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Previous: LABORATORY CORP OF AMERICA HOLDINGS, 8-K, 1998-12-30 |
Next: FRESH AMERICA CORP, S-3, 1998-12-30 |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 8 - K
C U R R E N T R E P O R T
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 30, 1998
- -------------------------------------------------------------------------------
World Omni 1998-A Automobile Lease Securitization Trust
(Exact name of registrant as specified in its charter)
Illinois 333-63367 Not applicable
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) IRS Employer
of incorporation) Identification No.
120 N.W. 12th Avenue Deerfield Beach, FL 33442
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (954)429-2200
- --------------------------------------------------------------------------------
<PAGE>
Item 5: Other Events.
See attached Servicer's Certificate.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934 the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
World Omni 1998-A Automobile Lease Securitization Trust
-------------------------------------------------------
(Registrant)
Date: December 30, 1998 BY: /s/Alan J. Browdy
----------------- -----------------------------------
Alan J. Browdy
Assistant Treasurer
World Omni Financial Corp.
(Duly Authorized Officer of the Servicer
on behalf of the Trust)
<TABLE>
<CAPTION>
WORLD OMNI 1998-A AUTOMOBILE LEASE SECURITIZATION TRUST
MONTHLY SERVICER CERTIFICATE
NOVEMBER 30, 1998
Aggregate
Net Investment
Aggregate Net Investment Value Value
<S> <C> <C> <C>
Original 1,763,657,871.20
11/1/98 1,763,657,871.20
Principal collections & reimbursement loss amount 62,114,287.53
11/30/98 1,701,543,583.67
Note Balance @ 11/30/98 1,763,657,871.20
Class A-1
Allocation Note
Aggregate Net Investment Value Percentage Balance
Original 24.94236% 430,000,000
11/1/98 24.94236% 430,000,000
Principal collections & reimbursement loss amount 60,725,537
11/30/98 369,274,463
Note Balance @ 11/30/98 24.94236% 430,000,000
Class A-2
Allocation Note
Aggregate Net Investment Value Percentage Balance
Original 25.52241% 440,000,000
11/1/98 25.52241% 440,000,000
Principal collections & reimbursement loss amount 0
11/30/98 440,000,000
Note Balance @ 11/30/98 25.52241% 440,000,000
Class A-3
Allocation Note
Aggregate Net Investment Value Percentage Balance
Original 23.78225% 410,000,000
11/1/98 23.78225% 410,000,000
Principal collections & reimbursement loss amount 0
11/30/98 410,000,000
Note Balance @ 11/30/98 23.78225% 410,000,000
Class A-4
Percentage Note
Aggregate Net Investment Value Percentage Balance
Original 20.38214% 351,383,000
11/1/98 20.38214% 351,383,000
Principal collections & reimbursement loss amount 0
11/30/98 351,383,000
Note Balance @ 11/30/98 20.38214% 351,383,000
Class B
Allocation Note
Aggregate Net Investment Value Percentage Balance
Original 5.37084% 92,592,000
11/1/98 5.37084% 92,592,000
Principal collections & reimbursement loss amount 0
11/30/98 92,592,000
Note Balance @ 11/30/98 5.37084% 92,592,000
Aggregate Net Investment Value Transferor Interest Balance
Original 2.25000% 39,682,871
11/1/98 39,682,871
Principal collections & reimbursement loss amount 1,388,751
11/30/98 38,294,121
Note Balance @ 11/30/98 2.25000% 39,682,871
Distributable Amounts Total
Interest Distributable Amount 7,791,597.54
Principal Distributable Amount (1) 61,722,246.70
Reimbursement of Covered Loss Amount (1) 392,040.83
Reimbursement of Uncovered Loss Amount (1) 0.00
Class A Net Swap Payment / (Receipt) (275,597.69)
Class B Net Swap Payment / (Receipt) (8,954.83)
Total 69,621,332.55
Distributable Amounts Class A-1 %
Interest Distributable Amount 1,743,430.94
Principal Distributable Amount (1) 60,333,496.15 97.75000%
Reimbursement of Covered Loss Amount (1) 392,040.83 100.00000%
Reimbursement of Uncovered Loss Amount (1) 0.00 100.00000%
Class A Net Swap Payment / (Receipt)
Class B Net Swap Payment / (Receipt)
Total 62,468,967.92
Distributable Amounts Class A-2 %
Interest Distributable Amount 1,799,864.73
Principal Distributable Amount (1) 0.00 0.00000%
Reimbursement of Covered Loss Amount (1) 0.00 0.00000%
Reimbursement of Uncovered Loss Amount (1) 0.00 0.00000%
Class A Net Swap Payment / (Receipt)
Class B Net Swap Payment / (Receipt)
Total 1,799,864.73
Distributable Amounts Class A-3 %
Interest Distributable Amount 1,691,952.24
Principal Distributable Amount (1) 0.00 0.00000%
Reimbursement of Covered Loss Amount (1) 0.00 0.00000%
Reimbursement of Uncovered Loss Amount (1) 0.00 0.00000%
Class A Net Swap Payment / (Receipt)
Class B Net Swap Payment / (Receipt)
Total 1,691,952.24
Distributable Amounts Class A-4 %
Interest Distributable Amount 1,475,434.38
Principal Distributable Amount (1) 0.00 0.00000%
Reimbursement of Covered Loss Amount (1) 0.00 0.00000%
Reimbursement of Uncovered Loss Amount (1) 0.00 0.00000%
Class A Net Swap Payment / (Receipt)
Class B Net Swap Payment / (Receipt)
Total 1,475,434.38
Distributable Amounts Class B %
Interest Distributable Amount 408,849.39
Principal Distributable Amount (1) 0.00 0.00000%
Reimbursement of Covered Loss Amount (1) 0.00 0.00000%
Reimbursement of Uncovered Loss Amount (1) 0.00 0.00000%
Class A Net Swap Payment / (Receipt)
Class B Net Swap Payment / (Receipt)
Total 408,849.39
Distributable Amounts Transferor Interest %
Interest Distributable Amount 672,065.85
Principal Distributable Amount (1) 1,388,750.55 2.25000%
Reimbursement of Covered Loss Amount (1) 0.00 0.00000%
Reimbursement of Uncovered Loss Amount (1) 0.00 0.00000%
Class A Net Swap Payment / (Receipt)
Class B Net Swap Payment / (Receipt)
Total 2,060,816.40
(1) These amounts will not be distributed during the Revolving period. They will
be reinvested in additional contracts.
Note Factors Series A-1 Series A-2
11/1/98 100.0000000% 100.0000000%
11/30/98 100.0000000% 100.0000000%
Note Factors Series A-3 Series A-4
11/1/98 100.0000000% 100.0000000%
11/30/98 100.0000000% 100.0000000%
Note Factors Series B
11/1/98 100.0000000%
11/30/98 100.0000000%
Pool Data 11/1/98 $
Number of Loans 74,744
Prepayments 0 0.00
Scheduled Terminations 0 0.00
Charge-Offs 0 0.00
Weighted Ave APR 8.90%
Pool Data 11/30/98 $
Number of Loans 73,959
Prepayments 687 5,624,347.50
Scheduled Terminations 0 0.00
Charge-Offs 99 1,421,420.58
Weighted Ave APR 8.89%
Account Balances Pay Ahead Advance Reserve Fund
Balance as of 11/01/98 0.00 0.00 17,636,578.71
Balance as of 11/30/98 2,580,649.58 388,078.40 17,636,578.71
Change 2,580,649.58 388,078.40 0.00
Required Cash (withdrawal from reserve) 0.00
Reserve Fund Requirement 17,636,578.71
Reserve Fund Supplemental Requirements 0.00
Insured Residual Value Loss Amount 0.00
Distribution per $1,000 Total
Total Distribution Amount 4.41786225
Interest Distribution Amount 4.41786225
Carryover Shortfall 0.00000000
Prior Carryover Shortfall 0.00000000
Total Carryover Shortfall 0.00000000
Principal Distribution Amount 0.00000000
Principal Loss Amounts
Reimbursed Principal Loss Amount 0.00000000
Aggregate Unreimbursed Principal Loss Amount 0.00000000
Principal Loss Interest Amount
Reimbursed Principal Loss Interest Amount 0.00000000
Unpaid Principal Loss Interest Amount 0.00000000
Transferor Principal not paid to Transferor -----
Transferor Interest not paid to Transferor -----
Unpaid Class B Principal Carryover Shortfall -----
Distribution per $1,000 Class A-1
Total Distribution Amount 4.05449056
Interest Distribution Amount 4.05449056
Carryover Shortfall 0.00000000
Prior Carryover Shortfall 0.00000000
Total Carryover Shortfall 0.00000000
Principal Distribution Amount 0.00000000
Principal Loss Amounts
Reimbursed Principal Loss Amount 0.00000000
Aggregate Unreimbursed Principal Loss Amount 0.00000000
Principal Loss Interest Amount
Reimbursed Principal Loss Interest Amount 0.00000000
Unpaid Principal Loss Interest Amount 0.00000000
Transferor Principal not paid to Transferor -----
Transferor Interest not paid to Transferor -----
Unpaid Class B Principal Carryover Shortfall -----
Distribution per $1,000 Class A-2
Total Distribution Amount 4.09060167
Interest Distribution Amount 4.09060167
Carryover Shortfall 0.00000000
Prior Carryover Shortfall 0.00000000
Total Carryover Shortfall 0.00000000
Principal Distribution Amount 0.00000000
Principal Loss Amounts
Reimbursed Principal Loss Amount 0.00000000
Aggregate Unreimbursed Principal Loss Amount 0.00000000
Principal Loss Interest Amount
Reimbursed Principal Loss Interest Amount 0.00000000
Unpaid Principal Loss Interest Amount 0.00000000
Transferor Principal not paid to Transferor -----
Transferor Interest not paid to Transferor -----
Unpaid Class B Principal Carryover Shortfall -----
Distribution per $1,000 Class A-3
Total Distribution Amount 4.12671278
Interest Distribution Amount 4.12671278
Carryover Shortfall 0.00000000
Prior Carryover Shortfall 0.00000000
Total Carryover Shortfall 0.00000000
Principal Distribution Amount 0.00000000
Principal Loss Amounts
Reimbursed Principal Loss Amount 0.00000000
Aggregate Unreimbursed Principal Loss Amount 0.00000000
Principal Loss Interest Amount
Reimbursed Principal Loss Interest Amount 0.00000000
Unpaid Principal Loss Interest Amount 0.00000000
Transferor Principal not paid to Transferor -----
Transferor Interest not paid to Transferor -----
Unpaid Class B Principal Carryover Shortfall -----
Distribution per $1,000 Class A-4
Total Distribution Amount 4.19893500
Interest Distribution Amount 4.19893500
Carryover Shortfall 0.00000000
Prior Carryover Shortfall 0.00000000
Total Carryover Shortfall 0.00000000
Principal Distribution Amount 0.00000000
Principal Loss Amounts
Reimbursed Principal Loss Amount 0.00000000
Aggregate Unreimbursed Principal Loss Amount 0.00000000
Principal Loss Interest Amount
Reimbursed Principal Loss Interest Amount 0.00000000
Unpaid Principal Loss Interest Amount 0.00000000
Transferor Principal not paid to Transferor -----
Transferor Interest not paid to Transferor -----
Unpaid Class B Principal Carryover Shortfall -----
Distribution per $1,000 Class B
Total Distribution Amount 4.41560167
Interest Distribution Amount 4.41560167
Carryover Shortfall 0.00000000
Prior Carryover Shortfall 0.00000000
Total Carryover Shortfall 0.00000000
Principal Distribution Amount 0.00000000
Principal Loss Amounts
Reimbursed Principal Loss Amount 0.00000000
Aggregate Unreimbursed Principal Loss Amount 0.00000000
Principal Loss Interest Amount
Reimbursed Principal Loss Interest Amount 0.00000000
Unpaid Principal Loss Interest Amount 0.00000000
Transferor Principal not paid to Transferor -----
Transferor Interest not paid to Transferor -----
Unpaid Class B Principal Carryover Shortfall 0.00000000
Distribution per $1,000 Transferor Interest
Total Distribution Amount 16.93591793
Interest Distribution Amount 16.93591793
Carryover Shortfall -----
Prior Carryover Shortfall -----
Total Carryover Shortfall -----
Principal Distribution Amount 0.00000000
Principal Loss Amounts
Reimbursed Principal Loss Amount 0.00000000
Aggregate Unreimbursed Principal Loss Amount -----
Principal Loss Interest Amount
Reimbursed Principal Loss Interest Amount -----
Unpaid Principal Loss Interest Amount -----
Transferor Principal not paid to Transferor 0.00000000
Transferor Interest not paid to Transferor 0.00000000
Unpaid Class B Principal Carryover Shortfall -----
Servicing Fee Total
Amount of Servicing Fee Paid 4,409,144.68
Total Unpaid 0.00
Origination Trustee Expenses Paid (1)
UTI 0.00
SUBI 0.00
0.00
Securitization Trustee Expenses Paid (1) 0.00
Additional Loss Amounts (2) 0.00
(1) Expenses greater than $50,000 are broken out as follows:
(2) Broken out as follows:
CHARGE-OFF RATE November
Outstanding 1,421,420.58
Balance
Net
Liquidation 725,529.79
Proceeds
Average
Aggregate
Net Investment 1,763,657,871.20
Value
Annualized
Average
Charge-Off 0.47%
Rate
(Charge-off Rate Test will be satisfied if the annualized ratio is 2.75% or less) 0.47%
DELINQUENCY RATE
# $
Past Due 31-60 days 800 17,499,132
Past Due 61-90 days 136 2,936,335
Past Due 91 + days 23 435,719
Total 959 20,871,186
(Delinquency Rate Test will be satisfied if the ratio is 1.75% or less)
Delinquent Current Delinquency
Contracts Contracts Rate
(> 60 days)
November 159 73,959 0.21%
</TABLE>
INDEX TO FINANCIAL STATEMENTS
of Federal Insurance Company
<TABLE>
<CAPTION>
<S> <C>
Financial Statements
Balance Sheets (Statutory Basis) as of September 30, 1998 and December
31, 1997...............................................................F-1
Statements of Income (Statutory Basis) for Three Months Ended September
30, 1998 and 1997......................................................F-2
Statements of Income (Statutory Basis) for Nine Months Ended September
30, 1998 and 1997......................................................F-3
Statements of Cash Flows (Statutory Basis) for Nine Months Ended
September 30, 1998 and 1997............................................F-4
Notes to Financial Statements..........................................F-5
</TABLE>
THE FINANCIAL STATEMENTS OF FEDERAL INSURANCE COMPANY ("FEDERAL") INCLUDED
HEREIN HAVE BEEN PREPARED ON A STATUTORY BASIS, RATHER THAN IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES BECAUSE STATE INSURANCE
DEPARTMENTS RESPONSIBLE FOR OVERSIGHT OF FEDERAL'S FINANCIAL CONDITION
REQUIRE FINANCIAL STATEMENTS TO BE PRESENTED ON A STATUTORY BASIS. AS A
RESULT, THE CHUBB CORPORATION DOES NOT PREPARE FINANCIAL STATEMENTS IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR FEDERAL, ITS
WHOLLY OWNED SUBSIDIARY.
<PAGE>
<TABLE>
FEDERAL INSURANCE COMPANY
BALANCE SHEETS - STATUTORY BASIS
(Dollars in thousands except per share amounts)
<CAPTION>
September 30, December 31,
1998 1997
------------------- --------------------
ADMITTED ASSETS
<S> <C> <C>
Invested Assets:
Short Term Investments, at Amortized Cost $ 763,392 $ 714,065
Tax Exempt Bonds, at Amortized Cost 5,885,410 5,221,481
Taxable Bonds, at Amortized Cost 1,676,320 1,922,965
Equity Securities, at Market 436,187 465,563
Investments in Consolidated Subsidiaries 1,033,468 1,042,295
Investments in Unconsolidated Subsidiaries 206,502 220,182
Receivable for Securities - 29,838
Other Invested Assets 245,507 237,340
------------------- --------------------
Total Invested Assets 10,246,786 9,853,729
Cash (123,503) 5,310
Premiums Receivable 582,134 625,601
Interest and Dividends Due and Accrued 119,050 126,395
Reinsurance Recoverable on Paid Losses 61,177 49,763
Equities and Deposits in Pools and Associations 75,568 66,276
Amounts Due from Associated Companies 66,278 51,388
Other Assets 367,640 174,057
------------------- --------------------
11,395,130 10,952,519
Deduct: Non-Admitted Assets 180,059 127,261
------------------- --------------------
Total Admitted Assets $ 11,215,071 $ 10,825,258
=================== ====================
LIABILITIES AND SURPLUS TO POLICYHOLDERS
Outstanding Losses and Loss Expenses $ 6,365,229 $ 6,065,735
Unearned Premiums 1,781,757 1,683,472
Working Funds Due to Manager - 136,598
Provision for Reinsurance 48,419 45,454
Accrued Expenses and Other Liabilities 388,887 338,883
------------------- --------------------
Total Liabilities 8,584,292 8,270,142
------------------- --------------------
Common Capital Stock 13,987 13,987
Paid-In Surplus 378,890 378,890
Unassigned Funds 2,207,143 1,972,505
Unrealized Appreciation of Investments 30,759 189,734
------------------- --------------------
Total Surplus To Policyholders 2,630,779 2,555,116
------------------- --------------------
Total Liabilities and Surplus To Policyholders $ 11,215,071 $ 10,825,258
=================== ====================
Common Capital Stock:
Shares Authorized 3,499,971 3,499,971
Shares Issued and Outstanding 3,496,678 3,496,678
Par Value Per Share $ 4 $ 4
</TABLE>
See accompanying notes.
F-1
<PAGE>
FEDERAL INSURANCE COMPANY
STATEMENTS OF INCOME - STATUTORY BASIS
Three Months Ended September 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
------------------- --------------------
<S> <C> <C>
Net Premiums Written $ 885,219 $ 875,257
Increase in Unearned Premiums
Net of Accrued Retrospective Premiums 41,252 49,606
------------------- --------------------
Premiums Earned 843,967 825,651
------------------- --------------------
Losses and Loss Expenses 587,114 554,119
Underwriting Expenses 289,260 264,192
Dividends to Policyholders 6,456 6,128
------------------- --------------------
882,830 824,439
------------------- --------------------
Underwriting Gain (Loss) (38,863) 1,212
------------------- --------------------
Investment Income Before Expenses 165,857 150,782
Realized Capital Gains 30,502 23,561
Investment Expenses 1,639 1,671
------------------- --------------------
Investment Income 194,720 172,672
------------------- --------------------
Other Income (including gain or loss on foreign exchange) 1,722 2,296
------------------- --------------------
Income Before Federal and Foreign Income Tax 157,579 176,180
Federal and Foreign Income Tax Expense (Benefit) (26,174) 57,246
------------------- --------------------
Net Income $ 183,753 $ 118,934
=================== ====================
</TABLE>
See accompanying notes.
F-2
<PAGE>
FEDERAL INSURANCE COMPANY
STATEMENTS OF INCOME - STATUTORY BASIS
Nine Months Ended September 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
------------------- --------------------
<S> <C> <C>
Net Premiums Written $ 2,623,835 $ 2,827,176
Increase in Unearned Premiums
Net of Accrued Retrospective Premiums 98,285 409,271
------------------- --------------------
Premiums Earned 2,525,550 2,417,905
------------------- --------------------
Losses and Loss Expenses 1,701,345 1,575,013
Underwriting Expenses 836,602 847,902
Dividends to Policyholders 19,289 17,073
------------------- --------------------
2,557,236 2,439,988
------------------- --------------------
Underwriting Loss (31,686) (22,083)
------------------- --------------------
Investment Income Before Expenses 486,824 814,279
Realized Capital Gains 81,462 39,167
Investment Expenses 6,456 5,630
------------------- --------------------
Investment Income 561,830 847,816
------------------- --------------------
Other Loss (including gain or loss on foreign exchange) (12,902) (3,156)
------------------- --------------------
Income Before Federal and Foreign Income Tax 517,242 822,577
Federal and Foreign Income Tax 50,059 159,048
------------------- --------------------
Net Income $ 467,183 $ 663,529
=================== ====================
</TABLE>
See accompanying notes
F-3
<PAGE>
FEDERAL INSURANCE COMPANY
STATEMENTS OF CASH FLOWS - STATUTORY BASIS
Nine Months Ended September 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
------------------- --------------------
Cash From Operations
Premiums Collected Net of Reinsurance $ 2,667,302 $ 2,808,067
Losses and Loss Expenses Paid (net of salvage and subrogation) 1,413,265 494,633
Underwriting Expenses Paid 848,514 821,667
Other Underwriting Expenses (204,040) (111,260)
------------------- --------------------
Cash from Underwriting 201,483 1,380,507
Investment Income (net of investment expense) 490,128 816,992
Other Expenses (28,785) (9,815)
Dividends to Policyholders Paid (13,361) (5,147)
Federal Income Taxes Paid (40,756) (143,924)
------------------- --------------------
Net Cash from Operations 608,709 2,038,613
------------------- --------------------
Cash From Investments
Proceeds from Investments Sold or Matured:
Bonds 1,352,729 1,475,636
Equity Securities 155,303 61,695
Other Invested Assets 68,599 61,318
Miscellaneous Proceeds 616 33,775
------------------- --------------------
Total Investment Proceeds 1,577,247 1,632,424
------------------- --------------------
Cost of Investments Acquired: (Long Term Only)
Bonds 1,753,305 3,040,926
Equity Securities 177,436 121,889
Other Invested Assets 67,092 47,476
Miscellaneous Applications 1,626 298
------------------- --------------------
Total Investments Acquired 1,999,459 3,210,589
------------------- --------------------
Net Cash from Investments (422,212) (1,578,165)
------------------- --------------------
Cash From Financing and Miscellaneous Sources
Other Cash Provided 473 16,908
------------------- --------------------
Cash Applied:
Dividends to Stockholders Paid 210,000 210,000
Other Applications 56,456 -
------------------- --------------------
Total Cash Applied 266,456 210,000
------------------- --------------------
Net Cash from Financing and
Miscellaneous Sources (265,983) (193,092)
------------------- --------------------
Net Change in Cash and Short Term Investments (79,486) 267,356
Cash and Short Term Investments:
Beginning of Year 719,375 687,906
------------------- --------------------
End of Period $ 639,889 $ 955,262
=================== ====================
</TABLE>
See accompanying notes.
F-4
<PAGE>
FEDERAL INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. General
These financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Indiana Insurance
Department. Such accounting practices vary in certain respects from
generally accepted accounting principles.
The amounts included in this report are unaudited but include
those adjustments, consisting of normal recurring items, which management
considers necessary for a fair presentation. These financial statements
should be read in conjunction with the 1997 statutory basis financial
statements and related notes of the Federal Insurance Company (Company).
2. Invested assets and related income
Invested assets are carried at values prescribed by the National
Association of Insurance Commissioners. Short term investments, which
have an original maturity of one year or less, are carried at amortized
cost. Bonds are generally carried at amortized cost. Equity securities
are carried at market value. Investments in unconsolidated subsidiaries
and other invested assets are accounted for on the equity basis.
The cost of equity securities, investments in unconsolidated
subsidiaries and other invested assets was as follows (in thousands):
Sept. 30, Dec. 31,
1998 1997
_________ ________
Equity Securities $459,382 $410,001
Unconsolidated Subsidiaries 181,681 173,362
Other Invested Assets 215,824 191,791
The estimated market value of bonds was as follows (in
thousands):
Sept. 30, Dec. 31,
1998 1997
_________ ________
Tax Exempt Bonds $6,294,077 $5,547,386
Taxable Bonds 1,699,584 1,971,462
Investment income includes dividends from subsidiaries of
$107,000,000 and $470,295,000 for the nine months ended 1998 and 1997,
respectively.
3. Federal and foreign income tax
The provision for federal and foreign income tax gives effect to
differences between income for statutory reporting purposes and taxable
income. The principal differences are (i) interest income on tax exempt
bonds and (ii) the accelerated recognition of taxable income through the
discounting of outstanding losses and loss expenses and the reduction of
unearned premium reserves for tax purposes. No provision is made for
deferred federal income tax.
F-5
<PAGE>
FEDERAL INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
4. Outstanding losses and loss expenses
A discussion of the 1993 Fibreboard asbestos-related settlement
is presented in Note 8 of the notes to the 1997 statutory basis
financial statements of the Company. The following developments during
1998 relate to the settlement.
In January 1998, the United States Court of Appeals for the Fifth
Circuit again affirmed the approval by a lower court of the global
settlement agreement among Pacific Indemnity Company (a wholly-owned
property and casualty insurance subsidiary of the Company), Continental
Casualty Company (a subsidiary of CNA Financial Corporation), Fibreboard
Corporation and attorneys representing claimants against Fibreboard. The
settlement relates to an insurance policy issued to Fibreboard
Corporation by Pacific Indemnity. The Pacific Indemnity policy was 100%
reinsured by the Company. In April 1998, the objectors to the global
settlement agreement petitioned the United States Supreme Court to
review the decision. In June 1998, the Supreme Court announced it would
review the decision of the lower court. A decision by the Supreme Court
is not expected until 1999.
The trilateral agreement among Pacific Indemnity, Continental
Casualty and Fibreboard was never appealed to the United States Supreme
Court and is final. The trilateral agreement will be triggered if the
global settlement agreement is ultimately disapproved. As a result,
management continues to believe that the uncertainty of the Company's
exposure, as reinsurer of Pacific Indemnity, with respect to
asbestos-related bodily injury claims against Fibreboard has been
eliminated.
F-6
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