
premiums and deposits collected. Previously, internal exchanges were
included in Premiums and Deposits Collected. Beginning January 1, 1996,
internal exchanges are not included in Premiums and Deposits Collected,
and prior periods have been adjusted to reflect this method of reporting.
An internal exchange is the rollover of an existing policyholder's deposit
to a revised contract with a new surrender charge period, typically done
at no commission expense. Western had $48.4 million of internal
exchanges in the first quarter 1996 and $7.7 million of internal exchanges
in the first quarter 1995.
(2) Represents fixed and variable annuity and life insurance sales of
nonaffiliated life insurance company products.
</TABLE>
FINANCIAL INSTITUTIONS. Sales through financial institutions accounted
for approximately three-fourths of Western's overall sales in the first
quarter 1996. First quarter sales in this area were up 136% to $202.0
million, compared to $85.7 million for the first quarter 1995. Such sales are
expected to constitute a somewhat larger percentage of sales in future
quarters, as Western's proprietary annuity relationships, which are more fully
described below, become fully operational.
Western's first quarter 1996 sales in the financial institution market
reflected high levels of production from relatively few large bank
distribution relationships. The largest five relationships accounted for 60%
of sales in the first quarter 1996, compared to 38% of sales for full-year
1995. This increased concentration may make Westerns sales levels more
vulnerable to the loss of any single major relationship. Each of the largest
five relationships accounted for the following percentage of sales in the
first quarter 1996: First Union 29%, Shawmut 10%, First of America 8%, U.S.
Bancorporation 7%, and Twin City Federal 6%. The 1996 sales by First Union
consisted primarily of non-proprietary fixed annuity products, as the
proprietary fixed annuity program at that institution was not launched until
March 1996. First Union operates branches in 13 jurisdictions, and
approximately 2,000 First Union sales representatives have been appointed by
Western. Western management believes that its relationship with First Union
has the potential for substantial continued production in future periods,
particularly in light of the proprietary fixed annuity program.
-14-
<PAGE>
Of the $202.0 million in total financial institution sales for the first
quarter 1996, 24% were proprietary sales and 76% were retail sales.
Proprietary Sales. In 1995, Western initiated its first proprietary
fixed annuity distribution arrangement in the financial institution market.
In these proprietary arrangements, Western and the distributing financial
institution jointly develop a product to be offered solely through that
institution, and jointly establish product specifications and target spreads.
This process requires a mutual agreement regarding policy benefits, sales
compensation and profitability. In most cases, the distributing financial
institution, subject to investment guidelines established and monitored by
Western, manages Western's general account assets resulting from annuity sales
of its proprietary product and receives an investment management fee. Western
is solely responsible for policy administration, service and insurance
regulatory compliance, and retains the right to establish interest crediting
rates. Western believes that it was the first insurance company to develop a
proprietary fixed annuity program that provides for the selling financial
institution to also manage the resulting assets, and expects this program to
provide it with a competitive advantage in the financial institution
marketplace.
At year-end 1995, Western had established, or had agreements to
establish, proprietary fixed annuity programs at several financial
institutions, the largest of which was First Union. The first proprietary
program commenced sales in the third quarter 1995, and a second proprietary
program commenced in the fourth quarter 1995. The remaining proprietary
programs entered into in 1995 were all at varying stages of production as of
March 31, 1996. Proprietary annuity sales for the first quarter 1996 were
$49.1 million, compared to $37.1 million of proprietary sales for the full
year 1995. Western announced two new proprietary agreements in April 1996,
which are expected to add to sales in this area in future quarters.
Retail Sales. First quarter 1996 retail sales, which include all
non-proprietary sales through financial institutions, were $152.9 million, up
78% from retail sales of $85.7 million for the first quarter 1995. These
results reflect both an increase in same-store sales and the addition of new
retail outlets. Same-store sales were favorably affected by the somewhat
steeper market-yield curve in the first quarter 1996, as compared with the
flat market-yield curve in the first quarter 1995, which resulted in increased
competition from competing financial instruments (e.g., bank CDs).
PERSONAL PRODUCING GENERAL AGENTS. First quarter sales through PPGAs
decreased 10% to $33.4 million from $37.0 million in the first quarter 1995.
The first quarter decrease in this channel was primarily the result of
increased competition from equity-oriented products in this market.
DIRECT MARKETING. Western's conservation unit, which is part of its
direct sales operations, effected $41.2 million of internal exchanges in the
first quarter 1996, compared to $3.5 million in the first quarter 1995. Sales
of Western products through the Company's direct marketing subsidiary,
Independent Advantage Financial and Insurance Services, Inc. ("IAF"), were
$1.1 million for the first quarter 1996, compared to first quarter 1995 sales
of $1.7 million. IAF sold $7.7 million of annuity and life products of
nonaffiliated life insurance companies in the first quarter 1996, compared to
$12.6 million in the first quarter 1995.
SPECIALTY. First quarter specialty sales, which include SPIAs,
supplemental contracts, and life insurance, increased 215% to $33.1 million,
compared to $10.5 million for the first quarter 1995. This increase was due
to additional structured settlement sales under a modified coinsurance
agreement with American General Life Insurance Company. The agreement
provides for the parties to jointly market SPIA policies in the structured
settlement market and for such policies to be administered by Western. Under
the agreement, American General Life Insurance Company issues the policies,
and a portion of each risk, normally 50%, is reinsured to Western (which
portion is reported by Western as specialty sales). Sales pursuant to the
agreement commenced in the fourth quarter 1995.
VARIABLE ANNUITIES. Premiums collected from sales of Western's variable
annuity product were $1.2 million in the first quarter 1996. Sales of
variable annuities to date have not been material, principally because the
product had not been available in several of the larger states in which
Western does business, including California, Florida, and New Jersey. The
product became available for sale in California in March 1996, and Western
anticipates that the product will be available in all major jurisdictions by
mid-year.
-15-
<PAGE>
PREMIUM AND DEPOSIT DATA
Effective January 1, 1996, the Company began excluding internal exchanges
from its deposit and withdrawal data. Data reported for prior periods has
been adjusted to reflect this change. Western had $48.4 million of internal
exchanges in the first quarter 1996 and $7.7 million of internal exchanges in
the first quarter 1995.
The following table indicates sales by product line for the periods
indicated:
<TABLE>
<CAPTION>
PREMIUM AND DEPOSIT DATA
(IN MILLIONS)
THREE MONTHS ENDED MARCH 31,
-------------- -----------------
1996 1995
-------------- -----------------
<S> <C> <C>
FIRST-YEAR DIRECT PREMIUMS AND DEPOSITS
Single premium deferred annuities $ 218.4 $ 99.7
Flexible premium deferred annuities 3.4 5.5
Single premium immediate annuities 30.9 9.5
-------------- -----------------
Total first-year 252.7 114.7
RENEWAL DIRECT PREMIUMS AND DEPOSITS
Flexible premium deferred annuities 14.7 19.1
Life and other 2.2 1.1
-------------- -----------------
Total renewal 16.9 20.2
NET PREMIUMS AND DEPOSITS COLLECTED
Total direct premiums and
deposits collected 269.6 134.9
Reinsurance ceded (0.4) (0.2)
-------------- -----------------
NET PREMIUMS AND DEPOSITS COLLECTED $ 269.2 $ 134.7
============== =================
</TABLE>
The table below sets forth the change in contract values of annuities in
force (net of reinsurance), excluding annuities and supplemental contracts
with life contingencies, for the periods indicated:
<TABLE>
<CAPTION>
IMMEDIATE
ANNUITIES
DEFERRED WITHOUT LIFE
ANNUITIES CONTINGENCIES TOTAL
----------- --------------- ---------
<S> <C> <C> <C>
December 31, 1994 $ 5,984.2 $ 407.7 $6,391.9
Deposits 124.4 6.6 131.0
Withdrawals (234.2) (21.2) (255.4)
Credited interest 81.3 8.48 9.7
----------- --------------- ---------
March 31, 1995 $ 5,955.7 $ 401.5 $6,357.2
=========== =============== =========
December 31, 1995 $ 6,121.0 $ 412.7 $6,533.7
Deposits 236.7 7.7 244.4
Withdrawals (268.3) (23.8) (292.1)
Credited interest 84.2 8.4 92.6
----------- --------------- ---------
March 31, 1996 $ 6,173.6 $ 405.0 $6,578.6
=========== =============== =========
</TABLE>
Distributions (withdrawals, deaths and annuitizations) in the first three
months of 1996 increased from the previous year's period primarily due to an
increase in the amount of annuity deposits surrenderable without penalty. As
a percentage of average deferred annuity liabilities, the year-to-date average
annualized distribution rate for the first three months of 1996 was 16.3%,
compared to 14.8% for the first three months of 1995. The withdrawals for the
1996 period did not differ significantly from anticipated levels. Because
withdrawals tend to be sensitive to changes in market interest rates, they may
increase as a result of increases in market interest rates.
-16-
<PAGE>
REINSURANCE
In conformity with industry practice, Western reinsures a portion of the
business it sells. Under such reinsurance arrangements, the original insurer
remains liable under the reinsured policies in the event the reinsurer is
unable to fulfill its obligations. Premiums ceded were not material in the
quarters ended March 31, 1996, and 1995.
FINANCIAL CONDITION
Liquidity for Insurance Operations
Western's business generally provides adequate cash flow from premium
collections and investment income to meet its obligations. The liabilities
related to insurance policies are primarily long term and generally are paid
from operating cash flows. Most assets are invested in bonds and other
securities, most of which are readily marketable. Although there is no
present need or intent to dispose of such investments to meet liquidity needs,
Western could liquidate portions of these investments if the need arose. To
increase its return on investments and improve liquidity, Western may from
time to time enter into reverse repurchase agreements, dollar roll
transactions (which are specialized forms of collateralized lending involving
mortgage-backed securities) or other short-term borrowings.
Of Western's total insurance liabilities at March 31, 1996, 20% could not
be surrendered, 45% could be surrendered only by incurring a surrender charge,
and 35% could be surrendered without penalty. Western expects the percentage
of interest-sensitive reserves not subject to a surrender charge to continue
to increase during the second quarter 1996, as the surrender-charge period for
a large block of business written in 1991 expires.
The extent of increases and decreases in the percentage of
interest-sensitive reserves subject to withdrawal without penalty will depend
on the level of new sales, as well as on the level of policyholder
withdrawals. In general, policy liabilities not subject to a surrender charge
are more likely to be withdrawn by policyholders than are those that remain
subject to such charges. Of those liabilities subject to surrender charge,
the average remaining surrender charge period was approximately 2.6 years and
the surrender charge averaged approximately 4.8% of accumulated policy value
at March 31, 1996.
Payment characteristics of insurance liabilities at March 31, 1996, were
as follows (dollars in millions):
<TABLE>
<CAPTION>
Payments under contracts containing fixed payment dates:
<S> <C>
Due in one year or less $ 167.0
Due after one year through five years 643.8
Due after five years through ten years 741.4
Due after ten years 3,619.9
--------
Total gross payments with payment dates fixed by contract 5,172.1
Less amounts representing future interest on such contracts 3,537.8
--------
Insurance liabilities with payment dates fixed by contract 1,634.3
Insurance liabilities with payment dates not fixed by contract 6,245.2
--------
Total insurance liabilities $7,879.5
========
</TABLE>
Of the above insurance liabilities under contracts containing fixed
payment dates, approximately 29% related to payments that will be made on such
date only if the contract holder is living. Expected mortality is considered
in determining the amount of this liability. The remainder of the insurance
liabilities with fixed payment dates were payable regardless of the contract
holder's survival.
Approximately 21% of insurance liabilities were subject to interest rates
ranging from 4% to 11%, fixed for the life of the contract. The remainder of
the liabilities generally were subject to interest rates that may be reset,
subject to minimum guaranteed rates, at least annually.
Western believes that it has adequate short-term investments and readily
marketable securities to cover the payments under contracts containing fixed
payment dates plus any likely cash needs for surrenders. At March 31, 1996,
-17-
<PAGE>
Western had fixed maturities and short-term investments, net of investment
borrowings, with a total market value of approximately $8.0 billion, or 94% of
invested assets. Western believes that most of these investments could be
readily sold or used to facilitate borrowings under dollar roll and reverse
repurchase agreements.
The Texas Department of Insurance, the NAIC and several other states
evaluate the sufficiency of an insurer's capital by computing a risk-adjusted
capital level which takes into consideration risks associated with the assets
and insurance products of the insurer. Using the NAIC computations, Western's
total adjusted capital was more than twice the company action risk-based
capital level as calculated at March 31, 1996, under the guidelines.
Holding Company Liquidity and Capital
At March 31, 1996, shareholders' equity was $708.0 million, compared to
$785.6 million as of December 31, 1995. Book value at March 31, 1996 was
$11.35 per share, compared with $12.61 at December 31, 1995. The decrease is
due to the net adjustment made in the market value of the Company's investment
portfolio as required under SFAS No. 115. See Note 2 to the Consolidated
Financial Statements of the Company's 1995 Annual Report on Form 10-K.
Excluding the effects of SFAS No. 115, shareholders' equity would have been
$683.2 million or $10.95 per share at March 31, 1996, compared with $660.4
million, or $10.60 per share at December 31, 1995. In general, SFAS No. 115
requires that actively managed portfolios of marketable securities be marked
to current market value, with the resulting unrealized gain or loss reported
as an adjustment to shareholders' equity (see Note 2). Because no
corresponding adjustment is made to liabilities, management of the Company is
of the view that SFAS No. 115 distorts the true economic effects of changes in
interest rates on the financial condition of financial services companies, and
that resulting equity and book value determinations are not meaningful
indicators of financial strength. Because SFAS No. 115 causes the Company's
reported book value to vary substantially with changes in market interest
rates, the Company expects its shareholders' equity to vary widely over time,
increasing during periods of declining interest rates and decreasing during
periods of rising interest rates.
Because Western is governed for insurance regulatory purposes by
statutory accounting principles that do not give effect to the adjustments
required by SFAS No. 115, the application of SFAS No. 115 does not affect
Western's statutory operations or regulatory capital position.
As a result of the Company's holding company structure, the parent
company's ability to make required debt service payments and meet other cash
needs depends upon dividends and fees received from its wholly-owned
subsidiaries. Dividend payments by insurance companies, such as Western, are
subject to statutory limitations and in certain cases to the approval of the
insurance regulatory authorities. The maximum dividend payment which Western
may make without prior approval in 1996 is $42.4 million, which management
believes is more than sufficient to meet the Company's anticipated debt
service obligations, dividends on common stock, and operating expenses during
the year. To date, Western has not paid a dividend to the Company in 1996.
On June 8, 1996 the Company entered into a five-year credit agreement
(the "Credit Agreement") with First Union National Bank of North Carolina and
certain other financial institutions (collectively referred to as the
"Lenders"). Under the Credit Agreement, the Lenders have agreed to extend
credit to the Company on a revolving basis, upon the Company's request, in an
aggregate principal amount up to $100.0 million. The Credit Agreement
contains certain provisions that require the Company and its material
subsidiaries to maintain specified levels of financial solvency during the
term of the agreement. At March 31, 1996, the Company had $39.6 million
outstanding under the Credit Agreement.
On March 1, 1996, the Company paid a common stock dividend of $.04 per
share. The total amount paid was $2.4 million.
OTHER INFORMATION
With respect to statements herein that may be construed as predictive of
future performance, readers should be aware that performance may differ from
that currently anticipated. Such differences may be either positive or
negative and may be significant. Differences may arise from, among other
things, changes in the economic, legal, and
-18-
<PAGE>
competitive environment in which the Company operates. Reference is made to
the Company's 1995 Annual Report on Form 10-K for additional information on
factors affecting the Company's business.
-19-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
b) Reports on Form 8-K
None.
-20-
<PAGE>
SIGNATURE
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.
WESTERN NATIONAL CORPORATION
By: /s/ Arthur R. McGimsey
-------------------------
Arthur R. McGimsey
Executive Vice President and
Chief Financial Officer
Dated: May 15, 1996
-21-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
--------------------------------- -----------------------------
<C> <S> <C>
11.1 Computation of Earnings Per Share Filed herewith electronically
27.1 Financial Data Schedule Filed herewith electronically
</TABLE>
-22-
<PAGE>
EXHIBIT 11.1
WESTERN NATIONAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN MILLIONS - EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31,
1996
---------
PRIMARY:
<S> <C>
Weighted average shares outstanding 62.4
Common equivalent shares related to:
Stock options at average market price
(as determined by application of
the treasury stock method) 0.3
--------
Weighted average shares and common stock equivalents 62.7
========
Net income $ 24.0
========
Net income per common share $ 0.38
========
March 31,
1996
---------
FULLY DILUTED:
Weighted average shares outstanding 62.4
Common equivalent shares related to:
Stock options at end of period price
(as determined by application of
the treasury stock method) 0.4
--------
Weighted average shares and common stock equivalents 62.8
========
Net income $ 24.0
========
Net income per common share $ 0.38
========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY'S FORM 10-Q FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000913202
<NAME> WESTERN NATIONAL CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 7,986
<DEBT-CARRYING-VALUE> 1
<DEBT-MARKET-VALUE> 2
<EQUITIES> 1
<MORTGAGE> 85
<REAL-ESTATE> 0
<TOTAL-INVEST> 8,486
<CASH> 58
<RECOVER-REINSURE> 2
<DEFERRED-ACQUISITION> 325
<TOTAL-ASSETS> 9,095
<POLICY-LOSSES> 7,826
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 2
<POLICY-HOLDER-FUNDS> 142
<NOTES-PAYABLE> 148
0
0
<COMMON> 3
<OTHER-SE> 706
<TOTAL-LIABILITY-AND-EQUITY> 9,095
4
<INVESTMENT-INCOME> 172
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 1
<BENEFITS> 118
<UNDERWRITING-AMORTIZATION> 10
<UNDERWRITING-OTHER> 5
<INCOME-PRETAX> 37
<INCOME-TAX> 13
<INCOME-CONTINUING> 24
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
