<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------
AMERICAN PREMIER GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
OHIO 6331 31-1422526
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-6600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT W. OLSON, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
AMERICAN PREMIER GROUP, INC.
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------
WITH COPIES TO:
<TABLE>
<S> <C>
GARY P. KREIDER, ESQ. TIMOTHY E. HOBERG, ESQ.
KEATING, MUETHING & KLEKAMP TAFT, STETTINIUS & HOLLISTER
1800 PROVIDENT TOWER 1800 STAR BANK CENTER
ONE EAST FOURTH STREET 425 WALNUT STREET
CINCINNATI, OHIO 45202 CINCINNATI, OHIO 45202
(513) 579-6400 (513) 381-2838
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
-------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
=====================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------
Common Stock, $1 par value... 28,949,497 $23.25 $673,075,805 $232,096
28,613,890 11.03 315,611,207 108,832
-----------------
$340,928
=====================================================================================================
<FN>
(1) The 28,949,497 shares listed are issuable to shareholders of American
Premier Underwriters, Inc. and the 28,613,890 shares listed are issuable to
shareholders of American Financial Corporation.
(2) In accordance with Rule 457(f)(1) under the Securities Act of 1933, the
Proposed Maximum Offering Price Per Share for the shares issuable to
shareholders of American Premier Underwriters, Inc. has been computed based
on the average of the high and low trading prices of American Premier
Underwriters, Inc. common stock on the New York Stock Exchange on December
6, 1994. In accordance with Rule 457(f)(2), the Proposed Maximum Offering
Price Per Share for the shares issuable to shareholders of American
Financial Corporation has been computed based on the book value of American
Financial Corporation common stock as of September 30, 1994 of $15.99 per
share adjusted for the exchange ratio.
</TABLE>
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
AMERICAN PREMIER GROUP, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
CAPTION OR LOCATION IN PROXY
FORM S-4 ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
-------------------------------------------------- -------------------------------------
<S> <C> <C>
A. Information About the Transaction
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover; Table of
Contents; Outside Back Cover;
Available Information; Documents
Incorporated by Reference
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information................. Summary; Certain Considerations
4. Terms of the Transaction....................... Summary; The Special Meeting; Special
Factors; The Acquisition Agreement
5. Pro Forma Financial Information................ Pro Forma Financial Information
6. Material Contracts with the Company
Being Acquired................................. Special Factors
7. Additional Information Required for Reoffering
Persons and Parties Deemed to be Underwriters.. Not Applicable
8. Interests of Named Experts and Counsel......... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
B. Information About the Registrant
10. Information With Respect to S-3 Registrants... Not Applicable
11. Incorporation of Certain Information by
Reference..................................... Not Applicable
12. Information With Respect to S-2 or S-3
Registrants................................... Not Applicable
13. Incorporation of Certain Information by
Reference..................................... Not Applicable
14. Information With Respect to Registrants Other
Than S-3 or S-2 Registrants
a. Description of Business -- Item 101 of
Regulation S-K............................. New American Premier
b. Description of Property -- Item 102 of
Regulation S-K............................. New American Premier
c. Legal Proceedings -- Item 103 of Regulation
S-K........................................ New American Premier
d. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters -- Item 201 of
Regulation S-K............................. Summary; Description of Capital Stocks
e. Financial Statements....................... New American Premier
f. Selected Financial Data -- Item 301 of
Regulation S-K............................. Not Applicable
g. Supplementary Financial Information --
Item 302 of Regulation S-K................. Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN PROXY
FORM S-4 ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
-------------------------------------------------- -------------------------------------
<S> <C> <C>
h. Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Item 303 of Regulation S-K... Not Applicable
i. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure -- Item 304 of Regulation S-K... None
C. Information About the Companies Being Acquired
15. Information With Respect to S-3 Companies
(American Premier Underwriters, Inc.)......... Available Information; Documents
Incorporated by Reference; Summary;
Selected Financial Data
16. Information With Respect to S-2 or S-3
Companies (American Financial Corporation).... Available Information; Documents
Incorporated by Reference; Summary;
Annexes C and D
17. Information with Respect to Companies Other
than S-2 or S-3 Companies..................... Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited............ Available Information; Documents
Incorporated by Reference; The
Special Meeting; New American
Premier; The Acquisition Agreement
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or
in an Exchange Offer.......................... Available Information; Documents
Incorporated by Reference; The
Special Meeting; New American
Premier; The Acquisition Agreement
</TABLE>
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 12, 1994
AMERICAN PREMIER ONE EAST FOURTH STREET
UNDERWRITERS, INC. CINCINNATI, OHIO 45202
TELEPHONE (513) 579-6600
- --------------------------------------------------------------------------------
Dear Shareholder:
You are invited to attend a Special Meeting of Shareholders of American
Premier Underwriters, Inc. ("American Premier") on , 1995 to
consider and act upon a proposal for American Premier to acquire American
Financial Corporation ("AFC") pursuant to the terms of an Acquisition Agreement
described in the attached Proxy Statement/Prospectus.
The proposed acquisition would be accomplished through the issuance to
AFC's common shareholders of 28.6 million shares of a new entity that would be
created to own both American Premier and AFC. Pursuant to the Acquisition
Agreement, each outstanding American Premier common share would be converted
into one common share of the new entity, which would be named American Premier
Group, Inc. ("New American Premier"). Because the 18.7 million American Premier
common shares currently beneficially owned by AFC would in effect be purchased
by New American Premier through the acquisition, the net increase in outstanding
common shares resulting from the acquisition would be 9.9 million shares.
AFC is principally engaged in multi-line property and casualty insurance
businesses through its wholly-owned Great American Insurance Group of
subsidiaries. Approximately 55% of Great American's net written premiums for the
first nine months of 1994 came from specialty lines, with the balance being
produced by commercial and personal lines. AFC also owns 80% of American Annuity
Group, Inc., which through its Great American Life Insurance Company subsidiary
sells tax-deferred annuities principally to employees of educational
institutions. AFC also has substantial investment positions in other businesses,
which are referred to in the Proxy Statement/Prospectus.
The acquisition represents a special opportunity for American Premier to
fulfill its strategic objective of complementing existing insurance operations
through high-quality acquisitions in the property and casualty area. Currently
generating about $1.4 billion of annual net earned premiums, Great American is
one of the nation's premier property and casualty insurers, with a combined
ratio that has consistently outperformed the industry average over the last
decade. Upon completion of the acquisition, we expect Great American, as well as
AFC's other valuable assets, to provide a substantial immediate boost to the
earnings per common share of New American Premier.
Significantly, the acquisition would enable American Premier to make
immediate and profitable use of most of the $820 million of cash and temporary
investments it held at September 30, 1994. As described in the Proxy
Statement/Prospectus, approximately $750 million of these assets would be
earmarked for the early retirement of relatively expensive American Premier and
AFC debt, which would have an additional positive impact on New American
Premier's earnings per share.
Looking forward, the combined property and casualty businesses of American
Premier and Great American would represent a significant position in the
property and casualty industry, with about $3 billion of net written premiums,
$8 billion of property and casualty assets and $1.5 billion of statutory
capital. Notably, about 80% of their overall premiums would be derived from
specialty lines of business, which we believe have the greatest profit and
growth potential.
"Property and Casualty Insurance Specialists"
<PAGE> 5
The acquisition was approved by a Special Committee of American Premier's
independent directors. In approving the acquisition, the Special Committee
relied on, among other things, an opinion of the investment banking firm of
Furman Selz Incorporated that the number of shares to be issued for AFC is fair
to the American Premier shareholders (other than AFC) from a financial point of
view. American Premier's Board of Directors and its Special Committee recommend
that you vote FOR the acquisition.
Your vote is important. Please date, sign and return promptly the enclosed
proxy form whether or not you plan to attend the special meeting.
Sincerely,
Carl H. Lindner
Chairman of the Board and
Chief Executive Officer
, 1995
"Property and Casualty Insurance Specialists"
<PAGE> 6
AMERICAN PREMIER ONE EAST FOURTH STREET
UNDERWRITERS, INC. CINCINNATI, OHIO 45202
TELEPHONE (513) 579-6600
- --------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1995
Dear Shareholder:
We are pleased to invite you to attend a Special Meeting of Shareholders of
American Premier Underwriters, Inc. ("American Premier") to be held at The
Cincinnatian Hotel, 601 Vine Street, Cincinnati, Ohio on , 1995 at
10:30 a.m. Eastern Time for the following purposes:
1. To consider and act upon a proposal that American Premier acquire all of
the outstanding common stock of American Financial Corporation ("AFC")
pursuant to the Agreement and Plan of Acquisition and Reorganization
attached hereto as Annex A (the "Acquisition Agreement"). Under the
terms of the Acquisition Agreement, (a) American Premier would merge
with a subsidiary of a newly formed holding company, American Premier
Group, Inc. ("New American Premier"), and each share of American Premier
common stock would be converted into one share of New American Premier
common stock, and (b) AFC would merge with another subsidiary of New
American Premier and each share of AFC common stock would be converted
into 1.45 shares of New American Premier common stock. As a result,
American Premier and AFC would each become subsidiaries of New American
Premier; and
2. To transact such other business as may properly come before the meeting.
Details of the proposed acquisition and other information concerning the
Special Meeting are included in the accompanying Proxy Statement/Prospectus.
Please give this material your careful attention.
Approval of the acquisition requires the affirmative vote of a majority of
the votes cast at the Special Meeting. Accordingly, whether or not you plan to
attend the Special Meeting, please complete, sign and date the accompanying
Proxy Form and return it in the enclosed envelope. If you attend the Special
Meeting, you may vote in person, even if you have previously returned your Proxy
Form. We would appreciate your prompt consideration.
By Order of the Board of Directors,
Robert W. Olson
Secretary
Date: , 1995
IF THE ACQUISITION DESCRIBED HEREIN IS CONSUMMATED, CERTIFICATES REPRESENTING
SHARES OF AMERICAN PREMIER WILL AUTOMATICALLY REPRESENT A LIKE NUMBER OF SHARES
OF NEW AMERICAN PREMIER COMMON STOCK WITHOUT ANY FURTHER ACTION. ACCORDINGLY,
SHAREHOLDERS WILL NOT BE REQUIRED TO EXCHANGE THEIR EXISTING CERTIFICATES.
"Property and Casualty Insurance Specialists"
<PAGE> 7
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 12, 1994
PROXY STATEMENT RELATING TO A
SPECIAL MEETING OF SHAREHOLDERS OF
AMERICAN PREMIER UNDERWRITERS, INC.
TO BE HELD , 1995
------------------------
PROSPECTUS RELATING TO
SHARES OF COMMON STOCK OF
AMERICAN PREMIER GROUP, INC.
------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to holders of common
stock ("American Premier Common Stock") of American Premier Underwriters, Inc.,
a Pennsylvania corporation ("American Premier"), in connection with the
solicitation of proxies by the Board of Directors of American Premier for use at
a Special Meeting of Shareholders to be held at 10:30 a.m. Eastern Time on
, 1995 at The Cincinnatian Hotel, 601 Vine Street, Cincinnati, Ohio,
and at any adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, shareholders will be asked to consider and vote
upon a proposal to acquire all of the outstanding common stock of American
Financial Corporation (the "Acquisition"). In the Acquisition, (a) American
Premier would merge with a subsidiary of a newly formed holding company,
American Premier Group, Inc. ("New American Premier") and each share of American
Premier Common Stock would be converted into one share of New American Premier
common stock ("New American Premier Common Stock") and (b) AFC would merge with
another subsidiary of New American Premier and each share of AFC common stock
("AFC Common Stock") would be converted into 1.45 shares of New American Premier
Common Stock. Following the Acquisition, approximately 50.9% of the New American
Premier Common Stock will be owned by Carl H. Lindner and members of his family.
If approved, these actions will be taken pursuant to the terms and conditions of
the Agreement and Plan of Acquisition and Reorganization among American Premier,
AFC and New American Premier dated December 9, 1994 (the "Acquisition
Agreement"), a copy of which is attached as Annex A.
Application will be made to list the New American Premier Common Stock on
the New York Stock Exchange.
New American Premier has filed a registration statement under the
Securities Act of 1933 with the Securities and Exchange Commission covering the
shares of New American Premier Common Stock which may be issued in connection
with the Acquisition. This Proxy Statement also constitutes the Prospectus of
New American Premier filed as part of the registration statement.
Shareholders of American Premier should consider the matters discussed
under "CERTAIN CONSIDERATIONS."
------------------------
This Proxy Statement/Prospectus and the accompanying proxy are first being
mailed to shareholders on or about , 1995.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NEW AMERICAN PREMIER, AMERICAN PREMIER OR ANY OTHER PERSON. THIS PROXY
STATEMENT, WHICH ALSO CONSTITUTES A PROSPECTUS OF NEW AMERICAN PREMIER, DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY
SECURITIES OTHER THAN THE SHARES OF NEW AMERICAN PREMIER TO WHICH IT RELATES, OR
THE SOLICITATION OF A PROXY, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SUCH SHARES SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF NEW AMERICAN PREMIER, AMERICAN PREMIER OR AFC SINCE THE DATE
HEREOF, OR THE DATE AS OF WHICH CERTAIN INFORMATION IS SET FORTH HEREIN.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1995.
<PAGE> 8
AVAILABLE INFORMATION
American Premier and AFC are each subject to the informational requirements
of the Securities and Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith each files reports, proxy statements (where applicable) and
other information with the Securities and Exchange Commission (the
"Commission"). The reports, proxy statements and other information filed by
American Premier and AFC with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at 75 Park Place, 14th Floor, New York, New York 10007 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained from the Public Reference Section
of the Commission, Washington, D.C. 20549 at prescribed rates. In addition,
material filed by American Premier can be inspected at the offices of the New
York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New York
10005, on which the American Premier Common Stock is traded.
New American Premier has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Commission under the Securities Act of 1933
(the "Securities Act"). This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
are omitted in accordance with the Rules and Regulations of the Commission. For
further information pertaining to New American Premier and the shares to be
issued in the Acquisition, reference is made to the Registration Statement and
the exhibits thereto, which may be inspected without charge at the offices of
the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission by American Premier and
AFC are incorporated herein by reference:
<TABLE>
<S> <C>
1.a. Annual Report of American Premier on Form 10-K for the year ended December 31, 1993;
b. Quarterly Reports of American Premier on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 1994;
c. Proxy Statement of American Premier for its 1994 Annual Meeting of Shareholders;
2.a. Annual Report of AFC on Form 10-K for the year ended December 31, 1993, as amended; and
b. Quarterly Reports of AFC on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 1994.
</TABLE>
AFC's Annual Report on Form 10-K for the year ended December 31, 1993, as
amended, and its Quarterly Report on Form 10-Q for the quarter ended September
30, 1994 are attached hereto as Annexes C and D.
All documents filed subsequent to the date hereof by American Premier
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering hereunder, shall be deemed to be incorporated in
this Proxy Statement/Prospectus by reference and to be a part of this Proxy
Statement/Prospectus from the date of filing of such documents. American Premier
undertakes to provide without charge to each person, including any beneficial
owner, to whom a copy of this Proxy Statement/Prospectus has been delivered, on
the written or oral request of any such person, a copy of any or all of the
information that has been incorporated by reference herein (not including
exhibits to information incorporated by reference unless such exhibits are
specifically incorporated by reference to information that this Proxy
Statement/Prospectus incorporates).
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE,
UPON REQUEST, FROM PHILIP A. HAGEL, VICE PRESIDENT AND TREASURER, AMERICAN
PREMIER UNDERWRITERS, INC., ONE EAST FOURTH STREET, CINCINNATI, OHIO 45202,
TELEPHONE (513) 579-6600. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE AT LEAST FIVE BUSINESS DAYS PRIOR TO THE SPECIAL
MEETING.
New American Premier intends to furnish shareholders with annual reports
containing audited financial statements and with quarterly unaudited reports for
the first three quarters of each fiscal year.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Proxy Statement/ Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Proxy
Statement/Prospectus.
2
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTRODUCTION.......................................................................... 1
AVAILABLE INFORMATION................................................................. 2
DOCUMENTS INCORPORATED BY REFERENCE................................................... 2
SUMMARY............................................................................... 5
The Acquisition..................................................................... 5
The Companies....................................................................... 5
Lindner Family Ownership............................................................ 5
Conflicts of Interest............................................................... 6
The Mergers......................................................................... 6
Recommendation of the Board of Directors of American Premier........................ 6
Opinion of Financial Advisor........................................................ 6
Reasons for the Acquisition......................................................... 6
Utilization of American Premier Cash................................................ 6
Conditions to the Acquisition....................................................... 7
Regulatory Matters.................................................................. 7
Termination......................................................................... 7
Appraisal Rights.................................................................... 7
Tax Effect on Shareholders.......................................................... 7
The Special Meeting................................................................. 7
Expected Voting..................................................................... 8
Increased Dividends; Stock Repurchase Program....................................... 8
American Premier Underwriters, Inc. Summary Historical Financial Information........ 9
American Financial Corporation Summary Historical Financial Information............. 11
Summary Unaudited Pro Forma Financial Information................................... 12
Comparative Per Share Data.......................................................... 13
Market Information.................................................................. 14
INTRODUCTION.......................................................................... 15
THE SPECIAL MEETING................................................................... 15
General............................................................................. 15
Record Date; Shares Entitled to Vote; Vote Required................................. 15
CERTAIN CONSIDERATIONS................................................................ 16
Certain Considerations Relating to AFC.............................................. 16
Certain Consequences of the Acquisition............................................. 20
NEW AMERICAN PREMIER.................................................................. 21
SPECIAL FACTORS....................................................................... 22
Background.......................................................................... 22
Recommendations of the Special Committee and the Board of Directors of American
Premier; Reasons for Recommendations............................................. 28
Reports of Milliman & Robertson..................................................... 29
Opinion of Financial Advisor........................................................ 31
Accounting Treatment................................................................ 38
TRANSACTIONS INVOLVING INTERESTED PERSONS............................................. 38
</TABLE>
3
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE ACQUISITION AGREEMENT............................................................. 39
Voting on the Acquisition........................................................... 39
Effective Time of the Acquisition................................................... 39
Effect on Common Stock.............................................................. 39
Effect on Preferred Stock........................................................... 39
Conditions and Waivers.............................................................. 40
Amendment and Termination........................................................... 40
Regulatory Matters.................................................................. 41
Transferability of New American Premier Common Stock to be Received in the
Acquisition...................................................................... 41
Absence of Appraisal Rights......................................................... 41
Miscellaneous....................................................................... 41
TAX CONSEQUENCES...................................................................... 41
Tax Treatment of the Merger Transactions............................................ 42
Tax Basis of New American Premier Stock............................................. 42
Holding Period of New American Premier Stock........................................ 42
Certain Tax Consequences to American Premier and AFC................................ 43
Extension of Voting Rights to AFC's Series F and Series G Preferred Stock........... 43
Backup Withholding.................................................................. 43
UNAUDITED PRO FORMA FINANCIAL INFORMATION............................................. 44
DESCRIPTION OF CAPITAL STOCKS......................................................... 52
New American Premier................................................................ 52
American Premier Underwriters, Inc.................................................. 52
American Financial Corporation...................................................... 53
COMPARATIVE RIGHTS.................................................................... 54
Shareholders of New American Premier and American Premier........................... 54
LEGAL MATTERS......................................................................... 54
EXPERTS............................................................................... 54
PROXY SOLICITATION.................................................................... 55
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING......................................... 55
FINANCIAL STATEMENTS OF NEW AMERICAN PREMIER.......................................... 56
</TABLE>
ANNEXES
Annex A -- Agreement and Plan of Acquisition and Reorganization among American
Premier Group, Inc., American Financial Corporation, American Premier
Underwriters, Inc. and others dated December 9, 1994.
Annex B -- Opinion of Financial Advisor.
Annex C -- Form 10-K for the year ended December 31, 1993, as amended, of
American Financial Corporation.
Annex D -- Form 10-Q for the quarter ended September 30, 1994 of American
Financial Corporation.
4
<PAGE> 11
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Proxy Statement/Prospectus and incorporated herein by
reference.
THE ACQUISITION............ It is proposed that American Premier acquire all of
the outstanding common stock of AFC pursuant to the
Acquisition Agreement. Under the terms of the
Acquisition Agreement, (a) American Premier would
merge with a subsidiary of New American Premier and
each share of American Premier Common Stock would
be converted into one share of New American Premier
Common Stock, and (b) AFC would merge with another
subsidiary of New American Premier and each share
of AFC Common Stock would be converted into 1.45
shares of New American Premier Common Stock. As a
result of the Acquisition, American Premier and AFC
would each become subsidiaries of New American
Premier.
THE COMPANIES
American Premier
Group, Inc............. New American Premier is a corporation newly formed
under Ohio law to serve as the public holding
company for American Premier and AFC.
American Premier
Underwriters, Inc. .... American Premier's principal operations are
conducted through specialty property and casualty
insurance subsidiaries that underwrite and market
non-standard automobile and workers' compensation
insurance.
American Financial
Corporation............ AFC is principally engaged in multi-line property
and casualty insurance businesses through its
wholly-owned Great American Insurance Group.
Approximately 55% of the Great American Insurance
Group's net written premiums for the first nine
months of 1994 came from specialty lines, with the
balance being produced by commercial and personal
lines. AFC also owns 80% of American Annuity Group,
Inc., which through its Great American Life
Insurance Company subsidiary sells tax-deferred
annuities principally to employees of educational
institutions. AFC's assets also include a 46%
interest in Chiquita Brands International, Inc., a
world-wide marketer and producer of bananas and
other food products, and a 36% interest in
Citicasters Inc., which owns a group of radio and
television broadcast stations. AFC also
beneficially owns 18.7 million shares (40.4%) of
the outstanding shares of American Premier Common
Stock, which, following the Acquisition, would be
treated by New American Premier as repurchased
treasury shares.
LINDNER FAMILY OWNERSHIP... Carl H. Lindner and members of his family (the
"Lindner Family") beneficially own 100% of the
outstanding AFC Common Stock. AFC, in turn,
beneficially owns 40.4% of the outstanding American
Premier Common Stock. The Lindner Family controls
AFC and may be deemed to control American Premier.
As a result of the Acquisition, the Lindner Family
would own 50.9% of the outstanding New American
Premier Common Stock and would effectively control
New American Premier.
5
<PAGE> 12
CONFLICTS OF INTEREST...... Directors and executive officers of AFC and members
of the Lindner Family hold four of the ten
directorships of American Premier and five of the
eleven directorships of New American Premier and
the positions of Chairman of the Board and Chief
Executive Officer and President and Chief Operating
Officer of each company.
THE MERGERS................ If approved at the Special Meeting, (a) each
outstanding share of American Premier Common Stock
would be converted into one share of New American
Premier Common Stock, and (b) each share of AFC
Common Stock would be converted into 1.45 shares of
New American Premier Common Stock.
As a result of the Acquisition, certificates
representing shares of American Premier Common
Stock will automatically represent a like number of
shares of New American Premier Common Stock without
any further action. Shareholders will not be
required to exchange their existing certificates.
RECOMMENDATION OF THE
BOARD OF DIRECTORS
OF AMERICAN PREMIER...... Based on the unanimous recommendation of a special
committee of independent directors (the "Special
Committee"), the Board of Directors has approved
the Acquisition and recommended that American
Premier's shareholders vote in favor of the
Acquisition.
Messrs. Carl H. Lindner, Carl H. Lindner III, S.
Craig Lindner and James E. Evans, directors of
American Premier, abstained from voting in view of
their affiliation with AFC.
OPINION OF FINANCIAL
ADVISOR.................. Furman Selz Incorporated ("Furman Selz"), financial
advisor engaged by the Special Committee, has
delivered its opinion that the ratio of the number
of shares of New American Premier Common Stock to
be issued in exchange for shares of AFC Common
Stock and the ratio of the number of shares of New
American Premier Common Stock to be issued in
exchange for shares of American Premier Common
Stock (such ratios, collectively, the "Exchange
Ratios") are fair from a financial point of view to
holders of American Premier Common Stock, other
than AFC and its affiliates.
REASONS FOR THE
ACQUISITION.............. For a description of the factors considered by the
Special Committee in determining that the
Acquisition is fair to the holders of American
Premier Common Stock other than AFC and its
affiliates see "SPECIAL FACTORS -- Background" and
"SPECIAL FACTORS -- Recommendations of the Special
Committee and the Board of Directors of American
Premier; Reasons for Recommendations."
UTILIZATION OF AMERICAN
PREMIER CASH............. At September 30, 1994, American Premier had $820
million of cash and temporary investments.
Following the Acquisition, an estimated $750
million of such assets is expected to be used to
retire AFC and American Premier long-term debt. The
amount used for such purpose could vary depending
on how much cash is used for American Premier's
recently announced stock repurchase program
referred to below or for other corporate purposes.
See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
6
<PAGE> 13
CONDITIONS TO THE
ACQUISITION.............. Closing of the Acquisition is conditioned upon
receipt of all necessary governmental consents and
approvals; approval by the shareholders of American
Premier in conformity with Pennsylvania law and its
Articles of Incorporation; listing of New American
Premier Common Stock on the NYSE; receipt of a
favorable tax opinion; no court order, litigation
or statute prohibiting the Acquisition; and no
injunction enjoining the Acquisition. The
conditions also include, among other things, the
receipt of an updated fairness opinion of Furman
Selz as of the date of closing. See "THE
ACQUISITION AGREEMENT -- Conditions and Waivers."
REGULATORY MATTERS......... Consummation of the Acquisition is subject to
compliance with change-in-control regulations
administered by the insurance departments of Ohio,
California and certain other states; clearance
under the Hart-Scott-Rodino Antitrust Improvements
Act; and consents, or the passage of time without
expression of disapproval, with respect to
broadcast licenses held by AFC's 36% owned
affiliate, Citicasters Inc. See "THE ACQUISITION
AGREEMENT -- Regulatory Matters."
TERMINATION................ The Acquisition Agreement may be terminated by
mutual consent; by any party if the Acquisition has
not been consummated by June 30, 1995, unless
failure to consummate is due to the act or failure
to act of the parties seeking to terminate; by any
party if an injunction enjoining the Acquisition
has been issued; by any party if there has occurred
a material adverse change in the business of any of
the parties; by any party if the opinion of Furman
Selz as to fairness is withdrawn or modified in an
adverse manner; and by American Premier if the
Special Committee of its Board of Directors so
determines in the exercise of its fiduciary duties.
See "THE ACQUISITION AGREEMENT -- Amendment and
Termination."
APPRAISAL RIGHTS........... Holders of American Premier and AFC Common Stock
will have no appraisal rights under applicable
state law.
TAX EFFECT ON
SHAREHOLDERS............. American Premier believes that the Acquisition will
constitute tax-free transactions to all
shareholders of each of American Premier and AFC
and that the basis and holding period for New
American Premier Common Stock received will be
those attributed to shares converted in the
Acquisition. See "TAX CONSEQUENCES."
THE SPECIAL MEETING
Time, Date and Place..... The Special Meeting will be held on
, 1995, at The Cincinnatian Hotel, 601
Vine Street, Cincinnati, Ohio at 10:30 a.m. Eastern
Time.
Record Date; Shares
Entitled to Vote....... Record Date -- , 1995. shares
of American Premier Common Stock.
Affirmative Vote
Required............... A majority of the shares of American Premier Common
Stock voting at the Special Meeting.
7
<PAGE> 14
EXPECTED VOTING............ AFC and its wholly-owned subsidiaries have agreed
to vote the approximately 18.8% of the outstanding
shares of American Premier Common Stock owned by
them in favor of the Acquisition. Directors,
officers and affiliates of American Premier other
than AFC and its subsidiaries own less than 1% of
the outstanding shares of American Premier Common
Stock and intend to vote in favor of the
Acquisition.
All of the common shareholders of AFC, which is a
private corporation, have agreed to vote in favor
of AFC's entering into the Acquisition Agreement.
INCREASED DIVIDENDS;
STOCK REPURCHASE
PROGRAM.................. On December 12, 1994, American Premier announced an
increase in the quarterly cash dividend on American
Premier Common Stock from $0.22 per share to $0.25
per share. American Premier also announced that it
intends to reactivate its stock repurchase program,
under which American Premier's management is
authorized to repurchase up to 5 million shares of
American Premier Common Stock, at market prices,
from time to time in open market or privately
negotiated transactions.
8
<PAGE> 15
AMERICAN PREMIER UNDERWRITERS, INC.
SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary financial information of American Premier set forth below is
derived from, and should be read in conjunction with, the financial statements
and other financial information which are incorporated into this Proxy
Statement/Prospectus by reference. Results for interim periods are not
necessarily indicative of results to be expected for the year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(1)
Net Written Premiums............. $1,234.5 $1,013.4 $1,378.9 $1,067.3 $ 864.6 $ 345.1 $ 220.9
======== ======== ======== ======== ======== ======== ========
Insurance Revenues:
Premiums Earned................ $1,160.9 $ 921.2 $1,273.6 $ 998.7 $ 845.6 $ 342.0 $ 231.1
Net Investment Income.......... 94.6 84.1 114.7 105.0 97.9 51.6 36.8
Net Realized Gains (Losses).... .8 14.0 17.5 23.6 26.5 (9.0) 3.1
Other Revenues................... 48.0 221.2 357.5 297.6 305.4 395.3 400.0
-------- -------- -------- -------- -------- -------- --------
Total Revenues.......... $1,304.3 $1,240.5 $1,763.3 $1,424.9 $1,275.4 $ 779.9 $ 671.0
======== ======== ======== ======== ======== ======== ========
Income (Loss) from Continuing
Operations before Income Taxes:
Insurance Operations........... $ 128.8 $ 122.2 $ 167.4 $ 143.5 $ 144.5 $ 36.8 $ 37.4
Other Operations............... (112.4) (14.7) 22.7 (59.4) (65.1) 58.8 103.6
-------- -------- -------- -------- -------- -------- --------
$ 16.4 $ 107.5 $ 190.1 $ 84.1 $ 79.4 $ 95.6 $ 141.0
======== ======== ======== ======== ======== ======== ========
Income (Loss) from Continuing
Operations(2).................. $ (14.1) $ 192.3 $ 242.7 $ 50.9 $ 50.2 $ 62.9 $ 92.6
Income (Loss) from Continuing
Operations Per Share(2)........ $ (.29) $ 4.00 $ 5.03 $ 1.08 $ 1.03 $ 1.03 $ 1.32
Ratio of Earnings to Fixed
Charges........................ 1.4 3.0 3.8 2.1 2.2 2.8 5.7
BALANCE SHEET DATA
(AT PERIOD-END):(1)
Investments Held by Insurance
Operations..................... $1,773.3 $1,583.1 $1,602.7 $1,304.2 $1,121.9 $ 997.2 $ 488.3
Cash, Temporary Investments and
Marketable Securities Other
Than Those of Insurance
Operations..................... 820.0 473.1 611.2 395.1 537.3 458.6 1,146.7
Total Assets..................... 4,167.6 3,901.8 4,049.6 3,486.2 3,330.0 3,280.1 2,962.9
Unpaid Losses and Loss Adjustment
Expenses, Policyholder
Dividends and Unearned
Premiums....................... 1,639.9 1,393.5 1,425.5 1,069.0 889.5 823.4 457.5
Debt............................. 503.6 523.1 523.2 656.1 665.9 516.2 374.0
Common Shareholders' Equity...... 1,625.3 1,708.1 1,722.3 1,502.8 1,479.0 1,634.2 1,826.8
Book Value Per Share of Common
Stock.......................... 34.14 36.11 36.30 32.40 31.23 31.00 27.84
Total Debt to Total
Capitalization................. 24% 23% 23% 30% 31% 24% 17%
</TABLE>
9
<PAGE> 16
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CERTAIN FINANCIAL RATIOS AND
OTHER DATA:
Cash Dividends Declared Per Share
of Common Stock................ $ .66 $ .63 $ .85 $ .81 $ .71 $ .53 $ .42
Statutory Surplus of Insurance
Operations..................... $ 621.5 $ 563.7 $ 567.3 $ 453.6 $ 392.9 $ 345.0 $ 157.7
Statutory Net Written Premiums to
Statutory Surplus(3)........... 2.6x 2.3x 2.4x 2.3x 2.3x 2.2x 2.0x
GAAP Combined Ratio.............. 96.4% 96.4% 96.2% 97.5% 97.0% 99.9% 101.6%
Statutory Combined Ratio......... 96.9% 94.0% 94.0% 96.5% 98.5% 100.1% 98.1%
Industry Statutory Combined Ratio
for Property and Casualty
Insurers....................... n/a 107.4% 106.9% 115.8% 108.8% 109.6% 109.2%
- ---------------
<FN>
(1) American Premier's principal insurance operations were acquired on March 31,
1989 and December 31, 1990 in business acquisitions accounted for as
purchases. Results of operations of the acquired businesses are included
from the effective dates of the acquisitions and the net assets of the
acquired companies are included as of the effective dates. Year-to-year
comparisons are also affected by business dispositions and by restructuring
provisions and certain unusual charges. Reference is made to American
Premier's Annual Report on Form 10-K for the year ended December 31, 1993,
Note 2 of the Notes to Financial Statements and "Management's Discussion and
Analysis -- Results of Operations" incorporated herein by reference.
(2) The 1993 results include a $132 million, or $2.74 per share, tax benefit
attributable to an increase in the Company's net deferred tax asset.
Reference is made to American Premier's Annual Report on Form 10-K for the
year ended December 31, 1993, Note 7 of Notes to Financial Statements and
"Management's Discussion and Analysis -- Results of Operations" incorporated
herein by reference.
(3) Data for the nine months ended September 30, 1994 and 1993 are based on
prior twelve months written premiums. For 1989 and 1990, the writings to
surplus ratio is based on statutory surplus of Republic Indemnity Company of
America only, excluding the statutory surplus of American Premier's non-
standard automobile insurance group of companies, which was acquired on
December 31, 1990 and a reinsurance subsidiary which had insignificant
written premiums in both years.
</TABLE>
10
<PAGE> 17
AMERICAN FINANCIAL CORPORATION
SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary financial information of AFC set forth below is derived from,
and should be read in conjunction with, the financial statements and other
financial information which are attached hereto. Results for interim periods are
not necessarily indicative of results to be expected for the year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Total Revenues(1)......................... $ 1,569 $ 2,137 $ 2,721 $ 3,929 $ 5,219 $ 7,761 $ 7,038
Earnings (Loss) From Continuing Operations
Before Income Taxes..................... 82 211 262 (145) 119 49 39
Earnings (Loss) From:
Continuing Operations................... 57 182 225 (162) 56 (9) (5)
Discontinued Operations................. -- -- -- -- 16 3 8
Extraordinary Items..................... (17) (5) (5) -- -- 28 --
Cumulative Effect of Accounting
Change................................ -- -- -- 85 -- -- --
Net Earnings (Loss)....................... 40 177 220 (77) 72 22 3
Ratio of Earnings to Fixed Charges(2)..... 2.16 2.53 2.62 2.15 1.54 1.12 .96
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends(2)............................ 1.79 2.20 2.26 1.94 1.42 1.06 .90
BALANCE SHEET DATA:
Total Assets(1)........................... $10,469 $10,092 $10,077 $12,389 $12,057 $11,500 $10,770
Long-term Debt:
Parent Company.......................... 493 554 572 557 559 558 555
Subsidiaries............................ 588 579 482 1,452 1,549 2,432 2,249
Capital Subject to Mandatory Redemption... 43 39 49 28 82 77 88
Other Capital............................. 434 526 537 280 262 256 333
- ---------------
<FN>
(1) Due to decreases in ownership percentages in 1993, 1992 and 1991, AFC ceased
accounting for certain companies as subsidiaries and began accounting for
them as investees. AFC had accounted for American Premier as a subsidiary
from 1992 through the first quarter of 1993 due to AFC's ownership exceeding
50%. As a result of these changes, income statement and balance sheet
components are not comparable. See Note A of Notes to Financial Statements
and Management's Discussion and Analysis -- Results of Operations in AFC's
1993 Form 10-K included herein.
(2) Fixed charges are computed on a "total enterprise" basis. For purposes of
calculating the ratios, "earnings" have been computed by adding to pretax
earnings (excluding discontinued operations) the fixed charges and the
minority interest in earnings of subsidiaries having fixed charges and
deducting (adding) the undistributed equity in earnings (losses) of
investees. Fixed charges include interest (excluding interest on annuity
policyholders' funds), amortization of debt discount and expense, preferred
stock dividend requirements of subsidiaries and a portion of rental expense
deemed to be representative of the interest factor.
Earnings exceeded fixed charges by $106 million and $202 million in the
first nine months of 1994 and 1993, respectively, $267 million in 1993, $269
million in 1992, $163 million in 1991 and $54 million in 1990. Earnings
exceeded combined fixed charges and preferred stock dividends by $87
million, $182 million, $241 million, $243 million, $138 million and $29
million in the same periods. Fixed charges exceeded earnings by $16 million
in 1989; combined fixed charges plus preferred stock dividends exceeded
earnings by $46 million in 1989.
</TABLE>
11
<PAGE> 18
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The summary unaudited pro forma financial information set forth below gives
effect to the proposed Acquisition, without giving effect to certain one-time
charges related to the Acquisition, on the assumption that the Acquisition was
consummated as of January 1, 1993 for purposes of the pro forma consolidated
statements of income and as of September 30, 1994 for purposes of the pro forma
consolidated balance sheet. For financial reporting, the Acquisition will be
accounted for as a purchase type business combination with American Premier
being treated as the acquired company. This pro forma information is not
necessarily indicative of actual operating results or financial position that
would have occurred if the Acquisition had been consummated as of the assumed
dates stated above, nor is it necessarily indicative of future operating results
or financial position. This information should be read in conjunction with the
pro forma financial information appearing herein under " UNAUDITED PRO FORMA
FINANCIAL INFORMATION" and the separate historical consolidated financial
statements of American Premier and AFC which are incorporated herein by
reference.
<TABLE>
<CAPTION>
BALANCE SHEET SEPTEMBER 30, 1994
------------- ------------------
<S> <C> <C>
Invested Assets.......................................... $ 9,504.1
Total Assets..................................... $13,042.4
=========
Loss and Loss Adjustment Expense Reserves................ $ 4,001.9
Policyholders' Funds Accumulated......................... 4,489.7
Debt..................................................... 883.5
Common Shareholders' Equity.............................. 1,045.3
Total Liabilities and Common Shareholders'
Equity......................................... 13,042.4
=========
Book Value Per Share..................................... $ 18.18
Shares Outstanding....................................... 57.5
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
INCOME STATEMENT DECEMBER 31, 1993 SEPTEMBER 30, 1994
---------------- ----------------- ------------------
<S> <C> <C>
Property and Casualty Premiums........................... $2,514.4 $2,174.5
Total Revenue.................................... $3,796.0 $2,847.6
======== ========
Property and Casualty Loss, Loss Adjustment and
Underwriting Expense and Policyholder Dividends....... $2,508.3 $2,149.2
Interest on Borrowed Money............................... 121.4 65.8
Earnings from Continuing Operations Before Income
Taxes................................................. 319.2 128.3
Earnings from Continuing Operations...................... $ 368.6 $ 59.1
======== ========
Earnings Per Share from Continuing Operations............ $6.68 $1.02
======== ========
Supplemental Information:
Earnings Per Share, Excluding Gains and Losses........ $1.03 $1.93
======== ========
</TABLE>
12
<PAGE> 19
COMPARATIVE PER SHARE DATA
The following table presents certain unaudited per share data derived from
historical financial statements of American Premier and AFC and pro forma per
share data, adjusted to reflect consummation of the Acquisition. This pro forma
information is not necessarily indicative of actual or future operating results
or financial position that would occur upon consummation of the Acquisition.
This information should be read in conjunction with the pro forma financial
information appearing herein under "UNAUDITED PRO FORMA FINANCIAL INFORMATION"
and the separate historical consolidated financial statements of American
Premier and AFC which are included or incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1994
------------------------------------------------
PRO FORMA
HISTORICAL ---------
------------------- AMERICAN AFC
AMERICAN PREMIER EQUIVALENT
PREMIER AFC GROUP, INC. SHARE(A)
-------- ------ ----------- ----------
<S> <C> <C> <C> <C>
Per Common Share:
Earnings (Loss) from Continuing
Operations............................... $ (.29) $ 1.92 $ 1.02 $ 1.48
Earnings, Excluding Gains and Losses........ $ 1.17 $ 1.03 $ 1.93 $ 2.80
Book Value.................................. $34.14 $15.99 $18.18 $26.36
Cash Dividends Declared..................... $ 0.66 $ 0.20 $ 0.66 $ 0.96
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
------------------------------------------------
PRO FORMA
HISTORICAL ---------
------------------- AMERICAN AFC
AMERICAN PREMIER EQUIVALENT
PREMIER AFC GROUP, INC. SHARE(A)
-------- ------ ----------- ----------
<S> <C> <C> <C> <C>
Per Common Share:
Earnings from Continuing Operations......... $ 5.03 $10.06 $ 6.68 $ 9.69
Earnings, Excluding Gains and Losses........ $ 1.39 $ 0.56 $ 1.03 $ 1.49
Book Value.................................. $36.30 $21.52 (b) (b)
Cash Dividends Declared..................... $ 0.85 $ 0.10 $ 0.85 $ 1.25
- ---------------
<FN>
(a) Calculated by multiplying pro forma amounts by the rate at which AFC Common
Stock will be converted into New American Premier Common Stock in the
acquisition.
(b) Not Required.
</TABLE>
13
<PAGE> 20
MARKET INFORMATION
AFC Common Stock is not publicly traded. American Premier Common Stock is
traded on the New York Stock Exchange.
The information below represents the high and low sales prices per share of
American Premier Common Stock reported on the NYSE Composite Tape for the
periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
CALENDAR YEAR
1992
First Quarter............................................. $27 1/8 $22 5/8
Second Quarter............................................ 23 7/8 19 5/8
Third Quarter............................................. 20 3/8 18 1/4
Fourth Quarter............................................ 24 7/8 18
1993
First Quarter............................................. $28 5/8 $23 1/2
Second Quarter............................................ 33 7/8 25 1/2
Third Quarter............................................. 39 3/4 30 3/8
Fourth Quarter............................................ 34 1/8 29
1994
First Quarter............................................. $33 1/4 $23 3/8
Second Quarter............................................ 30 23 3/4
Third Quarter............................................. 27 5/8 23 3/4
Fourth Quarter (through December 9)....................... 27 21 5/8
</TABLE>
On December 9, 1994, the last full day of trading immediately preceding the
public announcement of the signing of the Acquisition Agreement, the reported
closing price per share of American Premier Common Stock was $24 1/4. On
, 1995, the closing price per share of American Premier Common Stock
was .
14
<PAGE> 21
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to holders of American
Premier Common Stock in connection with the solicitation of proxies by the Board
of Directors of American Premier for use at the Special Meeting of Shareholders
to be held at The Cincinnatian Hotel, 601 Vine Street, Cincinnati, Ohio, at
10:30 a.m. on , 1995.
The principal executive offices of American Premier Group, Inc., an Ohio
corporation ("New American Premier"), are located at One East Fourth Street,
Cincinnati, Ohio 45202, telephone (513) 579-6600. The principal executive
offices of American Premier Underwriters, Inc., a Pennsylvania corporation
("American Premier"), are located at One East Fourth Street, Cincinnati, Ohio
45202, telephone (513) 579-6600. The principal executive offices of American
Financial Corporation, an Ohio corporation ("AFC"), are located at One East
Fourth Street, Cincinnati, Ohio 45202, telephone (513) 579-2121.
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus and the accompanying Proxy are first being
mailed to the shareholders of American Premier on or about , 1995.
At the Special Meeting, shareholders will be asked to consider and vote
upon a proposal to acquire American Financial Corporation (the "Acquisition").
The Acquisition would include mergers which will result in American Premier and
AFC each becoming a subsidiary of New American Premier. In the mergers (the
"Mergers"), (a) American Premier would merge with a subsidiary of New American
Premier and each share of American Premier Common Stock would be converted into
one share of New American Premier Common Stock, and (b) AFC would merge with
another subsidiary of New American Premier and each share of AFC Common Stock
would be converted into 1.45 shares of New American Premier Common Stock.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
American Premier Underwriters, Inc.
American Premier's Board of Directors has fixed the close of business on
, 1995 as the record date (the "Record Date") for determination of
the holders of American Premier Common Stock who are entitled to notice of and
to vote at the American Premier Special Meeting. As of the Record Date, there
were shares of American Premier Common Stock outstanding.
Under Pennsylvania law, the affirmative vote of a majority of the votes
cast by the holders of American Premier Common Stock at the Special Meeting is
required to approve the Acquisition. For these purposes, a failure to vote
(including a broker non-vote) or an abstention has no effect. Approximately
40.4% of the outstanding American Premier Common Stock may be deemed to be owned
or controlled by Carl H. Lindner and members of his family and corporations
controlled by them. The 18.8% of the shares of American Premier Common Stock
owned by AFC and its wholly-owned subsidiaries will be voted in favor of the
Acquisition.
American Premier Common Stock represented by properly executed proxies
received at or prior to the Special Meeting and which have not been revoked will
be voted in accordance with the instructions contained therein. Shares
represented by properly executed proxies for which no instruction are given will
be voted FOR approval of the Acquisition.
The execution of a proxy does not affect the right to vote in person at the
Special Meeting, and a proxy may be revoked by the person giving it prior to the
exercise of the powers conferred by it. A shareholder of American Premier may
revoke a proxy by communicating in writing to the Secretary of American Premier
at the address indicated above or by duly executing and delivering a proxy
bearing a later date. In addition, persons attending the Special Meeting in
person may withdraw their proxies. Unless a proxy is revoked or withdrawn, the
shares represented thereby will be voted or the votes withheld at the Special
Meeting or at any adjournments thereof in the manner described in this Proxy
Statement/Prospectus.
15
<PAGE> 22
American Financial Corporation
Under Ohio law, approval by the holders of a majority of the outstanding
shares of AFC Common Stock is required to approve the Acquisition. All of the
outstanding AFC Common Stock is owned by Carl H. Lindner, members of his family
and trusts for their benefit. All of the holders of AFC Common Stock have agreed
to vote in favor of the Acquisition.
CERTAIN CONSIDERATIONS
In deciding whether to vote for the Acquisition proposal, shareholders of
American Premier should consider the following factors, in addition to the other
information contained in this Proxy Statement/Prospectus or incorporated herein
by reference.
CERTAIN CONSIDERATIONS RELATING TO AFC
Adequacy of Loss Reserves
The insurance subsidiaries of AFC establish reserves to cover their
estimated liability for losses and loss adjustment expense with respect to both
reported and unreported claims as of the end of each accounting period. By their
nature, such reserves do not represent an exact calculation of liabilities.
Rather, except for reserves related to environmental and asbestos type claims,
such reserves are estimates involving projections at a given time of
management's expectations as to the ultimate settlement and administration of
claims. These expectations are, in turn, based on facts and circumstances known
at the time, predictions of future events, estimates of future trends in the
severity and frequency of claims and judicial theories of liability, as well as
inflation.
In recent years, AFC's insurance subsidiaries have increased their premium
writings in specialty commercial lines of business. Estimation of loss reserves
for many specialty commercial lines of business is more difficult than for
certain standard commercial lines because claims may not become apparent for a
number of years (such period of time being referred to as the "tail"), and a
relatively higher proportion of ultimate losses is considered incurred but not
reported. As a result, variations in loss development are more likely in these
lines of business.
AFC regularly reviews its reserving techniques and reserve positions and
believes that adequate provision has been made for loss reserves. Nevertheless,
there can be no assurance that currently established reserves will prove
adequate in light of subsequent actual experience. Future earnings could be
adversely impacted should future loss developments require increases in reserves
previously established for prior periods.
AFC's insurance subsidiaries face liabilities for asbestos and
environmental ("A&E") claims. A&E claims arise out of general liability and
commercial multi-peril policies issued by Great American Insurance Company
("GAI"), AFC's principal insurance company, prior to the early 1980's when
providing coverage for A&E exposures was not specifically contemplated by GAI's
policies. Establishing reserves for these types of claims is subject to
uncertainties that are greater than those represented by many other types of
claims. These uncertainties include a lack of historical data, inapplicability
of standard actuarial projection techniques and uncertainty with regard to claim
costs, coverage interpretation and the judicial, statutory and regulatory
provisions under which the claims may be ultimately resolved. GAI establishes
reserves for reported A&E claims, but like many similar insurers has generally
not established reserves for unreported claims and related litigation expenses
because such amounts cannot be reasonably estimated. The potential extent of
GAI's A&E claims and its A&E related reserves were considered specifically by
the Special Committee. See "SPECIAL FACTORS -- Background," "SPECIAL
FACTORS -- Recommendations of the Special Committee and the Board of Directors
of American Premier; Reasons for Recommendations," and "SPECIAL
FACTORS -- Reports of Milliman & Robertson."
Holding Company Structure; Dividend Restrictions
AFC is organized as a holding company with almost all of its operations
being conducted by subsidiaries. The parent corporation, however, has continuing
expenditures for administrative expenses and corporate
16
<PAGE> 23
services and, most importantly, for the payment of principal and interest on
borrowings and for redemptions of and dividends on AFC preferred stock. AFC
relies on dividends and tax payments from its subsidiaries as well as dividends
from companies in which it has a significant investment, including American
Premier, for funds to meet its obligations.
As of September 30, 1994, AFC had approximately $493 million of
indebtedness outstanding at the parent company level. It had preferred stock
outstanding at the same date which required annual dividend payments of
approximately $26 million. AFC subsidiaries had additional indebtedness of
approximately $588 million outstanding at September 30, 1994. AFC has
significant assets at the parent company level but they are not sufficient to
enable it to meet its on-going needs for cash from sources other than dividends
and tax payments from its subsidiaries. American Premier has substantial cash
assets at the parent company level, a significant portion of which may be loaned
to AFC to redeem certain of its outstanding long-term debt if the Acquisition is
completed.
Generally over 90% of the dividends AFC has received from subsidiaries have
come from GAI, which is domiciled in Ohio. Payments of dividends by GAI and
AFC's other insurance subsidiaries are subject to various laws and regulations
which limit the amount of dividends that can be paid without prior approval.
During 1993, the State of Ohio revised its dividend law for Ohio-domiciled
insurers. Under the new law, the maximum amount of dividends which may be paid
without either prior approval or expiration of a 30-day waiting period without
disapproval is the greater of statutory net income or 10% of policyholders'
surplus as of the preceding December 31, but only to the extent of earned
surplus as of the preceding December 31. Without such approval, the maximum
amount of dividends payable in 1994 from GAI based on its 1993 earned surplus is
approximately $108 million. The maximum dividend permitted by law is not
indicative of an insurer's actual ability to pay dividends, which may be further
constrained by business and regulatory considerations, such as the impact of
dividends on surplus, which could affect an insurer's ratings, competitive
position, the amount of premiums that can be written, and the ability to pay
future dividends. Furthermore, the Ohio Insurance Department has broad
discretion to limit the payment of dividends by insurance companies domiciled in
Ohio.
Regulation
AFC's insurance subsidiaries are regulated under the insurance and
insurance holding company laws of their states of domicile and other states in
which they operate. These laws, in general, require approval of the particular
insurance regulators prior to certain actions by the insurance companies, such
as the payment of dividends in excess of statutory limitations (as discussed
above) and certain transactions and continuing service arrangements with
affiliates. Regulation and supervision of each insurance subsidiary is
administered by a state insurance commissioner who has broad statutory powers
with respect to the granting and revoking of licenses, approvals of premium
rates, forms of insurance contracts and types and amounts of business which may
be conducted in light of the policyholders' surplus of the particular company.
The statutes of most states provide for the filing of premium rate schedules and
other information with the insurance commissioner, either directly or through
rating organizations, and the commissioner generally has powers to disapprove
such filings or make changes to the rates if they are found to be excessive,
inadequate or unfairly discriminatory. The determination of rates is based on
various factors, including loss and loss adjustment expense experience.
The National Association of Insurance Commissioners has adopted the Risk
Based Capital For Insurers Model Act which applies to both life and property and
casualty companies. The risk-based capital formulas determine the amount of
capital that an insurance company needs to ensure that it has an acceptably low
expectation of becoming financially impaired. The Model Act provides for
increasing levels of regulatory intervention as the ratio of an insurer's total
adjusted capital and surplus decreases relative to its risk-based capital,
culminating with mandatory control of the operations of the insurer by the
domiciliary insurance department at the so-called "mandatory control level". The
risk-based capital formulas became effective in 1993 for life companies and will
become effective with the filing of the 1994 Annual Statement for property and
casualty companies. Based on the 1993 results and results for the first nine
months of 1994 of AFC's insurance companies, all such companies meet or exceed
all minimum applicable risk-based capital calculations developed by the National
Association of Insurance Commissioners.
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<PAGE> 24
Cyclicality of the Insurance Industry; Impact of Catastrophes
AFC's insurance subsidiaries operate in a highly competitive industry that
is affected by many factors which can cause significant fluctuations in the
results of operations. AFC's insurance operations have been subject to operating
cycles and losses from catastrophes. The property and casualty insurance
industry has historically been subject to pricing cycles characterized by
periods of intense competition and lower premium rates (a "downcycle") followed
by periods of reduced competition, reduced underwriting capacity and higher
premium rates (an "upcycle"). The property and casualty insurance industry is
currently in an extended downcycle, which has lasted approximately seven years.
The underwriting results for AFC's property and casualty operations have been
adversely affected by this downcycle, particularly reflected in soft pricing in
certain standard commercial lines of business. AFC believes that specialty lines
of business will be less affected by supply/pricing pressures during downcycles
than other lines of property and casualty insurance. Consequently, AFC believes
that its emphasis towards specialty lines programs, larger accounts and loss
sensitive and retrospectively rated policies will enhance its ability to achieve
improved operating results during both upcycles and downcycles.
As with other property and casualty insurers, AFC's operating results can
be adversely affected by unpredictable catastrophe losses. AFC's insurance
subsidiaries generally seek to reduce their exposure to such events through
individual risk selection and the purchase of reinsurance. Major catastrophes in
recent years included the Northridge earthquake in Southern California and the
winter freeze losses in the South and Northeast in 1994; winter freeze losses
and flooding in the Midwest in 1993; Hurricanes Andrew and Iniki, Chicago
flooding and Los Angeles civil disorder in 1992; Oakland fires in 1991; and
Hurricane Hugo and the San Francisco earthquake in 1989. Total net losses to
AFC's insurance operations from catastrophes were $44 million in the first nine
months of 1994; $26 million in 1993; $42 million in 1992; $22 million in 1991;
$13 million in 1990; and $32 million in 1989.
Ratings
A.M. Best Company, Inc. ("Best"), publisher of Best's Insurance Reports,
Property-Casualty, has given GAI its rating of "A" (Excellent). Although some of
the large insurance companies against whom GAI competes have a higher rating,
AFC believes that the current rating is adequate to enable GAI to compete
successfully. Best's ratings are not designed for the protection of investors
and do not constitute recommendations to buy, sell or hold any security. A
downgrade in the Best rating below A (Excellent) could adversely affect the
competitive position of GAI. As a result of the Acquisition, GAI's investment
portfolio may be modified in order to maintain its rating due to GAI's sizeable
investment in American Premier.
AFC's Investment Portfolio
Approximately 95% of the bonds and redeemable preferred stocks held by AFC
were rated "investment grade" (credit rating of AAA to BBB-) at September 30,
1994 and December 31, 1993, compared to less than 60% at the end of 1988.
Investment grade securities generally bear lower yields and lower degrees of
risk than those that are unrated or non-investment grade.
At September 30, 1994, AFC held collateralized mortgage obligations
("CMOs") with a market value of $1.6 billion. At that date, interest only
(I/Os), principal only (P/Os) and other "high risk" CMOs represented
approximately one and one-half percent of AFC's total CMO portfolio. AFC invests
primarily in CMOs which are structured to minimize prepayment risk. In addition,
the majority of CMOs held by AFC were purchased at a discount to par value. AFC
believes that the structure and discounted nature of the CMOs will minimize the
effect of prepayments on earnings over the anticipated life of the CMO
portfolio. Substantially all of AFC's CMOs are rated "AAA" by Standard & Poor's
Corporation and are collateralized by GNMA, FNMA or FHLMC single-family
residential pass-through certificates. The market in which these securities
trade is highly liquid. Aside from interest rate risk, AFC does not believe a
material risk (relative to earnings and liquidity) is inherent in holding such
investments. Like other interest rate sensitive instruments, the value of CMOs
in the portfolio generally has declined since December 31, 1993.
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<PAGE> 25
AFC has generally followed a practice of concentrating its equity
investments in a relatively limited number of issues rather than maintaining
relatively limited positions in a larger number of issues. This practice permits
concentration of attention on a limited number of companies in relatively few
industries, principally insurance, utilities, financial services, food products,
energy and communications. Some of the investments, because of their size, may
not be as readily marketable as the typical small investment position.
Alternatively, a large equity position may be attractive to persons seeking to
control or influence the policies of a company and AFC's concentration in a
relatively small number of companies and industries may permit it to identify
investments with above average potential to increase in value. Because of its
significant ownership percentage of the voting stock of several companies, AFC
utilizes the equity method of accounting in certain companies. This method
results in AFC reporting its proportionate share of the investees' earnings and
losses. At September 30, 1994, AFC utilized the equity method of accounting with
respect to its investments of: $529 million in American Premier; $255 million in
Chiquita Brands International, Inc. ("Chiquita"); and $67 million in Citicasters
Inc. ("Citicasters"). Upon completion of the Acquisition, New American Premier
would utilize the equity method of accounting with respect to Chiquita and
Citicasters.
Chiquita
From 1984 to 1991, Chiquita reported a continuous record of growth in
annual earnings. In 1992, 1993 and the first nine months of 1994, however,
Chiquita has reported losses from continuing operations. The following factors
relate to Chiquita's businesses.
Approximately 60% of Chiquita's consolidated net sales comes from the sale
of bananas. Banana marketing is highly competitive. Selling prices which
importers receive for bananas are significantly affected by fluctuations in the
available supplies of bananas and other fresh fruit in each market and by the
relative quality and wholesaler and retailer acceptance of bananas offered by
competing importers. Excess supplies may result in increased price competition.
On July 1, 1993, the European Union ("EU") implemented a new quota
restricting the volume of Latin American bananas imported into the EU. Most of
Chiquita's bananas are produced in Latin America and subject to the quota. Since
imposition of the new EU quota regime on July 1, 1993, prices within the EU have
increased to a higher level than for prior years. Banana prices in other
worldwide markets, however, have been lower than in previous years, as the
displaced EU volume has entered those markets. Challenges to the quota and many
matters regarding implementation and administration of the quota remain to be
resolved. Therefore, there can be no assurance that EU banana regulation will
not change further. As a result of implementation of the EU quota, certain Latin
American countries from which Chiquita exports bananas have agreed to impose
additional restrictive and discriminatory quotas and export licenses on U.S.
banana marketing firms while leaving EU firms exempt. The imposition of such
additional quotas and export licenses could significantly increase Chiquita's
cost of exporting Latin American bananas to the EU.
A significant portion of Chiquita's operations are conducted in foreign
countries and are subject to risks that are inherent in operating in such
foreign countries, including government regulation, currency restrictions and
other restraints, risks of expropriation and burdensome taxes.
Chiquita's operations involve transactions in a variety of currencies.
Results of its operations may be significantly affected by fluctuations in
currency exchange rates. Such fluctuations are significant to Chiquita's banana
operations because many of its costs are incurred in currencies different from
those that are received from the sale of bananas in foreign markets, and there
is normally a time lag between the incurrence of such costs and collection of
the related sales proceeds. Chiquita's policy is to exchange local currencies
for dollars immediately upon receipt, thus reducing exchange risk. Chiquita also
engages from time to time in various hedging activities to minimize potential
losses on cash flows originating in foreign currencies.
Controlling Shareholders
After the Acquisition, 50.9% of the outstanding New American Premier Common
Stock will be owned by Carl H. Lindner and members of his family. As a result of
the ownership position of the Lindner Family, the position of Carl H. Lindner as
Chairman of the Board and Chief Executive Officer of New American Premier,
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<PAGE> 26
the position of Carl H. Lindner III as a director, President and Chief Operating
Officer of New American Premier, and the positions of S. Craig Lindner and Keith
E. Lindner as Vice Chairmen of the Board of New American Premier, the Lindner
Family will effectively control New American Premier after the Acquisition.
These parties will thus have the ability to influence the outcome of most
corporate actions requiring shareholder approval, including election of the
Board of Directors and approval of mergers or similar corporate transactions.
See the reports which are incorporated herein by reference for a description of
certain transactions involving these companies and their controlling
shareholders, directors and executive officers.
CERTAIN CONSEQUENCES OF THE ACQUISITION
Balance Sheet Effects
At September 30, 1994, American Premier had consolidated common
shareholders' equity of $1,625.3 million, book value per common share of $34.14
and tangible book value per common share of $25.80. After the Acquisition, New
American Premier would have, on a pro forma basis at such date, consolidated
common shareholders' equity of $1,045.3 million, book value per common share of
$18.18 and tangible book value per common share of $11.72. As a result of the
Acquisition and the assumed retirement of debt, New American Premier would have,
on a pro forma basis at September 30, 1994, a consolidated debt-to-total
capitalization ratio of 39.9%, as compared to American Premier's comparable
ratio of 23.7% at that date. See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
For a discussion of the potential impact of these matters on American Premier's
outstanding debt, see "CERTAIN CONSIDERATIONS -- Certain Consequences of the
Acquisition -- Effect on Outstanding American Premier Debt."
The Special Committee, in its consideration of the proposed Acquisition,
determined that the foregoing pro forma balance sheet effects were outweighed by
the positive impact it expects the Acquisition to have on New American Premier's
earnings per share and its return on equity. See "SPECIAL FACTORS --
Recommendations of the Special Committee and the Board of Directors of American
Premier; Reasons for Recommendations". Moreover, the Special Committee noted
that, notwithstanding the pro forma increase in debt-to-total capitalization
ratio, New American Premier's pro forma ratio of earnings-to-fixed charges for
the nine months ended September 30, 1994 of 3.3 is higher than American
Premier's comparable ratio of 1.4 at such date. See "UNAUDITED PRO FORMA
FINANCIAL INFORMATION."
After giving effect to an assumed utilization of $750 million in cash to
repurchase AFC and American Premier debt following the Acquisition, New American
Premier would have $883.5 million of consolidated debt on a pro forma basis at
September 30, 1994, as compared to American Premier's consolidated debt of
$503.6 million at that date. See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
Most of New American Premier's debt would be owed by holding companies, which
would be dependent on dividends and other payments from their regulated
insurance company subsidiaries in order to make debt service payments. See
"Holding Company Structure; Dividend Restrictions."
Effect on Outstanding American Premier Debt
American Premier has outstanding $500 million of Subordinated Notes (the
"Notes"), consisting of $200 million of 9 3/4% Notes due 1999, $150 million of
10 5/8% Notes due 2000 and $150 million of 10 7/8% Notes due 2011. Each Note has
the benefit of a covenant that would entitle the holder thereof to require
American Premier to purchase all or part of such Note at 100% of its principal
amount (plus accrued interest) in the event of a "Designated Event" that is
followed within 90 days by a "Rating Decline" with respect to the Notes (the
"Put Right"). The Acquisition will constitute a "Designated Event." If, within
the 90-day period following the public announcement of the Acquisition on
December 12, 1994 (which period would be extended for so long as the rating of
the Notes was under publicly announced consideration for possible downgrade),
the rating of the Notes by either Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's") falls below their current
"investment grade" rating of BBB- by S&P or Baa3 by Moody's, a "Rating Decline"
will be deemed to have occurred.
While New American Premier's pro forma debt-to-total capitalization ratio
at September 30, 1994 (39.9%) would be greater than American Premier's
historical debt-to-total capitalization ratio at that date
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(23.7%), the similar September 30, 1994 pro forma ratio of American Premier as
the continuing obligor on the Notes would be significantly lower (12.6%). In
addition, New American Premier's pro forma ratio of earnings-to-fixed charges
for the nine months ended September 30, 1994 of 3.3 would improve from American
Premier's ratio of 1.4 at such date, notwithstanding the increase in pro forma
debt-to-total capitalization ratio. While it is possible that S&P and/or Moody's
could downgrade the Notes as a result of the Acquisition, thereby giving rise to
the Put Right, it is impossible to predict the likelihood of such an action in
light of these factors. See "UNAUDITED PRO FORMA FINANCIAL INFORMATION" AND
"SPECIAL FACTORS--Opinion of Financial Advisor."
If the Acquisition gives rise to the Put Right, American Premier would be
obligated to mail notice thereof to the holders of the Notes within 28 days
after the later of the closing of the Acquisition or the Rating Decline. A
holder wishing to exercise the Put Right would have to do so at least 10 days
prior to the repurchase date set forth in such notice. Whether any or all of the
holders of the Notes would exercise the Put Right would depend upon prevailing
interest rates, the relative attractiveness of investments other than the Notes
and other factors. Even if the Put Right were exercised in full, however,
American Premier would not, in management's judgment, be adversely affected in
any material way. It is American Premier's intention to purchase or prepay up to
$723.9 million of AFC and American Premier debt after the Acquisition is
consummated (see "UNAUDITED PRO FORMA FINANCIAL INFORMATION") and under those
circumstances it is expected that the principal negative effect, if any, of the
Put Right would be to reduce the expected savings resulting from such purchases
and repayments because of the requirement that the Notes be retired in lieu of
other debt having higher interest rates.
USX Litigation
In May 1994, lawsuits were filed against American Premier by USX
Corporation ("USX") and its former subsidiary, Bessemer and Lake Erie Railroad
Company ("B&LE"), seeking contribution by American Premier, as the successor to
the railroad business conducted by Penn Central Transportation Company ("PCTC")
prior to 1976, for all or a portion of the approximately $600 million that USX
paid in satisfaction of a judgment against B&LE for its participation in an
unlawful antitrust conspiracy among certain railroads commencing in the 1950's
and continuing through the 1970's. The lawsuits argue that USX's liability for
that payment was attributable to PCTC's alleged activities in furtherance of the
conspiracy. On October 13, 1994, the U.S. District Court for the Eastern
District of Pennsylvania enjoined USX and B&LE from continuing their lawsuits
against American Premier, ruling that their claims are barred by the 1978
consummation order issued by that Court in PCTC's bankruptcy reorganization
proceedings. USX and B&LE have appealed the District Court's ruling to the U.S.
Court of Appeals for the Third Circuit.
American Premier believes that the claims of USX and B&LE are without merit
for the reasons set forth in American Premier's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, which is incorporated herein by reference.
However, in considering whether to vote for approval of the Acquisition,
American Premier's shareholders should take into consideration the expected
utilization in connection with the proposed Acquisition of most of American
Premier's substantial cash resources to retire debt and the possibility that if,
contrary to the expectations of American Premier and its counsel, New American
Premier was ultimately required to pay a substantial amount to USX and B&LE as a
result of their litigation, New American Premier may need to make borrowings in
order to make such a payment.
NEW AMERICAN PREMIER
New American Premier is a corporation newly formed under Ohio law for
purposes of the Acquisition. New American Premier has assets of one hundred
dollars and no liabilities. All of its capital stock is held by a nominee who
has agreed to vote all the shares of such stock in favor of the Acquisition. It
will have no independent business operations prior to the Acquisition.
Following the Acquisition, New American Premier will operate the businesses
now being conducted by American Premier and AFC, which will then be subsidiaries
of New American Premier. The information incorporated herein by reference for
each of those companies contains descriptions of their business,
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<PAGE> 28
management, property, legal proceedings applicable to them, financial
statements, management's discussion and analysis of their financial conditions
and results of operations, and the principal holders of their voting securities
prior to the Acquisition.
The directors and executive officers of New American Premier are as
follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Carl H. Lindner........................... Chairman of the Board and Chief
Executive Officer
Carl H. Lindner III....................... President, Chief Operating Officer
and Director
S. Craig Lindner.......................... Vice Chairman of the Board
Keith E. Lindner.......................... Vice Chairman of the Board
Neil M. Hahl.............................. Senior Vice President and Director
Robert W. Olson........................... Senior Vice President, General
Counsel, Secretary and Director
Theodore H. Emmerich...................... Director
James E. Evans............................ Director
Thomas M. Hunt............................ Director
William R. Martin......................... Director
Alfred W. Martinelli...................... Director
Robert F. Amory........................... Vice President and Controller
</TABLE>
All of the above persons (except Keith E. Lindner) are presently directors
and/or executive officers of American Premier. It is anticipated that certain
executive officers of AFC would also become executive officers of New American
Premier. Information concerning those persons listed above as well as a
description of executive compensation and certain relationships and related
transactions involving those persons and AFC's directors and executive officers
is contained in the material incorporated by reference herein with respect to
American Premier and AFC. Keith E. Lindner, age 35, has been President and Chief
Operating Officer of Chiquita for over five years. He is Carl H. Lindner's son
and the brother of Carl H. Lindner III and S. Craig Lindner.
SPECIAL FACTORS
BACKGROUND
Formerly a diversified company, since 1989 American Premier has made a
number of strategic acquisitions and divestitures in order to focus on property
and casualty insurance businesses. In 1989, American Premier (which was then
named The Penn Central Corporation) purchased Republic Indemnity Company of
America (then approximately 40% owned by AFC), which writes workers'
compensation insurance in California, for $288 million in cash. In 1990,
American Premier purchased from AFC its NSA Group of insurance companies, which
write non-standard automobile insurance, for $375 million in cash. In 1993,
American Premier added to its NSA Group by acquiring Leader National Insurance
Company ("Leader"), another writer of non-standard automobile insurance, for $38
million in cash.
In furtherance of this strategy, American Premier has divested virtually
all of its non-insurance businesses. In 1992, American Premier spun off to its
shareholders substantially all of the stock of General Cable Corporation, which
had been formed to own American Premier's principal manufacturing businesses. In
1994, American Premier sold the General Cable notes and stock that it had
retained in the spin-off for $177 million. In addition, in 1993 and 1994,
American Premier made divestitures of six non-insurance subsidiaries for an
aggregate of $149 million and sold two major non-insurance investment positions
for an aggregate of $178 million. With the strategic divestiture program
essentially complete, in March 1994 American Premier changed its name from "The
Penn Central Corporation" to "American Premier Underwriters, Inc." in order to
better reflect its new identity as a property and casualty insurance specialist.
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<PAGE> 29
As a result, American Premier owns two principal insurance businesses that
for 1993 and the first nine months of 1994 had net written premiums of $1.4
billion and $1.2 billion, respectively, operating income of $167 million and
$129 million, respectively, and a combined ratio of 96.2% and 96.4%,
respectively. In addition, its divestitures over the past two years increased
American Premier's cash equivalent resources to $820 million at September 30,
1994.
Over the past two years, American Premier has been seeking acquisition and
investment opportunities for the utilization of its cash resources, primarily in
the property and casualty insurance area. Although a number of potential
acquisitions have been explored and in some cases preliminarily negotiated,
these efforts have not resulted in the completion of any transaction other than
the Leader acquisition. One potential acquisition that received serious
consideration from a special committee of American Premier's independent
directors was AFC's publicly announced proposal in February 1994 that American
Premier purchase GAI's personal lines insurance businesses for $380 million in
cash. Negotiations regarding such an acquisition were ultimately terminated in
June 1994 because the parties did not reach agreement on the price and various
other terms and conditions of a sale.
American Premier has recognized that its cash resources need to be
redeployed to produce a higher rate of return than is available on the
short-term fixed maturity instruments in which they have been invested. At the
same time, however, management believes that an imprudent or overpriced
acquisition would be contrary to the best interests of shareholders. Against
this background, in August 1994 American Premier engaged Furman Selz to render
financial advisory and investment banking services to American Premier in
considering alternatives to increase American Premier shareholder value,
including preparation of a report to American Premier's management and Board of
Directors summarizing the significant alternatives available to American Premier
and its views thereof.
Over the ensuing two months, Furman Selz reviewed and analyzed public and
private information about American Premier and developed and evaluated a number
of financial alternatives aimed at achieving the goal of increasing American
Premier shareholder value. This process culminated in a presentation by Furman
Selz of its findings and recommendations to the Board of Directors of American
Premier (the "Board") on October 26, 1994. This presentation discussed a number
of alternatives available to American Premier. These alternatives can be
summarized as: (i) acquisition by American Premier of an unaffiliated insurance
company, (ii) institution by American Premier of a significant stock repurchase
program, (iii) acquisition by American Premier of AFC, (iv) repurchase of
American Premier debt and (v) payment by American Premier of an extraordinary
cash dividend to shareholders. Furman Selz reviewed with the Board certain
potential effects upon American Premier of each of these alternatives. Factors
considered by Furman Selz with respect to various of the alternatives included
hypothetical earnings per share, book value per share, tangible book value per
share and debt-to-equity ratios. After weighing the relative merits of each of
these alternatives, Furman Selz recommended that American Premier explore an
acquisition of AFC.
The Board then discussed and reviewed the various alternatives and
recommendations of Furman Selz. Following this discussion, the Board determined
that an acquisition by American Premier of AFC appeared to offer the best
alternative available to American Premier for increasing shareholder value and
that this alternative should be explored to determine whether such a transaction
could be negotiated on terms that would be fair to American Premier and its
shareholders. In making this determination, the Board noted that an acquisition
of AFC seemed to offer several advantages which were not apparent in the other
alternatives. Such an acquisition would be consistent with American Premier's
previously announced desire to consummate a significant acquisition in the
property and casualty insurance area. AFC, based upon information available to
the Board, appeared to be a profitable company with operations in attractive
specialty insurance areas which would be an excellent fit with the lines of
business in which American Premier operated. A large portion of American
Premier's cash equivalent assets could be used to retire relatively expensive
AFC debt. Of particular interest was the fact that because of the large holdings
of American Premier stock by AFC, a stock-for-stock acquisition of AFC could be
effected with a substantially smaller increase in the overall number of shares
of American Premier Common Stock to be outstanding after the Acquisition than
would be involved in an acquisition of an unaffiliated company of comparable
size. The use of cash to repay debt, coupled with the
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<PAGE> 30
perceived potential management efficiencies, offered the possibility of
substantially increased earnings per share following an acquisition.
In view of the relationship of AFC and American Premier, the Board
appointed a special committee of independent directors (the "Special Committee")
and charged the Special Committee with the task of negotiating the terms of any
acquisition by American Premier of AFC, assessing the fairness of any such
acquisition to the shareholders of American Premier not affiliated with AFC (the
"American Premier Public Shareholders") and making a recommendation to the Board
as to whether such a transaction should be consummated. The Board appointed Mr.
Alfred W. Martinelli as chairman of the Special Committee, and Messrs. Theodore
H. Emmerich, Thomas M. Hunt and William R. Martin as the other members of the
Special Committee. Immediately following the October 26, 1994 Board Meeting, the
Special Committee met preliminarily. At that meeting, the Special Committee
agreed to engage the law firm of Taft, Stettinius & Hollister as its legal
counsel and agreed to engage Furman Selz to provide financial advice to the
Special Committee and, if requested, to provide an opinion to the Special
Committee as to the fairness of the Exchange Ratios to the American Premier
Public Shareholders from a financial point of view.
On November 4, 1994, the Special Committee held another meeting. At this
meeting, and at all of the subsequent meetings of the Special Committee, all
members of the Special Committee were present, as were the Special Committee's
advisors. Senior management (other than the Messrs. Lindner) of American Premier
also attended all or portions of the meetings at the request of the Special
Committee. At the November 4 meeting, the Special Committee was apprised of due
diligence meetings that representatives of the Special Committee's legal and
financial advisors and of American Premier had attended on the Special
Committee's behalf during the week of October 31, 1994, and the status of
certain legal, accounting, tax and valuation issues identified to date.
The Special Committee next met on November 14, 1994 to receive status
reports from its legal and financial advisors. At this meeting, the Special
Committee engaged Milliman & Robertson ("M&R"), an actuarial firm of recognized
national standing, for the purpose of analyzing the adequacy of the loss and
loss adjustment reserves of GAI and certain matters related to American Annuity
Group, an 80% owned subsidiary of AFC ("AAG").
On November 16, 1994, the Special Committee's legal counsel provided a
first draft of the Acquisition Agreement to AFC. The first draft prepared by
legal counsel for the Special Committee included, among other things, provisions
for AFC shareholder indemnifications of American Premier after the closing and
conditions to the Acquisition that a majority of the shares of American Premier
Common Stock held by American Premier Public Shareholders that are voted, vote
in favor of the Acquisition and that American Premier receive an updated Furman
Selz fairness opinion on the date of the closing, as well as a provision
allowing American Premier to terminate the Acquisition Agreement if the Special
Committee determined, pursuant to its fiduciary duties in accordance with
applicable law, that such action should be taken. During the rest of November
and early December, legal counsel for the Special Committee and for AFC
exchanged comments and held discussions and negotiations regarding the
provisions of the Acquisition Agreement.
On November 22, 1994, another meeting of the Special Committee was held.
The Special Committee reviewed the actions taken to date and received advice
from its counsel regarding the fiduciary duties owed by each member of the
Special Committee. The Special Committee then received detailed reports from
management of, and advisors to, American Premier with respect to various due
diligence reviews carried out with regard to the business operations of AFC and
its affiliates.
M&R then presented preliminary reports on its reviews of the reserves of
GAI. M&R's reports consisted of preliminary versions of the final reports
described under "SPECIAL FACTORS -- Reports of Milliman & Robertson." M&R noted
that the Special Committee ultimately should only rely on the results and
analyses contained in their final reports.
Furman Selz then reported to the Special Committee regarding its progress
to date in reviewing the affairs of AFC and discussed in detail the contemplated
methodologies to be utilized in evaluating the acquisition of AFC. This report
consisted of several preliminary analyses, the final versions of which are
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described under the heading "SPECIAL FACTORS -- Opinion of Financial Advisor."
Furman Selz then responded to questions from, and engaged in discussions with,
the Special Committee and its counsel with respect to its preliminary report. In
addition, the Special Committee received a report from its counsel concerning
legal due diligence activities to date and the status of negotiations regarding
the Acquisition Agreement.
The Special Committee met again on November 29, 1994. The Special Committee
reviewed the actions taken to date. Representatives of M&R then presented
further preliminary reports regarding M&R's views of the adequacy of GAI's
reserves (both generally and from an A&E exposure standpoint). Again, M&R stated
that the Special Committee ultimately should only rely on the results and
analyses contained in their final reports and that in order to rely on any of
M&R's work, M&R's reports must be read in their entirety. Copies of the reports
have been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
M&R indicated that, based upon its preliminary review of GAI's reserves as
of September 30, 1994, GAI's non-A&E reserves appeared to M&R to be redundant by
approximately $100 million. M&R also indicated that the reserves established for
A&E exposure total approximately $130 million. M&R concluded that A&E reserves
carried by GAI are lower than industry average reserve levels for A&E
liabilities and that a $225 million reserve would be consistent with projected
year end 1994 industry A&E reserves. (See "SPECIAL FACTORS -- Reports of
Milliman & Robertson--Adequacy of Loss Reserves of GAI.") M&R stated that the
$225 million reserve does not represent GAI's ultimate liability for A&E
exposures. Due primarily to the inability of the insurance industry to estimate
with reasonable certainty ultimate liabilities for A&E exposures because of lack
of historical data, inapplicability of standard projection techniques and
uncertainty with regard to claim costs, coverage interpretation and the
judicial, statutory and regulatory provisions under which the claims may
ultimately be resolved, the U.S. insurance industry has not recorded an estimate
of the ultimate liability associated with A&E exposures in financial statements.
Instead, based on information provided in a recent report published by Best (the
"Best Report"), property and casualty insurance companies will carry at year end
1994 A&E reserves that will support, on an average, approximately seven years of
payments at current year payment levels. The $225 million indicated reserve for
GAI represents a reserve consistent with industry reserve levels for A&E
exposures based on GAI's current annual rate of A&E payments and the
relationship of GAI's relevant market share to the insurance industry estimated
A&E reserve level as of year end 1994.
It was noted by M&R that, for some companies in the GAI group, current year
payment data was incomplete and that current payment levels for A&E claims were
not necessarily representative of future payment levels. Furthermore, there are
factors that will tend to cause industry reserve adequacy for A&E exposures to
increase over the next few years. M&R also noted that the definition of
environmental claims varies from company to company, and that GAI appears to use
a broad definition for such claims. The Best Report appears to define
environmental claims as being limited to an insured's exposure associated with
hazardous waste sites. M&R noted that in utilizing the Best Report it was
applying some of the conclusions reached by that report for environmental claims
to GAI's broader class of claims and that to the extent GAI's definition of A&E
claims extends beyond hazards contemplated by the Best Report, M&R's reviews
would be affected.
M&R noted also that the Best Report also provides ultimate loss estimates
for the property and casualty insurance industry for A&E exposures (on an
undiscounted basis) ranging from $90 billion to $658 billion, with an expected
value of $295 billion. A mechanical application of GAI's relevant market share,
which is estimated to be 1.6%, yields ultimate losses for GAI (on an
undiscounted basis) in the range of $1.4 billion to $10.5 billion, or an
expected value estimate of approximately $4.7 billion. However, M&R noted that
there are many factors that might lead one to believe that GAI's ultimate losses
could be materially different than the numbers cited above. First, the ultimate
losses developed by Best are based on numerous assumptions, many of which are
highly uncertain at this time. Second, GAI's share of these ultimate losses may
be different than those estimated by its market share due to factors such as the
type of business written, the coverage provided and the limits of liability
exposed. Finally, GAI defines A&E claims as a broader class of claims than those
considered by the Best Report.
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The Special Committee then reviewed with its legal counsel actual and
potential legal developments which might affect ultimate environmental
liabilities in the future and the responsibility of the insurance industry for
such liabilities. In this regard, counsel observed that a significant percentage
of the paid losses reported to date by insurers for environmental matters have
been litigation costs. Counsel noted that such costs might be expected to
decrease in the future because many of the legal issues that previously resulted
in litigation have now been resolved by the courts, and litigation therefore
might be expected to decline. Counsel also noted that Congress was expected to
consider legislation for the purpose of implementing reforms to environmental
legislation and that there appeared to be an increased willingness on behalf of
regulatory bodies to consider more cost effective means of environmental cleanup
up of hazardous waste sites. Counsel advised the Special Committee, however,
that there was no definite way to determine what effect any of these matters
might have upon ultimate future environmental costs. The Special Committee also
was advised that GAI's management has concluded that a reasonable estimate of
ultimate liability for such exposures is not possible at this time.
M&R then reported on the status of its review of Great American Life
Insurance Company ("GALIC"), a wholly owned subsidiary of AAG. M&R's preliminary
reports on reserve adequacy of GAI and of GALIC consisted of preliminary
presentations, the final versions of which are described under the heading
"SPECIAL FACTORS -- Reports of Milliman & Robertson."
The Special Committee then reviewed with its legal counsel the current
status of negotiations and discussions with respect to the terms of the
Acquisition Agreement.
Furman Selz then presented an updated report on the proposed acquisition of
AFC. As before, this report consisted of several preliminary analyses, the final
versions of which are described under the heading "SPECIAL FACTORS -- Opinion of
Financial Advisor." Furman Selz then responded to questions from, and engaged in
further discussions with, the Special Committee and its counsel with respect to
this preliminary report.
The Special Committee then concluded tentatively that, based upon all of
the information which it had received to date, the acquisition of AFC by
American Premier appeared to be in the best interest of American Premier and the
American Premier Public Shareholders, assuming that the transaction could be
carried out on terms acceptable to the Special Committee. The Special Committee
considered the nature of such terms, and it was determined that Mr. Martinelli,
along with representatives of Furman Selz, would contact Mr. Ronald F. Walker,
President of AFC, and discuss with Mr. Walker the terms upon which the Special
Committee would be willing to recommend an acquisition of AFC by American
Premier.
On December 1, 1994, Mr. Martinelli and representatives of Furman Selz met
with Mr. Walker. Another meeting of the Special Committee was held on December
2, 1994, at which time Mr. Martinelli reported to the Special Committee on the
results of the discussions with Mr. Walker.
Between December 2 and December 9, 1994, discussions and negotiations
continued regarding the terms of the Acquisition Agreement.
On December 7, 1994, another meeting was held by the Special Committee. The
Special Committee reviewed with its advisors the proposed terms of the
Acquisition Agreement which had been negotiated with AFC. It was noted that the
number of shares of New American Premier Common Stock to be issued in exchange
for AFC Common Stock had been negotiated between Mr. Martinelli on behalf of the
Special Committee and Mr. Walker on behalf of AFC. It was noted further that the
Acquisition Agreement included, among other provisions, a condition to the
merger that the Special Committee will have received an updated opinion as to
fairness from Furman Selz at the time of the closing, and a provision allowing
American Premier to terminate the Acquisition Agreement if the Special Committee
determines that, pursuant to its fiduciary duties in connection with applicable
law, such action should be taken. It was also noted that the Acquisition
Agreement did not include provisions for AFC shareholder indemnification of
American Premier after the closing or a condition that a majority of the shares
of American Premier Common Stock held by American Premier Public Shareholders
that are voted, vote in favor of the Acquisition since AFC and its shareholders
would not agree to such provisions. In considering these matters, the Special
Committee noted specifically and so advised AFC that, notwithstanding the lack
of a separate American Premier Public Shareholder vote, one
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factor which it would consider in deciding whether to exercise its fiduciary
right to terminate the Acquisition Agreement would be the vote of the American
Premier Public Shareholders.
Furman Selz then reviewed with the Special Committee a report with regard
to the Acquisition. This report was a preliminary version of, and consistent
with, the final report which is described under the heading "SPECIAL
FACTORS -- Opinion of Financial Advisor." In this review, the Special Committee,
among other things, considered specifically the pro forma estimated earnings
impact on American Premier of the Acquisition as calculated by Furman Selz and
included in Furman Selz's final report. The report, based upon American Premier
management projections, indicated estimated projected earnings per share
(excluding capital gains and losses) of American Premier of $1.54 for 1994 and
$1.88 for 1995 (See "SPECIAL FACTORS -- Opinion of Financial Advisor"). Furman
Selz calculated, based upon assumptions furnished by management which were set
forth in their report, including the use of American Premier cash to retire
certain indebtedness of American Premier and AFC and the reduction of goodwill
required by generally accepted accounting principles ("GAAP"), that the result
of the Acquisition would be to increase estimated projected pro forma earnings
per share of New American Premier to $2.40 for 1994 and in excess of $3.10 for
1995 (in each case, excluding capital gains or losses and without giving effect
to one-time charges associated with the Acquisition). See "SPECIAL
FACTORS -- Opinion of Financial Advisor." The Special Committee recognized that
there could be no assurance that such earnings per share would be achieved
following the Acquisition. The Special Committee also noted that the Acquisition
was calculated by Furman Selz to result in a reduction in book value per share
of American Premier from $34.14 at September 30, 1994 to $16.38 for New American
Premier on a pro forma basis at the same date. The Committee noted that actual
reported results for 1994 and 1995 will be lower than the pro forma estimates
since the Acquisition will close after the beginning of 1995 and because of
one-time charges related to the Acquisition. The Special Committee was advised
and understood that the Furman Selz analyses must be considered in the aggregate
and that selecting portions of the analyses or the factors considered by Furman
Selz, without considering all the analyses and factors, could create a
misleading view of the process underlying the Furman Selz opinion.
The Special Committee met again on December 9, 1994. At this meeting, the
Special Committee received the final report of Furman Selz which is described
under "SPECIAL FACTORS -- Opinion of Financial Advisor." The Special Committee
also reviewed with its legal counsel the final form of the Acquisition
Agreement. Furman Selz also delivered to the Special Committee its written
opinion to the effect that the Exchange Ratios were fair to the American Premier
Public Shareholders from a financial point of view. The Special Committee also
received the final reports of M&R as described under "SPECIAL FACTORS -- Report
of Milliman & Robertson." At the conclusion of the meeting on December 9, 1994,
the Special Committee unanimously adopted resolutions finding that the
Acquisition was fair to the American Premier Public Shareholders, recommending
that the Board of Directors of American Premier approve the Acquisition
Agreement and cause it to be presented to the shareholders of American Premier
for their consideration and recommending that the American Premier Public
Shareholders approve the Acquisition Agreement.
The Board of Directors of American Premier, later on December 9, 1994,
received the report and recommendation from the Special Committee. The Board
then determined, in light of and subject to the terms and conditions set forth
in the Acquisition Agreement, that it was in the best interest of American
Premier's shareholders for American Premier to enter into the Acquisition
Agreement and that the Acquisition would be fair to, and in the best interest
of, the American Premier Public Shareholders, and determined to recommend to the
shareholders of American Premier that the Acquisition Agreement be approved. At
the meeting, the actions taken were approved by the unanimous affirmative vote
of American Premier's four directors who are not employees of American Premier,
plus the affirmative vote of Neil M. Hahl and Robert W. Olson, Senior Vice
Presidents of American Premier. Messrs. Carl H. Lindner, Carl H. Lindner III, S.
Craig Lindner and James E. Evans abstained with respect to such matters in view
of their positions with AFC.
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RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF AMERICAN
PREMIER;
REASONS FOR RECOMMENDATIONS
As noted above, the Board of Directors of American Premier and the Special
Committee recommend that the shareholders of American Premier approve the
Acquisition Agreement. In determining to recommend approval of the Acquisition
Agreement and the transactions contemplated thereby, the Special Committee and
the Board considered a number of factors, including, but not limited to, the
following:
(i) Furman Selz's opinion described below under "SPECIAL
FACTORS -- Opinion of Financial Advisor" to the effect that the Exchange
Ratios are fair, from a financial point of view, to the American Premier
Public Shareholders;
(ii) the various analyses and other information presented to the
Special Committee by Furman Selz, including those described under "SPECIAL
FACTORS -- Background" and "SPECIAL FACTORS -- Opinion of Financial
Advisor;"
(iii) a review of the possible alternatives to the Acquisition,
including the acquisition by American Premier of an unaffiliated insurance
company, institution of a significant stock repurchase program, repurchase
of debt or the payment of an extraordinary cash dividend, as considered at
the meeting of the Board of Directors held on October 26, 1994;
(iv) the belief of the Special Committee that the Committee's review
of the Acquisition confirmed that the potential advantages of the
Acquisition which had been cited by the Board at the October 26, 1994
meeting did, in fact, exist, and specifically that the Acquisition would
enable American Premier to carry out a significant acquisition in the
property and casualty area and make use of American Premier's excess cash
with a substantially smaller increase in the number of outstanding shares
of New American Premier Common Stock than would be involved in an
acquisition of an unaffiliated company of comparable size, resulting in an
expected substantial increase in earnings per share;
(v) the potential substantial increase in return on equity resulting
from the combination of pro forma increases in earnings per share and
decreases in book value per share, and the prospect that New American
Premier Common Stock may trade at a higher multiple of book value than its
peers because of its relatively higher pro forma return on equity;
(vi) the various factors described under "CERTAIN CONSIDERATIONS";
(vii) the fact that shares of American Premier Common Stock were, at
the time of the December 9 meeting of the Special Committee, trading at 29%
below the 52-week high and 8% above the 52-week low and that the Special
Committee was able to negotiate a rate of exchange for the AFC Common Stock
which, in the view of the Committee, took into account that the American
Premier stock was trading at the lower end of its 52-week trading range;
(viii) the fact that the Acquisition has been structured in such a way
as to preserve the net operating loss carryforwards which are available to
American Premier and that the Acquisition is expected to result in
increased earnings which will allow New American Premier to make use of the
net operating loss carryforwards; and
(ix) the terms and conditions of the Acquisition Agreement, including
the fact that the Acquisition Agreement is subject to the condition that an
updated opinion as to fairness be received from Furman Selz at the closing
and that American Premier has the right to terminate the Acquisition
Agreement if, in the exercise of its fiduciary duties, the Special
Committee determines that such action is appropriate.
The Special Committee gave specific consideration to the A&E reserves of
GAI and, in particular, the information provided to the Special Committee by M&R
(see "SPECIAL FACTORS -- Reports of Milliman & Robertson"). The Special
Committee noted that the risk exists to GAI of substantial ultimate A&E
liabilities of an undetermined nature, but that it appeared impossible to reach
any reasonable determination as to the extent of these ultimate liabilities. The
Special Committee further noted that the reserves available to GAI with respect
to A&E matters (consisting of the $100 million non-A&E reserve
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redundancy and the $130 million A&E reserve) appeared to be in line with
industry averages and that the ultimate liability for such claims would be paid
out over a considerable period of time, probably exceeding thirty years.
Ultimately, the Special Committee concluded that the uncertainties in this
regard were more than outweighed by the positive factors described above
indicating that the Acquisition was fair to and in the best interests of
American Premier and the American Premier Public Shareholders.
In view of the wide variety of factors considered in connection with its
evaluation of the Acquisition, neither the Special Committee nor the Board found
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its respective
determinations, except that the Special Committee and the Board placed special
emphasis on the number of shares to be issued in exchange for AFC and on the
matters set forth in items (i), (ii), (iv) and (v) above as well as the A&E
matters relating to GAI discussed below under "Reports of Milliman & Robertson."
Because of the appointment of the Special Committee and the engagement of
Furman Selz and special counsel by the Special Committee, neither the Board nor
the Special Committee considered it necessary to retain an unaffiliated
representative to act solely on behalf of the American Premier Public
Shareholders for the purpose of negotiating the terms of the Acquisition
Agreement.
REPORTS OF MILLIMAN & ROBERTSON
Adequacy of Loss Reserves of GAI
As part of its due diligence of AFC, American Premier engaged the actuarial
consulting firm of M&R to analyze the adequacy of the reserves carried by GAI as
of September 30, 1994 and to conduct an independent analysis of GAI's exposure
to A&E claims. Below is a brief description of the findings from these two
reports. In order to understand or rely on M&R's work, the reports must be read
in their entirety. A copy of the reports has been filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus is a part.
Non-A&E Exposures. The actuarial analysis indicates that, excluding
reserves for A&E exposures, GAI is redundantly reserved by approximately $100
million. This reserve redundancy is net of ceded reinsurance and assumes that
all reinsurance cessions are valid and collectible. The estimated reserve
redundancy of approximately $100 million for non-A&E exposures is subject to
significant uncertainty and actual results may be materially different than the
estimate cited. Such uncertainties include but are not limited to:
1. M&R relied on data and other information supplied by GAI without
audit or other verification.
2. While projections of reserve adequacy are based on reasonable
actuarial procedures, projections of future events are uncertain
and actual results will likely vary from the projections.
3. There are certain business segments in runoff for which historical
data is limited or unavailable.
4. There are roughly $220 million or 10% of the carried reserves that
M&R did not review.
5. M&R's reserve estimates are net of ceded reinsurance and assume
that all reinsurance cessions are valid and collectible.
A&E Exposures. As of September 30, 1994, GAI is carrying approximately
$130 million in reserves for A&E exposures. M&R concluded that GAI's A&E
reserves are lower than industry average reserve levels for A&E liabilities. M&R
used two methods to evaluate GAI's reserves relative to industry average reserve
levels for A&E liabilities. One method considers the current rate of A&E
payments by GAI and results in an indicated reserve of $193 million. The second
method applies GAI's market share for general liability and commercial
multi-peril business to industry A&E reserve levels and results in an indicated
reserve of $249 million. M&R selected a $225 million reserve for GAI to be
consistent with projected 1994 industry average A&E levels in light of the
results of these two methods. Each of these indicated A&E reserve amounts is net
of ceded reinsurance and assumes that all reinsurance cessions are valid and
collectible.
The $225 million reserve does not represent GAI's ultimate liability for
A&E exposures. Due primarily to the inability of the insurance industry to
estimate with reasonable certainty ultimate liabilities for A&E exposures
because of the factors discussed in the following paragraph, the U.S. insurance
industry has not
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recorded an estimate of the ultimate liability associated with A&E exposures in
financial statements. As a result, the $225 million reserve or some other
appropriate reserve level will need to be maintained on GAI's balance sheet into
the foreseeable future while GAI makes annual loss, loss adjustment expense and
declaratory judgment expense payments for these exposures. The appropriate
reserve for A&E exposures for GAI would need to be reevaluated regularly based
on an analysis of GAI's exposures, together with industry reserving levels and
financial reporting principles. There are factors that would tend to cause the
industry reserves for A&E exposures to increase over the next few years. These
factors include: clarification of insurers' liabilities through case law and
Superfund reform, making ultimate liabilities more subject to estimation;
financial reporting pressure for more adequate reserving and more complete
disclosure of A&E liabilities; reluctance of insurance rating agencies to give
the highest ratings to companies not perceived to be adequately reserved; and
reluctance of actuaries and auditors to give clean opinions to companies with
questionable A&E reserves.
The appropriate level of A&E reserves and the future A&E claim payments to
be made by GAI are subject to an unusual degree of uncertainty. This uncertainty
stems from several factors including lack of historical data, inapplicability of
standard actuarial projection techniques, and uncertainty with regard to claim
costs, coverage interpretation and the judicial, statutory and regulatory
provisions under which the claims may be ultimately resolved. All of these
factors affect both the quantification of these liabilities and the timing of
the payout of these liabilities.
In March 1994, Best published the Best Report as referred to above that
provides ultimate loss estimates for the property and casualty insurance
industry for environmental and asbestos exposures which range from $30 billion
to $50 billion for asbestos exposures and $60 billion to $608 billion for
environmental exposures. The expected values of ultimate losses provided in the
Best Report are $40 billion for asbestos exposures and $255 billion for
environmental exposures. These values are on an undiscounted basis. If GAI were
to share in the ultimate insurance industry liability in proportion to its
premium market share for general liability and commercial multiperil business,
this suggests that GAI's ultimate losses would be in the range of $1.4 billion
to $10.5 billion, or $4.7 billion on an undiscounted expected value basis.
There are factors that might lead M&R to believe that GAI's ultimate losses
could be materially different than that indicated by mechanically applying a
market share percentage to the Best Report's estimate of ultimate losses. First,
the ultimate losses projected by Best are highly uncertain. Second, GAI's share
of these ultimate losses may be different than those indicated by its premium
market share due to factors such as the type of business written, the coverage
provided, and the limits of liability exposed. Finally, GAI's definition of A&E
claims is broader than the definition used in the Best Report, as GAI
categorizes asbestos, environmental, DES, breast implant, Agent Orange,
repetitive keyboard stress and other repetitive injuries as A&E claims.
The actuarial reserve estimates for both A&E and non-A&E exposures are
subject to numerous limitations, assumptions, explanations and caveats. In order
to understand or rely on any of M&R's work, it is necessary to read the reports
prepared by M&R in their entirety. A copy of the reports has been filed as an
exhibit to the Registration Statement of which this Proxy Statement/Prospectus
is a part.
Actuarial Analysis of Great American Life Insurance Company
M&R also was engaged by the Special Committee to perform certain actuarial
analyses of GALIC, a wholly-owned subsidiary of AAG which, in turn, is 80% owned
by AFC.
In preparing its actuarial analyses of GALIC, M&R developed projected
pre-tax statutory profits of GALIC. Based upon such analysis, M&R calculated,
utilizing discount rates of 10%, 12%, 14% and 16%, the present value of cash
flows from GALIC. Cash flow is defined as pre-tax statutory income adjusted for
taxes using a 35% tax rate and further adjusted for the incremental capital, if
any, assumed to be retained within GALIC to fund the business and ongoing
operations of GALIC. The values developed by M&R represent the sum of:
(a) Present value of twenty years of projected cash flows, plus
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(b) Present value of adjusted statutory book value assumed to be
remaining in GALIC at the end of twenty years, plus
(c) Present value of future statutory profits on business remaining in
force at the end of the twenty year projection.
This resulted in actuarial values of GALIC equal to $733 million, $574
million, $462 million and $382 million at discount rates of 10%, 12%, 14% and
16%, respectively, under a specific set of assumptions including twenty years of
new business.
These values represent actuarial values for GALIC and not values for AAG.
That is, these values do not include, among other items, the assets and
liabilities of AAG. Furthermore, M&R noted that actuarial values do not
necessarily represent the value which might be received upon a sale of an
entity; rather, an actuarial value reflects the value of a company's earnings
potential under a specific set of assumptions. Market value may be higher or
lower than actuarial value.
The preparation of an actuarial analysis is a complex process utilizing
technical actuarial methodologies and is not susceptible to partial analysis or
summary description. M&R's report contains a number of assumptions which
substantially impact its actuarial projections and are beyond the control of
GALIC. Furthermore, actual results to be realized in the future, as well as
actual values to be received on the sale of a business, may differ greatly from
the actuarial projections. In addition, M&R's report has been prepared by
actuaries solely for use by actuaries and other persons possessing the knowledge
of actuarial methodologies. In order to understand or rely upon any of M&R's
work, M&R's report must be read in its entirety. A copy of M&R's report has been
filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
OPINION OF FINANCIAL ADVISOR
The Special Committee of the Board of Directors of American Premier
retained Furman Selz to render an opinion to the Special Committee as to whether
the ratio of the number of shares of New American Premier Common Stock to be
issued in exchange for shares of AFC Common Stock and the ratio of the number of
shares of New American Premier common stock to be issued in exchange for shares
of American Premier Common Stock (such ratios, collectively, the "Exchange
Ratios") are fair, from a financial point of view, to American Premier Public
Shareholders.
On December 9, 1994, Furman Selz advised the Special Committee that, as of
such date, the Exchange Ratios were fair, from a financial point of view, to
American Premier Public Shareholders, and delivered its written opinion to the
Special Committee, dated as of such date, to the same effect. The full text of
the Furman Selz written opinion, which sets forth the assumptions made, matters
considered, and scope and limitations of the review undertaken and procedures
followed by Furman Selz in rendering its opinion, is attached to this Proxy
Statement/Prospectus as Annex B. The following description of the Furman Selz
opinion is qualified in its entirety by reference to the full text of the
opinion. American Premier shareholders are urged to read carefully the opinion
of Furman Selz in its entirety.
Furman Selz's opinion is directed only to the Special Committee, addresses
only the fairness of the Exchange Ratios from a financial point of view and does
not constitute a recommendation to any American Premier shareholder as to how
such shareholder should vote at the American Premier Special Meeting. Although
Furman Selz advised the Special Committee with respect to various alternatives
to increase shareholder value, Furman Selz was not requested to opine as to, and
its opinion does not in any manner address, American Premier's underlying
business decision to proceed with or effect the Acquisition, or the relative
merits of the Acquisition as compared to any alternative business strategies
which might exist for American Premier or the effect of any other transaction in
which American Premier might engage.
In connection with its opinion, Furman Selz reviewed, among other things,
the following: (i) the Acquisition Agreement; (ii) publicly available
information concerning American Premier, AFC and certain of AFC's affiliates
which Furman Selz believed to be relevant to its inquiry; (iii) financial and
operating information with respect to the business, operations and prospects of
AFC and certain of its affiliates,
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<PAGE> 38
including actuarial analyses of GAI and GALIC prepared by M&R, all furnished to
Furman Selz by AFC and American Premier; (iv) financial and operating
information with respect to the business, operations and prospects of American
Premier furnished to Furman Selz by American Premier; (v) the common stock price
and trading histories of American Premier Common Stock and the common stock of
certain publicly traded affiliates of AFC; (vi) a comparison of the financial
positions and operating results of American Premier, AFC and certain affiliates
of AFC, and of the common stock price trading histories of American Premier and
certain affiliates of AFC, with those of publicly traded companies that Furman
Selz deemed relevant; (vii) a comparison of certain financial terms of the
Acquisition to certain financial terms of selected other business combinations
that Furman Selz deemed relevant; (viii) analyses of the respective
contributions in terms of assets, liabilities and earnings of American Premier
and AFC to New American Premier and the relative ownership of New American
Premier after the Acquisition by the current shareholders of American Premier
and AFC; (ix) analyses of other potential financial effects of the Acquisition;
and (x) synergies and other potential benefits arising from the Acquisition.
In addition, Furman Selz held discussions with various members of the
senior management of American Premier, AFC and certain affiliates of AFC
(including Chiquita) concerning their respective businesses, operations, assets,
present condition and future prospects. Furman Selz also held discussions with
various members of the senior management of American Premier and AFC concerning
the strategic and operating benefits anticipated from the Acquisition, and
conducted such other financial studies, analyses and investigations as it deemed
appropriate for purposes of rendering its opinion. Furman Selz was not furnished
with financial projections with respect to Chiquita as they were advised by
Chiquita's management that it was not feasible to develop reliable projections
of future operating results for Chiquita due to uncertainties regarding its
business. See "CERTAIN CONSIDERATIONS." Except for the unavailability of such
projections, no limitations were placed on Furman Selz with respect to the scope
of the investigations made or the procedures followed by them in rendering their
opinion.
In arriving at its opinion, Furman Selz assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinion and did not assume responsibility for any independent
verification of such information. Furman Selz did not conduct any independent
evaluations or appraisals of the properties, assets, liabilities or reserves of
American Premier or AFC, nor did it conduct any independent actuarial
evaluations. In addition, Furman Selz assumed that the financial forecasts
prepared by the managements of American Premier and AFC represented the best
current judgment of their respective managements as to the future financial
condition and results of operations of American Premier and AFC, respectively,
and assumed that the forecasts had been reasonably prepared based on such
current judgment. In valuing AFC's investments in its publicly traded
affiliates, Furman Selz relied primarily on current market prices of the
relevant capital stock.
Furman Selz also took into account its assessment of general economic,
market, and financial conditions and its experience in similar transactions, as
well as its experience in securities valuation in general. Furman Selz based its
opinion upon regulatory, economic and market conditions as they existed on, and
the information made available to it as of, the date of the opinion. Furman Selz
assumed the Acquisition would be accounted for as if AFC had acquired American
Premier in a transaction accounted for as a purchase. Furman Selz also assumed
that, in the course of obtaining necessary regulatory approvals for the
Acquisition, no restrictions would be imposed that would have a material adverse
effect on the contemplated benefits of the Acquisition to American Premier
following the Acquisition. Furman Selz expressed no opinion as to what the value
of New American Premier Common Stock actually will be when issued to the
shareholders of American Premier and AFC pursuant to the Acquisition or the
price at which New American Premier Common Stock will trade subsequent to the
Acquisition.
Furman Selz believes that its analyses must be considered in the aggregate,
and that selecting portions of its analyses or the factors considered by it,
without considering all factors and analyses, could create a misleading view of
the process underlying its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analyses or
summary description. In its analyses, Furman Selz made numerous implicit
assumptions about industry and general economic conditions, and other matters,
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<PAGE> 39
many of which are beyond the control of American Premier or AFC and may not be
indicative of future results or actual values, which may be significantly more
or less favorable than such estimates.
The following is a brief summary of the financial analyses utilized by
Furman Selz in rendering its opinion. Such summary does not purport to be a
complete description of all of the analyses performed by Furman Selz in
connection with its opinion.
Pro Forma Acquisition Analysis
Furman Selz performed a series of analyses based on pro forma historical
financial information prepared by management of American Premier and forecasted
financial information for New American Premier which was based on information
provided by the managements of American Premier and AFC which included
assumptions regarding the retirement of approximately $431.7 million of AFC debt
and $292.2 million of American Premier debt, the elimination of approximately
$308.8 million in goodwill as a result of the accounting treatment for the
Acquisition, and various costs savings and other synergies anticipated to result
from the Acquisition. All pro forma amounts used by Furman Selz exclude capital
gains and losses and certain other nonrecurring items and give effect to the
other matters discussed above. In addition, the pro forma amounts used by Furman
Selz are based on the American Premier Common Stock closing price of $23.00 per
share on December 1, 1994.
Based upon such information, New American Premier's pro forma September
1994 nine month income increases to $1.99 per share from income of $1.17 per
share, an increase of 70%. Similarly, New American Premier's 1994 pro forma
projected twelve month income increases to $2.40 per share from projected income
of $1.54 per share, a 56% increase, and 1995 pro forma projected income
increases to an amount in excess of $3.10 per share from projected income of
$1.88 per share, an increase of over 65%. The increase in income per share
reflects principally the combination of the projected earnings of AFC and
American Premier, the retirement of debt and elimination of goodwill referred to
above.
Pro forma book value and tangible book value per share of New American
Premier Common Stock at September 30, 1994 are $16.38 and $11.81, respectively,
compared to actual book value and tangible book value per share of American
Premier Common Stock at September 30, 1994 of $34.14 and $25.80, respectively.
This decline is primarily due to (i) the elimination of goodwill on American
Premier's balance sheet that is required by GAAP as a result of the Acquisition
and (ii) the dilutive effect of issuing to AFC shareholders in the Acquisition
New American Premier shares assumed to have an aggregate market value greater
than AFC's consolidated shareholders' equity at September 30, 1994.
New American Premier's pro forma projected 1994 return on equity
approximates 15%, compared to American Premier's projected 1994 return on equity
of 4.5%, on the respective September 30, 1994 book values. Similarly, New
American Premier's 1995 pro forma projected return on equity exceeds 19%
compared to American Premier's projected return on equity of 5.5%, on the
respective September 30, 1994 book values.
Based upon the issuance of 28.6 million New American Premier shares and the
de facto retirement of 18.7 million of such shares, the aggregate ownership
percentage of the American Premier Public Shareholders declines from
approximately 61% prior to the Acquisition to approximately 50% after the
Acquisition. However, the American Premier Public Shareholders' aggregate share
of projected 1994 income excluding capital gains and losses and other
nonrecurring items increases from $45.2 million to $70.0 million, a 55%
increase, and its aggregate share of projected 1995 net income increases from
$55.2 million to in excess of $89.8 million, an increase of in excess of 63%.
Analyses Relating to AFC
AFC is a holding company the principal assets of which consist of GAI, a
multi-line property and casualty insurance company, and selected holdings in
publicly-traded companies. In performing its analysis of AFC, Furman Selz used
such valuation methodologies as Furman Selz deemed necessary or appropriate for
purposes of rendering its opinion.
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<PAGE> 40
Applying the December 1, 1994 American Premier closing stock price to the
Exchange Ratio results in an implied purchase price for AFC's equity of $658
million. The assumption of an aggregate of $1.1 billion of AFC debt and
preferred stock and GAI debt, and approximately $54 million of other AFC
liabilities, results in an implied total transaction value of $1.8 billion. By
deducting 18.7 million New American Premier shares (representing the American
Premier shares currently beneficially owned by AFC) from the 28.6 million shares
to be issued in the Acquisition, and taking into consideration the minority
interest in shares of American Premier Common Stock owned by AFC, Furman Selz
determined the number of new shares for valuation purposes to be 11.6 million.
This results in a net implied equity value and a net transaction value of $267.7
million and $1.4 billion, respectively, based on the American Premier Common
Stock closing price of $23.00 per share on December 1, 1994.
Furman Selz then reviewed the foregoing implied equity and transaction
values for AFC.
Analyses of GAI. GAI is a multi-line property and casualty insurance
company with significant holdings in selected publicly traded affiliates,
including AAG, Chiquita and American Premier.
In its comparable company analysis of GAI, Furman Selz compared selected
historical, current and projected financial and operating results of GAI with
the operating results of selected publicly traded property and casualty
insurance companies that, in Furman Selz's judgement, were most closely
comparable to GAI (the "GAI Comparable Companies"). The GAI Comparable Companies
were chosen by Furman Selz as companies that possess general business, operating
and financial characteristics representative of companies in the property and
casualty insurance industry in which GAI operates, although Furman Selz
recognized that each of the GAI Comparable Companies is distinguishable from GAI
in certain respects. Such GAI Comparable Companies included W.R. Berkley, Chubb,
Cincinnati Financial, Ohio Casualty, Orion Capital, USF&G, Safeco, St. Paul Cos.
and TIG Holdings. Furman Selz considered, among other things: (i) selected
balance sheet data (both on a statutory and GAAP accounting basis); (ii)
operating statement data, including latest twelve month (previous reported four
quarters or "LTM") net income excluding realized gains; (iii) 1994 net income
estimates made by research analysts excluding certain catastrophic losses; (iv)
1995 net income estimates made by research analysts; and (v) historical trading
ranges of the GAI Comparable Companies' stocks. In addition, Furman Selz
analyzed the return on average invested assets and average common shareholders
equity for these companies.
Furman Selz then calculated a range of market multiples for the GAI
Comparable Companies by dividing the Total Market Capitalization (total common
shares outstanding multiplied by closing market price per share, or "Equity
Market Capitalization", plus total debt and minority interest, less equity in
investee companies, minus cash and cash equivalents) as of December 1, 1994 for
each GAI Comparable Company by such company's statutory surplus as reported on
December 31, 1993 and book capitalization adjusted for a mark-to-market of its
investment portfolio as of September 30, 1994. Furman Selz also calculated a
range of market multiples by dividing each of the GAI Comparable Company's
respective Equity Market Capitalization as of December 1, 1994 by its respective
book value, book value adjusted for a mark-to-market of its investment
portfolio, tangible book value and tangible book value adjusted for a
mark-to-market of its investment portfolio as of September 30, 1994. Finally,
Furman Selz calculated a range of multiples by dividing each of the GAI
Comparable Company's Equity Market Capitalization by each company's LTM net
income excluding realized gains, estimated 1994 net income, excluding certain
catastrophic losses, and estimated 1995 net income.
Furman Selz also evaluated acquisitions currently pending or completed
during the last 5 years of selected U.S. property and casualty insurance or
related companies (the "Acquired P&C Insurance Companies"). None of such
acquisitions took place under market conditions or competitive conditions or
circumstances that were directly comparable to those of the Acquisition, and
each of the Acquired P&C Insurance Companies is distinguishable from GAI in
certain respects. Furman Selz calculated a range of net income multiples based
on the ratio of the purchase price to trailing twelve months net income
excluding realized gains, the purchase price to the latest reported stated book
value, the purchase price to the latest reported stated book value adjusted for
a mark-to-market of the latest reported investment portfolio and the
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<PAGE> 41
adjusted purchase price (offer price plus latest reported total debt and
preferred stock) to the latest fiscal year end reported statutory surplus for
each Acquired P&C Insurance Company.
Furman Selz also discounted the projected after-tax cash flows generated by
GAI through 1999 in the form of dividends based upon its projected statutory net
income adjusted for required statutory surplus balances. These cash flows were
discounted to present value using a range of discount rates. In addition, Furman
Selz derived terminal values for GAI at the end of 1999 by multiplying GAI's
projected 1999 GAAP book value by a range of book value multiples and
discounting them to present value using the same range of discount rates.
Based upon all of the foregoing, Furman Selz derived an implied valuation
range for GAI of $1.3 billion to $1.8 billion.
Analyses of Publicly Traded Affiliates. In addition to GAI, AFC holds
significant positions in certain publicly traded companies, including several
affiliated companies. Based upon public market prices at December 1, 1994, these
stockholdings together with other net assets had a value of $233.5 million.
Furman Selz performed certain financial analyses, including those described
below, which supported their public market valuations.
AMERICAN ANNUITY GROUP. Furman Selz reviewed: (i) the closing stock price
of AAG common stock on December 1, 1994 ($9.125); (ii) the 52-week trading range
of AAG common stock; (iii) publicly available financial information on AAG; (iv)
selected comparable publicly traded companies; and (v) selected acquisition
transactions.
In its comparable company analysis of AAG, Furman Selz compared selected
historical, current and projected financial and operating results of American
Annuity Group with the operating results of selected publicly traded annuity
companies that, in Furman Selz's judgment, were most closely comparable to
American Annuity Group (the "AAG Comparable Companies"). The AAG Comparable
Companies were chosen by Furman Selz as companies that possess general business,
operating and financial characteristics representative of companies in the
annuity insurance industry in which AAG operates, although Furman Selz
recognized that each of the AAG Comparable Companies is distinguishable from
American Annuity Group in certain respects. Such AAG Comparable Companies
included Amvestors Financial, CCP Insurance, Equitable of Iowa, First Colony,
Presidential Life, SunAmerica and Western National. Furman Selz considered,
among other things: (i) selected balance sheet data (both on a statutory and
GAAP accounting basis); (ii) operating statement data, including LTM net income
excluding realized gains; (iii) 1994 and 1995 net income estimates made by
research analysts; and (iv) historical trading ranges of the AAG Comparable
Companies' stocks. In addition, Furman Selz analyzed the return on average
common shareholders equity for these companies.
Furman Selz then calculated a range of market multiples for the AAG
Comparable Companies by dividing the Total Market Capitalization (total common
shares outstanding multiplied by closing market price per share or "Equity
Market Capitalization," plus total debt and minority interests minus equity in
investee companies, cash and cash equivalents) as of December 1, 1994 for each
AAG Comparable Company by such company's statutory surplus as reported on
December 31, 1993 and book capitalization adjusted for a mark-to-market of its
investment portfolio as of September 30, 1994. Furman Selz also calculated a
range of market multiples by dividing each AAG Comparable Company's respective
Equity Market Capitalization as of December 1, 1994 by its respective book
value, book value adjusted for a mark-to-market of its investment portfolio,
tangible book value and tangible book value adjusted for a mark-to-market of its
investment portfolio as of September 30, 1994. Finally, Furman Selz calculated a
range of multiples by dividing each of the AAG Comparable Company's Equity
Market Capitalization by each company's LTM net income excluding realized gains,
estimated 1994 net income and estimated 1995 net income.
Furman Selz also evaluated acquisitions currently pending or completed
during the last 5 years of selected U.S. annuity insurance or related companies
(the "Acquired Annuity Insurance Companies"). None of such acquisitions took
place under market conditions or competitive conditions or circumstances that
were directly comparable to those of the Acquisition, and each of the Acquired
Annuity Insurance Companies is
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<PAGE> 42
distinguishable from AAG in certain respects. Furman Selz calculated a range of
market multiples based on the ratio of trailing twelve months net income
excluding realized gains, purchase price to the latest reported stated book
value, purchase price to the latest reported stated book value adjusted for a
mark-to-market of the latest reported investment portfolio and the adjusted
purchase price (offer price plus latest reported total debt and preferred stock)
to the latest fiscal year end reported statutory surplus for each Acquired
Annuity Insurance Company.
CHIQUITA BRANDS INTERNATIONAL, INC. Furman Selz reviewed: (i) the closing
price of Chiquita common stock on December 1, 1994 ($13.00); (ii) the previous
five year and 52-week trading range of Chiquita common stock; (iii) publicly
available financial information on Chiquita; (iv) selected comparable publicly
traded companies; and (v) selected acquisition transactions.
In its comparable company analysis of Chiquita, Furman Selz compared
selected historical, current and projected financial and operating results of
Chiquita with the operating results of selected publicly traded companies that,
in Furman Selz's judgment, were most closely comparable to Chiquita (the
"Chiquita Comparable Companies"). The Chiquita Comparable Companies were chosen
by Furman Selz as companies that possess general business, operating and
financial characteristics representative of companies in the business in which
Chiquita operates, although Furman Selz recognized that each of the Chiquita
Comparable Companies is distinguishable from Chiquita in certain respects. Such
Chiquita Comparable Companies consisted of: The Albert Fisher Group plc;
Archer-Daniels-Midland Company; ConAgra, Inc.; CPC International Company; Dean
Foods Company; Dole Food Company, Inc.; Fyffes PLC; Geest PLC; Perkins Foods
plc; Stokely USA, Inc.; and Seneca Foods Corporation. Furman Selz considered,
among other things: (i) selected balance sheet data; (ii) selected income
statement data, including LTM revenue, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), net income and earnings per share ("EPS"); and (iii) 1994 and 1995 EPS
estimates made by research analysts.
Furman Selz then calculated a range of market multiples for the Chiquita
Comparable Companies by dividing the Total Market Capitalization as of December
1, 1994 for each Chiquita Comparable Company by, among other things, such
company's LTM Revenue, LTM EBITDA, and LTM EBIT. Furman Selz also calculated a
range of multiples by dividing each of the Chiquita Comparable Company's equity
price per share by the respective LTM EPS, estimated 1994 EPS and estimated 1995
EPS.
Furman Selz also evaluated acquisitions, currently pending or completed
during the last five years, of selected food companies (the "Acquired Food
Companies"). None of such acquisitions took place under market conditions or
competitive conditions or circumstances that were comparable, and each of the
Acquired Food Companies is distinguishable from Chiquita in certain respects.
Among the multiples reviewed by Furman Selz were the equity purchase prices as a
multiple of historical net income, and the transaction values as a multiple of
historical revenues, EBITDA and EBIT.
Overall Analysis of AFC. Adding the implied valuation range for GAI of
$1.3 billion to $1.8 billion to the public market valuation of AFC's other
holdings of $233.5 million, Furman Selz derived an implied valuation range for
AFC of $1,533.5 million to $2,033.5 million. The total transaction value of
$1,816.8 million derived by applying the December 1, 1994 American Premier
closing stock price to the Exchange Ratios falls within this implied valuation
range.
Analyses Relating to American Premier
Furman Selz reviewed: (i) the closing price of American Premier Common
Stock on December 1, 1994 ($23.00 per share); (ii) the 52-week trading range of
American Premier; (iii) publicly available financial information on American
Premier; (iv) historical and projected results of operations provided by
management; and (v) selected comparable publicly traded companies.
In its comparable company analysis of American Premier, Furman Selz
compared selected historical, current and projected financial and operating
results of American Premier with the operating results of selected publicly
traded workers compensation and non-standard automobile insurance companies
that, in Furman Selz's judgment, were most closely comparable to American
Premier (the "American Premier
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<PAGE> 43
Comparable Companies"). The American Premier Comparable Companies were chosen by
Furman Selz as companies that possess general business, operating and financial
characteristics representative of companies in the property and casualty
insurance industry in which American Premier operates, although Furman Selz
recognized that each of the American Premier Comparable Companies is
distinguishable from American Premier in certain respects. Such American Premier
Comparable Companies included Argonaut Group, CII Financial, Citation Insurance,
Fremont General, Guaranty National, Integon, Mercury General and Progressive.
Furman Selz considered, among other things: (i) selected balance sheet data
(both on a statutory and GAAP accounting basis); (ii) operating statement data,
including LTM net income excluding realized gains; (iii) 1994 and 1995 net
income estimates made by research analysts; and (iv) historical trading ranges
of the American Premier Comparable Companies' stocks. In addition, Furman Selz
analyzed the return on average invested assets and average common shareholders
equity for these companies.
Furman Selz then calculated a range of market multiples for the American
Premier Comparable Companies by dividing the Total Market Capitalization (total
common shares outstanding multiplied by closing market price per share or
"Equity Market Capitalization," plus total debt and minority interest minus
equity in investee companies, cash and cash equivalents) as of December 1, 1994
for each American Premier Comparable Company by such company's statutory surplus
as reported on December 31, 1993 and book capitalization adjusted for a
mark-to-market of its investment portfolio as of September 30, 1994. Furman Selz
also calculated a range of market multiples by dividing each of the American
Premier Comparable Company's respective Equity Market Capitalization as of
December 1, 1994 by its respective book value, book value adjusted for a
mark-to-market of its investment portfolio, tangible book value and tangible
book value adjusted for a mark-to-market of its investment portfolio as of
September 30, 1994. Finally, Furman Selz calculated a range of multiples by
dividing each of the American Premier Comparable Company's Equity Market
Capitalization by each company's LTM net income excluding realized gains,
estimated 1994 net income and estimated 1995 net income.
American Premier's Equity Market Capitalization multiples for estimated
1994 and 1995 EPS were at the high end of the range of equivalent multiples for
the American Premier Comparable Companies. American Premier's Equity Market
Capitalization multiples for book value, book value adjusted for a mark-
to-market of its investment portfolio, tangible book value and tangible book
value adjusted for a mark-to-market of its investment portfolio were generally
at the low end of the range of equivalent multiples for the American Premier
Comparable Companies, reflecting the low current return generated by the large
cash position (currently in excess of $820 million) on American Premier's
balance sheet.
Furman Selz reviewed the stock price performance of American Premier during
the one year period from December 2, 1993 to December 1, 1994 and noted that the
December 1, 1994 closing price of $23.00 per share was 29% below the year high
of $32.25 and 6% above the year low of $21.625. In assessing the impact of
American Premier's stock price on the fairness of the Exchange Ratios, Furman
Selz considered: (i) the overall decline in the common stock prices of
comparable insurance companies during that period and the impact thereof on the
implied equity valuation of AFC; (ii) the effective retirement following the
Acquisition of the New American Premier shares representing the American Premier
shares currently held by AFC; and (iii) the fact that, net of the retirement of
New American Premier shares held by AFC, only 18.8% of the total net
consideration of $1.4 billion is being issued in the form of New American
Premier common stock.
Furman Selz is a nationally recognized investment banking firm engaged in,
among other things, the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. Furman Selz has substantial experience in merger and acquisition
transactions and is familiar with American Premier. In the ordinary course of
its business, Furman Selz may actively trade in the equity and debt securities
of AFC and American Premier for its own account and the accounts of its
customers, and accordingly, may at any time hold a long or short position in
such securities for the accounts of its customers, the firm and/or the officers
of the firm. Furman Selz acted as financial advisor to American Premier in
connection with its exploration of various strategic alternatives which resulted
in the Board of Directors' determination to explore the Acquisition. In
connection with such services, American Premier paid Furman Selz fees totalling
$165,000.
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For its services as advisor to the Special Committee and pursuant to the
terms of an engagement letter, American Premier has paid Furman Selz a $285,000
non-refundable retainer and a monthly non-refundable retainer of $150,000 for
November and December 1994, and will pay Furman Selz (i) $4,500,000 (net of any
retainer payments) on the earlier of termination of the engagement or June 30,
1995 provided that Furman Selz has carried out its assignments through such date
to the reasonable satisfaction of the Special Committee and (ii) an additional
$2,335,000 upon the mailing of this Proxy Statement/Prospectus. American Premier
also has agreed to reimburse Furman Selz for its out-of-pocket expenses,
including reasonable fees and expenses of its legal counsel, and to indemnify
Furman Selz and certain related parties against certain liabilities, including
liabilities under the federal securities laws, arising out of or in connection
with the services rendered by Furman Selz under the engagement letter. The terms
of the fee arrangement with Furman Selz were negotiated at arm's length between
American Premier's management and Furman Selz.
ACCOUNTING TREATMENT
For financial reporting purposes, the Acquisition will be accounted for as
a purchase type business combination with American Premier being treated as the
acquired company. As a result, a portion of the carrying values of American
Premier's net assets will be adjusted to fair market value. See "UNAUDITED PRO
FORMA FINANCIAL INFORMATION."
TRANSACTIONS INVOLVING INTERESTED PERSONS
Certain employees of AFC, including those persons named in the Executive
Compensation Table of AFC included in its Form 10-K, attached as Annex C,
participate in AFC's Book Value Incentive Plan (the "Incentive Plan"), which was
established in 1980. The Incentive Plan generally provides for the granting of
Units measured by an adjusted book value of AFC Common Stock at the time of
grant with distributions based on the increase in the value of the Units to the
date of exercise to the extent vested. The Incentive Plan, which is
approximately 95% vested currently, will terminate upon completion of the
Acquisition, at which time full vesting will be granted and payments are
expected to be made in cash to holders of the Units. Payments to the named
persons and all other participants are anticipated to be approximately as
follows:
<TABLE>
<CAPTION>
NAME PAYMENT
---- -------
<S> <C>
Carl H. Lindner.............................................. -0-
Ronald F. Walker............................................. $ 9.22 million
Carl H. Lindner III.......................................... 5.95 million
S. Craig Lindner............................................. 5.95 million
James E. Evans............................................... 1.48 million
All Other Participants....................................... 27.29 million
</TABLE>
Robert D. Lindner, brother of Carl H. Lindner, other members of Robert D.
Lindner's family and Carl H. Lindner's sons hold options to purchase a total of
762,500 shares of AFC Common Stock at a current exercise price of approximately
$11.30 per share, which will be exercised immediately prior to the consummation
of the Acquisition. Those members of Robert D. Lindner's family also have the
ability to require AFC to purchase the 1,533,767 shares of AFC Common Stock
owned by them and the equity in such options based on AFC's adjusted book value
per share, as calculated under the Incentive Plan. The purchase price for all
shares and options covered by their sale right amounted to $37.8 million at
September 30, 1994. Upon completion of the Acquisition this right will be
extinguished.
Options to purchase American Premier Common Stock will become options to
purchase New American Premier Common Stock on a share-by-share basis maintaining
the same exercise price, terms and conditions
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<PAGE> 45
as now exist. Persons named in the Summary Compensation Table in American
Premier's Proxy Statement for its 1994 Annual Meeting of Shareholders,
incorporated herein by reference, hold those options as follows:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS OPTIONS AT SEPTEMBER 30,
AT SEPTEMBER 30, 1994 1994(1)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Carl H. Lindner....................... 620,904 83,636 $3,675,229 $329,661
Carl H. Lindner III................... 239,180 411,270 601,095 901,643
Neil M. Hahl.......................... 288,965 70,182 1,459,261 324,014
Robert W. Olson....................... 251,954 61,818 1,236,986 282,523
- ---------------
<FN>
(1) Based on the closing price of American Premier Common Stock on the NYSE on
September 30, 1994 of $26.75.
</TABLE>
THE ACQUISITION AGREEMENT
New American Premier, American Premier and AFC entered into the Acquisition
Agreement on December 9, 1994. The Acquisition Agreement provides for American
Premier to acquire AFC through mergers resulting in American Premier and AFC
each becoming subsidiaries of New American Premier. Newly formed wholly-owned
subsidiaries of New American Premier will be merged into American Premier and
AFC with American Premier and AFC being the surviving corporations. The
following description of the Acquisition Agreement is not complete and is
qualified in its entirety by reference to the Acquisition Agreement which is
attached as Annex A as a part of this Proxy Statement/Prospectus.
VOTING ON THE ACQUISITION
Under the Pennsylvania Business Corporation Law and the Articles of
Incorporation of American Premier, the affirmative vote of a majority of the
votes cast by the holders of American Premier Common Stock at the Special
Meeting is required to approve the Acquisition. AFC has agreed to vote its
approximate 18.8% direct holdings of American Premier Common Stock in favor of
the Acquisition. All of the common shareholders of AFC, which is a private
corporation, have agreed to vote in favor of AFC's entering into the Acquisition
Agreement.
EFFECTIVE TIME OF THE ACQUISITION
If approved by American Premier shareholders and if all other conditions to
the completion of the Acquisition are either waived or satisfied, the
Acquisition will be consummated through the filing of merger documents with the
Secretaries of State of Pennsylvania and Ohio, at which time it will become
effective.
EFFECT ON COMMON STOCK
Each outstanding share of American Premier Common Stock will be converted
into one share of New American Premier Common Stock, and each outstanding share
of AFC Common Stock will be converted into 1.45 shares of New American Premier
Common Stock.
EFFECT ON PREFERRED STOCK
As a result of the Acquisition, each outstanding share of American Premier
preferred stock will be converted into one share of New American Premier
preferred stock of a class and series having terms identical in all material
respects to the applicable class and series of American Premier stock so
converted. All outstanding shares of AFC preferred stock will remain outstanding
after the Acquisition without alteration, except that holders of AFC Series F
and Series G Preferred Stock will be granted voting rights equal to 25% of the
total voting power of AFC.
39
<PAGE> 46
CONDITIONS AND WAIVERS
The respective obligations of New American Premier, American Premier and
AFC to effect the Acquisition are subject to the satisfaction of certain
conditions prior to its effectiveness. These include:
a. approval of the Acquisition by a majority of the votes cast by the
holders of American Premier Common Stock at the Special Meeting;
b. the absence of any injunction or other court ruling or any
regulatory or governmental action which would prevent consummation of the
Acquisition;
c. the authorization for listing on the NYSE of the New American
Premier Common Stock issuable in the Acquisition;
d. either the receipt of a favorable tax ruling that the Acquisition
qualifies as a reverse acquisition with the consequence that, for federal
income tax purposes, the American Premier consolidated tax group will
continue; or exchange of a sufficient number of shares of AFC Common Stock
into shares of AFC preferred stock that such a ruling is not required (See
"TAX CONSEQUENCES");
e. the receipt of a favorable opinion of counsel, that for federal
income tax purposes, the Acquisition qualifies as a tax free exchange with
respect to shareholders of American Premier Common Stock and AFC Common
Stock and that such shareholders' basis and holding period will be the same
for their shares of New American Premier Common Stock as for the American
Premier Common Stock and AFC Common Stock held at the time of the
Acquisition;
f. all filings required to be made, and all consents, approvals,
permits and authorizations required to be obtained from, governmental and
regulatory authorities in connection with the Acquisition and the
consummation of the transactions contemplated thereby having been made or
obtained without conditions, except where the failure to obtain such
consents, approvals, permits and authorizations or the imposition of
conditions could not reasonably be expected to have a material adverse
effect on (i) AFC and its subsidiaries taken as whole or (ii) American
Premier and its subsidiaries taken as a whole; and
g. the exercise for cash of all outstanding options to purchase AFC
Common Stock.
In addition, the Special Committee shall have received an opinion of Furman
Selz as of the closing that the Exchange Ratios are fair to American Premier
Public Shareholders from a financial point of view.
AMENDMENT AND TERMINATION
At any time prior to its effectiveness, the parties to the Acquisition
Agreement may mutually modify or terminate it except that, after it is approved
by the holders of American Premier Common Stock, no amendment may be made which
changes the consideration payable to shareholders of American Premier or AFC or
makes any other change which would require approval by shareholders of American
Premier or AFC. In addition, the Acquisition Agreement provides that any
condition to any party's obligations may, at any time prior to effectiveness of
the Acquisition, be waived by such party in whole or in part. In addition,
approval of the Special Committee will be required to amend, terminate or waive
any of American Premier's rights under the Acquisition Agreement.
The Acquisition Agreement may be terminated at any time prior to its
effectiveness by any party if the transactions have not been consummated prior
to June 30, 1995, except that a party who is in breach of its obligations shall
not have the unilateral right to terminate the Acquisition Agreement. The
Acquisition Agreement may be terminated by American Premier if any event occurs
which has or may affect materially and adversely the condition of AFC, its
subsidiaries and affiliates, taken as a whole, or by AFC if similar developments
have affected or may affect materially and adversely the condition of American
Premier and its subsidiaries taken as a whole. For these purposes a material and
adverse effect on the condition of AFC shall not be deemed to occur solely as a
result of market fluctuations in the trading value of common stock of any of
American Premier, AAG, Chiquita or Citicasters, nor shall a material adverse
effect on the condition of American Premier be deemed to occur solely as a
result of market fluctuations in the trading value of
40
<PAGE> 47
American Premier Common Stock. American Premier may also terminate the
Acquisition Agreement prior to effectiveness if the Special Committee of its
Board of Directors determines that, as a result of an event or condition not
directly caused by American Premier, the Acquisition Agreement should be
terminated pursuant to the exercise of their fiduciary duties in accordance with
applicable law.
REGULATORY MATTERS
Consummation of the Acquisition is subject to compliance with
change-in-control regulations administered by the insurance departments of Ohio,
California and certain other states; clearance under the Hart-Scott-Rodino
Antitrust Improvements Act; and consents, or the passage of time without
expression of disapproval, with respect to broadcast licenses held by
Citicasters. Under the Acquisition Agreement, the parties have agreed to make
all required filings with governmental or regulatory authorities as promptly as
practicable.
TRANSFERABILITY OF NEW AMERICAN PREMIER COMMON STOCK TO BE RECEIVED IN THE
ACQUISITION
In the Acquisition, American Premier Public Shareholders will receive New
American Premier Common Stock which has been registered with the Securities and
Exchange Commission. Accordingly, that stock will be freely transferable by such
persons. Those persons who may be deemed affiliates of New American Premier,
including members of the Lindner Family, the directors of New American Premier
and certain of its executive officers, will only be able to sell their stock in
public transactions pursuant to another registration or in limited amounts under
Rule 144 under the Securities Act. There will be no period of time during which
the New American Premier Common Stock must be held prior to commencement of
sales by any such shareholder of New American Premier.
ABSENCE OF APPRAISAL RIGHTS
Under Pennsylvania and Ohio law, holders of American Premier Common Stock
and AFC Common Stock will not have the right to demand appraisal rights for
their shares in connection with the Acquisition.
MISCELLANEOUS
Whether or not the Acquisition is consummated, each party shall pay its own
expenses in connection with the Acquisition.
TAX CONSEQUENCES
The following is a general discussion of certain U.S. federal income tax
considerations relevant to shareholders of American Premier and AFC whose shares
will be converted into shares of New American Premier Common Stock
(collectively, the "Exchanging Shareholders"). This discussion does not purport
to be a complete analysis of all potential tax considerations relevant to the
Exchanging Shareholders. The discussion is limited solely to U.S. federal income
tax matters. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, administrative rulings and
pronouncements of the Internal Revenue Service ("IRS"), and judicial decisions,
all as of the date hereof and all of which are subject to change at any time,
possibly with retroactive effect.
The discussion of tax consequences to Exchanging Shareholders is limited to
those Exchanging Shareholders that hold shares of common stock in American
Premier or AFC (and that will hold New American Premier Common Stock as "capital
assets," for U.S. federal income tax purposes). This discussion does not purport
to address U.S. federal income tax consequences that may be applicable to
particular categories of shareholders, including insurance companies, tax-exempt
persons, financial institutions, dealers in securities, persons with significant
holdings of American Premier Common Stock or AFC Common Stock, and non-United
States persons, including foreign corporations and nonresident alien
individuals. This discussion does not address any tax considerations under the
laws of any state, locality, or jurisdiction, or foreign country.
41
<PAGE> 48
A ruling has been sought from the IRS with respect to the application of
the "reverse acquisition" provisions of the consolidated return Treasury
regulations (discussed below). No other rulings have been sought with respect to
any other aspect of the Acquisition, and there can be no assurance that the IRS
will not successfully challenge the conclusions reached in this discussion.
BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED BELOW MAY VARY
DEPENDING UPON EACH SHAREHOLDER'S PARTICULAR TAX STATUS, AND UPON U.S. FEDERAL
INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS WHICH ARE SUBJECT TO CHANGE
(WHICH CHANGE MAY BE RETROACTIVE IN EFFECT), SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE TRANSACTIONS.
TAX TREATMENT OF THE MERGER TRANSACTIONS
The American Premier Merger. The transaction pursuant to which a
transitory subsidiary of New American Premier merges with and into American
Premier, with American Premier surviving and with the holders of American
Premier Common Stock surrendering such stock solely in exchange for New American
Premier Common Stock and the holder of American Premier preferred stock
surrendering such stock solely in exchange for New American Premier preferred
stock, will be treated for federal income tax purposes as if the American
Premier shareholders transferred their American Premier Common Stock or American
Premier preferred stock directly to New American Premier in exchange for New
American Premier Common Stock or New American Premier preferred stock in a
transaction qualifying under Section 351 of the Code. (The existence of the
transitory subsidiary will be disregarded for tax purposes.) Accordingly, under
Section 351(a), no gain or loss will be recognized by such American Premier
shareholders. No gain or loss will be recognized by either New American Premier
or American Premier as a result of the merger.
The AFC Merger. The transaction pursuant to which a transitory subsidiary
of New American Premier merges with and into AFC, with AFC surviving and with
the holders of AFC Common Stock surrendering such stock solely in exchange for
New American Premier Common Stock plus cash in lieu of fractional shares, will
be treated for federal income tax purposes as if the AFC shareholders
transferred their AFC Common Stock directly to New American Premier in exchange
for New American Premier Common Stock and cash in lieu of fractional shares, in
a transaction qualifying under Section 351 of the Code. (The existence of the
transitory subsidiary will be disregarded for tax purposes.) Accordingly, under
Section 351(a), no gain or loss will be recognized by such AFC shareholders that
receive solely New American Premier Common Stock. Taxable income will be
recognized by an Exchanging Shareholder of AFC, however, if such shareholder
receives cash in addition to New American Premier Common Stock but not in an
amount in excess of the amount of the cash received. No gain or loss will be
recognized by New American Premier or AFC as a result of the merger.
TAX BASIS OF NEW AMERICAN PREMIER STOCK
Exchanging Shareholders of American Premier. The tax basis of an
Exchanging Shareholder of American Premier in New American Premier Common Stock
or New American Premier preferred stock received in the exchange will be the
same as such Exchanging Shareholder's tax basis in the American Premier Common
Stock or New American Premier preferred stock converted in the Acquisition.
Exchanging Shareholders of AFC. The tax basis of an Exchanging Shareholder
of AFC in New American Premier Common Stock received in the exchange generally
will be the same as such Exchanging Shareholder's tax basis in the American
Premier or AFC Common Stock converted in the Acquisition.
HOLDING PERIOD OF NEW AMERICAN PREMIER STOCK
An Exchanging Shareholder's holding period in New American Premier Common
Stock or New American Premier preferred stock received in the exchange will
include the period during which such shareholder held the American Premier
Common Stock or New American Premier preferred stock or AFC Common Stock that is
converted in the Acquisition.
42
<PAGE> 49
CERTAIN TAX CONSEQUENCES TO AMERICAN PREMIER AND AFC
By reason of the Acquisition, American Premier will become a wholly-owned
subsidiary of New American Premier and will join in filing consolidated federal
income tax returns with New American Premier. It is anticipated that the
acquisition of American Premier by New American Premier will constitute a
"reverse acquisition" within the meaning of Treas. Reg. sec. 1.1502-75(d)(3),
with the consequence that the consolidated group of which New American Premier
will be the common parent will be considered for federal income tax purposes to
be a continuation of the American Premier consolidated group. A ruling
confirming this result has been sought from the IRS.
In the event that such a ruling is not obtained, it is anticipated that a
portion of the AFC Common Stock will be exchanged for shares of AFC preferred
stock prior to consummation of the Acquisition. Because AFC preferred stock
received in this transaction will not be exchanged for New American Premier
Common Stock, the value of the AFC Common Stock held by New American Premier
would be less than if the transaction had not occurred. AFC Common Stock would
be so exchanged for AFC preferred stock only to the extent necessary to ensure
that the Acquisition results in the continuation of the American Premier
consolidated tax group pursuant to the reverse acquisition rule. Neither the
holders of AFC Common Stock that exchange such stock for AFC preferred stock nor
AFC should recognize gain or loss by reason of such exchange.
As a result of the Acquisition, New American Premier will own all of the
AFC Common Stock. It is anticipated, however, that AFC will not be includible in
the consolidated tax group of which New American Premier is the common parent.
(This result is expected regardless of whether a portion of the AFC Common Stock
is exchanged for AFC preferred stock.) As a consequence, AFC will continue to
file consolidated returns as the common parent of a separate consolidated tax
group.
EXTENSION OF VOTING RIGHTS TO AFC'S SERIES F AND SERIES G PREFERRED STOCK
Prior to the Acquisition (including the possible exchange of a portion of
the outstanding AFC Common Stock for AFC preferred stock), permanent voting
rights will be extended to the Series F and Series G preferred stock of AFC.
Neither the holders of such preferred stock nor AFC should recognize gain or
loss by reason of this event.
BACKUP WITHHOLDING
Federal income tax backup withholding at a rate of 31% on dividends and
proceeds from a sale, exchange, or redemption of New American Premier Common
Stock will apply unless the holder (i) is a corporation or comes within certain
other exempt categories (and, when required, demonstrates this fact) or (ii)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. The amount of any backup withholding from a
payment to a holder will be allowed as a credit against the holder's federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS.
43
<PAGE> 50
UNAUDITED PRO FORMA FINANCIAL INFORMATION
GENERAL
The accompanying Unaudited Pro Forma Condensed Consolidated Financial
Statements illustrate the estimated effects of the Acquisition of AFC on the
historical Financial Statements of New American Premier. The acquisition will be
accounted for as a "purchase" type business combination with American Premier
being treated as the acquired company because the former shareholders of AFC
will acquire a majority of the voting shares and will effectively control New
American Premier. The Unaudited Pro Forma Condensed Consolidated Balance Sheet
at September 30, 1994 assumes that the Acquisition was consummated at that date.
The Unaudited Pro Forma Condensed Consolidated Statements of Income for the nine
months ended September 30, 1994 and the year ended December 31, 1993 were
prepared assuming that the acquisition was consummated on January 1, 1993. The
Unaudited Pro Forma Condensed Consolidated Financial Statements give effect to
the issuance of 1.45 shares of New American Premier common stock for each share
of common stock of AFC, the application of approximately $750 million of parent
company investments of American Premier to reduce long-term debt (including
assumed premiums) of American Premier and AFC, the payment of transaction costs
and expenses and the revaluation of American Premier's net assets as described
below.
Since American Premier is the acquired company for financial reporting
purposes, generally accepted accounting principles require that American
Premier's historical net assets be adjusted to their fair market values at the
date of the Acquisition. Because AFC owned approximately 40% of American Premier
prior to the Acquisition, only that portion of American Premier's net assets
that was attributable to American Premier Public Shareholders immediately prior
to the acquisition (approximately 60%) are affected by such revaluation. For
purposes of the Unaudited Pro Forma Condensed Consolidated Financial Statements,
the revaluation of American Premier's net assets is based on a market value of
$26.75 per share, which is the market price of the American Premier common stock
on September 30, 1994. The actual adjustment of American Premier's historical
net assets will be based on the per share fair market value of the American
Premier stock at the closing date. In addition, New American Premier will be
required to retain the accounting policies of AFC. Consequently, the accounting
policy currently used by American Premier with respect to pre-reorganization
matters (see Note 1 of Notes to Financial Statements included in the Annual
Report on Form 10-K for the year ended December 31, 1993 of American Premier
Underwriters, Inc. incorporated herein by reference) will not be available to
New American Premier, but will continue to be available to American Premier in
its separate company financial statements.
During 1993 and 1994 AFC and American Premier both reported certain
transactions involving disposition of their ownership interests in subsidiaries,
affiliates and certain other operations and gains and losses on the sales of
investments. Management believes that results including these transactions are
not indicative of future results of operations and, accordingly, supplemental
pro forma information is provided which excludes the results of such
transactions.
The Unaudited Pro Forma Condensed Consolidated Financial Statements do not
necessarily reflect the results of operations or the financial position of New
American Premier which would have actually resulted had the proposed Acquisition
occurred as of the dates indicated, nor should they be taken as indicative of
the future results of operations or the future financial position of New
American Premier. The Unaudited Pro Forma Condensed Consolidated Financial
Statements of New American Premier should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations of AFC and American Premier included in their respective Annual
Reports on Form 10-K for the year ended December 31, 1993 and Quarterly Reports
on Form 10-Q for the nine months ended September 30, 1994, included or
incorporated herein by reference.
44
<PAGE> 51
<TABLE>
<CAPTION>
AMERICAN PREMIER GROUP, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1994
PRO FORMA
HISTORICAL AMERICAN
AMERICAN HISTORICAL PRO FORMA PREMIER
PREMIER AFC ADJUSTMENTS GROUP, INC.
---------- ---------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
ASSETS
Insurance company investments............... $1,773.3 $ 6,580.2 $ (48.8)(a) $ 8,304.7
Parent company investments.................. 886.8 10.0 (815.8)(b) 81.0
Investment in investees..................... -- 850.9 (529.3)(c) 321.6
Loans receivable, real estate and other..... -- 796.8 -- 796.8
-------- --------- --------- ---------
Total invested assets....................... 2,660.1 8,237.9 (1,393.9) 9,504.1
Cash........................................ 32.9 172.8 -- 205.7
Reinsurance recoverable and prepaid
reinsurance............................... 51.5 913.9 -- 965.4
Other receivables........................... 444.5 587.5 -- 1,032.0
Goodwill.................................... 397.4 174.4 (200.3)(d) 371.5
Other assets................................ 581.2 382.5 -- 963.7
-------- --------- --------- ---------
Total assets........................... $4,167.6 $10,469.0 $(1,594.2) $13,042.4
======== ========= ========= =========
LIABILITIES AND EQUITY
Unpaid losses and loss adjustment
expenses.................................. $1,087.1 $ 2,914.8 $ -- $ 4,001.9
Annuity policyholders' funds accumulated.... -- 4,489.7 -- 4,489.7
Policyholder dividends...................... 120.0 7.6 -- 127.6
Unearned premium............................ 432.8 805.6 -- 1,238.4
Minority interest........................... 4.8 107.2 173.7 (e) 285.7
Debt........................................ 503.6 1,080.7 (700.8)(f) 883.5
Accounts payable and other liabilities...... 394.0 586.3 (10.0)(g) 970.3
-------- --------- --------- ---------
Total liabilities...................... 2,542.3 9,991.9 (537.1) 11,997.1
-------- --------- --------- ---------
Preferred stock............................. -- 168.4 (168.4)(e) --
-------- --------- --------- ---------
Redeemable preferred stock.................. -- 5.3 (5.3)(e) --
-------- --------- --------- ---------
Common Stock subject to mandatory
redemption................................ -- 37.8 (37.8)(h) --
Common Stock................................ 47.6 0.9 9.0 (h) 57.5
Capital surplus............................. 729.4 -- (3.4)(h) 726.0
Retained earnings........................... 864.1 236.3 (867.0)(h) 233.4
Net unrealized gains (losses) on
investments............................... (15.8) 28.4 15.8 (h) 28.4
-------- --------- --------- ---------
Common shareholders' equity............ 1,625.3 303.4 (883.4) 1,045.3
-------- --------- --------- ---------
Total liabilities and equity........... $4,167.6 $10,469.0 $(1,594.2) $13,042.4
======== ========= ========= =========
======== ========= ========== =========
Number of shares outstanding................ 47.6 9.9 (i) 57.5
======== ========= =========
Book value per share........................ $ 34.14 $ 18.18
======== =========
Debt to capitalization ratio................ 23.7% 39.9%
======== =========
</TABLE>
45
<PAGE> 52
<TABLE>
<CAPTION>
AMERICAN PREMIER GROUP, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1994
PRO FORMA
AMERICAN
HISTORICAL HISTORICAL PRO FORMA PREMIER
AMERICAN PREMIER AFC ADJUSTMENTS GROUP, INC.
---------------- -------- ------------ -----------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C>
INCOME
Property and casualty insurance premiums.......... $1,160.9 $1,013.6 -- $2,174.5
Investment income................................. 120.8 434.1 $(30.7)(j) 524.2
Realized gains (losses) on sales of securities.... (74.9) 43.1 -- (31.8)
Equity in net (losses) of investee corporations... -- (8.8) 4.9 (k) (3.9)
Gains on sales of investee corporations........... -- 1.7 -- 1.7
Sales of other products and services.............. 97.5 -- -- 97.5
Other income...................................... -- 85.4 -- 85.4
-------- -------- ------ --------
1,304.3 1,569.1 (25.8) 2,847.6
COSTS AND EXPENSES
Property and casualty insurance:
Losses and loss adjustment expenses............. 799.0 710.6 -- 1,509.6
Commissions and other underwriting expenses..... 260.9 311.1 -- 572.0
Policyholder dividends.......................... 67.6 -- -- 67.6
Interest charges on:
Annuity policyholders' funds.................... -- 180.7 -- 180.7
Borrowed money.................................. 39.9 87.1 (61.2)(l) 65.8
Cost of sales..................................... 53.9 -- -- 53.9
Other operating and general expenses.............. 66.6 197.1 6.0 (m) 269.7
-------- -------- ------ --------
1,287.9 1,486.6 (55.2) 2,719.3
Earnings from continuing operations before income
taxes........................................... 16.4 82.5 29.4 128.3
Income tax expense................................ (30.5) (25.1) (13.6)(n) (69.2)
-------- -------- ------ --------
Net earnings (loss) from continuing operations.... (14.1) 57.4 15.8 59.1
Dividends on preferred stock...................... -- (19.5) 19.5 (m) --
-------- -------- ------ --------
Net earnings (loss) from continuing operations
available for common shareholders............... $ (14.1) $ 37.9 $ 35.3 $ 59.1
======== ======== ====== ========
Weighted average common shares outstanding........ 48.2 9.9 (o) 58.1
======== ====== ========
Earnings (loss) per common share from continuing
operations...................................... $ (0.29) $ 1.02
======== ========
Ratio of Earnings to Fixed Charges................ 1.4 3.3
======== ========
SUPPLEMENTAL INFORMATION:
Pre-tax earnings from continuing operations
excluding gains and losses...................... $ 91.3 $ 63.9 $ 29.4 $ 184.6
Income tax expense................................ (34.6) (24.0) (13.6) (72.2)
Dividends on preferred stock...................... -- (19.5) 19.5 --
-------- -------- ------ --------
Earnings from continuing operations available for
common shareholders excluding gains and
losses.......................................... $ 56.7 $ 20.4 $ 35.3 $ 112.4
======== ======== ====== ========
Weighted average common shares outstanding........ 48.2 9.9 58.1
======== ====== ========
Earnings per share excluding gains and losses..... $ 1.17 $ 1.93
======== ========
</TABLE>
46
<PAGE> 53
<TABLE>
<CAPTION>
AMERICAN PREMIER GROUP, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1993
PRO FORMA ADJUSTMENTS
------------------------------
DEDUCT 1ST QTR AMERICAN
HISTORICAL AMERICAN PREMIER
AMERICAN HISTORICAL PREMIER IN GROUP, INC.
PREMIER AFC AFC(P) ADJUSTMENTS PRO FORMA
-------- -------- --------------- ------------ -------------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME
Property and casualty insurance premiums............... $1,273.6 $1,494.8 $(254.0) -- $2,514.4
Investment income...................................... 168.1 601.9 (39.0) $ (41.0)(j) 690.0
Realized gains on sales of securities.................. 123.3 82.3 (6.0) -- 199.6
Equity in net earnings (losses) of investee
corporations......................................... -- 69.9 (2.0) (91.7)(k) (23.8)
Gains on sales of investee corporations................ -- 83.2 -- (28.3)(q) 54.9
Gains (losses) on sales of subsidiaries................ (41.6) 75.3 -- (31.4)(q) 2.3
Sales of other products and services................... 198.3 152.1 (152.0) -- 198.4
Other income........................................... -- 161.2 (1.0) -- 160.2
-------- -------- ------- ------- --------
1,721.7 2,720.7 (454.0) (192.4) 3,796.0
COSTS AND EXPENSES
Property and casualty insurance:
Losses and loss adjustment expenses.................. 856.9 1,064.1 (187.0) -- 1,734.0
Commissions and other underwriting expenses.......... 288.3 449.8 (57.0) -- 681.1
Policyholder dividends............................... 93.2 -- -- -- 93.2
Interest charges on:
Annuity policyholders' funds......................... -- 228.6 -- -- 228.6
Borrowed money....................................... 62.8 157.2 (17.0) (81.6)(l) 121.4
Costs of sales......................................... 88.9 134.9 (135.0) -- 88.8
Other operating and general expenses................... 141.5 424.1 (44.0) 8.1 (m) 529.7
-------- -------- ------- ------- --------
1,531.6 2,458.7 (440.0) (73.5) 3,476.8
-------- -------- ------- ------- --------
Earnings from continuing operations before income
taxes................................................ 190.1 262.0 (14.0) (118.9) 319.2
Income tax (expense) benefit........................... 52.6 (37.3) (3.0) 37.1 (n) 49.4
-------- -------- ------- ------- --------
Net earnings from continuing operations................ 242.7 224.7 (17.0) (81.8) 368.6
Dividends on preferred stock........................... -- (26.1) -- 26.1 (m) --
-------- -------- ------- ------- --------
Net earnings from continuing operations available for
common shareholders.................................. $ 242.7 $ 198.6 $ (17.0) $ (55.7) $ 368.6
======== ======== ======= ======= ========
Weighted average common shares outstanding............. 48.2 7.0 (o) 55.2
======== ======= ========
Earnings per common share from continuing operations... $ 5.03 $ 6.68
======== ========
Ratio of Earnings to Fixed Charges..................... 3.8 4.2
======== ========
SUPPLEMENTAL INFORMATION:
Pre-tax earnings from continuing operations excluding
gains and losses $ 108.4 $ 65.2 $ (8.0) $ (59.2) $ 106.4
Income tax expense..................................... (41.4) (28.1) 3.7 16.2 (49.6)
Dividends on preferred stock........................... -- (26.1) -- 26.1 --
-------- -------- ------- ------- --------
Earnings from continuing operations available for
common shareholders excluding gains and losses....... $ 67.0 $ 11.0 $ (4.3) $ (16.9) $ 56.8
======== ======== ======= ======= ========
Weighted average common shares outstanding............. 48.2 7.0 55.2
======== ======= ========
Earnings per share excluding gains and losses.......... $ 1.39 $ 1.03
======== ========
</TABLE>
47
<PAGE> 54
AMERICAN PREMIER GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(a) Represents the write-down of American Premier fixed maturity securities
which are classified as held to maturity to market value at September 30, 1994.
(b) Consists of the use of American Premier parent company investments: (1)
to retire outstanding debt (approximately $750 million including assumed
premiums); (2) to pay AFC's obligations under the Incentive Plan (approximately
$50 million) and (3) to pay other transaction related costs (approximately $25
million). These payments are partially offset by the receipt of approximately $9
million upon exercise of AFC stock options.
(c) Elimination of AFC's investment in American Premier.
(d) The adjustment to goodwill is determined as follows (in millions):
<TABLE>
<S> <C>
Value of 28.9 million shares of American Premier owned by American
Premier Public Shareholders, computed at $26.75 per share........ $ 774.0
Carrying value of American Premier stock owned by AFC at September
30, 1994......................................................... 529.3
Transaction costs.................................................. 25.0
--------
Total amount to be allocated to the net assets of American
Premier.......................................................... 1,328.3
American Premier shareholders equity at September 30, 1994......... 1,625.3
--------
Required adjustment to American Premier shareholders' equity....... $ 297.0
========
Write-down of insurance investment portfolio to market value....... $ 48.8
Write-up long-term debt to market value............................ 47.9
Required write-down of American Premier goodwill................... 200.3
$ 297.0
========
</TABLE>
The actual adjustments of American Premier historical assets and
liabilities will depend, among other things, on the fair market value of its
stock at the closing date. An increase or decrease from the $26.75 per share
price used in these pro forma statements will result in a corresponding change
(totalling $28.9 million for each $1.00 per share) in the common shareholders'
equity of American Premier and an offsetting change by the same amount to the
aggregate adjustment of net assets.
(e) AFC preferred stock will remain outstanding and, accordingly, is
reclassified to minority interest.
(f) Consists of application of American Premier parent company investments
to retire $723.9 million principal amount of American Premier and AFC long-term
debt, and an increase of $23.1 million to state American Premier debt which is
not assumed to be retired at its market value at September 30, 1994. For pro
forma purposes, it is assumed that premiums in the amount of approximately $26.1
million will be required to retire the debt, and therefore, the total cash
required is $750.0 million. The determination of which and how much of the AFC
and American Premier debt issues will be repurchased, and whether such
repurchases would be effected through redemption (where callable), tender or
privately negotiated transactions will depend on various factors, including
whether and to what extent the "Put Right" applicable to outstanding American
Premier debt is exercised (see "CERTAIN CONSIDERATIONS -- Certain Consequences
of the Acquisition -- Effect on Outstanding American Premier Debt"), the amount
of funds expended in the American Premier share repurchase program referred to
under "SUMMARY" and the terms of each such debt issue (including interest rate,
maturity and redemption provisions, if any). The following table sets forth the
principal outstanding debt issues at September 30, 1994 of AFC and American
Premier and certain provisions thereof.
48
<PAGE> 55
<TABLE>
<S> <C> <C>
PRINCIPAL
AMOUNT
LONG TERM DEBT ISSUES OUTSTANDING REDEMPTION PROVISIONS
(SEPTEMBER 30, 1994)
AFC
12 1/4% Debentures due 2003 $ 52 million Redeemable at 102.5% in 1995,
101.25% in 1996, 100% thereafter
12% Debentures due 1999 $134 million Redeemable at par
(includes Series A, B and BV)
10% Debentures due 1999 $ 89 million Redeemable at par
9 3/4% Subordinated Debentures $204 million Non-redeemable until 1999
due 2004
9 1/2% Subordinated Debentures $ 4 million Redeemable at par
due 1999
AFC SUBSIDIARIES
11% Notes due 1998 $150 million Redeemable at par beginning
(Great American Holding 8/15/95
Corporation)
Floating Rate Notes due 1995 $ 50 million Redeemable at par
(Great American Holding
Corporation)
Bank Line of Credit $135 million Redeemable at par
(Great American Holding
Corporation)
Various Mortgage Loans $ 59 million Redeemable at par
(Great American Insurance)
11 1/8 Senior Subordinated Notes $104 million Non-redeemable until 1998
due 2003
(American Annuity Group,
Inc.)
9 1/2 Senior Notes due 2001 $ 59 million Non-redeemable until 1997
(American Annuity Group,
Inc.)
Other $ 40 million
AMERICAN PREMIER
10 7/8 Subordinated Notes due $150 million Non-redeemable. Following the
2011 Acquisition, holders would have a
put right to American Premier at
par if credit rating falls below
investment grade.
10 5/8 Subordinated Notes due $150 million Non-redeemable. Following the
2000 Acquisition, holders would have a
put right to American Premier at
par if credit rating falls below
investment grade.
9 3/4% Subordinated Notes due $200 million Non-redeemable. Following the
1999 Acquisition, holders would have a
put right to American Premier at
par if credit rating falls below
investment grade.
</TABLE>
(g) Represents the portion of the Incentive Plan which was previously
accrued by AFC. See also Notes (b) and (h) of Notes to Unaudited Pro Forma
Condensed Consolidated Financial Statements.
49
<PAGE> 56
(h) Adjustments to shareholders' equity are comprised of the following (in
millions):
<TABLE>
<CAPTION>
COMMON
STOCK
SUBJECT TO COMMON CAPITAL RETAINED UNREALIZED TOTAL COMMON
REDEMPTION STOCK SURPLUS EARNINGS GAIN (LOSS) EQUITY
---------- ------ ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Historical Amounts for American
Premier.......................... $ 0.0 $(47.6) $(729.4) $(864.1) $15.8 $(1,625.3)
Value of New American Premier
Shares Issued.................... (37.8) 48.0 726.0 37.8 0.0 774.0
Call Premiums on AFC Debt Assumed
Retired.......................... 0.0 0.0 0.0 (1.1) 0.0 (1.1)
Accrual of Additional
Expense -- AFC Incentive Plan.... 0.0 0.0 0.0 (39.6) 0.0 (39.6)
Proceeds of Assumed Exercise of AFC
Stock Options.................... 0.0 8.6 0.0 0.0 0.0 8.6
------ ------ -------- ------- ----- ---------
$(37.8) $ 9.0 $ (3.4) $(867.0) $15.8 $ (883.4)
====== ====== ======== ======== ===== =========
</TABLE>
Certain members of the Lindner Family who in the aggregate owned 1.5
million shares of AFC Common Stock at December 31, 1993 have the right to
require AFC to redeem such shares at a stipulated value. Since these shares
would be converted into New American Premier Common Stock, this amount is
included in Common Shareholders' Equity for pro forma purposes.
(i) Represents the net increase in New American Premier common shares
outstanding, comprised of 28.6 million shares issued in the merger of a
subsidiary of New American Premier with AFC pursuant to which each share of AFC
common stock would be converted into 1.45 shares of New American Premier Common
Stock, reduced by 18.7 million shares held by AFC or its subsidiaries, which
will be accounted for as treasury shares by New American Premier after the
Acquisition.
(j) Reflects the estimated decrease in investment income resulting from the
use of American Premier parent company investments to retire debt, to pay AFC
obligations under the Incentive Plan, and to pay transaction related costs,
partially offset by an increase in investment income ($3.7 million for the nine
months ended September 30, 1994 and $4.9 million the year ended December 31,
1993) from the amortization of the write-down of the American Premier fixed
maturity securities.
(k) Reflects the elimination of AFC's equity in earnings of American
Premier.
(l) Reflects the estimated decrease in interest expense resulting from the
repurchase or retirement of debt and the amortization of the market value
adjustment applicable to the American Premier debt which is not retired ($2.5
million for the nine months ended September 30, 1994 and $3.3 million the year
ended December 31, 1993).
(m) Reflects the estimated reduction in operating and general expenses
which are expected to result from the Acquisition ($9.7 million for the nine
months ended September 30, 1994 and $13.0 million the year ended December 31,
1993) and the reduction of goodwill amortization ($3.8 million for the nine
months ended September 30, 1994 and $5.0 million the year ended December 31,
1993). Also includes expenses related to AFC preferred dividends ($19.5 million
for the nine months ended September 30, 1994 and $26.1 million for the year
ended December 31, 1993).
(n) The adjustment to the tax provision represents the statutory federal
rate applied to the estimated adjustments to pre-tax income excluding
amortization of goodwill and other permanent items.
(o) Net income per share for the nine months ended September 30, 1994 is
calculated based on the assumption that 58.1 million shares were outstanding
during the entire period reflecting the 9.9 million increase in shares explained
in note (i) above. Net income per share for the year ended December 31, 1993 is
calculated based on the assumption that 55.2 million shares were outstanding
during the entire year. In August 1993, AFC sold 4.5 million American Premier
shares to the public. For pro forma purposes these shares are
50
<PAGE> 57
considered to be treasury shares for the period January 1, 1993 through the date
of sale. Accordingly, the pro forma increase in shares is reduced to 7.0
million.
(p) Reflects the elimination of American Premier first quarter results from
AFC results. During the first quarter 1993, AFC owned more than 50% of American
Premier and, accordingly, consolidated American Premier. In anticipation of a
reduction in AFC's ownership of American Premier below 50%, AFC ceased
accounting for American Premier as a subsidiary following the 1993 first
quarter.
(q) Reflects the elimination of the gain on sale of American Premier shares
held by AFC ($28.3 million) and a recorded gain on the sale of NSA Companies to
American Premier by AFC ($31.4 million).
51
<PAGE> 58
DESCRIPTION OF CAPITAL STOCKS
NEW AMERICAN PREMIER
The following description is a summary and is qualified in its entirety by
the provisions of New American Premier's Articles of Incorporation, Code of
Regulations and the Ohio General Corporation Law.
The total number of authorized shares of New American Premier Common Stock
will be 200,000,000. There are 100 shares of New American Premier Common Stock
issued and outstanding. Following the Acquisition, New American Premier will
have approximately 56.2 million shares of Common Stock issued and outstanding
and approximately 1.4 million shares issuable pursuant to the 1978 Plan of
Reorganization of American Premier's predecessor. In addition, approximately
500,000 shares will be reserved for optional conversion of preferred stock and
approximately 5.1 million shares will be reserved for issuance upon exercise of
stock options. Holders of New American Premier Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
shareholders. New American Premier common shareholders have the right to
cumulate their votes in the election of directors but are not entitled to any
preemptive rights.
Subject to preferences which may be granted to holders of Preferred Stock,
holders of New American Premier Common Stock are entitled to the share of such
dividends as the Board of Directors, in its discretion, may validly declare from
funds legally available. In the event of liquidation, each outstanding share of
Common Stock entitles its holder to participate ratably in the assets remaining
after the payment of liabilities and any Preferred Stock liquidation
preferences.
New American Premier will be authorized to issue 12,500,000 shares of
voting Preferred Stock, and 12,500,000 shares of nonvoting Preferred Stock, each
without par value. New American Premier's Articles of Incorporation authorize
the Board of Directors, without further shareholder approval, to designate for
any series of Preferred Stock not fixed in New American Premier's Articles of
Incorporation the designations, preferences, conversion rights, and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as they determine and as are permitted by the Ohio
General Corporation Law. The Acquisition provides for the conversion of each of
the 212,698 shares of Preference Stock of American Premier into one like share
of Preferred Stock of New American Premier having terms identical in all
material respects to the series of Preferred Stock of American Premier as
converted.
The affirmative vote of the holders of a majority of the outstanding shares
of New American Premier Common Stock is required to amend the Articles of
Incorporation and to approve mergers, reorganizations, share exchanges and
similar transactions.
New American Premier will act as its own transfer agent and registrar.
AMERICAN PREMIER UNDERWRITERS, INC.
The following description is a summary and is qualified in its entirety by
the provisions of American Premier's Amended and Restated Articles of
Incorporation, By-laws and the Pennsylvania Business Corporation Law.
The total number of authorized shares of American Premier Common Stock is
200,000,000. At November 30, 1994, there were 47,616,111 shares of Common Stock
of American Premier issued and issuable, of which 46,240,807 shares were
outstanding and 1,375,304 shares remained issuable pursuant to the 1978 Plan of
Reorganization of American Premier's predecessor. In addition, at that date,
446,799 shares were reserved for optional conversion of Preference Stock and
5,115,671 shares were reserved for issuance upon exercise of stock options
granted or to be granted pursuant to American Premier's Stock Option Plan.
Any outstanding Preference Stock ranks prior to the Common Stock as to
dividends and as to distributions in the event of liquidation, dissolution or
winding up of American Premier. There are 212,698 shares of Preference Stock
outstanding.
52
<PAGE> 59
Holders of American Premier Common Stock are entitled to vote cumulatively
for the election of directors. On all other matters, holders of American Premier
Common Stock are entitled to one vote per share. Holders of American Premier
Common Stock are not entitled to any preemptive rights.
American Premier is authorized to issue 23,090,274 shares of Preference
Stock, without par value. The Board of Directors is authorized to designate for
any series of Preference Stock not fixed in American Premier's Amended and
Restated Articles of Incorporation the voting powers, designations, preferences,
conversion rights, and relative, participating, optional and other special
rights, and such qualifications, limitations or restrictions, as they determine
and as are permitted by the Pennsylvania Business Corporation Law. The Board of
Directors, without shareholder approval, could issue Preference Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of the Common Stock. As described above under "New American
Premier," the Acquisition Agreement provides for the conversion of each share of
each series of Preference Stock of American Premier into one share of a like
series of Preferred Stock of New American Premier having terms identical in all
material respects to the series of Preference Stock of American Premier so
converted.
The affirmative vote of the holders of a majority of the shares of American
Premier Common Stock cast is required to amend the Amended and Restated Articles
of Incorporation and to approve mergers, reorganizations, share exchanges and
similar transactions.
American Premier acts as its own transfer agent and registrar.
AMERICAN FINANCIAL CORPORATION
The following description is a summary and is qualified in its entirety by
the provisions of AFC's Articles of Incorporation, Code of Regulations and the
Ohio General Corporation Law.
The total number of authorized shares of AFC Common Stock is 32,300,000, of
which 18,971,217 shares are issued and outstanding. At November 30, 1994,
options for 762,500 shares of AFC Common Stock were outstanding. Holders of AFC
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of shareholders. AFC shareholders are not entitled
to vote cumulatively in the election of directors and do not have preemptive
rights.
AFC has 13,744,754 shares of $1 par, Series F Cumulative Preferred Stock
and 364,158 shares of $1 par, Series G Cumulative Preferred Stock outstanding.
The annual per share dividend rates for the Series F and Series G Preferred
Stocks are $1.80 and $1.05, respectively. The Series F and Series G Preferred
Stocks have liquidation values of $20 and $10.50 per share, respectively. The
Series F Preferred Stock is redeemable through 1996 at $20 per share plus
accrued but unpaid dividends to the extent of 10% of the total number of shares
originally issued per year with such right not being cumulative. The Series G
Preferred Stock is redeemable at any time at $10.50 per share plus accrued but
unpaid dividends. As part of the Acquisition, AFC's Articles of Incorporation
will be amended to provide that the Series F and Series G Preferred Stocks will
be granted the same voting rights as pertain to AFC Common Stock and will vote
together with the AFC Common Stock as one class on all matters except where a
separate class vote may be required by law. AFC has 274,242 shares of $10.50
par, Series E Nonvoting Cumulative Preferred Stock outstanding. The annual
dividend rate on this series is $1.00 per share and the liquidation value is
$10.50 per share. The remaining shares of AFC Series E Preferred Stock will be
redeemed on December 3, 1995.
The affirmative vote of two-thirds of AFC's outstanding Common and Series F
and G Preferred Stock is required to amend its Articles of Incorporation and
Code of Regulations and to approve mergers, reorganizations and similar
transactions.
AFC acts as its own transfer agent and registrar.
53
<PAGE> 60
COMPARATIVE RIGHTS
SHAREHOLDERS OF NEW AMERICAN PREMIER AND AMERICAN PREMIER
If the Acquisition is consummated, public holders of American Premier
Common Stock and all holders of AFC Common Stock will become common shareholders
of New American Premier. The rights of holders of both New American Premier
Common Stock and AFC Common Stock are governed by Ohio law whereas those of
holders of American Premier Common Stock are governed by Pennsylvania law. In
addition, the rights and obligations of shareholders are also governed by the
Articles of Incorporation and the Codes of Regulations or By-laws of the
respective companies.
The rights and obligations of shareholders of American Premier will be
affected by the change in state of incorporation. The Articles of Incorporation
of New American Premier have been designed to provide the same rights as are now
provided to shareholders of American Premier by its Articles of Incorporation.
Specifically, the Articles of Incorporation of both New American Premier and
American Premier provide that common shareholders have one vote per share, are
able to vote cumulatively in the election of directors, can amend the Articles
of Incorporation, approve mergers and similar transactions by a vote of the
majority of the outstanding common stock (majority of votes cast in the case of
American Premier) and do not have pre-emptive rights. Several corporate actions
that may be taken by directors of American Premier without the approval of
common shareholders cannot, under Ohio law, be taken by directors of New
American Premier without the approval of common shareholders, such as, changing
the name of the corporation, providing voting rights for undesignated preferred
stock and amending the Code of Regulations. Furthermore, appraisal rights are
generally provided for mergers and similar transactions under Ohio law whereas
Pennsylvania law does not provide such rights if the particular stock is
publicly traded, as is the case with American Premier. There are no provisions
in the Articles of Incorporation of either New American Premier or American
Premier that can be construed as restricting changes in control except to the
extent that the issuance of preferred stock by the directors could be utilized
for such purposes.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for New
American Premier by Robert W. Olson, Esq., Senior Vice President, General
Counsel and Secretary of the Company. Mr. Olson, a director and full-time
employee of American Premier, owns 30,162 shares of American Premier Common
Stock and holds options to purchase 313,772 shares of American Premier Common
Stock.
EXPERTS
The balance sheet appearing herein for New American Premier at December 9,
1994 has been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which has been included herein and has been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of AFC appearing in its Annual Report
on Form 10-K for the year ended December 31, 1993 have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from American Premier's Annual
Report on Form 10-K for the year ended December 31, 1993 have been audited by
Deloitte & Touche, independent auditors, as stated in their reports, which are
incorporated by reference herein, and have been incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
54
<PAGE> 61
PROXY SOLICITATION
Solicitation of proxies is being made by management at the direction of
American Premier's Board of Directors, without additional compensation, through
the mail, in person or by telephone. The cost will be borne by American Premier.
In addition, American Premier will request brokers and other custodians,
nominees and fiduciaries to forward proxy soliciting material to the beneficial
owners of shares held of record by such persons, and American Premier will
reimburse them for their expenses in so doing. American Premier has also
retained to aid in the solicitation of
proxies for a fee estimated at $ plus out-of-pocket expenses.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Proposals intended to be presented by shareholders at the 1996 Annual
Meeting of Shareholders of American Premier must be received by American Premier
not later than December 15, 1995, in order to be considered for inclusion in
American Premier's proxy statement and form of proxy relating to that meeting.
Any such proposal should be communicated in writing to American Premier's
Secretary at the address indicated above. If the Acquisition is consummated, no
such meeting will be held.
55
<PAGE> 62
FINANCIAL STATEMENTS OF AMERICAN PREMIER GROUP, INC.
INDEPENDENT AUDITORS' REPORT
American Premier Group, Inc.:
We have audited the accompanying balance sheet of American Premier Group,
Inc. as of December 9, 1994 (date of inception). This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company at December 9, 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
December 9, 1994
56
<PAGE> 63
AMERICAN PREMIER GROUP, INC.
BALANCE SHEET
DECEMBER 9, 1994 (DATE OF INCEPTION)
ASSETS
<TABLE>
<S> <C>
Cash.................................................................................. $100
====
SHAREHOLDER'S EQUITY
Shareholder's Equity:
Common Stock, $1 par value; authorized 750 shares;
issued and outstanding 10 shares................................................. $ 10
Paid in Capital..................................................................... 90
----
Total Shareholder's Equity.................................................. $100
====
</TABLE>
AMERICAN PREMIER GROUP, INC.
NOTES TO BALANCE SHEET
1. DESCRIPTION OF THE COMPANY
American Premier Group, Inc. ("New American Premier") was formed on
December 9, 1994 to serve as successor to American Premier Underwriters, Inc.
("American Premier") and as a public holding company for American Premier and
American Financial Corporation ("AFC") if the proposed acquisition of AFC by
American Premier described in Note 2 were to occur.
New American Premier was formed by American Premier and is currently 100%
owned by an officer of American Premier who paid $100 for 10 shares of New
American Premier on December 9, 1994.
2. PROPOSED ACQUISITION
American Premier is currently considering a proposal to acquire AFC. Under
the terms of the Acquisition Agreement, (a) American Premier would merge with a
subsidiary of New American Premier, and each share of American Premier Common
Stock would be converted into one share of newly issued New American Premier
Common Stock and (b) AFC would merge into another subsidiary of New American
Premier and each share of AFC Common Stock would be converted into 1.45 shares
of New American Premier Common Stock. As a result, American Premier and AFC
would each become subsidiaries of New American Premier.
3. RELATED PARTIES
The Chairman, Chief Executive Officer and principal shareholder of AFC,
which beneficially owned approximately 40.4 percent of American Premier's
outstanding common shares at December 7, 1994, is also the Chairman and Chief
Executive Officer of American Premier and New American Premier.
57
<PAGE> 64
ANNEX A
AGREEMENT AND PLAN OF
ACQUISITION AND REORGANIZATION
(ACQUISITION AGREEMENT)
BY AND AMONG
AMERICAN PREMIER GROUP, INC.
AMERICAN PREMIER UNDERWRITERS, INC.,
AMERICAN PREMIER SUB, INC.,
AMERICAN FINANCIAL CORPORATION
AND
AFC SUB, INC.
DATED AS OF DECEMBER 9, 1994
ACQUISITION AGREEMENT
A-1
<PAGE> 65
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---------------------------------------------------------------------------------- ---------
<S> <C>
AFC............................................................................... Recitals
AFC Affiliate..................................................................... 4.1
AFC Common Stock.................................................................. 1.4(b)
AFC Merger........................................................................ Recitals
AFC Personnel..................................................................... 3.13(a)
AFC Preferred Stock............................................................... 3.2
AFC Proxy Statement............................................................... 2.5
AFC Related Person................................................................ 3.15(g)
AFC Stock Options................................................................. 2.1(a)
AFC's Common Shareholders......................................................... 2.3
AFEI.............................................................................. 4.1
Affiliate SEC Filings............................................................. 4.3
Annual Statements................................................................. 3.6
APZ............................................................................... Recitals
APZ Common Stock.................................................................. 1.4(a)
APZ Disclosure Schedule........................................................... 5.2(a)
APZ Merger........................................................................ Recitals
APZ Preferred Stock............................................................... 5.2(a)
APZ SEC Filings................................................................... 5.5
APZ Stock Option.................................................................. 2.1(b)
APZ Sub........................................................................... Recitals
APZ Subsidiaries.................................................................. 5.1(a)
APZ's Public Shareholders......................................................... 5.3
Balance Sheets.................................................................... 3.10
Benefit Plan...................................................................... 3.13(a)
Certificates...................................................................... 1.5(b)
Closing........................................................................... 9.2
Code.............................................................................. Recitals
Condition......................................................................... 3.1
Disclosure Schedule............................................................... 3.1
Effective Time.................................................................... 1.2
Environmental Claim............................................................... 3.21(b)
Environmental Laws................................................................ 3.21(c)
ERISA............................................................................. 3.13(a)
ESORP............................................................................. 3.13(a)
Exchange Act...................................................................... 3.4
FCC............................................................................... 2.8
Financial Statements.............................................................. 3.5
GAAP.............................................................................. 3.5
</TABLE>
ACQUISITION AGREEMENT
A-2
<PAGE> 66
<TABLE>
<CAPTION>
TERM SECTION
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Group............................................................................. 3.10
HSR Act........................................................................... 2.8
Insurance Subsidiary.............................................................. 3.6
Joint Proxy/Registration Statement................................................ 2.5
Liens............................................................................. 3.14
Materials of Environmental Concern................................................ 3.21(d)
Mergers........................................................................... Recitals
NYSE.............................................................................. 2.4
New American Premier.............................................................. Recitals
New American Premier Common Stock................................................. 1.4(a)
New American Premier Entities..................................................... Recitals
New American Premier Preferred Stock.............................................. 5.2(b)
New American Premier Stock........................................................ 1.5(a)
OGCL.............................................................................. 1.1(b)
PBCL.............................................................................. 1.1(a)
Permitted Liens................................................................... 3.14
Proposal.......................................................................... 2.3
Proxy Statement................................................................... 2.5
Put............................................................................... 2.1(a)
Registration Statement............................................................ 2.5
Returns........................................................................... 3.10
SAP............................................................................... 3.6
SAP Statements.................................................................... 3.6
SEC............................................................................... 2.5
SEC Filings....................................................................... 3.5
Securities Act.................................................................... 2.5
Shareholders Agreement............................................................ 2.3
Special Committee................................................................. 5.3
subsidiary........................................................................ 9.9
Taxes............................................................................. 3.10
Welfare Plan...................................................................... 3.13(a)
</TABLE>
ACQUISITION AGREEMENT
A-3
<PAGE> 67
AGREEMENT AND PLAN OF ACQUISITION AND REORGANIZATION
AGREEMENT AND PLAN OF ACQUISITION AND REORGANIZATION dated as of December
9, 1994 (this "Agreement") by and among American Premier Group, Inc., an Ohio
corporation ("New American Premier"), American Premier Underwriters, Inc., a
Pennsylvania corporation ("APZ"), American Premier Sub, Inc., a Pennsylvania
corporation and a wholly owned subsidiary of New American Premier ("APZ Sub"),
American Financial Corporation, an Ohio corporation ("AFC"), and AFC Sub, Inc.,
an Ohio corporation and a wholly owned subsidiary of New American Premier ("AFC
Sub") (New American Premier, APZ Sub and AFC Sub being hereinafter sometimes
collectively referred to as the "New American Premier Entities").
WHEREAS, the respective Boards of Directors of APZ, AFC, New American
Premier, APZ Sub and AFC Sub deem it advisable and in the best interests of
their respective shareholders to effect the merger of APZ Sub with and into APZ
(the "APZ Merger") and AFC Sub with and into AFC (the "AFC Merger") (the APZ
Merger and the AFC Merger being hereinafter sometimes collectively referred to
as the "Mergers"), all pursuant to the terms set forth in this Agreement.
WHEREAS, for federal income tax purposes, it is intended that the APZ
Merger and the AFC Merger, taken together with the APZ Merger, will be treated
as tax free exchanges under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code"), and that the parties hereto and their respective
shareholders will recognize no gain or loss for federal income tax purposes as a
result of the consummation of the Mergers.
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGERS
SECTION 1.1 THE MERGERS. Upon the terms and subject to the conditions of
this Agreement:
(a) The APZ Merger. At the Effective Time (as defined in Section 1.2
hereof) APZ Sub shall be merged with and into APZ in accordance with the
laws of the Commonwealth of Pennsylvania. APZ shall be the surviving
corporation of the APZ Merger and shall continue its corporate existence
under the laws of the Commonwealth of Pennsylvania. As a result of the APZ
Merger, APZ shall become a subsidiary of New American Premier. From and
after the Effective Time, all property of the constituent corporations of
the APZ Merger shall be deemed transferred to APZ, and APZ shall be
responsible for all the liabilities of each such constituent corporation,
all as set forth in Section 1929 of the Business Corporation Law of 1988 of
the Commonwealth of Pennsylvania (the "PBCL").
(b) The AFC Merger. At the Effective Time, AFC Sub shall be merged
with and into AFC in accordance with the laws of the State of Ohio. AFC
shall be the surviving corporation of the AFC Merger and shall continue its
corporate existence under the laws of the State of Ohio. As a result of the
AFC Merger, AFC shall become a subsidiary of New American Premier. From and
after the Effective Time, AFC shall possess all assets and property of
every description, and every interest in the assets and property, wherever
located, and the rights, privileges, powers, franchises and authority, of a
public as well as of a private nature, and all obligations belonging to or
due to each of the constituent corporations of the AFC Merger, all as set
forth in Section 1701.82 of the Ohio General Corporation Law (the "OGCL").
SECTION 1.2 EFFECTIVE TIME OF THE MERGERS. On the date of the Closing (as
defined in Section 9.2), (a) with respect to the APZ Merger, Articles of Merger
complying with the requirements of the PBCL shall be executed and filed with the
Secretary of State of the Commonwealth of
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Pennsylvania, and (b) with respect to the AFC Merger, a Certificate of Merger
complying with the requirements of the OGCL shall be executed and filed with the
office of the Secretary of State of the State of Ohio. The Mergers shall become
effective at the time specified in the Articles of Merger filed with respect to
the APZ Merger (the "Effective Time"). The effective time specified in the
Certificate of Merger to be filed with respect to the AFC Merger shall be the
same effective time specified in the Articles of Merger with respect to the APZ
Merger. Each of the Mergers shall be deemed to occur simultaneously and shall
not be effective unless the other shall occur.
SECTION 1.3 CHARTER DOCUMENTS OF THE SURVIVING CORPORATIONS.
(a) Charter Documents of APZ. The Articles of Incorporation of APZ, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of APZ as the surviving corporation. The By-laws of APZ, as in
effect immediately prior to the Effective Time, shall be the By-laws of APZ, as
the surviving corporation, until thereafter changed or amended as provided
therein or by law.
(b) Charter Documents of AFC. The Articles of Incorporation of AFC, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of AFC as the surviving corporation. The Code of Regulations of
AFC, as in effect immediately prior to the Effective Time, shall be the Code of
Regulations of AFC, as the surviving corporation, until thereafter changed or
amended as provided therein or by law.
SECTION 1.4 CONVERSION OF SHARES. (a) At the Effective Time, by virtue of
the APZ Merger and without any action on the part of the holder thereof:
(i) Conversion of APZ Common Stock. Each issued and outstanding share
of Common Stock, par value $1.00, of APZ ("APZ Common Stock") shall be
converted into validly issued, fully paid and nonassessable shares of
Common Stock, par value $1.00 per share, of New American Premier ("New
American Premier Common Stock") at a rate equal to one share of New
American Premier Common Stock for each share of APZ Common Stock;
(ii) Conversion of APZ Preferred Stock. Each issued and outstanding
share of APZ Preferred Stock (as defined in Section 5.2 hereof) shall be
converted into one validly issued, fully paid and nonassessable share of
New American Premier Preferred Stock (as defined in Section 5.2 hereof) of
a class and series having terms identical in all material respects to the
applicable class and series of APZ Preferred Stock so converted; and
(iii) Conversion of APZ Sub Common Stock. The aggregate of all shares
of capital stock of APZ Sub issued and outstanding immediately prior to the
Effective Time shall be converted into 47,000,000 shares of APZ Common
Stock (as the surviving corporation of the APZ Merger).
(b) At the Effective Time, by virtue of the AFC Merger and without any
action on the part of the holder thereof:
(i) Conversion of AFC Common Stock. Each issued and outstanding share
of Common Stock, without par value, of AFC ("AFC Common Stock") shall be
converted into the right to receive validly issued, fully paid and
nonassessable shares of New American Premier Common Stock at a rate equal
to 1.45 shares of New American Premier Common Stock for each share of AFC
Common Stock;
(ii) No Effect on AFC Preferred Stock. Each issued and outstanding
share of AFC Preferred Stock (as defined in Section 3.2 hereof) shall
remain issued and outstanding after the Effective Time and the AFC Merger
shall have no effect on any shares of AFC Preferred Stock; and
(iii) Conversion of AFC Sub Common Stock. The aggregate of all shares
of capital stock of AFC Sub issued and outstanding immediately prior to the
Effective Time shall be converted
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into 53,000,000 validly issued, fully paid and nonassessable shares of AFC
Common Stock (as the surviving corporation of the AFC Merger).
SECTION 1.5 CONVERSION OF CERTIFICATES; ISSUANCE OF NEW CERTIFICATES.
(a) Conversion of APZ Stock Certificates. At the Effective Time, each
certificate which immediately prior to the Effective Time evidenced outstanding
shares of APZ Common Stock or APZ Preferred Stock shall, by virtue of the APZ
Merger and without further act or deed, be deemed to evidence an identical
number of shares of New American Premier Common Stock or New American Premier
Preferred Stock, as the case may be (New American Premier Common Stock and New
American Premier Preferred Stock being hereinafter sometimes collectively
referred to as the "New American Premier Stock"). As certificates formerly
evidencing shares of APZ Common Stock or APZ Preferred Stock are, over time,
surrendered to New American Premier to effect transfers thereof, New American
Premier shall cancel such certificates and issue new certificates of New
American Premier Stock in place thereof. Notwithstanding the foregoing
provisions of this paragraph (a), if prior to the Effective Time New American
Premier determines that it is necessary or desirable that the certificates
evidencing shares of APZ Common Stock and APZ Preferred Stock be surrendered in
exchange for new certificates evidencing shares of New American Premier Stock,
then the parties hereto shall amend this Agreement to provide for a suitable
mechanism for effecting such exchange.
(b) Surrender of AFC Common Stock. Promptly after the Effective Time, AFC
shall request each registered holder of a certificate or certificates which
immediately prior to the Effective Time evidenced outstanding shares of AFC
Common Stock (the "Certificates") to surrender such Certificates to New American
Premier for exchange. Upon such surrender, New American Premier shall issue to
the holder of such Certificates the number of whole shares of New American
Premier Stock which such holder is entitled to receive pursuant to Section 1.4
hereof and the Certificates so surrendered shall be cancelled. Until so
surrendered, such Certificates shall represent solely the right to receive the
applicable number of shares of New American Premier Stock with respect to the
number of shares of AFC Common Stock evidenced thereby. No dividends or other
distributions declared or made after the Effective Time with respect to shares
of New American Premier Stock with a record date after the Effective Time shall
be paid to the holder of an unsurrendered Certificate with respect to the shares
of New American Premier Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 1.5(c)
hereof until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of unclaimed property, escheat and other
applicable laws, following surrender of any such Certificate, there shall be
paid to the registered holder of the certificates representing whole shares of
New American Premier Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of any cash payable in lieu of a
fractional share of New American Premier Stock to which such holder is entitled
pursuant to Section 1.5(c) hereof and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of New American Premier Stock and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of New
American Premier Stock, as the case may be. If any cash or certificate
evidencing shares of New American Premier Stock is to be paid to or issued in a
name other than that in which the Certificate surrendered in exchange therefor
is registered, it shall be a condition of such exchange that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange shall pay to New American Premier
any transfer or other taxes required by reason of the issuance of certificates
for such shares of New American Premier Stock in a name other than that of the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of New American Premier that such tax has been paid or is not
applicable.
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(c) No Fractional Shares. Notwithstanding any other provision of this
Agreement, no certificates or scrip representing fractional shares of New
American Premier Stock shall be issued upon the surrender for exchange of
Certificates. Any holder of AFC Common Stock who would otherwise have been
entitled to a fractional share of New American Premier Stock shall be entitled
to receive a cash payment in lieu of such fractional share in an amount equal to
the product of such fraction multiplied by the average of the last reported
sales prices, regular way, per share of APZ Common Stock on the New York Stock
Exchange Composite Tape on the ten consecutive trading days ending with the last
trading day on which APZ Common Stock was traded on the New York Stock Exchange,
without any interest thereon. Any such holder shall not be entitled to vote or
to any other rights of a holder of New American Premier Stock in respect of such
fractional share.
SECTION 1.6 NO FURTHER TRANSFERS. From and after the Effective Time, there
shall be no transfers on the stock transfer books of APZ and AFC of any shares
of APZ Common Stock, APZ Preferred Stock or AFC Common Stock, as the case may
be, that are to be converted into New American Premier Stock pursuant to the
terms of Section 1.4 hereof. If, after the Effective Time, certificates
evidencing any such shares are presented to one of the surviving corporations
they shall be cancelled and exchanged for the applicable shares of New American
Premier Stock as provided herein.
ARTICLE II
RELATED MATTERS
SECTION 2.1 TREATMENT OF AFC'S STOCK OPTIONS/PUT AND APZ'S STOCK OPTIONS.
(a) Cancellation of AFC's Stock Options and the Put. AFC shall take all
actions necessary to cause that certain agreement dated April 15, 1983 with
certain members of the Lindner family to be amended to provide that (i) the
outstanding options (the "AFC Stock Options") relating to the right to purchase
762,500 shares of AFC Common Stock shall become fully vested and immediately
exercised for the then applicable exercise price and, if such AFC Stock Options
are not so exercised with the exercise price fully paid in cash by the Effective
Time, such AFC Stock Options shall be deemed cancelled and (ii) the right to put
shares of AFC Common Stock to AFC (the "Put"), as more particularly described in
such agreement, shall be terminated as of immediately prior to the Effective
Time.
(b) Amendment of APZ Stock Option Plan. Effective as of the Effective
Time, APZ shall amend the "APZ Stock Option Plan" to provide that each
outstanding option to purchase shares of APZ Common Stock (each, an "APZ Stock
Option" and, collectively, the "APZ Stock Options"), shall constitute an option
to acquire shares of New American Premier Common Stock, at the same exercise
price and on the same terms and other conditions as were applicable to such APZ
Stock Option. At the Effective Time, New American Premier shall assume each
stock option agreement relating to the APZ Stock Option Plan. To the extent
necessary, the respective Compensation Committees of the Boards of Directors of
APZ and New American Premier will take all action necessary or advisable to
provide for the foregoing.
SECTION 2.2 TREATMENT OF AFC'S BOOK VALUE INCENTIVE PLAN. Effective as of
the Effective Time, AFC shall take all action to provide for the termination of
its Book Value Incentive Plan and the extinguishment of all rights thereunder
for a net payment in cash by AFC to each grantee, such payments in the aggregate
not to exceed $49,600,000.
SECTION 2.3 AFC SHAREHOLDER APPROVAL. AFC shall take all action necessary
in accordance with applicable law, the respective rules of The Cincinnati Stock
Exchange and The Pacific Stock Exchange, Incorporated, and its Articles of
Incorporation and Code of Regulations to convene a meeting of its shareholders
as promptly as practicable to consider and vote upon a proposal to approve and
adopt this Agreement (the "Proposal"). The Board of Directors of AFC will recom-
ACQUISITION AGREEMENT
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<PAGE> 71
mend that its shareholders vote in favor of the Proposal and will use its best
efforts to take all other actions reasonably necessary or advisable to secure
the vote or consent of AFC's shareholders required to effect the AFC Merger.
Simultaneously with the execution and delivery of this Agreement by AFC, AFC
shall deliver to APZ an agreement (the "Shareholders Agreement") substantially
in the form of Exhibit A attached hereto executed by AFC and all the holders of
shares of AFC Common Stock ("AFC's Common Shareholders") whereby AFC's Common
Shareholders shall agree, provided this Agreement has not been terminated in
accordance with Article VIII hereof, to (i) vote their shares of AFC Common
Stock in favor of the Proposal, (ii) amend AFC's Articles of Incorporation in
the manner contemplated by Section 6.8 hereof, (iii) treat the AFC Stock Options
and the Put in the manner described in Section 2.1 hereof and (iv) exchange,
prior to the Closing, under the circumstances and subject to the terms and
conditions stated therein, shares of AFC Common Stock for shares of AFC
Preferred Stock.
SECTION 2.4 APZ SHAREHOLDER APPROVAL. APZ shall take all action necessary
in accordance with applicable law, the rules of the New York Stock Exchange (the
"NYSE"), and its Articles of Incorporation and By-laws to convene a meeting of
its shareholders as promptly as practicable to consider and vote upon the
Proposal. Subject to its fiduciary duties under applicable law and the receipt
of a favorable recommendation from the Special Committee (as defined in Section
5.3 hereof), the Board of Directors of APZ will recommend that its shareholders
vote in favor of the Proposal and will use its best efforts to solicit proxies
from the shareholders of APZ in favor of the Proposal and to take all other
actions reasonably necessary or advisable to secure the vote or consent of APZ's
shareholders required to effect the APZ Merger. Provided that this Agreement
shall not have been terminated in accordance with Article VIII hereof, at the
meeting of APZ's shareholders, AFC covenants that all shares of APZ Common Stock
then owned, directly or indirectly, by AFC and its subsidiaries (except for
shares held by AFEI (as defined in Section 4.1 hereof)) will be voted in favor
of the Proposal.
SECTION 2.5 JOINT PROXY/REGISTRATION STATEMENT. The parties shall, as
promptly as practicable, prepare and file with the Securities and Exchange
Commission (the "SEC") a registration statement on Form S-4 (the "Registration
Statement") and proxy and information statement (the "Proxy Statement") (the
Proxy Statement and the Registration Statement being, collectively, the "Joint
Proxy/Registration Statement") in connection with (a) the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of the New American
Premier Stock issuable in connection with the Mergers and (b) the meetings of
the respective shareholders of AFC and APZ described in Sections 2.3 and 2.4
hereof. Each of APZ and AFC shall use its best efforts to have or cause the
Joint Proxy/Registration Statement declared effective and cleared as promptly as
practicable, shall take any and all other action required to be taken under
federal or state securities laws in connection therewith, and shall use its best
efforts to cause the Joint Proxy/Registration Statement to be mailed to its
respective shareholders at the earliest practicable date. AFC shall use its best
efforts to prepare and deliver to its shareholders, at the earliest practicable
date, a notice and proxy statement (the "AFC Proxy Statement") meeting the
requirements of Ohio law.
SECTION 2.6 APPROVAL OF SOLE SHAREHOLDER OF NEW AMERICAN
PREMIER. Simultaneously with the execution and delivery of this Agreement by
New American Premier, New American Premier shall deliver to APZ and AFC an
agreement signed by the sole shareholder of New American Premier whereby such
shareholder agrees, provided this Agreement has not been terminated in
accordance with Article VIII hereof, to (a) vote all of his shares of New
American Premier Common Stock in favor of this Agreement and the Mergers, (b)
cause New American Premier, as the sole shareholder of all of the outstanding
shares of common stock of APZ Sub and AFC Sub, to vote all of such shares in
favor of this Agreement and the Mergers and (c) cause New American Premier, and
APZ Sub, and AFC Sub, as wholly owned subsidiaries of New American Premier, to
perform all things necessary, proper or advisable on their part to consummate
the transactions contemplated by this Agreement.
ACQUISITION AGREEMENT
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<PAGE> 72
SECTION 2.7 WAIVER OF DISSENTERS RIGHTS RELATING TO APZ PREFERRED
STOCK. Simultaneously with the execution and delivery of this Agreement by APZ,
APZ shall deliver an agreement signed by the sole shareholder of all issued and
outstanding APZ Preferred Stock whereby such shareholder agrees to waive all
dissenters rights he would be entitled to assert under Subchapter D of Chapter
15 of the PBCL as a result of the APZ Merger and the other transactions
contemplated by this Agreement.
SECTION 2.8 CERTAIN FILINGS. The parties shall (a) as promptly as
practicable, make any filings required to be filed with any governmental
authority or other regulatory or administrative agency (including, without
limitation, the filings under Section 2.5 hereof, any filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and any filings required by the Federal Communications Commission (the
"FCC"), the NYSE, the Department of Insurance of Ohio and any other insurance
regulatory agencies) in order to consummate the transactions contemplated by
this Agreement, (b) cooperate with one another (i) in promptly determining
whether any other filings are required to be made or consents, approvals,
permits or authorizations are required to be obtained under any other relevant
federal, state or foreign law or regulation and (ii) in promptly making any such
filings, furnishing information required in connection therewith and timely
seeking to obtain any such consents, approvals, permits or authorizations; and
(c) deliver to the other parties to this Agreement copies of the publicly
available portions of all such filings promptly after they are filed.
SECTION 2.9 TAX RULING. The parties shall seek a ruling from the Internal
Revenue Service to the effect that the APZ Merger, as contemplated by this
Agreement, will constitute a reverse acquisition of New American Premier and
that, after the Mergers, the APZ federal consolidated tax group which existed
prior to the Mergers shall continue to exist with APZ as the common parent for
federal income tax purposes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AFC
AFC represents and warrants to New American Premier and APZ as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. AFC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio. AFC owns, directly or indirectly, all of the outstanding capital stock of,
and ownership interests in, its subsidiaries (as such term is defined in Section
9.9 hereof), or such lesser amount of the capital stock or ownership interests
as is set forth in the SEC Filings (as defined in Section 3.5 hereof) or
Schedule 3.1 of the disclosure schedule previously delivered by AFC to APZ (the
"Disclosure Schedule"). Except as set forth in the SEC Filings or Schedule 3.1
of the Disclosure Schedule, other than as contained in the investment portfolio
of any Insurance Subsidiary (as defined in Section 3.6 hereof), AFC does not
own, directly or indirectly, any capital stock or other equity securities or any
ownership interest in any corporation, partnership, joint venture, association
or similar business or entity that is material to the financial condition,
business, results of operations, prospects, properties or assets (the
"Condition") of AFC and its subsidiaries taken as a whole. All of AFC's material
subsidiaries are corporations or other limited liability entities duly
organized, validly existing and in good standing (or the local law equivalent)
under the laws of their jurisdictions of incorporation or other organization.
AFC and its subsidiaries have the requisite corporate power to conduct their
businesses as they are currently being conducted and are duly qualified as
foreign corporations (or the local law equivalent) to do business in the
respective jurisdictions where the character of their properties owned or leased
or the nature of their activities makes such qualification necessary, except to
the extent that lack of such qualification would not in the aggregate have a
material adverse effect on the Condition of AFC and its subsidiaries taken as a
whole.
ACQUISITION AGREEMENT
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SECTION 3.2 CAPITALIZATION. The authorized capital stock of AFC consists
of 32,300,000 shares of AFC Common Stock and 59,300,000 shares of Preferred
Stock ("AFC Preferred Stock"). As of the date of this Agreement, the AFC
Preferred Stock was authorized and issued and outstanding as follows:
<TABLE>
<CAPTION>
ISSUED AND
AUTHORIZED SHARES OUTSTANDING SHARES
----------------- ------------------
<S> <C> <C>
$1 PAR, Voting Cumulative:............................ 3,500,000 0
$1 PAR, Nonvoting Cumulative:
Series F............................................ 15,000,000 13,753,254
Series G............................................ 2,000,000 364,158
$10.50 PAR, Nonvoting Cumulative:
Series D............................................ 8,375,000 0
Series E............................................ 2,725,000 274,242
$1.50 PAR, Nonvoting Cumulative:
Series H............................................ 7,700,000 0
$.01 PAR, Nonvoting Cumulative:....................... 20,000,000 0
</TABLE>
As of the date of this Agreement, 18,971,217 shares of AFC Common Stock were
issued and outstanding, and 314,468 shares of AFC Common Stock were held in
AFC's treasury. In addition, as of such date, 762,500 shares of AFC Common Stock
were reserved for issuance upon the exercise of outstanding AFC Stock Options.
All of the issued and outstanding shares of capital stock of AFC are validly
issued, fully paid and nonassessable and are not subject to, nor were they
issued in violation of, any preemptive rights. Except as set forth above or in
Schedule 3.2 of the Disclosure Schedule, as of the date hereof, (i) there are no
shares of capital stock of AFC authorized, issued or outstanding, and (ii) there
are no outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character obligating AFC or
any of its subsidiaries, to issue, transfer or sell, presently or in the future,
any shares of the capital stock or any securities convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of the capital stock
of AFC. Except for the AFC Stock Options and the issuance of shares pursuant to
Section 1.4(b)(iii) hereof, AFC currently has and, immediately after the
Effective Time, will have, no obligation to issue, transfer or sell any shares
of its capital stock, pursuant to any Benefit Plan (as defined in Section 3.13
hereof), or otherwise. Except as set forth in Schedule 3.2 of the Disclosure
Schedule, all of the outstanding shares of capital stock of each of AFC's
material subsidiaries have been validly issued and are fully paid and
nonassessable and are beneficially owned by either AFC or one of AFC's directly
or indirectly wholly owned subsidiaries free and clear of all liens, charges,
claims or encumbrances. Except as set forth in Schedule 3.2 of the Disclosure
Schedule, there are no outstanding subscriptions, options, warrants, calls,
rights, convertible securities or other agreements or commitments of any
character relating to the issued or unissued capital stock of any of AFC's
subsidiaries or securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock, or otherwise obligating
any such subsidiary to issue, transfer or sell any such capital stock or other
securities. Except as set forth in Schedule 3.2 of the Disclosure Schedule,
other than the Shareholders Agreement, there are no voting trusts or other
agreements or understandings to which AFC or any of its subsidiaries is a party
with respect to the voting of the capital stock of AFC or any of its
subsidiaries.
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. AFC has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of AFC. Except for the approval
by the shareholders of AFC of this Agreement and the amendment to AFC's Articles
of Incorporation contemplated by Section 6.8 hereof, no other corporate
proceedings on the part of AFC are necessary to authorize this Agreement and the
transactions contemplated hereby. This
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Agreement has been duly and validly executed and delivered by AFC and (assuming
this Agreement is a valid and binding obligation of the other parties hereto)
constitutes a valid and binding agreement of AFC enforceable against AFC in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) remedies of
specific performance and injunctive and other forms of relief may be subject to
general principles of equity and public policy and to the discretion of the
court before which any proceeding therefor may be brought.
SECTION 3.4 NO VIOLATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) constitute a breach or violation of or default under the Articles of
Incorporation or the Code of Regulations of AFC or the charter documents of any
of its subsidiaries or (ii) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
AFC or any of its subsidiaries under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which AFC or any such subsidiary is a party
or to which they or any of their respective properties or assets may be subject,
other than, in the case of clause (ii), (a) breaches, conflicts or violations
that would not have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole and (b) the agreements set forth in Schedule 3.4
of the Disclosure Schedule as to each of which AFC shall obtain all necessary
consents and/or waivers prior to the Closing, except where the failure to obtain
such consents and/or waivers would not have a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole. Except as set forth in
Schedule 3.4 of the Disclosure Schedule, other than in connection with, or in
compliance with, the provisions of the PBCL, the OGCL, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Securities Act, the HSR Act
and requirements of the FCC, the NYSE, the Department of Insurance of Ohio and
any other insurance regulatory agencies, the execution, delivery and performance
by AFC of this Agreement and the consummation by AFC of the transactions
contemplated hereby will not (i) require the consent or approval of any other
party to any of the above or affect the validity or effectiveness of any of the
above except for consents or approvals, the failure to obtain which would not,
in the aggregate, have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole or (ii) constitute a breach or violation of or
default under any law, rule or regulation or any judgment, decree, order,
governmental permit or license to which AFC or any of its subsidiaries is
subject, which would have a material adverse effect on the Condition of AFC and
its subsidiaries taken as a whole. Except as set forth on Schedule 3.4 of the
Disclosure Schedule, to the best of AFC's knowledge, New American Premier shall
not be required to obtain any actions, nonactions, consents, approvals or
waivers from any regulatory agencies or other authorities in order to consummate
the transactions contemplated by this Agreement.
SECTION 3.5 SEC REPORTS AND FINANCIAL STATEMENTS. AFC has previously
delivered or made available to APZ true and complete copies of its (i) Annual
Report on Form 10-K for the year ended December 31, 1993, as filed with the SEC,
and all amendments thereto; (ii) Quarterly Reports on Form 10-Q for the periods
ended March 31, 1994, June 30, 1994 and September 30, 1994, as filed with the
SEC; and (iii) all other reports, statements and registration statements
(including Current Reports on Form 8-K) filed by it with the SEC since December
31, 1993 (collectively, the "SEC Filings"). As of their respective dates, the
SEC Filings did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of AFC included in the SEC Filings (the
"Financial Statements") present fairly, in all material respects, the financial
condition, results of operations and changes in financial position of AFC as at
the dates or for the periods indicated therein in conformity with generally
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accepted accounting principles applied on a consistent basis (except as
otherwise indicated in such financial statements or the notes thereto), subject,
in the case of unaudited interim financial statements, to normal recurring
year-end adjustments ("GAAP").
SECTION 3.6 ANNUAL STATEMENTS AND OTHER FILINGS FOR INSURANCE SUBSIDIARIES.
(a) AFC has previously delivered or made available to APZ true and complete
copies of the annual statements for each of the years ended December 31, 1991,
1992 and 1993 filed pursuant to state insurance law requirements (the "Annual
Statements") by each subsidiary of AFC that is subject to regulation as an
insurance company (each, an "Insurance Subsidiary" and, collectively, the
"Insurance Subsidiaries"). Except as would not have a material adverse effect on
the Condition of the applicable Insurance Subsidiary, (i) each such Annual
Statement was in substantial compliance with applicable law when so filed, and
(ii) there were no material deficiencies with respect to any such Annual
Statement. AFC has also furnished to APZ true and complete copies of the
separate unaudited balance sheet of each Insurance Subsidiary as of September
30, 1994 and the related separate unaudited statements of operations, capital
and surplus, and changes in financial position of each such entity for the
period then ended (collectively, the "SAP Statements"). All of such SAP
Statements were prepared in accordance with accounting practices required or
permitted by applicable insurance regulatory authorities applied on a consistent
basis (except as otherwise indicated in such financial statements or the notes
thereto), subject, in the case of unaudited interim financial statements, to
normal recurring year-end adjustments ("Statutory Accounting Procedures" or
"SAP"), and each fairly presents the separate SAP financial condition of the
entity covered thereby as of the date thereof and the separate SAP results of
operations, capital and surplus, and changes in financial position of the entity
covered thereby for and during each of the periods covered thereby.
(b) Each Insurance Subsidiary has made all filings required pursuant to,
and otherwise in compliance with, the Ohio Insurance Holding Company Systems Act
and the regulations promulgated thereunder, or any comparable state insurance
law requirements in other applicable jurisdictions, except to the extent the
failure to make any such filing would not have a material adverse effect on the
Condition of any such Insurance Subsidiary. AFC has previously delivered or made
available to APZ true and complete copies of all such filings made by any
Insurance Subsidiary since January 1, 1991, and all such filings were true,
accurate and complete in all material respects as of the dates of their
respective filings.
SECTION 3.7 RESERVES. The aggregate reserves and (except with respect to
clause (a) below) other amounts of liabilities or obligations of each Insurance
Subsidiary (including, without limitation, reserves established as an allowance
for uncollectible amounts under any reinsurance, coinsurance or similar
contract) as established or reflected on the books and records of AFC and each
of the Insurance Subsidiaries (a)(i) were determined in accordance with
generally accepted actuarial standards consistently applied, (ii) are fairly
stated in accordance with sound actuarial principles, and (iii) on the date
hereof are, and at the Effective Time will be, based on actuarial assumptions
that are in accordance with those specified in the related insurance contracts,
(b) meet on the date hereof, and at the Effective Time will meet, in all
material respects, the requirements of the insurance laws of the applicable
jurisdiction as in effect on the date hereof, or on the date of the Effective
Time, as the case may be, and (c), except as set forth in the SEC Filings, are
on the date hereof, and at the Effective Time will be, adequate to cover the
total amount of all matured and unmatured liabilities and obligations of such
Insurance Subsidiary under all outstanding insurance contracts pursuant to which
such Insurance Subsidiary has any liability (whether absolute, accrued,
contingent or otherwise) or obligation, including without limitation any
incurred but not reported claims and any liability or obligation arising as a
result of any reinsurance, coinsurance or other similar contract. For the
purposes of clause (c) above, the fact that reserves covered by any such
representation are subsequently adjusted at times and under circumstances
consistent with AFC's ordinary practices of reassessing the adequacy of its
reserves shall not be used to support any claim regarding the accuracy of such
representation, provided that such adjustments do not exceed $50,000,000 in the
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aggregate. As of the date hereof, each Insurance Subsidiary owns assets that
qualify as reserve assets to the extent required by applicable insurance laws.
SECTION 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the SEC Filings or Schedule 3.8 of the Disclosure Schedule, since December 31,
1993, each of AFC and its subsidiaries has conducted its businesses only in the
ordinary and usual course and there has not occurred any material adverse change
in the Condition of AFC and its subsidiaries taken as a whole.
SECTION 3.9 NO UNDISCLOSED LIABILITIES. Except as set forth in the
Financial Statements or Schedule 3.9 of the Disclosure Schedule, neither AFC nor
any of its subsidiaries has any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) that in the aggregate have or may reasonably
be expected to have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole.
SECTION 3.10 TAXES AND TAX RETURNS. AFC and each of its subsidiaries
(collectively, the "Group") has timely filed or been included in all tax
returns, declarations, reports, estimates, information returns, statements and
other material returns (collectively, "Returns") relating to Taxes (as
hereinafter defined) required to be filed under U.S. federal, state, local or
any foreign laws (taking into account any extensions of time for filing such
Returns) and such Returns were in all material respects (and, as to Returns not
filed as of the date hereof, will be in all material respects) true, complete
and correct. The Group has paid or made provision for (by a tax accrual or tax
reserve on the most recent consolidated balance sheets of the Group (the
"Balance Sheets") contained in the SEC Filings, which accruals or reserves have
been recorded in accordance with GAAP), all Taxes (except for such Taxes which
if not so paid or provided for would not, in the aggregate, have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a whole) in
respect of all taxable periods or portions thereof ending on or before the date
of the Balance Sheets. Except as set forth in Schedule 3.10 of the Disclosure
Schedule, any Taxes incurred or accrued since September 30, 1994, or which will
be incurred or accrued as a result of transactions occurring prior to the
Effective Time or as a result of the Mergers, have (or will have) arisen in the
ordinary course of business. There are no material liens for Taxes upon the
assets of AFC or any of its subsidiaries except liens for Taxes not yet due. The
Group is not delinquent in the payment of any federal income or other Taxes and,
except as set forth in Schedule 3.10 of the Disclosure Schedule, there are no
outstanding deficiencies, assessments or written proposals for assessment of
federal income or other Taxes proposed, asserted or assessed against the Group.
AFC has, since December 31, 1967, filed a consolidated return for federal income
tax purposes on behalf of itself as a common parent and those of its
subsidiaries which are members of its "affiliated group" (within the meaning of
Section 1504(a) of the Code) and which are "includable corporations" (within the
meaning of Section 1504(b) of the Code). Except as set forth in the Financial
Statements or in Schedule 3.10 of the Disclosure Schedule, no waivers are
presently open for the statute of limitations for the assessment of federal
income taxes for any consolidated federal income tax return of AFC and its
subsidiaries. Except as set forth in the Financial Statements or in Schedule
3.10 of the Disclosure Schedule, no federal, state, local or foreign audits or
other administrative proceedings or court proceedings which are material to the
Condition of the Group taken as a whole are presently pending with regard to any
Taxes or Returns of AFC or its subsidiaries. As used herein, "Taxes" means (A)
all net income, gross income, gross receipts, sales, use, transfer, franchise,
profits, withholding, payroll, employment, excise, severance, property or
windfall profits taxes, or other taxes of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (domestic or foreign) upon AFC or any of its subsidiaries
with respect to all periods or portions thereof ending on or before the
Effective Time and/or (B) any liability of AFC or any of its subsidiaries for
the payment of any amounts of the type described in the immediately preceding
clause (A) as a result of being a member of an affiliated or combined group.
SECTION 3.11 LITIGATION. Except as set forth in the SEC Filings or
Schedule 3.11 of the Disclosure Schedule, there are no actions, suits, claims,
investigations or proceedings pending or,
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to the knowledge of AFC, threatened against, relating to, involving or otherwise
affecting AFC or any of its subsidiaries before any court, governmental agency,
commission, or administrative or regulatory authority which, if adversely
decided, in the aggregate, may reasonably be expected to have a material adverse
effect on the Condition of AFC and its subsidiaries taken as a whole. Except as
set forth in the SEC Filings or Schedule 3.11 of the Disclosure Schedule,
neither AFC nor any of its subsidiaries is subject to any order, judgment,
injunction or decree that materially and adversely affects or will materially
and adversely affect the Condition of AFC and its subsidiaries taken as a whole.
SECTION 3.12 COMPLIANCE WITH LAW. Except as set forth in the SEC Filings
or Schedule 3.12 of the Disclosure Schedule, neither AFC nor any of its
subsidiaries is in violation (or with or without notice or lapse of time or
both, would be in violation) of any term or provision of any law or any writ,
judgment, decree, injunction or similar order applicable to AFC or any
subsidiary or any of its respective assets or properties, the result of which
violations in the aggregate has or may reasonably be expected to have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a whole.
Without limiting the generality of the foregoing: (i) AFC and each of its
subsidiaries has filed or caused to be filed all reports, statements, documents,
registrations, filings or submissions which were required by law to be filed by
it and as to which the failure to so file, in the aggregate with other such
failures, may reasonably be expected to have a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole; all such filings
complied with applicable laws in all material respects when filed, and no
material deficiencies have been asserted with respect to any such filings; (ii)
AFC has delivered or made available to APZ all reports reflecting the results of
financial and market conduct examinations of the affairs of each Insurance
Subsidiary issued by insurance regulatory authorities for each year commencing
January 1, 1989 and, except as set forth in Schedule 3.12 of the Disclosure
Schedule, all material deficiencies or violations in such reports for any prior
period have been resolved; (iii) AFC has delivered or made available to APZ the
preliminary results or findings of financial examinations of the affairs of each
Insurance Subsidiary that are on-going in nature on or as of the date hereof;
and (iv) except as set forth in Schedule 3.12 of the Disclosure Schedule and
except as would not have a material adverse effect on the Condition of any
Insurance Subsidiary, all outstanding insurance contracts issued or assumed by
any Insurance Subsidiary are, to the extent required under applicable laws, on
forms approved by the insurance regulatory authority of the jurisdiction where
issued or have been filed with and not objected to by such authority within the
period provided for objection.
SECTION 3.13 EMPLOYEE BENEFIT PLANS.
(a) AFC has previously delivered or made available to APZ true and complete
copies of (i) any written Benefit Plans (as defined below) maintained for the
benefit of any AFC Personnel (as defined below), or in the case of an unwritten
Benefit Plan, a written description thereof; (ii) any annual or actuarial
reports relating to such Benefit Plans (including the most recent accounting of
related plan assets with respect to AFC's Employee Stock Ownership Retirement
Plan ("ESORP")) as of the most recent valuation date, with copies of all extant
summary plan descriptions (whether or not required to be furnished under the
Employment Retirement Income Security Act of 1974, as amended ("ERISA")) and
material communications relating to such Benefit Plans distributed to employees
within the past three years; (iii) the most recent determination letters issued
by the Internal Revenue Service with respect to the ESORP and each of the other
Benefit Plans; and (iv) with respect to any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA ("Welfare Plan") which is funded through a
trust, a letter of exemption from taxation (under Section 501(c)(9) of the Code)
issued by the Internal Revenue Service. For this purpose, "Benefit Plan" shall
mean "employee benefit plan", as defined in Section 3(3) of ERISA, maintained by
AFC or any of its subsidiaries (within the meaning of Section 414(b), (c), (m)
or (o) of the Code), for the benefit of AFC Personnel, or with respect to which
AFC or any of its subsidiaries makes or has an obligation to make contributions
on behalf of AFC Personnel. "AFC
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Personnel" shall mean any present or former employee, director, officer, agent,
consultant, broker or representative of AFC or any of its subsidiaries.
(b) Except as set forth in Schedule 3.13 of the Disclosure Schedule, there
are no material employment contracts or other employee benefit arrangements to
which AFC or any of its subsidiaries is a party with "change of control"
provisions or any severance agreements with AFC Personnel.
(c) Except as set forth in Schedule 3.13 of the Disclosure Schedule, there
are no AFC Personnel who are entitled to any pension or other material benefit
to be paid after termination of employment other than pursuant to the ESORP or
other Benefit Plans or as otherwise required by Section 601 of ERISA, and no
other material benefits whatsoever are payable to any AFC Personnel after
termination of employment.
(d) All Benefit Plans have been administered in accordance with their terms
and are in substantial compliance with all material provisions of the Code and
ERISA. There are no actions, suits or claims pending (other than claims for
benefits) or, to the best knowledge of AFC, threatened against any Benefit Plan
or any administrator or fiduciary.
(e) Each Benefit Plan that is a Welfare Plan is either funded through an
insurance contract or unfunded. Except as set forth in Schedule 3.13 of the
Disclosure Schedule, neither AFC nor any of its subsidiaries has or expects to
have any liability under any insurance policy in the nature of a retroactive
rate adjustment or loss sharing or similar arrangement.
(f) As to each Benefit Plan for which an annual report, including
schedules, is required to be filed under ERISA or the Code, liabilities do not
exceed assets and no material adverse change has occurred with respect to the
financial matters covered by the latest annual report since the date thereof.
(g) Neither AFC nor any of its subsidiaries (nor any entity that is treated
as a single employer with AFC or its subsidiaries under Section 414(b), (c), (m)
or (o) of the Code) has (i) at any time since July 1, 1992 maintained,
contributed to or been required to contribute to any plan under which more than
one employer makes contributions (within the meaning of Section 4064(a) or
ERISA) or any plan that is a "multi-employer plan" as defined in Section 3(37)
of ERISA or (ii) become subject to or expects to be subject to the lien
described in Section 412(n) of the Code.
(h) Neither AFC nor any of its subsidiaries (nor any entity that is treated
as a single employer with AFC or its subsidiaries under Section 414(b), (c), (m)
or (o) of the Code) has at any time since July 1, 1992 contributed to or
maintained any "employee pension benefit plan" as defined in Section 3(2) of
ERISA other than the plans referred to in Section 3.13(a). AFC has received
favorable determination letters from the Internal Revenue Service stating that
the ESORP and the other qualified plans referred to in Section 3.13(a) are
qualified under the Code and are exempt from federal income tax under Section
401(a) of the Code, and the ESORP is qualified under Section 4975(e)(7) of the
Code. The ESORP is not subject to the requirements of Title IV of ERISA. The
trustee for the ESORP is a bank independent of AFC and any of its subsidiaries.
(i) Neither the execution and delivery of this Agreement nor the actions
contemplated by this Agreement will result in a "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA). Neither AFC, any
of its subsidiaries nor any other person, including any fiduciary, has engaged
in any prohibited transaction which could subject any of the Benefit Plans (or
their trusts), AFC or any of its subsidiaries, or any person who they have any
obligation to indemnify, to any tax or penalty imposed under Section 4975 of the
Code or Section 502(e) of ERISA.
(j) None of the assets of any Benefit Plan other than the ESORP are
invested in any property constituting employer real property or any employer
security (within the meaning of Section 407(d) of ERISA).
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(k) There is no other entity with any employees which together with AFC is
a member of a group described in Section 414(b), (c), (m) or (o) of the Code
other than AFC and its subsidiaries.
(l) Neither the execution and delivery of this Agreement nor the actions
contemplated by this Agreement will terminate or modify, or give a third party a
right to terminate or modify, the provisions or terms of any Benefit Plan or
will constitute a stated triggering event under any Benefit Plan that will
result in any payment (including golden parachute payments, severance payments
or other similar payments) becoming due to any AFC Personnel (other than
payments due under the terms of a Benefit Plan due on account of termination of
employment).
SECTION 3.14 PROPERTIES. Except as set forth in the SEC Filings or
Schedule 3.14 of the Disclosure Schedule and except as would not have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a whole:
(i) AFC and each of its subsidiaries has good title to all bonds, stocks and
other assets reflected in its most recent SEC Filings (including, with respect
to any Insurance Subsidiary, such assets of a type required to be disclosed in
Schedules A through DB of its 1993 Annual Statement) or acquired after the date
thereof and such assets are owned by it free and clear of all mortgages, liens,
pledges, assessments, security interests, leases, subleases, adverse claims,
levies, charges or other encumbrances of any kind ("Liens"), other than Liens
approved in writing by APZ, any Tax which is incurred in the ordinary course of
business of such subsidiary and is not delinquent and can be paid without
interest or penalty and such other liens and encumbrances that do not materially
detract from the value or impair the use of the asset in question (collectively,
"Permitted Liens"); and the respective loan portfolio of each subsidiary of AFC
(including, without limitation, with respect to any Insurance Subsidiaries the
mortgage loans of the type required to be disclosed in Schedule B of its 1993
Annual Statement), is in all material respects collectible in accordance with
the terms of the loan documents included in such loan portfolio; (ii)(a) AFC and
each of its subsidiaries owns good, marketable and indefeasible title to, or has
a valid leasehold interest in, all real property owned or used in the conduct of
its business, operations or affairs or of a type disclosed by AFC or a
subsidiary in its most recent SEC Filings or acquired after the date thereof,
free and clear of all Liens other than Permitted Liens; (b) all such real
property, other than unimproved land, is, in all material respects, in good
operating condition and repair and suitable for its current uses; (c) no
improvement on any such real property owned, leased or held by AFC or any of its
subsidiaries encroaches upon any real property of another person, the result of
which encroachments in the aggregate has or may reasonably be expected to have a
material adverse effect on the Condition of AFC and its subsidiaries taken as a
whole; and (d) AFC and each of its subsidiaries, in all material respects, owns,
leases or has the valid right to use adequate means of ingress and egress to,
from and over all such real property; (iii) AFC and each of its subsidiaries
owns good, marketable and indefeasible title to, or has a valid leasehold
interest in or a valid right under contract to use, all of its tangible personal
property free and clear of all Liens other than Permitted Liens and all such
tangible personal property is in good operating condition and repair and is
suitable and adequate for its current uses; and (iv) AFC and its subsidiaries
have the right to use, free and clear of any royalty or other payment
obligations, claims of infringement or alleged infringement or other Liens other
than Permitted Liens, all marks, names trademarks, service marks, patents,
patent rights, assumed names, logos, trade secrets, copyrights, and trade names
used by AFC and its subsidiaries and neither AFC nor any of its subsidiaries is
in conflict with or violation or infringement of, nor has AFC or any of its
subsidiaries received any notice of any conflict with or violation or
infringement of or any claimed conflict with, any asserted rights of any other
person with respect to any intellectual property.
SECTION 3.15 CONTRACTS. Except as set forth in the SEC Filings or Schedule
3.15 of the Disclosure Schedule, there are no contracts or other documents or
arrangements currently in force or operative in any respect (other than
contracts or other documents operative only with respect to non-material
post-termination confidentiality or indemnification obligations), to which AFC
or any of
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its subsidiaries is a party or by which any of AFC's or any of its subsidiaries'
assets or properties is or may be bound that involve any of the following:
(a) employment, agency, brokerage, consultation or representation
contracts or other contracts of any type (including without limitation
loans or advances) that cannot be terminated, as of right and without
penalty, on less than 90 days' notice with any AFC Personnel who receives
compensation from any one or more of AFC and its subsidiaries of $250,000
or more per year;
(b) contracts with any person containing any provision or covenant
limiting, in any material respect, the ability of AFC or any of its
subsidiaries to engage in any line of business or compete with any person
or limiting the ability of any person, in any material respect, to compete
with AFC or any of its subsidiaries;
(c) material partnership, joint venture or profit-sharing contracts
with any person that involve more than $250,000 and cannot be terminated,
as of right and without penalty, on 180 days' or less notice;
(d) contracts relating to the borrowing of money in excess of
$5,000,000 or to the direct or indirect guarantee of any obligation for, or
contract to service the repayment of, borrowed money in excess of such
amount, or any other liability or obligation in respect of indebtedness for
borrowed money of any other person in excess of such amount, including
without limitation any contract relating to (i) the maintenance of
compensating balances that are not terminable by AFC or any of its
subsidiaries without penalty upon not more than 90 days notice, (ii) any
lines of credit, (iii) the payment for property, products or services of
any other person even if such property, products or services are not
conveyed, delivered or rendered, (iv) any obligation to take-or-pay,
keep-well, make-whole or maintain working capital or earnings levels or
perform similar requirements or (vi) the guarantee of any lease or other
similar periodic payments to be made by any other person;
(e) any lease or sublease of real property used in the conduct of
AFC's or any of its subsidiaries' business, operations or affairs, and any
other lease, sublease or rental or use contract providing for annual rental
payments to be paid by or on behalf of AFC or any of its subsidiaries in
excess of $1,000,000;
(f) material contracts relating to the future disposition or
acquisition of any investment in any person or of any interest in any
business enterprise, and any material contracts requiring AFC or any of its
subsidiaries to purchase any security other than notes or other debt
securities having a maturity date less than 90 days from the date of
purchase;
(g) contracts and arrangements that involve more than $250,000 and
cannot be terminated, as of right and without penalty, on less than 90
days' notice between (i) AFC or any of its subsidiaries and (ii) any AFC
Affiliate (as defined in Section 4.1 hereof) or any AFC Related Person (for
the purposes hereof "AFC Related Person" shall mean (A) any AFC Common
Shareholder or any director or executive officer of AFC or any of its
subsidiaries, (B) any spouse or immediate family member of any such
shareholder, director or officer, and (C) any corporation or other entity
(other than AFC and its subsidiaries) of which any of the aforementioned
persons is an officer, director or partner or is, directly or indirectly,
the beneficial owner of at least 5% of the ownership interest of such
entity);
(h) reinsurance or other similar contracts; and
(i) other contracts (other than insurance contracts) that involve the
payment or potential payment, pursuant to the terms of such contracts, by
or to AFC or any of its subsidiaries of $2,000,000 or more within any
twelve-month period commencing after the date hereof or that are otherwise
material to the Condition of AFC and its subsidiaries taken as a whole.
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Each of the contracts listed in Schedule 3.15 of the Disclosure Schedule is
in full force and effect and constitutes a valid and legally binding obligation
of AFC or each of its subsidiaries to the extent that AFC or any of it
subsidiaries is party thereto and, except as set forth in Schedule 3.15 of the
Disclosure Schedule, to the knowledge of AFC and its subsidiaries, of each other
person that is a party thereto in accordance with its terms; and neither AFC nor
any of its subsidiaries is, and, except as set forth in Schedule 3.15 of the
Disclosure Schedule, to the knowledge of AFC and its subsidiaries, no other
party to such contract is, in violation, breach or default of any such contract
(or with or without notice or lapse of time or both would be in violation,
breach or default of any such contract). Except as set forth in the SEC Filings
or Schedule 3.15 of the Disclosure Schedule, neither AFC nor any subsidiary of
AFC is a party to or bound by any contract that was not entered into in the
ordinary course of business or that has or may reasonably be expected to have,
in the aggregate with any other contracts, a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole. Neither AFC nor any of
its subsidiaries is a party to or bound by any collective bargaining or similar
labor contract.
SECTION 3.16 INSURANCE ISSUED BY INSURANCE SUBSIDIARIES. Except as
required by law or as set forth in Schedule 3.16 of the Disclosure Schedule,
since December 31, 1993:
(a) except as originated or amended in the ordinary course of business
and as would not have a material adverse effect on the Condition of any
such Insurance Subsidiary, no insurance product or program of any Insurance
Subsidiary has been amended in any material respect or introduced;
(b) all insurance contract obligations incurred by any Insurance
Subsidiary have in all material respects been paid (or provision for
payment has been made therefor) in accordance with the terms of the
contracts under which they arose, except for such obligations for which any
Insurance Subsidiary reasonably believes there is a reasonable basis to
contest payment;
(c) no outstanding insurance contract which would entitle the holder
thereof or any other person to receive dividends, distributions or other
benefits based on the revenues or earnings of any Insurance Subsidiary has
been issued or assumed by any Insurance Subsidiary; and
(d) the underwriting standards utilized and ratings applied by each
Insurance Subsidiary with respect to insurance contracts outstanding as of
the date hereof conform in all material respects to industry accepted
practices (or otherwise are reasonable where no such industry accepted
practices exist) and, with respect to any such contract reinsured in whole
or in part, conform in all material respects to the standards and ratings
required pursuant to the terms of the related reinsurance, coinsurance or
other similar contracts. Except as set forth in Schedule 3.16 of the
Disclosure Schedule, to the knowledge of AFC and the Insurance
Subsidiaries, since the respective date of the most recent financial
examination report of each Insurance Subsidiary: (i) all amounts
recoverable under reinsurance, coinsurance or other similar contracts
(including without limitation amounts based on paid and unpaid losses) are
fully collectible in the ordinary course, net of established reserves as
set forth in the Annual Statements or as reflected in the SEC Filings; (ii)
each insurance agent or broker appointed by AFC or any Insurance
Subsidiary, at the time such agent or broker wrote, sold or produced
business for any Insurance Subsidiary, was duly appointed and, to the best
of AFC's knowledge, duly licensed, as an insurance agent or broker (for the
type of business written, sold or produced by such insurance agent or
broker) in the particular jurisdiction in which such agent or broker wrote,
sold or produced such business for any Insurance Subsidiary, except for
such failures to be so appointed or so licensed which would not, in the
aggregate, have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole; (iii) to the best of AFC's knowledge, no
such insurance agent or broker violated (or with or without notice or lapse
of time or both would have violated) any term or provision of any law or
any writ, judgment, decree, injunction or similar order applicable to the
writing, sale or production of business for any Insurance Subsidiary, the
result of which violations in the aggregate has or
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may reasonably be expected to have a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole and (iv) each
Insurance Subsidiary has all licenses and permits required to conduct its
insurance business and operations as they are currently being conducted.
SECTION 3.17 THREATS OF CANCELLATION. Except as set forth in Schedule 3.17
of the Disclosure Schedule, since January 1, 1993 no policyholder, group of
policyholder affiliates, or persons writing, selling or producing insurance
business, which in the aggregate accounted for 10% or more of the premium income
of any Insurance Subsidiary for the year ended December 31, 1993, has terminated
or, to the knowledge of AFC and the Insurance Subsidiaries, threatened to
terminate its relationship with any Insurance Subsidiary.
SECTION 3.18 OPERATIONS INSURANCE. All liability, property, workers
compensation, directors' and officers' liability, and other similar insurance
contracts that insure the businesses, operations or affairs of AFC or any of its
subsidiaries or affect or relate to the ownership, use, or operations of AFC's
or any of its subsidiaries assets or properties and that have been issued to AFC
or any of its subsidiaries are in full force and effect and, to the knowledge of
AFC and its subsidiaries, are with financially sound and reputable insurers and,
in light of the respective business operations and affairs of AFC and each of
its subsidiaries, are in amounts and provide coverage that are reasonable and
customary for persons in similar businesses.
SECTION 3.19 BUSINESS OF AFC. Except as set forth in the SEC Filings or
Schedule 3.19 of the Disclosure Schedule, AFC is a holding company and does not
conduct any material business operations or affairs other than that of holding
capital stock of its subsidiaries, APZ, and the AFC Affiliates.
SECTION 3.20 JOINT PROXY/REGISTRATION STATEMENT. None of the information
supplied or to be supplied by AFC (including, without limitation, any
information relating to any of the AFC Affiliates) for inclusion or
incorporation by reference in the Joint Proxy/Registration Statement, the AFC
Proxy Statement, and any amendments or supplements thereto, will (i) in the case
of the Registration Statement, at the time it becomes effective and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading, or (ii) (a) in the case of the Proxy Statement, at the time of
the mailing of the Proxy Statement and at the times of the meetings of
shareholders of AFC and APZ described in Sections 2.3 and 2.4, and (b) in the
case of the AFC Proxy Statement, at the time of the delivery of the AFC Proxy
Statement to AFC's shareholders and at the time of the meeting of AFC's
shareholders described in Section 2.3, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to AFC, its officers and directors or
any of its subsidiaries or any AFC Affiliate should occur which is required to
be described in an amendment of, or a supplement to, the Joint
Proxy/Registration Statement, such event shall be so described, and such
amendment or supplement shall be promptly filed with the SEC and, as required by
law, disseminated to the shareholders of AFC and APZ. The Joint
Proxy/Registration Statement will (with respect to AFC) comply as to form in all
material respects with the requirements of the Securities Act and the Exchange
Act. The AFC Proxy Statement will comply as to form in all material respects
with the requirements of Ohio law.
SECTION 3.21 ENVIRONMENTAL MATTERS. (a) Except as set forth in the SEC
Filings or Schedule 3.21 of the Disclosure Schedule (and excluding any
liability, if any, of an Insurance Subsidiary for an Environmental Claim (as
hereinafter defined) which is addressed by representations regarding reserves
set forth in Section 3.7 hereof):
(i) Each of AFC and its subsidiaries is, in all material respects, in
compliance with all Environmental Laws (as hereinafter defined) and has not
received any communication within
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the last three years from a governmental authority that alleges that AFC or
any of its subsidiaries is not in such full compliance;
(ii) There is no Environmental Claim (as hereinafter defined) pending
or, to AFC's best knowledge, threatened against AFC or any of its
subsidiaries or, to AFC's knowledge, pending or threatened against any
person or entity whose liability for any Environmental Claim AFC or any of
its subsidiaries has retained or assumed either contractually or by
operation of law; and
(iii) Except to the extent the same would not have a material adverse
effect on the Condition of AFC and its subsidiaries taken as a whole, there
are no past or present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the release, emission,
discharge or disposal of any Material of Environmental Concern (as
hereinafter defined), that could reasonably be expected to result in any
Environmental Claim against AFC or any of its subsidiaries or against any
person or entity whose liability for any Environmental Claim AFC or any of
its subsidiaries has retained or assumed either contractually or by
operation of law.
(b) "Environmental Claim" means any written notice by any governmental or
regulatory agency, authority or instrumentality alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (i) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned by AFC or any of its
subsidiaries, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Laws.
(c) "Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
(d) "Materials of Environmental Concern" means any substance, material or
waste which is regulated by any governmental authority, including, without
limitation, any material, substance or waste which is defined as a "hazardous
waste," "hazardous material," "hazardous substance," "extremely hazardous
waste," "restricted hazardous waste," "contaminant," "toxic waste" or "toxic
substance" under any law or regulation, including, but not limited to,
petroleum, petroleum products, asbestos, urea formaldehyde and polychlorinated
biphenyls.
SECTION 3.22 STATE TAKEOVER STATUTES. To the best of AFC's knowledge,
other than Ohio Revised Code Section 1701.831 and the Ohio Insurance Holding
Company Systems Act or any comparable state insurance law in other applicable
jurisdictions, no state takeover statute, control share acquisition statute,
business combination statute or similar statute or regulation applies to the
Mergers, this Agreement or any of the transactions contemplated by this
Agreement.
SECTION 3.23 COMPLIANCE WITH BANK REGULATORY MATTERS. AFC has previously
delivered or made available to APZ true and complete copies of all agreements
and undertakings that AFC or any of its subsidiaries has entered into with the
Federal Reserve Bank in connection with The Provident Bank or any other matters.
Each of AFC and its subsidiaries, in all material respects, is in full and
complete compliance with all such agreements and undertakings, and has not
received any communication that alleges AFC or any such subsidiaries is not in
full compliance.
SECTION 3.24 COLLECTIBILITY UNDER REINSURANCE CONTRACTS. All amounts
(including without limitation amounts based on paid and unpaid losses)
recoverable under reinsurance, coinsurance or other similar contracts to which
any Insurance Subsidiary is a party are fully collectible in the ordinary
course, net of established reserves therefor. Each of such contracts is in full
force and
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effect and constitutes a valid and legally binding obligation of each person
that is a party thereto in accordance with its terms.
SECTION 3.25 DISCLOSURE. No representation or warranty contained in this
Agreement or the Disclosure Schedule, and no statement, certificate, schedule,
list or other information furnished or to be furnished by or on behalf of AFC to
APZ in connection with this Agreement, contains or will contain any untrue
statement of a material fact, or omits to state or will omit to state a material
fact necessary in order to make the statements herein or therein not misleading.
The word "material" as used in this Section 3.25 shall mean material to the
Condition of AFC and its subsidiaries taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AFC
PERTAINING TO THE AFC AFFILIATES
AFC represents and warrants to New American Premier and APZ as follows:
SECTION 4.1 CAPITALIZATION. Set forth on Section 4.1 of the Disclosure
Schedule is the capital structure of each of Chiquita Brands International, Inc.
("Chiquita"), Citicasters Inc. ("Citicasters") and American Financial
Enterprises, Inc. ("AFEI") (each of Chiquita, Citicasters and AFEI, an "AFC
Affiliate" and, collectively, the "AFC Affiliates") and the number of shares and
percentage of the capital stock, or other ownership interest, owned of record
and/or beneficially by AFC or any of its subsidiaries in each such AFC
Affiliate. Except as set forth on Schedule 4.1 of the Disclosure Schedule, (i)
all of the outstanding shares of capital stock and other ownership interests of
AFC and any of its subsidiaries in the AFC Affiliates have been validly issued
and are fully paid and nonassessable and are beneficially owned by either AFC or
one of its directly or indirectly wholly owned subsidiaries free and clear of
all liens, charges, claims or encumbrances, (ii) except as disclosed in the
Affiliate SEC Filings (as defined in Section 4.3 hereof), there are no
outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other ownership interest of any of the AFC
Affiliates or securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock or other ownership
interest, or otherwise obligating any such AFC Affiliate to issue, transfer or
sell any such capital stock or other securities or other ownership interest and
(iii) there are no voting trusts or other arrangements or understanding to which
AFC, any subsidiary of AFC or any of the AFC Affiliates is a party with respect
to the voting of the capital stock or other ownership interest of the AFC
Affiliates.
SECTION 4.2 NO VIOLATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) constitute a breach or violation of or default under the Articles of
Incorporation, the By-laws or other charter documents of any AFC Affiliate or
any of its subsidiaries or (ii) violate, conflict with, or result in a breach of
any provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
any AFC Affiliate or any of its subsidiaries under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which any AFC Affiliate or
any of its subsidiaries is a party or to which they or any of their respective
properties or assets may be subject, other than, in the case of clause (ii), (a)
breaches, conflicts or violations that would not have a material adverse effect
on the Condition of AFC and its subsidiaries taken as a whole and (b) the
agreements set forth in Schedule 4.2 of the Disclosure Schedule as to which AFC
shall obtain all necessary consents and/or waivers prior to the Closing, except
where the failure to obtain such consents and/or waivers would not have a
material adverse effect on the Condition of
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AFC and its subsidiaries taken as a whole. The execution, delivery and
performance by AFC of this Agreement and the consummation by AFC of the
transactions contemplated hereby will not constitute a breach or violation of or
default under any law, rule or regulation or any judgment, decree, order,
governmental permit or license to which any AFC Affiliate or any of its
subsidiaries is subject, except to the extent the same would not have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a whole.
SECTION 4.3 SEC REPORTS AND FINANCIAL STATEMENTS. AFC has previously
delivered to APZ true and complete copies of each AFC Affiliate's (i) Annual
Report on Form 10-K for the year ended December 31, 1993, as filed with the SEC,
and all amendments thereto; (ii) Quarterly Reports on Form 10-Q for the periods
ended March 31, 1994, June 30, 1994 and September 30, 1994, as filed with the
SEC; (iii) proxy statements relating to all meetings of its shareholders
(whether annual or special) held or scheduled to be held since January 1, 1994;
and (iv) all other reports, statements and registration statements (including
Current Reports on Form 8-K) filed by it with the SEC since December 31, 1993
(collectively, the "Affiliate SEC Filings"). As of their respective dates, the
Affiliate SEC Filings did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of each AFC Affiliate included in
the Affiliate SEC Filings present fairly, in all material respects, the
financial condition, results of operations and changes in financial position of
such AFC Affiliate as at the dates or for the periods indicated therein in
conformity with GAAP.
SECTION 4.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the Affiliate SEC Filings or Schedule 4.4 of the Disclosure Schedule, since
December 31, 1993, each AFC Affiliate and its subsidiaries has conducted
business only in the ordinary and usual course and there has not occurred any
adverse change in the Condition of the AFC Affiliates and their subsidiaries
taken as a whole that, in the aggregate, may reasonably be expected to have a
material adverse effect on the Condition of AFC and its subsidiaries taken as a
whole.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APZ
APZ represents and warrants to AFC as follows:
SECTION 5.1 ORGANIZATION AND QUALIFICATION.
(a) APZ. APZ is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. All material
subsidiaries of APZ (the "APZ Subsidiaries") are corporations duly organized,
validly existing and in good standing (or the local law equivalent) under the
laws of their jurisdictions of incorporation. APZ and the APZ Subsidiaries have
the requisite corporate power to conduct their businesses as they are currently
being conducted and are duly qualified as foreign corporations (or the local law
equivalent) to do business in the respective jurisdictions where the character
of their properties owned or leased or the nature of their activities makes such
qualification necessary, except to the extent that lack of such qualification
would not have a material adverse effect on the Condition of APZ and its
subsidiaries taken as a whole.
(b) New American Premier Entities. Each of the New American Premier
Entities is a newly formed corporation, duly incorporated and organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. APZ Sub and AFC Sub are each a wholly owned subsidiary of New
American Premier, and each such subsidiary was formed solely for the purpose of
effectuating the Mergers. Except for the activities incident to its organization
and the transactions contemplated by this Agreement, each of the New American
Premier Entities has not engaged in any business activities of any type
whatsoever and has no material assets or liabilities.
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SECTION 5.2 CAPITALIZATION.
(a) APZ. The authorized capital stock of APZ consists of 200,000,000
shares of APZ Common Stock and 23,090,274 shares of preference stock ("APZ
Preferred Stock"). As of November 30, 1994, (i) 47,616,111 shares of APZ Common
Stock were outstanding or issuable, including 1,375,304 shares set aside for
issuance pursuant to APZ's 1978 Plan of Reorganization, (ii) 212,698 shares of
APZ Preferred Stock were issued and outstanding, which are convertible into
446,799 shares of APZ Common Stock and (iii) no shares of APZ Common Stock were
held in APZ's treasury. In addition, as of such date, (i) 446,799 shares of APZ
Common Stock were reserved for issuance upon optional conversion of the
outstanding shares of APZ Preferred Stock and (ii) 5,115,671 shares of APZ
Common Stock were reserved for issuance in connection with the APZ Stock Option
Plan, of which 2,957,291 shares were reserved for issuance upon the exercise of
outstanding APZ Stock Options and 2,158,380 shares were reserved for issuance in
connection with ungranted additional stock options. All of the issued and
outstanding shares of capital stock of APZ are validly issued, fully paid and
nonassessable and are not subject to, nor were they issued in violation of, any
preemptive rights. Since November 30, 1994, APZ has not issued any shares of its
capital stock or additional options to purchase shares of its capital stock
except for the issuance of shares of APZ Common Stock (i) upon exercise of APZ
Stock Options, (ii) in connection with shares issued pursuant to APZ's 1978 Plan
of Reorganization, or (iii) in connection with shares issued pursuant to APZ's
Employee Stock Purchase Plan. Except as set forth above or in Schedule 5.2 of
the disclosure schedule previously delivered by APZ to AFC (the "APZ Disclosure
Schedule"), as of the date hereof, (i) there are no shares of capital stock of
APZ authorized, issued or outstanding and (ii) there are no outstanding
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligating APZ or its subsidiaries,
to issue, transfer or sell, presently or in the future, any shares of the
capital stock or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of the capital stock of APZ.
Except as set forth in the APZ SEC Filings (as defined in Section 5.5 below) or
Schedule 5.2 of the APZ Disclosure Schedule, all of the outstanding shares of
capital stock of each of the APZ Subsidiaries have been validly issued and are
fully paid and nonassessable and are beneficially owned by either APZ or another
of the APZ Subsidiaries free and clear of all liens, charges, claims or
encumbrances. Except as set forth in the APZ SEC Filings or Schedule 5.2 of the
APZ Disclosure Schedule, there are no outstanding subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock of
any of the APZ Subsidiaries or securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of such capital stock, or
otherwise obligating any such APZ Subsidiary to issue, transfer or sell any such
capital stock or other securities. There are no voting trusts or other
agreements or understandings to which APZ or any of its subsidiaries is a party
with respect to the voting of the capital stock of APZ or any of the APZ
Subsidiaries.
(b) New American Premier. The authorized capital stock of New American
Premier consists of 750 shares of New American Premier Common Stock and 100
shares of preferred stock ("New American Premier Preferred Stock"). As of the
date of this Agreement, (i) ten (10) shares of New American Premier Common Stock
were issued and outstanding and owned in the manner set forth in Schedule 5.2 of
the APZ Disclosure Schedule, (ii) no shares of New American Premier Preferred
Stock were issued or outstanding, and (iii) no shares of New American Premier
Stock were held in New American Premier's treasury. All of the issued and
outstanding shares of capital stock of New American Premier and its subsidiaries
are validly issued, fully paid and nonassessable and are not subject to, nor
were they issued in violation of, any preemptive rights. Except as contemplated
by this Agreement, there are no outstanding subscriptions, options, warrants,
calls, rights, convertible securities or other agreements or commitments of any
character obligating New American Premier or its subsidiaries, to issue,
transfer or sell, presently or in the future, any shares of the capital stock or
any securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of the capital stock of New American Premier or its
subsidiaries.
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SECTION 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of APZ and the New
American Premier Entities has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Boards of Directors of each of APZ and the New American Premier Entities
and this Agreement has been approved by the sole shareholders of each of the New
American Premier Entities. A special committee of the Board of Directors of APZ
(the "Special Committee") has adopted resolutions recommending that the full
Board of Directors of APZ approve this Agreement and the APZ Merger, determining
that the terms of this Agreement and the APZ Merger are fair to, and in the best
interest of, the shareholders of APZ Common Stock other than AFC and its
subsidiaries (such shareholders of APZ Common Stock, other than AFC and its
subsidiaries, hereinafter referred to as "APZ's Public Shareholders"). Except
for the approval of this Agreement by the shareholders of APZ, no other
corporate proceedings on the part of APZ or the New American Premier Entities
are necessary to authorize this Agreement and the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by APZ
and each of the New American Premier Entities and (assuming this Agreement is a
valid and binding obligation of AFC) constitutes a valid and binding agreement
of APZ and the New American Premier Entities enforceable against each of them in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) remedies of
specific performance and injunctive and other forms of relief may be subject to
general principles of equity and public policy and to the discretion of the
court before which any proceeding therefor may be brought.
SECTION 5.4 NO VIOLATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) constitute a breach or violation of or default under the Articles of
Incorporation, By-laws or Code of Regulations of APZ or any of the New American
Premier Entities or (ii) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
APZ or any of the New American Premier Entities under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which APZ or any
of the New American Premier Entities is a party or to which they or any of their
properties or assets may be subject, other than, in the case of clause (ii) (a)
breaches, conflicts or violations that would not have a material adverse effect
on the Condition of APZ and its subsidiaries taken as a whole and (b) the
agreements set forth in Schedule 5.4 of the APZ Disclosure Schedule. Other than
in connection with, or in compliance with, the provisions of the PBCL, the OGCL,
the Exchange Act, the Securities Act, and the HSR Act and requirements of the
FCC, the NYSE, the Department of Insurance of Ohio and other insurance
regulatory agencies, (i) the consummation by APZ and the New American Premier
Entities of the transactions contemplated hereby will not require the consent or
approval of any other party to any of the above or affect the validity or
effectiveness of any of the above except for consents or approvals, the failure
to obtain which would not, in the aggregate, have a material adverse effect on
the Condition of APZ and its subsidiaries taken as a whole and (ii) the
execution, delivery and performance by APZ and the New American Premier Entities
of this Agreement and the consummation by APZ and the New American Premier
Entities of the transactions contemplated hereby will not constitute a breach or
violation of or default under any law, rule or regulation or any judgment,
decree, order, governmental permit or license to which APZ or any of the New
American Premier Entities is subject, which would have a material adverse effect
on the Condition of APZ and its subsidiaries taken as a whole.
SECTION 5.5 SEC REPORTS AND FINANCIAL STATEMENTS. APZ has previously
delivered to AFC true and complete copies of its (i) Annual Report on Form 10-K
for the year ended December 31,
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1993, as filed with the SEC, and all amendments thereto; (ii) Quarterly Reports
on Form 10-Q for the periods ended March 31, 1994, June 30, 1994 and September
30, 1994, as filed with the SEC; (iii) proxy statements relating to all meetings
of its shareholders (whether annual or special) held or scheduled to be held
since January 1, 1994; and (iv) all other reports, statements and registration
statements (including Current Reports on Form 8-K) filed by it with the SEC
since December 31, 1993 (collectively, the "APZ SEC Filings"). As of their
respective dates, the APZ SEC Filings did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of APZ included
in the APZ SEC Filings present fairly, in all material respects, the financial
condition, results of operations and changes in financial position of APZ as at
the dates or for the periods indicated therein in conformity with GAAP.
SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the APZ SEC Filings or Schedule 5.6 of the APZ Disclosure Schedule, since
December 31, 1993, each of APZ and the APZ Subsidiaries has conducted its
businesses only in the ordinary and usual course and there has not occurred any
material adverse change in the Condition of APZ and its subsidiaries taken as a
whole.
SECTION 5.7 JOINT PROXY/REGISTRATION STATEMENT. None of the information to
be supplied by APZ and the New American Premier Entities for inclusion or
incorporation by reference in the Joint Proxy/Registration Statement, or any
amendment or supplement thereto, will (i) in the case of the Registration
Statement, at the time it becomes effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
or (ii) in the case of the Proxy Statement, at the time of the mailing of the
Proxy Statement and at the times of the meetings of shareholders of AFC and APZ
described in Sections 2.3 and 2.4, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. If at any time prior to the Effective
Time any event with respect to APZ, its officers and directors, or any of its
subsidiaries or the New American Premier Entities shall occur which is required
to be described in the Joint Proxy/Registration Statement, such event shall be
so described, and an amendment or supplement shall be promptly filed with the
SEC. The Registration Statement will comply (with respect to APZ and the New
American Premier Entities) as to form in all material respects with the
provisions of the Securities Act and the Exchange Act.
ARTICLE VI
CERTAIN COVENANTS
SECTION 6.1 CONDUCT OF BUSINESS PENDING THE MERGERS. AFC covenants and
agrees that, prior to the Effective Time, unless APZ shall otherwise agree in
writing or as otherwise expressly permitted or contemplated by this Agreement:
(a) the business of AFC and its subsidiaries shall be conducted only in the
ordinary course and consistent with past practice and neither AFC nor any of its
subsidiaries shall sell any material properties or assets;
(b) except as provided in Section 6.8 hereof, AFC shall not (i) split,
combine or reclassify any shares of its capital stock or (ii) declare, set aside
or pay any dividend or other distribution or make any payment in cash, stock or
property in respect of any shares of its capital stock other than cash dividends
on the AFC Preferred Stock at presently established rates;
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(c) except as provided in Section 6.8 hereof or as contemplated by the
Shareholders Agreement, neither AFC nor any of its subsidiaries shall (i) amend
its Articles of Incorporation, By-laws, Code of Regulations or other charter
documents, (ii) issue or sell any shares of, or rights of any kind to acquire
any shares of or to receive any payment based on the value of, its capital stock
or any securities convertible into shares of any such capital stock (including,
without limitation, any further stock options or stock appreciation rights),
except upon the exercise of presently outstanding options or rights to acquire
shares of AFC Common Stock, in each case in accordance with their present terms,
or (iii) acquire, directly or indirectly, by redemption or otherwise, any shares
of its capital stock;
(d) each of AFC and its subsidiaries shall use its best efforts to preserve
intact its business organization, to keep available the services of its current
officers and key employees, and to preserve the goodwill of those having
business relationships with it;
(e) neither AFC nor any of its subsidiaries shall agree, in writing or
otherwise, to take any of the actions prohibited by the foregoing clauses (a)
through (d).
SECTION 6.2 REASONABLE EFFORTS. Upon the terms and subject to the
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, to do, or cause to
be done, and to assist and cooperate with the other parties hereto in doing, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement, including, but not limited to, (i)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from all appropriate regulatory agencies or authorities and the making
of all necessary registrations and filings, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, and (iii) the defending of
any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby.
SECTION 6.3 ACCESS AND INFORMATION. Each party hereto shall (and shall
cause each of its subsidiaries to) afford to each other party hereto and such
party's accountants, counsel and other representatives full access during normal
business hours through the period prior to the Effective Time to all of its
properties, books, contracts, commitments and records (including, but not
limited to, tax returns) and, during such period, such party shall furnish
promptly to each other party (i) a copy of each report, schedule and other
document filed or received by it pursuant to the requirement of federal or state
securities laws or state insurance laws and (ii) all other information
concerning its business, properties and personnel as each other party may
reasonably request; provided, however, that no investigation pursuant to this
Section 6.3 shall affect any representations or warranties or the conditions to
the obligations of the parties to consummate the Mergers.
SECTION 6.4 NOTICE OF ACTIONS AND PROCEEDINGS. AFC shall promptly notify
APZ, and APZ shall promptly notify AFC, of any actions, suits, claims,
investigations, or proceedings commenced or, to the best of its knowledge,
threatened against, relating to or involving or otherwise affecting AFC or APZ,
as the case may be, which, if pending on the date hereof, would have been
required to have been disclosed in writing pursuant to Section 3.11 hereof or
which relate to the consummation of the Mergers.
SECTION 6.5 NOTIFICATION OF CERTAIN OTHER MATTERS.
(a) AFC shall promptly notify APZ of:
(i) any notice of, or other communication relating to, a default or
event which, with notice or lapse of time or both, would become a default,
received by AFC, any of its subsidiaries, any AFC Affiliate or any
subsidiary of a AFC Affiliate subsequent to the date of this Agreement and
prior to the Effective Time, under any material agreement to which AFC, any
of its subsidiaries, any AFC Affiliate or any subsidiary of a AFC Affiliate
is a party or to which any such entity or any of its respective properties
or assets may be subject or bound;
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(ii) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection
with the transactions contemplated by this Agreement;
(iii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated hereby; and
(iv) any material adverse change in the Condition of AFC and its
subsidiaries taken as a whole or the occurrence of an event or development
which, so far as reasonably can be foreseen at the time of its occurrence,
could result in any such change.
(b) APZ shall promptly notify AFC of:
(i) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated hereby; and
(iii) any material adverse change in the Condition of APZ and its
subsidiaries taken as a whole or the occurrence of an event or development
which, so far as reasonably can be seen at the time of its occurrence,
could result in any such change.
SECTION 6.6 SUPPLEMENTAL DISCLOSURE. Each party shall have the continuing
right and obligation promptly to supplement or amend its disclosure schedule
with respect to any matter hereafter arising or discovered which, if existing or
known at the date hereof, would have been required to be set forth or described
in its disclosure schedule; provided, however, that for the purpose of the
rights and obligations of the parties hereunder, any such supplemental or
amended disclosure shall not be deemed to have been disclosed as of the date
hereof unless so agreed to in writing by the other party.
SECTION 6.7 REGISTRATION, LISTING AND ISSUANCE OF NEW AMERICAN PREMIER
STOCK. APZ shall use its best efforts to (a) cause the registration of the
issuance of the New American Premier Common Stock to be issued pursuant to this
Agreement under the applicable provisions of the Securities Act and the Exchange
Act and (b) cause the New American Premier Common Stock to be issued pursuant to
this Agreement to be listed for trading on the NYSE. APZ covenants that the New
American Premier Stock issuable pursuant to this Agreement will be duly and
validly authorized and will, upon issuance, be validly issued, fully paid and
nonassessable.
SECTION 6.8 AMENDMENT TO AFC'S ARTICLES OF INCORPORATION. Prior to the
Effective Time, AFC shall cause its Articles of Incorporation to be amended so
as to provide (a) that holders of Series F and Series G AFC Preferred Stock
shall be entitled, effective one day prior to the Effective Time, to one vote
per share, voting with the holders of AFC Common Stock as a single class, on all
matters presented to the shareholders of AFC for their vote, consent or waiver,
including the election of directors, (b) for the authorization of a total of
53,000,000 shares of AFC Common Stock and a new series of non-voting AFC
Preferred Stock as may be required to be issued pursuant to the Shareholders
Agreement, (c) that Section 1701.831 of the OGCL shall not apply to control
share acquisitions of shares of AFC and (d) that shareholders of AFC shall not
have the right to vote cumulatively in the election of directors.
SECTION 6.9 SURVIVAL OF INDEMNIFICATION. To the fullest extent not
prohibited by law, from and after the Effective Time, all rights to
indemnification as of the date hereof in favor of the employees, agents,
directors or officers of APZ, AFC and their respective subsidiaries with respect
to their activities as such prior to the Effective Time, as provided in their
respective Articles of Incorporation, By-laws, Code of Regulations or other
charter documents, in effect on the date thereof or otherwise in effect on the
date hereof, shall survive the Mergers and shall continue in full force and
effect for a period of not less than six years from the Effective Time.
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SECTION 6.10 NO DECONSOLIDATION. New American Premier covenants that it
will not engage voluntarily in any transaction or other action for a period of
two years after the Effective Time that would (i) result in the termination of
AFC's federal consolidated tax group which existed prior to the Mergers, (ii)
involve the stock, or, other than in the ordinary course of business, the assets
(other than the stock of New American Premier), of AFC or any member of AFC's
federal consolidated tax group, or (iii) involve the stock of any AFC Affiliate,
or any subsidiary of AFC that is not a member of AFC's federal consolidated tax
group, and would result, or reasonably could be expected to result, when
combined with any other similar transactions that have been demonstrated to the
satisfaction of the Special Committee (or qualifying successor directors
described below) to be reasonably likely to occur, in a net tax cash cost of
more than $25,000,000, without the approval of the directors comprising the
Special Committee or any successor directors who would be permitted to serve on
an Audit Committee of New American Premier in accordance with the rules
promulgated under The New York Stock Exchange Listed Company Manual.
SECTION 6.11 AMENDMENT TO NEW AMERICAN PREMIER'S ARTICLES OF
INCORPORATION. Immediately prior to the Effective Time, New American Premier
shall cause its Articles of Incorporation to be amended to provide for the
authorization of a total of (i) 200,000,000 shares of New American Premier
Common Stock and (ii) 25,000,000 shares of New American Premier Preferred Stock,
with terms substantially identical in all material respects with the existing
capital structure of APZ.
ARTICLE VII
CONDITIONS
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGERS. The respective obligations of each party to effect the Mergers shall
be subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) this Agreement and the Mergers shall have been approved and
adopted by the requisite vote of the shareholders of AFC and APZ;
(b) no preliminary or permanent injunction or other order, decree or
ruling issued by any court of competent jurisdiction nor any statute, rule,
regulation or order entered, promulgated or enacted by any governmental,
regulatory or administrative agency or authority shall be in effect which
would prevent the consummation of the Mergers or the other transactions
contemplated hereby;
(c) all waiting periods applicable to the consummation of the Mergers
under the HSR Act shall have expired;
(d) the Registration Statement shall have been declared effective and
no stop order suspending effectiveness shall have been issued, no action,
suit, proceeding or investigation by the SEC to suspend the effectiveness
thereof shall have been initiated and be continuing, and all necessary
approvals under federal and state securities laws relating to the issuance
of the New American Premier Stock shall have been received;
(e) the New American Premier Common Stock required to be issued
hereunder shall have been approved for listing on the NYSE, subject to
official notice of issuance;
(f) all actions, nonactions, consents, approvals and waivers from
third parties (including, without limitation, the FCC, the NYSE, banking
regulatory authorities, the Department of Insurance of Ohio or any other
insurance regulatory agencies) necessary or appropriate to consummate the
transactions contemplated by this Agreement shall have been obtained
without imposing any conditions that would have a material adverse effect
on the Condition of (i) AFC and its subsidiaries taken as a whole or (ii)
APZ and its subsidiaries taken as a whole, except to the extent that, if
not obtained, would not result in any such material adverse effect;
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(g) the Special Committee shall have received from Furman Selz
Incorporated an opinion, dated the date of the mailing of the Proxy
Statement and re-dated as of the Effective Time, in customary form, to the
effect that the consideration for the Mergers is fair to APZ's Public
Shareholders from a financial point of view;
(h) the parties shall have received a favorable response to the tax
ruling sought pursuant to Section 2.9 hereof by June 30, 1995 or, in lieu
thereof, to the extent applicable, the exchange of shares of AFC Common
Stock for AFC Preferred Stock shall have taken place in accordance with the
terms and provisions of the Shareholders Agreement;
(i) counsel to APZ shall have delivered to APZ an opinion (dated the
date of the Effective Time and based on facts, representations and
assumptions set forth in such opinion which are consistent with the state
of facts existing at the Effective Time), substantially to the effect that:
(i) no gain or loss will be recognized by APZ, APZ Sub or New American
Premier as a result of the APZ Merger; (ii) no gain or loss will be
recognized by an APZ shareholder who receives shares of New American
Premier Stock pursuant to the APZ Merger; (iii) the tax basis of the shares
of New American Premier Stock owned by a former shareholder of APZ will be
the same as the tax basis of the shares of APZ Common Stock and APZ
Preferred Stock formerly owned by such shareholder; and (iv) the holding
period of the shares of New American Premier Stock received as a result of
the APZ Merger will include the period during which the shares formerly
representing APZ Common Stock and APZ Preferred Stock were held, provided
such shares of APZ Common Stock and APZ Preferred Stock were held as
capital assets immediately prior to the Effective Time (in rendering such
opinion, counsel may require and rely upon representations contained in
certificates of officers of APZ);
(j) counsel to AFC shall have delivered to AFC an opinion (dated the
date of the Effective Time and based on facts, representations and
assumptions set forth in such opinion which are consistent with the state
of facts existing at the Effective Time), substantially to the effect that:
(i) no gain or loss will be recognized by AFC, AFC Sub or New American
Premier as a result of the AFC Merger; (ii) no gain or loss will be
recognized by an AFC shareholder who receives solely shares of New American
Premier Stock pursuant to the AFC Merger; (iii) an AFC shareholder who
receives cash in lieu of a fractional share of New American Premier Stock
pursuant to the AFC Merger will recognize gain to the extent of cash
received; (iv) the tax basis of the shares of New American Premier Stock
owned by a former shareholder of AFC will be the same as the tax basis of
the AFC Common Stock formerly owned by such shareholder minus the cash
received, if any, plus gain recognized on receipt of such cash, if any; and
(v) the holding period of the shares of New American Premier Stock received
as a result of the AFC Merger will include the period during which the
shares formerly representing AFC Common Stock were held, provided such
shares of AFC Common Stock were held as capital assets immediately prior to
the Effective Time (in rendering such opinion, counsel may require and rely
upon representations contained in certificates of officers of AFC); and
(k) a Certificate of Amendment in form and substance reasonably
acceptable to APZ and AFC shall have been filed with the Secretary of State
amending New American Premier's Articles of Incorporation in the manner
contemplated by Section 6.11 hereof.
SECTION 7.2 CONDITIONS TO OBLIGATION OF AFC TO EFFECT THE MERGERS. Unless
waived by AFC in the manner provided in Section 9.6 hereof, the obligation of
AFC to effect the Mergers shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions:
(a) New American Premier and APZ shall have performed and complied in
all material respects with all obligations and agreements required to be
performed and complied with by them under this Agreement at or prior to the
Effective Time and the representations and warranties of New American
Premier and APZ contained in this Agreement shall be true and correct in
all material respects at and as of the Effective Time as if made at and as
of such date, except as otherwise contemplated or permitted by this
Agreement, and AFC shall have received
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a Certificate of the Chairman of the Board, the President or a Vice
President of APZ as to the satisfaction of this condition.; and
(b) AFC shall have received an opinion of counsel to APZ reasonably
satisfactory to AFC, dated as of the Effective Time and in form and
substance reasonably satisfactory to AFC, substantially to the effect that:
(1) Each of APZ and the New American Premier Entities has been duly
organized, and is subsisting and in good standing, as a corporation
under the laws of its respective jurisdiction of incorporation.
(2) Each of APZ and the New American Premier Entities has the
corporate power and corporate authority to enter into this Agreement and
consummate the transactions provided for herein. The execution and
delivery of this Agreement by APZ and the New American Premier Entities,
and the consummation by APZ and the New American Premier Entities of the
transactions provided for herein, have been duly authorized by requisite
corporate action on the part of APZ and the New American Premier
Entities. This Agreement has been executed and delivered by APZ and the
New American Premier Entities and (assuming this Agreement is a valid
and binding obligation of AFC) is a valid and binding obligation of APZ
and the New American Premier Entities enforceable against each of them
in accordance with its terms, except (A) that such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (B) that remedies of specific performance and injunctive
and other forms of relief may be subject to general principles of equity
and public policy and to the discretion of the court before which any
proceeding therefor may be brought.
(3) The execution, delivery and performance by APZ of this
Agreement will not (A) conflict with or result in a breach of any
provision of the Articles of Incorporation or By-laws of APZ, (B),
except as set forth in the APZ SEC Filings, result in, constitute a
violation of or a default under, or cause the creation of any security
interest or lien upon any of the properties or assets of APZ pursuant
to, or cause the acceleration of the maturity of any debt or obligation
of APZ pursuant to, any agreement, instrument, order, judgment or decree
to which APZ is subject and of which such counsel is specifically aware
and which APZ has advised such counsel in connection with this
transaction is material to the Condition of APZ or (C) insofar as is
actually known to such counsel, violate any law, rule or regulation or
any judgment, decree, order, governmental permit or license to which APZ
is subject which would have a material adverse effect on the Condition
of APZ and its subsidiaries taken as a whole.
(4) No facts have come to the attention of such counsel which would
lead such counsel to believe that (except for information relating to
tax or accounting matters and except for the financial statements and
other financial or statistical information contained therein or the
information concerning AFC, its subsidiaries and the AFC Affiliates, as
to which such counsel expresses no opinion), at the respective times the
Joint Proxy/Registration Statement or any amendments or supplements
thereto were declared effective by the SEC or mailed to the respective
shareholders of AFC and APZ, or at the times of the meetings of AFC's
and APZ's shareholders referred to in Sections 2.3 and 2.4 hereof, the
Joint Proxy/Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
As to any matter contained in such opinion which involves the laws of any
jurisdiction other than the federal laws of the United States or the laws of a
state in which such counsel is licensed, such counsel may rely upon opinions of
counsel admitted to practice in such other jurisdictions. Any
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opinions relied upon by such counsel as aforesaid shall be delivered together
with the opinion of such counsel, which shall state that AFC's and such
counsel's reliance thereon is justified. Such opinion may include qualifications
similar to those set forth in Article V hereof and may expressly rely as to
matters of fact upon certificates furnished by appropriate officers and
directors of APZ and its subsidiaries and by public officials.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF APZ AND NEW AMERICAN PREMIER TO
EFFECT THE MERGERS. Unless waived by APZ in the manner provided in Section 9.6
hereof, the obligations of APZ to effect the Mergers shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) AFC shall have performed or complied in all material respects with
all obligations and agreements required to be performed or complied with by
it under this Agreement at or prior to the Effective Time and the
representations and warranties of AFC contained in this Agreement shall be
true and correct in all material respects at and as of the Effective Time
as if made at and as of such date, except as otherwise contemplated or
permitted by this Agreement, and APZ shall have received a Certificate of
the Chairman of the Board or the President of AFC as to the satisfaction of
this condition;
(b) a Certificate of an Amendment to AFC's Articles of Incorporation
shall have been filed with the Secretary of State of Ohio amending AFC's
Articles of Incorporation in the manner contemplated by Section 6.8 hereof;
(c) the AFC Stock Options shall have been exercised with the exercise
price fully paid therefor in cash, or otherwise cancelled, and the Put
shall have been terminated, as provided for in Section 2.1 hereof; and
(d) APZ shall have received an opinion of counsel to AFC reasonably
satisfactory to APZ, dated as of the Effective Time and in form and
substance reasonably satisfactory to APZ, substantially to the effect that:
(1) Each of AFC, its material subsidiaries and the AFC Affiliates
has been duly organized, and is subsisting and in good standing, as a
corporation or other limited liability entity under the laws of its
respective jurisdiction of incorporation or other organization.
(2) AFC has the corporate power and corporate authority to enter
into this Agreement and consummate the transactions provided for herein.
The execution and delivery of this Agreement by AFC, and the
consummation by AFC of the transactions provided for herein, have been
duly authorized by requisite corporate action on the part of AFC. This
Agreement has been executed and delivered by AFC and (assuming this
Agreement is a valid and binding obligation of APZ and the New American
Premier Entities) is a valid and binding obligation of AFC enforceable
against AFC in accordance with its terms, except (A) that such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (B) that remedies of specific
performance and injunctive and other forms of relief may be subject to
general principles of equity and public policy and to the discretion of
the court before which any proceeding therefor may be brought.
(3) The execution, delivery and performance by AFC of this
Agreement will not (A) conflict with or result in a breach of any
provision of the Articles of Incorporation or Code of Regulations of AFC
or any of the charter documents of its subsidiaries, (B), except as
provided in Section 3.4 hereof, result in, constitute a violation of or
a default under, or cause the creation of any security interest or lien
upon any of the properties or assets of AFC or any of its subsidiaries
pursuant to, or cause the acceleration of the maturity of any debt or
obligation of AFC or any of its subsidiaries pursuant to, any agreement,
instrument, order, judgment or decree to which AFC or any of its
subsidiaries is subject and of which such counsel is specifically aware
and which AFC has advised such
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counsel in connection with this transaction is material to the Condition
of AFC and its subsidiaries taken as a whole or (C) insofar as is
actually known to such counsel, violate any law, rule or regulation or
any judgment, decree, order, governmental permit or license to which AFC
or any of its subsidiaries is subject which would have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a
whole.
(4) To the best knowledge of such counsel, neither the execution
and delivery by AFC of this Agreement nor the consummation by AFC of the
transactions contemplated hereby, nor compliance by AFC with any of the
provisions hereof will require, except for the applicable requirements
of the HSR Act, the Securities Act, the Exchange Act, the FCC, the NYSE,
the Department of Insurance of Ohio and other insurance regulatory
agencies and the filing of appropriate documents to effect the Mergers
as required by the Commonwealth of Pennsylvania and the State of Ohio,
any consent, approval or authorization of, or notice to, or declaration,
filing or registration with, any governmental or regulatory authority
except for consents or approvals, the failure to obtain which would not,
in the aggregate, have a material adverse effect on the Condition of AFC
and its subsidiaries taken as a whole. To the best knowledge of such
counsel, except with respect to the HSR Act, the Securities Act, the
Exchange Act and requirements of the FCC, the NYSE, the Department of
Insurance of Ohio and other insurance regulatory agencies, no consent,
approval or authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority is necessary
in connection with the execution, delivery and performance of this
Agreement or to enable AFC and its subsidiaries to continue to conduct
their entire business, properties and operations after the Effective
Time in a manner which is consistent with that in which they are
presently conducted.
(5) No facts have come to the attention of such counsel which would
lead such counsel to believe that (except for information relating to
tax or accounting matters and except for the financial statements and
other financial or statistical information contained therein or the
information concerning APZ and its subsidiaries, as to which such
counsel expresses no opinion), at the respective times the Joint
Proxy/Registration Statement or any amendments or supplements thereto
were filed declared effective by the SEC or mailed to the respective
shareholders of AFC and APZ, or at the times of the meetings of AFC's
and APZ's shareholders referred to in Sections 2.3 and 2.4 hereof, the
Joint Proxy/Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
As to any matter contained in such opinion which involves the laws of any
jurisdiction other than the federal laws of the United States or the laws of the
State of Ohio, such counsel may rely upon opinions of counsel admitted to
practice in such other jurisdictions. Any opinions relied upon by such counsel
as aforesaid shall be delivered together with the opinion of such counsel, which
shall state that APZ's and such counsel's reliance thereon is justified. Such
opinion may include qualifications similar to those set forth in Article III
hereof and may expressly rely as to matters of fact upon certificates furnished
by appropriate officers and directors of AFC and its subsidiaries and by public
officials.
ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION. This Agreement may be terminated and the Mergers
abandoned at any time prior to the Effective Time, whether before or after
approval of the Mergers by the respective shareholders of AFC and APZ:
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(a) by mutual consent of the Boards of Directors of APZ and AFC;
(b) by either APZ or AFC if the Mergers shall not have been
consummated on or before June 30, 1995; provided that no party in breach of
its obligations hereunder shall have the right unilaterally to terminate
this Agreement;
(c) by APZ if there shall have occurred any events, changes or
developments which, individually or in the aggregate, have affected or may
affect materially and adversely the Condition of AFC and its subsidiaries
taken as a whole, provided, however, for the purposes of this clause (c), a
material and adverse effect on the Condition of AFC shall not be deemed to
occur solely as a result of market fluctuations in the trading value of
common stock of any AFC Affiliate or APZ;
(d) by AFC if there shall have occurred any events, changes or
developments which, individually or in the aggregate, have affected or may
affect materially and adversely the Condition of APZ and its subsidiaries
taken as a whole, provided, however, for the purposes of this clause (d), a
material adverse effect on the Condition of APZ shall not be deemed to
occur solely as a result of market fluctuations in the trading value of APZ
Common Stock; or
(e) by APZ if the Special Committee determines, after consultation
with legal counsel, that as a result of an event or condition not directly
caused by APZ, pursuant to its fiduciary duties in accordance with
applicable law, this Agreement should be terminated.
SECTION 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement by either APZ or AFC, as provided above, this Agreement shall
thereafter become void and there shall be no liability on the part of any party
hereto against any other party hereto, or their respective directors, officers,
shareholders or agents, except as provided in Section 9.3 hereof and except that
any such termination shall be without prejudice to the rights of any party
hereto arising out of the inaccuracy of any representation or warranty or breach
by any other party of any covenant or agreement contained in this Agreement.
Notwithstanding the foregoing, (i) AFC shall not assert any claim or action
against APZ (or any of its directors, officers, shareholders or agents) or
against any third party, including any action based on tort or other
extra-contractual theories of law or equity, that arises from or is based upon
any act that interferes or allegedly interferes with this Agreement or that
results in the termination of this Agreement pursuant to Section 8.1(e) hereof
and (ii) it is further understood that any supplemental or amended disclosure
made pursuant to Section 6.6 hereof with respect to a matter that did not exist
as of the date hereof and arises hereafter or, to the extent a representation or
warranty is based on a party's knowledge, becomes known for the first time after
the date hereof, shall be deemed a closing condition only and shall not be a
basis for a claim or action that the representations and warranties made herein
are inaccurate.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement shall survive the Effective
Time.
SECTION 9.2 CLOSING. The closing of the Mergers (the "Closing") shall take
place at the offices of Taft, Stettinius & Hollister, 1800 Star Bank Center, 425
Walnut Street, Cincinnati, Ohio 45202 (or at such other place as the parties
shall agree) as promptly as practicable after the later of (i) the meetings of
shareholders of AFC and APZ referred to in Sections 2.3 and 2.4 hereof and (ii)
satisfaction or waiver of all other conditions.
SECTION 9.3 FEES AND EXPENSES. Whether or not the Mergers are consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
or expenses, except that the expenses incurred in
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connection with the printing of the Joint Proxy/Registration Statement shall be
borne equally by APZ and AFC.
SECTION 9.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if hand delivered,
transmitted by telegram, telex or telecopy or mailed by registered or certified
mail, postage prepaid, return receipt requested, as follows:
(a) If to APZ or any New American Premier Entity, to:
American Premier Underwriters, Inc.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: Robert Olson, Esq.
with copies to:
Alfred W. Martinelli
Chairman of the Special Committee
c/o American Premier Underwriters, Inc.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
and
Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
Attention: Timothy E. Hoberg, Esq.
(b) If to AFC, to:
American Financial Corporation
919 Provident Tower
One East Fourth Street
Cincinnati, OH 45202
Attention: James E. Evans, Esq.
with copy to:
Keating, Muething & Klekamp
1800 Provident Tower
One East Fourth Street
Cincinnati, OH 45202
Attention: Gary P. Kreider, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the other parties in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
SECTION 9.5 AMENDMENTS. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, at any time
before or after the approval of this Agreement by the respective shareholders of
AFC and APZ, but after such approval, there shall be no amendment or
modification that by law requires the approval by such shareholders without the
further approval of such shareholders. This Agreement may not be amended,
modified or supplemented except by written agreement of the parties hereto.
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SECTION 9.6 WAIVER. At any time prior to the Effective Time, the parties
hereto by action taken by their respective Boards of Directors may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained herein
to the extent permitted by law. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
SECTION 9.7 BROKERS. AFC represents and warrants that no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of AFC. APZ and New American Premier represent
and warrant that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
APZ or New American Premier, except for their financial advisor, Furman Selz
Incorporated.
SECTION 9.8 PUBLICITY. So long as this Agreement is in effect, the parties
hereto shall not, and shall cause their affiliates not to, issue or cause the
publication of any press release or other announcement with respect to the
Mergers or this Agreement without the consent of the other party, which consent
shall not be unreasonably withheld or delayed where such release or announcement
is required by applicable law.
SECTION 9.9 SUBSIDIARIES. When a reference is made in this Agreement to
any subsidiary of APZ, New American Premier, AFC or any AFC Affiliate, the word
"subsidiary" means another entity, an amount of the voting securities, other
voting ownership or voting partnership interests of which is sufficient to elect
at least a majority of its Board of Directors or other governing body (or, if
there are no such voting interests, 50% or more of the equity interests of
which) is owned directly or indirectly by APZ, New American Premier, AFC or such
AFC Affiliate, as the case may be, provided that the word subsidiary shall not
be deemed to include any employee benefit plan for the employees of AFC. For the
purposes of this Agreement, AFEI shall be deemed both an AFC Affiliate and a
subsidiary of AFC.
SECTION 9.10 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.11 NONASSIGNABILITY. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 9.12 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their permitted assigns,
and nothing in this Agreement, expressed or implied, is intended to confer upon
any other person any rights or remedies of any nature under or by reason of this
Agreement, except for Sections 1.4, 1.5, and 6.9
SECTION 9.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an original, but all
of which shall constitute one and the same agreement.
SECTION 9.14 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Ohio, without
regard to its conflicts of law rules, except to the extent the provisions of
this Agreement are expressly governed by or derive their authority from the
PBCL.
SECTION 9.15 REMEDIES FOR BREACH; SPECIFIC PERFORMANCE. Each of the
parties acknowledges and agrees that the other party or parties would be
irreparably damaged in the event any covenant or agreement contained in this
Agreement is not performed in accordance with its specific terms or is otherwise
breached. Accordingly, each of the parties shall be entitled, without bond or
other security, to an injunction or injunctions to enforce specifically this
Agreement and the covenants and
ACQUISITION AGREEMENT
A-35
<PAGE> 99
agreements contained herein in any action instituted in any court of the United
States or any state thereof having subject matter jurisdiction, in addition to
any other remedy to which such party may be entitled, at law or in equity. Each
party agrees that, should any court or other competent authority hold any
provision of this Agreement or part hereof to be null, void or unenforceable, or
order any party to take any action inconsistent herewith or not take any action
required herein, the other party shall not be entitled to specific performance
of such provision or part hereof or to any other remedy, including money
damages, for breach hereof as a result of such holding or order.
SECTION 9.16 APPROVAL BY SPECIAL COMMITTEE. The approval of the Special
Committee shall be required for (i) any amendment or termination of this
Agreement by APZ, (ii) the waiver of any of APZ's rights or remedies under this
Agreement or (iii) the extension for the time of performance of AFC's
obligations under this Agreement.
SECTION 9.17 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto and supersedes all prior agreements and
understandings, oral or written, among the parties hereto with respect to the
subject matter hereof.
ACQUISITION AGREEMENT
A-36
<PAGE> 100
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of New American Premier, APZ, APZ Sub, AFC and AFC
Sub on the date first above written.
AMERICAN PREMIER GROUP, INC.
By: /s/ Robert W. Olson
-------------------------
Robert W. Olson
Senior Vice President
ATTEST:
By: /s/ Pamela S. Meyers
-----------------------
Pamela S. Meyers
Assistant Secretary
AMERICAN PREMIER UNDERWRITERS, INC.
By: /s/ Alfred W. Martinelli
---------------------------
Alfred W. Martinelli
Chairman of the Special
Committee of the Board
of Directors
ATTEST:
By: /s/ Pamela S. Meyers
-----------------------
Pamela S. Meyers
Assistant Secretary
AMERICAN PREMIER SUB, INC.
By: /s/ Robert W. Olson
-----------------------
Robert W. Olson
Vice President
ATTEST:
By: /s/ Pamela S. Meyers
-----------------------
Pamela S. Meyers
Secretary
AMERICAN FINANCIAL CORPORATION
By: /s/ Ronald F. Walker
------------------------
Ronald F. Walker
President
ATTEST:
By: /s/ James C. Kennedy
------------------------
James C. Kennedy
Secretary
AFC SUB, INC.
By: /s/ Ronald F. Walker
-------------------------
Ronald F. Walker
President
ATTEST:
By: /s/ James C. Kennedy
------------------------
James C. Kennedy
Secretary
ACQUISITION AGREEMENT
A-37
<PAGE> 101
EXHIBIT A
SHAREHOLDERS AGREEMENT
Agreement (this "Agreement") entered into as of December , 1994 by and
among the undersigned shareholders (each a "Shareholder" and, collectively, the
"Shareholders"), American Financial Corporation ("AFC"), American Premier
Underwriters, Inc. ("APZ") and American Premier Group, Inc. ("New American
Premier").
WHEREAS, the Shareholders own all of the issued and outstanding common
stock of AFC ("AFC Common Stock") and all the outstanding AFC Stock Options;
WHEREAS, pursuant to an Agreement and Plan of Acquisition and
Reorganization (the "Acquisition Agreement") of even date herewith, subject to
the conditions set forth therein, the parties thereto have agreed to effect the
Mergers, as more specifically set forth in the Acquisition Agreement;
WHEREAS, as a result of the transactions contemplated by the Acquisition
Agreement, the Shareholders will receive shares of New American Premier Common
Stock in exchange for their shares of AFC Common Stock; and
WHEREAS, as a condition to entering into the Acquisition Agreement, APZ and
New American Premier have required the Shareholders and AFC to make certain
agreements and covenants as more particularly set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Defined Terms. Except as otherwise defined in this Agreement, defined
terms shall have respective meanings ascribed to them in the Acquisition
Agreement.
2. Ownership of AFC Common Stock. The Shareholders represent that Schedule
1 attached hereto is a true, accurate and complete list of the shareholders of
AFC Common Stock and holders of AFC Stock Options and each Shareholder's
respective ownership interest thereof.
3. Approval of AFC Merger and Related Transactions. Each Shareholder
covenants that, unless the Acquisition Agreement is terminated in accordance
with the provisions of Article VIII thereof, such Shareholder shall vote all of
his/her/its shares of AFC Common Stock in favor of (a) the AFC Merger at the
meeting of the Shareholders contemplated by Section 2.3 of the Acquisition
Agreement and thereby waive any dissenters rights which such Shareholder may
otherwise be entitled to assert pursuant to Section 1701.85 of the Ohio General
Corporation Law and (b) amending AFC's Articles of Incorporation in the manner
contemplated by Section 6.8 of the Acquisition Agreement.
4. Treatment of AFC Stock Options and the Put. The Shareholders and AFC
hereby amend that certain agreement dated April 15, 1983 between AFC with
certain members of the Lindner family to provide that (a) the outstanding
options (the "AFC Stock Options") relating to the right to purchase 762,500
shares of AFC Common Stock shall be fully vested and immediately exercised for
the then applicable exercise price and, if such AFC Stock Options are not so
exercised with the exercise price fully paid in cash by the Effective Time, such
AFC Stock Options shall be deemed cancelled and (b) the right to put shares of
AFC Common Stock to AFC, as more particularly described in such agreement, shall
be deemed terminated as of immediately prior to the Effective Time.
5. Exchange of AFC Common Stock for AFC Preferred Stock. If AFC and APZ
have either (a) received an unfavorable response to the request for the tax
ruling sought pursuant to Section 2.9 of the Acquisition Agreement or (b) not
received a favorable response to such tax ruling
ACQUISITION AGREEMENT
A-38
<PAGE> 102
request by June 30, 1995 and AFC has received notice from APZ that all other
conditions to effect the Mergers have been satisfied, and if the value of the
shares of New American Premier Stock that are held by certain former APZ
shareholders ("Certain APZ Shareholders" as defined in paragraph 6 below)
immediately after the Mergers would (absent the exchange of shares described
below) not exceed fifty percent (50%) of the total value of New American Premier
Stock issued and outstanding immediately after the Merger, then the Shareholders
and AFC shall promptly (i) exchange an aggregate number of shares of AFC Common
Stock then held by the Shareholders in exchange for an aggregate number of
validly issued and non assessable shares of non-voting AFC Preferred Stock of a
newly authorized series (as more particularly described below) so that,
immediately after the Mergers, the aggregate value of New American Premier Stock
owned by Certain APZ Shareholders shall exceed fifty percent (50%) of the total
value of New American Premier Stock issued and outstanding immediately after the
Mergers or (ii) take such action or actions as AFC and APZ mutually agree shall
result in the Mergers constituting a reverse acquisition with respect to APZ for
federal consolidated tax return purposes, provided that if no such mutual
agreement is made within fourteen (14) days of the date on which the exchange
hereunder would occur then such exchange shall be carried out as provided in (i)
above. The aggregate liquidation value of the shares of AFC Preferred Stock
received in such exchange by the Shareholders (determined as of the day
immediately prior to the Effective Time) shall equal the value of the additional
shares of New American Premier Common Stock that the Shareholders would have
received as a result of the New American Premier Merger but for the
aforementioned exchange. For the purposes of calculating such value, (i) each
such share of New American Premier Common Stock shall be deemed to have a value
equal to the average of the last reported sales prices, regular way, per share
of APZ Common Stock on the New York Stock Exchange Composite Tape on the ten
consecutive trading days ending with the trading day immediately prior to the
Effective Time and (ii) each share of New American Premier Preferred Stock shall
be deemed to have a value equal to the greater of (x) $44.08 or (y) the value
(calculated as set forth above) of that number of shares of New American Premier
Common Stock into which it is convertible. Each share of such AFC Preferred
Stock shall, when issued, have an annual dividend rate equal to the average
yield per share on Series F of AFC Preferred Stock for the ten consecutive
trading days for such Series F of AFC Preferred Stock ending with the last
trading day occurring immediately prior to the Effective Time. If the
Shareholders cannot agree as to how the exchange of such shares shall be
apportioned among the Shareholders, then AFC Common Stock shall be exchanged for
AFC Preferred Stock on a basis pro-rata to each Shareholder's respective
ownership interest in AFC Common Stock as shown on Schedule 1.
6. Certain APZ Shareholders. For purposes of this Shareholders Agreement,
shares owned by Certain APZ Shareholders includes only shares held by APZ
shareholders other than such shares held by AFC and its subsidiaries but shall
include shares owned by the AFC ESORP.
7. Successors and Assigns. This Agreement shall be binding on the parties
hereto and upon their heirs, executors, administrators, successors and assigns.
8. Amendment. No cancellation, amendment, change or addition to this
Agreement shall be effective unless in writing and signed by each of the parties
hereto.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an original, but all
of which shall constitute one and the same agreement.
ACQUISITION AGREEMENT
A-39
<PAGE> 103
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the date first above written.
American Financial Corporation
By: ________________________________
American Premier Underwriters, Inc.
By: ________________________________
American Premier Group, Inc.
By: ________________________________
[Signature lines for each Shareholder.]
ACQUISITION AGREEMENT
A-40
<PAGE> 104
SCHEDULE 1
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER SHARES OWNED OF AFC COMMON STOCK
- ----------------------------------- --------------------------------------------------------
<S> <C>
</TABLE>
ACQUISITION AGREEMENT
A-41
<PAGE> 105
ANNEX B
[LETTERHEAD OF FURMAN SELZ]
December 12, 1994
Special Committee of the Board of Directors
American Premier Underwriters, Inc.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Gentlemen:
We understand that American Premier Sub, Inc. ("American Premier Sub"), a
wholly-owned subsidiary of New American Premier Group, Inc. ("New American
Premier"), will merge with American Premier Underwriters, Inc. ("American
Premier") and that AFC Sub, Inc. ("AFC Sub"), a wholly-owned subsidiary of New
American Premier, will merge with American Financial Corporation ("AFC") in
simultaneous transactions pursuant to which the outstanding shares of common
stock of American Premier ("American Premier Common Stock") and the outstanding
shares of common stock of AFC will be converted into shares of common stock of
New American Premier ("New American Premier Common Stock") at specified exchange
ratios (collectively, the "Exchange Ratios") under terms and conditions set
forth in an Agreement and Plan of Acquisition and Reorganization (Merger
Agreement) dated December 9, 1994 (the "Merger Agreement") entered into by and
among New American Premier, American Premier, American Premier Sub, AFC and AFC
Sub (the "Acquisition"). The terms and conditions of the Acquisition will be set
forth in more detail in the Merger Agreement.
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, of the Exchange Ratios to the holders of
American Premier Common Stock, other than AFC and its affiliates. In conducting
our analysis and arriving at our opinion as expressed herein, we have reviewed
and analyzed, among other things, the following:
(i) the Merger Agreement;
(ii) publicly available information concerning American Premier, AFC
and certain affiliates of AFC which Furman Selz believed to be relevant to
its inquiry;
(iii) financial and operating information with respect to the
business, operations and prospects of AFC, including actuarial analyses of
Great American Insurance Company and American Annuity Group, Inc. prepared
by Milliman & Robertson, all furnished to Furman Selz by AFC and American
Premier;
(iv) financial and operating information with respect to the business,
operations and prospects of American Premier furnished to Furman Selz by
American Premier;
(v) the common stock price and trading histories of American Premier
Common Stock and the common stock of certain publicly traded affiliates of
AFC;
(vi) a comparison of the financial positions and operating results of
American Premier, AFC and certain affiliates of AFC, and of the common
stock price trading histories of American Premier and certain affiliates of
AFC, with those of publicly traded companies Furman Selz deemed relevant;
(vii) a comparison of certain financial terms of the Acquisition to
certain financial terms of selected other business combinations Furman Selz
deemed relevant;
(viii) analyses of the respective contributions in terms of assets,
liabilities and earnings of American Premier and AFC to New American
Premier and the relative ownership of New American Premier after the
Acquisition by the current stockholders of American Premier and AFC;
(ix) analyses of other potential pro forma financial effects of the
Acquisition; and
B-1
<PAGE> 106
(x) synergies and other potential benefits arising from the
Acquisition.
We have also met with certain officers and employees of American Premier,
AFC and certain affiliates of AFC concerning their respective businesses,
operations, assets, present condition and future prospects and undertook such
other studies, analyses and investigations as we deemed appropriate. Our opinion
is limited insofar as we were not furnished with financial projections with
respect to Chiquita Brands International, Inc. ("Chiquita") as we were advised
by management of Chiquita that it was not feasible to develop reliable
projections of future operating results for Chiquita due to uncertainties
regarding its business.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us in arriving
at our opinion and have not assumed responsibility for any independent
verification of such information. We have not conducted any independent
evaluation or appraisal of the properties, assets, liabilities or reserves of
American Premier or AFC, nor have we conducted any independent actuarial
evaluations. In addition, we have assumed that the financial projections
prepared by the managements of American Premier and AFC represent the best
current judgment of their respective managements as to the future financial
condition and results of operations of American Premier and AFC, respectively,
and have assumed that the projections have been reasonably prepared based on
such current judgment.
We have also taken into account our assessment of general economic, market,
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion necessarily is
based upon regulatory, economic, market and other conditions as they exist on,
and the information made available to us as of, the date hereof. In addition, we
have assumed, with your consent, the Merger would be accounted for as if AFC had
acquired American Premier in a transaction accounted for a purchase. We further
assumed, with your consent, that, in the course of obtaining necessary
regulatory approvals for the Acquisition, no restrictions would be imposed that
would have a material adverse effect on the contemplated benefits of the
Acquisition to American Premier following the Merger.
We are not expressing any opinion as to what the value of New American
Premier Common Stock actually will be when issued to the shareholders of
American Premier and AFC pursuant to the Acquisition or the price at which the
New American Premier Common Stock will trade subsequent to the Acquisition.
Furman Selz will receive fees for its services to American Premier in
connection with the Acquisition, including a fee upon the inclusion of this
opinion in a proxy statement mailed by American Premier in connection with a
meeting of its shareholders to vote on the Acquisition. In addition, American
Premier has agreed to indemnify Furman Selz for certain liabilities arising from
the delivery of this opinion. We have previously acted as financial advisor to
American Premier and, in the ordinary course of our business, may trade the
equity and debt securities of American Premier and AFC for our own account, and
the account of our customers and, accordingly, may at any time hold a long or
short position in such securities for the accounts of our customers, the firm
and/or the officers of the firm.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, from a financial point of view, the Exchange Ratios are fair to
the holders of American Premier Common Stock, other than AFC and its affiliates.
Very truly yours,
FURMAN SELZ INCORPORATED
B-2
<PAGE> 107
ANNEX C
Annex C will consist of the Annual Report of American Financial Corporation
on Form 10-K for the year ended December 31, 1993, as amended, which is
incorporated herein by reference and will be included in the final prospectus.
C-1
<PAGE> 108
ANNEX D
Annex D will consist of the Quarterly Report of American Financial
Corporation on Form 10-Q for the quarter ended September 30, 1994, which is
incorporated herein by reference and will be included in the final prospectus.
D-1
<PAGE> 109
================================================================================
AMERICAN PREMIER GROUP, INC.
SHARES
COMMON STOCK
------------------------
PROXY STATEMENT/PROSPECTUS
------------------------
, 1995
UNTIL , 1995 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. Indemnification Pursuant to the Ohio General Corporation Law and the Articles
and Code of Regulations of New American Premier.
Section 1701.13(E) of the Ohio General Corporation Law allows
indemnification by New American Premier to any person made or threatened to be
made a party to any proceedings, other than a proceeding by or in the right of
New American Premier, by reason of the fact that he is or was a director,
officer, employee or agent of New American Premier, against expenses, including
judgments and fines, if he acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of New American Premier
and, with respect to criminal actions, in which he had no reasonable cause to
believe that his conduct was unlawful. Similar provisions apply to actions
brought by or in the right of New American Premier, except that no
indemnification shall be made in such cases when the person shall have been
adjudged to be liable for negligence or misconduct to New American Premier
unless determined by the court. The right to indemnification is mandatory in the
case of a director or officer who is successful on the merits or otherwise in
defense of any action, suit or proceeding or any claim, issue or matter therein.
Permissive indemnification is to be made by a court of competent jurisdiction,
the majority vote of a quorum of disinterested directors, the written opinion of
independent counsel or by the shareholders. New American Premier has entered
into an indemnification agreement with each director and officer which provides
a contractual right to indemnification against such expenses and liabilities
(subject to certain limitations and exceptions) and a contractual right to
advancement of expenses and contains additional provisions regarding
determination of entitlement, defense of claims, rights of contribution and
other matters.
New American Premier's Code of Regulations provides that New American
Premier shall indemnify such persons to the fullest extent permitted by law.
B. Other indemnification provisions affecting directors and officers of New
American Premier are described below. The Penn Central Corporation, referred
to below, is the former name of American Premier.
The Penn Central Corporation Annual Incentive Compensation Plan (the
"Incentive Compensation Plan"), which is to be adopted by New American Premier,
provides that New American Premier shall indemnify and hold harmless any member
of the Compensation Subcommittee of the Executive Committee of the Board of
Directors, the Board of Directors and the Chief Executive Officer of New
American Premier, to the extent permitted by the Articles of Incorporation and
Code of Regulations of New American Premier and applicable law, against and from
any loss, cost, liability or expense that might be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Incentive Compensation Plan and
against and from any and all amounts paid by him in settlement thereof, with
approval of New American Premier, or paid by him in satisfaction of judgment in
any such action, suit or proceeding against him. Indemnification pursuant to the
Incentive Compensation Plan is not exclusive of any other rights of
indemnification to which such person seeking indemnification may be entitled
under the Articles of Incorporation or Code of Regulations of New American
Premier as a matter of law or otherwise, or any power that New American Premier
may have to indemnify him or hold him harmless.
The Penn Central Corporation Stock Option Plan (the "Stock Option Plan"),
which is to be adopted by New American Premier, provides that no member of the
Board of Directors of New American Premier or any committee thereof organized to
administer the Stock Option Plan shall be liable for any action, determination
or omission taken or made in good faith with respect to the Stock Option Plan or
any option granted thereunder.
The Penn Central Corporation 1992 Spin-Off Stock Option Plan (the "Spin-Off
Option Plan"), which is to be adopted by New American Premier, provides that no
member of the Board of Directors of New
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<PAGE> 111
American Premier or any committee thereof organized to administer the Spin-Off
Option Plan shall be liable for any action, determination or omission taken or
made in good faith with respect to the Spin-Off Option Plan or any option
granted thereunder.
The Penn Central Corporation Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan"), which is to be adopted by New American Premier, provides
that no member of the Board of Directors of New American Premier or any
committee thereof organized to administer the Employee Stock Purchase Plan shall
be liable for any action, determination or omission taken or made in good faith
with respect to the Employee Stock Purchase Plan or any right granted
thereunder.
The Penn Central Retirement and Savings Plan (the "Retirement and Savings
Plan"), which is to be adopted by New American Premier, provides that New
American Premier shall indemnify and hold harmless any member of the Retirement
Plans Finance Committee, the Retirement Plans Administration Committee or the
Board of Directors of New American Premier, and any other employee of New
American Premier deemed to be a fiduciary under the Retirement and Savings Plan
against all liability, joint and several, for their acts, omissions and conduct
and for the acts, omissions and conduct of their duly appointed agents made in
good faith pursuant to the provisions of the Retirement and Savings Plan,
including any out-of-pocket expenses reasonably incurred in the defense of any
claim relating thereto; provided, however, that no indemnitee shall voluntarily
assume or admit any liability, nor, except at its or his own cost, shall any of
the foregoing make any payment, assume any obligations or incur any expense
without the prior written consent of the Board of Directors. New American
Premier may purchase, at its own expense, liability insurance to protect New
American Premier and the persons indemnified under the Retirement and Savings
Plan from liability incurred in the good faith administration of the Retirement
and Savings Plan.
The Penn Central Corporation Retirement Income Guarantee Plan (the
"R.I.G.P."), which is to be adopted by New American Premier, provides that New
American Premier shall indemnify and hold harmless any member of the Retirement
Plans Finance Committee, the Retirement Plans Administration Committee or the
Board of Directors of New American Premier, and any other employee of New
American Premier deemed to be a fiduciary under the R.I.G.P. against all
liability, joint and several, for their acts, omissions and conduct and for the
acts, omissions and conduct of their duly appointed agents made in good faith
pursuant to the provisions of the R.I.G.P. and the Trust Agreement pursuant
thereto, including any out-of-pocket expenses reasonably incurred in the defense
of any claim relating thereto; provided, however, that no indemnitee shall
voluntarily assume or admit any liability, nor, except at its or his own cost,
shall any of the foregoing make any payment, assume any obligations or incur any
expense without the prior written consent of the Board of Directors. New
American Premier may purchase, at its own expense, liability insurance to
protect New American Premier and the persons indemnified under the R.I.G.P. from
liability incurred in the good faith administration of the R.I.G.P.
The Penn Central Corporation Benefits Equalization Plan (the "BEP"), which
is to be adopted by New American Premier, provides that New American Premier
shall indemnify and hold harmless the BEP Committee and each of its members and
the Board of Directors of New American Premier and each of its members against
all liability, joint and several, for their acts, omissions and conduct and for
the acts, omissions and conduct of their duly appointed agents made in good
faith pursuant to the provisions of the Plan, including any out-of-pocket
expenses reasonably incurred in defense of any claim relating thereto; provided,
however, that no indemnitee shall voluntarily assume or admit any such
liability, nor, except at its or his own cost, shall any of the foregoing make
any payment, assume any obligations or incur any expenses in respect thereof
without the consent of the Board of Directors. New American Premier may
purchase, at its expense, liability insurance to protect New American Premier
and the persons indemnified under the BEP from liability incurred in the good
faith administration of the BEP.
American Premier maintains, at its expense, Directors and Officers
Liability and Company Reimbursement Liability Insurance. The Directors and
Officers Liability portion of such policy covers all directors and officers of
New American Premier and of the companies which are, directly or indirectly,
more than 50% owned by New American Premier. The policy provides for payment on
behalf of the directors and officers, up to the policy limits and after
expenditure of a specified deductible, or all Loss (as defined) from claims made
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<PAGE> 112
against them during the policy period for defined wrongful acts, which include
errors, misstatements or misleading statements, acts or omissions and neglect or
breach of duty by directors and officers in the discharge of their individual or
collective duties as such. The insurance includes the cost of investigations and
defenses, appeals and bonds, settlements and judgments, but not fines or
penalties imposed by law. The insurance does not cover any claim arising out of
acts alleged to have been committed prior to October 24, 1978. The insurer limit
of liability under the policy is $50,000,000 in the aggregate for all losses
each year subject to certain individual and aggregate deductibles. The policy
contains various exclusions and reporting requirements.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
2 Acquisition Agreement
3.1* Articles of Incorporation of American Premier Group, Inc.
3.2* Code of Regulations of American Premier Group, Inc.
5* Opinion of Robert W. Olson, Esq.
8* Opinion on tax matters
23.1 Consents of Deloitte & Touche LLP
23.2 Consent of Ernst & Young LLP
23.3* Consent of Robert W. Olson, Esq. (Contained in Exhibit 5)
23.4* Consent of tax counsel (Contained in Exhibit 8)
23.5 Consent of Furman Selz Incorporated (Contained in Exhibit 99.1)
24 Power of Attorney (contained on the signature page)
99.1 Opinion of Furman Selz Incorporated
99.2 Milliman & Robertson, Inc. Analysis of September 30, 1994 Loss and Loss
Adjustment Expense Reserves for Great American Insurance Group
99.3 Milliman & Robertson, Inc. Analysis of Asbestos and Environmental Expenses for
Great American Insurance Group at September 30, 1994.
99.4 Milliman & Robertson, Inc. Actuarial Appraisal of Great American Life Insurance
Company, September 30, 1994.
- ---------------
<FN>
* To be filed by amendment.
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to
include any prospectus required by section 10(a)(3) of the Securities Act,
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement for the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement, and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 113
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's Annual Report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(d) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-4
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Cincinnati,
State of Ohio, on the 12th day of December, 1994.
AMERICAN PREMIER GROUP, INC.
By: Carl H. Lindner
-------------------------------
Carl H. Lindner
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Persons whose names are marked with an
asterisk (*) below hereby designate Robert W. Olson or Neil M. Hahl as their
attorney-in-fact to sign all amendments, including post-effective amendments, to
this Registration Statement.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
Carl H. Lindner* Chairman of the Board and December 12, 1994
- ---------------------------------------- Chief Executive Officer
Carl H. Lindner
Carl H. Lindner III* President, Chief Operating December 12, 1994
- ---------------------------------------- Officer and Director
Carl H. Lindner III (Principal Executive Officer)
Neil M. Hahl* Senior Vice President and December 12, 1994
- ---------------------------------------- Director (Principal Financial
Neil M. Hahl Officer)
Theodore H. Emmerich* Director December 12, 1994
- ----------------------------------------
Theodore H. Emmerich
James E. Evans* Director December 12, 1994
- ----------------------------------------
James E. Evans
Thomas M. Hunt* Director December 12, 1994
- ----------------------------------------
Thomas M. Hunt
S. Craig Lindner* Director December 12, 1994
- ----------------------------------------
S. Craig Lindner
William R. Martin* Director December 12, 1994
- ----------------------------------------
William R. Martin
</TABLE>
II-5
<PAGE> 115
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
Alfred W. Martinelli* Director December 12, 1994
- ----------------------------------------
Alfred W. Martinelli
Robert W. Olson* Director December 12, 1994
- ----------------------------------------
Robert W. Olson
Robert F. Amory* Vice President and Controller December 12, 1994
- ---------------------------------------- (Principal Accounting
Robert F. Amory Officer)
</TABLE>
II-6
<PAGE> 1
Exhibit 2
AGREEMENT AND PLAN OF
ACQUISITION AND REORGANIZATION
(ACQUISITION AGREEMENT)
BY AND AMONG
AMERICAN PREMIER GROUP, INC.
AMERICAN PREMIER UNDERWRITERS, INC.,
AMERICAN PREMIER SUB, INC.,
AMERICAN FINANCIAL CORPORATION
AND
AFC SUB, INC.
DATED AS OF DECEMBER 9, 1994
ACQUISITION AGREEMENT
1
<PAGE> 2
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---------------------------------------------------------------------------------- ---------
<S> <C>
AFC............................................................................... Recitals
AFC Affiliate..................................................................... 4.1
AFC Common Stock.................................................................. 1.4(b)
AFC Merger........................................................................ Recitals
AFC Personnel..................................................................... 3.13(a)
AFC Preferred Stock............................................................... 3.2
AFC Proxy Statement............................................................... 2.5
AFC Related Person................................................................ 3.15(g)
AFC Stock Options................................................................. 2.1(a)
AFC's Common Shareholders......................................................... 2.3
AFEI.............................................................................. 4.1
Affiliate SEC Filings............................................................. 4.3
Annual Statements................................................................. 3.6
APZ............................................................................... Recitals
APZ Common Stock.................................................................. 1.4(a)
APZ Disclosure Schedule........................................................... 5.2(a)
APZ Merger........................................................................ Recitals
APZ Preferred Stock............................................................... 5.2(a)
APZ SEC Filings................................................................... 5.5
APZ Stock Option.................................................................. 2.1(b)
APZ Sub........................................................................... Recitals
APZ Subsidiaries.................................................................. 5.1(a)
APZ's Public Shareholders......................................................... 5.3
Balance Sheets.................................................................... 3.10
Benefit Plan...................................................................... 3.13(a)
Certificates...................................................................... 1.5(b)
Closing........................................................................... 9.2
Code.............................................................................. Recitals
Condition......................................................................... 3.1
Disclosure Schedule............................................................... 3.1
Effective Time.................................................................... 1.2
Environmental Claim............................................................... 3.21(b)
Environmental Laws................................................................ 3.21(c)
ERISA............................................................................. 3.13(a)
ESORP............................................................................. 3.13(a)
Exchange Act...................................................................... 3.4
FCC............................................................................... 2.8
Financial Statements.............................................................. 3.5
GAAP.............................................................................. 3.5
</TABLE>
ACQUISITION AGREEMENT
2
<PAGE> 3
<TABLE>
<CAPTION>
TERM SECTION
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Group............................................................................. 3.10
HSR Act........................................................................... 2.8
Insurance Subsidiary.............................................................. 3.6
Joint Proxy/Registration Statement................................................ 2.5
Liens............................................................................. 3.14
Materials of Environmental Concern................................................ 3.21(d)
Mergers........................................................................... Recitals
NYSE.............................................................................. 2.4
New American Premier.............................................................. Recitals
New American Premier Common Stock................................................. 1.4(a)
New American Premier Entities..................................................... Recitals
New American Premier Preferred Stock.............................................. 5.2(b)
New American Premier Stock........................................................ 1.5(a)
OGCL.............................................................................. 1.1(b)
PBCL.............................................................................. 1.1(a)
Permitted Liens................................................................... 3.14
Proposal.......................................................................... 2.3
Proxy Statement................................................................... 2.5
Put............................................................................... 2.1(a)
Registration Statement............................................................ 2.5
Returns........................................................................... 3.10
SAP............................................................................... 3.6
SAP Statements.................................................................... 3.6
SEC............................................................................... 2.5
SEC Filings....................................................................... 3.5
Securities Act.................................................................... 2.5
Shareholders Agreement............................................................ 2.3
Special Committee................................................................. 5.3
subsidiary........................................................................ 9.9
Taxes............................................................................. 3.10
Welfare Plan...................................................................... 3.13(a)
</TABLE>
ACQUISITION AGREEMENT
3
<PAGE> 4
AGREEMENT AND PLAN OF ACQUISITION AND REORGANIZATION
AGREEMENT AND PLAN OF ACQUISITION AND REORGANIZATION dated as of December
9, 1994 (this "Agreement") by and among American Premier Group, Inc., an Ohio
corporation ("New American Premier"), American Premier Underwriters, Inc., a
Pennsylvania corporation ("APZ"), American Premier Sub, Inc., a Pennsylvania
corporation and a wholly owned subsidiary of New American Premier ("APZ Sub"),
American Financial Corporation, an Ohio corporation ("AFC"), and AFC Sub, Inc.,
an Ohio corporation and a wholly owned subsidiary of New American Premier ("AFC
Sub") (New American Premier, APZ Sub and AFC Sub being hereinafter sometimes
collectively referred to as the "New American Premier Entities").
WHEREAS, the respective Boards of Directors of APZ, AFC, New American
Premier, APZ Sub and AFC Sub deem it advisable and in the best interests of
their respective shareholders to effect the merger of APZ Sub with and into APZ
(the "APZ Merger") and AFC Sub with and into AFC (the "AFC Merger") (the APZ
Merger and the AFC Merger being hereinafter sometimes collectively referred to
as the "Mergers"), all pursuant to the terms set forth in this Agreement.
WHEREAS, for federal income tax purposes, it is intended that the APZ
Merger and the AFC Merger, taken together with the APZ Merger, will be treated
as tax free exchanges under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code"), and that the parties hereto and their respective
shareholders will recognize no gain or loss for federal income tax purposes as a
result of the consummation of the Mergers.
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGERS
SECTION 1.1 THE MERGERS. Upon the terms and subject to the conditions of
this Agreement:
(a) The APZ Merger. At the Effective Time (as defined in Section 1.2
hereof) APZ Sub shall be merged with and into APZ in accordance with the
laws of the Commonwealth of Pennsylvania. APZ shall be the surviving
corporation of the APZ Merger and shall continue its corporate existence
under the laws of the Commonwealth of Pennsylvania. As a result of the APZ
Merger, APZ shall become a subsidiary of New American Premier. From and
after the Effective Time, all property of the constituent corporations of
the APZ Merger shall be deemed transferred to APZ, and APZ shall be
responsible for all the liabilities of each such constituent corporation,
all as set forth in Section 1929 of the Business Corporation Law of 1988 of
the Commonwealth of Pennsylvania (the "PBCL").
(b) The AFC Merger. At the Effective Time, AFC Sub shall be merged
with and into AFC in accordance with the laws of the State of Ohio. AFC
shall be the surviving corporation of the AFC Merger and shall continue its
corporate existence under the laws of the State of Ohio. As a result of the
AFC Merger, AFC shall become a subsidiary of New American Premier. From and
after the Effective Time, AFC shall possess all assets and property of
every description, and every interest in the assets and property, wherever
located, and the rights, privileges, powers, franchises and authority, of a
public as well as of a private nature, and all obligations belonging to or
due to each of the constituent corporations of the AFC Merger, all as set
forth in Section 1701.82 of the Ohio General Corporation Law (the "OGCL").
SECTION 1.2 EFFECTIVE TIME OF THE MERGERS. On the date of the Closing (as
defined in Section 9.2), (a) with respect to the APZ Merger, Articles of Merger
complying with the requirements of the PBCL shall be executed and filed with the
Secretary of State of the Commonwealth of
ACQUISITION AGREEMENT
4
<PAGE> 5
Pennsylvania, and (b) with respect to the AFC Merger, a Certificate of Merger
complying with the requirements of the OGCL shall be executed and filed with the
office of the Secretary of State of the State of Ohio. The Mergers shall become
effective at the time specified in the Articles of Merger filed with respect to
the APZ Merger (the "Effective Time"). The effective time specified in the
Certificate of Merger to be filed with respect to the AFC Merger shall be the
same effective time specified in the Articles of Merger with respect to the APZ
Merger. Each of the Mergers shall be deemed to occur simultaneously and shall
not be effective unless the other shall occur.
SECTION 1.3 CHARTER DOCUMENTS OF THE SURVIVING CORPORATIONS.
(a) Charter Documents of APZ. The Articles of Incorporation of APZ, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of APZ as the surviving corporation. The By-laws of APZ, as in
effect immediately prior to the Effective Time, shall be the By-laws of APZ, as
the surviving corporation, until thereafter changed or amended as provided
therein or by law.
(b) Charter Documents of AFC. The Articles of Incorporation of AFC, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of AFC as the surviving corporation. The Code of Regulations of
AFC, as in effect immediately prior to the Effective Time, shall be the Code of
Regulations of AFC, as the surviving corporation, until thereafter changed or
amended as provided therein or by law.
SECTION 1.4 CONVERSION OF SHARES. (a) At the Effective Time, by virtue of
the APZ Merger and without any action on the part of the holder thereof:
(i) Conversion of APZ Common Stock. Each issued and outstanding share
of Common Stock, par value $1.00, of APZ ("APZ Common Stock") shall be
converted into validly issued, fully paid and nonassessable shares of
Common Stock, par value $1.00 per share, of New American Premier ("New
American Premier Common Stock") at a rate equal to one share of New
American Premier Common Stock for each share of APZ Common Stock;
(ii) Conversion of APZ Preferred Stock. Each issued and outstanding
share of APZ Preferred Stock (as defined in Section 5.2 hereof) shall be
converted into one validly issued, fully paid and nonassessable share of
New American Premier Preferred Stock (as defined in Section 5.2 hereof) of
a class and series having terms identical in all material respects to the
applicable class and series of APZ Preferred Stock so converted; and
(iii) Conversion of APZ Sub Common Stock. The aggregate of all shares
of capital stock of APZ Sub issued and outstanding immediately prior to the
Effective Time shall be converted into 47,000,000 shares of APZ Common
Stock (as the surviving corporation of the APZ Merger).
(b) At the Effective Time, by virtue of the AFC Merger and without any
action on the part of the holder thereof:
(i) Conversion of AFC Common Stock. Each issued and outstanding share
of Common Stock, without par value, of AFC ("AFC Common Stock") shall be
converted into the right to receive validly issued, fully paid and
nonassessable shares of New American Premier Common Stock at a rate equal
to 1.45 shares of New American Premier Common Stock for each share of AFC
Common Stock;
(ii) No Effect on AFC Preferred Stock. Each issued and outstanding
share of AFC Preferred Stock (as defined in Section 3.2 hereof) shall
remain issued and outstanding after the Effective Time and the AFC Merger
shall have no effect on any shares of AFC Preferred Stock; and
(iii) Conversion of AFC Sub Common Stock. The aggregate of all shares
of capital stock of AFC Sub issued and outstanding immediately prior to the
Effective Time shall be converted
ACQUISITION AGREEMENT
5
<PAGE> 6
into 53,000,000 validly issued, fully paid and nonassessable shares of AFC
Common Stock (as the surviving corporation of the AFC Merger).
SECTION 1.5 CONVERSION OF CERTIFICATES; ISSUANCE OF NEW CERTIFICATES.
(a) Conversion of APZ Stock Certificates. At the Effective Time, each
certificate which immediately prior to the Effective Time evidenced outstanding
shares of APZ Common Stock or APZ Preferred Stock shall, by virtue of the APZ
Merger and without further act or deed, be deemed to evidence an identical
number of shares of New American Premier Common Stock or New American Premier
Preferred Stock, as the case may be (New American Premier Common Stock and New
American Premier Preferred Stock being hereinafter sometimes collectively
referred to as the "New American Premier Stock"). As certificates formerly
evidencing shares of APZ Common Stock or APZ Preferred Stock are, over time,
surrendered to New American Premier to effect transfers thereof, New American
Premier shall cancel such certificates and issue new certificates of New
American Premier Stock in place thereof. Notwithstanding the foregoing
provisions of this paragraph (a), if prior to the Effective Time New American
Premier determines that it is necessary or desirable that the certificates
evidencing shares of APZ Common Stock and APZ Preferred Stock be surrendered in
exchange for new certificates evidencing shares of New American Premier Stock,
then the parties hereto shall amend this Agreement to provide for a suitable
mechanism for effecting such exchange.
(b) Surrender of AFC Common Stock. Promptly after the Effective Time, AFC
shall request each registered holder of a certificate or certificates which
immediately prior to the Effective Time evidenced outstanding shares of AFC
Common Stock (the "Certificates") to surrender such Certificates to New American
Premier for exchange. Upon such surrender, New American Premier shall issue to
the holder of such Certificates the number of whole shares of New American
Premier Stock which such holder is entitled to receive pursuant to Section 1.4
hereof and the Certificates so surrendered shall be cancelled. Until so
surrendered, such Certificates shall represent solely the right to receive the
applicable number of shares of New American Premier Stock with respect to the
number of shares of AFC Common Stock evidenced thereby. No dividends or other
distributions declared or made after the Effective Time with respect to shares
of New American Premier Stock with a record date after the Effective Time shall
be paid to the holder of an unsurrendered Certificate with respect to the shares
of New American Premier Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 1.5(c)
hereof until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of unclaimed property, escheat and other
applicable laws, following surrender of any such Certificate, there shall be
paid to the registered holder of the certificates representing whole shares of
New American Premier Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of any cash payable in lieu of a
fractional share of New American Premier Stock to which such holder is entitled
pursuant to Section 1.5(c) hereof and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of New American Premier Stock and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of New
American Premier Stock, as the case may be. If any cash or certificate
evidencing shares of New American Premier Stock is to be paid to or issued in a
name other than that in which the Certificate surrendered in exchange therefor
is registered, it shall be a condition of such exchange that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange shall pay to New American Premier
any transfer or other taxes required by reason of the issuance of certificates
for such shares of New American Premier Stock in a name other than that of the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of New American Premier that such tax has been paid or is not
applicable.
ACQUISITION AGREEMENT
6
<PAGE> 7
(c) No Fractional Shares. Notwithstanding any other provision of this
Agreement, no certificates or scrip representing fractional shares of New
American Premier Stock shall be issued upon the surrender for exchange of
Certificates. Any holder of AFC Common Stock who would otherwise have been
entitled to a fractional share of New American Premier Stock shall be entitled
to receive a cash payment in lieu of such fractional share in an amount equal to
the product of such fraction multiplied by the average of the last reported
sales prices, regular way, per share of APZ Common Stock on the New York Stock
Exchange Composite Tape on the ten consecutive trading days ending with the last
trading day on which APZ Common Stock was traded on the New York Stock Exchange,
without any interest thereon. Any such holder shall not be entitled to vote or
to any other rights of a holder of New American Premier Stock in respect of such
fractional share.
SECTION 1.6 NO FURTHER TRANSFERS. From and after the Effective Time, there
shall be no transfers on the stock transfer books of APZ and AFC of any shares
of APZ Common Stock, APZ Preferred Stock or AFC Common Stock, as the case may
be, that are to be converted into New American Premier Stock pursuant to the
terms of Section 1.4 hereof. If, after the Effective Time, certificates
evidencing any such shares are presented to one of the surviving corporations
they shall be cancelled and exchanged for the applicable shares of New American
Premier Stock as provided herein.
ARTICLE II
RELATED MATTERS
SECTION 2.1 TREATMENT OF AFC'S STOCK OPTIONS/PUT AND APZ'S STOCK OPTIONS.
(a) Cancellation of AFC's Stock Options and the Put. AFC shall take all
actions necessary to cause that certain agreement dated April 15, 1983 with
certain members of the Lindner family to be amended to provide that (i) the
outstanding options (the "AFC Stock Options") relating to the right to purchase
762,500 shares of AFC Common Stock shall become fully vested and immediately
exercised for the then applicable exercise price and, if such AFC Stock Options
are not so exercised with the exercise price fully paid in cash by the Effective
Time, such AFC Stock Options shall be deemed cancelled and (ii) the right to put
shares of AFC Common Stock to AFC (the "Put"), as more particularly described in
such agreement, shall be terminated as of immediately prior to the Effective
Time.
(b) Amendment of APZ Stock Option Plan. Effective as of the Effective
Time, APZ shall amend the "APZ Stock Option Plan" to provide that each
outstanding option to purchase shares of APZ Common Stock (each, an "APZ Stock
Option" and, collectively, the "APZ Stock Options"), shall constitute an option
to acquire shares of New American Premier Common Stock, at the same exercise
price and on the same terms and other conditions as were applicable to such APZ
Stock Option. At the Effective Time, New American Premier shall assume each
stock option agreement relating to the APZ Stock Option Plan. To the extent
necessary, the respective Compensation Committees of the Boards of Directors of
APZ and New American Premier will take all action necessary or advisable to
provide for the foregoing.
SECTION 2.2 TREATMENT OF AFC'S BOOK VALUE INCENTIVE PLAN. Effective as of
the Effective Time, AFC shall take all action to provide for the termination of
its Book Value Incentive Plan and the extinguishment of all rights thereunder
for a net payment in cash by AFC to each grantee, such payments in the aggregate
not to exceed $49,600,000.
SECTION 2.3 AFC SHAREHOLDER APPROVAL. AFC shall take all action necessary
in accordance with applicable law, the respective rules of The Cincinnati Stock
Exchange and The Pacific Stock Exchange, Incorporated, and its Articles of
Incorporation and Code of Regulations to convene a meeting of its shareholders
as promptly as practicable to consider and vote upon a proposal to approve and
adopt this Agreement (the "Proposal"). The Board of Directors of AFC will recom-
ACQUISITION AGREEMENT
7
<PAGE> 8
mend that its shareholders vote in favor of the Proposal and will use its best
efforts to take all other actions reasonably necessary or advisable to secure
the vote or consent of AFC's shareholders required to effect the AFC Merger.
Simultaneously with the execution and delivery of this Agreement by AFC, AFC
shall deliver to APZ an agreement (the "Shareholders Agreement") substantially
in the form of Exhibit A attached hereto executed by AFC and all the holders of
shares of AFC Common Stock ("AFC's Common Shareholders") whereby AFC's Common
Shareholders shall agree, provided this Agreement has not been terminated in
accordance with Article VIII hereof, to (i) vote their shares of AFC Common
Stock in favor of the Proposal, (ii) amend AFC's Articles of Incorporation in
the manner contemplated by Section 6.8 hereof, (iii) treat the AFC Stock Options
and the Put in the manner described in Section 2.1 hereof and (iv) exchange,
prior to the Closing, under the circumstances and subject to the terms and
conditions stated therein, shares of AFC Common Stock for shares of AFC
Preferred Stock.
SECTION 2.4 APZ SHAREHOLDER APPROVAL. APZ shall take all action necessary
in accordance with applicable law, the rules of the New York Stock Exchange (the
"NYSE"), and its Articles of Incorporation and By-laws to convene a meeting of
its shareholders as promptly as practicable to consider and vote upon the
Proposal. Subject to its fiduciary duties under applicable law and the receipt
of a favorable recommendation from the Special Committee (as defined in Section
5.3 hereof), the Board of Directors of APZ will recommend that its shareholders
vote in favor of the Proposal and will use its best efforts to solicit proxies
from the shareholders of APZ in favor of the Proposal and to take all other
actions reasonably necessary or advisable to secure the vote or consent of APZ's
shareholders required to effect the APZ Merger. Provided that this Agreement
shall not have been terminated in accordance with Article VIII hereof, at the
meeting of APZ's shareholders, AFC covenants that all shares of APZ Common Stock
then owned, directly or indirectly, by AFC and its subsidiaries (except for
shares held by AFEI (as defined in Section 4.1 hereof)) will be voted in favor
of the Proposal.
SECTION 2.5 JOINT PROXY/REGISTRATION STATEMENT. The parties shall, as
promptly as practicable, prepare and file with the Securities and Exchange
Commission (the "SEC") a registration statement on Form S-4 (the "Registration
Statement") and proxy and information statement (the "Proxy Statement") (the
Proxy Statement and the Registration Statement being, collectively, the "Joint
Proxy/Registration Statement") in connection with (a) the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of the New American
Premier Stock issuable in connection with the Mergers and (b) the meetings of
the respective shareholders of AFC and APZ described in Sections 2.3 and 2.4
hereof. Each of APZ and AFC shall use its best efforts to have or cause the
Joint Proxy/Registration Statement declared effective and cleared as promptly as
practicable, shall take any and all other action required to be taken under
federal or state securities laws in connection therewith, and shall use its best
efforts to cause the Joint Proxy/Registration Statement to be mailed to its
respective shareholders at the earliest practicable date. AFC shall use its best
efforts to prepare and deliver to its shareholders, at the earliest practicable
date, a notice and proxy statement (the "AFC Proxy Statement") meeting the
requirements of Ohio law.
SECTION 2.6 APPROVAL OF SOLE SHAREHOLDER OF NEW AMERICAN
PREMIER. Simultaneously with the execution and delivery of this Agreement by
New American Premier, New American Premier shall deliver to APZ and AFC an
agreement signed by the sole shareholder of New American Premier whereby such
shareholder agrees, provided this Agreement has not been terminated in
accordance with Article VIII hereof, to (a) vote all of his shares of New
American Premier Common Stock in favor of this Agreement and the Mergers, (b)
cause New American Premier, as the sole shareholder of all of the outstanding
shares of common stock of APZ Sub and AFC Sub, to vote all of such shares in
favor of this Agreement and the Mergers and (c) cause New American Premier, and
APZ Sub, and AFC Sub, as wholly owned subsidiaries of New American Premier, to
perform all things necessary, proper or advisable on their part to consummate
the transactions contemplated by this Agreement.
ACQUISITION AGREEMENT
8
<PAGE> 9
SECTION 2.7 WAIVER OF DISSENTERS RIGHTS RELATING TO APZ PREFERRED
STOCK. Simultaneously with the execution and delivery of this Agreement by APZ,
APZ shall deliver an agreement signed by the sole shareholder of all issued and
outstanding APZ Preferred Stock whereby such shareholder agrees to waive all
dissenters rights he would be entitled to assert under Subchapter D of Chapter
15 of the PBCL as a result of the APZ Merger and the other transactions
contemplated by this Agreement.
SECTION 2.8 CERTAIN FILINGS. The parties shall (a) as promptly as
practicable, make any filings required to be filed with any governmental
authority or other regulatory or administrative agency (including, without
limitation, the filings under Section 2.5 hereof, any filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and any filings required by the Federal Communications Commission (the
"FCC"), the NYSE, the Department of Insurance of Ohio and any other insurance
regulatory agencies) in order to consummate the transactions contemplated by
this Agreement, (b) cooperate with one another (i) in promptly determining
whether any other filings are required to be made or consents, approvals,
permits or authorizations are required to be obtained under any other relevant
federal, state or foreign law or regulation and (ii) in promptly making any such
filings, furnishing information required in connection therewith and timely
seeking to obtain any such consents, approvals, permits or authorizations; and
(c) deliver to the other parties to this Agreement copies of the publicly
available portions of all such filings promptly after they are filed.
SECTION 2.9 TAX RULING. The parties shall seek a ruling from the Internal
Revenue Service to the effect that the APZ Merger, as contemplated by this
Agreement, will constitute a reverse acquisition of New American Premier and
that, after the Mergers, the APZ federal consolidated tax group which existed
prior to the Mergers shall continue to exist with APZ as the common parent for
federal income tax purposes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AFC
AFC represents and warrants to New American Premier and APZ as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. AFC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio. AFC owns, directly or indirectly, all of the outstanding capital stock of,
and ownership interests in, its subsidiaries (as such term is defined in Section
9.9 hereof), or such lesser amount of the capital stock or ownership interests
as is set forth in the SEC Filings (as defined in Section 3.5 hereof) or
Schedule 3.1 of the disclosure schedule previously delivered by AFC to APZ (the
"Disclosure Schedule"). Except as set forth in the SEC Filings or Schedule 3.1
of the Disclosure Schedule, other than as contained in the investment portfolio
of any Insurance Subsidiary (as defined in Section 3.6 hereof), AFC does not
own, directly or indirectly, any capital stock or other equity securities or any
ownership interest in any corporation, partnership, joint venture, association
or similar business or entity that is material to the financial condition,
business, results of operations, prospects, properties or assets (the
"Condition") of AFC and its subsidiaries taken as a whole. All of AFC's material
subsidiaries are corporations or other limited liability entities duly
organized, validly existing and in good standing (or the local law equivalent)
under the laws of their jurisdictions of incorporation or other organization.
AFC and its subsidiaries have the requisite corporate power to conduct their
businesses as they are currently being conducted and are duly qualified as
foreign corporations (or the local law equivalent) to do business in the
respective jurisdictions where the character of their properties owned or leased
or the nature of their activities makes such qualification necessary, except to
the extent that lack of such qualification would not in the aggregate have a
material adverse effect on the Condition of AFC and its subsidiaries taken as a
whole.
ACQUISITION AGREEMENT
9
<PAGE> 10
SECTION 3.2 CAPITALIZATION. The authorized capital stock of AFC consists
of 32,300,000 shares of AFC Common Stock and 59,300,000 shares of Preferred
Stock ("AFC Preferred Stock"). As of the date of this Agreement, the AFC
Preferred Stock was authorized and issued and outstanding as follows:
<TABLE>
<CAPTION>
ISSUED AND
AUTHORIZED SHARES OUTSTANDING SHARES
----------------- ------------------
<S> <C> <C>
$1 PAR, Voting Cumulative:............................ 3,500,000 0
$1 PAR, Nonvoting Cumulative:
Series F............................................ 15,000,000 13,753,254
Series G............................................ 2,000,000 364,158
$10.50 PAR, Nonvoting Cumulative:
Series D............................................ 8,375,000 0
Series E............................................ 2,725,000 274,242
$1.50 PAR, Nonvoting Cumulative:
Series H............................................ 7,700,000 0
$.01 PAR, Nonvoting Cumulative:....................... 20,000,000 0
</TABLE>
As of the date of this Agreement, 18,971,217 shares of AFC Common Stock were
issued and outstanding, and 314,468 shares of AFC Common Stock were held in
AFC's treasury. In addition, as of such date, 762,500 shares of AFC Common Stock
were reserved for issuance upon the exercise of outstanding AFC Stock Options.
All of the issued and outstanding shares of capital stock of AFC are validly
issued, fully paid and nonassessable and are not subject to, nor were they
issued in violation of, any preemptive rights. Except as set forth above or in
Schedule 3.2 of the Disclosure Schedule, as of the date hereof, (i) there are no
shares of capital stock of AFC authorized, issued or outstanding, and (ii) there
are no outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character obligating AFC or
any of its subsidiaries, to issue, transfer or sell, presently or in the future,
any shares of the capital stock or any securities convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of the capital stock
of AFC. Except for the AFC Stock Options and the issuance of shares pursuant to
Section 1.4(b)(iii) hereof, AFC currently has and, immediately after the
Effective Time, will have, no obligation to issue, transfer or sell any shares
of its capital stock, pursuant to any Benefit Plan (as defined in Section 3.13
hereof), or otherwise. Except as set forth in Schedule 3.2 of the Disclosure
Schedule, all of the outstanding shares of capital stock of each of AFC's
material subsidiaries have been validly issued and are fully paid and
nonassessable and are beneficially owned by either AFC or one of AFC's directly
or indirectly wholly owned subsidiaries free and clear of all liens, charges,
claims or encumbrances. Except as set forth in Schedule 3.2 of the Disclosure
Schedule, there are no outstanding subscriptions, options, warrants, calls,
rights, convertible securities or other agreements or commitments of any
character relating to the issued or unissued capital stock of any of AFC's
subsidiaries or securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock, or otherwise obligating
any such subsidiary to issue, transfer or sell any such capital stock or other
securities. Except as set forth in Schedule 3.2 of the Disclosure Schedule,
other than the Shareholders Agreement, there are no voting trusts or other
agreements or understandings to which AFC or any of its subsidiaries is a party
with respect to the voting of the capital stock of AFC or any of its
subsidiaries.
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. AFC has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of AFC. Except for the approval
by the shareholders of AFC of this Agreement and the amendment to AFC's Articles
of Incorporation contemplated by Section 6.8 hereof, no other corporate
proceedings on the part of AFC are necessary to authorize this Agreement and the
transactions contemplated hereby. This
ACQUISITION AGREEMENT
10
<PAGE> 11
Agreement has been duly and validly executed and delivered by AFC and (assuming
this Agreement is a valid and binding obligation of the other parties hereto)
constitutes a valid and binding agreement of AFC enforceable against AFC in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) remedies of
specific performance and injunctive and other forms of relief may be subject to
general principles of equity and public policy and to the discretion of the
court before which any proceeding therefor may be brought.
SECTION 3.4 NO VIOLATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) constitute a breach or violation of or default under the Articles of
Incorporation or the Code of Regulations of AFC or the charter documents of any
of its subsidiaries or (ii) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
AFC or any of its subsidiaries under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which AFC or any such subsidiary is a party
or to which they or any of their respective properties or assets may be subject,
other than, in the case of clause (ii), (a) breaches, conflicts or violations
that would not have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole and (b) the agreements set forth in Schedule 3.4
of the Disclosure Schedule as to each of which AFC shall obtain all necessary
consents and/or waivers prior to the Closing, except where the failure to obtain
such consents and/or waivers would not have a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole. Except as set forth in
Schedule 3.4 of the Disclosure Schedule, other than in connection with, or in
compliance with, the provisions of the PBCL, the OGCL, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Securities Act, the HSR Act
and requirements of the FCC, the NYSE, the Department of Insurance of Ohio and
any other insurance regulatory agencies, the execution, delivery and performance
by AFC of this Agreement and the consummation by AFC of the transactions
contemplated hereby will not (i) require the consent or approval of any other
party to any of the above or affect the validity or effectiveness of any of the
above except for consents or approvals, the failure to obtain which would not,
in the aggregate, have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole or (ii) constitute a breach or violation of or
default under any law, rule or regulation or any judgment, decree, order,
governmental permit or license to which AFC or any of its subsidiaries is
subject, which would have a material adverse effect on the Condition of AFC and
its subsidiaries taken as a whole. Except as set forth on Schedule 3.4 of the
Disclosure Schedule, to the best of AFC's knowledge, New American Premier shall
not be required to obtain any actions, nonactions, consents, approvals or
waivers from any regulatory agencies or other authorities in order to consummate
the transactions contemplated by this Agreement.
SECTION 3.5 SEC REPORTS AND FINANCIAL STATEMENTS. AFC has previously
delivered or made available to APZ true and complete copies of its (i) Annual
Report on Form 10-K for the year ended December 31, 1993, as filed with the SEC,
and all amendments thereto; (ii) Quarterly Reports on Form 10-Q for the periods
ended March 31, 1994, June 30, 1994 and September 30, 1994, as filed with the
SEC; and (iii) all other reports, statements and registration statements
(including Current Reports on Form 8-K) filed by it with the SEC since December
31, 1993 (collectively, the "SEC Filings"). As of their respective dates, the
SEC Filings did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of AFC included in the SEC Filings (the
"Financial Statements") present fairly, in all material respects, the financial
condition, results of operations and changes in financial position of AFC as at
the dates or for the periods indicated therein in conformity with generally
ACQUISITION AGREEMENT
11
<PAGE> 12
accepted accounting principles applied on a consistent basis (except as
otherwise indicated in such financial statements or the notes thereto), subject,
in the case of unaudited interim financial statements, to normal recurring
year-end adjustments ("GAAP").
SECTION 3.6 ANNUAL STATEMENTS AND OTHER FILINGS FOR INSURANCE SUBSIDIARIES.
(a) AFC has previously delivered or made available to APZ true and complete
copies of the annual statements for each of the years ended December 31, 1991,
1992 and 1993 filed pursuant to state insurance law requirements (the "Annual
Statements") by each subsidiary of AFC that is subject to regulation as an
insurance company (each, an "Insurance Subsidiary" and, collectively, the
"Insurance Subsidiaries"). Except as would not have a material adverse effect on
the Condition of the applicable Insurance Subsidiary, (i) each such Annual
Statement was in substantial compliance with applicable law when so filed, and
(ii) there were no material deficiencies with respect to any such Annual
Statement. AFC has also furnished to APZ true and complete copies of the
separate unaudited balance sheet of each Insurance Subsidiary as of September
30, 1994 and the related separate unaudited statements of operations, capital
and surplus, and changes in financial position of each such entity for the
period then ended (collectively, the "SAP Statements"). All of such SAP
Statements were prepared in accordance with accounting practices required or
permitted by applicable insurance regulatory authorities applied on a consistent
basis (except as otherwise indicated in such financial statements or the notes
thereto), subject, in the case of unaudited interim financial statements, to
normal recurring year-end adjustments ("Statutory Accounting Procedures" or
"SAP"), and each fairly presents the separate SAP financial condition of the
entity covered thereby as of the date thereof and the separate SAP results of
operations, capital and surplus, and changes in financial position of the entity
covered thereby for and during each of the periods covered thereby.
(b) Each Insurance Subsidiary has made all filings required pursuant to,
and otherwise in compliance with, the Ohio Insurance Holding Company Systems Act
and the regulations promulgated thereunder, or any comparable state insurance
law requirements in other applicable jurisdictions, except to the extent the
failure to make any such filing would not have a material adverse effect on the
Condition of any such Insurance Subsidiary. AFC has previously delivered or made
available to APZ true and complete copies of all such filings made by any
Insurance Subsidiary since January 1, 1991, and all such filings were true,
accurate and complete in all material respects as of the dates of their
respective filings.
SECTION 3.7 RESERVES. The aggregate reserves and (except with respect to
clause (a) below) other amounts of liabilities or obligations of each Insurance
Subsidiary (including, without limitation, reserves established as an allowance
for uncollectible amounts under any reinsurance, coinsurance or similar
contract) as established or reflected on the books and records of AFC and each
of the Insurance Subsidiaries (a)(i) were determined in accordance with
generally accepted actuarial standards consistently applied, (ii) are fairly
stated in accordance with sound actuarial principles, and (iii) on the date
hereof are, and at the Effective Time will be, based on actuarial assumptions
that are in accordance with those specified in the related insurance contracts,
(b) meet on the date hereof, and at the Effective Time will meet, in all
material respects, the requirements of the insurance laws of the applicable
jurisdiction as in effect on the date hereof, or on the date of the Effective
Time, as the case may be, and (c), except as set forth in the SEC Filings, are
on the date hereof, and at the Effective Time will be, adequate to cover the
total amount of all matured and unmatured liabilities and obligations of such
Insurance Subsidiary under all outstanding insurance contracts pursuant to which
such Insurance Subsidiary has any liability (whether absolute, accrued,
contingent or otherwise) or obligation, including without limitation any
incurred but not reported claims and any liability or obligation arising as a
result of any reinsurance, coinsurance or other similar contract. For the
purposes of clause (c) above, the fact that reserves covered by any such
representation are subsequently adjusted at times and under circumstances
consistent with AFC's ordinary practices of reassessing the adequacy of its
reserves shall not be used to support any claim regarding the accuracy of such
representation, provided that such adjustments do not exceed $50,000,000 in the
ACQUISITION AGREEMENT
12
<PAGE> 13
aggregate. As of the date hereof, each Insurance Subsidiary owns assets that
qualify as reserve assets to the extent required by applicable insurance laws.
SECTION 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the SEC Filings or Schedule 3.8 of the Disclosure Schedule, since December 31,
1993, each of AFC and its subsidiaries has conducted its businesses only in the
ordinary and usual course and there has not occurred any material adverse change
in the Condition of AFC and its subsidiaries taken as a whole.
SECTION 3.9 NO UNDISCLOSED LIABILITIES. Except as set forth in the
Financial Statements or Schedule 3.9 of the Disclosure Schedule, neither AFC nor
any of its subsidiaries has any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) that in the aggregate have or may reasonably
be expected to have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole.
SECTION 3.10 TAXES AND TAX RETURNS. AFC and each of its subsidiaries
(collectively, the "Group") has timely filed or been included in all tax
returns, declarations, reports, estimates, information returns, statements and
other material returns (collectively, "Returns") relating to Taxes (as
hereinafter defined) required to be filed under U.S. federal, state, local or
any foreign laws (taking into account any extensions of time for filing such
Returns) and such Returns were in all material respects (and, as to Returns not
filed as of the date hereof, will be in all material respects) true, complete
and correct. The Group has paid or made provision for (by a tax accrual or tax
reserve on the most recent consolidated balance sheets of the Group (the
"Balance Sheets") contained in the SEC Filings, which accruals or reserves have
been recorded in accordance with GAAP), all Taxes (except for such Taxes which
if not so paid or provided for would not, in the aggregate, have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a whole) in
respect of all taxable periods or portions thereof ending on or before the date
of the Balance Sheets. Except as set forth in Schedule 3.10 of the Disclosure
Schedule, any Taxes incurred or accrued since September 30, 1994, or which will
be incurred or accrued as a result of transactions occurring prior to the
Effective Time or as a result of the Mergers, have (or will have) arisen in the
ordinary course of business. There are no material liens for Taxes upon the
assets of AFC or any of its subsidiaries except liens for Taxes not yet due. The
Group is not delinquent in the payment of any federal income or other Taxes and,
except as set forth in Schedule 3.10 of the Disclosure Schedule, there are no
outstanding deficiencies, assessments or written proposals for assessment of
federal income or other Taxes proposed, asserted or assessed against the Group.
AFC has, since December 31, 1967, filed a consolidated return for federal income
tax purposes on behalf of itself as a common parent and those of its
subsidiaries which are members of its "affiliated group" (within the meaning of
Section 1504(a) of the Code) and which are "includable corporations" (within the
meaning of Section 1504(b) of the Code). Except as set forth in the Financial
Statements or in Schedule 3.10 of the Disclosure Schedule, no waivers are
presently open for the statute of limitations for the assessment of federal
income taxes for any consolidated federal income tax return of AFC and its
subsidiaries. Except as set forth in the Financial Statements or in Schedule
3.10 of the Disclosure Schedule, no federal, state, local or foreign audits or
other administrative proceedings or court proceedings which are material to the
Condition of the Group taken as a whole are presently pending with regard to any
Taxes or Returns of AFC or its subsidiaries. As used herein, "Taxes" means (A)
all net income, gross income, gross receipts, sales, use, transfer, franchise,
profits, withholding, payroll, employment, excise, severance, property or
windfall profits taxes, or other taxes of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (domestic or foreign) upon AFC or any of its subsidiaries
with respect to all periods or portions thereof ending on or before the
Effective Time and/or (B) any liability of AFC or any of its subsidiaries for
the payment of any amounts of the type described in the immediately preceding
clause (A) as a result of being a member of an affiliated or combined group.
SECTION 3.11 LITIGATION. Except as set forth in the SEC Filings or
Schedule 3.11 of the Disclosure Schedule, there are no actions, suits, claims,
investigations or proceedings pending or,
ACQUISITION AGREEMENT
13
<PAGE> 14
to the knowledge of AFC, threatened against, relating to, involving or otherwise
affecting AFC or any of its subsidiaries before any court, governmental agency,
commission, or administrative or regulatory authority which, if adversely
decided, in the aggregate, may reasonably be expected to have a material adverse
effect on the Condition of AFC and its subsidiaries taken as a whole. Except as
set forth in the SEC Filings or Schedule 3.11 of the Disclosure Schedule,
neither AFC nor any of its subsidiaries is subject to any order, judgment,
injunction or decree that materially and adversely affects or will materially
and adversely affect the Condition of AFC and its subsidiaries taken as a whole.
SECTION 3.12 COMPLIANCE WITH LAW. Except as set forth in the SEC Filings
or Schedule 3.12 of the Disclosure Schedule, neither AFC nor any of its
subsidiaries is in violation (or with or without notice or lapse of time or
both, would be in violation) of any term or provision of any law or any writ,
judgment, decree, injunction or similar order applicable to AFC or any
subsidiary or any of its respective assets or properties, the result of which
violations in the aggregate has or may reasonably be expected to have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a whole.
Without limiting the generality of the foregoing: (i) AFC and each of its
subsidiaries has filed or caused to be filed all reports, statements, documents,
registrations, filings or submissions which were required by law to be filed by
it and as to which the failure to so file, in the aggregate with other such
failures, may reasonably be expected to have a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole; all such filings
complied with applicable laws in all material respects when filed, and no
material deficiencies have been asserted with respect to any such filings; (ii)
AFC has delivered or made available to APZ all reports reflecting the results of
financial and market conduct examinations of the affairs of each Insurance
Subsidiary issued by insurance regulatory authorities for each year commencing
January 1, 1989 and, except as set forth in Schedule 3.12 of the Disclosure
Schedule, all material deficiencies or violations in such reports for any prior
period have been resolved; (iii) AFC has delivered or made available to APZ the
preliminary results or findings of financial examinations of the affairs of each
Insurance Subsidiary that are on-going in nature on or as of the date hereof;
and (iv) except as set forth in Schedule 3.12 of the Disclosure Schedule and
except as would not have a material adverse effect on the Condition of any
Insurance Subsidiary, all outstanding insurance contracts issued or assumed by
any Insurance Subsidiary are, to the extent required under applicable laws, on
forms approved by the insurance regulatory authority of the jurisdiction where
issued or have been filed with and not objected to by such authority within the
period provided for objection.
SECTION 3.13 EMPLOYEE BENEFIT PLANS.
(a) AFC has previously delivered or made available to APZ true and complete
copies of (i) any written Benefit Plans (as defined below) maintained for the
benefit of any AFC Personnel (as defined below), or in the case of an unwritten
Benefit Plan, a written description thereof; (ii) any annual or actuarial
reports relating to such Benefit Plans (including the most recent accounting of
related plan assets with respect to AFC's Employee Stock Ownership Retirement
Plan ("ESORP")) as of the most recent valuation date, with copies of all extant
summary plan descriptions (whether or not required to be furnished under the
Employment Retirement Income Security Act of 1974, as amended ("ERISA")) and
material communications relating to such Benefit Plans distributed to employees
within the past three years; (iii) the most recent determination letters issued
by the Internal Revenue Service with respect to the ESORP and each of the other
Benefit Plans; and (iv) with respect to any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA ("Welfare Plan") which is funded through a
trust, a letter of exemption from taxation (under Section 501(c)(9) of the Code)
issued by the Internal Revenue Service. For this purpose, "Benefit Plan" shall
mean "employee benefit plan", as defined in Section 3(3) of ERISA, maintained by
AFC or any of its subsidiaries (within the meaning of Section 414(b), (c), (m)
or (o) of the Code), for the benefit of AFC Personnel, or with respect to which
AFC or any of its subsidiaries makes or has an obligation to make contributions
on behalf of AFC Personnel. "AFC
ACQUISITION AGREEMENT
14
<PAGE> 15
Personnel" shall mean any present or former employee, director, officer, agent,
consultant, broker or representative of AFC or any of its subsidiaries.
(b) Except as set forth in Schedule 3.13 of the Disclosure Schedule, there
are no material employment contracts or other employee benefit arrangements to
which AFC or any of its subsidiaries is a party with "change of control"
provisions or any severance agreements with AFC Personnel.
(c) Except as set forth in Schedule 3.13 of the Disclosure Schedule, there
are no AFC Personnel who are entitled to any pension or other material benefit
to be paid after termination of employment other than pursuant to the ESORP or
other Benefit Plans or as otherwise required by Section 601 of ERISA, and no
other material benefits whatsoever are payable to any AFC Personnel after
termination of employment.
(d) All Benefit Plans have been administered in accordance with their terms
and are in substantial compliance with all material provisions of the Code and
ERISA. There are no actions, suits or claims pending (other than claims for
benefits) or, to the best knowledge of AFC, threatened against any Benefit Plan
or any administrator or fiduciary.
(e) Each Benefit Plan that is a Welfare Plan is either funded through an
insurance contract or unfunded. Except as set forth in Schedule 3.13 of the
Disclosure Schedule, neither AFC nor any of its subsidiaries has or expects to
have any liability under any insurance policy in the nature of a retroactive
rate adjustment or loss sharing or similar arrangement.
(f) As to each Benefit Plan for which an annual report, including
schedules, is required to be filed under ERISA or the Code, liabilities do not
exceed assets and no material adverse change has occurred with respect to the
financial matters covered by the latest annual report since the date thereof.
(g) Neither AFC nor any of its subsidiaries (nor any entity that is treated
as a single employer with AFC or its subsidiaries under Section 414(b), (c), (m)
or (o) of the Code) has (i) at any time since July 1, 1992 maintained,
contributed to or been required to contribute to any plan under which more than
one employer makes contributions (within the meaning of Section 4064(a) or
ERISA) or any plan that is a "multi-employer plan" as defined in Section 3(37)
of ERISA or (ii) become subject to or expects to be subject to the lien
described in Section 412(n) of the Code.
(h) Neither AFC nor any of its subsidiaries (nor any entity that is treated
as a single employer with AFC or its subsidiaries under Section 414(b), (c), (m)
or (o) of the Code) has at any time since July 1, 1992 contributed to or
maintained any "employee pension benefit plan" as defined in Section 3(2) of
ERISA other than the plans referred to in Section 3.13(a). AFC has received
favorable determination letters from the Internal Revenue Service stating that
the ESORP and the other qualified plans referred to in Section 3.13(a) are
qualified under the Code and are exempt from federal income tax under Section
401(a) of the Code, and the ESORP is qualified under Section 4975(e)(7) of the
Code. The ESORP is not subject to the requirements of Title IV of ERISA. The
trustee for the ESORP is a bank independent of AFC and any of its subsidiaries.
(i) Neither the execution and delivery of this Agreement nor the actions
contemplated by this Agreement will result in a "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA). Neither AFC, any
of its subsidiaries nor any other person, including any fiduciary, has engaged
in any prohibited transaction which could subject any of the Benefit Plans (or
their trusts), AFC or any of its subsidiaries, or any person who they have any
obligation to indemnify, to any tax or penalty imposed under Section 4975 of the
Code or Section 502(e) of ERISA.
(j) None of the assets of any Benefit Plan other than the ESORP are
invested in any property constituting employer real property or any employer
security (within the meaning of Section 407(d) of ERISA).
ACQUISITION AGREEMENT
15
<PAGE> 16
(k) There is no other entity with any employees which together with AFC is
a member of a group described in Section 414(b), (c), (m) or (o) of the Code
other than AFC and its subsidiaries.
(l) Neither the execution and delivery of this Agreement nor the actions
contemplated by this Agreement will terminate or modify, or give a third party a
right to terminate or modify, the provisions or terms of any Benefit Plan or
will constitute a stated triggering event under any Benefit Plan that will
result in any payment (including golden parachute payments, severance payments
or other similar payments) becoming due to any AFC Personnel (other than
payments due under the terms of a Benefit Plan due on account of termination of
employment).
SECTION 3.14 PROPERTIES. Except as set forth in the SEC Filings or
Schedule 3.14 of the Disclosure Schedule and except as would not have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a whole:
(i) AFC and each of its subsidiaries has good title to all bonds, stocks and
other assets reflected in its most recent SEC Filings (including, with respect
to any Insurance Subsidiary, such assets of a type required to be disclosed in
Schedules A through DB of its 1993 Annual Statement) or acquired after the date
thereof and such assets are owned by it free and clear of all mortgages, liens,
pledges, assessments, security interests, leases, subleases, adverse claims,
levies, charges or other encumbrances of any kind ("Liens"), other than Liens
approved in writing by APZ, any Tax which is incurred in the ordinary course of
business of such subsidiary and is not delinquent and can be paid without
interest or penalty and such other liens and encumbrances that do not materially
detract from the value or impair the use of the asset in question (collectively,
"Permitted Liens"); and the respective loan portfolio of each subsidiary of AFC
(including, without limitation, with respect to any Insurance Subsidiaries the
mortgage loans of the type required to be disclosed in Schedule B of its 1993
Annual Statement), is in all material respects collectible in accordance with
the terms of the loan documents included in such loan portfolio; (ii)(a) AFC and
each of its subsidiaries owns good, marketable and indefeasible title to, or has
a valid leasehold interest in, all real property owned or used in the conduct of
its business, operations or affairs or of a type disclosed by AFC or a
subsidiary in its most recent SEC Filings or acquired after the date thereof,
free and clear of all Liens other than Permitted Liens; (b) all such real
property, other than unimproved land, is, in all material respects, in good
operating condition and repair and suitable for its current uses; (c) no
improvement on any such real property owned, leased or held by AFC or any of its
subsidiaries encroaches upon any real property of another person, the result of
which encroachments in the aggregate has or may reasonably be expected to have a
material adverse effect on the Condition of AFC and its subsidiaries taken as a
whole; and (d) AFC and each of its subsidiaries, in all material respects, owns,
leases or has the valid right to use adequate means of ingress and egress to,
from and over all such real property; (iii) AFC and each of its subsidiaries
owns good, marketable and indefeasible title to, or has a valid leasehold
interest in or a valid right under contract to use, all of its tangible personal
property free and clear of all Liens other than Permitted Liens and all such
tangible personal property is in good operating condition and repair and is
suitable and adequate for its current uses; and (iv) AFC and its subsidiaries
have the right to use, free and clear of any royalty or other payment
obligations, claims of infringement or alleged infringement or other Liens other
than Permitted Liens, all marks, names trademarks, service marks, patents,
patent rights, assumed names, logos, trade secrets, copyrights, and trade names
used by AFC and its subsidiaries and neither AFC nor any of its subsidiaries is
in conflict with or violation or infringement of, nor has AFC or any of its
subsidiaries received any notice of any conflict with or violation or
infringement of or any claimed conflict with, any asserted rights of any other
person with respect to any intellectual property.
SECTION 3.15 CONTRACTS. Except as set forth in the SEC Filings or Schedule
3.15 of the Disclosure Schedule, there are no contracts or other documents or
arrangements currently in force or operative in any respect (other than
contracts or other documents operative only with respect to non-material
post-termination confidentiality or indemnification obligations), to which AFC
or any of
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its subsidiaries is a party or by which any of AFC's or any of its subsidiaries'
assets or properties is or may be bound that involve any of the following:
(a) employment, agency, brokerage, consultation or representation
contracts or other contracts of any type (including without limitation
loans or advances) that cannot be terminated, as of right and without
penalty, on less than 90 days' notice with any AFC Personnel who receives
compensation from any one or more of AFC and its subsidiaries of $250,000
or more per year;
(b) contracts with any person containing any provision or covenant
limiting, in any material respect, the ability of AFC or any of its
subsidiaries to engage in any line of business or compete with any person
or limiting the ability of any person, in any material respect, to compete
with AFC or any of its subsidiaries;
(c) material partnership, joint venture or profit-sharing contracts
with any person that involve more than $250,000 and cannot be terminated,
as of right and without penalty, on 180 days' or less notice;
(d) contracts relating to the borrowing of money in excess of
$5,000,000 or to the direct or indirect guarantee of any obligation for, or
contract to service the repayment of, borrowed money in excess of such
amount, or any other liability or obligation in respect of indebtedness for
borrowed money of any other person in excess of such amount, including
without limitation any contract relating to (i) the maintenance of
compensating balances that are not terminable by AFC or any of its
subsidiaries without penalty upon not more than 90 days notice, (ii) any
lines of credit, (iii) the payment for property, products or services of
any other person even if such property, products or services are not
conveyed, delivered or rendered, (iv) any obligation to take-or-pay,
keep-well, make-whole or maintain working capital or earnings levels or
perform similar requirements or (vi) the guarantee of any lease or other
similar periodic payments to be made by any other person;
(e) any lease or sublease of real property used in the conduct of
AFC's or any of its subsidiaries' business, operations or affairs, and any
other lease, sublease or rental or use contract providing for annual rental
payments to be paid by or on behalf of AFC or any of its subsidiaries in
excess of $1,000,000;
(f) material contracts relating to the future disposition or
acquisition of any investment in any person or of any interest in any
business enterprise, and any material contracts requiring AFC or any of its
subsidiaries to purchase any security other than notes or other debt
securities having a maturity date less than 90 days from the date of
purchase;
(g) contracts and arrangements that involve more than $250,000 and
cannot be terminated, as of right and without penalty, on less than 90
days' notice between (i) AFC or any of its subsidiaries and (ii) any AFC
Affiliate (as defined in Section 4.1 hereof) or any AFC Related Person (for
the purposes hereof "AFC Related Person" shall mean (A) any AFC Common
Shareholder or any director or executive officer of AFC or any of its
subsidiaries, (B) any spouse or immediate family member of any such
shareholder, director or officer, and (C) any corporation or other entity
(other than AFC and its subsidiaries) of which any of the aforementioned
persons is an officer, director or partner or is, directly or indirectly,
the beneficial owner of at least 5% of the ownership interest of such
entity);
(h) reinsurance or other similar contracts; and
(i) other contracts (other than insurance contracts) that involve the
payment or potential payment, pursuant to the terms of such contracts, by
or to AFC or any of its subsidiaries of $2,000,000 or more within any
twelve-month period commencing after the date hereof or that are otherwise
material to the Condition of AFC and its subsidiaries taken as a whole.
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Each of the contracts listed in Schedule 3.15 of the Disclosure Schedule is
in full force and effect and constitutes a valid and legally binding obligation
of AFC or each of its subsidiaries to the extent that AFC or any of it
subsidiaries is party thereto and, except as set forth in Schedule 3.15 of the
Disclosure Schedule, to the knowledge of AFC and its subsidiaries, of each other
person that is a party thereto in accordance with its terms; and neither AFC nor
any of its subsidiaries is, and, except as set forth in Schedule 3.15 of the
Disclosure Schedule, to the knowledge of AFC and its subsidiaries, no other
party to such contract is, in violation, breach or default of any such contract
(or with or without notice or lapse of time or both would be in violation,
breach or default of any such contract). Except as set forth in the SEC Filings
or Schedule 3.15 of the Disclosure Schedule, neither AFC nor any subsidiary of
AFC is a party to or bound by any contract that was not entered into in the
ordinary course of business or that has or may reasonably be expected to have,
in the aggregate with any other contracts, a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole. Neither AFC nor any of
its subsidiaries is a party to or bound by any collective bargaining or similar
labor contract.
SECTION 3.16 INSURANCE ISSUED BY INSURANCE SUBSIDIARIES. Except as
required by law or as set forth in Schedule 3.16 of the Disclosure Schedule,
since December 31, 1993:
(a) except as originated or amended in the ordinary course of business
and as would not have a material adverse effect on the Condition of any
such Insurance Subsidiary, no insurance product or program of any Insurance
Subsidiary has been amended in any material respect or introduced;
(b) all insurance contract obligations incurred by any Insurance
Subsidiary have in all material respects been paid (or provision for
payment has been made therefor) in accordance with the terms of the
contracts under which they arose, except for such obligations for which any
Insurance Subsidiary reasonably believes there is a reasonable basis to
contest payment;
(c) no outstanding insurance contract which would entitle the holder
thereof or any other person to receive dividends, distributions or other
benefits based on the revenues or earnings of any Insurance Subsidiary has
been issued or assumed by any Insurance Subsidiary; and
(d) the underwriting standards utilized and ratings applied by each
Insurance Subsidiary with respect to insurance contracts outstanding as of
the date hereof conform in all material respects to industry accepted
practices (or otherwise are reasonable where no such industry accepted
practices exist) and, with respect to any such contract reinsured in whole
or in part, conform in all material respects to the standards and ratings
required pursuant to the terms of the related reinsurance, coinsurance or
other similar contracts. Except as set forth in Schedule 3.16 of the
Disclosure Schedule, to the knowledge of AFC and the Insurance
Subsidiaries, since the respective date of the most recent financial
examination report of each Insurance Subsidiary: (i) all amounts
recoverable under reinsurance, coinsurance or other similar contracts
(including without limitation amounts based on paid and unpaid losses) are
fully collectible in the ordinary course, net of established reserves as
set forth in the Annual Statements or as reflected in the SEC Filings; (ii)
each insurance agent or broker appointed by AFC or any Insurance
Subsidiary, at the time such agent or broker wrote, sold or produced
business for any Insurance Subsidiary, was duly appointed and, to the best
of AFC's knowledge, duly licensed, as an insurance agent or broker (for the
type of business written, sold or produced by such insurance agent or
broker) in the particular jurisdiction in which such agent or broker wrote,
sold or produced such business for any Insurance Subsidiary, except for
such failures to be so appointed or so licensed which would not, in the
aggregate, have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole; (iii) to the best of AFC's knowledge, no
such insurance agent or broker violated (or with or without notice or lapse
of time or both would have violated) any term or provision of any law or
any writ, judgment, decree, injunction or similar order applicable to the
writing, sale or production of business for any Insurance Subsidiary, the
result of which violations in the aggregate has or
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may reasonably be expected to have a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole and (iv) each
Insurance Subsidiary has all licenses and permits required to conduct its
insurance business and operations as they are currently being conducted.
SECTION 3.17 THREATS OF CANCELLATION. Except as set forth in Schedule 3.17
of the Disclosure Schedule, since January 1, 1993 no policyholder, group of
policyholder affiliates, or persons writing, selling or producing insurance
business, which in the aggregate accounted for 10% or more of the premium income
of any Insurance Subsidiary for the year ended December 31, 1993, has terminated
or, to the knowledge of AFC and the Insurance Subsidiaries, threatened to
terminate its relationship with any Insurance Subsidiary.
SECTION 3.18 OPERATIONS INSURANCE. All liability, property, workers
compensation, directors' and officers' liability, and other similar insurance
contracts that insure the businesses, operations or affairs of AFC or any of its
subsidiaries or affect or relate to the ownership, use, or operations of AFC's
or any of its subsidiaries assets or properties and that have been issued to AFC
or any of its subsidiaries are in full force and effect and, to the knowledge of
AFC and its subsidiaries, are with financially sound and reputable insurers and,
in light of the respective business operations and affairs of AFC and each of
its subsidiaries, are in amounts and provide coverage that are reasonable and
customary for persons in similar businesses.
SECTION 3.19 BUSINESS OF AFC. Except as set forth in the SEC Filings or
Schedule 3.19 of the Disclosure Schedule, AFC is a holding company and does not
conduct any material business operations or affairs other than that of holding
capital stock of its subsidiaries, APZ, and the AFC Affiliates.
SECTION 3.20 JOINT PROXY/REGISTRATION STATEMENT. None of the information
supplied or to be supplied by AFC (including, without limitation, any
information relating to any of the AFC Affiliates) for inclusion or
incorporation by reference in the Joint Proxy/Registration Statement, the AFC
Proxy Statement, and any amendments or supplements thereto, will (i) in the case
of the Registration Statement, at the time it becomes effective and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading, or (ii) (a) in the case of the Proxy Statement, at the time of
the mailing of the Proxy Statement and at the times of the meetings of
shareholders of AFC and APZ described in Sections 2.3 and 2.4, and (b) in the
case of the AFC Proxy Statement, at the time of the delivery of the AFC Proxy
Statement to AFC's shareholders and at the time of the meeting of AFC's
shareholders described in Section 2.3, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to AFC, its officers and directors or
any of its subsidiaries or any AFC Affiliate should occur which is required to
be described in an amendment of, or a supplement to, the Joint
Proxy/Registration Statement, such event shall be so described, and such
amendment or supplement shall be promptly filed with the SEC and, as required by
law, disseminated to the shareholders of AFC and APZ. The Joint
Proxy/Registration Statement will (with respect to AFC) comply as to form in all
material respects with the requirements of the Securities Act and the Exchange
Act. The AFC Proxy Statement will comply as to form in all material respects
with the requirements of Ohio law.
SECTION 3.21 ENVIRONMENTAL MATTERS. (a) Except as set forth in the SEC
Filings or Schedule 3.21 of the Disclosure Schedule (and excluding any
liability, if any, of an Insurance Subsidiary for an Environmental Claim (as
hereinafter defined) which is addressed by representations regarding reserves
set forth in Section 3.7 hereof):
(i) Each of AFC and its subsidiaries is, in all material respects, in
compliance with all Environmental Laws (as hereinafter defined) and has not
received any communication within
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the last three years from a governmental authority that alleges that AFC or
any of its subsidiaries is not in such full compliance;
(ii) There is no Environmental Claim (as hereinafter defined) pending
or, to AFC's best knowledge, threatened against AFC or any of its
subsidiaries or, to AFC's knowledge, pending or threatened against any
person or entity whose liability for any Environmental Claim AFC or any of
its subsidiaries has retained or assumed either contractually or by
operation of law; and
(iii) Except to the extent the same would not have a material adverse
effect on the Condition of AFC and its subsidiaries taken as a whole, there
are no past or present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the release, emission,
discharge or disposal of any Material of Environmental Concern (as
hereinafter defined), that could reasonably be expected to result in any
Environmental Claim against AFC or any of its subsidiaries or against any
person or entity whose liability for any Environmental Claim AFC or any of
its subsidiaries has retained or assumed either contractually or by
operation of law.
(b) "Environmental Claim" means any written notice by any governmental or
regulatory agency, authority or instrumentality alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (i) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned by AFC or any of its
subsidiaries, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Laws.
(c) "Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
(d) "Materials of Environmental Concern" means any substance, material or
waste which is regulated by any governmental authority, including, without
limitation, any material, substance or waste which is defined as a "hazardous
waste," "hazardous material," "hazardous substance," "extremely hazardous
waste," "restricted hazardous waste," "contaminant," "toxic waste" or "toxic
substance" under any law or regulation, including, but not limited to,
petroleum, petroleum products, asbestos, urea formaldehyde and polychlorinated
biphenyls.
SECTION 3.22 STATE TAKEOVER STATUTES. To the best of AFC's knowledge,
other than Ohio Revised Code Section 1701.831 and the Ohio Insurance Holding
Company Systems Act or any comparable state insurance law in other applicable
jurisdictions, no state takeover statute, control share acquisition statute,
business combination statute or similar statute or regulation applies to the
Mergers, this Agreement or any of the transactions contemplated by this
Agreement.
SECTION 3.23 COMPLIANCE WITH BANK REGULATORY MATTERS. AFC has previously
delivered or made available to APZ true and complete copies of all agreements
and undertakings that AFC or any of its subsidiaries has entered into with the
Federal Reserve Bank in connection with The Provident Bank or any other matters.
Each of AFC and its subsidiaries, in all material respects, is in full and
complete compliance with all such agreements and undertakings, and has not
received any communication that alleges AFC or any such subsidiaries is not in
full compliance.
SECTION 3.24 COLLECTIBILITY UNDER REINSURANCE CONTRACTS. All amounts
(including without limitation amounts based on paid and unpaid losses)
recoverable under reinsurance, coinsurance or other similar contracts to which
any Insurance Subsidiary is a party are fully collectible in the ordinary
course, net of established reserves therefor. Each of such contracts is in full
force and
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effect and constitutes a valid and legally binding obligation of each person
that is a party thereto in accordance with its terms.
SECTION 3.25 DISCLOSURE. No representation or warranty contained in this
Agreement or the Disclosure Schedule, and no statement, certificate, schedule,
list or other information furnished or to be furnished by or on behalf of AFC to
APZ in connection with this Agreement, contains or will contain any untrue
statement of a material fact, or omits to state or will omit to state a material
fact necessary in order to make the statements herein or therein not misleading.
The word "material" as used in this Section 3.25 shall mean material to the
Condition of AFC and its subsidiaries taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AFC
PERTAINING TO THE AFC AFFILIATES
AFC represents and warrants to New American Premier and APZ as follows:
SECTION 4.1 CAPITALIZATION. Set forth on Section 4.1 of the Disclosure
Schedule is the capital structure of each of Chiquita Brands International, Inc.
("Chiquita"), Citicasters Inc. ("Citicasters") and American Financial
Enterprises, Inc. ("AFEI") (each of Chiquita, Citicasters and AFEI, an "AFC
Affiliate" and, collectively, the "AFC Affiliates") and the number of shares and
percentage of the capital stock, or other ownership interest, owned of record
and/or beneficially by AFC or any of its subsidiaries in each such AFC
Affiliate. Except as set forth on Schedule 4.1 of the Disclosure Schedule, (i)
all of the outstanding shares of capital stock and other ownership interests of
AFC and any of its subsidiaries in the AFC Affiliates have been validly issued
and are fully paid and nonassessable and are beneficially owned by either AFC or
one of its directly or indirectly wholly owned subsidiaries free and clear of
all liens, charges, claims or encumbrances, (ii) except as disclosed in the
Affiliate SEC Filings (as defined in Section 4.3 hereof), there are no
outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other ownership interest of any of the AFC
Affiliates or securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock or other ownership
interest, or otherwise obligating any such AFC Affiliate to issue, transfer or
sell any such capital stock or other securities or other ownership interest and
(iii) there are no voting trusts or other arrangements or understanding to which
AFC, any subsidiary of AFC or any of the AFC Affiliates is a party with respect
to the voting of the capital stock or other ownership interest of the AFC
Affiliates.
SECTION 4.2 NO VIOLATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) constitute a breach or violation of or default under the Articles of
Incorporation, the By-laws or other charter documents of any AFC Affiliate or
any of its subsidiaries or (ii) violate, conflict with, or result in a breach of
any provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
any AFC Affiliate or any of its subsidiaries under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which any AFC Affiliate or
any of its subsidiaries is a party or to which they or any of their respective
properties or assets may be subject, other than, in the case of clause (ii), (a)
breaches, conflicts or violations that would not have a material adverse effect
on the Condition of AFC and its subsidiaries taken as a whole and (b) the
agreements set forth in Schedule 4.2 of the Disclosure Schedule as to which AFC
shall obtain all necessary consents and/or waivers prior to the Closing, except
where the failure to obtain such consents and/or waivers would not have a
material adverse effect on the Condition of
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AFC and its subsidiaries taken as a whole. The execution, delivery and
performance by AFC of this Agreement and the consummation by AFC of the
transactions contemplated hereby will not constitute a breach or violation of or
default under any law, rule or regulation or any judgment, decree, order,
governmental permit or license to which any AFC Affiliate or any of its
subsidiaries is subject, except to the extent the same would not have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a whole.
SECTION 4.3 SEC REPORTS AND FINANCIAL STATEMENTS. AFC has previously
delivered to APZ true and complete copies of each AFC Affiliate's (i) Annual
Report on Form 10-K for the year ended December 31, 1993, as filed with the SEC,
and all amendments thereto; (ii) Quarterly Reports on Form 10-Q for the periods
ended March 31, 1994, June 30, 1994 and September 30, 1994, as filed with the
SEC; (iii) proxy statements relating to all meetings of its shareholders
(whether annual or special) held or scheduled to be held since January 1, 1994;
and (iv) all other reports, statements and registration statements (including
Current Reports on Form 8-K) filed by it with the SEC since December 31, 1993
(collectively, the "Affiliate SEC Filings"). As of their respective dates, the
Affiliate SEC Filings did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of each AFC Affiliate included in
the Affiliate SEC Filings present fairly, in all material respects, the
financial condition, results of operations and changes in financial position of
such AFC Affiliate as at the dates or for the periods indicated therein in
conformity with GAAP.
SECTION 4.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the Affiliate SEC Filings or Schedule 4.4 of the Disclosure Schedule, since
December 31, 1993, each AFC Affiliate and its subsidiaries has conducted
business only in the ordinary and usual course and there has not occurred any
adverse change in the Condition of the AFC Affiliates and their subsidiaries
taken as a whole that, in the aggregate, may reasonably be expected to have a
material adverse effect on the Condition of AFC and its subsidiaries taken as a
whole.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APZ
APZ represents and warrants to AFC as follows:
SECTION 5.1 ORGANIZATION AND QUALIFICATION.
(a) APZ. APZ is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. All material
subsidiaries of APZ (the "APZ Subsidiaries") are corporations duly organized,
validly existing and in good standing (or the local law equivalent) under the
laws of their jurisdictions of incorporation. APZ and the APZ Subsidiaries have
the requisite corporate power to conduct their businesses as they are currently
being conducted and are duly qualified as foreign corporations (or the local law
equivalent) to do business in the respective jurisdictions where the character
of their properties owned or leased or the nature of their activities makes such
qualification necessary, except to the extent that lack of such qualification
would not have a material adverse effect on the Condition of APZ and its
subsidiaries taken as a whole.
(b) New American Premier Entities. Each of the New American Premier
Entities is a newly formed corporation, duly incorporated and organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. APZ Sub and AFC Sub are each a wholly owned subsidiary of New
American Premier, and each such subsidiary was formed solely for the purpose of
effectuating the Mergers. Except for the activities incident to its organization
and the transactions contemplated by this Agreement, each of the New American
Premier Entities has not engaged in any business activities of any type
whatsoever and has no material assets or liabilities.
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SECTION 5.2 CAPITALIZATION.
(a) APZ. The authorized capital stock of APZ consists of 200,000,000
shares of APZ Common Stock and 23,090,274 shares of preference stock ("APZ
Preferred Stock"). As of November 30, 1994, (i) 47,616,111 shares of APZ Common
Stock were outstanding or issuable, including 1,375,304 shares set aside for
issuance pursuant to APZ's 1978 Plan of Reorganization, (ii) 212,698 shares of
APZ Preferred Stock were issued and outstanding, which are convertible into
446,799 shares of APZ Common Stock and (iii) no shares of APZ Common Stock were
held in APZ's treasury. In addition, as of such date, (i) 446,799 shares of APZ
Common Stock were reserved for issuance upon optional conversion of the
outstanding shares of APZ Preferred Stock and (ii) 5,115,671 shares of APZ
Common Stock were reserved for issuance in connection with the APZ Stock Option
Plan, of which 2,957,291 shares were reserved for issuance upon the exercise of
outstanding APZ Stock Options and 2,158,380 shares were reserved for issuance in
connection with ungranted additional stock options. All of the issued and
outstanding shares of capital stock of APZ are validly issued, fully paid and
nonassessable and are not subject to, nor were they issued in violation of, any
preemptive rights. Since November 30, 1994, APZ has not issued any shares of its
capital stock or additional options to purchase shares of its capital stock
except for the issuance of shares of APZ Common Stock (i) upon exercise of APZ
Stock Options, (ii) in connection with shares issued pursuant to APZ's 1978 Plan
of Reorganization, or (iii) in connection with shares issued pursuant to APZ's
Employee Stock Purchase Plan. Except as set forth above or in Schedule 5.2 of
the disclosure schedule previously delivered by APZ to AFC (the "APZ Disclosure
Schedule"), as of the date hereof, (i) there are no shares of capital stock of
APZ authorized, issued or outstanding and (ii) there are no outstanding
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligating APZ or its subsidiaries,
to issue, transfer or sell, presently or in the future, any shares of the
capital stock or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of the capital stock of APZ.
Except as set forth in the APZ SEC Filings (as defined in Section 5.5 below) or
Schedule 5.2 of the APZ Disclosure Schedule, all of the outstanding shares of
capital stock of each of the APZ Subsidiaries have been validly issued and are
fully paid and nonassessable and are beneficially owned by either APZ or another
of the APZ Subsidiaries free and clear of all liens, charges, claims or
encumbrances. Except as set forth in the APZ SEC Filings or Schedule 5.2 of the
APZ Disclosure Schedule, there are no outstanding subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock of
any of the APZ Subsidiaries or securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of such capital stock, or
otherwise obligating any such APZ Subsidiary to issue, transfer or sell any such
capital stock or other securities. There are no voting trusts or other
agreements or understandings to which APZ or any of its subsidiaries is a party
with respect to the voting of the capital stock of APZ or any of the APZ
Subsidiaries.
(b) New American Premier. The authorized capital stock of New American
Premier consists of 750 shares of New American Premier Common Stock and 100
shares of preferred stock ("New American Premier Preferred Stock"). As of the
date of this Agreement, (i) ten (10) shares of New American Premier Common Stock
were issued and outstanding and owned in the manner set forth in Schedule 5.2 of
the APZ Disclosure Schedule, (ii) no shares of New American Premier Preferred
Stock were issued or outstanding, and (iii) no shares of New American Premier
Stock were held in New American Premier's treasury. All of the issued and
outstanding shares of capital stock of New American Premier and its subsidiaries
are validly issued, fully paid and nonassessable and are not subject to, nor
were they issued in violation of, any preemptive rights. Except as contemplated
by this Agreement, there are no outstanding subscriptions, options, warrants,
calls, rights, convertible securities or other agreements or commitments of any
character obligating New American Premier or its subsidiaries, to issue,
transfer or sell, presently or in the future, any shares of the capital stock or
any securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of the capital stock of New American Premier or its
subsidiaries.
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SECTION 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of APZ and the New
American Premier Entities has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Boards of Directors of each of APZ and the New American Premier Entities
and this Agreement has been approved by the sole shareholders of each of the New
American Premier Entities. A special committee of the Board of Directors of APZ
(the "Special Committee") has adopted resolutions recommending that the full
Board of Directors of APZ approve this Agreement and the APZ Merger, determining
that the terms of this Agreement and the APZ Merger are fair to, and in the best
interest of, the shareholders of APZ Common Stock other than AFC and its
subsidiaries (such shareholders of APZ Common Stock, other than AFC and its
subsidiaries, hereinafter referred to as "APZ's Public Shareholders"). Except
for the approval of this Agreement by the shareholders of APZ, no other
corporate proceedings on the part of APZ or the New American Premier Entities
are necessary to authorize this Agreement and the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by APZ
and each of the New American Premier Entities and (assuming this Agreement is a
valid and binding obligation of AFC) constitutes a valid and binding agreement
of APZ and the New American Premier Entities enforceable against each of them in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) remedies of
specific performance and injunctive and other forms of relief may be subject to
general principles of equity and public policy and to the discretion of the
court before which any proceeding therefor may be brought.
SECTION 5.4 NO VIOLATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) constitute a breach or violation of or default under the Articles of
Incorporation, By-laws or Code of Regulations of APZ or any of the New American
Premier Entities or (ii) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
APZ or any of the New American Premier Entities under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which APZ or any
of the New American Premier Entities is a party or to which they or any of their
properties or assets may be subject, other than, in the case of clause (ii) (a)
breaches, conflicts or violations that would not have a material adverse effect
on the Condition of APZ and its subsidiaries taken as a whole and (b) the
agreements set forth in Schedule 5.4 of the APZ Disclosure Schedule. Other than
in connection with, or in compliance with, the provisions of the PBCL, the OGCL,
the Exchange Act, the Securities Act, and the HSR Act and requirements of the
FCC, the NYSE, the Department of Insurance of Ohio and other insurance
regulatory agencies, (i) the consummation by APZ and the New American Premier
Entities of the transactions contemplated hereby will not require the consent or
approval of any other party to any of the above or affect the validity or
effectiveness of any of the above except for consents or approvals, the failure
to obtain which would not, in the aggregate, have a material adverse effect on
the Condition of APZ and its subsidiaries taken as a whole and (ii) the
execution, delivery and performance by APZ and the New American Premier Entities
of this Agreement and the consummation by APZ and the New American Premier
Entities of the transactions contemplated hereby will not constitute a breach or
violation of or default under any law, rule or regulation or any judgment,
decree, order, governmental permit or license to which APZ or any of the New
American Premier Entities is subject, which would have a material adverse effect
on the Condition of APZ and its subsidiaries taken as a whole.
SECTION 5.5 SEC REPORTS AND FINANCIAL STATEMENTS. APZ has previously
delivered to AFC true and complete copies of its (i) Annual Report on Form 10-K
for the year ended December 31,
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1993, as filed with the SEC, and all amendments thereto; (ii) Quarterly Reports
on Form 10-Q for the periods ended March 31, 1994, June 30, 1994 and September
30, 1994, as filed with the SEC; (iii) proxy statements relating to all meetings
of its shareholders (whether annual or special) held or scheduled to be held
since January 1, 1994; and (iv) all other reports, statements and registration
statements (including Current Reports on Form 8-K) filed by it with the SEC
since December 31, 1993 (collectively, the "APZ SEC Filings"). As of their
respective dates, the APZ SEC Filings did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of APZ included
in the APZ SEC Filings present fairly, in all material respects, the financial
condition, results of operations and changes in financial position of APZ as at
the dates or for the periods indicated therein in conformity with GAAP.
SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the APZ SEC Filings or Schedule 5.6 of the APZ Disclosure Schedule, since
December 31, 1993, each of APZ and the APZ Subsidiaries has conducted its
businesses only in the ordinary and usual course and there has not occurred any
material adverse change in the Condition of APZ and its subsidiaries taken as a
whole.
SECTION 5.7 JOINT PROXY/REGISTRATION STATEMENT. None of the information to
be supplied by APZ and the New American Premier Entities for inclusion or
incorporation by reference in the Joint Proxy/Registration Statement, or any
amendment or supplement thereto, will (i) in the case of the Registration
Statement, at the time it becomes effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
or (ii) in the case of the Proxy Statement, at the time of the mailing of the
Proxy Statement and at the times of the meetings of shareholders of AFC and APZ
described in Sections 2.3 and 2.4, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. If at any time prior to the Effective
Time any event with respect to APZ, its officers and directors, or any of its
subsidiaries or the New American Premier Entities shall occur which is required
to be described in the Joint Proxy/Registration Statement, such event shall be
so described, and an amendment or supplement shall be promptly filed with the
SEC. The Registration Statement will comply (with respect to APZ and the New
American Premier Entities) as to form in all material respects with the
provisions of the Securities Act and the Exchange Act.
ARTICLE VI
CERTAIN COVENANTS
SECTION 6.1 CONDUCT OF BUSINESS PENDING THE MERGERS. AFC covenants and
agrees that, prior to the Effective Time, unless APZ shall otherwise agree in
writing or as otherwise expressly permitted or contemplated by this Agreement:
(a) the business of AFC and its subsidiaries shall be conducted only in the
ordinary course and consistent with past practice and neither AFC nor any of its
subsidiaries shall sell any material properties or assets;
(b) except as provided in Section 6.8 hereof, AFC shall not (i) split,
combine or reclassify any shares of its capital stock or (ii) declare, set aside
or pay any dividend or other distribution or make any payment in cash, stock or
property in respect of any shares of its capital stock other than cash dividends
on the AFC Preferred Stock at presently established rates;
ACQUISITION AGREEMENT
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(c) except as provided in Section 6.8 hereof or as contemplated by the
Shareholders Agreement, neither AFC nor any of its subsidiaries shall (i) amend
its Articles of Incorporation, By-laws, Code of Regulations or other charter
documents, (ii) issue or sell any shares of, or rights of any kind to acquire
any shares of or to receive any payment based on the value of, its capital stock
or any securities convertible into shares of any such capital stock (including,
without limitation, any further stock options or stock appreciation rights),
except upon the exercise of presently outstanding options or rights to acquire
shares of AFC Common Stock, in each case in accordance with their present terms,
or (iii) acquire, directly or indirectly, by redemption or otherwise, any shares
of its capital stock;
(d) each of AFC and its subsidiaries shall use its best efforts to preserve
intact its business organization, to keep available the services of its current
officers and key employees, and to preserve the goodwill of those having
business relationships with it;
(e) neither AFC nor any of its subsidiaries shall agree, in writing or
otherwise, to take any of the actions prohibited by the foregoing clauses (a)
through (d).
SECTION 6.2 REASONABLE EFFORTS. Upon the terms and subject to the
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, to do, or cause to
be done, and to assist and cooperate with the other parties hereto in doing, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement, including, but not limited to, (i)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from all appropriate regulatory agencies or authorities and the making
of all necessary registrations and filings, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, and (iii) the defending of
any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby.
SECTION 6.3 ACCESS AND INFORMATION. Each party hereto shall (and shall
cause each of its subsidiaries to) afford to each other party hereto and such
party's accountants, counsel and other representatives full access during normal
business hours through the period prior to the Effective Time to all of its
properties, books, contracts, commitments and records (including, but not
limited to, tax returns) and, during such period, such party shall furnish
promptly to each other party (i) a copy of each report, schedule and other
document filed or received by it pursuant to the requirement of federal or state
securities laws or state insurance laws and (ii) all other information
concerning its business, properties and personnel as each other party may
reasonably request; provided, however, that no investigation pursuant to this
Section 6.3 shall affect any representations or warranties or the conditions to
the obligations of the parties to consummate the Mergers.
SECTION 6.4 NOTICE OF ACTIONS AND PROCEEDINGS. AFC shall promptly notify
APZ, and APZ shall promptly notify AFC, of any actions, suits, claims,
investigations, or proceedings commenced or, to the best of its knowledge,
threatened against, relating to or involving or otherwise affecting AFC or APZ,
as the case may be, which, if pending on the date hereof, would have been
required to have been disclosed in writing pursuant to Section 3.11 hereof or
which relate to the consummation of the Mergers.
SECTION 6.5 NOTIFICATION OF CERTAIN OTHER MATTERS.
(a) AFC shall promptly notify APZ of:
(i) any notice of, or other communication relating to, a default or
event which, with notice or lapse of time or both, would become a default,
received by AFC, any of its subsidiaries, any AFC Affiliate or any
subsidiary of a AFC Affiliate subsequent to the date of this Agreement and
prior to the Effective Time, under any material agreement to which AFC, any
of its subsidiaries, any AFC Affiliate or any subsidiary of a AFC Affiliate
is a party or to which any such entity or any of its respective properties
or assets may be subject or bound;
ACQUISITION AGREEMENT
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(ii) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection
with the transactions contemplated by this Agreement;
(iii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated hereby; and
(iv) any material adverse change in the Condition of AFC and its
subsidiaries taken as a whole or the occurrence of an event or development
which, so far as reasonably can be foreseen at the time of its occurrence,
could result in any such change.
(b) APZ shall promptly notify AFC of:
(i) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated hereby; and
(iii) any material adverse change in the Condition of APZ and its
subsidiaries taken as a whole or the occurrence of an event or development
which, so far as reasonably can be seen at the time of its occurrence,
could result in any such change.
SECTION 6.6 SUPPLEMENTAL DISCLOSURE. Each party shall have the continuing
right and obligation promptly to supplement or amend its disclosure schedule
with respect to any matter hereafter arising or discovered which, if existing or
known at the date hereof, would have been required to be set forth or described
in its disclosure schedule; provided, however, that for the purpose of the
rights and obligations of the parties hereunder, any such supplemental or
amended disclosure shall not be deemed to have been disclosed as of the date
hereof unless so agreed to in writing by the other party.
SECTION 6.7 REGISTRATION, LISTING AND ISSUANCE OF NEW AMERICAN PREMIER
STOCK. APZ shall use its best efforts to (a) cause the registration of the
issuance of the New American Premier Common Stock to be issued pursuant to this
Agreement under the applicable provisions of the Securities Act and the Exchange
Act and (b) cause the New American Premier Common Stock to be issued pursuant to
this Agreement to be listed for trading on the NYSE. APZ covenants that the New
American Premier Stock issuable pursuant to this Agreement will be duly and
validly authorized and will, upon issuance, be validly issued, fully paid and
nonassessable.
SECTION 6.8 AMENDMENT TO AFC'S ARTICLES OF INCORPORATION. Prior to the
Effective Time, AFC shall cause its Articles of Incorporation to be amended so
as to provide (a) that holders of Series F and Series G AFC Preferred Stock
shall be entitled, effective one day prior to the Effective Time, to one vote
per share, voting with the holders of AFC Common Stock as a single class, on all
matters presented to the shareholders of AFC for their vote, consent or waiver,
including the election of directors, (b) for the authorization of a total of
53,000,000 shares of AFC Common Stock and a new series of non-voting AFC
Preferred Stock as may be required to be issued pursuant to the Shareholders
Agreement, (c) that Section 1701.831 of the OGCL shall not apply to control
share acquisitions of shares of AFC and (d) that shareholders of AFC shall not
have the right to vote cumulatively in the election of directors.
SECTION 6.9 SURVIVAL OF INDEMNIFICATION. To the fullest extent not
prohibited by law, from and after the Effective Time, all rights to
indemnification as of the date hereof in favor of the employees, agents,
directors or officers of APZ, AFC and their respective subsidiaries with respect
to their activities as such prior to the Effective Time, as provided in their
respective Articles of Incorporation, By-laws, Code of Regulations or other
charter documents, in effect on the date thereof or otherwise in effect on the
date hereof, shall survive the Mergers and shall continue in full force and
effect for a period of not less than six years from the Effective Time.
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SECTION 6.10 NO DECONSOLIDATION. New American Premier covenants that it
will not engage voluntarily in any transaction or other action for a period of
two years after the Effective Time that would (i) result in the termination of
AFC's federal consolidated tax group which existed prior to the Mergers, (ii)
involve the stock, or, other than in the ordinary course of business, the assets
(other than the stock of New American Premier), of AFC or any member of AFC's
federal consolidated tax group, or (iii) involve the stock of any AFC Affiliate,
or any subsidiary of AFC that is not a member of AFC's federal consolidated tax
group, and would result, or reasonably could be expected to result, when
combined with any other similar transactions that have been demonstrated to the
satisfaction of the Special Committee (or qualifying successor directors
described below) to be reasonably likely to occur, in a net tax cash cost of
more than $25,000,000, without the approval of the directors comprising the
Special Committee or any successor directors who would be permitted to serve on
an Audit Committee of New American Premier in accordance with the rules
promulgated under The New York Stock Exchange Listed Company Manual.
SECTION 6.11 AMENDMENT TO NEW AMERICAN PREMIER'S ARTICLES OF
INCORPORATION. Immediately prior to the Effective Time, New American Premier
shall cause its Articles of Incorporation to be amended to provide for the
authorization of a total of (i) 200,000,000 shares of New American Premier
Common Stock and (ii) 25,000,000 shares of New American Premier Preferred Stock,
with terms substantially identical in all material respects with the existing
capital structure of APZ.
ARTICLE VII
CONDITIONS
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGERS. The respective obligations of each party to effect the Mergers shall
be subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) this Agreement and the Mergers shall have been approved and
adopted by the requisite vote of the shareholders of AFC and APZ;
(b) no preliminary or permanent injunction or other order, decree or
ruling issued by any court of competent jurisdiction nor any statute, rule,
regulation or order entered, promulgated or enacted by any governmental,
regulatory or administrative agency or authority shall be in effect which
would prevent the consummation of the Mergers or the other transactions
contemplated hereby;
(c) all waiting periods applicable to the consummation of the Mergers
under the HSR Act shall have expired;
(d) the Registration Statement shall have been declared effective and
no stop order suspending effectiveness shall have been issued, no action,
suit, proceeding or investigation by the SEC to suspend the effectiveness
thereof shall have been initiated and be continuing, and all necessary
approvals under federal and state securities laws relating to the issuance
of the New American Premier Stock shall have been received;
(e) the New American Premier Common Stock required to be issued
hereunder shall have been approved for listing on the NYSE, subject to
official notice of issuance;
(f) all actions, nonactions, consents, approvals and waivers from
third parties (including, without limitation, the FCC, the NYSE, banking
regulatory authorities, the Department of Insurance of Ohio or any other
insurance regulatory agencies) necessary or appropriate to consummate the
transactions contemplated by this Agreement shall have been obtained
without imposing any conditions that would have a material adverse effect
on the Condition of (i) AFC and its subsidiaries taken as a whole or (ii)
APZ and its subsidiaries taken as a whole, except to the extent that, if
not obtained, would not result in any such material adverse effect;
ACQUISITION AGREEMENT
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(g) the Special Committee shall have received from Furman Selz
Incorporated an opinion, dated the date of the mailing of the Proxy
Statement and re-dated as of the Effective Time, in customary form, to the
effect that the consideration for the Mergers is fair to APZ's Public
Shareholders from a financial point of view;
(h) the parties shall have received a favorable response to the tax
ruling sought pursuant to Section 2.9 hereof by June 30, 1995 or, in lieu
thereof, to the extent applicable, the exchange of shares of AFC Common
Stock for AFC Preferred Stock shall have taken place in accordance with the
terms and provisions of the Shareholders Agreement;
(i) counsel to APZ shall have delivered to APZ an opinion (dated the
date of the Effective Time and based on facts, representations and
assumptions set forth in such opinion which are consistent with the state
of facts existing at the Effective Time), substantially to the effect that:
(i) no gain or loss will be recognized by APZ, APZ Sub or New American
Premier as a result of the APZ Merger; (ii) no gain or loss will be
recognized by an APZ shareholder who receives shares of New American
Premier Stock pursuant to the APZ Merger; (iii) the tax basis of the shares
of New American Premier Stock owned by a former shareholder of APZ will be
the same as the tax basis of the shares of APZ Common Stock and APZ
Preferred Stock formerly owned by such shareholder; and (iv) the holding
period of the shares of New American Premier Stock received as a result of
the APZ Merger will include the period during which the shares formerly
representing APZ Common Stock and APZ Preferred Stock were held, provided
such shares of APZ Common Stock and APZ Preferred Stock were held as
capital assets immediately prior to the Effective Time (in rendering such
opinion, counsel may require and rely upon representations contained in
certificates of officers of APZ);
(j) counsel to AFC shall have delivered to AFC an opinion (dated the
date of the Effective Time and based on facts, representations and
assumptions set forth in such opinion which are consistent with the state
of facts existing at the Effective Time), substantially to the effect that:
(i) no gain or loss will be recognized by AFC, AFC Sub or New American
Premier as a result of the AFC Merger; (ii) no gain or loss will be
recognized by an AFC shareholder who receives solely shares of New American
Premier Stock pursuant to the AFC Merger; (iii) an AFC shareholder who
receives cash in lieu of a fractional share of New American Premier Stock
pursuant to the AFC Merger will recognize gain to the extent of cash
received; (iv) the tax basis of the shares of New American Premier Stock
owned by a former shareholder of AFC will be the same as the tax basis of
the AFC Common Stock formerly owned by such shareholder minus the cash
received, if any, plus gain recognized on receipt of such cash, if any; and
(v) the holding period of the shares of New American Premier Stock received
as a result of the AFC Merger will include the period during which the
shares formerly representing AFC Common Stock were held, provided such
shares of AFC Common Stock were held as capital assets immediately prior to
the Effective Time (in rendering such opinion, counsel may require and rely
upon representations contained in certificates of officers of AFC); and
(k) a Certificate of Amendment in form and substance reasonably
acceptable to APZ and AFC shall have been filed with the Secretary of State
amending New American Premier's Articles of Incorporation in the manner
contemplated by Section 6.11 hereof.
SECTION 7.2 CONDITIONS TO OBLIGATION OF AFC TO EFFECT THE MERGERS. Unless
waived by AFC in the manner provided in Section 9.6 hereof, the obligation of
AFC to effect the Mergers shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions:
(a) New American Premier and APZ shall have performed and complied in
all material respects with all obligations and agreements required to be
performed and complied with by them under this Agreement at or prior to the
Effective Time and the representations and warranties of New American
Premier and APZ contained in this Agreement shall be true and correct in
all material respects at and as of the Effective Time as if made at and as
of such date, except as otherwise contemplated or permitted by this
Agreement, and AFC shall have received
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a Certificate of the Chairman of the Board, the President or a Vice
President of APZ as to the satisfaction of this condition.; and
(b) AFC shall have received an opinion of counsel to APZ reasonably
satisfactory to AFC, dated as of the Effective Time and in form and
substance reasonably satisfactory to AFC, substantially to the effect that:
(1) Each of APZ and the New American Premier Entities has been duly
organized, and is subsisting and in good standing, as a corporation
under the laws of its respective jurisdiction of incorporation.
(2) Each of APZ and the New American Premier Entities has the
corporate power and corporate authority to enter into this Agreement and
consummate the transactions provided for herein. The execution and
delivery of this Agreement by APZ and the New American Premier Entities,
and the consummation by APZ and the New American Premier Entities of the
transactions provided for herein, have been duly authorized by requisite
corporate action on the part of APZ and the New American Premier
Entities. This Agreement has been executed and delivered by APZ and the
New American Premier Entities and (assuming this Agreement is a valid
and binding obligation of AFC) is a valid and binding obligation of APZ
and the New American Premier Entities enforceable against each of them
in accordance with its terms, except (A) that such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (B) that remedies of specific performance and injunctive
and other forms of relief may be subject to general principles of equity
and public policy and to the discretion of the court before which any
proceeding therefor may be brought.
(3) The execution, delivery and performance by APZ of this
Agreement will not (A) conflict with or result in a breach of any
provision of the Articles of Incorporation or By-laws of APZ, (B),
except as set forth in the APZ SEC Filings, result in, constitute a
violation of or a default under, or cause the creation of any security
interest or lien upon any of the properties or assets of APZ pursuant
to, or cause the acceleration of the maturity of any debt or obligation
of APZ pursuant to, any agreement, instrument, order, judgment or decree
to which APZ is subject and of which such counsel is specifically aware
and which APZ has advised such counsel in connection with this
transaction is material to the Condition of APZ or (C) insofar as is
actually known to such counsel, violate any law, rule or regulation or
any judgment, decree, order, governmental permit or license to which APZ
is subject which would have a material adverse effect on the Condition
of APZ and its subsidiaries taken as a whole.
(4) No facts have come to the attention of such counsel which would
lead such counsel to believe that (except for information relating to
tax or accounting matters and except for the financial statements and
other financial or statistical information contained therein or the
information concerning AFC, its subsidiaries and the AFC Affiliates, as
to which such counsel expresses no opinion), at the respective times the
Joint Proxy/Registration Statement or any amendments or supplements
thereto were declared effective by the SEC or mailed to the respective
shareholders of AFC and APZ, or at the times of the meetings of AFC's
and APZ's shareholders referred to in Sections 2.3 and 2.4 hereof, the
Joint Proxy/Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
As to any matter contained in such opinion which involves the laws of any
jurisdiction other than the federal laws of the United States or the laws of a
state in which such counsel is licensed, such counsel may rely upon opinions of
counsel admitted to practice in such other jurisdictions. Any
ACQUISITION AGREEMENT
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opinions relied upon by such counsel as aforesaid shall be delivered together
with the opinion of such counsel, which shall state that AFC's and such
counsel's reliance thereon is justified. Such opinion may include qualifications
similar to those set forth in Article V hereof and may expressly rely as to
matters of fact upon certificates furnished by appropriate officers and
directors of APZ and its subsidiaries and by public officials.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF APZ AND NEW AMERICAN PREMIER TO
EFFECT THE MERGERS. Unless waived by APZ in the manner provided in Section 9.6
hereof, the obligations of APZ to effect the Mergers shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) AFC shall have performed or complied in all material respects with
all obligations and agreements required to be performed or complied with by
it under this Agreement at or prior to the Effective Time and the
representations and warranties of AFC contained in this Agreement shall be
true and correct in all material respects at and as of the Effective Time
as if made at and as of such date, except as otherwise contemplated or
permitted by this Agreement, and APZ shall have received a Certificate of
the Chairman of the Board or the President of AFC as to the satisfaction of
this condition;
(b) a Certificate of an Amendment to AFC's Articles of Incorporation
shall have been filed with the Secretary of State of Ohio amending AFC's
Articles of Incorporation in the manner contemplated by Section 6.8 hereof;
(c) the AFC Stock Options shall have been exercised with the exercise
price fully paid therefor in cash, or otherwise cancelled, and the Put
shall have been terminated, as provided for in Section 2.1 hereof; and
(d) APZ shall have received an opinion of counsel to AFC reasonably
satisfactory to APZ, dated as of the Effective Time and in form and
substance reasonably satisfactory to APZ, substantially to the effect that:
(1) Each of AFC, its material subsidiaries and the AFC Affiliates
has been duly organized, and is subsisting and in good standing, as a
corporation or other limited liability entity under the laws of its
respective jurisdiction of incorporation or other organization.
(2) AFC has the corporate power and corporate authority to enter
into this Agreement and consummate the transactions provided for herein.
The execution and delivery of this Agreement by AFC, and the
consummation by AFC of the transactions provided for herein, have been
duly authorized by requisite corporate action on the part of AFC. This
Agreement has been executed and delivered by AFC and (assuming this
Agreement is a valid and binding obligation of APZ and the New American
Premier Entities) is a valid and binding obligation of AFC enforceable
against AFC in accordance with its terms, except (A) that such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (B) that remedies of specific
performance and injunctive and other forms of relief may be subject to
general principles of equity and public policy and to the discretion of
the court before which any proceeding therefor may be brought.
(3) The execution, delivery and performance by AFC of this
Agreement will not (A) conflict with or result in a breach of any
provision of the Articles of Incorporation or Code of Regulations of AFC
or any of the charter documents of its subsidiaries, (B), except as
provided in Section 3.4 hereof, result in, constitute a violation of or
a default under, or cause the creation of any security interest or lien
upon any of the properties or assets of AFC or any of its subsidiaries
pursuant to, or cause the acceleration of the maturity of any debt or
obligation of AFC or any of its subsidiaries pursuant to, any agreement,
instrument, order, judgment or decree to which AFC or any of its
subsidiaries is subject and of which such counsel is specifically aware
and which AFC has advised such
ACQUISITION AGREEMENT
31
<PAGE> 32
counsel in connection with this transaction is material to the Condition
of AFC and its subsidiaries taken as a whole or (C) insofar as is
actually known to such counsel, violate any law, rule or regulation or
any judgment, decree, order, governmental permit or license to which AFC
or any of its subsidiaries is subject which would have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a
whole.
(4) To the best knowledge of such counsel, neither the execution
and delivery by AFC of this Agreement nor the consummation by AFC of the
transactions contemplated hereby, nor compliance by AFC with any of the
provisions hereof will require, except for the applicable requirements
of the HSR Act, the Securities Act, the Exchange Act, the FCC, the NYSE,
the Department of Insurance of Ohio and other insurance regulatory
agencies and the filing of appropriate documents to effect the Mergers
as required by the Commonwealth of Pennsylvania and the State of Ohio,
any consent, approval or authorization of, or notice to, or declaration,
filing or registration with, any governmental or regulatory authority
except for consents or approvals, the failure to obtain which would not,
in the aggregate, have a material adverse effect on the Condition of AFC
and its subsidiaries taken as a whole. To the best knowledge of such
counsel, except with respect to the HSR Act, the Securities Act, the
Exchange Act and requirements of the FCC, the NYSE, the Department of
Insurance of Ohio and other insurance regulatory agencies, no consent,
approval or authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority is necessary
in connection with the execution, delivery and performance of this
Agreement or to enable AFC and its subsidiaries to continue to conduct
their entire business, properties and operations after the Effective
Time in a manner which is consistent with that in which they are
presently conducted.
(5) No facts have come to the attention of such counsel which would
lead such counsel to believe that (except for information relating to
tax or accounting matters and except for the financial statements and
other financial or statistical information contained therein or the
information concerning APZ and its subsidiaries, as to which such
counsel expresses no opinion), at the respective times the Joint
Proxy/Registration Statement or any amendments or supplements thereto
were filed declared effective by the SEC or mailed to the respective
shareholders of AFC and APZ, or at the times of the meetings of AFC's
and APZ's shareholders referred to in Sections 2.3 and 2.4 hereof, the
Joint Proxy/Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
As to any matter contained in such opinion which involves the laws of any
jurisdiction other than the federal laws of the United States or the laws of the
State of Ohio, such counsel may rely upon opinions of counsel admitted to
practice in such other jurisdictions. Any opinions relied upon by such counsel
as aforesaid shall be delivered together with the opinion of such counsel, which
shall state that APZ's and such counsel's reliance thereon is justified. Such
opinion may include qualifications similar to those set forth in Article III
hereof and may expressly rely as to matters of fact upon certificates furnished
by appropriate officers and directors of AFC and its subsidiaries and by public
officials.
ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION. This Agreement may be terminated and the Mergers
abandoned at any time prior to the Effective Time, whether before or after
approval of the Mergers by the respective shareholders of AFC and APZ:
ACQUISITION AGREEMENT
32
<PAGE> 33
(a) by mutual consent of the Boards of Directors of APZ and AFC;
(b) by either APZ or AFC if the Mergers shall not have been
consummated on or before June 30, 1995; provided that no party in breach of
its obligations hereunder shall have the right unilaterally to terminate
this Agreement;
(c) by APZ if there shall have occurred any events, changes or
developments which, individually or in the aggregate, have affected or may
affect materially and adversely the Condition of AFC and its subsidiaries
taken as a whole, provided, however, for the purposes of this clause (c), a
material and adverse effect on the Condition of AFC shall not be deemed to
occur solely as a result of market fluctuations in the trading value of
common stock of any AFC Affiliate or APZ;
(d) by AFC if there shall have occurred any events, changes or
developments which, individually or in the aggregate, have affected or may
affect materially and adversely the Condition of APZ and its subsidiaries
taken as a whole, provided, however, for the purposes of this clause (d), a
material adverse effect on the Condition of APZ shall not be deemed to
occur solely as a result of market fluctuations in the trading value of APZ
Common Stock; or
(e) by APZ if the Special Committee determines, after consultation
with legal counsel, that as a result of an event or condition not directly
caused by APZ, pursuant to its fiduciary duties in accordance with
applicable law, this Agreement should be terminated.
SECTION 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement by either APZ or AFC, as provided above, this Agreement shall
thereafter become void and there shall be no liability on the part of any party
hereto against any other party hereto, or their respective directors, officers,
shareholders or agents, except as provided in Section 9.3 hereof and except that
any such termination shall be without prejudice to the rights of any party
hereto arising out of the inaccuracy of any representation or warranty or breach
by any other party of any covenant or agreement contained in this Agreement.
Notwithstanding the foregoing, (i) AFC shall not assert any claim or action
against APZ (or any of its directors, officers, shareholders or agents) or
against any third party, including any action based on tort or other
extra-contractual theories of law or equity, that arises from or is based upon
any act that interferes or allegedly interferes with this Agreement or that
results in the termination of this Agreement pursuant to Section 8.1(e) hereof
and (ii) it is further understood that any supplemental or amended disclosure
made pursuant to Section 6.6 hereof with respect to a matter that did not exist
as of the date hereof and arises hereafter or, to the extent a representation or
warranty is based on a party's knowledge, becomes known for the first time after
the date hereof, shall be deemed a closing condition only and shall not be a
basis for a claim or action that the representations and warranties made herein
are inaccurate.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement shall survive the Effective
Time.
SECTION 9.2 CLOSING. The closing of the Mergers (the "Closing") shall take
place at the offices of Taft, Stettinius & Hollister, 1800 Star Bank Center, 425
Walnut Street, Cincinnati, Ohio 45202 (or at such other place as the parties
shall agree) as promptly as practicable after the later of (i) the meetings of
shareholders of AFC and APZ referred to in Sections 2.3 and 2.4 hereof and (ii)
satisfaction or waiver of all other conditions.
SECTION 9.3 FEES AND EXPENSES. Whether or not the Mergers are consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
or expenses, except that the expenses incurred in
ACQUISITION AGREEMENT
33
<PAGE> 34
connection with the printing of the Joint Proxy/Registration Statement shall be
borne equally by APZ and AFC.
SECTION 9.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if hand delivered,
transmitted by telegram, telex or telecopy or mailed by registered or certified
mail, postage prepaid, return receipt requested, as follows:
(a) If to APZ or any New American Premier Entity, to:
American Premier Underwriters, Inc.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: Robert Olson, Esq.
with copies to:
Alfred W. Martinelli
Chairman of the Special Committee
c/o American Premier Underwriters, Inc.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
and
Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
Attention: Timothy E. Hoberg, Esq.
(b) If to AFC, to:
American Financial Corporation
919 Provident Tower
One East Fourth Street
Cincinnati, OH 45202
Attention: James E. Evans, Esq.
with copy to:
Keating, Muething & Klekamp
1800 Provident Tower
One East Fourth Street
Cincinnati, OH 45202
Attention: Gary P. Kreider, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the other parties in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
SECTION 9.5 AMENDMENTS. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, at any time
before or after the approval of this Agreement by the respective shareholders of
AFC and APZ, but after such approval, there shall be no amendment or
modification that by law requires the approval by such shareholders without the
further approval of such shareholders. This Agreement may not be amended,
modified or supplemented except by written agreement of the parties hereto.
ACQUISITION AGREEMENT
34
<PAGE> 35
SECTION 9.6 WAIVER. At any time prior to the Effective Time, the parties
hereto by action taken by their respective Boards of Directors may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained herein
to the extent permitted by law. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
SECTION 9.7 BROKERS. AFC represents and warrants that no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of AFC. APZ and New American Premier represent
and warrant that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
APZ or New American Premier, except for their financial advisor, Furman Selz
Incorporated.
SECTION 9.8 PUBLICITY. So long as this Agreement is in effect, the parties
hereto shall not, and shall cause their affiliates not to, issue or cause the
publication of any press release or other announcement with respect to the
Mergers or this Agreement without the consent of the other party, which consent
shall not be unreasonably withheld or delayed where such release or announcement
is required by applicable law.
SECTION 9.9 SUBSIDIARIES. When a reference is made in this Agreement to
any subsidiary of APZ, New American Premier, AFC or any AFC Affiliate, the word
"subsidiary" means another entity, an amount of the voting securities, other
voting ownership or voting partnership interests of which is sufficient to elect
at least a majority of its Board of Directors or other governing body (or, if
there are no such voting interests, 50% or more of the equity interests of
which) is owned directly or indirectly by APZ, New American Premier, AFC or such
AFC Affiliate, as the case may be, provided that the word subsidiary shall not
be deemed to include any employee benefit plan for the employees of AFC. For the
purposes of this Agreement, AFEI shall be deemed both an AFC Affiliate and a
subsidiary of AFC.
SECTION 9.10 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.11 NONASSIGNABILITY. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 9.12 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their permitted assigns,
and nothing in this Agreement, expressed or implied, is intended to confer upon
any other person any rights or remedies of any nature under or by reason of this
Agreement, except for Sections 1.4, 1.5, and 6.9
SECTION 9.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an original, but all
of which shall constitute one and the same agreement.
SECTION 9.14 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Ohio, without
regard to its conflicts of law rules, except to the extent the provisions of
this Agreement are expressly governed by or derive their authority from the
PBCL.
SECTION 9.15 REMEDIES FOR BREACH; SPECIFIC PERFORMANCE. Each of the
parties acknowledges and agrees that the other party or parties would be
irreparably damaged in the event any covenant or agreement contained in this
Agreement is not performed in accordance with its specific terms or is otherwise
breached. Accordingly, each of the parties shall be entitled, without bond or
other security, to an injunction or injunctions to enforce specifically this
Agreement and the covenants and
ACQUISITION AGREEMENT
35
<PAGE> 36
agreements contained herein in any action instituted in any court of the United
States or any state thereof having subject matter jurisdiction, in addition to
any other remedy to which such party may be entitled, at law or in equity. Each
party agrees that, should any court or other competent authority hold any
provision of this Agreement or part hereof to be null, void or unenforceable, or
order any party to take any action inconsistent herewith or not take any action
required herein, the other party shall not be entitled to specific performance
of such provision or part hereof or to any other remedy, including money
damages, for breach hereof as a result of such holding or order.
SECTION 9.16 APPROVAL BY SPECIAL COMMITTEE. The approval of the Special
Committee shall be required for (i) any amendment or termination of this
Agreement by APZ, (ii) the waiver of any of APZ's rights or remedies under this
Agreement or (iii) the extension for the time of performance of AFC's
obligations under this Agreement.
SECTION 9.17 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto and supersedes all prior agreements and
understandings, oral or written, among the parties hereto with respect to the
subject matter hereof.
ACQUISITION AGREEMENT
36
<PAGE> 37
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of New American Premier, APZ, APZ Sub, AFC and AFC
Sub on the date first above written.
AMERICAN PREMIER GROUP, INC.
By: /s/ Robert W. Olson
-------------------------
Robert W. Olson
Senior Vice President
ATTEST:
By: /s/ Pamela S. Meyers
-----------------------
Pamela S. Meyers
Assistant Secretary
AMERICAN PREMIER UNDERWRITERS, INC.
By: /s/ Alfred W. Martinelli
---------------------------
Alfred W. Martinelli
Chairman of the Special
Committee of the Board
of Directors
ATTEST:
By: /s/ Pamela S. Meyers
-----------------------
Pamela S. Meyers
Assistant Secretary
AMERICAN PREMIER SUB, INC.
By: /s/ Robert W. Olson
-----------------------
Robert W. Olson
Vice President
ATTEST:
By: /s/ Pamela S. Meyers
-----------------------
Pamela S. Meyers
Secretary
AMERICAN FINANCIAL CORPORATION
By: /s/ Ronald F. Walker
------------------------
Ronald F. Walker
President
ATTEST:
By: /s/ James C. Kennedy
------------------------
James C. Kennedy
Secretary
AFC SUB, INC.
By: /s/ Ronald F. Walker
-------------------------
Ronald F. Walker
President
ATTEST:
By: /s/ James C. Kennedy
------------------------
James C. Kennedy
Secretary
ACQUISITION AGREEMENT
37
<PAGE> 38
EXHIBIT A
SHAREHOLDERS AGREEMENT
Agreement (this "Agreement") entered into as of December , 1994 by and
among the undersigned shareholders (each a "Shareholder" and, collectively, the
"Shareholders"), American Financial Corporation ("AFC"), American Premier
Underwriters, Inc. ("APZ") and American Premier Group, Inc. ("New American
Premier").
WHEREAS, the Shareholders own all of the issued and outstanding common
stock of AFC ("AFC Common Stock") and all the outstanding AFC Stock Options;
WHEREAS, pursuant to an Agreement and Plan of Acquisition and
Reorganization (the "Acquisition Agreement") of even date herewith, subject to
the conditions set forth therein, the parties thereto have agreed to effect the
Mergers, as more specifically set forth in the Acquisition Agreement;
WHEREAS, as a result of the transactions contemplated by the Acquisition
Agreement, the Shareholders will receive shares of New American Premier Common
Stock in exchange for their shares of AFC Common Stock; and
WHEREAS, as a condition to entering into the Acquisition Agreement, APZ and
New American Premier have required the Shareholders and AFC to make certain
agreements and covenants as more particularly set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Defined Terms. Except as otherwise defined in this Agreement, defined
terms shall have respective meanings ascribed to them in the Acquisition
Agreement.
2. Ownership of AFC Common Stock. The Shareholders represent that Schedule
1 attached hereto is a true, accurate and complete list of the shareholders of
AFC Common Stock and holders of AFC Stock Options and each Shareholder's
respective ownership interest thereof.
3. Approval of AFC Merger and Related Transactions. Each Shareholder
covenants that, unless the Acquisition Agreement is terminated in accordance
with the provisions of Article VIII thereof, such Shareholder shall vote all of
his/her/its shares of AFC Common Stock in favor of (a) the AFC Merger at the
meeting of the Shareholders contemplated by Section 2.3 of the Acquisition
Agreement and thereby waive any dissenters rights which such Shareholder may
otherwise be entitled to assert pursuant to Section 1701.85 of the Ohio General
Corporation Law and (b) amending AFC's Articles of Incorporation in the manner
contemplated by Section 6.8 of the Acquisition Agreement.
4. Treatment of AFC Stock Options and the Put. The Shareholders and AFC
hereby amend that certain agreement dated April 15, 1983 between AFC with
certain members of the Lindner family to provide that (a) the outstanding
options (the "AFC Stock Options") relating to the right to purchase 762,500
shares of AFC Common Stock shall be fully vested and immediately exercised for
the then applicable exercise price and, if such AFC Stock Options are not so
exercised with the exercise price fully paid in cash by the Effective Time, such
AFC Stock Options shall be deemed cancelled and (b) the right to put shares of
AFC Common Stock to AFC, as more particularly described in such agreement, shall
be deemed terminated as of immediately prior to the Effective Time.
5. Exchange of AFC Common Stock for AFC Preferred Stock. If AFC and APZ
have either (a) received an unfavorable response to the request for the tax
ruling sought pursuant to Section 2.9 of the Acquisition Agreement or (b) not
received a favorable response to such tax ruling
ACQUISITION AGREEMENT
38
<PAGE> 39
request by June 30, 1995 and AFC has received notice from APZ that all other
conditions to effect the Mergers have been satisfied, and if the value of the
shares of New American Premier Stock that are held by certain former APZ
shareholders ("Certain APZ Shareholders" as defined in paragraph 6 below)
immediately after the Mergers would (absent the exchange of shares described
below) not exceed fifty percent (50%) of the total value of New American Premier
Stock issued and outstanding immediately after the Merger, then the Shareholders
and AFC shall promptly (i) exchange an aggregate number of shares of AFC Common
Stock then held by the Shareholders in exchange for an aggregate number of
validly issued and non assessable shares of non-voting AFC Preferred Stock of a
newly authorized series (as more particularly described below) so that,
immediately after the Mergers, the aggregate value of New American Premier Stock
owned by Certain APZ Shareholders shall exceed fifty percent (50%) of the total
value of New American Premier Stock issued and outstanding immediately after the
Mergers or (ii) take such action or actions as AFC and APZ mutually agree shall
result in the Mergers constituting a reverse acquisition with respect to APZ for
federal consolidated tax return purposes, provided that if no such mutual
agreement is made within fourteen (14) days of the date on which the exchange
hereunder would occur then such exchange shall be carried out as provided in (i)
above. The aggregate liquidation value of the shares of AFC Preferred Stock
received in such exchange by the Shareholders (determined as of the day
immediately prior to the Effective Time) shall equal the value of the additional
shares of New American Premier Common Stock that the Shareholders would have
received as a result of the New American Premier Merger but for the
aforementioned exchange. For the purposes of calculating such value, (i) each
such share of New American Premier Common Stock shall be deemed to have a value
equal to the average of the last reported sales prices, regular way, per share
of APZ Common Stock on the New York Stock Exchange Composite Tape on the ten
consecutive trading days ending with the trading day immediately prior to the
Effective Time and (ii) each share of New American Premier Preferred Stock shall
be deemed to have a value equal to the greater of (x) $44.08 or (y) the value
(calculated as set forth above) of that number of shares of New American Premier
Common Stock into which it is convertible. Each share of such AFC Preferred
Stock shall, when issued, have an annual dividend rate equal to the average
yield per share on Series F of AFC Preferred Stock for the ten consecutive
trading days for such Series F of AFC Preferred Stock ending with the last
trading day occurring immediately prior to the Effective Time. If the
Shareholders cannot agree as to how the exchange of such shares shall be
apportioned among the Shareholders, then AFC Common Stock shall be exchanged for
AFC Preferred Stock on a basis pro-rata to each Shareholder's respective
ownership interest in AFC Common Stock as shown on Schedule 1.
6. Certain APZ Shareholders. For purposes of this Shareholders Agreement,
shares owned by Certain APZ Shareholders includes only shares held by APZ
shareholders other than such shares held by AFC and its subsidiaries but shall
include shares owned by the AFC ESORP.
7. Successors and Assigns. This Agreement shall be binding on the parties
hereto and upon their heirs, executors, administrators, successors and assigns.
8. Amendment. No cancellation, amendment, change or addition to this
Agreement shall be effective unless in writing and signed by each of the parties
hereto.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an original, but all
of which shall constitute one and the same agreement.
ACQUISITION AGREEMENT
39
<PAGE> 40
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the date first above written.
American Financial Corporation
By: ________________________________
American Premier Underwriters, Inc.
By: ________________________________
American Premier Group, Inc.
By: ________________________________
[Signature lines for each Shareholder.]
ACQUISITION AGREEMENT
40
<PAGE> 41
SCHEDULE 1
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER SHARES OWNED OF AFC COMMON STOCK
- ----------------------------------- --------------------------------------------------------
<S> <C>
</TABLE>
ACQUISITION AGREEMENT
41
<PAGE> 1
EXHIBIT 23.1(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of American Premier
Group, Inc. on Form S-4 of our report dated December 9, 1994, appearing in the
Prospectus, which is part of this Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
December 12, 1994
<PAGE> 2
EXHIBIT 23.1(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of American Premier Group, Inc. on Form S-4 of the reports of Deloitte & Touche
dated February 16, 1994 regarding American Premier Underwriters, Inc. appearing
in and incorporated by reference in the Annual Report on Form 10-K of American
Premier Underwriters, Inc. for the year ended December 31, 1993 and to the
reference to Deloitte & Touche LLP under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
December 12, 1994
<PAGE> 1
EXHIBIT 23.2
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Proxy Statement/Prospectus of
American Premier Group, Inc. for the registration of shares of its common stock
and to the incorporation by reference therein of our report dated March 25,
1994, with respect to the consolidated financial statements and schedules of
American Financial Corporation included in its Annual Report (Form 10-K) for the
year ended December 31, 1993, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Cincinnati, Ohio
December 12, 1994
<PAGE> 1
Exhibit 99.1
[LETTERHEAD OF FURMAN SELZ]
December 12, 1994
Special Committee of the Board of Directors
American Premier Underwriters, Inc.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Gentlemen:
We understand that American Premier Sub, Inc. ("American Premier Sub"), a
wholly-owned subsidiary of New American Premier Group, Inc. ("New American
Premier"), will merge with American Premier Underwriters, Inc. ("American
Premier") and that AFC Sub, Inc. ("AFC Sub"), a wholly-owned subsidiary of New
American Premier, will merge with American Financial Corporation ("AFC") in
simultaneous transactions pursuant to which the outstanding shares of common
stock of American Premier ("American Premier Common Stock") and the outstanding
shares of common stock of AFC will be converted into shares of common stock of
New American Premier ("New American Premier Common Stock") at specified exchange
ratios (collectively, the "Exchange Ratios") under terms and conditions set
forth in an Agreement and Plan of Acquisition and Reorganization (Merger
Agreement) dated December 9, 1994 (the "Merger Agreement") entered into by and
among New American Premier, American Premier, American Premier Sub, AFC and AFC
Sub (the "Acquisition"). The terms and conditions of the Acquisition will be set
forth in more detail in the Merger Agreement.
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, of the Exchange Ratios to the holders of
American Premier Common Stock, other than AFC and its affiliates. In conducting
our analysis and arriving at our opinion as expressed herein, we have reviewed
and analyzed, among other things, the following:
(i) the Merger Agreement;
(ii) publicly available information concerning American Premier, AFC
and certain affiliates of AFC which Furman Selz believed to be relevant to
its inquiry;
(iii) financial and operating information with respect to the
business, operations and prospects of AFC, including actuarial analyses of
Great American Insurance Company and American Annuity Group, Inc. prepared
by Milliman & Robertson, all furnished to Furman Selz by AFC and American
Premier;
(iv) financial and operating information with respect to the business,
operations and prospects of American Premier furnished to Furman Selz by
American Premier;
(v) the common stock price and trading histories of American Premier
Common Stock and the common stock of certain publicly traded affiliates of
AFC;
(vi) a comparison of the financial positions and operating results of
American Premier, AFC and certain affiliates of AFC, and of the common
stock price trading histories of American Premier and certain affiliates of
AFC, with those of publicly traded companies Furman Selz deemed relevant;
(vii) a comparison of certain financial terms of the Acquisition to
certain financial terms of selected other business combinations Furman Selz
deemed relevant;
(viii) analyses of the respective contributions in terms of assets,
liabilities and earnings of American Premier and AFC to New American
Premier and the relative ownership of New American Premier after the
Acquisition by the current stockholders of American Premier and AFC;
(ix) analyses of other potential pro forma financial effects of the
Acquisition; and
1
<PAGE> 2
(x) synergies and other potential benefits arising from the
Acquisition.
We have also met with certain officers and employees of American Premier,
AFC and certain affiliates of AFC concerning their respective businesses,
operations, assets, present condition and future prospects and undertook such
other studies, analyses and investigations as we deemed appropriate. Our opinion
is limited insofar as we were not furnished with financial projections with
respect to Chiquita Brands International, Inc. ("Chiquita") as we were advised
by management of Chiquita that it was not feasible to develop reliable
projections of future operating results for Chiquita due to uncertainties
regarding its business.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us in arriving
at our opinion and have not assumed responsibility for any independent
verification of such information. We have not conducted any independent
evaluation or appraisal of the properties, assets, liabilities or reserves of
American Premier or AFC, nor have we conducted any independent actuarial
evaluations. In addition, we have assumed that the financial projections
prepared by the managements of American Premier and AFC represent the best
current judgment of their respective managements as to the future financial
condition and results of operations of American Premier and AFC, respectively,
and have assumed that the projections have been reasonably prepared based on
such current judgment.
We have also taken into account our assessment of general economic, market,
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion necessarily is
based upon regulatory, economic, market and other conditions as they exist on,
and the information made available to us as of, the date hereof. In addition, we
have assumed, with your consent, the Merger would be accounted for as if AFC had
acquired American Premier in a transaction accounted for a purchase. We further
assumed, with your consent, that, in the course of obtaining necessary
regulatory approvals for the Acquisition, no restrictions would be imposed that
would have a material adverse effect on the contemplated benefits of the
Acquisition to American Premier following the Merger.
We are not expressing any opinion as to what the value of New American
Premier Common Stock actually will be when issued to the shareholders of
American Premier and AFC pursuant to the Acquisition or the price at which the
New American Premier Common Stock will trade subsequent to the Acquisition.
Furman Selz will receive fees for its services to American Premier in
connection with the Acquisition, including a fee upon the inclusion of this
opinion in a proxy statement mailed by American Premier in connection with a
meeting of its shareholders to vote on the Acquisition. In addition, American
Premier has agreed to indemnify Furman Selz for certain liabilities arising from
the delivery of this opinion. We have previously acted as financial advisor to
American Premier and, in the ordinary course of our business, may trade the
equity and debt securities of American Premier and AFC for our own account, and
the account of our customers and, accordingly, may at any time hold a long or
short position in such securities for the accounts of our customers, the firm
and/or the officers of the firm.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, from a financial point of view, the Exchange Ratios are fair to
the holders of American Premier Common Stock, other than AFC and its affiliates.
Very truly yours,
FURMAN SELZ INCORPORATED
2
<PAGE> 1
Exhibit 99.2
APPENDIX A
GREAT AMERICAN POOL
TECHNICAL APPENDIX
<PAGE> 2
AMERICAN PREMIER UNDERWRITERS, INC.
ANALYSIS OF SEPTEMBER 30, 1994
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
FOR
GREAT AMERICAN INSURANCE GROUP
Prepared for:
Special Committee of the Board of Directors
American Premier Underwriters, Inc.
Prepared by:
Joy A. Schwartzman, FCAS, Consulting Actuary
Spencer Gluck, FCAS, Consulting Actuary
Jay Votta, FCAS, Consulting Actuary
Milliman & Robertson, Inc.
December 9, 1994
<PAGE> 3
<TABLE>
GREAT AMERICAN INSURANCE GROUP
------------------------------
ANALYSIS OF SEPTEMBER 30, 1994
------------------------------
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
-----------------------------------------
TABLE OF CONTENTS
-----------------
<CAPTION>
PAGE
----
<S> <C>
SCOPE OF ENGAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY OF FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
EXHIBIT
-------
GAIG LOSS AND LAE RESERVE . . . . . . . . . . . . . . . . . . . . . . . 1
POOL LOSS AND LAE RESERVE . . . . . . . . . . . . . . . . . . . . . . . 2
TRANSPORT INSURANCE GROUP LOSS AND LAE RESERVE . . . . . . . . . . . . 3
STONEWALL INSURANCE COMPANY LOSS AND LAE RESERVE . . . . . . . . . . . 4
AESLIC LOSS AND LAE RESERVE . . . . . . . . . . . . . . . . . . . . . . 5
MID-CONTINENT LOSS AND LAE RESERVE . . . . . . . . . . . . . . . . . . 6
POOL: COMPARISON OF LOSS RESERVE POSITION . . . . . . . . . . . . . . 7
POOL: COMPARISON OF LOSS, ALAE, AND
ULAE RESERVES (SHEETS 1-3) . . . . . . . . . . . . . . . . . 8
POOL: SUMMARY OF LOSS RATIOS AND LOSS RATIOS
BY LINE OF BUSINESS (SHEETS 1-14) . . . . . . . . . . . . . 9
SUBSIDIARIES: LOSS RATIOS BY COMPANY (SHEETS 1-4) . . . . . . . . . . 10
GAIG LOSS RATIO SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . 11
APPENDIX
--------
GREAT AMERICAN POOL TECHNICAL APPENDIX . . . . . . . . . . . . . . . . A
SUBSIDIARIES TECHNICAL APPENDIX . . . . . . . . . . . . . . . . . . . . B
</TABLE>
<PAGE> 4
SCOPE OF ENGAGEMENT
- -------------------
Milliman & Robertson, Inc. (M&R) has been engaged by the Special Committee of
the Board of Directors of American Premier Underwriters, Inc. to conduct an
independent analysis of the net loss and loss adjustment expense (LAE) reserves
for the Great American Insurance Group (GAIG). This report discusses M&R's
findings with regard to reserve adequacy net of all retrocessions as of
September 30, 1994. This analysis excludes liabilities associated with
asbestos and environmental (A&E) exposures, with the exception of the
liabilities for the asbestos abatement and environmental impairment liability
programs written by GAIG.
This report contains the results of complex actuarial projections. In order to
fully comprehend this report, readers unfamiliar with actuarial analyses should
be aided by a professional who is familiar with actuarial projection
techniques. This report must be read in its entirety to be understood.
There is an important discussion of the LIMITATIONS on our analysis beginning
on page 5 of this report.
This report is intended for the Special Committee of the Board of Directors of
American Premier Underwriters, Inc. and their advisors. No other distribution,
in whole or in part, is authorized without the prior written consent of M&R.
M&R is available to answer any questions pertaining to this report.
Throughout this report all references to losses, loss reserves and incurred but
not reported (IBNR) reserves are intended to include both loss and LAE, unless
otherwise specified.
- 3 -
<PAGE> 5
IBNR reserves are defined to include both reserves for unreported claims and
adverse reserve development on reported claims.
SUMMARY OF FINDINGS
- -------------------
1. As of September 30, 1994, GAIG is carrying net statutory loss and LAE
reserves of $2,180 million. These reserves include $130.5 million of
reserves earmarked for A&E exposures. On the remaining $2,049 million of
loss and LAE reserves, M&R indicates an undiscounted reserve redundancy of
$100.7 million or 4.9%. (See Exhibit 1.)
2. The carried reserves of $2,049 million are comprised of $1,706 million for
the Great American Pool (Pool) and $323 million for the subsidiaries:
Transport, Stonewall Runoff, American Empire Surplus Lines (AESLIC) and
Mid-Continent. There are also carried reserves of $20.4 million for
National Interstate Insurance Company which is 51% owned by GAIC and
consolidated into the statutory financial statements. The reserve
redundancy of $100.7 million is split $57.0 million for the Pool, $43.0
million for the subsidiaries and $0.7 million for National Interstate.
The reserve redundancy for the subsidiaries resides primarily in AESLIC.
3. The composition of the reserve redundancy by business segment for the Pool
is provided in Exhibit 2. While the reserves for the Pool are redundant in
total, the redundancy is composed of reserve redundancies and deficiencies
by line of business. The business segments with the larger reserve
redundancies are
- 2 -
<PAGE> 6
directors & officers (D&O) and general liability. The largest reserve
deficiency resides with commercial multi-peril (CMP).
4. The discontinued or run-off operations within the Pool are Great American
Reinsurance (GA Re) and Constellation. GA Re represents assumed
reinsurance written by GAIG for the period 1979-1983. Constellation was
owned by GAIG until it was sold on October 1, 1977. GAIG provided an
unlimited stop loss reinsurance treaty for loss reserves above a designated
retention as a term of the sale. Constellation claims have pierced the
retention, and as a result, all liabilities for accidents occurring prior
to October 1, 1977 are assumed by GAIG. M&R indicates a reserve deficiency
of $9.8 million for GA Re and $7.0 million for Constellation.
5. We have compared the results of the M&R reserve review to the results of
the GAIG internal reserve analysis for the business segments for which GAIG
has completed their review at September 30, 1994. Exhibit 8, Sheet 1,
shows that M&R developed a reserve redundancy of $44.3 million on an $847.5
million of carried loss (case plus IBNR) reserves. GAIG's indication for
this same business is a $30.6 million redundancy as shown in Exhibit 7.
Therefore, M&R has developed a reserve redundancy $13.7 million greater
than GAIG's redundancy.
For these same business segments, M&R developed a $32.3 million
deficiency in ALAE reserves and a $6.9 million redundancy for ULAE
reserves. GAIG has not completed their LAE reserve review at
September 30, 1994 for these business segments.
- 3 -
<PAGE> 7
6. The ultimate accident year loss and ALAE ratios implied by the ultimate
losses underlying our reserve indications for all continuing operations
within the Pool are provided in Exhibit 9, Sheets 1-14. The ultimate loss
and ALAE ratios for the Pool (which excludes the subsidiaries) are as
follows:
<TABLE>
<CAPTION>
NET EARNED
ACCIDENT PREMIUM LOSS AND
YEAR (MILLIONS) ALAE RATIO
-------- ---------- ----------
<S> <C> <C>
1990 $ 943.6 61.41%
1991 966.5 57.10
1992 985.8 56.16
1993 1,018.2 57.16
1994 786.2* 62.94
<FN>
* Through September 30, 1994
</TABLE>
We observe a jump in loss ratios for 1994 which is attributable to
CMP/Safepack, general liability/products liability/umbrella, fire,
inland marine and D&O liability.
7. The components of the M&R indicated reserve for each of the four
subsidiaries, Transport, Stonewall, AESLIC and Mid-Continent, are
provided in Exhibits 3-6. While the reserve indication was
computed by business segment, the carried reserves are available
only for each subsidiary.
The implied ultimate accident year loss and allocated loss
adjustment expense (ALAE) ratios using the ultimate loss estimates
underlying our reserve indications are provided in Exhibit 10,
Sheet 1-4. A discussion of the methods underlying our reserve
review for the subsidiaries is provided in Appendix B.
- 4 -
<PAGE> 8
8. The underlying details of our reserve analysis for the Pool, including a
discussion of our methodology and key assumptions, are provided in Appendix
A of this report.
9. The loss and ALAE ratios by accident for the Pool companies plus the
subsidiaries are provided in Exhibit 11.
LIMITATIONS
- -----------
1. We relied on and used data and other information supplied by GAIG. We did
not audit or otherwise verify such data or information. To the extent that
such information and data are inaccurate, the results of our review will
also be inaccurate.
2. Our projections of reserve adequacy are based on reasonable actuarial
procedures. However, projections of future events are uncertain and actual
results will likely vary from these projections, perhaps materially.
3. The M&R indicated reserves are net of ceded reinsurance and, except for
instances when a business unit carries a specific reserve for uncollectible
reinsurance, assume that all reinsurance cessions as evaluated by GAIG are
valid and collectible. The reserve estimate does not consider any
contingent liabilities that could arise if the retrocessionaires do not
meet their obligations to GAIG.
- 5 -
<PAGE> 9
4. There are certain business segments in runoff for which historical data is
limited or unavailable, specifically Constellation Reinsurance, Stonewall
Insurance Company, and the special risk, motor carrier business and workers
compensation business segments of Transport Insurance Company. As a
result, standard actuarial procedures could not be applied. We developed
our reserve estimate by supplementing the data provided to us with data
from other sources available to M&R. While we have tried to obtain a
reasonable matching of external and internal data, there is currently no
way to test the validity of our assumptions. As a result, there is
additional uncertainty associated with our reserve estimates for Stonewall
Insurance Company, Constellation Reinsurance and the runoff business
segments of Transport Insurance Company.
5. There are approximately $195 million of carried reserves in the Great
American Pool included in the "Other Reserves" business segment for which
M&R was provided no information. More than 50% of these reserves are
represented by pools such as the National Compensation Reinsurance Pool,
which is a residual market facility for workers compensation risks, and the
IRI Pool which is a pool for large highly protected property risks. GAIG
has represented to M&R that they book the reserves that are reported to
them by the pools, thereby assuming that the reported reserves are
sufficient. This is a fairly common practice within the insurance
industry. M&R has included no reserve redundancy or deficiency for these
business segments. M&R has not performed any analysis to determine the
reasonableness of the reported reserves.
6. There are approximately $24 million of carried case reserves in the
subsidiaries Transport and AESLIC for which M&R was provided no
information. GAIG
- 6 -
<PAGE> 10
does not carry IBNR reserves for these business segments, so there is no
provision for future reported claims. M&R has not included any reserve
redundancy or deficiency for these business segments due to the lack of
information and the magnitude of the carried reserves. M&R has not
performed any analysis to determine the reasonableness of the reported
reserves. However, based on a brief description of the business underlying
the case reserves, there is likely to be adverse reserve development on
some of the segments. M&R's reserve indication for the subsidiaries does
not consider this potential reserve deficiency.
7. This report is intended for the Special Committee of the Board of Directors
of American Premier Underwriters, Inc. and their advisors. No other
distribution, in whole or in part, is authorized without the prior written
consent of M&R. M&R is available to answer any questions pertaining to
this report.
- 7 -
<PAGE> 11
<TABLE>
Exhibit 1
GREAT AMERICAN INSURANCE GROUP
Loss and Loss Adjustment Expense Reserve
Net of Reinsurance
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
<CAPTION>
(1) (2) (3) (4) (5)
= (1) - (2) = (3) - (4)
Total A&E (a) Loss & LAE M&R Indicated
Loss & LAE Loss & LAE Reserves Loss & LAE
Reserves Reserves Excluding A&E Reserves
Carried Carried Carried Excluding A&E Redundancy
at 9/30/94 at 9/30/94 at 9/30/94 at 9/30/94 / (Deficiency)
----------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
GREAT AMERICAN POOL 1,767,431 61,362 1,706,069 1,649,029 57,040
GAIC SUBSIDIARIES
Transport 15,022 224 14,798 14,184 614
Stonewall Runoff 99,604 61,963 37,641 37,465 176
Amer Empire Surplus Lines 215,182 6,573 208,609 164,953 43,656
Mid-Continent 62,213 352 61,861 63,342 (1,481)
------------- ----------- ----------- ------------ ------------ --------------
Subtotal 392,021 69,112 322,909 279,944 42,965
TOTAL 2,159,452 130,474 2,028,978 1,928,973 100,005
National Interstate Insurance (b) 20,371 0 20,371 19,682 689
GRAND TOTAL 2,179,823 130,474 2,049,349 1,948,655 100,694
<FN>
Notes:
(a) A&E represents asbestos and environmental
(b) Great American Insurance Group owns 51% of National Interstate Insurance Company.
The reserve values represent the 100% company reserves.
</TABLE>
<PAGE> 12
<TABLE>
Exhibit 2
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Net of Reinsurance
Excluding Asbetsos and Environmental Exposures
(amounts in $000's)
<CAPTION>
(1) (2) (3)
= (1) - (2)
Total M&R
Loss & LAE Indicated
Reserves Loss & LAE
Carried Reserves Redundancy
at 9/30/94 at 9/30/94 / (Deficiency)
------------- ------------ --------------
<S> <C> <C> <C>
GREAT AMERICAN
- --------------
Workers' Comp 218,290 211,102 7,188
CMP (incl. Safepak) 280,566 300,732 (20,166)
Auto Liability 250,025 227,755 22,270
General Liability (incl. CUB) 225,594 191,844 33,750
Fire 2,539 1,160 1,379
Homeowners 24,788 31,919 (7,131)
Ocean Marine 18,158 30,227 (12,069)
Inland Marine 21,280 20,991 289
Auto Physical Damage 5,138 1,501 3,637
Misc. Schedule O 3,531 16,590 (13,059)
Misc. Other P & L 4,862 2,065 2,798
Cats 5,236 5,236 0
----------------------------- -------- -------- --------
Subtotal 1,060,007 1,041,122 18,885
GAIC - OTHER
- ------------
D&O 205,236 157,910 47,326
Eden Park 19,148 20,813 (1,665)
Agricultural E & S 40,515 40,982 (467)
Transport & Tico Assumed 79,516 77,895 1,621
NSA Stop-Loss 5,000 5,000 0
* GA Re Inc. 20,887 30,680 (9,793)
* Constellation 34,467 41,424 (6,957)
Legal Professional 12,519 18,168 (5,649)
Asbestos Abatement 31,411 17,672 13,739
Lender's 391 391 0
Non-reviewed 195,527 195,527 0
----------------------------- -------- -------- --------
Subtotal 644,617 606,462 38,155
CARRIED RESERVE
RECONCILIATION DISCREPANCY 1,445 1,445 0
- --------------------------
TOTAL 1,706,069 1,649,029 57,040
<FN>
* Discontinued Operations
</TABLE>
<PAGE> 13
Exhibit 3
GREAT AMERICAN INSURANCE GROUP
Transport Insurance Group
Net of Reinsurance
Excluding Asbetsos and Environmental Exposures
(amounts in $000's)
<TABLE>
<CAPTION>
(1) (2) (3)
Total M&R
Loss & LAE Indicated
Reserves Loss & LAE Redundancy
Carried Reserves /(Deficiency)
Line of Business at 9/30/94 at 9/30/94 (1) - (2)
- ---------------- ---------- ---------- ---------
<S> <C> <C> <C>
Large Fleet Automobile Liability $34,539
Large Fleet Automobile Physical Damage 251
Small Fleet Automobilie Liability 9,827
Small Fleet Automobile Physical Damage 61
Non-Standard Automobile Liability 7,708
Non-Standard Automobile Physical Damage 556
Workers' Compensation 15,606
Commercial Automobile Liability and
Workers' Compensation (Motor Carrier) 19,241
Special Risk (Motor Carrier) 14,350
Subtotal $102,139
Other Cessions (a) (107,031)
Reserves for $4M excess $1M 2,809
Other Assumptions 0
Environmental (224)
Non-Reviewed 16,491
Total $14,798 $14,184 $614
<FN>
Notes:
(a) Other cessions include $76.8 million to Great American, $14.4 million of
Special Risk to American Empire Surplus Lines Insurance Company, and
$15.9 million of Motor Carrier to American Empire Surplus Lines Insurance
Company.
</TABLE>
<PAGE> 14
Exhibit 4
GREAT AMERICAN INSURANCE GROUP
Stonewall Insurance Company
(in Runoff)
Net of Reinsurance
Excluding Asbetsos and Environmental Exposures
(amounts in $000's)
(1) (2) (3)
Total M&R
Loss & LAE Indicated
Reserves Loss & LAE Redundancy
Carried Reserves /(Deficiency)
Line of Business at 9/30/94 at 9/30/94 (1) - (2)
- ---------------- ---------- ---------- ---------
Primary Buffer $2,962
Excess & Umbrella 27,088
DIA - Los Angeles 4,449
DIA - London 2,966
Subtotal $37,465
Other Cessions 0
Other Assumptions 0
Environmental 0
Non-Reviewed 0
Total $37,641 $37,465 $176
<PAGE> 15
<TABLE>
Exhibit 5
GREAT AMERICAN INSURANCE GROUP
American Empire Surplus Lines Insurance Company
Net of Reinsurance
Excluding Asbetsos and Environmental Exposures
(amounts in $000's)
<CAPTION>
(1) (2) (3)
Total M&R
Loss & LAE Indicated
Reserves Loss & LAE Redundancy
Carried Reserves /(Deficiency)
Line of Business at 9/30/94 at 9/30/94 (1) - (2)
- ---------------- ---------- ---------- ---------
<S> <C> <C> <C>
Combined Property Lines $1,933
Short Tail Casualty 43,306
Asbestos Abatement 1,766
Claims Made 993
Long Tail Casualty 23,338
Medical Professional 306
Naughton Programs 16,262
Self Insured Retention 12,460
Facultative Reinsurance 3,295
Long Tail Fidelity (Fidelity Environmental) 11,276
Short Tail Fidelity (Fidelity Environmental) 7,103
Buffer Liability (Stonewall Surplus Lines Insurance Company) 487
Claims Made (Stonewall Surplus Lines Insurance Company) 175
Primary Oil (Stonewall Surplus Lines Insurance Company) 765
Primary Property and Casualty (Stonewall Surplus Lines Insurance Company) 1,780
Self Insured Retention Auto (Stonewall Surplus Lines Insurance Company) 508
Self Insured Retention Non-Auto (Stonewall Surplus Lines Insurance Company) 562
Umbrella (Stonewall Surplus Lines Insurance Company) 3,589
Subtotal $129,904
Other Cessions 0
Other Assumptions (b) 35,648
Environmental (6,573)
Non-Reviewed (a) 5,974
Total $208,609 $164,953 $43,656
<FN>
Notes:
(a) The non-reviewed reserves include $5 million for TID solvency,
$1.114 million for commutations, $1 million for 1984 and prior, and
a credit $1.14 million for salvage and subrogation.
(b) Other assumptions include $5.4 million from Republic Indemnity of
California, $15.9 million from Transport Motor Carrier, and $14.4
million from Transport Special Risk.
</TABLE>
<PAGE> 16
<TABLE>
Exhibit 6
GREAT AMERICAN INSURANCE GROUP
Mid-Continent Insurance Company
Net of Reinsurance
Excluding Asbetsos and Environmental Exposures
(amounts in $000's)
<CAPTION>
(1) (2) (3)
Total M&R
Loss & LAE Indicated
Reserves Loss & LAE Redundancy
Carried Reserves /(Deficiency)
Line of Business at 9/30/94 at 9/30/94 (1) - (2)
- ---------------- ---------- ---------- ---------
<S> <C> <C> <C>
Personal Automobile Liability $7,140
Commercial Automobile Liability 15,002
Automobile Physical Damage 844
Workers' Compensation 18,947
Other Liability 14,468
Products Liability 1,312
Property 804
Surety & Fidelity 482
Umbrella 587
Automobile Liablity (Oklahoma Surety) 2,118
Automobile Physical Damage (Oklahoma Surety) 127
Subtotal $61,831
Other Cessions 0
Other Assumptions 0
Environmental (352)
Non-Reviewed (a) 1,863
Total $61,861 $63,342 ($1,481)
<FN>
Notes:
(a) Non-reviewed reserves include case reserve for large deductibles
plus reconciliation items.
</TABLE>
<PAGE> 17
<TABLE>
Exhibit 7
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Net of Reinsurance
Excluding Asbetsos and Environmental Exposures
(amounts in $000's)
<CAPTION>
(1) (2) (3)
= (2) - (1)
GAIC M&R
Indicated Indicated
Loss Reserve Loss Reserve
Position Position
at 9/30/94 at 9/30/94 Difference
------------ ------------ ----------
<S> <C> <C> <C>
GREAT AMERICAN
- --------------
Workers' Comp 1,621 2,072 451
CMP 16,622 5,688 (10,934)
Auto Liability 25,544 23,005 (2,539)
General Liability (incl. CUB) 3,466 24,812 21,346
Fire 1,241 851 (390)
Homeowners (1,437) (4,708) (3,271)
Ocean Marine (13,323) (8,779) 4,544
Inland Marine 885 1,031 146
Auto Physical Damage (1,027) 3,904 4,931
Misc. Schedule O (4,974) (6,000) (1,026)
Misc. Other P & L 1,992 2,392 400
Cats 0 0 0
------------------------------- ------- ------- -------
Subtotal 30,610 44,268 13,658
</TABLE>
<PAGE> 18
<TABLE>
Exhibit 8
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Net of Reinsurance
Excluding Asbetsos and Environmental Exposures
(amounts in $000's)
Comparison of M&R to Carried Loss Reserves
<CAPTION>
(1) (2) (3)
= (1) - (2)
GAIC M&R
Carried Indicated
Loss Reserve Loss Reserve Redundancy
at 9/30/94 at 9/30/94 /(Deficiency)
-------------- -------------- ---------------
<S> <C> <C> <C>
GREAT AMERICAN
- --------------
Workers' Comp 183,877 181,805 2,072
CMP 196,363 190,675 5,688
Auto Liability 220,660 197,655 23,005
General Liability (incl. CUB) 176,331 151,519 24,812
Fire 1,777 926 851
Homeowners 20,674 25,382 (4,708)
Ocean Marine 14,339 23,118 (8,779)
Inland Marine 17,760 16,729 1,031
Auto Physical Damage 3,831 (73) 3,904
Misc. Schedule O 2,883 8,883 (6,000)
Misc. Other P & L 3,778 1,386 2,392
Cats 5,236 5,236 0
-------------------------------- --------- --------- ---------
Subtotal 847,509 803,241 44,268
</TABLE>
<PAGE> 19
<TABLE>
Exhibit 8
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Net of Reinsurance
Excluding Asbetsos and Environmental Exposures
(amounts in $000's)
Comparison of M&R to Carried ALAE Reserves
<CAPTION>
(1) (2) (3)
= (1) - (2)
GAIC M&R
Carried Indicated
ALAE Reserve ALAE Reserve Redundancy
at 9/30/94 at 9/30/94 /(Deficiency)
------------- -------------- ---------------
<S> <C> <C> <C>
GREAT AMERICAN
- --------------
Workers' Comp 14,942 14,128 814
CMP 67,475 94,437 (26,962)
Auto Liability 17,083 17,961 (878)
General Liability (incl. CUB) 38,966 31,989 6,977
Fire 321 208 113
Homeowners 2,522 4,641 (2,119)
Ocean Marine 3,164 5,539 (2,375)
Inland Marine 2,814 3,916 (1,102)
Auto Physical Damage 348 1,424 (1,076)
Misc. Schedule O 346 6,471 (6,125)
Misc. Other P & L 1,035 578 457
Cats 0 0 0
--------------------------------- -------- -------- --------
Subtotal 149,016 181,292 (32,276)
</TABLE>
<PAGE> 20
<TABLE>
Exhibit 8
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Net of Reinsurance
Excluding Asbetsos and Environmental Exposures
(amounts in $000's)
Comparison of M&R to Carried ULAE Reserves
<CAPTION>
(1) (2) (3)
= (1) - (2)
GAIC M&R
Carried Indicated
ULAE Reserve ULAE Reserve Redundancy
at 9/30/94 at 9/30/94 /(Deficiency)
------------ ------------ -------------
<S> <C> <C> <C>
GREAT AMERICAN
- --------------
Workers' Comp 19,471 15,169 4,302
CMP 16,728 15,620 1,108
Auto Liability 12,282 12,139 143
General Liability (incl. CUB) 10,297 8,336 1,961
Fire 441 26 415
Homeowners 1,592 1,896 (304)
Ocean Marine 655 1,570 (915)
Inland Marine 706 346 360
Auto Physical Damage 959 150 809
Misc. Schedule O 302 1,236 (934)
Misc. Other P & L 49 101 (52)
Cats 0 0 0
--------------------------------- -------- -------- --------
Subtotal 63,482 56,589 6,893
</TABLE>
<PAGE> 21
<TABLE>
Exhibit 9
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Total GAIC Pool
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 544,456 57,067 22,034 943,632 61.41%
1991 509,794 62,034 19,968 966,461 57.10%
1992 517,378 56,609 20,351 985,844 56.16%
1993 550,491 55,445 23,967 1,018,155 57.16%
1994 468,648 45,520 19,348 786,189 62.94%
--------- ---------- ---------- ---------- ---------- ----------
Total 2,590,767 276,675 105,668 4,700,281 58.76%
<FN>
Note:
Excluding: Cats, Transport & Tico Assumed, NSA Stop-Loss, GA Re Inc., Constellation,
Lender's Services, Non-Reviewed.
</TABLE>
<PAGE> 22
<TABLE>
Exhibit 9
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Total Personal Auto
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 97,374 3,563 6,267 139,189 68.01%
1991 101,958 3,608 5,890 164,688 60.52%
1992 127,700 4,158 7,252 204,629 60.89%
1993 151,743 4,712 9,388 224,255 65.58%
1994 118,466 3,622 7,457 176,159 65.07%
--------- --------- --------- --------- --------- ---------
Total 597,240 19,663 36,255 908,920 63.88%
</TABLE>
<PAGE> 23
<TABLE>
Exhibit 9
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Homeowners'
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 46,045 2,861 1,366 79,901 59.50%
1991 45,169 2,747 964 86,396 54.35%
1992 39,209 2,229 496 82,463 49.65%
1993 46,752 2,270 661 78,111 61.91%
1994 37,474 1,811 665 61,623 62.67%
--------- --------- --------- --------- --------- ---------
Total 214,649 11,918 4,152 388,494 57.25%
</TABLE>
<PAGE> 24
<TABLE>
Exhibit 9
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Total Commercial Auto
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 61,905 3,762 2,810 105,385 59.65%
1991 51,233 4,111 2,835 96,683 54.31%
1992 46,865 3,639 2,967 90,338 52.62%
1993 47,617 3,777 2,717 81,069 60.04%
1994 35,832 2,686 1,820 62,292 58.91%
--------- --------- --------- --------- --------- ---------
Total 243,453 17,975 13,148 435,767 56.98%
</TABLE>
<PAGE> 25
<TABLE>
Exhibit 9
Sheet 5
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
CMP + Safepak
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 120,399 25,803 3,576 223,924 63.69%
1991 120,749 27,112 4,036 213,955 67.22%
1992 102,385 23,345 3,385 188,895 64.77%
1993 86,248 22,099 2,812 173,488 60.83%
1994 78,440 18,195 2,773 141,665 66.26%
--------- --------- --------- --------- --------- ---------
Total 508,221 116,554 16,582 941,927 64.57%
</TABLE>
<PAGE> 26
<TABLE>
Exhibit 9
Sheet 6
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
General Liability + Products + Professional Liability
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 11,828 5,024 762 37,364 43.06%
1991 9,990 4,590 163 31,472 45.81%
1992 12,811 4,625 218 31,404 54.83%
1993 13,638 4,903 228 38,990 46.97%
1994 9,683 4,173 212 21,167 64.46%
--------- --------- --------- --------- --------- ---------
Total 57,950 23,315 1,583 160,397 49.68%
</TABLE>
<PAGE> 27
<TABLE>
Exhibit 9
Sheet 7
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Umbrella including C.U.B.
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 16,041 729 0 48,900 34.29%
1991 23,778 1,340 0 54,290 46.27%
1992 26,200 1,230 0 49,297 55.64%
1993 24,526 1,186 0 44,693 57.53%
1994 11,521 562 0 19,202 62.92%
--------- --------- --------- --------- --------- ---------
Total 102,066 5,047 0 216,382 49.50%
</TABLE>
<PAGE> 28
<TABLE>
Exhibit 9
Sheet 8
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Umbrella including C.U.B. and General Liability + Products + Professional
Liability
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 27,869 5,753 762 86,264 38.09%
1991 33,768 5,930 163 85,762 46.10%
1992 39,011 5,855 218 80,701 55.33%
1993 38,164 6,089 228 83,683 52.61%
1994 21,204 4,735 212 40,369 63.73%
--------- --------- --------- --------- --------- ---------
Total 160,016 28,362 1,583 376,779 49.58%
</TABLE>
<PAGE> 29
<TABLE>
Exhibit 9
Sheet 9
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Total Workers' Compensation
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 87,224 5,149 3,489 115,302 77.09%
1991 68,843 4,704 2,165 102,847 69.41%
1992 62,870 4,525 1,706 96,233 68.26%
1993 44,663 3,106 1,343 83,485 55.61%
1994 36,626 2,273 1,127 70,935 53.25%
--------- --------- --------- --------- --------- ---------
Total 300,226 19,757 9,830 468,802 66.16%
</TABLE>
<PAGE> 30
<TABLE>
Exhibit 9
Sheet 10
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Fire
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 2,587 113 56 14,617 18.09%
1991 3,780 208 39 14,103 28.00%
1992 2,781 154 111 14,041 20.11%
1993 3,281 127 128 18,784 17.46%
1994 2,785 115 107 9,179 30.42%
--------- --------- --------- --------- --------- ---------
Total 15,214 717 441 70,724 21.90%
</TABLE>
<PAGE> 31
<TABLE>
Exhibit 9
Sheet 11
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Ocean Marine
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 15,062 1,671 1,702 18,761 80.12%
1991 16,446 1,790 1,580 22,528 73.93%
1992 21,935 2,170 2,381 32,211 67.44%
1993 33,107 3,289 4,859 44,959 70.15%
1994 26,011 2,685 3,404 36,653 69.00%
--------- --------- --------- --------- --------- ---------
Total 112,561 11,605 13,926 155,112 71.07%
</TABLE>
<PAGE> 32
<TABLE>
Exhibit 9
Sheet 12
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Inland Marine
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 20,383 831 1,139 59,468 33.76%
1991 21,730 2,569 722 60,724 38.83%
1992 16,056 1,291 891 60,217 27.33%
1993 27,475 2,207 1,025 68,798 41.65%
1994 27,675 2,213 1,139 55,268 52.02%
--------- --------- --------- --------- --------- ---------
Total 113,319 9,111 4,916 304,475 38.60%
</TABLE>
<PAGE> 33
<TABLE>
Exhibit 9
Sheet 13
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
D & O
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 42,707 2,989 0 39,596 115.41%
1991 14,571 1,020 0 48,570 32.10%
1992 24,644 1,725 0 61,610 42.80%
1993 34,992 2,449 0 69,983 53.50%
1994 47,575 3,330 0 65,789 77.38%
--------- --------- --------- --------- --------- ---------
Total 164,489 11,513 0 285,548 61.64%
</TABLE>
<PAGE> 34
<TABLE>
Exhibit 9
Sheet 14
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Other
<CAPTION>
(1) (2) (3) (4) (5)
M&R M&R
Indicated M&R M&R Indicated
Ultimate Indicated Indicated Net Loss & ALAE
Accident Loss Ultimate Ultimate Earned Ratio
Year Gross of S&S ALAE S&S Premium [(1)+(2)-(3)]/(4)
---- ------------ ---- --- ------- -----------------
<S> <C> <C> <C> <C> <C>
1990 22,735 4,572 867 61,225 43.18%
1991 31,323 8,235 1,574 70,205 54.10%
1992 33,627 7,518 944 74,506 53.96%
1993 36,025 5,320 806 91,540 44.29%
1994 36,149 3,856 644 66,257 59.41%
--------- --------- --------- --------- --------- ---------
Total 159,859 29,501 4,835 363,733 50.73%
<FN>
Note:
Other Includes: Agricultural E&S, Misc. Schedule O, Misc. Other P&L,
Legal Professional, Eden Park, Asbestos Abatement.
</TABLE>
<PAGE> 35
<TABLE>
Exhibit 10
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Transport Insurance Group
Excluding Asbestos and Enviromental Exposures
(amounts in thousands)
Net Loss and ALAE Ratio as of September 30, 1994
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
------------------------------------------------------------------------------------------
Large Small Non-
Large Fleet Small Fleet Non- Standard
Fleet Physical Fleet Physical Standard Automobile
Accident Automobile Automobile Automobile Automobile Automobile Physical Workers'
Year Liability Damage Liability Damage Liability Damage Compensation Total
- -------- --------- -------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985 $20,812 $5,783 $ 0 $ 0 $ 0 $ 0 $2,086 $28,681
1986 31,067 1,426 7,735 2,800 0 0 570 43,598
1987 16,866 759 3,909 1,216 0 0 861 23,611
1988 31,683 606 4,299 658 0 0 0 37,246
1989 36,049 912 4,283 556 0 0 0 41,800
1990 25,703 650 1,491 566 0 0 0 28,410
1991 16,823 327 257 65 0 0 0 17,472
1992 12,091 304 2,895 221 0 0 0 15,511
1993 13,976 394 4,124 181 2,783 1,125 0 22,583
1994 8,756 438 4,788 177 8,876 3,026 0 34,749
Total $216,745 $11,745 $35,377 $6,499 $14,618 $5,160 $3,517 $293,661
</TABLE>
<TABLE>
<Caption)
Net Earned Premiums
------------------------------------------------------------------------------------------
Large Small Non-
Large Fleet Small Fleet Non- Standard
Fleet Physical Fleet Physical Standard Automobile
Accident Automobile Automobile Automobile Automobile Automobile Physical Workers'
Year Liability Damage Liability Damage Liability Damage Compensation Total
- -------- --------- -------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985 $ 0 NA $ 0 NA NA NA NA NA
1986 0 NA 0 NA NA NA NA NA
1987 39,960 NA 7,428 NA NA NA NA NA
1988 45,595 NA 4,849 NA NA NA NA $50,444
1989 51,070 NA 6,449 NA NA NA NA 57,519
1990 34,806 NA 3,116 NA NA NA NA 37,922
1991 24,944 NA 1,127 NA NA NA NA 26,071
1992 26,222 NA 3,193 NA NA NA NA 29,415
1993 25,136 NA 6,555 NA 7,751 NA NA 39,442
1994 12,023 NA 5,708 NA 20,510 NA NA 50,989
</TABLE>
<TABLE>
<CAPTION>
M & R indicated Loss & ALAE Ratios
------------------------------------------------------------------------------------------
Large Small Non-
Large Fleet Small Fleet Non- Standard
Fleet Physical Fleet Physical Standard Automobile
Accident Automobile Automobile Automobile Automobile Automobile Physical Workers'
Year Liability Damage Liability Damage Liability Damage Compensation Total
- -------- --------- -------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985 NA NA NA NA NA NA NA NA
1986 NA NA NA NA NA NA NA NA
1987 42.21% 1.90% 52.63% 16.37% NA NA NA NA
1988 69.49% 1.33% 88.66% 13.57% NA NA NA 73.84%
1989 70.59% 1.79% 66.41% 8.62% NA NA NA 72.67%
1990 73.85% 1.87% 47.85% 18.16% NA NA NA 74.92%
1991 67.44% 1.31% 22.80% 5.77% NA NA NA 67.02%
1992 46.11% 1.16% 90.67% 6.92% NA NA NA 52.73%
1993 55.60% 1.57% 62.91% 2.76% 35.91% 14.51% NA 57.26%
1994 72.83% 3.64% 83.88% 3.10% 43.28% 14.75% NA 68.15%
</TABLE>
<PAGE> 36
<TABLE>
Exhibit 10
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Stonewall Insurance Company
Excluding Asbestos and Environmental Exposures
(amounts in thousands)
Net Loss and ALAE Ratio as of September 30, 1994
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
-----------------------------------------------------------------
<CAPTION>
Primary Self Self
Property Insured Insured
Accident Buffer Claims Primary and Retention Retention
Year Liability Made Oil Casualty Auto Non-Auto Umbrella Total
---- --------- ---- --- -------- ---- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $222 $0 $0 $596 $0 $0 $522 $1,340
1992 77 16 17 593 318 278 1,126 2,425
1993 187 62 303 1,906 320 267 919 3,964
1994 57 81 415 1,092 249 121 696 3,614
Total $562 $186 $873 $4,551 $970 $706 $3,495 $11,343
</TABLE>
<TABLE>
Net Earned Premiums
-----------------------------------------------------------------
<CAPTION>
Primary Self Self
Property Insured Insured
Accident Buffer Claims Primary and Retention Retention
Year Liability Made Oil Casualty Auto Non-Auto Umbrella Total
---- --------- ---- --- -------- ---- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $341 $0 $0 $75 $0 $0 $1,044 $1,460
1992 32 25 26 913 342 427 2,048 3,813
1993 287 96 466 1,725 493 411 1,532 5,010
1994 88 125 639 1,680 383 186 1,071 5,563
</TABLE>
<TABLE>
M&R Indicated Loss & ALAE Ratios
-----------------------------------------------------------------
<CAPTION>
Primary Self Self
Property Insured Insured
Accident Buffer Claims Primary and Retention Retention
Year Liability Made Oil Casualty Auto Non-Auto Umbrella Total
---- --------- ---- --- -------- ---- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 65.10% NA NA 794.67% NA NA 50.00% 91.78%
1992 240.63% 64.00% 65.38% 64.95% 92.98% 65.11% 54.98% 63.60%
1993 65.16% 64.58% 65.02% 110.49% 64.91% 64.96% 59.99% 79.12%
1994 64.96% 64.67% 64.91% 65.00% 64.97% 64.92% 64.99% 64.96%
</TABLE>
<PAGE> 37
<TABLE>
Exhibit 10
Sheet 3
GREAT AMERICAN INSURANCE GROUP
American Empire Surplus Lines Insurance Company
Excluding Asbestos and Environmental Exposures
(amounts in thousands)
Net Loss and ALAE Ratio as of September 30, 1994
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
-----------------------------------------------------------------
<CAPTION>
Short Long
Accident Tail Asbestos Claims Tail Medical
Year Property Casualty Abatement Made Casualty Professional
---- -------- -------- --------- ---- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
1985 $3,949 $10,075 $61 $0 $1,760 $0
1986 3,718 27,741 385 458 10,905 0
1987 3,854 35,345 222 629 10,424 198
1988 3,035 22,142 1,442 29 3,098 84
1989 5,418 14,945 1,689 15 3,855 581
1990 7,158 11,969 262 534 4,323 51
1991 5,645 11,261 835 0 3,386 0
1992 4,096 7,794 180 1,020 1,792 85
1993 2,200 9,927 135 272 403 0
1994 1,866 9,307 87 431 333 0
Total $41,561 $163,608 $5,327 $3,531 $40,390 $999
</TABLE>
<TABLE>
Net Earned Premiums
-----------------------------------------------------------------
<CAPTION>
Short Long
Accident Tail Asbestos Claims Tail Medical
Year Property Casualty Abatement Made Casualty Professional
---- -------- -------- --------- ---- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
1985 $6,733 $11,738 $2,196 $0 $2,350 $0
1986 10,414 62,590 12,843 2,650 36,133 0
1987 10,945 83,176 18,981 3,335 34,747 48
1988 7,909 58,310 13,176 1,337 10,327 388
1989 8,133 39,465 6,747 456 3,509 423
1990 11,334 27,693 3,180 505 2,276 222
1991 8,571 20,357 1,380 1,068 2,064 13
1992 5,611 14,818 451 1,651 1,580 1
1993 5,085 15,606 337 1,783 556 0
1994 6,087 10,904 218 1,386 421 0
</TABLE>
<TABLE>
M&R Indicated Loss & ALAE Ratios
-----------------------------------------------------------------
<CAPTION>
Short Long
Accident Tail Asbestos Claims Tail Medical
Year Property Casualty Abatement Made Casualty Professional
---- -------- -------- --------- ---- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
1985 58.65% 85.83% 2.78% NA 74.8% NA
1986 35.70% 44.32% 3.00% 17.28% 30.18% NA
1987 35.21% 42.49% 1.17% 18.86% 30.00% 412.50%
1988 38.37% 37.97% 10.94% 2.17% 30.00% 21.65%
1989 66.62% 37.87% 25.03% 3.29% 109.80% 137.35%
1990 63.16% 43.22% 8.24% 105.74% 189.94% 22.97%
1991 65.86% 55.32% 60.51% 0.00% 164.05% 0.00%
1992 73.00% 52.60% 39.91% 61.78% 113.42% 1500.00%
1993 43.26% 63.61% 40.06% 15.26% 72.48% NA
1994 30.66% 83.35% 39.86% 31.06% 79.14% NA
</TABLE>
<TABLE>
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
-----------------------------------------------------------------
<CAPTION>
Long Short
Tail Tail
Self Fidelity Fidelity
Naughton Insured Facultative (Fidelity (Fidelity
Programs Retention Reinsurance Environmental) Environmental) Total
-------- --------- ----------- -------------- -------------- -----
<S> <C> <C> <C> <C> <C>
$1,817 $1,240 $0 $0 $0 18,902
11,612 4,023 0 0 0 58,842
9,070 5,385 0 0 0 65,127
7,980 5,553 0 0 342 43,363
4,600 2,291 194 3,007 1,442 33,588
4,081 2,647 159 3,389 1,631 31,184
3,513 532 292 1,801 2,027 25,464
3,221 529 1,050 1,609 1,741 19,767
4,362 329 1,067 1,113 1,288 18,695
3,178 212 1,090 652 890 22,004
$54,493 $22,812 $4,215 $11,788 $9,657 $336,936
</TABLE>
<TABLE>
Net Earned Premiums
-----------------------------------------------------------------
<CAPTION>
Long Short
Tail Tail
Self Fidelity Fidelity
Naughton Insured Facultative (Fidelity (Fidelity
Programs Retention Reinsurance Environmental) Environmental) Total
-------- --------- ----------- -------------- -------------- -----
<S> <C> <C> <C> <C> <C>
$471 $1,492 $0 NA NA NA
6,322 14,205 0 NA NA NA
10,459 15,391 0 $18 $26 NA
8,184 7,425 0 1,299 1,949 NA
5,953 4,496 161 4,626 6,939 $80,908
5,057 2,711 1,458 5,214 7,821 67,471
4,242 1,713 1,931 2,770 3,777 47,886
3,442 1,073 1,907 2,475 3,482 36,491
3,239 565 2,267 1,712 2,428 33,578
2,604 285 2,216 1,003 1,461 35,447
</TABLE>
<TABLE>
M&R Indicated Loss & ALAE Ratios
-----------------------------------------------------------------
<CAPTION>
Long Short
Tail Tail
Self Fidelity Fidelity
Naughton Insured Facultative (Fidelity (Fidelity
Programs Retention Reinsurance Environmental) Environmental) Total
-------- --------- ----------- -------------- -------------- -----
<C> <C> <C> <C> <C> <C>
385.77% 83.11% NA NA NA NA
183.68% 28.32% NA NA NA NA
86.72% 34.99% NA 0.00% 0.00% NA
97.51% 74.79% NA 0.00% 17.55% NA
77.27% 50.96% 120.50% 65.00% 20.78% 41.51%
80.70% 97.64% 10.91% 65.00% 20.85% 46.22%
82.81% 31.06% 15.12% 65.02% 53.67% 53.18%
93.58% 49.30% 55.06% 65.01% 50.00% 54.17%
134.67% 58.23% 47.07% 65.00% 53.04% 55.68%
122.03% 74.47% 49.17% 65.00% 60.88% 62.08%
</TABLE>
<PAGE> 38
<TABLE>
Exhibit 10
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Mid-Continent Insurance Company
Excluding Asbestos and Environmental Exposures
(amounts in thousands)
Net Loss and ALAE Ratio as of September 30, 1994
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
-----------------------------------------------------------------
<CAPTION>
Personal Commercial Automobile
Accident Automobile Automobile Physical Workers' Other Products
Year Liability Liability Damage Compensation Liability Liability
---- --------- --------- ------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1985 $7,824 $4,253 $9,333 $16,010 $3,623 $552
1986 8,442 4,645 7,562 15,629 2,651 179
1987 10,880 5,384 7,291 18,828 2,416 269
1988 8,879 6,889 8,348 24,260 3,254 487
1989 13,038 4,391 7,219 25,021 3,377 252
1990 14,499 8,505 7,773 33,662 3,738 71
1991 11,722 7,022 6,817 23,509 4,253 158
1992 7,687 7,751 5,351 10,862 5,044 425
1993 6,418 9,502 5,200 1,589 5,488 306
1994 4,295 8,882 4,072 0 4,878 290
Total $95,115 $70,184 $70,323 $169,370 $40,348 $3,085
</TABLE>
<TABLE>
Net Earned Premiums
-----------------------------------------------------------------
<CAPTION>
Personal Commercial Automobile
Accident Automobile Automobile Physical Workers' Other Products
Year Liability Liability Damage Compensation Liability Liability
---- --------- --------- ------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1985 $8,640 $5,224 $0 $0 $0 $0
1986 10,323 7,562 0 0 0 0
1987 11,636 8,639 0 0 0 0
1988 12,815 8,005 0 22,791 11,400 1,602
1989 14,145 7,323 15,470 23,121 10,514 2,077
1990 14,626 7,624 14,639 25,089 11,985 1,665
1991 13,983 7,988 13,401 24,173 11,836 2,153
1992 10,187 11,098 11,222 12,508 12,175 1,981
1993 8,473 13,330 10,219 2,312 14,266 2,217
1994 5,896 12,050 8,173 0 13,332 2,278
</TABLE>
<TABLE>
M&R Indicated Loss & ALAE Ratios
-----------------------------------------------------------------
<CAPTION>
Personal Commercial Automobile
Accident Automobile Automobile Physical Workers' Other Products
Year Liability Liability Damage Compensation Liability Liability
---- --------- --------- ------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1985 90.56% 81.41% NA NA NA NA
1986 81.78% 61.43% NA NA NA NA
1987 93.50% 62.32% NA NA NA NA
1988 69.29% 86.06% NA 106.45% 28.54% 30.40%
1989 92.17% 59.96% 46.66% 108.22% 32.12% 12.13%
1990 99.13% 111.56% 53.10% 134.17% 31.19% 4.26%
1991 83.83% 87.91% 50.87% 97.25% 35.93% 7.34%
1992 75.46% 69.84% 47.68% 86.84% 41.43% 21.45%
1993 75.75% 71.28% 50.89% 68.73% 38.47% 13.80%
1994 72.84% 73.67% 49.82% NA 36.59% 12.71%
</TABLE>
<TABLE>
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
-----------------------------------------------------------------
<CAPTION>
Automobile
Automobile Physical
Liability Damage
Surety & (Oklahoma Oklahoma
Property Fidelity Umbrella Surety) Surety) Total
-------- -------- -------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
$910 $3,520 $0 $1,934 $792 $48,751
1,188 2,119 0 2,657 834 45,906
1,741 2,035 0 2,814 790 52,448
1,591 1,546 0 2,759 965 58,978
994 327 0 3,127 756 58,502
1,707 144 0 3,822 845 74,766
1,228 260 0 3,770 902 59,641
1,486 163 46 2,862 899 42,576
1,061 170 184 2,856 800 33,574
1,556 738 304 1,826 506 36,459
$13,981 $11,268 $635 $29,035 $8,257 $511,601
</TABLE>
<TABLE>
Net Earned Premiums
-----------------------------------------------------------------
<CAPTION>
Automobile
Automobile Physical
Liability Damage
Surety & (Oklahoma Oklahoma
Property Fidelity Umbrella Surety) Surety) Total
-------- -------- -------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
$0 $0 $0 $0 $0 NA
0 0 0 0 0 NA
0 0 0 0 0 NA
2,592 0 0 4,443 2,110 NA
2,407 1,136 0 4,338 1,818 $82,349
2,385 1,107 0 4,357 1,834 85,311
2,371 2,245 0 4,737 1,941 84,828
2,429 2,864 175 4,635 1,728 71,002
2,756 3,411 465 4,355 1,524 63,328
2,715 2,727 507 2,910 1,030 68,831
</TABLE>
<TABLE>
M&R Indicated Loss & ALAE Ratios
-----------------------------------------------------------------
<CAPTION>
Automobile
Automobile Physical
Liability Damage
Surety & (Oklahoma Oklahoma
Property Fidelity Umbrella Surety) Surety) Total
-------- -------- -------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
NA NA NA NA NA NA
NA NA NA NA NA NA
NA NA NA NA NA NA
61.38% NA NA 62.10% 45.73% NA
41.30% 28.79% NA 72.08% 41.58% 71.04%
71.57% 13.01% NA 87.72% 46.07% 87.64%
51.79% 11.58% NA 79.59% 46.47% 70.31%
61.18% 5.69% 26.29% 61.75% 52.03% 59.96%
38.50% 4.98% 39.57% 65.58% 52.49% 53.02%
57.32% 27.06% 59.96% 62.73% 49.08% 52.97%
</TABLE>
<PAGE> 39
<TABLE>
Exhibit 11
GREAT AMERICAN INSURANCE GROUP
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Net Loss and ALAE Ratio as of September 30, 1994
Total Great American Insurance Group
<CAPTION>
(1) (2) (3)
M&R M&R
Indicated Indicated
Ultimate Net Loss & ALAE
Accident Loss & ALAE Earned Ratio
Year Net of S&S Premium [(1)+(2)-(3)]/(4)
---- ---------- ------- -----------------
<S> <C> <C> <C>
1990 713,849 1,134,336 62.93%
1991 655,777 1,126,706 58.20%
1992 633,915 1,126,565 56.27%
1993 660,785 1,159,513 56.99%
1994 591,646 906,812 65.24%
------- ----------- ----------- -----------
Total 3,255,972 5,453,932 59.70%
<FN>
Note:
Excluding: Cats, Transport & Tico Assumed, NSA Stop-Loss, GA Re Inc.,
Constellation Lender's Services, Non-Reviewed.
</TABLE>
<PAGE> 40
APPENDIX A
GREAT AMERICAN POOL
TECHNICAL APPENDIX
<PAGE> 41
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------------------------
<S> <C>
SCOPE OF ANALYSIS 1
EXHIBITS INCLUDED IN APPENDIX A 1
DATA AND INFORMATION 2
HISTORICAL TRIANGLE 2
OTHER DATA AND INFORMATION 2
SPECIAL DATA TO CORRECT FOR PROCEDURAL CHANGE 3
DESCRIPTION OF METHODOLOGY 4
LOSS RESERVES 4
DEVELOPMENT FACTOR METHODS 4
Paid Development 4
Incurred Development 4
Tail Factors 5
Potential Weaknesses of Development Factor Methods 5
ADJUSTED DEVELOPMENT FACTOR METHODS 6
Maturity Adjustment of Paid Losses 6
Reserve Strength Adjustment of Incurred Losses 6
BORNHUETTER-FERGUSON METHOD 7
CAPE COD METHOD 7
LOSS RATIO ANALYSIS 7
CLAIM COUNT PROJECTIONS 9
Projection of Ultimate Reported Claims 9
Projection of Ultimate CWIP's 9
</TABLE>
<PAGE> 42
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------------------------
<S> <C>
TREND FACTOR SELECTION 9
DIAGNOSTIC TESTS 10
SELECTIONS FROM VARIOUS METHODS 10
ADJUSTMENT FOR PARTIAL YEAR 1994 11
ALAE ANALYSIS 11
SELECTION OF TAIL FACTORS 11
ADJUSTMENT FOR CHANGE IN COMPANY PRACTICE 12
CHANGE TO INTERIM BILLING 12
SALVAGE AND SUBROGATION ANALYSIS 12
ULAE ANALYSIS 13
LINE-BY-LINE COMMENTARY 14
GAIG POOL - DIRECT LINES 14
WORKERS' COMPENSATION 14
Indemnity Excluding California 14
Medical Excluding California 14
California 15
COMMERCIAL MULTI-PERIL - LIABILITY 15
COMMERCIAL MULTI-PERIL - PROPERTY 15
SAFEPAK LIABILITY 16
SAFEPAK PROPERTY 16
</TABLE>
<PAGE> 43
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------------------------
<S> <C>
PERSONAL AUTO LIABILITY 16
COMMERCIAL AUTO LIABILITY 17
AUTO PERSONAL INJURY PROTECTION (PERSONAL AND COMMERCIAL) 17
GENERAL LIABILITY 17
PRODUCTS LIABILITY 18
UMBRELLA (INCLUDING CUB) 18
FIRE 19
HOMEOWNERS 19
OCEAN MARINE 19
INLAND MARINE 19
PERSONAL AUTO PHYSICAL DAMAGE 20
COMMERCIAL AUTO PHYSICAL DAMAGE 20
MISCELLANEOUS SCHEDULE O 20
MISCELLANEOUS PROPERTY AND LIABILITY 20
OTHER POOLED BUSINESS 21
DIRECTORS AND OFFICERS LIABILITY 21
AMERICAN CUSTOM INSURANCE SERVICES (EDEN PARK) 21
AGRICULTURAL EXCESS & SURPLUS 22
Underground Storage Tanks 22
Umbrella 22
Primary Casualty 22
Other Lines 23
</TABLE>
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------------------------
<S> <C>
TRANSPORT AND TICO ASSUMED 23
NSA STOP-LOSS 23
GREAT AMERICAN REINSURANCE COMPANY 23
CONSTELLATION REINSURANCE COMPANY 23
LEGAL PROFESSIONAL LIABILITY 24
ASBESTOS ABATEMENT 24
LENDER'S 24
</TABLE>
APPENDICES
APPENDIX A-1 - Development Factor Methods
APPENDIX A-2 - Maturity Adjustment of Paid Losses
APPENDIX A-3 - Reserve Strength Adjustment of Incurred Losses
APPENDIX A-4 - The Bornhuetter-Ferguson Method
APPENDIX A-5 - The Cape Cod Method
APPENDIX A-6 - Projection of Ultimate CWIP's
<PAGE> 45
APPENDIX A
GREAT AMERICAN POOL
TECHNICAL APPENDIX
SCOPE OF ANALYSIS
This Appendix documents our analysis of all business segments comprising the
Great American Pool.
This appendix discloses the data and information received by M&R, a description
of methodology, and provides a commentary by line of business.
EXHIBITS INCLUDED IN APPENDIX A
Summary Exhibits
Exhibits A-1 through A-5 summarize the results of our analysis, including
comparisons to carried reserves and to the results of GAIG's internal actuarial
analysis. These exhibits are also printed in the main report.
Line-by-Line Results
Exhibits A-6 through A-36 present the results of our analysis for each business
area we reviewed. The exhibits are presented in the same order as they are
discussed in the "Line-by-Line Commentary" section of this appendix.
Methodology Example
Exhibit X, sheets 1 through 51 present extensive detail of methodology for a
single business area (CMP-Liability). This exhibit is referenced in the
"Description of Methodology" section of this appendix.
-1-
<PAGE> 46
DATA AND INFORMATION
HISTORICAL TRIANGLES:
Paid Losses (Gross of Salvage and Subrogation Received)
Case Reserves for Open Claims
Incurred Losses (Paid + Case Reserves)
Claims Closed With Indemnity Payment ("CWIP's")
Claims Closed Without Indemnity Payment ("CWOP's")
Open Claims
Reported Claims (CWIP's + CWOP's + Open)
Paid ALAE
Salvage and Subrogation Received
OTHER DATA AND INFORMATION:
Earned Premiums for the last six calendar years
ULAE paid (by Annual Statement Line) for the last three
calendar years from the GAIC Annual Statements
Losses paid (by Annual Statement Line) for the last three
calendar years from the GAIC Annual Statements
Price monitoring information for six years for
several major business segments.
Historical triangles are defined in Appendix A-1 describing development factors
methods. For the Pool's direct lines, complete historical triangles for the
last ten accident years were available. Additional information was provided
for the six prior accident years to aid in projecting the development "tail",
i.e., development beyond ten years.
Not all of the above information was available for every business segment that
we reviewed. In the specific line-by-line commentary we will note the areas
for which the data was more limited.
-2-
<PAGE> 47
Starting in 1990, the Company significantly changed the categories of expenses
categorized as ALAE vs ULAE. To help us evaluate the effect of this change,
the company provided us with historical ALAE triangles subdivided into legal
expenses, outside adjusters, and other expenses. This data came from a
different data base and does not map exactly into the line of business
categories used in the reserve analysis.
To some extent, we sometimes relied on data from published insurance industry
sources and other sources. In several instances, we cite data published by the
Reinsurance Association of America ("RAA"). In some other cases we used
information we derived from other relevant data bases that we have seen. In
many instances, our judgments were guided by our own perceptions of industry
trends and market conditions derived from our experience and expertise.
We also derived information from meetings and discussions we had with GAIG
personnel to help us understand the business we were reviewing and the data
base that was provided to us. Issues discussed included types of business
written, claims practices, reinsurance arrangements and the like.
SPECIAL DATA TO CORRECT FOR PROCEDURAL CHANGE
For several personal lines business areas, GAIG changed its procedure for
opening claim files during 1993. Under the prior procedure, small claims were
not entered at all until they were paid. Under the revised procedure, small
claims were entered and automatically assigned an "average" reserve. This
inconsistency would result in a distortion in actuarial projections.
For these areas, GAIG was able to identify the claims entered under the new
procedure and produce a data base "excluding small claims" that was consistent
with prior procedures. We relied on this revised data base produced by GAIG
for these lines.
-3-
<PAGE> 48
DESCRIPTION OF METHODOLOGY
In this section, we describe the methodologies we used to project loss, ALAE,
and ULAE reserves. Not all methodologies described were used for all segments
analyzed. Not all data required was available in every segment. The actual
data available and methods used in each segment will be noted in the
line-by-line commentary section of our report.
We have included a sample exhibit set (for Direct Lines-CMP Liability) as
Exhibit X, Sheets 1-51. Examples of most of the methods we describe are
included within this exhibit set.
LOSS RESERVES
Loss reserves are derived by projecting ultimate losses for each accident year
and then deducting the losses paid through the valuation date. In the
following, we describe the methods we used to project ultimate losses and
discuss some important considerations in applying those methods.
DEVELOPMENT FACTOR METHODS
These are commonly applied actuarial methods used to project values from a
historical triangle to their ultimate values. To project loss reserves, the
most basic methodology is to apply development factors to triangles of
cumulative paid and cumulative incurred losses. The mechanics of development
factor methods are described in Appendix A-1.
Paid Development
This describes applying development factors to the triangle of
cumulative paid losses. The key assumption underlying this method is
consistency in the rate of paying claims over the period of the
historical data base. Paid development is applied on sheets 9-11 of
Exhibit X.
Incurred Development
This describes applying development factors to the triangle of
cumulative incurred losses, i.e., cumulative paid losses plus case
reserves. This method is also sensitive, to some degree, to
consistency in the rate of paying claims. An even more crucial
assumption underlying this method is consistency in the relative
adequacy of case reserves. Note that no assumption is made as to the
absolute adequacy level of case reserves, only that they are equally
as adequate throughout the historical data base. Incurred development
is applied on sheets 13-15 of Exhibit X.
-4-
<PAGE> 49
Tail Factors
Development factor methods require the selection of "tail" factors,
i.e., factors to project development beyond the historical triangle.
Our procedure is to first select tail factors for incurred
development, which has smaller tails than paid development.
GAIG provided us with additional data to aid us in this selection,
displayed on sheet 15 of Exhibit X. This "extended" triangle provided
us with additional readings of development factors near the tail plus
information regarding development in the tail. Development factors
and tail factors were generally selected on this page.
For paid development, we select tail factors so that paid development
and incurred development produce similar results for the early
accident years, i.e., the paid tail is balanced to the selected
incurred tail. The selection of paid development factors near the
tail and the tail factor also come from the extended triangle, sheet
11 for the paid analysis.
To the extent that considerable additional development is expected
beyond the triangle, in some areas we referred to outside data
sources, either industry data or data from other insurers writing
similar lines of business. In this analysis, those situations were
relatively rate. In the line-by-line commentary, we will note any
areas where outside data was used in the selection of tail factors.
Potential Weaknesses of Development Factor Methods
The two areas of greatest potential weaknesses in development factor
methods are the "tail" region where data is sparse, and the recent
"immature" accident years, where development factor methods can be
subject to substantial instability. Our handling of the tail region
was discussed in the previous section. None of our additional
methodology and analysis provides any more insight regarding the tail.
Unstable and unreliable results relating to immaturity are
particularly acute when development factors to ultimate are large.
Subsequent sections regarding the "Bornhuetter-Ferguson" method, the
"Cape-Cod" method, and "Loss Ratio Analysis" all address the potential
instability in results for immature accident years.
Other potential weaknesses relate to the consistency assumptions
underlying the methods, as previously discussed. In practice, it is
common that these consistency assumptions do not held. The following
section on "Adjusted Development Factor methods" address calculations
intended to account for possible failure of the consistency
assumptions.
-5-
<PAGE> 50
ADJUSTED DEVELOPMENT FACTOR METHODS
This section describes procedures for adjusting the historical data base when
the underlying consistency assumptions do not hold. Each adjustment procedure
leaves the current "diagonal" of the data triangle unadjusted. The prior
history (i.e., the interior of the triangle) is adjusted to be consistent with
the current diagonal. After the data triangle is adjusted, development factor
methods are applied as previously described.
Maturity Adjustment of Paid Losses
The adjustment is intended to account for changes in the payment
pattern. Changes in the payment pattern are measured by changes in
the relationship of claims closed to date to ultimate reported claims.
The triangle of ratios of closed claims to ultimate claims is
displayed on page 50 of Exhibit X. This page serves as both a
diagnostic exhibit, to determine whether the payment pattern has
changed, and as the basis for adjustment of the paid triangle. The
development of adjusted paid losses is displayed on pages 17 and 18 of
Exhibit X.
Appendix A-2 describes the mechanics of the adjustment process.
To the extent that the ratio of CWIP's to total claims closed appeared
to be changing, we projected the ratio of CWIP's to ultimate CWIP's as
an alternate measure (see page 52 of Exhibit X). A second version of
the adjusted paid triangle, using CWIP's for the interpolation base,
is displayed on pages 20 and 21 of Exhibit X.
Reserve Strength Adjustment of Incurred Losses
This adjustment is intended to account for changes in the relative
adequacy of case reserves. The relative adequacy of case reserves is
measured by comparing changes in average case reserves in each
calendar year to a selected rate of trend in average loss size. To
the extent that average case reserves have increased in excess of the
selected trend rate, case reserves are deemed to have strengthened,
and vice versa.
The development of adjusted incurred losses is displayed on pages 23
and 24 of Exhibit X. The adjustment procedure is displayed on pages
25 through 27. The mechanics of the adjustment process are described
in Appendix A-3.
In order to account for potential distortion caused by the CWIP ratio
change, we calculated an alternate version of the adjusted incurred
losses (see pages 29 through 33). In this version, the projected
ultimate CWIP's minus CWIP's to date are used in place of the actual
open claim counts.
-6-
<PAGE> 51
BORNHUETTER-FERGUSON METHOD
This is a common actuarial method for dealing with unstable development method
results for immature accident years. The mechanics of the method are described
in Appendix A-4.
The general concept is that, for immature accident years, substantial weight is
given to a selected "a priori" loss ratio. The subsequent section on "Loss
Ratio Analysis" will describe some of the considerations influencing the
selection of that loss ratio.
A loss ratio-based Bornhuetter-Ferguson analysis was not used in the Exhibit X
example. The line-by-line commentary will note the areas where this
methodology was used.
CAPE COD METHOD
The Cape Cod method is a special case of the Bornhuetter-Ferguson method, in
which the "a priori" losses are not selected judgmentally, but rather are
calculated based on the data of all years in the data base combined. In our
version of the method, the projected ultimate CWIP's multiplied by a severity
trend index are used to help project the ultimate losses. The method improves
the stability of immature accident years by achieving a blend between a
development-based result and a "counts and averages" result. The mechanics of
the method are described in Appendix A-5.
We applied the Cape Cod method in each case that we calculated a result by
development factor methods. Thus, there are Cape Cod results for paid
development, incurred development, two adjustments of paid development, and two
adjustments of incurred development (on sheets 8, 12, 16, 19, 22 and 28,
respectively).
LOSS RATIO ANALYSIS
Analysis of loss ratios may be incorporated directly into an analysis or may be
used as a reasonableness check on results projected by other methods. In
either case, analysis of loss ratios is often an important part of a loss
reserve analysis, especially as regards projections for recent accident years.
-7-
<PAGE> 52
The most important check is a comparison of the loss ratios projected for
immature accident years with those projected for earlier, more mature accident
years. Any change in loss ratios that has been projected is compared with the
expected change in loss ratios. A change in loss ratios can be expected based
on:
- known changes in rates charged (or the lack thereof);
- changes in market conditions;
- changes in type of business written;
as well as other possibilities.
GAIG was able to provide us with price monitoring data for major lines of
business. By comparing rate changes achieved with loss trend rates, we were
able to project likely increases or decreases in loss ratios in recent years.
Market conditions are also important indicators, since patterns of rising or
falling loss ratios tend to affect competitors in the same marketplace.
In the absence of a significant indication of rising or falling loss ratios, it
is not uncommon to assume that the immature period will have a loss ratio
similar to the immediately prior year or years.
Loss ratio analysis was particularly important in our analysis of accident year
1994, which is only 9 months old. All other actuarial methods are to some
extent unreliable for such an immature period. An indirect application of loss
ratio analysis is simply to check the loss ratio of 1994 projected by other
methods to verify that it reasonably consistent with the loss ratio expected.
Direct applications can take two forms:
- Simply select the expected loss ratio as the ultimate loss ratio; or
- Use the Bornhuetter-Ferguson method with the "a priori" loss ratio
equal to the expected loss ratio.
In the Exhibit X example, the direct selection of a loss ratio was used for
accident year 1994. In various other business segments, both the direct and
indirect applications are sometimes used. Specific applications are noted in
the line-by-line commentary section.
-8-
<PAGE> 53
CLAIM COUNT PROJECTIONS
Claim count projections are used in diagnostic and reasonableness tests, and in
the adjusted development methods as well as the Cape Cod methods.
Projection of Ultimate Reported Claims
Reported claim counts are projected to ultimate using development
factor methods. The calculation is displayed on sheets 34 and 35 of
Exhibit X.
Reported claim count development is generally the shortest and most
stable development pattern. Thus, ultimate reported claim counts are
usually the most reliable development-based result. Accordingly, we
use ultimate reported claim counts as a base for many projection
methods.
Projection of Ultimate CWIP's
For some lines, we noted that the ratio of CWIP's to total closed (see
sheet 51) was dropping for recent accident years. For these lines, we
performed a projection of ultimate CWIP's. The calculation is
displayed on sheets 36-38. The mechanics of the calculation are
described in Appendix A-6.
For the lines in which we analyzed CWIP's, ultimate CWIP's were the
base for Cape Cod projections. We also used the CWIP's for alternate
versions of the adjustment methods, as previously noted.
TREND FACTOR SELECTION
We used selected severity trends in several places within our analysis:
- in Cape Cod methods;
- in the measurement of and adjustment for changes in case reserve
adequacy; and
- in the projection of expected changes in loss ratio.
We selected a severity trend for each business area analyzed. The selected
trend was based on a combination of trend observed in internal data and our
perceptions of insurance industry trends based on published industry data as
well as the data of many other companies we have analyzed.
As part of our process we measured the calendar year trend in paid losses per
CWIP for each business segment. This is displayed on pages 46 and 47 of
Exhibit X. The degree of
-9-
<PAGE> 54
credence we gave this result was influenced by the quality of the measurement.
Frequently, trend fits are not good on data bases of this size. Thus, overall
perceptions of industry trends played a large part in our judgments in this
area.
DIAGNOSTIC TESTS
Diagnostic tests serve several purposes, including testing whether assumptions
underlying various actuarial methods appear to be satisfied, measuring factors
needed in other sections of the analysis, and checking the reasonableness of
results projected by various methods.
Many of the diagnostic tests have already been discussed in conjunction with
the adjustment methods.
Tests of Changes in Payment Rate
Closed Claims / Ultimate Claims (Sheet 48)
CWIP's / Ultimate CWIP's (Sheet 50)
Change in CWIP Ratios
CWIP's / Closed Claims (Sheet 49)
Test of Changes in Case Reserve Adequacy
Average Outstanding (Sheet 51)
Average Outstanding Adjusted for Severity Trend (Sheet 25)
Average Outstanding (CWIP basis) Adjusted for Severity Trend (Sheet 31)
Reasonableness Tests
Projected Ultimate Loss Ratios by Method (Sheet 7)
Projected Ultimate Claim Severities by Method (Sheet 6)
SELECTIONS FROM VARIOUS METHODS
The variety of projection methods applied results in a number of different
projections of ultimate losses. In the case of Exhibit X, we applied two
different versions of adjustments to paid losses and two of adjustments to
incurred losses, leading to six different development triangles projected.
Each of these was then projected to ultimate using both the development factor
method and the Cape Cod method. In total, twelve different projections of
ultimate losses were produced.
-10-
<PAGE> 55
The twelve projections are summarized on Sheet 5 of Exhibit X. Ultimate
severities by method are summarized on Sheet 6 with ultimate loss ratios by
method on Sheet 7. These diagnostics are used to aid in selecting which method
or combination of methods will be used to support the selected ultimate losses.
There is no simple set of rules guiding this selection process. The many
considerations include:
- Are the results of the adjustment methods significantly different
from the unadjusted results? (If not, the adjustment methods are
typically not used.)
- Do the adjustment methods help resolve discrepancies between the
unadjusted paid and incurred methods?
- Do the adjustment methods appear to be working well? For example,
are the case reserve adequacy indications reasonable and
believable? Is there a large enough volume of data to support
this adjustment? Do the adjustment methods stabilize or
de-stabilize the observed development patterns?
- Do the claim count indications appear to be useful predictors of
losses for immature accident years? (Note: in most cases they
are, but in this analysis, for lines where we observed dropping
CWIP ratios, the claim count projections, even after the CWIP
adjustment, were unusually high for recent years.) If the claim
count projections are not good predictors, the Cape Cod results
are not useful.
- Are the loss ratios for immature accident years projected by the
various methods reasonably consistent with expectations?
ADJUSTMENT FOR PARTIAL YEAR 1994
Most of the projection techniques project a full year of ultimate losses for
1994. The full year projections are included in the summaries of results by
method (Sheets 5 through 7). We multiplied these projections by 0.75 to
reflect exposure only through September 30, 1994. The sheets displaying
selected results (Sheets 1 through 4) reflect only the nine month period).
Projection techniques based directly on the nine month premium (loss ratio
selections or Bornhuetter-Ferguson method) require no special adjustment.
ALAE ANALYSIS
We projected ALAE in two steps. In the first step, we analyzed the triangle of
paid ALAE using development factor methods. In the second step, we applied a
Cape Cod
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<PAGE> 56
method in which selected ultimate losses were used as the projection base. In
this way the ALAE projections for immature accident years were stabilized based
on the observed ratios of ultimate ALAE to ultimate losses for more mature
accident years. These calculations are displayed on sheets 39-42 of Exhibit X.
SELECTION OF TAIL FACTORS
We selected the ALAE tail factors giving consideration to the extended ALAE
triangle provided by GAIG (sheet 42) and the selected paid loss tail along with
the observed relationship of ALAE development and loss development near the
tail.
ADJUSTMENT FOR CHANGE IN COMPANY PRACTICE
Starting in 1990, GAIG began recording as ALAE certain types of expenses
(mostly adjusters fees) previously recorded as ULAE. This had two effects: (1)
the ultimate ratio of ALAE to loss increased; and (2) the ALAE payment pattern
was shortened. GAIG provided us with data to help us measure the effects of
that change. The extent of expected change in ALAE ratio can be seen in column
(3) of page 39. The reduction in expected ALAE development factors is
accounted for by selecting development factors from only accident years 1990
and subsequent (first four columns) and reducing the otherwise indicated
development factors beyond that point.
CHANGE TO INTERIM BILLING
GAIG recently informed us of a switch to interim billing of attorneys in the
late 1980's. This could result in a significant decrease in future ALAE
development in the tail region. We have not currently reflected this in our
analysis. If the effect is significant, our projected ALAE reserves will be
potentially overstated to some degree.
SALVAGE AND SUBROGATION ANALYSIS
Paid and incurred loss data we analyzed was gross as to salvage and subrogation
recoveries. We projected future salvage and subrogation recoveries and
included that amount as a reduction to otherwise needed loss reserves.
The methodology was identical to that previously described for ALAE reserves.
We selected a salvage and subrogation received development pattern and then
used a Cape Cod method with selected ultimate losses as the projection base.
The calculation is displayed on sheets 43 though 45 of Exhibit X.
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<PAGE> 57
ULAE ANALYSIS
ULAE, by definition, is not coded to specific accident years. In statutory
Annual Statements, ULAE payments are placed in accident years according to a
prescribed formula. The only meaningful ULAE data are total amounts paid in
each calendar year. Internal studies are used to allocate the ULAE payments by
line of business.
A simple formula is relatively standard within the insurance industry for
calculating ULAE reserves, and we followed this standard approach. In each
area a ULAE-to- loss ratio is selected, based on the ratio of calendar year
ULAE payments to calendar year loss payments. For the GAIG pool, we derived
these ratios from Great American Insurance Company statutory Annual Statements.
In other areas, we relied on GAIG internal workpapers.
Once the ULAE-to-loss ratio is selected, the ULAE reserve is calculated as 50%
of the ratio multiplied by case reserves plus 100% of the ratio multiplied by
indicated IBNR reserves. This approach is based on the theory that roughly
half of the ULAE is expended at the time a claim is reported. Thus, for case
reserves, one-half of the ULAE is assumed to have already been expended.
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<PAGE> 58
LINE-BY-LINE COMMENTARY
In this section, we comment on the specific application of our methodology to
each business segment that we analyzed. The results, by business segment, are
presented in Exhibits A-6 through A-36.
GAIG POOL - DIRECT LINES
For these lines, all detailed data previously described was available, and, in
most cases, the extensive methodology previously described was applied.
WORKERS' COMPENSATION
We analyzed workers' compensation separately for indemnity and medical,
separately for California and all other states.
Indemnity Excluding California
We used a 5% severity trend rate, which is on the low side of industry
indications; however, industry indications continue to drop and
internal data indicated even lower trend rates, albeit with poor fits.
Our tests indicated a decline in case reserve adequacy since 1991. No
significant acceleration or deceleration in settlements was measured.
We observed a declining CWIP ratio in this line, and therefore, made a
special analysis of CWIP's. As in most lines where this situation
occurred, we continued to see an incongruous rise in projected
frequency even after adjustment. As a result, we did not rely on Cape
Cod methods.
We based our selected results on the reserve strength adjusted
incurred development method. We projected a pattern of declining loss
ratios that is consistent with pricing and market indications.
Medical Excluding California
We used a 7.5% severity trend rate, which is consistent with industry
patterns of declining trend in this line.
Our findings on case reserve adequacy and acceleration are the same as
previously described for indemnity. Similarly, we did not rely on
Cape Cod methods.
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<PAGE> 59
Selected results were based on the reserve strength adjusted incurred
development method. As for indemnity, a pattern of declining loss
ratios was projected.
California
We used 5% and 7.5% trend rates for indemnity and medical,
respectively. Due to unusual behavior of the claim count data, we did
not rely on adjustment methods.
Significant law reforms and changes in market conditions in California
caused an increase in loss ratios around 1991 and a sharp drop in loss
ratios several year later. The projections based on GAIG data
conformed to these expectations.
For both indemnity and medical, we used an average of incurred Cape
Cod and paid development through accident year 1993 and selected loss
ratios for 1994 approximately equal to those projected for 1993.
COMMERCIAL MULTI-PERIL - LIABILITY
We selected a severity trend of 7%, consistent with liability trends we used
elsewhere in this analysis. Internal data indicated somewhat lower trends, but
fits were not very good.
We observed a declining CWIP ratio in this line, and therefore, made a special
analysis of CWIP's. As in most lines where this situation occurred, we
continued to see an incongruous rise in projected frequency even after
adjustment. As a result, we did not rely on Cape Cod methods.
Our tests indicated a decline in case reserve adequacy for this line. Some
deceleration in claim settlements was indicated as well.
We selected the average of the results of the incurred development method and
the reserve strength adjusted incurred development method through 1993. For
1994, we selected a loss ratio similar to that projected for 1993.
COMMERCIAL MULTI-PERIL - PROPERTY
This line falls into the category of short-tailed lines for which we used only
incurred and paid development methodology, along with the Cape Cod method.
We selected the results of the incurred development method.
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<PAGE> 60
SAFEPAK LIABILITY
We selected a 7% severity trend, largely based on our overall observations of
liability trends for GAIG and the insurance industry. Internal data for this
line produced somewhat lower trend indications, with relatively poor fits.
We did not observe significant effects of changes in case reserve adequacy or
changes in settlement rates.
We observed a declining CWIP ratio in this line, and therefore, made a special
analysis of CWIP's. As in most lines where this situation occurred, we
continued to see an incongruous rise in projected frequency even after
adjustment. As a result, we did not rely on Cape Cod methods.
We selected the results of the incurred development method through accident
year 1993. For 1994, we selected a loss ratio similar to that projected for
prior years.
SAFEPAK PROPERTY
This line falls into the category of short-tailed lines for which we used only
incurred and paid development methodology, along with the Cape Cod method.
We selected the results of the incurred development method.
PERSONAL AUTO LIABILITY
We selected a 5% severity trend, based primarily on internal data.
For this line, we relied on special data provided by GAIG excluding small
claims, so that our analysis would not be distorted by the change in procedure
that was implemented by GAIG during 1993 (see "Data" section).
We had some indications of case reserves weakening; however, adjustments were
significant only for accident year 1994 projections. We did not rely on
development methodology for 1994 in any case. No significant changes in
settlement rates was measured.
We selected the average of the results of the paid development and incurred
development methods through 1993. For 1994, we selected a loss ratio similar
to that projected for 1993.
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<PAGE> 61
COMMERCIAL AUTO LIABILITY
We selected a 6% trend rate, based on internal and external indications.
Internal indications were reasonably consistent with this rate, but fits were
poor.
The reserve strength test indicated some decline in case reserve adequacy since
1990; however, the unadjusted incurred development method was more consistent
with the results of other methods and produced more reasonable loss ratios.
We found no significant indications of changes in settlement rates.
We selected the results of incurred development through 1993. For 1994 we
selected a loss ratio consistent with those projected for prior years.
AUTO PERSONAL INJURY PROTECTION (PERSONAL AND COMMERCIAL)
For this line, we relied on special data provided by GAIG excluding small
claims, so that our analysis would not be distorted by the change in procedure
that was implemented by GAIG during 1993 (see "Data" section).
We selected an 8% severity trend, based largely on internal indications.
We found a reduction in case reserve adequacy since 1991, as well as a modest
reduction in settlement rate.
The Cape Cod methodology was based on projected ultimate CWIP's.
We selected the average of the results of the maturity adjusted paid Cape Cod
method and the reserve strength adjusted incurred Cape Cod method through 1993.
For 1994, we selected a loss ratio similar to that projected for 1993.
GENERAL LIABILITY
We selected a 7% severity trend. Internal data for this line indicates higher
trend, with reasonably good fits. However, we selected the trend rate for this
line to be consistent with liability trends seen elsewhere at GAIG and in the
insurance industry.
We made no significant adjustments for changes in case reserve adequacy or
settlement rates.
We relied upon a projection of ultimate CWIP's to account for an observed
change in CWIP ratios. Unlike other lines where we made this adjustment, we
concluded that the resulting projected ultimate CWIP's provided meaningful
indications.
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<PAGE> 62
We selected the results of the incurred Cape Cod method.
The projections for accident year 1994 imply a loss ratio higher than prior
years. Price changes for this line indicate that a loss ratio increase of some
size was expected.
PRODUCTS LIABILITY
We selected a severity trend rate of 7%, consistent with liability trends we
used elsewhere in this analysis. Internal indications were not meaningful for
this line.
We did not observe significant effects of changes in case reserve adequacy or
changes in settlement rates.
We selected the average of the results of the paid Cape Cod method and the
incurred Cape Cod method.
There was no premium data available for this line, so we could not review loss
ratios.
UMBRELLA (INCLUDING CUB)
We selected a 10% severity trend for this line, based on external indications.
Internal trend data was not meaningful.
Due to the extremely long-tailed nature of this line, we did not rely on paid
methods. Due to small numbers of claims and variability in claim severity,
case reserve adequacy measurements were not possible.
We limited our analysis to the incurred development method, the incurred Cape
Cod method, and examination of loss ratios.
For the selection of incurred development factors, we supplemented the internal
indications with judgments drawn from the experience of other large umbrella
writers.
We selected the results of the incurred Cape Cod method through 1993. For
1994, we selected a loss ratio approximately 5% higher than that projected for
1993 but somewhat lower than that indicated by the Cape Cod method. While loss
ratios in this line have been quite low, our projections imply a pattern of
rapidly rising loss ratios in recent years. This pattern is consistent with
market conditions in this line.
"CUB" refers to internal reinsurance provided by the pool to the profit center
on umbrella business. It is not true ceded reinsurance. We analyzed data
gross of this internal cession (but net of true outgoing ceded reinsurance).
Thus, our projections include reserves needed within the umbrella profit center
and within CUB. For measurement of reserve
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<PAGE> 63
adequacy we combined the carried reserves within the umbrella profit center
with those carried in CUB.
FIRE
This line falls into the category of short-tailed lines for which we used only
incurred and paid development methodology, along with the Cape Cod method.
We selected the results of incurred development.
HOMEOWNERS
For this line, we relied on special data provided by GAIG excluding small
claims, so that our analysis would not be distorted by the change in procedure
that was implemented by GAIG during 1993 (see "Data" section).
We did not observe significant effects of changes in case reserve adequacy or
changes in settlement rates.
We selected a 7% severity trend rate, consistent with internal indications.
We selected the average of the results of the paid development and incurred
development methods.
OCEAN MARINE
We selected a 12% severity trend rate, based on internal indications showing
relatively high trends with reasonably good fits.
We did not observe significant effects of changes in case reserve adequacy or
changes in settlement rates.
We selected the average of the results of the paid Cape Cod and Incurred Cape
Cod methods.
INLAND MARINE
This line falls into the category of short-tailed lines for which we used only
incurred and paid development methodology, along with the Cape Cod method.
We selected the results of the incurred Cape Cod method.
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<PAGE> 64
PERSONAL AUTO PHYSICAL DAMAGE
For this line, we relied on special data provided by GAIG excluding small
claims, so that our analysis would not be distorted by the change in procedure
that was implemented by GAIG during 1993 (see "Data" section).
This line falls into the category of short-tailed lines for which we used only
incurred and paid development methodology, along with the Cape Cod method.
We selected the results of the incurred development method through accident
year 1993. For 1994, we selected a loss ratio consistent with projected loss
ratios for prior years.
COMMERCIAL AUTO PHYSICAL DAMAGE
This line falls into the category of short-tailed lines for which we used only
incurred and paid development methodology, along with the Cape Cod method.
We selected the results of the incurred development method.
MISCELLANEOUS SCHEDULE O
We selected a 7% severity trend rate. Internal data for this line is
consistent with this trend rate, although the fits are poor. The selected
trend rate was based in part on the internal data and in part for consistency
with trend rates used elsewhere in our analysis.
We did not observe significant changes in settlement rates. The reserve
strength test did not appear to work credibly, and we did not rely on it.
We selected the results of the incurred Cape Cod method through accident year
1988, and the average of the paid Cape Cod method and the incurred Cape Cod
method for accident years 1989 through 1993. For 1994, we selected a loss
ratio similar to that projected for 1993.
MISCELLANEOUS PROPERTY AND LIABILITY
We selected a 7% severity trend, consistent with internal indications.
We did not observe significant effects of changes in case reserve adequacy or
changes in settlement rates.
We selected the results of the incurred Cape Cod method.
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<PAGE> 65
OTHER POOLED BUSINESS
DIRECTORS AND OFFICERS LIABILITY
We analyzed primary and excess lines combined.
We selected a severity trend rate of 7% based on external indications.
Although this business is written on a claims-made form, development is
somewhat long-tailed due to the complexity of the claims process. Paid losses
are very slow in developing and do not provide a useful base for projections.
Claim severity is quite unstable, and results are often driven by a small
number of severe claims. Adjustment methods are not effective.
We relied primarily on the incurred development method, the incurred Cape Cod
method, loss ratios and the Bornhuetter-Ferguson method. For incurred
development factors, we supplemented the internal data with judgments drawn
from other large writers of this coverage.
Overall loss ratios have been very low, although occasionally the loss ratio
for one year will be high, driven by a small number of large claims.
Market conditions in this line have become increasingly competitive, with
competition occurring in both prices and in terms and conditions.
Our loss-based projection methods yielded very low loss ratios through 1993.
However, in recognition of the instability and unpredictability of loss
emergence in this line, we selected somewhat higher loss ratios of 30%, 40% and
50% for 1991 through 1993, respectively. We selected the upward pattern in
reflection of market conditions.
For 1994, reported losses through September were unusually high. For this
year, we selected the results of the Bornhuetter-Ferguson method with an a
priori loss ratio of 60%.
AMERICAN CUSTOM INSURANCE SERVICES (EDEN PARK)
This business has been written only since 1992 and therefore has no meaningful
internal data history.
We selected results from the incurred Bornhuetter-Ferguson method. For
casualty incurred development factors, we used RAA information for excess
development and insurance industry experience published by Best's for primary
development. For property, we used factors derived from the London market.
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<PAGE> 66
For a priori loss ratios, we used loss ratios selected by GAIG for that purpose
in their internal analysis, after verifying that we agreed that those loss
ratios reasonably reflect current market conditions.
AGRICULTURAL EXCESS & SURPLUS
Business written in this division is subdivided into many lines. However, in
most there is very little data and our analysis was accordingly limited. We
will comment first on the areas with significant volume.
Underground Storage Tanks
This business has been written since 1990.
We applied the paid development method and the incurred development
method.
We selected the results of the incurred development method through
1991 and used an incurred Bornhuetter-Ferguson method with an a priori
loss ratio of 50% for 1992 through 1994. The 50% loss ratio is
similar to that projected for 1991. The incurred development results
indicated for 1992 through 1994 are substantially lower than 50% at
this time, but given the continuing uncertainty, we considered the
Bornhuetter-Ferguson approach to be appropriate.
Umbrella
Volume has been substantially declining for this line in recent years.
We applied the incurred development method and the incurred Cape Cod
method. For incurred development factors, we supplemented the
internal information with factors derived from other sources.
We selected the results of the incurred Cape Cod method through 1991.
For the most immature years, 1992 through 1994, we selected an 80%
loss ratio based on the results projected for earlier years and
expected loss ratio trends.
Primary Casualty
Volume has been substantially declining for this line in recent years.
We applied the paid and incurred development methods and Cape Cod
methods.
We selected the average of the results of the paid Cape Cod and
incurred Cape Cod methods.
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<PAGE> 67
Other Lines
All other lines had minimal volume. We generally relied on the
incurred development method. In some cases we selected a loss ratio
for 1994 consistent with those projected for earlier years.
TRANSPORT AND TICO ASSUMED
This is a quota-share assumption from other GAIG subsidiaries. The figure used
in this section of our report is calculated in our analysis of other
subsidiaries.
NSA STOP-LOSS
The booked reserve in this area is the policy limit (i.e. the maximum loss) on
the stop-loss reinsurance provided by GAIG. We did no further analysis to
determine if there is a potential redundancy in this area. No deficiency is
possible.
GREAT AMERICAN REINSURANCE COMPANY
Business was written in this company from the late 1970's through the early
1980's.
For the casualty lines, we applied the incurred development method, using
development factors derived from data published by the RAA. There was not
enough internal data to derive independent development patterns; however, there
was sufficient data to verify that use of the RAA pattern appeared reasonable.
Our data base included asbestos and environmental losses. We received enough
information on the extent of asbestos and environmental losses to allow us to
calculate an adjustment, so that the projected IBNR reserves included in this
section are intended to provide only for losses other than asbestos and
environmental.
CONSTELLATION REINSURANCE COMPANY
This company was once owned by GAIG. In the sale of Constellation, GAIG
provided stop-loss reinsurance on reserves. Through that reinsurance, GAIG
became liable for remaining reserves. No business has been written since the
1970's. Historical data is generally unavailable, limiting the approaches that
we could take.
The only useful available information was current case reserves by accident
year. In order to project needed IBNR, we examined paid and incurred loss
information from other long-tailed casualty excess reinsurers, from which we
derived the ratio of IBNR to case reserves that would typically be needed for
reserves at this maturity. We derived the indicated IBNR by multiplying the
current case reserves by the selected ratio of IBNR to case reserves.
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<PAGE> 68
LEGAL PROFESSIONAL LIABILITY
Business has been written in this area only since 1991, and therefore internal
historical data is extremely limited.
We applied the incurred development method and the incurred
Bornhuetter-Ferguson method. For the incurred development factors, we derived
information from the rate filings of large national writers of this coverage.
Projected loss ratios are quite high. For 1991 and 1992, we selected the
results of the incurred development method. For the 1992 and 1993 years, we
selected the results of the Bornhuetter-Ferguson method with an a priori loss
ratio of 100%.
ASBESTOS ABATEMENT
This business has been written since 1990. Accordingly, development history is
somewhat limited. The number of claims per year is quite small.
We applied the incurred development method. We selected a smoothed development
pattern from the internal data, with a reasonably conservative tail factor
selection.
Projected loss ratios according to the prior methodology were extremely low.
In recognition of the significant remaining uncertainty, we selected somewhat
higher loss ratios, especially for the more immature years.
LENDER'S
This is an extremely short-tailed line. We reviewed GAIG's internal analysis
and adopted the results of that analysis.
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<PAGE> 69
EXHIBIT A-1
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Net of Reinsurance
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
<TABLE>
<CAPTION>
(1) (2) (3)
= (1) - (2)
Total M&R
Loss & LAE Indicated
Reserves Loss & LAE
Carried Reserves Redundancy
at 9/30/94 at 9/30/94 /(Deficiency)
---------- ---------- -------------
<S> <C> <C> <C>
GREAT AMERICAN
Workers' Comp 218,290 211,102 7,188
CMP (incl. Safepak) 280,566 300,732 (20,166)
Auto Liability 250,025 227,755 22,270
General Liability (incl. CUB) 225,594 191,844 33,750
Fire 2,539 1,160 1,379
Homeowners 24,788 31,919 (7,131)
Ocean Marine 18,158 30,227 (12,069)
Inland Marine 21,280 20,991 289
Auto Physical Damage 5,138 1,501 3,637
Misc. Schedule O 3,531 16,590 (13,059)
Misc. Other P & L 4,862 2,065 2,798
Cats 5,236 5,236 0
--------- --------- -------
Subtotal 1,060,007 1,041,122 18,885
GAIC - OTHER
D&O 205,236 157,910 47,326
Eden Park 19,148 20,813 (1,665)
Agricultural E & S 40,515 40,982 (467)
Transport & Tico Assumed 79,516 77,895 1,621
NSA Stop-Loss 5,000 5,000 0
* GA Re Inc. 20,887 30,680 (9,793)
* Constellation 34,467 41,424 (6,957)
Legal Professional 12,519 18,168 (5,649)
Asbestos Abatement 31,411 17,672 13,739
Lender's 391 391 0
Non-reviewed 195,527 195,527 0
--------- --------- -------
Subtotal 644,617 606,462 38,155
CARRIED RESERVE
RECONCILIATION DISCREPANCY 1,445 1,445 0
TOTAL 1,706,069 1,649,029 57,040
</TABLE>
* Discontinued Operations
<PAGE> 70
EXHIBIT A-2
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Net of Reinsurance
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
<TABLE>
<CAPTION>
(1) (2) (3)
= (2) - (1)
GAIC M&R
Indicated Indicated
Loss Reserve Loss Reserve
Position Position
at 9/30/94 at 9/30/94 Difference
------------ ------------ ----------
<S> <C> <C> <C>
GREAT AMERICAN
Workers' Comp 1,621 2,072 451
CMP 16,622 5,688 (10,934)
Auto Liability 25,544 23,005 (2,539)
General Liability (incl. CUB) 3,466 24,812 21,346
Fire 1,241 851 (390)
Homeowners (1,437) (4,708) (3,271)
Ocean Marine (13,323) (8,779) 4,544
Inland Marine 885 1,031 146
Auto Physical Damage (1,027) 3,904 4,931
Misc. Schedule O (4,974) (6,000) (1,026)
Misc. Other P & L 1,992 2,392 400
Cats 0 0 0
------- ------ ------
Subtotal 30,610 44,268 13,658
</TABLE>
<PAGE> 71
EXHIBIT A-3
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Net of Reinsurance
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Comparison of M&R to Carried Loss Reserves
<TABLE>
<CAPTION>
(1) (2) (3)
= (1) - (2)
GAIC M&R
Carried Indicated
Loss Reserve Loss Reserve Redundancy
at 9/30/94 at 9/30/94 /(Deficiency)
------------ ------------- -------------
<S> <C> <C> <C>
GREAT AMERICAN
Workers' Comp 183,877 181,805 2,072
CMP 196,363 190,675 5,688
Auto Liability 220,660 197,655 23,005
General Liability (incl. CUB) 176,331 151,519 24,812
Fire 1,777 926 851
Homeowners 20,674 25,382 (4,708)
Ocean Marine 14,339 23,118 (8,779)
Inland Marine 17,760 16,729 1,031
Auto Physical Damage 3,831 (73) 3,904
Misc. Schedule O 2,883 8,883 (6,000)
Misc. Other P & L 3,778 1,386 2,392
Cats 5,236 5,236 0
------- ------- ------
Subtotal 847,509 803,241 44,268
</TABLE>
<PAGE> 72
EXHIBIT A-4
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Net of Reinsurance
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Comparison of M&R to Carried ALAE Reserves
<TABLE>
<CAPTION>
(1) (2) (3)
= (1) - (2)
GAIC M&R
Carried Indicated
ALAE Reserve ALAE Reserve Redundancy
at 9/30/94 at 9/30/94 /(Deficiency)
------------ ------------ -------------
<S> <C> <C> <C>
GREAT AMERICAN
Workers' Comp 14,942 14,128 814
CMP 67,475 94,437 (26,962)
Auto Liability 17,083 17,961 (878)
General Liability (incl. CUB) 38,966 31,989 6,977
Fire 321 208 113
Homeowners 2,522 4,641 (2,119)
Ocean Marine 3,164 5,539 (2,375)
Inland Marine 2,814 3,916 (1,102)
Auto Physical Damage 348 1,424 (1,076)
Misc. Schedule O 346 6,471 (6,125)
Misc. Other P & L 1,035 578 457
Cats 0 0 0
------- ------- -------
Subtotal 149,016 181,292 (32,276)
</TABLE>
<PAGE> 73
EXHIBIT A-5
GREAT AMERICAN INSURANCE GROUP
Great American Pool
Net of Reinsurance
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
Comparison of M&R to Carried ULAE Reserves
<TABLE>
<CAPTION>
(1) (2) (3)
= (1) - (2)
GAIC M&R
Carried Indicated
ULAE Reserve ULAE Reserve Redundancy
at 9/30/94 at 9/30/94 /(Deficiency)
------------ ------------ -------------
<S> <C> <C> <C>
GREAT AMERICAN
Workers' Comp 19,471 15,169 4,302
CMP 16,728 15,620 1,108
Auto Liability 12,282 12,139 143
General Liability (incl. CUB) 10,297 8,336 1,961
Fire 441 26 415
Homeowners 1,592 1,896 (304)
Ocean Marine 655 1,570 (915)
Inland Marine 706 346 360
Auto Physical Damage 959 150 809
Misc. Schedule O 302 1,236 (934)
Misc. Other P & L 49 101 (52)
Cats 0 0 0
------ ------ -----
Subtotal 63,482 56,589 6,893
</TABLE>
<PAGE> 74
EXHIBIT A-6
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Indemnity - Countrywide (ex California)
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 62,666 60,141 10,690 64,678
1986 0 51,344 48,967 7,807 53,065
1987 0 47,645 45,572 7,306 49,551
1988 115,076 52,891 50,027 8,133 55,648
1989 126,911 51,105 45,013 6,091 54,265
1990 98,285 40,543 35,215 4,918 44,481
1991 81,676 25,755 20,962 3,789 30,245
1992 76,469 20,270 15,088 3,449 26,796
1993 74,380 13,774 7,422 3,076 23,141
1994 67,370 7,127 2,460 2,410 20,243
Total 640,167 373,121 330,868 57,670 422,114
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 6,050 0.000 2,012 4,537
1986 6,797 0.000 1,721 4,098
1987 6,782 0.000 1,906 3,979
1988 6,842 0.484 2,758 5,622
1989 8,908 0.428 3,160 9,252
1990 9,045 0.453 3,939 9,267
1991 7,983 0.370 4,489 9,282
1992 7,769 0.350 6,525 11,707
1993 7,523 0.311 9,368 15,720
1994 8,398 0.300 13,115 17,782
Total 48,993 91,246
</TABLE>
Notes: (7)=[(6)x1000]-(5) (9)=(6)-(3)
(8)=(6)+(2) (10)=(6)-(4)
<PAGE> 75
EXHIBIT A-6
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Indemnity - Countrywide (ex California)
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 62,025 59,500 10,690 63,662
1986 0 50,629 48,252 7,807 51,981
1987 0 47,511 45,438 7,306 49,004
1988 115,076 51,830 48,966 8,133 54,175
1989 126,911 50,283 44,191 6,091 53,096
1990 98,285 39,642 34,314 4,918 43,315
1991 81,676 24,540 19,747 3,789 28,843
1992 76,469 19,015 13,833 3,449 25,123
1993 74,380 13,103 6,751 3,076 21,777
1994 67,370 6,993 2,326 2,410 19,197
Total 640,167 365,571 323,318 57,670 410,174
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 5,955 0.000 1,637 4,162
1986 6,659 0.000 1,352 3,729
1987 6,707 0.000 1,493 3,566
1988 6,661 0.471 2,345 5,209
1989 8,717 0.418 2,813 8,905
1990 8,808 0.441 3,673 9,001
1991 7,613 0.353 4,303 9,096
1992 7,284 0.329 6,108 11,290
1993 7,079 0.293 8,674 15,026
1994 7,964 0.285 12,204 16,871
Total 44,603 86,856
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 76
EXHIBIT A-6
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Indemnity - Countrywide (ex California)
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 63,662 3,856 4,264 0.0670 408
1986 51,981 3,239 3,667 0.0706 428
1987 49,004 2,690 3,225 0.0658 534
1988 54,175 3,205 3,988 0.0736 783
1989 53,096 2,856 3,878 0.0730 1,021
1990 43,315 2,911 4,339 0.1002 1,429
1991 28,843 1,782 3,146 0.1091 1,363
1992 25,123 1,430 3,062 0.1219 1,632
1993 21,777 735 2,610 0.1198 1,875
1994 19,197 136 2,136 0.1113 2,000
Total 410,174 22,841 34,315 11,474
</TABLE>
Notes: (5)=(4)-(2)
(6)=(4)-(3)
<PAGE> 77
EXHIBIT A-6
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Indemnity - Countrywide (ex California)
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 63,662 3,215 3,248 0.0510 33
1986 51,981 2,524 2,583 0.0497 59
1987 49,004 2,556 2,677 0.0546 121
1988 54,175 2,144 2,514 0.0464 370
1989 53,096 2,034 2,709 0.0510 675
1990 43,315 2,010 3,173 0.0733 1,163
1991 28,843 567 1,744 0.0605 1,177
1992 25,123 175 1,390 0.0553 1,215
1993 21,777 64 1,246 0.0572 1,182
1994 19,197 2 1,091 0.0568 1,089
Total 410,174 15,291 22,376 7,085
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 78
EXHIBIT A-7
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Medical - Countrywide (ex California)
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 43,397 42,263 51,505 44,307
1986 0 30,260 29,580 35,005 31,193
1987 0 29,769 28,810 31,260 30,928
1988 115,076 35,210 34,546 32,896 36,929
1989 126,911 33,307 30,802 23,607 34,967
1990 90,285 31,266 29,573 18,327 33,283
1991 81,676 20,111 18,359 13,213 22,135
1992 76,469 17,261 15,842 12,315 20,025
1993 74,380 13,719 11,657 10,931 17,755
1994 67,370 7,589 4,256 8,666 15,468
Total 640,167 261,889 245,688 237,724 286,989
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 860 0.000 910 2,044
1986 891 0.000 933 1,613
1987 989 0.000 1,159 2,118
1988 1,123 0.321 1,719 2,383
1989 1,481 0.276 1,660 4,165
1990 1,816 0.339 2,017 3,710
1991 1,675 0.271 2,024 3,776
1992 1,626 0.262 2,764 4,183
1993 1,624 0.239 4,036 6,098
1994 1,785 0.230 7,879 11,212
Total 25,100 41,301
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 79
EXHIBIT A-7
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Medical - Countrywide (ex California)
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 43,397 42,263 51,505 44,307
1986 0 30,260 29,580 35,005 31,193
1987 0 29,769 28,810 31,260 30,928
1988 115,076 35,210 34,546 32,896 36,929
1989 126,911 33,307 30,802 23,607 34,967
1990 98,285 31,266 29,573 18,327 33,283
1991 81,676 20,111 18,359 13,213 22,135
1992 76,469 17,261 15,842 12,315 20,025
1993 74,380 13,719 11,657 10,931 17,755
1994 67,370 7,589 4,256 8,666 15,468
Total 640,167 261,889 245,688 237,724 286,989
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 860 0.000 910 2,044
1986 891 0.000 933 1,613
1987 989 0.000 1,159 2,118
1988 1,123 0.321 1,719 2,383
1989 1,481 0.276 1,660 4,165
1990 1,816 0.339 2,017 3,710
1991 1,675 0.271 2,024 3,776
1992 1,626 0.262 2,764 4,183
1993 1,624 0.239 4,036 6,098
1994 1,785 0.230 7,879 11,212
Total 25,100 41,301
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 80
EXHIBIT A-7
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Medical - Countrywide (ex California)
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 44,307 0 0 0.0000 0
1986 31,193 0 0 0.0000 0
1987 30,928 0 0 0.0000 0
1988 36,929 0 0 0.0000 0
1989 34,967 0 0 0.0000 0
1990 33,283 0 0 0.0000 0
1991 22,135 0 0 0.0000 0
1992 20,025 0 0 0.0000 0
1993 17,755 0 0 0.0000 0
1994 15,468 0 0 0.0000 0
Total 286,989 0 0 0
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 81
EXHIBIT A-7
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Medical - Countrywide (ex California)
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 44,307 0 0 0.0000 0
1986 31,193 0 0 0.0000 0
1987 30,928 0 0 0.0000 0
1988 36,929 0 0 0.0000 0
1989 34,967 0 0 0.0000 0
1990 33,283 0 0 0.0000 0
1991 22,135 0 0 0.0000 0
1992 20,025 0 0 0.0000 0
1993 17,755 0 0 0.0000 0
1994 15,468 0 0 0.0000 0
Total 286,989 0 0 0
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 82
EXHIBIT A-8
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Indemnity - California
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 24,381 23,884 3,350 24,691
1986 0 20,133 19,726 2,925 20,423
1987 0 18,159 17,527 2,867 18,478
1988 41,255 14,847 14,237 2,458 15,294
1989 24,898 8,084 7,669 1,346 8,475
1990 17,017 5,781 5,118 1,013 6,179
1991 21,171 10,121 8,269 1,686 11,284
1992 19,764 7,563 5,461 1,627 9,493
1993 9,105 1,758 869 759 2,745
1994 3,565 201 53 70 992
Total 136,775 111,029 102,814 18,101 118,053
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 7,370 0.000 310 807
1986 6,983 0.000 290 697
1987 6,444 0.000 319 951
1988 6,222 0.371 447 1,057
1989 6,299 0.340 391 806
1990 6,100 0.363 397 1,060
1991 6,691 0.533 1,164 3,016
1992 5,834 0.480 1,930 4,032
1993 3,618 0.301 986 1,875
1994 14,136 0.278 790 938
Total 7,025 15,240
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 83
EXHIBIT A-8
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Indemnity - California
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 22,921 22,424 3,350 23,128
1986 0 19,154 18,747 2,925 19,363
1987 0 17,190 16,558 2,867 17,415
1988 41,255 14,628 14,018 2,458 14,993
1989 24,898 7,537 7,122 1,346 7,861
1990 17,017 5,385 4,722 1,013 5,685
1991 21,171 9,312 7,460 1,686 10,148
1992 19,764 6,886 4,784 1,627 8,347
1993 9,105 1,551 662 759 2,345
1994 3,565 192 44 70 891
Total 136,775 104,756 96,541 18,101 110,176
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 6,903 0.000 207 704
1986 6,620 0.000 209 616
1987 6,074 0.000 225 857
1988 6,099 0.363 365 975
1989 5,842 0.316 324 739
1990 5,612 0.334 300 963
1991 6,017 0.479 836 2,688
1992 5,129 0.422 1,461 3,563
1993 3,091 0.258 794 1,683
1994 12,705 0.250 699 847
Total 5,420 13,635
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 84
EXHIBIT A-8
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Indemnity - California
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 23,128 2,491 2,603 0.1125 112
1986 19,363 1,816 1,915 0.0989 99
1987 17,415 1,458 1,585 0.0910 127
1988 14,993 857 1,019 0.0679 162
1989 7,861 728 871 0.1108 143
1990 5,685 599 810 0.1424 210
1991 10,148 929 1,558 0.1535 629
1992 8,347 702 1,463 0.1753 761
1993 2,345 212 496 0.2117 284
1994 891 9 137 0.1536 128
Total 110,176 9,802 12,456 2,654
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 85
EXHIBIT A-8
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Indemnity - California
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 23,128 1,031 1,041 0.0450 10
1986 19,363 837 855 0.0441 18
1987 17,415 489 522 0.0300 33
1988 14,993 638 718 0.0479 80
1989 7,861 181 257 0.0327 76
1990 5,685 203 316 0.0555 113
1991 10,148 120 421 0.0415 301
1992 8,347 25 316 0.0379 291
1993 2,345 5 97 0.0413 92
1994 891 0 36 0.0409 36
Total 110,176 3,529 4,579 1,050
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 86
EXHIBIT A-9
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Medical - California
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 15,417 15,135 10,336 15,986
1986 0 12,164 11,904 8,493 12,693
1987 0 12,117 11,266 7,433 12,405
1988 41,255 10,736 10,328 5,995 11,264
1989 24,898 6,231 5,873 3,580 6,574
1990 17,017 4,574 4,287 2,678 4,942
1991 21,171 7,163 6,251 3,574 7,717
1992 19,764 8,081 7,020 3,715 9,376
1993 9,105 2,055 1,490 2,222 2,785
1994 3,565 260 128 270 1,069
Total 136,775 78,798 73,682 48,295 84,811
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 1,547 0.000 569 851
1986 1,495 0.000 529 789
1987 1,669 0.000 288 1,139
1988 1,879 0.273 528 936
1989 1,836 0.264 343 701
1990 1,845 0.290 368 655
1991 2,160 0.365 554 1,466
1992 2,524 0.474 1,295 2,356
1993 1,254 0.306 730 1,295
1994 3,965 0.300 809 941
Total 6,013 11,129
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 87
EXHIBIT A-9
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Medical - California
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 15,417 15,135 10,336 15,986
1986 0 12,164 11,904 8,493 12,693
1987 0 12,117 11,266 7,433 12,405
1988 41,255 10,736 10,328 5,995 11,264
1989 24,898 6,231 5,873 3,580 6,574
1990 17,017 4,574 4,287 2,678 4,942
1991 21,171 7,163 6,251 3,574 7,717
1992 19,764 8,081 7,020 3,715 9,376
1993 9,105 2,055 1,490 2,222 2,785
1994 3,565 260 128 270 1,069
Total 136,775 78,798 73,682 48,295 84,811
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 1,547 0.000 569 851
1986 1,495 0.000 529 789
1987 1,669 0.000 288 1,139
1988 1,879 0.273 528 936
1989 1,836 0.264 343 701
1990 1,845 0.290 368 655
1991 2,160 0.365 554 1,466
1992 2,524 0.474 1,295 2,356
1993 1,254 0.306 730 1,295
1994 3,965 0.300 809 941
Total 6,013 11,129
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 88
EXHIBIT A-9
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Medical - California
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 15,986 0 0 0.0000 0
1986 12,693 0 0 0.0000 0
1987 12,405 0 0 0.0000 0
1988 11,264 0 0 0.0000 0
1989 6,574 0 0 0.0000 0
1990 4,942 0 0 0.0000 0
1991 7,717 0 0 0.0000 0
1992 9,376 0 0 0.0000 0
1993 2,785 0 0 0.0000 0
1994 1,069 0 0 0.0000 0
Total 84,811 0 0 0
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 89
EXHIBIT A-9
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Workers Compensation
Medical - California
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 15,986 0 0 0.0000 0
1986 12,693 0 0 0.0000 0
1987 12,405 0 0 0.0000 0
1988 11,264 0 0 0.0000 0
1989 6,574 0 0 0.0000 0
1990 4,942 0 0 0.0000 0
1991 7,717 0 0 0.0000 0
1992 9,376 0 0 0.0000 0
1993 2,785 0 0 0.0000 0
1994 1,069 0 0 0.0000 0
Total 84,811 0 0 0
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 90
EXHIBIT A-10
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 69,076 67,886 10,604 71,159
1986 0 55,002 53,864 7,366 57,255
1987 0 51,828 50,302 6,591 55,387
1988 107,084 54,737 52,305 7,384 60,256
1989 100,883 54,208 49,157 6,935 63,386
1990 105,649 57,619 48,372 7,563 73,455
1991 97,563 46,953 37,184 7,173 66,731
1992 85,311 34,252 19,486 7,359 59,332
1993 79,942 23,470 10,441 8,069 56,953
1994 66,976 11,312 2,982 7,664 47,710
Total 643,408 458,456 391,978 76,709 611,624
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 6,711 0.000 2,083 3,273
1986 7,773 0.000 2,253 3,391
1987 8,404 0.000 3,559 5,085
1988 8,160 0.563 5,519 7,951
1989 9,140 0.628 9,178 14,229
1990 9,713 0.695 15,836 25,083
1991 9,303 0.684 19,778 29,547
1992 8,062 0.695 25,081 39,847
1993 7,058 0.712 33,483 46,512
1994 6,226 0.712 36,399 44,729
Total 153,168 219,646
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 91
EXHIBIT A-10
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 55,705 54,515 10,604 56,541
1986 0 43,007 41,869 7,366 43,652
1987 0 40,267 38,741 6,591 41,321
1988 107,084 43,983 41,551 7,384 45,549
1989 100,883 44,170 39,119 6,935 47,280
1990 105,649 48,055 38,808 7,563 54,071
1991 97,563 37,997 28,228 7,173 46,028
1992 85,311 29,486 14,720 7,359 41,157
1993 79,942 21,502 8,473 8,069 39,637
1994 66,976 10,852 2,522 7,664 33,488
Total 643,408 375,024 308,546 76,709 448,724
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 5,332 0.000 836 2,026
1986 5,926 0.000 645 1,783
1987 6,270 0.000 1,054 2,580
1988 6,168 0.425 1,566 3,998
1989 6,817 0.469 3,110 8,161
1990 7,150 0.512 6,016 15,263
1991 6,417 0.472 8,031 17,800
1992 5,593 0.482 11,671 26,437
1993 4,912 0.496 18,135 31,164
1994 4,370 0.500 22,636 30,966
Total 73,700 140,178
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 92
EXHIBIT A-10
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 56,541 15,169 16,468 0.2913 1,299
1986 43,652 13,122 14,799 0.3390 1,677
1987 41,321 11,953 14,552 0.3522 2,599
1988 45,549 11,135 15,233 0.3344 4,098
1989 47,280 10,879 17,160 0.3629 6,281
1990 54,071 10,132 20,273 0.3749 10,140
1991 46,028 9,138 21,230 0.4612 12,092
1992 41,157 4,816 18,702 0.4544 13,886
1993 39,637 2,025 17,922 0.4521 15,897
1994 33,488 470 14,741 0.4402 14,272
Total 448,724 88,838 171,079 82,241
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 93
EXHIBIT A-30
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 56,541 1,798 1,849 0.0327 51
1986 43,652 1,127 1,196 0.0274 69
1987 41,321 392 486 0.0118 94
1988 45,549 381 526 0.0115 145
1989 47,280 841 1,054 0.0223 213
1990 54,071 568 889 0.0164 321
1991 46,028 182 527 0.0114 345
1992 41,157 50 527 0.0128 477
1993 39,637 57 606 0.0153 549
1994 33,488 10 519 0.0155 509
Total 448,724 5,406 8,179 2,773
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 94
EXHIBIT A-11
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP I
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 31,824 31,824 4,913 31,802
1986 0 18,430 18,430 2,771 18,406
1987 0 27,843 27,843 2,686 27,775
1988 75,855 35,622 34,790 2,951 35,279
1989 66,628 33,169 33,169 2,981 32,741
1990 71,945 34,503 34,184 3,361 34,388
1991 71,521 48,573 48,184 3,150 48,561
1992 66,327 41,967 39,678 2,800 41,848
1993 61,437 29,725 28,092 2,830 29,942
1994 52,231 25,425 17,891 2,403 33,117
Total 465,944 327,081 314,085 30,845 333,858
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 6,473 0.000 -22 -22
1986 6,642 0.000 -25 -25
1987 10,340 0.000 -67 -67
1988 11,955 0.465 -343 489
1989 10,983 0.491 -428 -428
1990 10,232 0.478 -116 203
1991 15,418 0.679 -12 377
1992 14,944 0.631 -119 2,170
1993 10,581 0.487 216 1,849
1994 13,783 0.634 7,692 15,226
Total 6,777 19,773
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 95
EXHIBIT A-11
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP I
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 36,140 36,140 4,913 36,140
1986 0 18,977 18,977 2,771 18,977
1987 0 28,827 28,827 2,686 28,827
1988 75,855 36,762 35,930 2,951 36,810
1989 66,628 34,519 34,519 2,981 34,619
1990 71,945 33,906 33,587 3,361 34,259
1991 71,521 48,035 47,646 3,150 48,618
1992 66,327 40,846 38,557 2,800 41,511
1993 61,437 28,643 27,010 2,830 29,383
1994 52,231 24,792 17,258 2,403 32,816
Total 465,944 331,447 318,451 30,845 341,961
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 7,356 0.000 0 0
1986 6,848 0.000 0 0
1987 10,731 0.000 0 0
1988 12,474 0.485 48 880
1989 11,613 0.520 100 100
1990 10,194 0.476 353 672
1991 15,437 0.680 583 972
1992 14,823 0.626 665 2,954
1993 10,384 0.478 740 2,373
1994 13,658 0.628 8,024 15,558
Total 10,514 23,510
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 96
EXHIBIT A-11
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP I
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 36,140 1,475 1,400 0.0412 14
1986 18,977 567 575 0.0303 8
1987 28,827 753 770 0.0267 18
1988 36,810 1,412 1,443 0.0392 31
1989 34,619 558 712 0.0206 155
1990 34,259 1,630 1,986 0.0580 356
1991 48,618 1,681 2,424 0.0498 743
1992 41,511 1,607 2,371 0.0571 763
1993 29,383 1,332 2,105 0.0716 772
1994 32,816 656 2,082 0.0634 1,426
Total 341,961 11,671 15,956 4,285
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 97
EXHIBIT A-11
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP I
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 36,140 5,791 5,826 0.1612 35
1986 18,977 1,114 1,147 0.0604 33
1987 28,827 1,737 1,822 0.0632 85
1988 36,810 2,552 2,973 0.0808 421
1989 34,619 1,908 2,591 0.0748 683
1990 34,259 1,033 1,858 0.0542 825
1991 48,618 1,143 2,481 0.0510 1,338
1992 41,511 486 2,034 0.0490 1,548
1993 29,383 250 1,546 0.0526 1,296
1994 32,816 23 1,781 0.0543 1,758
Total 341,961 16,037 24,060 8,023
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 98
EXHIBIT A-12
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Safepak Liability Lines - (Excluding Property)
(Includes Artisan Contractors, Non-Artisan
Contractors, All Other, & Optometrists/Prof Liab)
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 8,535 8,475 1,438 8,643
1986 0 6,884 6,219 982 7,085
1987 0 7,070 6,504 1,120 7,475
1988 17,981 13,843 13,476 1,519 15,078
1989 20,375 12,540 9,937 1,865 14,378
1990 21,946 13,866 11,634 1,876 17,092
1991 19,429 11,308 7,719 1,741 15,751
1992 15,468 4,645 2,864 1,334 7,334
1993 12,752 4,171 1,237 1,020 8,845
1994 8,493 1,380 365 724 5,846
Total 116,444 84,243 68,431 13,619 107,527
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 6,010 0.000 108 168
1986 7,215 0.000 201 866
1987 6,672 0.000 405 971
1988 9,928 0.839 1,236 1,603
1989 7,708 0.706 1,838 4,441
1990 9,113 0.779 3,226 5,458
1991 9,047 0.811 4,443 8,032
1992 5,497 0.474 2,689 4,470
1993 8,671 0.694 4,673 7,607
1994 8,071 0.688 4,466 5,481
Total 23,283 39,095
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 99
EXHIBIT A-12
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Safepak Liability Lines - (Excluding Property)
(Includes Artisan Contractors, Non-Artisan
Contractors, All Other, & Optometrists/Prof Liab)
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 6,897 6,837 1,438 6,931
1986 0 5,842 5,177 982 5,959
1987 0 6,317 5,751 1,120 6,595
1988 17,981 12,352 11,985 1,519 13,230
1989 20,375 10,967 8,364 1,865 12,298
1990 21,946 12,415 10,183 1,876 14,647
1991 19,429 10,178 6,589 1,741 13,090
1992 15,468 4,172 2,391 1,334 5,950
1993 12,752 4,011 1,077 1,020 7,371
1994 8,493 1,354 339 724 4,883
Total 116,444 74,505 58,693 13,619 90,955
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 4,820 0.000 34 94
1986 6,069 0.000 117 782
1987 5,887 0.000 278 844
1988 8,711 0.736 878 1,245
1989 6,593 0.604 1,331 3,934
1990 7,809 0.667 2,232 4,464
1991 7,519 0.674 2,912 6,501
1992 4,460 0.385 1,778 3,559
1993 7,226 0.578 3,360 6,294
1994 6,742 0.575 3,529 4,544
Total 16,450 32,262
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 100
EXHIBIT A-12
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Safepak Liability Lines - (Excluding Property)
(Includes Artisan Contractors, Non-Artisan
Contractors, All Other, & Optometrists/Prof Liab)
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 6,931 1,735 1,811 0.2612 76
1986 5,959 1,049 1,136 0.1907 87
1987 6,595 762 896 0.1358 134
1988 13,230 1,593 1,974 0.1492 382
1989 12,298 1,628 2,171 0.1765 543
1990 14,647 1,701 2,765 0.1888 1,063
1991 13,090 1,245 2,860 0.2184 1,614
1992 5,950 480 1,450 0.2438 970
1993 7,371 162 1,562 0.2120 1,400
1994 4,883 27 1,027 0.2103 999
Total 90,955 10,383 17,652 7,269
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 101
EXHIBIT A-12
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Safepak Liability Lines - (Excluding Property)
(Includes Artisan Contractors, Non-Artisan
Contractors, All Other, & Optometrists/Prof Liab)
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 6,931 97 100 0.0144 3
1986 5,959 7 11 0.0018 4
1987 6,595 9 16 0.0025 7
1988 13,230 102 126 0.0095 24
1989 12,298 55 90 0.0073 35
1990 14,647 250 319 0.0218 69
1991 13,090 115 199 0.0152 84
1992 5,950 7 66 0.0111 59
1993 7,371 2 89 0.0120 87
1994 4,883 1 64 0.0131 63
Total 90,955 645 1,080 435
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 102
EXHIBIT A-13
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Safepak - Property
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 10,398 10,392 4,599 10,402
1986 0 6,411 6,411 2,390 6,415
1987 0 8,111 8,111 1,967 8,114
1988 20,101 8,201 8,199 2,029 8,196
1989 20,898 10,498 10,484 2,579 10,480
1990 24,384 17,782 17,727 2,892 17,691
1991 25,442 12,908 12,850 2,941 12,782
1992 21,789 14,017 11,999 2,447 13,830
1993 19,357 9,903 9,291 2,088 9,796
1994 13,965 6,115 4,449 1,529 7,188
Total 145,936 104,344 99,913 25,462 104,895
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 2,262 0.000 5 11
1986 2,684 0.000 4 4
1987 4,125 0.000 3 3
1988 4,039 0.408 -5 -3
1989 4,064 0.501 -17 -3
1990 6,117 0.726 -91 -36
1991 4,346 0.502 -126 -68
1992 5,652 0.635 -187 1,831
1993 4,691 0.506 -107 505
1994 4,701 0.515 1,073 2,739
Total 550 4,981
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 103
EXHIBIT A-13
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Safepak - Property
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 10,898 10,892 4,599 10,898
1986 0 6,771 6,771 2,390 6,771
1987 0 8,395 8,395 1,967 8,397
1988 20,101 8,455 8,453 2,029 8,459
1989 20,898 11,257 11,243 2,579 11,267
1990 24,384 17,392 17,337 2,892 17,422
1991 25,442 12,976 12,918 2,941 13,012
1992 21,789 13,698 11,680 2,447 13,767
1993 19,357 9,762 9,150 2,088 9,857
1994 13,965 6,042 4,376 1,529 7,252
Total 145,936 105,646 101,215 25,462 107,102
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 2,370 0.000 0 6
1986 2,833 0.000 0 0
1987 4,269 0.000 2 2
1988 4,168 0.421 4 6
1989 4,369 0.539 10 24
1990 6,024 0.714 30 85
1991 4,425 0.511 36 94
1992 5,626 0.632 69 2,087
1993 4,720 0.509 95 707
1994 4,743 0.519 1,210 2,876
Total 1,456 5,887
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 104
EXHIBIT A-13
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Safepak - Property
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 10,898 345 349 0.0321 5
1986 6,771 146 150 0.0222 4
1987 8,397 98 104 0.0124 6
1988 8,459 70 78 0.0092 8
1989 11,267 232 254 0.0225 22
1990 17,422 735 779 0.0447 44
1991 13,012 544 598 0.0460 54
1992 13,767 721 822 0.0597 100
1993 9,857 339 510 0.0518 171
1994 7,252 117 345 0.0476 228
Total 107,102 3,347 3,989 642
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 105
EXHIBIT A-13
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Safepak - Property
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 10,898 845 845 0.0775 0
1986 6,771 506 506 0.0747 0
1987 8,397 382 387 0.0461 5
1988 8,459 324 341 0.0403 17
1989 11,267 991 1,041 0.0924 50
1990 17,422 345 510 0.0293 165
1991 13,012 612 829 0.0637 217
1992 13,767 402 758 0.0551 356
1993 9,857 198 571 0.0580 373
1994 7,252 44 409 0.0564 365
Total 107,102 4,649 6,197 1,548
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 106
EXHIBIT A-14
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Auto - BI & PD (ex Small Claims)
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 84,279 84,237 31,324 84,353
1986 0 60,025 59,968 20,609 60,068
1987 0 50,089 49,907 15,082 50,158
1988 62,699 52,865 52,829 14,818 53,273
1989 67,096 56,969 56,036 14,827 57,289
1990 76,729 61,330 58,080 15,213 61,336
1991 97,725 61,371 57,383 15,595 65,054
1992 127,312 74,148 64,165 18,636 84,196
1993 142,192 75,683 53,879 22,845 99,461
1994 112,240 45,881 21,090 21,730 80,369
Total 685,993 622,639 557,573 190,680 695,558
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 2,693 0.000 74 116
1986 2,915 0.000 42 99
1987 3,326 0.000 69 251
1988 3,595 0.850 408 444
1989 3,864 0.854 320 1,253
1990 4,032 0.799 6 3,256
1991 4,171 0.666 3,683 7,671
1992 4,518 0.661 10,048 20,031
1993 4,354 0.699 23,778 45,582
1994 3,699 0.716 34,488 59,279
Total 72,919 137,985
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 107
EXHIBIT A-14
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Auto - BI & PD (ex Small Claims)
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 83,604 83,562 31,324 83,658
1986 0 59,451 59,394 20,609 59,476
1987 0 49,611 49,429 15,082 49,656
1988 62,699 52,369 52,333 14,818 52,711
1989 67,096 55,928 54,995 14,827 56,102
1990 76,729 59,586 56,336 15,213 59,283
1991 97,725 60,215 56,227 15,595 62,977
1992 127,312 73,824 63,841 18,636 82,014
1993 142,192 75,906 54,102 22,845 96,976
1994 112,240 46,230 21,439 21,730 78,568
Total 685,993 616,724 551,658 190,680 681,421
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 2,671 0.000 54 96
1986 2,886 0.000 25 82
1987 3,292 0.000 45 227
1988 3,557 0.841 342 378
1989 3,784 0.836 174 1,107
1990 3,897 0.773 -303 2,947
1991 4,038 0.644 2,762 6,750
1992 4,401 0.644 8,190 18,173
1993 4,245 0.682 21,070 42,874
1994 3,616 0.700 32,338 57,129
Total 64,697 129,763
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 108
EXHIBIT A-14
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Auto - BI & PD (ex Small Claims)
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 83,658 1,948 1,969 0.0235 21
1986 59,476 1,338 1,358 0.0228 20
1987 49,656 1,006 1,035 0.0208 29
1988 52,711 1,220 1,297 0.0246 77
1989 56,102 1,601 1,768 0.0315 168
1990 59,283 2,400 2,752 0.0464 352
1991 62,977 1,718 2,729 0.0433 1,011
1992 82,014 1,221 3,326 0.0405 2,105
1993 96,976 639 3,862 0.0398 3,224
1994 78,568 110 3,028 0.0385 2,918
Total 681,421 13,200 23,124 9,924
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 109
EXHIBIT A-14
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Auto - BI & PD (ex Small Claims)
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 83,658 1,273 1,274 0.0152 1
1986 59,476 764 766 0.0129 2
1987 49,656 528 533 0.0107 5
1988 52,711 724 734 0.0139 10
1989 56,102 560 581 0.0104 21
1990 59,283 656 699 0.0118 43
1991 62,977 562 652 0.0104 90
1992 82,014 897 1,144 0.0140 247
1993 96,976 862 1,377 0.0142 515
1994 78,568 459 1,227 0.0156 768
Total 681,421 7,285 8,987 1,702
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 110
EXHIBIT A-15
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Commercial Auto - BI & PD
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 61,468 61,437 18,049 61,542
1986 0 42,277 42,275 10,837 42,360
1987 0 52,107 51,923 10,546 52,288
1988 80,309 47,962 47,688 10,795 48,278
1989 72,994 50,720 49,749 9,633 51,313
1990 73,285 45,800 43,162 7,997 46,806
1991 62,902 32,123 28,435 6,362 33,753
1992 56,128 25,684 18,602 5,298 28,788
1993 55,687 25,479 12,812 6,184 33,738
1994 44,256 11,278 5,388 5,621 26,271
Total 445,561 394,898 361,471 91,322 425,137
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 3,410 0.000 74 105
1986 3,909 0.000 83 85
1987 4,958 0.000 181 365
1988 4,472 0.601 316 590
1989 5,327 0.703 593 1,564
1990 5,853 0.639 1,006 3,644
1991 5,305 0.537 1,630 5,318
1992 5,433 0.513 3,104 10,186
1993 5,456 0.606 8,259 20,926
1994 4,674 0.594 14,993 20,883
Total 30,239 63,666
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 111
EXHIBIT A-15
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Commercial Auto - BI & PD
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 58,315 58,284 18,049 58,373
1986 0 40,596 40,594 10,837 40,657
1987 0 49,912 49,728 10,546 50,037
1988 80,309 46,049 45,775 10,795 46,210
1989 72,994 48,736 47,765 9,633 49,029
1990 73,285 43,814 41,176 7,997 44,338
1991 62,902 30,480 26,792 6,362 31,301
1992 56,128 24,829 17,747 5,298 26,737
1993 55,687 24,858 12,191 6,184 31,150
1994 44,256 11,066 5,176 5,621 24,341
Total 445,561 378,655 345,228 91,322 402,172
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 3,234 0.000 58 89
1986 3,752 0.000 61 63
1987 4,745 0.000 125 309
1988 4,281 0.575 161 435
1989 5,090 0.672 293 1,264
1990 5,544 0.605 524 3,162
1991 4,920 0.498 821 4,509
1992 5,046 0.476 1,908 8,990
1993 5,037 0.559 6,292 18,959
1994 4,330 0.550 13,275 19,165
Total 23,517 56,944
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 112
EXHIBIT A-15
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Commercial Auto - BI & PD
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 58,373 3,660 3,677 0.0630 17
1986 40,657 1,981 2,004 0.0493 23
1987 50,037 2,601 2,660 0.0532 59
1988 46,210 2,770 2,934 0.0635 164
1989 49,029 2,354 2,677 0.0546 323
1990 44,338 2,431 2,955 0.0666 524
1991 31,301 1,853 2,717 0.0868 864
1992 26,737 1,038 2,315 0.0866 1,277
1993 31,150 751 2,861 0.0918 2,110
1994 24,341 240 2,143 0.0881 1,903
Total 402,172 19,679 26,943 7,264
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 113
EXHIBIT A-15
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Commercial Auto - BI & PD
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 58,373 507 508 0.0087 1
1986 40,657 300 302 0.0074 2
1987 50,037 406 409 0.0082 3
1988 46,210 857 866 0.0187 9
1989 49,029 370 393 0.0080 23
1990 44,338 445 487 0.0110 42
1991 31,301 210 264 0.0084 54
1992 26,737 183 264 0.0099 81
1993 31,150 130 272 0.0087 142
1994 24,341 28 213 0.0088 185
Total 402,172 3,436 3,978 542
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 114
EXHIBIT A-16
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Injury Protection (ex Small Claims)
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 7,514 7,514 5,138 7,623
1986 0 6,139 6,137 3,584 6,235
1987 0 4,544 4,536 2,785 4,635
1988 7,878 4,925 4,925 2,626 5,037
1989 8,745 6,106 6,079 2,933 6,230
1990 9,824 7,483 7,367 3,101 7,599
1991 10,638 8,045 7,994 3,281 8,221
1992 15,873 10,077 9,900 3,815 10,196
1993 19,811 12,179 11,505 5,500 13,029
1994 15,402 5,806 4,133 4,806 10,027
Total 88,171 72,819 70,091 37,570 78,832
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 1,484 0.000 109 109
1986 1,740 0.000 96 98
1987 1,664 0.000 92 100
1988 1,918 0.639 112 112
1989 2,124 0.712 124 151
1990 2,450 0.774 117 233
1991 2,506 0.773 176 227
1992 2,673 0.642 118 295
1993 2,369 0.658 849 1,523
1994 2,086 0.651 4,220 5,893
Total 6,013 8,741
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 115
EXHIBIT A-16
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Injury Protection (ex Small Claims)
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 8,357 8,357 5,138 8,464
1986 0 6,806 6,804 3,584 6,900
1987 0 5,153 5,145 2,785 5,242
1988 7,878 5,742 5,742 2,626 5,856
1989 8,745 7,009 6,982 2,933 7,162
1990 9,824 8,492 8,376 3,101 8,674
1991 10,638 8,933 8,882 3,281 9,293
1992 15,873 10,970 10,793 3,815 11,624
1993 19,811 12,620 11,946 5,500 14,797
1994 15,402 5,835 4,162 4,806 11,397
Total 88,171 79,917 77,189 37,570 89,411
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 1,647 0.000 107 107
1986 1,925 0.000 94 96
1987 1,882 0.000 89 97
1988 2,230 0.743 114 114
1989 2,442 0.819 153 180
1990 2,797 0.883 182 298
1991 2,833 0.874 360 411
1992 3,047 0.732 654 831
1993 2,690 0.747 2,177 2,851
1994 2,371 0.740 5,562 7,235
Total 9,494 12,222
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 116
EXHIBIT A-16
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Injury Protection (ex Small Claims)
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 8,464 100 102 0.0120 2
1986 6,900 88 90 0.0130 2
1987 5,242 61 63 0.0120 2
1988 5,856 68 73 0.0125 6
1989 7,162 120 133 0.0185 12
1990 8,674 138 166 0.0191 28
1991 9,293 165 224 0.0241 59
1992 11,624 176 295 0.0254 119
1993 14,797 161 424 0.0287 263
1994 11,397 26 308 0.0270 282
Total 89,411 1,104 1,877 773
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 117
EXHIBIT A-16
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Injury Protection (ex Small Claims)
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 8,464 943 943 0.1114 0
1986 6,900 755 755 0.1094 0
1987 5,242 670 670 0.1279 0
1988 5,856 885 892 0.1523 7
1989 7,162 1,023 1,065 0.1486 42
1990 8,674 1,147 1,240 0.1430 93
1991 9,293 1,053 1,296 0.1394 243
1992 11,624 1,069 1,724 0.1483 655
1993 14,797 602 2,193 0.1482 1,591
1994 11,397 55 1,679 0.1473 1,624
Total 89,411 8,202 12,456 4,254
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 118
EXHIBIT A-17
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
GL 55 - (excluding ECU,
AIDS, Prof Liab, Prod Liab)
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 45,260 44,839 7,321 46,889
1986 0 28,150 27,912 4,591 29,583
1987 0 23,991 23,255 3,582 25,883
1988 49,707 24,732 23,301 2,849 27,201
1989 33,188 13,867 12,785 2,013 16,071
1990 36,470 10,134 8,706 1,401 12,497
1991 29,724 8,203 6,267 1,212 11,194
1992 28,722 7,716 4,691 1,099 12,345
1993 36,246 5,525 1,254 1,230 12,599
1994 20,427 2,050 646 1,130 10,738
Total 234,484 169,627 153,655 26,429 204,999
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 6,405 0.000 1,629 2,050
1986 6,443 0.000 1,433 1,671
1987 7,225 0.000 1,891 2,627
1988 9,547 0.547 2,469 3,900
1989 7,985 0.484 2,204 3,286
1990 8,921 0.343 2,363 3,791
1991 9,235 0.377 2,991 4,927
1992 11,233 0.430 4,629 7,654
1993 10,240 0.348 7,074 11,345
1994 9,499 0.526 8,688 10,092
Total 35,372 51,344
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 119
EXHIBIT A-17
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
GL 55 - (excluding ECU,
AIDS, Prof Liab, Prod Liab)
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 33,570 33,149 7,321 34,096
1986 0 22,219 21,981 4,591 22,680
1987 0 19,632 18,896 3,582 20,217
1988 49,707 19,055 17,624 2,849 19,733
1989 33,188 11,307 10,225 2,013 12,083
1990 36,470 8,645 7,217 1,401 9,452
1991 29,724 6,397 4,461 1,212 7,667
1992 28,722 6,747 3,722 1,099 8,803
1993 36,246 5,224 953 1,230 9,103
1994 20,427 1,941 537 1,130 7,745
Total 234,484 134,737 118,765 26,429 151,580
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 4,658 0.000 526 947
1986 4,940 0.000 461 699
1987 5,644 0.000 585 1,321
1988 6,925 0.397 678 2,109
1989 6,004 0.364 776 1,858
1990 6,747 0.259 807 2,235
1991 6,325 0.258 1,270 3,206
1992 8,010 0.307 2,056 5,081
1993 7,399 0.251 3,879 8,150
1994 6,851 0.379 5,804 7,208
Total 16,843 32,815
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 120
EXHIBIT A-17
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
GL 55 - (excluding ECU,
AIDS, Prof Liab, Prod Liab)
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 34,096 12,193 13,322 0.3907 1,129
1986 22,680 6,310 7,316 0.3226 1,006
1987 20,217 4,844 6,204 0.3068 1,359
1988 19,733 6,027 7,899 0.4003 1,872
1989 12,083 2,630 4,133 0.3421 1,503
1990 9,452 2,152 3,803 0.4024 1,652
1991 7,667 1,865 3,688 0.4810 1,823
1992 8,803 1,002 3,756 0.4266 2,753
1993 9,103 302 3,716 0.4082 3,414
1994 7,745 109 3,199 0.4131 3,090
Total 151,580 37,433 57,036 19,602
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 121
EXHIBIT A-17
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
GL 55 - (excluding ECU,
AIDS, Prof Liab, Prod Liab)
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 34,096 503 529 0.0155 26
1986 22,680 379 413 0.0182 34
1987 20,217 485 538 0.0266 53
1988 19,733 350 431 0.0218 81
1989 12,083 70 145 0.0120 75
1990 9,452 663 759 0.0803 96
1991 7,667 59 160 0.0209 101
1992 8,803 33 214 0.0243 181
1993 9,103 1 221 0.0243 220
1994 7,745 0 205 0.0265 205
Total 151,580 2,543 3,616 1,073
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 122
EXHIBIT A-18
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Products Liability
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 3,373 3,358 528 3,926
1986 0 4,650 4,644 357 5,396
1987 0 2,744 2,274 349 3,265
1988 0 2,657 2,489 203 3,435
1989 0 792 787 163 1,396
1990 0 1,526 1,331 202 2,640
1991 0 757 496 228 1,899
1992 0 604 332 203 1,863
1993 0 286 123 286 2,638
1994 0 346 202 151 2,159
Total 0 17,736 16,037 2,671 28,618
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 7,431 0.000 552 567
1986 15,095 0.000 746 752
1987 9,343 0.000 521 991
1988 16,912 0.000 778 946
1989 8,572 0.000 603 608
1990 13,045 0.000 1,114 1,309
1991 8,343 0.000 1,143 1,404
1992 9,186 0.000 1,258 1,530
1993 9,217 0.000 2,352 2,515
1994 14,335 0.000 1,813 1,957
Total 10,882 12,581
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 123
EXHIBIT A-18
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Products Liability
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 2,336 2,321 528 2,629
1986 0 3,188 3,182 357 3,437
1987 0 1,810 1,340 349 1,921
1988 0 1,850 1,682 203 2,046
1989 0 463 458 163 771
1990 0 1,031 836 202 1,422
1991 0 469 208 228 1,000
1992 0 449 177 203 997
1993 0 261 98 286 1,458
1994 0 338 194 151 1,191
Total 0 12,195 10,496 2,671 16,871
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 4,976 0.000 293 308
1986 9,615 0.000 249 255
1987 5,496 0.000 111 581
1988 10,072 0.000 196 364
1989 4,737 0.000 308 313
1990 7,027 0.000 391 586
1991 4,391 0.000 531 792
1992 4,918 0.000 548 820
1993 5,092 0.000 1,197 1,360
1994 7,905 0.000 853 997
Total 4,676 6,375
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 124
EXHIBIT A-18
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Products Liability
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 2,629 1,056 1,317 0.5009 260
1986 3,437 1,530 2,030 0.5905 500
1987 1,921 935 1,347 0.7016 413
1988 2,046 808 1,393 0.6810 585
1989 771 335 632 0.8190 296
1990 1,422 495 1,221 0.8585 726
1991 1,000 288 902 0.9028 615
1992 997 155 869 0.8718 714
1993 1,458 25 1,187 0.8145 1,163
1994 1,191 8 974 0.8184 966
Total 16,871 5,636 11,873 6,237
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 125
EXHIBIT A-18
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Products Liability
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 2,629 19 20 0.0076 1
1986 3,437 68 71 0.0206 3
1987 1,921 1 3 0.0015 2
1988 2,046 1 4 0.0018 3
1989 771 6 7 0.0095 1
1990 1,422 0 3 0.0021 3
1991 1,000 0 3 0.0026 3
1992 997 0 4 0.0040 4
1993 1,458 0 7 0.0046 7
1994 1,191 0 6 0.0051 6
Total 16,871 95 127 32
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 126
EXHIBIT A-19
Sheet 1
PROJECT ACE
Analysis of Reserves as of September 30, 1994
Net of Reinsurance
Umbrella Countrywide (Net)
Commercial Data + Specialty Data
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1975 0 291 291 0 293
1976 0 655 654 0 661
1977 0 1,520 1,516 0 1,539
1978 0 953 953 0 974
1979 0 372 372 0 393
1980 0 899 899 0 949
1981 0 5,971 5,971 0 6,417
1982 0 8,837 8,837 0 9,733
1983 0 6,961 6,873 0 7,874
1984 0 7,335 7,242 0 8,569
1985 0 11,026 10,228 581 13,288
1986 0 6,147 5,929 400 8,135
1987 0 3,566 3,518 350 5,855
1988 38,918 11,972 11,972 369 15,513
1989 32,979 8,663 8,264 425 14,078
1990 48,900 8,213 4,223 476 16,770
1991 54,290 12,450 7,557 456 25,118
1992 49,297 9,684 4,188 476 27,430
1993 44,693 3,764 7 489 25,712
1994 19,202 457 6 234 12,083
Total 288,279 109,738 89,501 4,255 201,381
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1975 0 0.000 3 3
1976 0 0.000 5 6
1977 0 0.000 19 23
1978 0 0.000 21 21
1979 0 0.000 21 21
1980 0 0.000 51 51
1981 0 0.000 445 445
1982 0 0.000 896 896
1983 0 0.000 913 1,001
1984 0 0.000 1,234 1,327
1985 22,886 0.000 2,262 3,060
1986 20,347 0.000 1,987 2,205
1987 16,721 0.000 2,289 2,337
1988 42,044 0.399 3,541 3,541
1989 33,146 0.427 5,415 5,813
1990 35,265 0.343 8,557 12,547
1991 55,068 0.463 12,667 17,561
1992 57,629 0.556 17,746 23,242
1993 52,557 0.575 21,947 25,705
1994 51,672 0.629 11,626 12,077
Total 91,644 111,880
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 127
EXHIBIT A-19
Sheet 2
PROJECT ACE
Analysis of Reserves as of September 30, 1994
Net of Reinsurance
Umbrella Countrywide (Net)
Commercial Data + Specialty Data
Summary of Ultimate Losses And Indicated Loss Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1975 0 259 259 0 260
1976 0 613 612 0 617
1977 0 1,454 1,450 0 1,469
1978 0 934 934 0 954
1979 0 216 216 0 224
1980 0 867 867 0 915
1981 0 5,872 5,872 0 6,307
1982 0 8,593 8,593 0 9,461
1983 0 5,071 4,983 0 5,722
1984 0 6,231 6,138 0 7,249
1985 0 10,261 9,463 581 12,352
1986 0 5,680 5,462 400 7,537
1987 0 3,402 3,354 350 5,577
1988 38,918 11,832 11,832 369 15,022
1989 32,979 8,427 8,028 425 13,466
1990 48,900 8,008 4,018 476 16,041
1991 54,290 12,114 7,221 456 23,778
1992 49,297 9,652 4,156 476 26,200
1993 44,693 3,759 2 489 24,526
1994 19,202 456 5 234 11,521
Total 288,279 103,703 83,466 4,255 189,196
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1975 0 0.000 1 1
1976 0 0.000 3 4
1977 0 0.000 15 19
1978 0 0.000 20 20
1979 0 0.000 8 8
1980 0 0.000 48 48
1981 0 0.000 435 435
1982 0 0.000 868 868
1983 0 0.000 652 739
1984 0 0.000 1,018 1,111
1985 21,273 0.000 2,091 2,888
1986 18,852 0.000 1,857 2,075
1987 15,926 0.000 2,175 2,223
1988 40,715 0.386 3,190 3,190
1989 31,707 0.408 5,039 5,438
1990 33,732 0.328 8,033 12,023
1991 52,130 0.438 11,663 16,557
1992 55,045 0.531 16,548 22,044
1993 50,133 0.549 20,766 24,524
1994 49,268 0.600 11,065 11,516
Total 85,494 105,730
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 128
EXHIBIT A-19
Sheet 3
PROJECT ACE
Analysis of Reserves as of September 30, 1994
Net of Reinsurance
Umbrella Countrywide (Net)
Commercial Data + Specialty Data
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1975 260 32 33 0.1280 1
1976 617 42 44 0.0716 2
1977 1,469 66 70 0.0477 4
1978 954 19 20 0.0213 1
1979 224 156 169 0.7544 13
1980 915 32 35 0.0382 3
1981 6,307 99 109 0.0173 10
1982 9,461 244 272 0.0288 28
1983 5,722 1,890 2,152 0.3760 262
1984 7,249 1,104 1,320 0.1821 216
1985 12,352 765 936 0.0758 171
1986 7,537 467 598 0.0793 131
1987 5,577 164 278 0.0499 114
1988 15,022 140 490 0.0326 350
1989 13,466 236 611 0.0454 375
1990 16,041 205 729 0.0455 524
1991 23,778 336 1,340 0.0564 1,004
1992 26,200 32 1,230 0.0469 1,198
1993 24,526 5 1,186 0.0484 1,181
1994 11,521 1 562 0.0488 561
Total 189,196 6,035 12,185 6,150
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 129
EXHIBIT A-20
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Fire
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 6,711 6,711 762 6,712
1986 0 5,247 5,247 659 5,248
1987 0 4,604 4,604 581 4,607
1988 22,922 7,218 7,218 524 7,229
1989 17,228 7,239 7,239 545 7,252
1990 14,617 2,650 2,650 443 2,644
1991 14,103 3,954 3,849 411 3,949
1992 14,041 2,808 2,808 368 2,825
1993 18,784 3,255 3,205 423 3,279
1994 9,179 2,330 1,876 360 2,793
Total 110,874 46,016 45,407 5,076 46,538
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 8,809 0.000 1 1
1986 7,964 0.000 2 2
1987 7,929 0.000 3 3
1988 13,796 0.315 11 11
1989 13,306 0.421 12 12
1990 5,969 0.181 -6 -6
1991 9,605 0.280 -5 100
1992 7,669 0.201 17 17
1993 7,759 0.175 24 74
1994 7,753 0.304 463 917
Total 522 1,131
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 130
EXHIBIT A-20
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Fire
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 6,456 6,456 762 6,456
1986 0 5,291 5,291 659 5,291
1987 0 4,772 4,772 581 4,772
1988 22,922 7,875 7,875 524 7,875
1989 17,228 7,317 7,317 545 7,317
1990 14,617 2,587 2,587 443 2,587
1991 14,103 3,780 3,675 411 3,780
1992 14,041 2,773 2,773 368 2,781
1993 18,784 3,248 3,198 423 3,281
1994 9,179 2,303 1,849 360 2,785
Total 110,874 46,402 45,793 5,076 46,925
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 8,472 0.000 0 0
1986 8,029 0.000 0 0
1987 8,213 0.000 0 0
1988 15,029 0.344 0 0
1989 13,426 0.425 0 0
1990 5,840 0.177 0 0
1991 9,194 0.268 0 105
1992 7,550 0.198 8 8
1993 7,763 0.175 33 83
1994 7,731 0.303 482 936
Total 523 1,132
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 131
EXHIBIT A-20
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Fire
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 6,456 392 393 0.0609 1
1986 5,291 177 178 0.0337 2
1987 4,772 102 105 0.0219 3
1988 7,875 203 215 0.0273 11
1989 7,317 122 142 0.0194 20
1990 2,587 113 113 0.0437 0
1991 3,780 199 208 0.0549 9
1992 2,781 128 154 0.0556 27
1993 3,281 79 127 0.0386 47
1994 2,785 27 115 0.0413 88
Total 46,925 1,542 1,750 208
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 132
EXHIBIT A-20
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Fire
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 6,456 137 137 0.0212 0
1986 5,291 221 221 0.0418 0
1987 4,772 270 270 0.0566 0
1988 7,875 860 861 0.1093 1
1989 7,317 200 208 0.0284 8
1990 2,587 50 56 0.0216 6
1991 3,780 25 39 0.0102 14
1992 2,781 93 111 0.0398 18
1993 3,281 72 128 0.0391 56
1994 2,785 0 107 0.0385 107
Total 46,925 1,928 2,137 209
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 133
EXHIBIT A-21
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Home (excluding Small Claims)
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 59,838 59,833 34,617 59,867
1986 0 43,043 43,042 24,960 43,086
1987 0 33,557 33,537 18,480 33,616
1988 66,562 35,167 34,943 16,785 35,157
1989 71,069 42,228 42,016 18,792 42,286
1990 79,901 47,076 46,652 19,565 47,540
1991 86,396 46,064 45,038 20,013 46,952
1992 82,463 40,172 37,928 17,034 40,942
1993 78,111 45,283 42,121 17,491 48,361
1994 61,623 27,882 23,613 18,110 38,619
Total 526,125 420,309 408,722 205,847 436,426
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 1,729 0.000 29 34
1986 1,726 0.000 44 45
1987 1,819 0.000 60 80
1988 2,095 0.528 -10 214
1989 2,250 0.595 58 270
1990 2,430 0.595 464 888
1991 2,346 0.543 888 1,914
1992 2,404 0.496 770 3,014
1993 2,765 0.619 3,077 6,239
1994 2,132 0.627 10,737 15,006
Total 16,116 27,703
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 134
EXHIBIT A-21
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Home (excluding Small Claims)
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 59,010 59,005 34,617 59,010
1986 0 42,933 42,932 24,960 42,935
1987 0 33,375 33,355 18,480 33,383
1988 66,562 35,177 34,953 16,785 35,088
1989 71,069 41,429 41,217 18,792 41,366
1990 79,901 45,786 45,362 19,565 46,045
1991 86,396 44,750 43,724 20,013 45,169
1992 82,463 38,952 36,708 17,034 39,209
1993 78,111 44,399 41,237 17,491 46,752
1994 61,623 27,611 23,342 18,110 37,474
Total 526,125 413,422 401,835 205,847 426,431
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 1,705 0.000 0 5
1986 1,720 0.000 2 3
1987 1,806 0.000 8 28
1988 2,090 0.527 -89 135
1989 2,201 0.582 -63 149
1990 2,353 0.576 259 683
1991 2,257 0.523 419 1,445
1992 2,302 0.475 257 2,501
1993 2,673 0.599 2,353 5,515
1994 2,069 0.608 9,863 14,132
Total 13,009 24,596
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 135
EXHIBIT A-21
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Home (excluding Small Claims)
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 59,010 1,601 1,635 0.0277 34
1986 42,935 1,260 1,309 0.0305 49
1987 33,383 836 896 0.0268 61
1988 35,088 538 629 0.0179 91
1989 41,366 1,413 1,562 0.0378 149
1990 46,045 2,582 2,861 0.0621 280
1991 45,169 2,174 2,747 0.0608 573
1992 39,209 1,492 2,229 0.0568 737
1993 46,752 1,076 2,270 0.0486 1,194
1994 37,474 336 1,811 0.0483 1,474
Total 426,431 13,307 17,949 4,641
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 136
EXHIBIT A-21
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Home (excluding Small Claims)
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 59,010 773 778 0.0132 5
1986 42,935 1,150 1,157 0.0270 7
1987 33,383 654 663 0.0199 9
1988 35,088 548 559 0.0159 11
1989 41,366 614 642 0.0155 28
1990 46,045 1,292 1,366 0.0297 74
1991 45,169 860 964 0.0213 104
1992 39,209 272 496 0.0127 224
1993 46,752 192 661 0.0141 469
1994 37,474 65 665 0.0177 600
Total 426,431 6,420 7,954 1,534
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 137
EXHIBIT A-22
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Ocean Marine
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 7,545 7,542 2,889 7,583
1986 0 8,031 8,006 2,771 8,056
1987 0 8,597 8,605 2,953 8,661
1988 14,581 7,700 7,699 2,760 7,765
1989 14,544 9,956 9,910 2,678 10,009
1990 18,761 14,880 14,753 3,195 15,031
1991 22,528 16,497 15,714 3,246 16,656
1992 32,211 21,331 19,675 3,872 21,724
1993 44,959 32,410 24,549 4,577 31,537
1994 36,653 13,764 7,535 3,867 25,293
Total 184,237 140,713 123,990 32,809 152,315
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 2,625 0.000 38 41
1986 2,907 0.000 25 50
1987 2,933 0.000 64 56
1988 2,814 0.533 65 66
1989 3,737 0.688 53 99
1990 4,705 0.801 150 277
1991 5,131 0.739 159 942
1992 5,611 0.674 393 2,049
1993 6,890 0.701 -873 6,988
1994 6,540 0.690 11,528 17,757
Total 11,602 28,325
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 138
EXHIBIT A-22
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Ocean Marine
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 8,003 8,000 2,889 8,039
1986 0 8,447 8,422 2,771 8,474
1987 0 9,514 9,522 2,953 9,590
1988 14,581 7,890 7,889 2,760 7,973
1989 14,544 10,336 10,290 2,678 10,417
1990 18,761 14,920 14,793 3,195 15,062
1991 22,528 16,313 15,530 3,246 16,446
1992 32,211 21,358 19,702 3,872 21,935
1993 44,959 32,890 25,029 4,577 33,107
1994 36,653 13,485 7,256 3,867 26,011
Total 184,237 143,156 126,433 32,809 157,053
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 2,783 0.000 36 39
1986 3,058 0.000 27 52
1987 3,247 0.000 76 68
1988 2,889 0.547 83 84
1989 3,889 0.716 81 127
1990 4,714 0.803 142 269
1991 5,066 0.730 133 916
1992 5,665 0.681 577 2,233
1993 7,233 0.736 217 8,078
1994 6,726 0.710 12,526 18,755
Total 13,897 30,620
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 139
EXHIBIT A-22
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Ocean Marine
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 8,039 831 845 0.1051 14
1986 8,474 937 955 0.1127 17
1987 9,590 778 804 0.0838 26
1988 7,973 821 852 0.1069 31
1989 10,417 1,065 1,116 0.1071 50
1990 15,062 1,494 1,671 0.1110 177
1991 16,446 1,418 1,790 0.1088 372
1992 21,935 1,397 2,170 0.0989 773
1993 33,107 1,528 3,289 0.0994 1,761
1994 26,011 367 2,685 0.1032 2,318
Total 157,053 10,638 16,177 5,539
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 140
EXHIBIT A-22
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Ocean Marine
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 8,039 1,289 1,301 0.1618 12
1986 8,474 1,353 1,373 0.1620 20
1987 9,590 1,695 1,733 0.1807 38
1988 7,973 1,011 1,061 0.1330 50
1989 10,417 1,445 1,523 0.1462 78
1990 15,062 1,534 1,702 0.1130 168
1991 16,446 1,234 1,580 0.0961 346
1992 21,935 1,424 2,381 0.1086 957
1993 33,107 2,008 4,859 0.1468 2,851
1994 26,011 88 3,403 0.1308 3,315
Total 157,053 13,081 20,915 7,834
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 141
EXHIBIT A-23
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Inland Marine
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 23,710 23,710 7,330 23,710
1986 0 15,717 15,717 5,261 15,717
1987 0 18,285 18,285 4,209 18,285
1988 52,938 17,684 17,684 4,056 17,687
1989 50,261 16,556 16,556 3,995 16,552
1990 59,468 20,109 20,024 4,212 20,074
1991 60,724 23,568 23,511 4,803 23,577
1992 60,217 16,084 15,900 3,357 16,455
1993 68,798 27,689 26,288 3,559 28,657
1994 55,268 24,252 11,364 3,220 28,749
Total 407,674 203,654 189,039 44,002 209,464
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 3,235 0.000 0 0
1986 2,987 0.000 0 0
1987 4,344 0.000 1 1
1988 4,360 0.334 3 3
1989 4,143 0.329 -3 -3
1990 4,766 0.338 -35 50
1991 4,909 0.388 10 67
1992 4,902 0.273 371 555
1993 8,052 0.417 968 2,369
1994 8,929 0.520 4,497 17,385
Total 5,811 20,426
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 142
EXHIBIT A-23
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Inland Marine
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 24,371 24,371 7,330 24,371
1986 0 16,322 16,322 5,261 16,322
1987 0 18,794 18,794 4,209 18,794
1988 52,938 17,993 17,993 4,056 17,993
1989 50,261 17,095 17,095 3,995 17,077
1990 59,468 20,424 20,339 4,212 20,383
1991 60,724 21,806 21,749 4,803 21,730
1992 60,217 16,046 15,862 3,357 16,056
1993 68,798 27,258 25,857 3,559 27,475
1994 55,268 24,021 11,133 3,220 27,675
Total 407,674 204,130 189,515 44,002 207,875
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 3,325 0.000 0 0
1986 3,102 0.000 0 0
1987 4,465 0.000 0 0
1988 4,436 0.340 0 0
1989 4,275 0.340 -18 -18
1990 4,839 0.343 -41 44
1991 4,524 0.358 -76 -19
1992 4,783 0.267 10 194
1993 7,720 0.399 217 1,618
1994 8,596 0.501 3,654 16,542
Total 3,745 18,360
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 143
EXHIBIT A-23
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Inland Marine
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 24,371 566 566 0.0232 0
1986 16,322 310 310 0.0190 0
1987 18,794 188 188 0.0100 1
1988 17,993 584 595 0.0331 11
1989 17,077 403 445 0.0261 42
1990 20,383 740 831 0.0408 91
1991 21,730 2,345 2,569 0.1182 225
1992 16,056 776 1,291 0.0804 514
1993 27,475 965 2,207 0.0803 1,242
1994 27,675 423 2,213 0.0800 1,790
Total 207,875 7,300 11,216 3,916
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 144
EXHIBIT A-23
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Inland Marine
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 24,371 1,227 1,227 0.0503 0
1986 16,322 915 915 0.0561 0
1987 18,794 697 697 0.0371 0
1988 17,993 893 902 0.0501 9
1989 17,077 942 970 0.0568 28
1990 20,383 1,055 1,139 0.0559 84
1991 21,730 583 722 0.0332 139
1992 16,056 738 891 0.0555 153
1993 27,475 534 1,025 0.0373 491
1994 27,675 192 1,139 0.0412 947
Total 207,875 7,776 9,627 1,851
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 145
EXHIBIT A-24
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Auto Physical Damage
(excluding Small Claims)
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 41,885 41,885 62,397 41,876
1986 0 27,903 27,903 40,140 27,892
1987 0 22,035 22,035 28,550 22,020
1988 49,049 23,057 23,057 27,261 23,026
1989 52,125 26,998 26,998 29,735 26,960
1990 57,435 29,510 29,504 30,383 29,446
1991 60,491 29,702 29,702 28,576 29,621
1992 66,301 33,507 33,460 27,582 33,334
1993 67,827 38,827 38,800 30,495 38,244
1994 52,873 29,704 29,095 28,022 27,070
Total 406,101 303,128 302,439 333,141 299,490
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 671 0.000 -9 -9
1986 695 0.000 -11 -11
1987 771 0.000 -14 -14
1988 845 0.469 -31 -31
1989 907 0.517 -38 -38
1990 969 0.513 -63 -57
1991 1,037 0.490 -81 -81
1992 1,209 0.503 -173 -126
1993 1,254 0.564 -583 -556
1994 966 0.512 -2,634 -2,025
Total -3,638 -2,949
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 146
EXHIBIT A-24
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Auto Physical Damage
(excluding Small Claims)
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 48,480 48,480 62,397 48,480
1986 0 32,462 32,462 40,140 32,462
1987 0 25,937 25,937 28,550 25,937
1988 49,049 27,053 27,053 27,261 27,056
1989 52,125 31,626 31,626 29,735 31,632
1990 57,435 33,641 33,635 30,383 33,654
1991 60,491 33,297 33,297 28,576 33,327
1992 66,301 37,548 37,501 27,582 37,619
1993 67,827 43,883 43,856 30,495 44,134
1994 52,873 31,691 31,082 28,022 31,724
Total 406,101 345,618 344,929 333,141 346,025
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 777 0.000 0 0
1986 809 0.000 0 0
1987 908 0.000 0 0
1988 992 0.552 3 3
1989 1,064 0.607 6 6
1990 1,108 0.586 13 19
1991 1,166 0.551 30 30
1992 1,364 0.567 71 118
1993 1,447 0.651 251 278
1994 1,132 0.600 33 642
Total 407 1,096
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 147
EXHIBIT A-24
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Auto Physical Damage
(excluding Small Claims)
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 48,480 182 184 0.0038 2
1986 32,462 198 200 0.0062 1
1987 25,937 87 88 0.0034 2
1988 27,056 47 49 0.0018 3
1989 31,632 160 170 0.0054 11
1990 33,654 714 726 0.0216 12
1991 33,327 724 743 0.0223 20
1992 37,619 592 627 0.0167 35
1993 44,134 474 545 0.0124 71
1994 31,724 190 373 0.0117 182
Total 346,025 3,368 3,706 338
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 148
EXHIBIT A-24
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Personal Auto Physical Damage
(excluding Small Claims)
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 48,480 6,777 6,788 0.1400 11
1986 32,462 4,757 4,770 0.1469 13
1987 25,937 3,989 4,005 0.1544 16
1988 27,056 4,043 4,079 0.1508 36
1989 31,632 4,788 4,843 0.1531 55
1990 33,654 4,845 4,934 0.1466 89
1991 33,327 4,319 4,450 0.1335 131
1992 37,619 4,633 4,912 0.1306 279
1993 44,134 5,530 6,435 0.1458 905
1994 31,724 2,177 5,026 0.1584 2,849
Total 346,025 45,858 50,241 4,383
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 149
EXHIBIT A-25
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Commercial Auto Physical Damage
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 21,363 21,363 16,579 21,359
1986 0 13,663 13,663 9,467 13,660
1987 0 14,217 14,217 8,280 14,211
1988 33,946 13,770 13,770 8,637 13,764
1989 27,740 12,733 12,733 7,719 12,729
1990 27,301 12,327 12,327 6,970 12,339
1991 29,615 15,407 15,407 6,269 15,535
1992 29,353 15,443 15,444 5,773 15,631
1993 19,807 11,117 11,023 5,453 11,273
1994 13,680 6,688 6,430 4,347 7,591
Total 181,442 136,728 136,377 79,494 138,094
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 1,288 0.000 -4 -4
1986 1,443 0.000 -3 -3
1987 1,716 0.000 -5 -5
1988 1,594 0.405 -5 -5
1989 1,649 0.459 -4 -4
1990 1,770 0.452 12 12
1991 2,478 0.525 128 128
1992 2,708 0.533 187 186
1993 2,067 0.569 156 250
1994 1,746 0.555 903 1,161
Total 1,365 1,716
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 150
EXHIBIT A-25
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Commercial Auto Physical Damage
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 24,826 24,826 16,579 24,826
1986 0 15,891 15,891 9,467 15,891
1987 0 16,290 16,290 8,280 16,290
1988 33,946 15,958 15,958 8,637 15,958
1989 27,740 14,619 14,619 7,719 14,620
1990 27,301 13,326 13,326 6,970 13,330
1991 29,615 16,283 16,283 6,269 16,293
1992 29,353 16,548 16,549 5,773 16,571
1993 19,807 12,179 12,085 5,453 12,303
1994 13,680 6,901 6,643 4,347 8,269
Total 181,442 152,821 152,470 79,494 154,351
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 1,497 0.000 0 0
1986 1,679 0.000 0 0
1987 1,967 0.000 0 0
1988 1,848 0.470 0 0
1989 1,894 0.527 1 1
1990 1,912 0.488 4 4
1991 2,599 0.550 10 10
1992 2,871 0.565 23 22
1993 2,256 0.621 124 218
1994 1,902 0.604 1,368 1,626
Total 1,530 1,881
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 151
EXHIBIT A-25
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Commercial Auto Physical Damage
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 24,826 79 79 0.0032 0
1986 15,891 100 101 0.0064 1
1987 16,290 601 603 0.0370 2
1988 15,958 109 113 0.0071 4
1989 14,620 188 202 0.0138 14
1990 13,330 681 726 0.0545 45
1991 16,293 1,117 1,306 0.0802 189
1992 16,571 960 1,234 0.0745 274
1993 12,303 511 797 0.0648 286
1994 8,269 183 455 0.0550 272
Total 154,351 4,529 5,616 1,086
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 152
EXHIBIT A-25
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Commercial Auto Physical Damage
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 24,826 3,542 3,546 0.1428 4
1986 15,891 2,328 2,332 0.1467 4
1987 16,290 2,674 2,681 0.1646 7
1988 15,958 2,297 2,307 0.1446 10
1989 14,620 2,074 2,093 0.1432 19
1990 13,330 1,680 1,717 0.1288 37
1991 16,293 1,993 2,063 0.1266 70
1992 16,571 2,065 2,175 0.1312 110
1993 12,303 1,573 1,828 0.1485 255
1994 8,269 396 1,133 0.1370 737
Total 154,351 20,622 21,874 1,252
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 153
EXHIBIT A-26
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Miscellaneous Schedule O - Total
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 7,883 7,800 3,292 7,868
1986 0 4,287 4,292 2,220 4,282
1987 0 11,183 11,350 2,042 11,219
1988 25,937 7,034 6,595 2,031 7,160
1989 24,768 5,744 6,140 2,061 6,254
1990 25,755 5,122 5,227 1,799 5,689
1991 28,695 10,859 12,221 1,815 12,681
1992 31,272 11,643 13,043 1,701 14,162
1993 38,315 4,266 4,028 1,864 10,624
1994 29,361 2,446 2,172 1,995 8,233
Total 204,103 70,467 72,868 20,821 88,171
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 2,390 0.000 -15 68
1986 1,928 0.000 -5 -10
1987 5,493 0.000 35 -132
1988 3,526 0.276 126 565
1989 3,034 0.253 511 115
1990 3,162 0.221 567 462
1991 6,987 0.442 1,822 460
1992 8,325 0.453 2,519 1,119
1993 5,700 0.277 6,359 6,597
1994 4,126 0.280 5,787 6,061
Total 17,705 15,304
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 154
EXHIBIT A-26
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Miscellaneous Schedule O - Total
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 10,660 10,577 3,292 10,660
1986 0 4,911 4,916 2,220 4,911
1987 0 10,642 10,809 2,042 10,642
1988 25,937 5,611 5,172 2,031 5,635
1989 24,768 5,667 6,063 2,061 5,962
1990 25,755 4,916 5,021 1,799 5,185
1991 28,695 9,762 11,124 1,815 10,763
1992 31,272 10,909 12,309 1,701 12,401
1993 38,315 4,109 3,871 1,864 9,579
1994 29,361 2,355 2,081 1,995 7,340
Total 204,103 69,542 71,943 20,821 83,079
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 3,238 0.000 0 83
1986 2,212 0.000 0 -5
1987 5,210 0.000 0 -167
1988 2,775 0.217 24 463
1989 2,893 0.241 295 -101
1990 2,883 0.201 269 164
1991 5,930 0.375 1,001 -361
1992 7,290 0.397 1,492 92
1993 5,139 0.250 5,470 5,708
1994 3,679 0.250 4,985 5,259
Total 13,537 11,136
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 155
EXHIBIT A-26
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Miscellaneous Schedule O - Total
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 10,660 378 399 0.0374 21
1986 4,911 375 397 0.0809 22
1987 10,642 975 1,092 0.1026 117
1988 5,635 1,639 1,799 0.3192 160
1989 5,962 362 660 0.1107 298
1990 5,185 451 850 0.1640 399
1991 10,763 1,577 2,722 0.2529 1,145
1992 12,401 897 2,453 0.1978 1,556
1993 9,579 203 1,649 0.1722 1,447
1994 7,340 92 1,397 0.1903 1,305
Total 83,079 6,949 13,420 6,471
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 156
EXHIBIT A-26
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Miscellaneous Schedule O - Total
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 10,660 3,155 3,191 0.2993 36
1986 4,911 999 1,026 0.2090 27
1987 10,642 434 515 0.0484 81
1988 5,635 216 274 0.0486 58
1989 5,962 285 368 0.0618 83
1990 5,185 245 347 0.0669 102
1991 10,763 480 805 0.0748 325
1992 12,401 163 692 0.0558 529
1993 9,579 46 604 0.0630 558
1994 7,340 1 504 0.0687 503
Total 83,079 6,024 8,327 2,303
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 157
EXHIBIT A-27
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Miscellaneous Other P & L
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 8,975 8,935 3,688 8,979
1986 0 6,513 6,513 3,208 6,518
1987 0 7,733 7,708 2,646 7,745
1988 11,246 7,098 7,093 2,598 7,119
1989 11,200 6,776 6,755 2,753 6,808
1990 11,453 7,054 7,049 2,543 7,102
1991 11,339 7,272 7,197 2,012 7,384
1992 9,278 4,245 3,673 1,113 4,389
1993 7,976 2,372 2,292 672 2,545
1994 4,434 1,232 1,137 488 1,741
Total 66,926 59,270 58,352 21,721 60,331
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 2,435 0.000 4 44
1986 2,032 0.000 5 5
1987 2,927 0.000 11 36
1988 2,740 0.633 21 26
1989 2,473 0.608 32 53
1990 2,793 0.620 48 53
1991 3,670 0.651 112 187
1992 3,944 0.473 144 716
1993 3,789 0.319 173 253
1994 3,569 0.393 510 605
Total 1,061 1,979
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 158
EXHIBIT A-27
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Miscellaneous Other P & L
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 8,672 8,632 3,688 8,672
1986 0 6,322 6,322 3,208 6,322
1987 0 7,470 7,445 2,646 7,470
1988 11,246 6,793 6,788 2,598 6,793
1989 11,200 6,543 6,522 2,753 6,543
1990 11,453 6,718 6,713 2,543 6,718
1991 11,339 6,830 6,755 2,012 6,830
1992 9,278 4,041 3,469 1,113 4,079
1993 7,976 2,208 2,128 672 2,292
1994 4,434 1,179 1,084 488 1,590
Total 66,926 56,776 55,858 21,721 57,309
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 2,351 0.000 0 40
1986 1,971 0.000 0 0
1987 2,823 0.000 0 25
1988 2,615 0.604 0 5
1989 2,376 0.584 0 21
1990 2,642 0.587 0 5
1991 3,394 0.602 0 75
1992 3,665 0.440 38 610
1993 3,412 0.287 84 164
1994 3,259 0.359 411 506
Total 533 1,451
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 159
EXHIBIT A-27
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Miscellaneous Other P & L
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 8,672 488 492 0.0567 4
1986 6,322 290 295 0.0467 5
1987 7,470 308 320 0.0428 12
1988 6,793 389 410 0.0604 21
1989 6,543 268 300 0.0459 32
1990 6,718 399 449 0.0669 50
1991 6,830 485 604 0.0884 119
1992 4,079 311 430 0.1053 119
1993 2,292 171 273 0.1189 101
1994 1,590 66 180 0.1135 115
Total 57,309 3,175 3,753 578
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 160
EXHIBIT A-27
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
Miscellaneous Other P & L
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 8,672 185 185 0.0213 0
1986 6,322 99 99 0.0157 0
1987 7,470 45 45 0.0060 0
1988 6,793 84 84 0.0124 0
1989 6,543 35 36 0.0054 1
1990 6,718 63 65 0.0097 2
1991 6,830 43 50 0.0073 7
1992 4,079 107 120 0.0293 13
1993 2,292 7 19 0.0084 12
1994 1,590 13 29 0.0183 16
Total 57,309 681 732 51
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 161
EXHIBIT A-28
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
D&O Primary + D&O Excess
Summary of Indicated Loss & ALAE Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0 0
1981 0 0 0 0 0
1982 0 0 0 0 0
1983 0 0 0 0 0
1984 0 0 0 0 0
1985 0 0 0 0 0
1986 0 0 0 4 153
1987 14,517 3,503 3,503 64 3,526
1988 34,356 2,995 2,906 103 3,064
1989 36,059 11,530 8,503 128 12,172
1990 39,596 41,830 17,750 174 45,696
1991 48,570 5,149 -463 162 15,591
1992 61,610 15,418 12,007 166 26,369
1993 69,983 14,251 113 189 37,441
1994 65,789 20,100 53 212 50,905
Total 370,480 114,778 44,373 1,202 194,916
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 0 0.000 0 0
1981 0 0.000 0 0
1982 0 0.000 0 0
1983 0 0.000 0 0
1984 0 0.000 0 0
1985 0 0.000 0 0
1986 38,132 0.000 153 153
1987 55,094 0.243 23 23
1988 29,747 0.089 68 158
1989 95,095 0.338 642 3,669
1990 262,618 1.154 3,865 27,945
1991 96,116 0.321 10,442 16,054
1992 159,064 0.428 10,951 14,362
1993 198,034 0.535 23,190 37,328
1994 239,963 0.774 30,805 50,852
Total 80,139 150,543
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 162
EXHIBIT A-28
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
D&O Primary + D&O Excess
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0 0
1981 0 0 0 0 0
1982 0 0 0 0 0
1983 0 0 0 0 0
1984 0 0 0 0 0
1985 0 0 0 0 0
1986 0 0 0 4 147
1987 14,517 3,324 3,324 64 3,335
1988 34,356 2,785 2,696 103 2,834
1989 36,059 10,887 7,860 128 11,394
1990 39,596 40,961 16,881 174 42,707
1991 48,570 5,003 -610 162 14,571
1992 61,610 15,150 11,739 166 24,644
1993 69,983 14,198 60 189 34,992
1994 65,789 20,063 16 212 47,575
Total 370,480 112,371 41,966 1,202 182,198
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 0 0.000 0 0
1981 0 0.000 0 0
1982 0 0.000 0 0
1983 0 0.000 0 0
1984 0 0.000 0 0
1985 0 0.000 0 0
1986 36,661 0.000 147 147
1987 52,114 0.230 11 11
1988 27,516 0.082 49 138
1989 89,013 0.316 507 3,534
1990 245,440 1.079 1,746 25,826
1991 89,828 0.300 9,568 15,181
1992 148,658 0.400 9,494 12,905
1993 185,081 0.500 20,794 34,932
1994 224,264 0.723 27,512 47,559
Total 69,828 140,232
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 163
EXHIBIT A-28
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
D&O Primary + D&O Excess
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0.0000 0
1981 0 0 0 0.0000 0
1982 0 0 0 0.0000 0
1983 0 0 0 0.0000 0
1984 0 0 0 0.0000 0
1985 0 0 0 0.0000 0
1986 147 0 6 0.0401 6
1987 3,335 179 191 0.0572 12
1988 2,834 210 230 0.0811 20
1989 11,394 644 778 0.0683 135
1990 42,707 870 2,989 0.0700 2,119
1991 14,571 147 1,020 0.0700 873
1992 24,644 268 1,725 0.0700 1,457
1993 34,992 53 2,449 0.0700 2,396
1994 47,575 37 3,330 0.0700 3,293
Total 182,198 2,407 12,718 10,311
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 164
GREAT AMERICAN INSURANCE GROUP
Analysis or Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Total Eden Park (ACIS)
Summary of Indicated Loss & ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
---- ------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
1985 0 0 0 0
1986 0 0 0 0
1987 0 0 0 0
1988 0 0 0 0
1989 0 0 0 0
1990 0 0 0 0
1991 0 0 0 0
1992 3,346 19 2 1,416
1993 13,718 96 23 5,746
1994 12,033 9,656 1,874 13,608
Total 29,097 8,771 1,299 20,770
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
---- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1985 0.000 0 0
1986 0.000 0 0
1987 0.000 0 0
1988 0.000 0 0
1989 0.000 0 0
1990 0.000 0 0
1991 0.000 0 0
1992 0.423 1,397 1,414
1993 0.419 5,630 5,723
1994 1.131 4,952 11,734
Total 11,999 10,971
</TABLE>
Notes: (7)=(6)x10001/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 165
EXHIBIT A-30
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
All Lines Combined
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
----- ------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
1980 0 9 9 6 10
1981 0 401 401 137 408
1982 322 1,015 1,003 457 1,041
1983 377 2,325 2,310 814 2,478
1984 282 2,814 2,801 975 3,088
1985 1,306 4,229 3,872 919 4,661
1986 22,882 5,367 5,367 1,173 6,603
1987 30,830 8,731 8,540 851 10,880
1988 18,196 8,184 8,181 569 10,868
1989 12,854 2,460 2,253 554 3,946
1990 16,941 8,642 7,339 943 11,952
1991 17,968 10,298 8,468 783 14,926
1992 15,018 8,345 5,410 642 12,038
1993 13,124 3,269 1,151 448 6,723
1994 10,284 993 151 622 5,379
Total 160,384 67,082 57,255 9,893 95,002
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
----- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
1980 1,679 0.000 2 2
1981 2,981 0.000 7 7
1982 2,277 3.232 25 37
1983 3,046 6.573 153 168
1984 3,166 10.950 274 287
1985 5,069 3.569 432 789
1986 5,627 0.289 1,236 1,236
1987 12,786 0.353 2,149 2,340
1988 19,102 0.597 2,684 2,687
1989 7,124 0.307 1,485 1,692
1990 12,668 0.705 3,309 4,613
1991 19,075 0.831 4,628 6,458
1992 18,764 0.802 3,693 6,629
1993 15,020 0.512 3,455 5,573
1994 8,650 0.523 4,386 5,228
Total 27,920 37,747
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 166
EXHIBIT A-30
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
All Lines Combined
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 8 8 6 9
1981 0 380 380 137 386
1982 322 813 801 457 828
1983 377 1,904 1,889 814 1,976
1984 282 2,300 2,286 975 2,425
1985 1,306 3,111 2,754 919 3,329
1986 22,882 3,602 3,602 1,173 4,520
1987 30,830 6,100 5,910 851 7,037
1988 18,196 7,814 7,811 569 8,724
1989 12,854 1,811 1,604 554 2,837
1990 16,941 7,581 6,278 943 9,771
1991 17,968 9,442 7,612 783 11,802
1992 15,018 7,617 4,682 642 9,877
1993 13,124 2,898 780 448 5,280
1994 10,284 928 86 622 4,488
Total 160,384 56,309 46,481 9,893 73,289
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 1,531 0.000 2 2
1981 2,815 0.000 5 5
1982 1,812 2.572 15 27
1983 2,428 5.240 72 87
1984 2,487 8.599 125 139
1985 3,620 2.549 217 574
1986 3,852 0.198 919 919
1987 8,270 0.228 937 1,127
1988 15,334 0.479 909 913
1989 5,123 0.221 1,027 1,234
1990 10,356 0.577 2,190 3,493
1991 15,083 0.657 2,361 4,191
1992 15,396 0.658 2,260 5,196
1993 11,795 0.402 2,381 4,499
1994 7,217 0.436 3,560 4,403
Total 16,981 26,808
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 167
EXHIBIT A-30
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
All Lines Combined
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 9 1 1 0.1247 0
1981 386 41 43 0.1109 2
1982 828 202 212 0.2565 10
1983 1,976 422 504 0.2549 82
1984 2,425 523 671 0.2768 148
1985 3,329 1,202 1,417 0.4258 215
1986 4,520 1,767 2,086 0.4615 319
1987 7,037 2,651 3,870 0.5499 1,218
1988 8,724 1,382 3,174 0.3638 1,792
1989 2,837 743 1,211 0.4270 468
1990 9,771 1,469 2,636 0.2698 1,167
1991 11,802 1,496 3,843 0.3256 2,347
1992 9,877 733 2,293 0.2322 1,560
1993 5,280 370 1,627 0.3082 1,257
1994 4,488 69 1,002 0.2233 933
Total 73,289 13,074 24,592 11,518
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 168
EXHIBIT A-30
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
All Lines Combined
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 9 0 0 0.0001 0
1981 386 20 20 0.0519 0
1982 828 0 0 0.0001 0
1983 1,976 1 1 0.0005 0
1984 2,425 8 8 0.0034 0
1985 3,329 85 85 0.0256 0
1986 4,520 2 3 0.0007 2
1987 7,037 21 27 0.0038 6
1988 8,724 1,013 1,030 0.1180 17
1989 2,837 94 103 0.0363 9
1990 9,771 408 454 0.0464 46
1991 11,802 640 715 0.0606 76
1992 9,877 5 124 0.0125 118
1993 5,280 0 92 0.0175 92
1994 4,488 4 132 0.0295 128
Total 73,289 2,301 2,795 494
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 169
Exhibit A-31
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
Underground Storage Tanks - Total
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0 0
1981 0 0 0 0 0
1982 0 0 0 0 0
1983 0 0 0 0 0
1984 0 0 0 0 0
1985 0 0 0 0 0
1986 0 0 0 0 0
1987 0 0 0 0 0
1988 0 0 0 0 0
1989 0 0 0 0 0
1990 4,181 2,998 1,905 83 3,148
1991 7,755 3,657 2,432 141 3,960
1992 7,263 2,560 1,057 151 3,033
1993 7,229 776 85 96 1,896
1994 5,490 350 19 71 2,010
Total 31,918 10,341 5,498 542 14,048
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 0 0.000 0 0
1981 0 0.000 0 0
1982 0 0.000 0 0
1983 0 0.000 0 0
1984 0 0.000 0 0
1985 0 0.000 0 0
1986 0 0.000 0 0
1987 0 0.000 0 0
1988 0 0.000 0 0
1989 0 0.000 0 0
1990 37,933 0.753 150 1,243
1991 28,086 0.511 303 1,528
1992 20,086 0.418 473 1,976
1993 19,710 0.262 1,120 1,811
1994 28,372 0.366 1,660 1,991
Total 3,707 8,550
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 170
EXHIBIT A-31
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
Underground Storage Tanks - Total
Summary of Indicated Loss & ALAE Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0 0
1981 0 0 0 0 0
1982 0 0 0 0 0
1983 0 0 0 0 0
1984 0 0 0 0 0
1985 0 0 0 0 0
1986 0 0 0 0 0
1987 0 0 0 0 0
1988 0 0 0 0 0
1989 0 0 0 0 0
1990 4,181 3,373 2,280 83 3,769
1991 7,755 4,115 2,890 141 4,857
1992 7,263 2,981 1,479 151 3,947
1993 7,229 956 264 96 2,496
1994 5,490 405 74 71 2,604
Total 31,918 11,831 6,988 542 17,672
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 0 0.000 0 0
1981 0 0.000 0 0
1982 0 0.000 0 0
1983 0 0.000 0 0
1984 0 0.000 0 0
1985 0 0.000 0 0
1986 0 0.000 0 0
1987 0 0.000 0 0
1988 0 0.000 0 0
1989 0 0.000 0 0
1990 45,405 0.901 395 1,488
1991 34,448 0.626 742 1,967
1992 26,136 0.543 965 2,468
1993 25,946 0.345 1,540 2,232
1994 36,758 0.474 2,199 2,530
Total 5,842 10,684
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 171
EXHIBIT A-31
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
Underground Storage Tanks - Total
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0.0000 0
1981 0 0 0 0.0000 0
1982 0 0 0 0.0000 0
1983 0 0 0 0.0000 0
1984 0 0 0 0.0000 0
1985 0 0 0 0.0000 0
1986 0 0 0 0.0000 0
1987 0 0 0 0.0000 0
1988 0 0 0 0.0000 0
1989 0 0 0 0.0000 0
1990 3,148 375 620 0.1970 245
1991 3,960 458 897 0.2265 439
1992 3,033 422 914 0.3012 492
1993 1,896 180 600 0.3164 420
1994 2,010 55 594 0.2956 539
Total 14,048 1,490 3,625 2,135
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 172
EXHIBIT A-32
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
Umbrella
Summary of Indicated Loss & ALAE Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 4 2
1981 0 10 10 15 17
1982 0 75 75 32 97
1983 0 469 469 122 613
1984 0 610 610 180 880
1985 0 924 592 244 1,352
1986 12,221 581 580 798 1,813
1987 17,863 3,983 3,883 561 6,178
1988 8,119 5,904 5,903 351 8,584
1989 4,655 625 418 321 2,059
1990 4,688 942 942 498 3,739
1991 3,394 3,473 3,425 367 7,216
1992 2,318 187 187 298 2,731
1993 1,321 4 4 124 1,509
1994 649 0 0 15 583
Total 55,228 17,788 17,100 3,932 37,374
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 518 0.000 2 2
1981 1,103 0.000 6 6
1982 3,038 0.000 22 22
1983 5,043 0.000 144 144
1984 4,884 0.000 270 270
1985 5,535 0.000 428 760
1986 2,271 0.148 1,233 1,233
1987 11,015 0.346 2,195 2,295
1988 24,485 1.057 2,681 2,681
1989 6,406 0.442 1,434 1,641
1990 7,505 0.798 2,798 2,798
1991 19,636 2.126 3,742 3,790
1992 9,159 1.178 2,544 2,544
1993 12,128 1.142 1,505 1,505
1994 38,476 0.899 583 583
Total 19,585 20,274
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 173
EXHIBIT A-32
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
Umbrella
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 4 2
1981 0 10 10 15 15
1982 0 51 51 32 65
1983 0 394 394 122 461
1984 0 574 574 180 701
1985 0 617 284 244 838
1986 12,221 198 198 798 1,114
1987 17,863 3,153 3,053 561 4,133
1988 8,119 5,520 5,520 351 6,423
1989 4,655 549 342 321 1,544
1990 4,688 866 865 498 2,850
1991 3,394 3,300 3,252 367 5,350
1992 2,318 181 181 298 1,854
1993 1,321 0 0 124 1,057
1994 649 0 0 15 519
Total 55,228 15,414 14,726 3,932 26,924
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 475 0.000 2 2
1981 992 0.000 5 5
1982 2,020 0.000 14 14
1983 3,788 0.000 67 67
1984 3,890 0.000 127 127
1985 3,429 0.000 221 553
1986 1,395 0.091 916 916
1987 7,369 0.231 980 1,080
1988 18,320 0.791 902 903
1989 4,805 0.332 995 1,202
1990 5,720 0.608 1,984 1,984
1991 14,559 1.576 2,050 2,098
1992 6,218 0.800 1,673 1,673
1993 8,495 0.800 1,057 1,057
1994 34,242 0.800 519 519
Total 11,510 12,199
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 174
EXHIBIT A-31
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
Umbrella
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 2 0 0 0.0903 0
1981 15 0 2 0.1118 1
1982 65 24 33 0.5036 8
1983 461 75 153 0.3313 77
1984 701 36 179 0.2557 143
1985 838 307 514 0.6140 207
1986 1,114 383 699 0.6281 317
1987 4,133 830 2,045 0.4947 1,215
1988 6,423 383 2,162 0.3365 1,778
1989 1,544 76 515 0.3334 439
1990 2,850 76 889 0.3121 813
1991 5,350 173 1,866 0.3487 1,693
1992 1,854 6 877 0.4729 871
1993 1,057 4 452 0.4277 448
1994 519 0 64 0.1237 64
Total 26,924 2,374 10,449 8,075
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 175
EXHIBIT A-33
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
Primary Casualty
Summary of Indicated Loss & ALAE Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0 0
1981 0 80 80 64 80
1982 0 440 440 263 440
1983 0 1,003 1,003 313 1,003
1984 0 1,652 1,638 578 1,645
1985 0 2,324 2,299 559 2,311
1986 7,766 4,321 4,321 347 4,321
1987 10,642 4,459 4,369 273 4,419
1988 8,885 2,924 2,921 194 2,945
1989 6,752 1,669 1,669 151 1,723
1990 6,495 3,836 3,626 157 3,996
1991 5,570 2,756 2,219 143 2,935
1992 3,997 1,068 548 107 1,329
1993 2,978 1,310 343 120 1,782
1994 1,726 280 13 62 999
Total 54,811 28,122 25,490 3,332 29,929
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 0 0.000 0 0
1981 1,254 0.000 0 0
1982 1,673 0.000 0 0
1983 3,203 0.000 0 0
1984 2,846 0.000 -7 7
1985 4,135 0.000 -12 12
1986 12,453 0.556 0 0
1987 16,188 0.415 -40 50
1988 15,181 0.331 21 24
1989 11,408 0.255 54 54
1990 25,428 0.615 160 371
1991 20,462 0.527 179 716
1992 12,441 0.333 262 782
1993 14,832 0.598 472 1,439
1994 16,087 0.579 719 986
Total 1,807 4,439
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 176
EXHIBIT A-33
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
Primary Casualty
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0 0
1981 0 61 61 64 61
1982 0 313 313 263 313
1983 0 761 761 313 761
1984 0 1,215 1,202 578 1,208
1985 0 1,546 1,521 559 1,533
1986 7,766 2,960 2,960 347 2,960
1987 10,642 2,651 2,561 273 2,608
1988 8,885 1,933 1,930 194 1,940
1989 6,752 1,028 1,028 151 1,058
1990 6,495 2,888 2,678 157 2,943
1991 5,570 1,936 1,399 143 1,931
1992 3,997 846 326 107 929
1993 2,978 1,152 185 120 1,251
1994 1,726 275 8 62 689
Total 54,811 19,567 16,935 3,332 20,187
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 0 0.000 0 0
1981 955 0.000 0 0
1982 1,191 0.000 0 0
1983 2,432 0.000 0 0
1984 2,091 0.000 -7 7
1985 2,743 0.000 -12 12
1986 8,530 0.381 0 0
1987 9,553 0.245 -43 47
1988 10,002 0.218 7 10
1989 7,010 0.157 30 30
1990 18,727 0.453 55 265
1991 13,464 0.347 -5 532
1992 8,690 0.232 82 602
1993 10,413 0.420 99 1,066
1994 11,094 0.399 414 681
Total 620 3,252
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 177
EXHIBIT A-33
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Agricultural E & S
Primary Casualty
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0.0000 0
1981 61 19 19 0.3126 0
1982 313 127 127 0.4041 0
1983 761 241 241 0.3171 0
1984 1,208 437 437 0.3616 0
1985 1,533 778 778 0.5072 0
1986 2,960 1,361 1,361 0.4598 0
1987 2,608 1,809 1,811 0.6945 3
1988 1,940 991 1,005 0.5177 14
1989 1,058 641 664 0.6275 23
1990 2,943 947 1,053 0.3578 106
1991 1,931 820 1,004 0.5197 184
1992 929 222 401 0.4317 179
1993 1,251 158 531 0.4245 373
1994 689 5 310 0.4500 305
Total 20,187 8,555 9,742 1,187
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 178
EXHIBIT A-34
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Reinsurance
Casualty
(Last Diag 9/94, Otherwise Historical December)
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 1,416 1,106 0 1,860
1981 0 5,253 4,275 0 7,077
1982 3,829 13,807 9,357 0 18,935
1983 4,714 15,408 10,348 0 21,807
1984 6,192 21,015 16,251 0 30,605
1985 4,329 9,323 8,355 0 13,944
1986 1,497 1,679 1,293 0 2,574
1987 332 6 4 0 9
1988 362 2 2 0 3
1989 -24 0 0 0 0
1990 63 20 20 0 43
1991 6 0 0 0 0
1992 -3 2 2 0 7
1993 0 0 0 0 0
1994 0 0 0 0 0
1995 0 0 0 0 0
Total 21,297 67,932 51,012 0 96,864
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 0 0.000 443 754
1981 0 0.000 1,824 2,803
1982 0 4.945 5,128 9,578
1983 0 4.626 6,399 11,459
1984 0 4.943 9,590 14,354
1985 0 3.221 4,621 5,589
1986 0 1.719 895 1,281
1987 0 0.027 3 5
1988 0 0.009 1 1
1989 0 0.000 0 0
1990 0 0.682 23 23
1991 0 0.000 0 0
1992 0 -2.360 5 5
1993 0 0.000 0 0
1994 0 0.000 0 0
1995 0 0.000 0 0
Total 28,931 45,852
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 179
EXHIBIT A-34
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Reinsurance
Property
(Last Diag 9/94, Otherwise Historical December)
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 995 994 0 995
1981 0 1,554 1,489 0 1,554
1982 3,829 3,587 3,420 0 3,587
1983 4,714 9,880 9,791 0 9,880
1984 6,192 9,513 9,355 0 9,513
1985 4,329 4,077 3,832 0 4,077
1986 1,497 20 20 0 20
1987 332 0 0 0 0
1988 362 0 0 0 0
1989 -24 0 0 0 0
1990 63 0 0 0 0
1991 6 0 0 0 0
1992 -3 0 0 0 0
1993 0 0 0 0 0
1994 0 0 0 0 0
1995 0 0 0 0 0
Total 21,297 29,626 28,901 0 29,626
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 0 0.000 0 1
1981 0 0.000 0 65
1982 0 0.937 0 167
1983 0 2.096 0 89
1984 0 1.536 0 158
1985 0 0.942 0 245
1986 0 0.013 0 0
1987 0 0.000 0 0
1988 0 0.000 0 0
1989 0 0.000 0 0
1990 0 0.000 0 0
1991 0 0.000 0 0
1992 0 0.000 0 0
1993 0 0.000 0 0
1994 0 0.000 0 0
1995 0 0.000 0 0
Total 0 725
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 180
EXHIBIT A-35
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Legal Professional Liability
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium Est. @ 9/94 @ 6/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 357 117 0 6 151
1981 2,581 1,167 378 77 1,951
1982 8,567 4,846 697 378 10,175
1983 4,830 2,672 123 2,504 6,997
Total 16,335 8,802 1,198 2,965 19,274
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 26,823 0.423 33 151
1981 25,230 0.756 785 1,573
1982 26,953 1.188 5,329 9,478
1983 2,794 1.449 4,325 6,874
Total 10,472 18,076
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 181
EXHIBIT A-36
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Asbestos Abatement
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0 0
1981 0 0 0 0 0
1982 0 0 0 0 0
1983 0 0 0 0 0
1984 0 0 0 0 0
1985 0 0 0 0 0
1986 0 0 0 0 0
1987 0 0 0 0 0
1988 0 0 0 0 0
1989 457 6 6 1 0
1990 7,076 738 504 40 1,689
1991 11,846 980 742 53 2,843
1992 13,011 1,631 243 58 6,242
1993 9,840 422 305 32 4,723
1994 5,315 93 4 33 3,402
Total 47,545 3,871 1,804 217 18,900
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 -500 0.000 0 0
1981 -500 0.000 0 0
1982 -500 0.000 0 0
1983 -500 0.000 0 0
1984 -500 0.000 0 0
1985 -520 0.000 0 0
1986 -539 0.000 0 0
1987 -566 0.000 0 0
1988 -606 0.000 0 0
1989 -1 0.000 -6 -6
1990 42,218 0.239 951 1,186
1991 53,271 0.240 1,863 2,102
1992 108,041 0.480 4,611 5,999
1993 146,814 0.480 4,301 4,418
1994 104,178 0.640 3,309 3,397
Total 15,029 17,096
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 182
EXHIBIT A-36
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Asbestos Abatement
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0 0
1981 0 0 0 0 0
1982 0 0 0 0 0
1983 0 0 0 0 0
1984 0 0 0 0 0
1985 0 0 0 0 0
1986 0 0 0 0 0
1987 0 0 0 0 0
1988 0 0 0 0 0
1989 457 0 0 1 0
1990 7,076 590 356 40 1,061
1991 11,846 694 456 53 1,777
1992 13,011 1,552 164 58 3,903
1993 9,840 331 214 32 2,952
1994 5,315 91 2 33 2,126
Total 47,545 3,258 1,191 217 11,819
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1980 0 0.000 0 0
1981 0 0.000 0 0
1982 0 0.000 0 0
1983 0 0.000 0 0
1984 0 0.000 0 0
1985 0 0.000 0 0
1986 0 0.000 0 0
1987 0 0.000 0 0
1988 0 0.000 0 0
1989 0 0.000 0 0
1990 26,515 0.150 471 705
1991 33,295 0.150 1,083 1,321
1992 67,552 0.300 2,351 3,739
1993 91,759 0.300 2,621 2,738
1994 65,113 0.400 2,036 2,125
Total 8,561 10,628
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 183
EXHIBIT A-36
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Asbestos Abatement
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0.0000 0
1981 0 0 0 0.0000 0
1982 0 0 0 0.0000 0
1983 0 0 0 0.0000 0
1984 0 0 0 0.0000 0
1985 0 0 0 0.0000 0
1986 0 0 0 0.0000 0
1987 0 0 0 0.0000 0
1988 0 0 0 0.0000 0
1989 0 6 0 0.0000 -6
1990 1,061 153 637 0.6000 484
1991 1,777 286 1,066 0.6000 780
1992 3,903 80 2,342 0.6000 2,262
1993 2,952 91 1,771 0.6000 1,680
1994 2,126 3 1,276 0.6000 1,273
Total 11,819 619 7,092 6,473
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 184
EXHIBIT A-36
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Asbestos Abatement
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1980 0 0 0 0.0000 0
1981 0 0 0 0.0000 0
1982 0 0 0 0.0000 0
1983 0 0 0 0.0000 0
1984 0 0 0 0.0000 0
1985 0 0 0 0.0000 0
1986 0 0 0 0.0000 0
1987 0 0 0 0.0000 0
1988 0 0 0 0.0000 0
1989 0 0 0 0.0000 0
1990 1,061 5 8 0.0078 3
1991 1,777 0 0 0.0000 0
1992 3,903 1 2 0.0006 2
1993 2,952 0 0 0.0000 0
1994 2,126 0 0 0.0000 0
Total 11,819 6 11 5
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 185
INDEX OF DETAIL FOR EXHIBIT X
<TABLE>
<S> <C>
Sheet 1 Summary of Indicated Loss and ALAE reserves Net of SS
Sheet 2 Summary of Ult. Losses and Indicated Loss Reserves Gross of SS
Sheet 3 Summary of Ult. ALAE and Indicated ALAE Reserves
Sheet 4 Summary of Ult. SS and Indicated SS Reserves
Sheet 5 Summary of Ult. Losses By Method
Sheet 6 Summary of Ult. Severities by Method
Sheet 7 Summary of Ult. Loss Ratios by Method
Sheet 8 Cape Cod -- Paid Losses
Sheet 9 Application of Development Method -- Paid Losses
Sheet 10 Paid Loss Triangle
Sheet 11a Paid Loss Triangle (Extended)
Sheet 11b Paid Loss Triangle (Extended)
Sheet 12 Cape Cod -- Incurred Losses
Sheet 13 Application of Development Method -- Incurred Losses
Sheet 14 Incurred Loss Triangle
Sheet 15a Incurred Loss Triangle (Extended)
Sheet 15b Incurred Loss Triangle (Extended)
Sheet 16 Cape Cod -- Maturity Adjusted Paid Losses
Sheet 17 Application of Development Method -- Maturity Adjusted Paid Losses
Sheet 18 Maturity Adjusted Paid Loss Triangle
Sheet 19 Cape Cod -- Maturity Adjusted Paid Losses using CWIPs
Sheet 20 Application of Development Method -- Maturity Adjusted Paid Losses using CWIPs
Sheet 21 Maturity Adjusted Paid Loss using CWIPs Triangle
Sheet 22 Cape Cod -- Reserve Strength Adjusted Incurred Losses
Sheet 23 Application of Development Method -- Reserve Strength Adjusted Incurred Losses
Sheet 24 Reserve Strength Adjusted Incurred Loss Triangle
Sheet 25 Adj of Historical Outstanding Loss to Current Adequacy Level
Sheet 26 Adj of Historical Outstanding Loss to Current Adequacy Level
Sheet 27 Adj of Historical Outstanding Loss to Current Adequacy Level
Sheet 28 Cape Cod -- Reserve Strength Adjusted Incurred Losses using CWIPs
Sheet 29 Application of Development Method -- Reserve Strength Adjusted Incurred Losses using CWIPs
Sheet 30 Reserve Strength Adjusted Incurred Loss using CWIPs Triangle
Sheet 31 Adj of Historical Outstanding Loss to Current Adequacy Level (using CWIPs)
Sheet 32 Adj of Historical Outstanding Loss to Current Adequacy Level (using CWIPs)
Sheet 33 Adj of Historical Outstanding Loss to Current Adequacy Level (using CWIPs)
Sheet 34 Application of Development Method -- Reported Claim Counts
Sheet 35 Reported Counts Triangle
</TABLE>
<PAGE> 186
INDEX OF DETAIL FOR EXHIBIT X
(CONTINUED)
<TABLE>
<S> <C>
Sheet 36 Calculation of Ultimate CWIPs
Sheet 37 CWIP Ratios: Ratio of In-Period CWIPs to In-Period Closed
Sheet 38 Disposal Rates: In-Period Closed Counts Divided by Ult. Open at Start of Period
Sheet 39 Cape Cod -- Paid ALAE
Sheet 40 Application of Development Method -- Paid ALAE
Sheet 41 Paid ALAE Triangle
Sheet 42a Paid ALAE Triangle (Extended)
Sheet 42b Paid ALAE Triangle (Extended)
Sheet 43 Cape Cod -- Salvage and Subrogation
Sheet 44 Application of Development Method -- Salvage and Subrogation
Sheet 45 Salvage and Subrogation Triangle
Sheet 46 Measurement of Cal. Yr. Trend in Paid Losses per Closed Claim
Sheet 47 Measurement of Cal. Yr. Trend in Paid Losses per Closed Claim
Sheet 48 Ratio of CWIPs to Ult. CWIPs
Sheet 50 Ratio of Closed to Ult. Counts
Sheet 51 Ratio of CWIP counts to Closed
Sheet 52 Avg. Outstanding Claim Amount
</TABLE>
<PAGE> 187
EXHIBIT X
Sheet 1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Summary of Indicated Loss & ALAE Reserves
Net of Salvage and Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Loss & ALAE Loss & ALAE Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Loss & ALAE
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 69,076 67,886 10,604 71,159
1986 0 55,002 53,864 7,366 57,255
1987 0 51,828 50,302 6,591 55,387
1988 107,084 54,737 52,305 7,384 60,256
1989 100,883 54,208 49,157 6,935 63,386
1990 105,649 57,619 48,372 7,563 73,455
1991 97,563 46,953 37,184 7,173 66,731
1992 85,311 34,252 19,486 7,359 59,332
1993 79,942 23,470 10,441 8,069 56,953
1994 66,976 11,312 2,982 7,664 47,710
Total 643,408 458,456 391,978 76,709 611,624
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated
Indicated Ultimate Total
Ultimate Loss & ALAE Indicated Loss & ALAE
Year Severity Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 6,711 0.000 2,083 3,273
1986 7,773 0.000 2,253 3,391
1987 8,404 0.000 3,559 5,085
1988 8,160 0.563 5,519 7,951
1989 9,140 0.628 9,178 14,229
1990 9,713 0.695 15,836 25,083
1991 9,303 0.684 19,778 29,547
1992 8,062 0.695 25,081 39,847
1993 7,058 0.712 33,483 46,512
1994 6,226 0.712 36,399 44,729
Total 153,168 219,646
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 188
EXHIBIT X
Sheet 2
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Summary of Ultimate Losses And Indicated Loss Reserves
Gross of Salvage & Subrogation
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Incurred Paid Ultimate Selected
Earned Losses Losses Claim Ultimate
Year Premium @ 9/94 @ 9/94 Counts Losses
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 0 55,705 54,515 10,604 56,541
1986 0 43,007 41,869 7,366 43,652
1987 0 40,267 38,741 6,591 41,321
1988 107,084 43,983 41,551 7,384 45,549
1989 100,883 44,170 39,119 6,935 47,280
1990 105,649 48,055 38,808 7,563 54,071
1991 97,563 37,997 28,228 7,173 46,028
1992 85,311 29,486 14,720 7,359 41,157
1993 79,942 21,502 8,473 8,069 39,637
1994 66,976 10,852 2,522 7,664 33,488
Total 643,408 375,024 308,546 76,709 448,724
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10)
Indicated Indicated Total
Ultimate Ultimate Indicated Loss
Year Severity Loss Ratio IBNR Reserve
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1985 5,332 0.000 836 2,026
1986 5,926 0.000 645 1,783
1987 6,270 0.000 1,054 2,580
1988 6,168 0.425 1,566 3,998
1989 6,817 0.469 3,110 8,161
1990 7,150 0.512 6,016 15,263
1991 6,417 0.472 8,031 17,800
1992 5,593 0.482 11,671 26,437
1993 4,912 0.496 18,135 31,164
1994 4,370 0.500 22,636 30,966
Total 73,700 140,178
</TABLE>
Notes: (7)=[(6)x1000]/(5) (9)=(6)-(3)
(8)=(6)/(2) (10)=(6)-(4)
<PAGE> 189
EXHIBIT X
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Summary of Ultimate ALAE And Indicated ALAE Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Paid Selected
Ultimate ALAE Ultimate ALAE ALAE
Year Losses @ 9/94 ALAE Ratio Reserve
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 56,541 15,169 16,468 0.2913 1,299
1986 43,652 13,122 14,799 0.3390 1,677
1987 41,321 11,953 14,552 0.3522 2,599
1988 45,549 11,135 15,233 0.3344 4,098
1989 47,280 10,879 17,160 0.3629 6,281
1990 54,071 10,132 20,273 0.3749 10,140
1991 46,028 9,138 21,230 0.4612 12,092
1992 41,157 4,816 18,702 0.4544 13,886
1993 39,637 2,025 17,922 0.4521 15,897
1994 33,488 470 14,741 0.4402 14,272
Total 448,724 88,838 171,079 82,241
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 190
EXHIBIT X
Sheet 4
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Summary of Ultimate S&S And Indicated S&S Reserves
(amounts in thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected Salvage and Selected
Ultimate Subrogation Ultimate S & S S & S
Year Losses @ 9/94 S & S Ratio Reserve
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1985 56,541 1,798 1,849 0.0327 51
1986 43,652 1,127 1,196 0.0274 69
1987 41,321 392 486 0.0118 94
1988 45,549 381 526 0.0115 145
1989 47,280 841 1,054 0.0223 213
1990 54,071 568 889 0.0164 321
1991 46,028 182 527 0.0114 345
1992 41,157 50 527 0.0128 477
1993 39,637 57 606 0.0153 549
1994 33,488 10 519 0.0155 509
Total 448,724 5,406 8,179 2,773
</TABLE>
Notes: (5)=(4)/(2)
(6)=(4)-(3)
<PAGE> 191
EXHIBIT X
Sheet 5
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Summary of Ultimate Losses By Method
(amounts in thousands)
Great American Pool - Direct
CMP Liability
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7)
Reserve
Maturity Strength Reserve
Adjusted Maturity Adjusted Strength
Paid Adjusted Incurred Adjusted
Incurred Paid Loss Paid Loss Incurred
Loss Loss Development Loss Development Loss
Year Development Development using CWIPs Development using CWIPs Development
- -------- --------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1985 56,541 56,150 56,150 56,150 56,541 56,541
1986 43,652 44,018 44,018 44,018 43,652 43,652
1987 41,321 41,943 41,943 41,943 41,321 41,321
1988 45,549 46,789 47,010 46,326 45,549 45,549
1989 46,676 46,857 49,140 48,220 47,883 48,030
1990 52,401 54,391 55,550 53,457 55,742 56,393
1991 43,675 47,115 50,268 48,231 48,381 49,495
1992 37,637 33,839 37,517 34,022 44,677 46,171
1993 34,170 35,448 39,491 36,174 45,104 47,934
1994 36,830 48,788 51,079 50,876 56,955 61,891
Total 438,452 455,338 472,164 459,418 485,805 496,976
</TABLE>
<TABLE>
<CAPTION>
(1) (8) (9) (10) (11) (12) (13)
Reserve
Maturity Strength Reserve
Adjusted Maturity Adjusted Strength
CWIP Adjusted CWIP Adjusted
Incurred Paid Paid Paid Incurred Incurred
Loss Loss Loss Loss Loss Loss
Year Cape Cod Cape Cod Cape Cod Cape Cod Cape Cod Cape Cod
- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1985 56,533 56,184 56,202 56,186 56,553 56,557
1986 43,607 43,908 43,934 43,911 43,625 43,628
1987 41,250 41,785 41,833 41,791 41,285 41,291
1988 45,526 46,784 47,091 46,381 45,596 45,609
1989 46,509 46,665 48,697 47,785 47,752 47,921
1990 51,978 53,183 54,429 52,614 55,096 55,711
1991 43,790 47,422 50,082 48,212 48,543 49,624
1992 38,746 40,958 44,296 41,251 45,919 47,359
1993 38,407 47,087 50,386 47,650 49,166 51,484
1994 53,252 67,463 70,976 68,190 68,309 71,232
Total 459,598 491,440 507,925 493,971 501,843 510,416
</TABLE>
Trend Rate is : 7.0%
<PAGE> 192
EXHIBIT X
Sheet 6
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Summary of Ultimate Severities By Method
Great American Pool - Direct
CMP Liability
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7)
Reserve
Maturity Strength Reserve
Adjusted Maturity Adjusted Strength
Paid Adjusted Incurred Adjusted
Incurred Paid Loss Paid Loss Incurred
Loss Loss Development Loss Development Loss
Year Development Development using CWIPs Development using CWIPs Development
- -------- --------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1985 5,332 5,295 5,295 5,295 5,332 5,332
1986 5,926 5,976 5,976 5,976 5,926 5,926
1987 6,270 6,364 6,364 6,364 6,270 6,270
1988 6,168 6,336 6,366 6,273 6,168 6,168
1989 6,730 6,756 7,085 6,953 6,904 6,925
1990 6,929 7,192 7,345 7,069 7,371 7,457
1991 6,089 6,568 7,008 6,724 6,745 6,900
1992 5,114 4,598 5,098 4,623 6,071 6,274
1993 4,235 4,393 4,894 4,483 5,589 5,940
1994 3,604 4,775 4,999 4,979 5,574 6,057
</TABLE>
<TABLE>
<CAPTION>
(1) (8) (9) (10) (11) (12) (13)
Reserve
Maturity Strength Reserve
Adjusted Maturity Adjusted Strength
CWIP Adjusted CWIP Adjusted
Incurred Paid Paid Paid Incurred Incurred
Loss Loss Loss Loss Loss Loss
Year Cape Cod Cape Cod Cape Cod Cape Cod Cape Cod Cape Cod
- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1985 5,331 5,298 5,300 5,299 5,333 5,334
1986 5,920 5,961 5,964 5,961 5,922 5,923
1987 6,259 6,340 6,347 6,341 6,264 6,265
1988 6,165 6,335 6,377 6,281 6,175 6,176
1989 6,706 6,729 7,022 6,890 6,885 6,910
1990 6,873 7,032 7,197 6,957 7,285 7,367
1991 6,105 6,611 6,982 6,721 6,767 6,918
1992 5,265 5,565 6,019 5,605 6,240 6,435
1993 4,760 5,835 6,244 5,905 6,093 6,380
1994 5,212 6,602 6,946 6,673 6,685 6,971
</TABLE>
<PAGE> 193
EXHIBIT X
Sheet 7
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Summary of Ultimate Loss Ratios By Method
Great American Pool - Direct
CMP Liability
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7)
Reserve
Maturity Strength Reserve
Adjusted Maturity Adjusted Strength
Paid Adjusted Incurred Adjusted
Incurred Paid Loss Paid Loss Incurred
Loss Loss Development Loss Development Loss
Year Development Development using CWIPs Development using CWIPs Development
- -------- --------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1985 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
1986 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
1987 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
1988 0.4254 0.4369 0.4390 0.4326 0.4254 0.4254
1989 0.4627 0.4645 0.4871 0.4780 0.4746 0.4761
1990 0.4960 0.5148 0.5258 0.5060 0.5276 0.5338
1991 0.4477 0.4829 0.5152 0.4944 0.4959 0.5073
1992 0.4412 0.3967 0.4398 0.3988 0.5237 0.5412
1993 0.4274 0.4434 0.4940 0.4525 0.5642 0.5996
1994 0.4124 0.5463 0.5720 0.5697 0.6378 0.6931
</TABLE>
<TABLE>
<CAPTION>
(1) (8) (9) (10) (11) (12) (13)
Reserve
Maturity Strength Reserve
Adjusted Maturity Adjusted Strength
CWIP Adjusted CWIP Adjusted
Incurred Paid Paid Paid Incurred Incurred
Loss Loss Loss Loss Loss Loss
Year Cape Cod Cape Cod Cape Cod Cape Cod Cape Cod Cape Cod
- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1985 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
1986 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
1987 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
1988 0.4251 0.4369 0.4398 0.4331 0.4258 0.4259
1989 0.4610 0.4626 0.4827 0.4737 0.4733 0.4750
1990 0.4920 0.5034 0.5152 0.4980 0.5215 0.5273
1991 0.4488 0.4861 0.5133 0.4942 0.4976 0.5086
1992 0.4542 0.4801 0.5192 0.4835 0.5383 0.5551
1993 0.4804 0.5890 0.6303 0.5961 0.6150 0.6440
1994 0.5963 0.7555 0.7948 0.7636 0.7649 0.7977
</TABLE>
<PAGE> 194
EXHIBIT X
Sheet 8
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid Losses
(amounts in thousands)
Application of Generalized Cape Cod Method
on a Paid Basis
(using a decay rate of 75%)
(calculation includes 10 years)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Ultimate Claim Portion of Losses
Number of Severity Exposure Ultimate Paid
Year CWIPs Index Base Paid to Date to Date
-------- --------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1985 8,401 1.0000 8,400.81 0.9709 54,515
1986 5,701 1.0700 6,100.24 0.9512 41,869
1987 5,105 1.1449 5,844.26 0.9237 38,741
1988 5,644 1.2250 6,914.62 0.8880 41,551
1989 5,206 1.3108 6,824.48 0.8349 39,119
1990 5,417 1.4026 7,597.34 0.7135 38,808
1991 4,972 1.5007 7,461.06 0.5991 28,228
1992 4,676 1.6058 7,508.65 0.4350 14,720
1993 4,881 1.7182 8,386.92 0.2390 8,473
1994 6,196 1.8385 11,390.81 0.0517 2,522
TOTAL 56,199 76,429.19 308,546
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10) (11)
Developed Expected
Loss to Loss to Expected Indicated
Exposure Exposure Ultimate Unpaid Ultimate
Year Ratio Ratio Losses Losses Losses
------ ---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1985 6.684 6.821 57,306 1,669 56,184
1986 7.216 6.847 41,769 2,039 43,908
1987 7.177 6.823 39,873 3,044 41,785
1988 6.767 6.760 46,741 5,233 46,784
1989 6.866 6.696 45,697 7,546 46,665
1990 7.159 6.604 50,175 14,375 53,183
1991 6.315 6.417 47,881 19,194 47,422
1992 4.507 6.185 46,439 26,238 40,958
1993 4.227 6.050 50,743 38,614 47,087
1994 4.283 6.012 68,482 64,941 67,463
TOTAL 495,105 182,894 491,440
</TABLE>
Notes :
(4) (2) x (3)
(5) Reciprocal of development factor to ultimate.
(7) (6)/[(4)x(5)]
(8) Weighted average of (7) with weights equal to (4)x(5)x 0.75 LAG
where LAG = absolute value of difference in years.
(9) (4) x (8)
(10) (9) x [1.0-(5)]
(11) (6) + (10)
<PAGE> 195
EXHIBIT X
Sheet 9
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid Losses
(amounts in thousands)
APPLICATION OF DEVELOPMENT METHOD
ON PAID BASIS
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
AGE-TO-AGE DEV.
PAID DEV. FACTOR INDICATED
YEAR TO DATE FACTOR TO ULT. ULTIMATE RESERVES
-------- -------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1985 54,515 1.0300 1.0300 56,150 1,635
1986 41,869 1.0207 1.0513 44,018 2,149
1987 38,741 1.0298 1.0827 41,943 3,202
1988 41,551 1.0401 1.1261 46,789 5,238
1989 39,119 1.0637 1.1978 46,857 7,738
1990 38,808 1.1701 1.4015 54,391 15,583
1991 28,228 1.1909 1.6691 47,115 18,887
1992 14,720 1.3773 2.2988 33,839 19,119
1993 8,473 1.8199 4.1837 35,448 26,975
1994 2,522 4.6239 19.3448 48,788 46,266
TOTAL 308,546 455,338 146,792
</TABLE>
NOTES
(4) Cumulative multiplication of (3)
(5) (2) x (4)
<PAGE> 196
EXHIBIT X
Sheet 10
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense
Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid Losses
(amounts in thousands)
CMP2_PD10
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 3,065 13,476 24,399 32,740 40,848 46,594 50,031 52,097 53,411 54,515
1986 1,886 10,726 18,373 26,763 31,569 37,348 39,060 40,427 41,869
1987 1,504 8,690 15,920 23,080 28,120 35,338 37,117 38,741
1988 2,428 10,137 17,103 26,724 30,664 33,515 41,551
1989 2,270 10,142 20,047 26,692 32,751 39,119
1990 2,456 12,512 26,400 32,866 38,808
1991 2,311 11,491 20,667 28,228
1992 2,235 9,386 14,720
1993 1,930 8,473
1994 2,522
</TABLE>
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 ULT:117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 4.3967 1.8106 1.3419 1.2476 1.1407 1.0738 1.0413 1.0252 1.0207
1986 5.6872 1.7129 1.4566 1.1796 1.1831 1.0458 1.0350 1.0357
1987 5.7779 1.8320 1.4497 1.2184 1.2567 1.0503 1.0438
1988 4.1750 1.6872 1.5625 1.1474 1.0930 1.2398
1989 4.4678 1.9766 1.3315 1.2270 1.1944
1990 5.0945 2.1100 1.2449 1.1808
1991 4.9723 1.7985 1.3658
1992 4.1996 1.5683
1993 4.3902
1994
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 4.2949 1.6834 1.3054 1.2039 1.1437 1.1450 1.0394 1.0305 1.0207
4 4.6642 1.8634 1.3762 1.1934 1.1818 1.1024 1.0400 1.0305 1.0207
2 of 4 4.6813 1.8876 1.3487 1.1996 1.1888 1.0621 1.0404 1.0305 1.0207
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 4.7315 1.8210 1.3791 1.2007 1.1706 1.0979 1.0401 1.0298 1.0207
2 4.2879 1.6950 1.2980 1.2015 1.1454 1.1425 1.0393 1.0298 1.0207
3 4.5321 1.8505 1.3080 1.1847 1.1796 1.1085 1.0401 1.0298 1.0207
4 4.6868 1.8799 1.3597 1.1918 1.1805 1.0979 1.0401 1.0298 1.0207
5 4.6424 1.8435 1.3740 1.1894 1.1706 1.0979 1.0401 1.0298 1.0207
2 of 4 4.7074 1.8820 1.3489 1.1963 1.1889 1.0637 1.0404 1.0298 1.0207
3 of 5 4.6239 1.8199 1.3773 1.1909 1.1701 1.0860 1.0401 1.0298 1.0207
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 4.6713 1.8013 1.3734 1.1957 1.1765 1.0874 1.0405 1.0304 1.0207
2 4.2985 1.6822 1.3047 1.1990 1.1510 1.1531 1.0398 1.0304 1.0207
3 4.4632 1.8078 1.3149 1.1848 1.1818 1.1051 1.0405 1.0304 1.0207
4 4.6259 1.8498 1.3493 1.1909 1.1843 1.0874 1.0405 1.0304 1.0207
5 4.5888 1.8184 1.3641 1.1873 1.1765 1.0874 1.0405 1.0304 1.0207
</TABLE>
Selected Development Factors
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.6239 1.8199 1.3773 1.1909 1.1701 1.0637 1.0401 1.0298 1.0207 1.0300
</TABLE>
<PAGE> 197
EXHIBIT X
Sheet 11a
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid Losses
(amounts in thousands)
CMP2_PD
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 29,309
1986 36,885 37,837
1987 45,471 47,618 50,192
1988 41,753 44,791 46,743 47,640
1989 38,173 46,756 52,674 55,675 58,046
1990 3,065 13,476 24,399 32,740 40,848 46,594 50,031 52,097 53,411
1991 1,886 10,726 18,373 26,763 31,569 37,348 39,060 40,427 41,869
1992 1,504 8,690 15,920 23,080 28,120 35,338 37,117 38,741
1993 2,428 10,137 17,103 26,724 30,664 33,515 41,551
1994 2,270 10,142 20,047 26,692 32,751 39,119
1995 2,456 12,512 26,400 32,866 38,808
1996 2,311 11,491 20,667 28,228
1997 2,235 9,386 14,720
1998 1,930 8,473
1999 2,522
</TABLE>
<TABLE>
<CAPTION>
Year 117 129 141 155 166 177
<S> <C> <C> <C> <C> <C> <C>
1985 29,933
1986 39,821
1987 51,847
1988 48,736
1989 59,190
1990 54,515
1991
1992
1993
1994
1995
1996
1997
1998
1999
</TABLE>
<PAGE> 198
EXHIBIT X
Sheet 11b
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool -- Direct
DMP Liability
Paid Losses
(amounts in thousands)
DMP & PD
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 129:117 141:129 153:141 165:153 177:165 ult:177
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985
1986 1.0258
1987 1.0472 1.0541
1988 1.0728 1.0436 1.0192
1989 1.2248 1.1266 1.0570 1.0426
1990 4.3967 1.8106 1.3419 1.2476 1.1407 1.0738 1.0413 1.0252 1.0207
1991 5.6872 1.7129 1.4566 1.1796 1.1831 1.0458 1.0350 1.0357
1992 5.7779 1.8320 1.4497 1.2184 1.2567 1.0503 1.0438
1993 4.1750 1.6872 1.5625 1.1474 1.0930 1.2398
1994 4.4678 1.9766 1.3315 1.2270 1.1944
1995 5.0945 2.1100 1.2449 1.1808
1996 4.9723 1.7985 1.3658
1997 4.1996 1.5683
1998 4.3902
1999
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 4.2949 1.6834 1.3054 1.2039 1.1437 1.1450 1.0394 1.0305 1.0207
4 4.6642 1.8634 1.3762 1.1934 1.1818 1.1024 1.0443 1.0307 1.0207
2 of 4 4.6813 1.8876 1.3487 1.1996 1.1888 1.0621 1.0426 1.0305 1.0207
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 4.7315 1.8210 1.3791 1.2007 1.1808 1.0991 1.0452 1.0342 1.0207
2 4.2879 1.6950 1.2980 1.2015 1.1454 1.1425 1.0393 1.0298 1.0207
3 4.5321 1.8505 1.3080 1.1847 1.1796 1.1085 1.0401 1.0346 1.0207
4 4.6868 1.8799 1.3597 1.1918 1.1805 1.0979 1.0451 1.0309 1.0207
5 4.6424 1.8435 1.3740 1.1894 1.1706 1.1046 1.0448 1.0355 1.0207
2 of 4 4.7074 1.8820 1.3489 1.1963 1.1889 1.0637 1.0423 1.0298 1.0207
3 of 5 4.6239 1.8199 1.3773 1.1909 1.1701 1.0865 1.0428 1.0346 1.0207
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 4.6713 1.8013 1.3734 1.1957 1.1859 1.0835 1.0437 1.0334 1.0207
2 4.2985 1.6822 1.3047 1.1990 1.1510 1.1531 1.0398 1.0304 1.0207
3 4.4632 1.8078 1.3149 1.1848 1.1818 1.1051 1.0405 1.0345 1.0207
4 4.6259 1.8498 1.3493 1.1909 1.1843 1.0874 1.0432 1.0309 1.0207
5 4.5888 1.8184 1.3641 1.1873 1.1765 1.0899 1.0432 1.0344 1.0207
</TABLE>
<PAGE> 199
EXHIBIT X
Sheet 12
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Incurred Losses
(amounts in thousands)
Application of Generalized Cape Cod Method
on an Incurred Basis
(using a decay rate of 75%)
(calculation includes 10 years)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Ultimate Claim Portion of Losses
Number of Severity Exposure Ultimate Reported
Year CWIPs Index Base Reported to Date
-------- --------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1985 8,401 1.0000 8,400.81 0.9852 55,705
1986 5,701 1.0700 6,100.24 0.9852 43,007
1987 5,105 1.1449 5,844.26 0.9745 40,267
1988 5,644 1.2250 6,914.62 0.9656 43,983
1989 5,206 1.3108 6,824.48 0.9463 44,170
1990 5,417 1.4026 7,597.34 0.9171 48,055
1991 4,972 1.5007 7,461.06 0.8700 37,997
1992 4,676 1.6058 7,508.65 0.7834 29,486
1993 4,881 1.7182 8,386.92 0.6293 21,502
1994 6,196 1.8385 11,390.81 0.2947 10,852
TOTAL 56,199 76,429.19 375,024
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10) (11)
Developed Expected
Loss to Loss to Expected Indicated
Exposure Exposure Ultimate IBNR Ultimate
Year Ratio Ratio Losses Losses Losses
------ ---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1985 6.730 6.669 56,026 828 56,533
1986 7.156 6.659 40,621 600 43,607
1987 7.070 6.595 38,543 983 41,250
1988 6.587 6.491 44,885 1,543 45,526
1989 6.839 6.384 43,567 2,339 46,509
1990 6.897 6.226 47,300 3,923 51,978
1991 5.854 5.972 44,556 5,793 43,790
1992 5.013 5.694 42,756 9,260 38,746
1993 4.074 5.437 45,599 16,905 38,407
1994 3.233 5.277 60,112 42,400 53,252
TOTAL 463,964 84,574 459,598
</TABLE>
Notes :
(4) (2) x (3)
(5) Reciprocal of development factor to ultimate.
(7) (6)/[(4)x(5)]
(8) Weighted average of (7) with weights equal to (4)x(5)x 0.75 LAG
where LAG = absolute value of difference in years.
(9) (4) x (8)
(10) (9) x [1.0-(5)]
(11) (6) + (10)
<PAGE> 200
EXHIBIT X
Sheet 13
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Incurred Losses
(amounts in thousands)
APPLICATION OF DEVELOPMENT METHOD
ON INCURRED BASIS
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
AGE-TO-AGE DEV.
REPORTED DEV. FACTOR INDICATED
YEAR TO DATE FACTOR TO ULT. ULTIMATE IBNR
-------- -------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1985 55,705 1.0150 1.0150 56,541 836
1986 43,007 1.0000 1.0150 43,652 645
1987 40,267 1.0110 1.0262 41,321 1,054
1988 43,983 1.0092 1.0356 45,549 1,566
1989 44,170 1.0204 1.0567 46,676 2,506
1990 48,055 1.0319 1.0904 52,401 4,346
1991 37,997 1.0541 1.1494 43,675 5,678
1992 29,486 1.1105 1.2764 37,637 8,151
1993 21,502 1.2450 1.5892 34,170 12,668
1994 10,852 2.1356 3.3938 36,830 25,978
TOTAL 375,024 438,452 63,428
</TABLE>
NOTES
(4) Cumulative multiplication of (3)
(5) (2) x (4)
<PAGE> 201
EXHIBIT X
Sheet 14
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Incurred Losses
(amounts in thousands)
CMP2_INC10
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 11,989 31,929 40,519 46,499 49,164 52,023 54,204 55,192 55,775 55,705
1986 11,028 26,315 34,264 38,079 41,880 42,061 42,624 42,518 43,007
1987 8,671 23,567 30,037 35,335 37,472 39,752 39,897 40,267
1988 12,653 24,803 33,277 40,340 41,839 43,037 43,983
1989 13,752 29,728 37,642 41,678 44,388 44,170
1990 15,841 38,668 44,461 47,518 48,055
1991 14,064 29,913 36,306 37,997
1992 12,300 23,436 29,486
1993 10,179 21,502
1994 10,852
</TABLE>
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 ULT:117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 2.6632 1.2690 1.1476 1.0573 1.0582 1.0419 1.0182 1.0106 0.9987
1986 2.3862 1.3021 1.1113 1.0998 1.0043 1.0134 0.9975 1.0115
1987 2.7179 1.2745 1.1764 1.0605 1.0608 1.0036 1.0093
1988 1.9602 1.3417 1.2122 1.0372 1.0286 1.0220
1989 2.1617 1.2662 1.1072 1.0650 0.9951
1990 2.4410 1.1498 1.0688 1.0113
1991 2.1269 1.2137 1.0466
1992 1.9054 1.2581
1993 2.1124
1994
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 2.0089 1.2359 1.0577 1.0381 1.0119 1.0128 1.0034 1.0111 0.9987
4 2.1464 1.2220 1.1087 1.0435 1.0222 1.0202 1.0083 1.0111 0.9987
2 of 4 2.1197 1.2359 1.0880 1.0489 1.0165 1.0177 1.0086 1.0111 0.9987
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 2.2616 1.2524 1.1206 1.0535 1.0293 1.0217 1.0091 1.0110 0.9987
2 1.9991 1.2332 1.0588 1.0364 1.0114 1.0132 1.0032 1.0110 0.9987
3 2.0483 1.1982 1.0742 1.0366 1.0263 1.0132 1.0091 1.0110 0.9987
4 2.1671 1.2148 1.1045 1.0418 1.0208 1.0217 1.0091 1.0110 0.9987
5 2.1659 1.2363 1.1164 1.0526 1.0293 1.0217 1.0091 1.0110 0.9987
2 of 4 2.1208 1.2332 1.0864 1.0480 1.0165 1.0177 1.0092 1.0110 0.9987
3 of 5 2.1356 1.2450 1.1105 1.0541 1.0319 1.0204 1.0092 1.0110 0.9987
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 2.1998 1.2595 1.1108 1.0540 1.0276 1.0192 1.0087 1.0110 0.9987
2 2.0107 1.2357 1.0576 1.0334 1.0095 1.0142 1.0039 1.0110 0.9987
3 2.0638 1.2081 1.0697 1.0349 1.0233 1.0139 1.0087 1.0110 0.9987
4 2.1259 1.2265 1.0878 1.0417 1.0188 1.0192 1.0087 1.0110 0.9987
5 2.1311 1.2413 1.1009 1.0519 1.0276 1.0192 1.0087 1.0110 0.9987
</TABLE>
Selected Development Factors
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2.1356 1.2450 1.1105 1.0541 1.0319 1.0204 1.0092 1.0110 1.0000 1.0150
</TABLE>
<PAGE> 202
EXHIBIT X
Sheet 15a
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Incurred Losses
(amounts in thousands)
CMP2_INC
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117 129 141 151 165 177
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 30,645 30,927
1986 38,539 38,686 39,279
1987 50,834 51,361 52,398 52,341
1988 46,937 48,417 48,719 49,433 49,902
1989 51,064 54,346 56,757 58,262 60,211 61,293
1990 11,989 31,929 40,519 46,499 49,164 52,023 54,204 55,192 55,775 55,705
1991 11,028 26,315 34,264 38,079 41,880 42,061 42,624 42,518 43,007
1992 8,671 23,567 30,037 35,335 37,472 39,752 39,897 40,267
1993 12,653 24,803 33,277 40,340 41,839 43,037 43,983
1994 13,752 29,728 37,642 41,678 44,388 44,170
1995 15,841 38,668 44,461 47,518 48,055
1996 14,064 29,913 36,306 37,997
1997 12,300 23,436 29,486
1998 10,179 21,502
1999 10,852
</TABLE>
<PAGE> 203
EXHIBIT X
Sheet 15b
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Incurred Losses
(amounts in thousands)
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 129:117 141:129 153:141
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985
1986 1.0038
1987 1.0104 1.0202
1988 1.0315 1.0062 1.0147
1989 1.0643 1.0444 1.0265 1.0335
1990 2.6632 1.2690 1.1476 1.0573 1.0582 1.0419 1.0182 1.0106 0.9987
1991 2.3862 1.3021 1.1113 1.0998 1.0043 1.0134 0.9975 1.0115
1992 2.7179 1.2745 1.1764 1.0605 1.0608 1.0036 1.0093
1993 1.9602 1.3417 1.2122 1.0372 1.0286 1.0220
1994 2.1617 1.2662 1.1072 1.0650 0.9951
1995 2.4410 1.1498 1.0688 1.0113
1996 2.1269 1.2137 1.0466
1997 1.9054 1.2581
1998 2.1124
1999
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 2.0089 1.2359 1.0577 1.0381 1.0119 1.0128 1.0034 1.0111 0.9987
4 2.1464 1.2220 1.1087 1.0435 1.0222 1.0202 1.0129 1.0176 0.9987
2 of 4 2.1197 1.2359 1.0880 1.0489 1.0165 1.0177 1.0138 1.0131 0.9987
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 2.2616 1.2524 1.1206 1.0535 1.0360 1.0278 1.0122 1.0167 0.9987
2 1.9991 1.2332 1.0588 1.0364 1.0114 1.0132 1.0032 1.0110 0.9987
3 2.0483 1.1982 1.0742 1.0366 1.0263 1.0132 1.0091 1.0194 0.9987
4 2.1671 1.2148 1.1045 1.0418 1.0208 1.0217 1.0142 1.0183 0.9987
5 2.1659 1.2363 1.1164 1.0526 1.0293 1.0270 1.0126 1.0187 0.9987
2 of 4 2.1208 1.2332 1.0864 1.0480 1.0165 1.0177 1.0144 1.0132 0.9987
3 of 5 2.1356 1.2450 1.1105 1.0541 1.0319 1.0269 1.0116 1.0157 0.9987
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 2.1998 1.2595 1.1108 1.0540 1.0363 1.0252 1.0110 1.0136 0.9987
2 2.0107 1.2357 1.0576 1.0334 1.0095 1.0142 1.0039 1.0110 0.9987
3 2.0638 1.2081 1.0697 1.0349 1.0233 1.0139 1.0087 1.0162 0.9987
4 2.1259 1.2265 1.0878 1.0417 1.0188 1.0192 1.0129 1.0151 0.9987
5 2.1311 1.2413 1.1009 1.0519 1.0276 1.0241 1.0114 1.0156 0.9987
</TABLE>
<PAGE> 204
EXHIBIT X
Sheet 16
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Maturity Adjusted Paid Losses
(amounts in thousands)
Application of Generalized Cape Cod Method
on a Paid Basis
(using a decay rate of 75%)
(calculation includes 10 years)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Ultimate Claim Portion of Losses
Number of Severity Exposure Ultimate Paid
Year CWIPs Index Base Paid to Date to Date
-------- --------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1985 8,401 1.0000 8,400.81 0.9709 54,515
1986 5,701 1.0700 6,100.24 0.9512 41,869
1987 5,105 1.1449 5,844.26 0.9237 38,741
1988 5,644 1.2250 6,914.62 0.8969 41,551
1989 5,206 1.3108 6,824.48 0.8113 39,119
1990 5,417 1.4026 7,597.34 0.7260 38,808
1991 4,972 1.5007 7,461.06 0.5853 28,228
1992 4,676 1.6058 7,508.65 0.4327 14,720
1993 4,881 1.7182 8,386.92 0.2342 8,473
1994 6,196 1.8385 11,390.81 0.0496 2,522
TOTAL 56,199 76,429.19 308,546
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10) (11)
Developed Expected
Loss to Loss to Expected Indicated
Exposure Exposure Ultimate Unpaid Ultimate
Year Ratio Ratio Losses Losses Losses
------ ---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1985 6.684 6.830 57,380 1,671 56,186
1986 7.216 6.858 41,833 2,042 43,911
1987 7.177 6.836 39,949 3,050 41,791
1988 6.700 6.777 46,858 4,830 46,381
1989 7.066 6.728 45,914 8,666 47,785
1990 7.036 6.631 50,380 13,806 52,614
1991 6.464 6.458 48,185 19,984 48,212
1992 4.531 6.228 46,765 26,531 41,251
1993 4.313 6.100 51,160 39,177 47,650
1994 4.466 6.066 69,093 65,668 68,190
TOTAL 497,516 185,425 493,971
</TABLE>
Notes :
(4) (2) x (3)
(5) Reciprocal of development factor to ultimate.
(7) (6)/[(4)x(5)]
(8) Weighted average of (7) with weights equal to (4)x(5)x 0.75 LAG
where LAG = absolute value of difference in years.
(9) (4) x (8)
(10) (9) x [1.0-(5)]
(11) (6) + (10)
<PAGE> 205
EXHIBIT X
Sheet 17
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Maturity Adjusted Paid Losses
(amounts in thousands)
(7 columns of data maturity adjusted)
APPLICATION OF DEVELOPMENT METHOD
ON PAID BASIS
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
AGE-TO-AGE DEV.
PAID DEV. FACTOR INDICATED
YEAR TO DATE FACTOR TO ULT. ULTIMATE RESERVES
-------- -------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1985 54,515 1.0300 1.0300 56,150 1,635
1986 41,869 1.0207 1.0513 44,018 2,149
1987 38,741 1.0298 1.0827 41,943 3,202
1988 41,551 1.0298 1.1149 46,326 4,775
1989 39,119 1.1056 1.2326 48,220 9,101
1990 38,808 1.1175 1.3775 53,457 14,649
1991 28,228 1.2404 1.7086 48,231 20,003
1992 14,720 1.3527 2.3113 34,022 19,302
1993 8,473 1.8472 4.2694 36,174 27,701
1994 2,522 4.7250 20.1728 50,876 48,354
TOTAL 308,546 459,418 150,872
</TABLE>
NOTES
-----
(4) Cumulative multiplication of (3)
(5) (2) x (4)
<PAGE> 206
EXHIBIT X
Sheet 18
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense
Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Maturity Adjusted Paid Losses
(amounts in thousands)
(7 columns of data maturity adjusted)
CMP2_PD10XADJ
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 2,735 13,076 24,777 33,937 43,581 47,152 50,999 52,097 53,411 54,515
1986 1,579 10,352 18,027 25,777 31,499 35,688 39,187 40,427 41,869
1987 1,612 8,881 16,347 23,035 28,809 33,479 37,284 38,741
1988 2,032 9,242 15,787 24,315 30,351 33,161 41,551
1989 2,162 10,101 19,915 26,361 34,762 39,119
1990 2,532 12,345 24,868 31,628 38,808
1991 2,193 11,418 21,121 28,228
1992 2,191 9,301 14,720
1993 1,849 8,473
1994 2,522
</TABLE>
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 ULT:117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 4.7812 1.8949 1.3697 1.2842 1.0819 1.0816 1.0215 1.0252 1.0207
1986 6.5573 1.7413 1.4299 1.2220 1.1330 1.0980 1.0316 1.0357
1987 5.5099 1.8406 1.4091 1.2506 1.1621 1.1137 1.0391
1988 4.5483 1.7082 1.5402 1.2482 1.0926 1.2530
1989 4.6711 1.9715 1.3237 1.3187 1.1253
1990 4.8753 2.0144 1.2718 1.2270
1991 5.2072 1.8498 1.3365
1992 4.2459 1.5826
1993 4.5824
1994
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 4.4141 1.7162 1.3042 1.2729 1.1090 1.1834 1.0354 1.0305 1.0207
4 4.7277 1.8546 1.3681 1.2611 1.1283 1.1366 1.0307 1.0305 1.0207
2 of 4 4.7289 1.9107 1.3301 1.2494 1.1292 1.1059 1.0310 1.0305 1.0207
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 4.9347 1.8363 1.3723 1.2590 1.1159 1.1307 1.0298 1.0298 1.0207
2 4.3999 1.7298 1.3015 1.2687 1.1101 1.1830 1.0353 1.0298 1.0207
3 4.6839 1.8361 1.3082 1.2626 1.1260 1.1534 1.0298 1.0298 1.0207
4 4.7392 1.8678 1.3530 1.2600 1.1278 1.1307 1.0298 1.0298 1.0207
5 4.7257 1.8396 1.3624 1.2525 1.1159 1.1307 1.0298 1.0298 1.0207
2 of 4 4.7517 1.9069 1.3303 1.2494 1.1290 1.1056 1.0302 1.0298 1.0207
3 of 5 4.7250 1.8472 1.3527 1.2404 1.1175 1.1228 1.0298 1.0298 1.0207
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 4.8151 1.8416 1.3573 1.2485 1.1185 1.1271 1.0312 1.0304 1.0207
2 4.4187 1.7150 1.3051 1.2637 1.1119 1.1908 1.0357 1.0304 1.0207
3 4.6243 1.8164 1.3122 1.2579 1.1243 1.1526 1.0312 1.0304 1.0207
4 4.6957 1.8615 1.3355 1.2549 1.1266 1.1271 1.0312 1.0304 1.0207
5 4.6906 1.8423 1.3436 1.2437 1.1185 1.1271 1.0312 1.0304 1.0207
</TABLE>
Selected Development Factors
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.7250 1.8472 1.3527 1.2404 1.1175 1.1056 1.0298 1.0298 1.0207 1.0300
</TABLE>
<PAGE> 207
EXHIBIT X
Sheet 19
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Maturity Adjusted Paid Losses Using CWIPs
(amounts in thousands)
Application of Generalized Cape Cod Method
on a Paid Basis
(using a decay rate of 75%)
(calculation includes 10 years)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Ultimate Claim Portion of Losses
Number of Severity Exposure Ultimate Paid
Year CWIPs Index Base Paid to Date to Date
-------- --------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1985 8,401 1.0000 8,400.81 0.9709 54,515
1986 5,701 1.0700 6,100.24 0.9512 41,869
1987 5,105 1.1449 5,844.26 0.9237 38,741
1988 5,644 1.2250 6,914.62 0.8839 41,551
1989 5,206 1.3108 6,824.48 0.7961 39,119
1990 5,417 1.4026 7,597.34 0.6986 38,808
1991 4,972 1.5007 7,461.06 0.5615 28,228
1992 4,676 1.6058 7,508.65 0.3924 14,720
1993 4,881 1.7182 8,386.92 0.2146 8,473
1994 6,196 1.8385 11,390.81 0.0494 2,522
TOTAL 56,199 76,429.19 308,546
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10) (11)
Developed Expected
Loss to Loss to Expected Indicated
Exposure Exposure Ultimate Unpaid Ultimate
Year Ratio Ratio Losses Losses Losses
------ ---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1985 6.684 6.894 57,913 1,687 56,202
1986 7.216 6.933 42,295 2,065 43,934
1987 7.177 6.931 40,506 3,092 41,833
1988 6.799 6.900 47,711 5,540 47,091
1989 7.201 6.883 46,971 9,578 48,697
1990 7.312 6.823 51,833 15,621 54,429
1991 6.737 6.680 49,842 21,854 50,082
1992 4.996 6.482 48,673 29,576 44,296
1993 4.709 6.363 53,362 41,913 50,386
1994 4.484 6.322 72,009 68,454 70,976
TOTAL 511,116 199,379 507,925
</TABLE>
Notes :
(4) (2) x (3)
(5) Reciprocal of development factor to ultimate.
(7) (6)/[(4)x(5)]
(8) Weighted average of (7) with weights equal to (4)x(5)x 0.75 LAG
where LAG = absolute value of difference in years.
(9) (4) x (8)
(10) (9) x [1.0-(5)]
(11) (6) + (10)
<PAGE> 208
EXHIBIT X
Sheet 20
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Maturity Adjusted Paid Losses Using CWIPs
(amounts in thousands)
(7 columns of data maturity adjusted)
APPLICATION OF DEVELOPMENT METHOD
ON PAID BASIS
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
AGE-TO-AGE DEV.
PAID DEV. FACTOR INDICATED
YEAR TO DATE FACTOR TO ULT. ULTIMATE RESERVES
-------- -------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1985 54,515 1.0300 1.0300 56,150 1,635
1986 41,869 1.0207 1.0513 44,018 2,149
1987 38,741 1.0298 1.0827 41,943 3,202
1988 41,551 1.0450 1.1314 47,010 5,459
1989 39,119 1.1103 1.2562 49,140 10,021
1990 38,808 1.1395 1.4314 55,550 16,742
1991 28,228 1.2441 1.7808 50,268 22,040
1992 14,720 1.4312 2.5487 37,517 22,797
1993 8,473 1.8287 4.6608 39,491 31,018
1994 2,522 4.3455 20.2534 51,079 48,557
TOTAL 308,546 472,164 163,618
</TABLE>
NOTES
(4) Cumulative multiplication of (3)
(5) (2) x (4)
<PAGE> 209
EXHIBIT X
Sheet 21
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Maturity Adjusted Paid Losses Using CWIPs
(amounts in thousands)
(7 columns of data maturity adjusted)
CMP2_PD10ADJ
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 2,880 12,312 21,669 30,700 40,015 45,220 49,391 52,097 53,411 54,515
1986 1,734 10,099 17,502 25,986 31,865 36,526 39,209 40,427 41,869
1987 1,806 8,410 15,226 22,957 28,091 33,502 37,007 38,741
1988 2,184 9,054 14,924 23,794 30,343 34,391 41,551
1989 2,309 9,592 18,623 26,578 34,355 39,119
1990 2,625 11,497 22,714 31,418 38,808
1991 2,086 10,861 20,413 28,228
1992 2,178 9,048 14,720
1993 1,869 8,473
1994 2,522
</TABLE>
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 ULT:117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 4.2750 1.7599 1.4168 1.3034 1.1301 1.0922 1.0548 1.0252 1.0207
1986 5.8250 1.7330 1.4848 1.2263 1.1463 1.0735 1.0311 1.0357
1987 4.6562 1.8105 1.5078 1.2236 1.1926 1.1046 1.0468
1988 4.1458 1.6483 1.5943 1.2752 1.1334 1.2082
1989 4.1538 1.9415 1.4272 1.2926 1.1387
1990 4.3799 1.9757 1.3832 1.2352
1991 5.2060 1.8795 1.3828
1992 4.1533 1.6269
1993 4.5343
1994
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 4.3438 1.7532 1.3830 1.2639 1.1361 1.1564 1.0390 1.0305 1.0207
4 4.5684 1.8559 1.4469 1.2567 1.1528 1.1196 1.0442 1.0305 1.0207
2 of 4 4.4571 1.9105 1.4052 1.2552 1.1425 1.0984 1.0449 1.0305 1.0207
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 4.5419 1.8027 1.4470 1.2604 1.1463 1.1171 1.0450 1.0298 1.0207
2 4.3292 1.7647 1.3830 1.2615 1.1362 1.1571 1.0387 1.0298 1.0207
3 4.6275 1.8419 1.3963 1.2655 1.1533 1.1278 1.0450 1.0298 1.0207
4 4.5533 1.8652 1.4349 1.2563 1.1515 1.1171 1.0450 1.0298 1.0207
5 4.4699 1.8260 1.4470 1.2503 1.1463 1.1171 1.0450 1.0298 1.0207
2 of 4 4.4441 1.9086 1.4030 1.2525 1.1423 1.0975 1.0455 1.0298 1.0207
3 of 5 4.3455 1.8287 1.4312 1.2441 1.1395 1.1103 1.0450 1.0298 1.0207
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 4.4383 1.8176 1.4318 1.2541 1.1407 1.1141 1.0451 1.0304 1.0207
2 4.3504 1.7506 1.3830 1.2584 1.1365 1.1628 1.0396 1.0304 1.0207
3 4.5685 1.8328 1.3907 1.2645 1.1463 1.1301 1.0451 1.0304 1.0207
4 4.5037 1.8679 1.4101 1.2520 1.1449 1.1141 1.0451 1.0304 1.0207
5 4.4248 1.8427 1.4231 1.2449 1.1407 1.1141 1.0451 1.0304 1.0207
</TABLE>
Selected Development Factors
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.3455 1.8287 1.4312 1.2441 1.1395 1.1103 1.0450 1.0298 1.0207 1.0300
</TABLE>
<PAGE> 210
EXHIBIT X
Sheet 22
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Reserve Strength Adjusted Incurred Losses
(amounts in thousands)
Application of Generalized Cape Cod Method
on an Incurred Basis
(using a decay rate of 75%)
(calculation includes 10 years)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Ultimate Claim Portion of Losses
Number of Severity Exposure Ultimate Reported
Year CWIPs Index Base Reported to Date
-------- --------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1985 8,401 1.0000 8,400.81 0.9852 55,705
1986 5,701 1.0700 6,100.24 0.9852 43,007
1987 5,105 1.1449 5,844.26 0.9745 40,267
1988 5,644 1.2250 6,914.62 0.9656 43,983
1989 5,206 1.3108 6,824.48 0.9196 44,170
1990 5,417 1.4026 7,597.34 0.8521 48,055
1991 4,972 1.5007 7,461.06 0.7677 37,997
1992 4,676 1.6058 7,508.65 0.6386 29,486
1993 4,881 1.7182 8,386.92 0.4486 21,502
1994 6,196 1.8385 11,390.81 0.1753 10,852
TOTAL 56,199 76,429.19 375,024
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10) (11)
Developed Expected
Loss to Loss to Expected Indicated
Exposure Exposure Ultimate IBNR Ultimate
Year Ratio Ratio Losses Losses Losses
------ ---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1985 6.730 6.862 57,648 852 56,557
1986 7.156 6.885 42,000 621 43,628
1987 7.070 6.872 40,162 1,024 41,291
1988 6.587 6.839 47,292 1,626 45,609
1989 7.038 6.840 46,677 3,751 47,921
1990 7.423 6.816 51,783 7,656 55,711
1991 6.634 6.708 50,051 11,627 49,624
1992 6.149 6.587 49,460 17,873 47,359
1993 5.715 6.483 54,372 29,982 51,484
1994 5.433 6.428 73,218 60,380 71,232
TOTAL 512,664 135,392 510,416
</TABLE>
Notes :
(4) (2) x (3)
(5) Reciprocal of development factor to ultimate.
(7) (6)/[(4)x(5)]
(8) Weighted average of (7) with weights equal to (4)x(5)x 0.75 LAG
where LAG = absolute value of difference in years.
(9) (4) x (8)
(10) (9) x [1.0-(5)]
(11) (6) + (10)
<PAGE> 211
EXHIBIT X
Sheet 23
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Reserve Strength Adjusted Incurred Losses
(amounts in thousands)
APPLICATION OF DEVELOPMENT METHOD
ON INCURRED BASIS
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
AGE-TO-AGE DEV.
REPORTED DEV. FACTOR INDICATED
YEAR TO DATE FACTOR TO ULT. ULTIMATE IBNR
-------- -------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1985 55,705 1.0150 1.0150 56,541 836
1986 43,007 1.0000 1.0150 43,652 645
1987 40,267 1.0110 1.0262 41,321 1,054
1988 43,983 1.0092 1.0356 45,549 1,566
1989 44,170 1.0500 1.0874 48,030 3,860
1990 48,055 1.0792 1.1735 56,393 8,338
1991 37,997 1.1100 1.3026 49,495 11,498
1992 29,486 1.2021 1.5658 46,171 16,685
1993 21,502 1.4237 2.2293 47,934 26,432
1994 10,852 2.5583 5.7032 61,891 51,039
TOTAL 375,024 496,976 121,952
</TABLE>
NOTES
-----
(4) Cumulative multiplication of (3)
(5) (2) x (4)
<PAGE> 212
EXHIBIT X
Sheet 24
11/25/94 GREAT AMERICAN INSURANCE GROUP
2:55 pm Analysis of Loss and Loss Adjustment Expense
Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Reserve Strength Adjusted Incurred Losses
(amounts in thousands)
CMP2_INC10X70
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 9,479 25,352 34,629 40,888 45,812 49,457 52,249 54,018 55,182 55,705
1986 7,769 20,619 27,783 33,518 37,006 39,853 41,272 41,993 43,007
1987 6,052 17,500 24,347 29,542 33,091 38,078 39,199 40,267
1988 8,483 18,891 25,632 33,961 37,600 40,647 43,983
1989 9,124 20,470 29,399 35,994 41,467 44,170
1990 9,514 26,414 37,610 43,841 48,055
1991 8,558 22,926 32,381 37,997
1992 8,482 19,910 29,486
1993 8,109 21,502
1994 10,852
</TABLE>
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 ULT:117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 2.6745 1.3660 1.1807 1.1204 1.0796 1.0565 1.0339 1.0215 1.0095
1986 2.6539 1.3474 1.2064 1.1041 1.0769 1.0356 1.0175 1.0241
1987 2.8913 1.3913 1.2134 1.1201 1.1507 1.0295 1.0272
1988 2.2270 1.3568 1.3249 1.1072 1.0810 1.0821
1989 2.2436 1.4362 1.2243 1.1521 1.0652
1990 2.7762 1.4239 1.1656 1.0961
1991 2.6789 1.4124 1.1734
1992 2.3472 1.4810
1993 2.6517
1994
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 2.4995 1.4467 1.1695 1.1241 1.0731 1.0558 1.0224 1.0228 1.0095
4 2.6135 1.4384 1.2220 1.1189 1.0935 1.0509 1.0262 1.0228 1.0095
2 of 4 2.6653 1.4301 1.1989 1.1137 1.0790 1.0461 1.0265 1.0228 1.0095
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 2.5616 1.4021 1.2075 1.1161 1.0884 1.0516 1.0268 1.0226 1.0095
2 2.4960 1.4443 1.1692 1.1213 1.0727 1.0567 1.0222 1.0226 1.0095
3 2.5583 1.4365 1.1855 1.1171 1.0957 1.0496 1.0268 1.0226 1.0095
4 2.6181 1.4364 1.2141 1.1177 1.0911 1.0516 1.0268 1.0226 1.0095
5 2.5400 1.4226 1.2140 1.1152 1.0884 1.0516 1.0268 1.0226 1.0095
2 of 4 2.6657 1.4292 1.1977 1.1132 1.0790 1.0472 1.0269 1.0227 1.0095
3 of 5 2.5583 1.4237 1.2021 1.1100 1.0792 1.0500 1.0268 1.0227 1.0095
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 2.5962 1.4086 1.1984 1.1131 1.0819 1.0503 1.0265 1.0228 1.0095
2 2.5130 1.4481 1.1696 1.1183 1.0718 1.0596 1.0228 1.0228 1.0095
3 2.5844 1.4367 1.1798 1.1141 1.0877 1.0496 1.0265 1.0228 1.0095
4 2.6324 1.4348 1.1969 1.1148 1.0838 1.0503 1.0265 1.0228 1.0095
5 2.5709 1.4251 1.1993 1.1116 1.0819 1.0503 1.0265 1.0228 1.0095
</TABLE>
Selected Development Factors
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2.5583 1.4237 1.2021 1.1100 1.0792 1.0500 1.0092 1.0110 1.0000 1.0150
</TABLE>
<PAGE> 213
EXHIBIT X
Sheet 25
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
ADJUSTMENT OF HISTORICAL OUTSTANDING LOSS
TO CURRENT ADEQUACY LEVEL
ASSUMED ANNUAL TREND RATE: 7 PCT.
AVERAGE OUTSTANDINGS TRENDED TO CURRENT SEVERITY LEVELS:
<TABLE>
<CAPTION>
ACCIDENT
YEAR 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 14,107 26,711 35,557 43,018 35,560 33,254 37,589 29,529 29,413 22,037
1986 15,755 28,158 42,434 43,965 58,257 41,240 49,162 32,426 25,289
1987 14,755 26,997 37,288 45,123 53,536 43,565 37,183 26,310
1988 16,068 27,722 42,658 47,387 58,421 65,733 33,315
1989 17,448 29,509 40,978 46,624 47,891 33,013
1990 18,276 33,033 36,598 43,308 42,417
1991 14,213 22,343 26,731 24,732
1992 9,832 15,858 25,070
1993 7,518 12,303
1994 5,466
</TABLE>
NUMBERS OUTSTANDING:
<TABLE>
<CAPTION>
ACCIDENT
YEAR 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 1,163 1,187 728 480 328 214 136 120 86 54
1986 997 889 562 361 232 140 83 69 45
1987 780 827 531 356 214 116 80 58
1988 955 742 497 352 219 155 73
1989 923 870 526 368 260 153
1990 960 970 565 362 218
1991 1,013 944 626 395
1992 1,172 948 589
1993 1,174 1,059
1994 1,524
</TABLE>
<PAGE> 214
EXHIBIT X
Sheet 26
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
ADJUSTMENT OF HISTORICAL OUTSTANDING LOSS
TO CURRENT ADEQUACY LEVEL
ASSUMED ANNUAL TREND RATE: 7 PCT.
<TABLE>
<CAPTION>
CALENDAR WEIGHTED AVERAGE RESERVE ADEQUACY
YEAR RESERVE* INDEX
-------- ---------------- ----------------
<S> <C> <C>
1994 16,904 1.0000
1993 22,569 1.3351
1993 22,083 1.3351
1992 26,648 1.6111
1992 27,201 1.6111
1991 31,766 1.8815
1991 31,870 1.8815
1990 32,122 1.8963
1990 32,562 1.8963
1989 28,766 1.6753
1989 28,293 1.6753
1988 28,520 1.6887
1988 27,067 1.6887
1987 25,255 1.5757
1987 21,894 1.5757
1986 21,591 1.5538
1986 15,755 1.5538
1985 14,107 1.3913
</TABLE>
*FOR EACH YEAR-TO-YEAR COMPARISON, THE AVERAGE TRENDED RESERVES AT
COMPARABLE MATURITIES ARE WEIGHTED BY IDENTICAL CLAIM COUNT WEIGHTS
FOR EACH MATURITY EQUAL TO THE LESSER OF THE OUTSTANDING CLAIM
COUNTS FOR THE TWO YEARS. IN EACH CASE, THE OLDEST MATURITY FOR THE
MORE RECENT YEAR IS EXCLUDED, SINCE NO COMPARABLE MATURITY EXISTS FOR
THE EARLIER YEAR.
<PAGE> 215
EXHIBIT X
Sheet 27
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
ADJUSTMENT OF HISTORICAL OUTSTANDING LOSS
TO CURRENT ADEQUACY LEVEL
ASSUMED ANNUAL TREND RATE: 7 PCT.
OUTSTANDING LOSS ADJUSTED TO CURRENT ADEQUACY LEVEL:
<TABLE>
<CAPTION>
ACCIDENT
YEAR 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 6,414 11,876 10,230 8,148 4,964 2,863 2,218 1,921 1,771 1,190
1986 5,883 9,893 9,410 6,755 5,437 2,505 2,212 1,566 1,138
1987 4,548 8,810 8,427 6,462 4,971 2,740 2,082 1,526
1988 6,055 8,754 8,529 7,237 6,936 7,132 2,432
1989 6,854 10,328 9,352 9,302 8,716 5,051
1990 7,058 13,902 11,210 10,975 9,247
1991 6,247 11,435 11,714 9,769
1992 6,247 10,524 14,766
1993 6,179 13,029
1994 8,330
</TABLE>
<PAGE> 216
EXHIBIT X
Sheet 28
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Reserve Strength Adjusted Incurred Losses Using CWIPs
(amounts in thousands)
Application of Generalized Cape Cod Method
on an Incurred Basis
(using a decay rate of 75%)
(calculation includes 10 years)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Ultimate Claim Portion of Losses
Number of Severity Exposure Ultimate Reported
Year CWIPs Index Base Reported to Date
-------- --------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1985 8,401 1.0000 8,400.81 0.9852 55,705
1986 5,701 1.0700 6,100.24 0.9852 43,007
1987 5,105 1.1449 5,844.26 0.9745 40,267
1988 5,644 1.2250 6,914.62 0.9656 43,983
1989 5,206 1.3108 6,824.48 0.9224 44,170
1990 5,417 1.4026 7,597.34 0.8621 48,055
1991 4,972 1.5007 7,461.06 0.7854 37,997
1992 4,676 1.6058 7,508.65 0.6600 29,486
1993 4,881 1.7182 8,386.92 0.4767 21,502
1994 6,196 1.8385 11,390.81 0.1905 10,852
TOTAL 56,199 76,429.19 375,024
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10) (11)
Developed Expected
Loss to Loss to Expected Indicated
Exposure Exposure Ultimate IBNR Ultimate
Year Ratio Ratio Losses Losses Losses
------ ---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1985 6.730 6.833 57,401 848 56,553
1986 7.156 6.850 41,789 618 43,625
1987 7.070 6.829 39,912 1,018 41,285
1988 6.587 6.785 46,918 1,613 45,596
1989 7.016 6.768 46,187 3,582 47,752
1990 7.337 6.720 51,056 7,041 55,096
1991 6.484 6.586 49,135 10,546 48,543
1992 5.950 6.436 48,329 16,433 45,919
1993 5.378 6.304 52,867 27,664 49,166
1994 5.000 6.231 70,981 57,457 68,309
TOTAL 504,576 126,819 501,843
</TABLE>
Notes :
(4) (2) x (3)
(5) Reciprocal of development factor to ultimate.
(7) (6)/[(4)x(5)]
(8) Weighted average of (7) with weights equal to (4)x(5)x 0.75 LAG
where LAG = absolute value of difference in years.
(9) (4) x (8)
(10) (9) x [1.0-(5)]
(11) (6) + (10)
<PAGE> 217
EXHIBIT X
Sheet 29
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Reserve Strength Adjusted Incurred Losses Using CWIPs
(amounts in thousands)
APPLICATION OF DEVELOPMENT METHOD
ON INCURRED BASIS
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
AGE-TO-AGE DEV.
REPORTED DEV. FACTOR INDICATED
YEAR TO DATE FACTOR TO ULT. ULTIMATE IBNR
- -------- -------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1985 55,705 1.0150 1.0150 56,541 836
1986 43,007 1.0000 1.0150 43,652 645
1987 40,267 1.0110 1.0262 41,321 1,054
1988 43,983 1.0092 1.0356 45,549 1,566
1989 44,170 1.0468 1.0841 47,883 3,713
1990 48,055 1.0700 1.1600 55,742 7,687
1991 37,997 1.0977 1.2733 48,381 10,384
1992 29,486 1.1900 1.5152 44,677 15,191
1993 21,502 1.3844 2.0977 45,104 23,602
1994 10,852 2.5020 5.2483 56,955 46,103
TOTAL 375,024 485,805 110,781
</TABLE>
NOTES
-----
(4) Cumulative multiplication of (3)
(5) (2) x (4)
<PAGE> 218
EXHIBIT X
Sheet 30
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Reserve Strength Adjusted Incurred Losses Using CWIPs
(amounts in thousands)
CMP2_INC1070
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 12,631 27,464 37,166 42,363 46,677 49,870 52,358 54,059 55,167 55,705
1986 8,816 23,072 29,487 34,694 37,790 39,976 41,320 41,980 43,007
1987 7,180 19,095 25,814 30,474 33,335 38,137 39,181 40,267
1988 9,579 20,416 26,861 34,317 37,750 40,586 43,983
1989 10,318 21,959 29,858 36,194 41,393 44,170
1990 10,532 27,097 37,852 43,747 48,055
1991 8,865 23,171 32,281 37,997
1992 8,617 19,820 29,486
1993 8,056 21,502
1994 10,852
</TABLE>
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 ULT:117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 2.1744 1.3532 1.1398 1.1018 1.0684 1.0499 1.0325 1.0205 1.0098
1986 2.6171 1.2780 1.1766 1.0892 1.0578 1.0336 1.0160 1.0245
1987 2.6594 1.3519 1.1805 1.0939 1.1440 1.0274 1.0277
1988 2.1313 1.3157 1.2775 1.1000 1.0751 1.0837
1989 2.1283 1.3597 1.2122 1.1436 1.0671
1990 2.5729 1.3969 1.1557 1.0985
1991 2.6139 1.3931 1.1771
1992 2.3001 1.4877
1993 2.6692
1994
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 2.4847 1.4404 1.1664 1.1210 1.0711 1.0556 1.0219 1.0225 1.0098
4 2.5390 1.4093 1.2056 1.1090 1.0860 1.0487 1.0254 1.0225 1.0098
2 of 4 2.5934 1.3950 1.1947 1.0993 1.0711 1.0418 1.0260 1.0225 1.0098
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 2.4068 1.3663 1.1845 1.1046 1.0802 1.0491 1.0260 1.0222 1.0098
2 2.4784 1.4367 1.1656 1.1189 1.0709 1.0564 1.0217 1.0222 1.0098
3 2.5255 1.4213 1.1795 1.1132 1.0926 1.0487 1.0260 1.0222 1.0098
4 2.5393 1.4066 1.2002 1.1092 1.0838 1.0491 1.0260 1.0222 1.0098
5 2.4479 1.3901 1.1969 1.1053 1.0802 1.0491 1.0260 1.0222 1.0098
2 of 4 2.5917 1.3951 1.1940 1.0992 1.0709 1.0427 1.0263 1.0222 1.0098
3 of 5 2.5020 1.3844 1.1900 1.0977 1.0700 1.0468 1.0259 1.0222 1.0098
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 2.4729 1.3708 1.1784 1.1001 1.0729 1.0474 1.0261 1.0225 1.0098
2 2.4990 1.4420 1.1667 1.1165 1.0705 1.0595 1.0223 1.0225 1.0098
3 2.5486 1.4206 1.1773 1.1103 1.0843 1.0487 1.0261 1.0225 1.0098
4 2.5644 1.4053 1.1909 1.1040 1.0757 1.0474 1.0261 1.0225 1.0098
5 2.4918 1.3931 1.1887 1.1007 1.0729 1.0474 1.0261 1.0225 1.0098
</TABLE>
Selected Development Factors
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2.5020 1.3844 1.1900 1.0977 1.0700 1.0468 1.0092 1.0110 1.0000
1.0150
</TABLE>
<PAGE> 219
EXHIBIT X
Sheet 31
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
ADJUSTMENT OF HISTORICAL OUTSTANDING LOSS
TO CURRENT ADEQUACY LEVEL
ASSUMED ANNUAL TREND RATE: 7 PCT.
AVERAGE OUTSTANDINGS TRENDED TO CURRENT SEVERITY LEVELS:
<TABLE>
<CAPTION>
ACCIDENT
YEAR 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 2,946 17,715 25,608 33,916 30,153 28,373 33,236 30,597 27,855 18,649
1986 4,165 19,165 31,748 35,179 47,731 32,590 33,958 25,669 18,916
1987 3,187 18,367 29,221 37,922 46,271 34,472 29,278 19,665
1988 4,160 18,006 32,201 42,187 48,392 51,099 21,077
1989 4,556 21,677 32,106 39,683 44,412 28,803
1990 4,708 27,391 32,421 38,922 35,054
1991 4,401 18,475 24,090 23,448
1992 3,677 13,642 22,238
1993 2,701 10,625
1994 1,991
</TABLE>
NUMBERS OUTSTANDING:
<TABLE>
<CAPTION>
ACCIDENT
YEAR 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 5,570 1,790 1,011 609 387 251 154 116 91 64
1986 3,771 1,306 751 451 283 177 120 87 60
1987 3,611 1,216 678 424 248 147 102 78
1988 3,688 1,142 658 395 264 199 115
1989 3,534 1,184 671 432 280 175
1990 3,727 1,170 638 403 264
1991 3,272 1,142 695 417
1992 3,134 1,102 664
1993 3,267 1,226
1994 4,185
</TABLE>
<PAGE> 220
EXHIBIT X
Sheet 32
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
ADJUSTMENT OF HISTORICAL OUTSTANDING LOSS
TO CURRENT ADEQUACY LEVEL
ASSUMED ANNUAL TREND RATE: 7 PCT.
<TABLE>
<CAPTION>
CALENDAR WEIGHTED AVERAGE RESERVE ADEQUACY
YEAR RESERVE* INDEX
-------- ---------------- ----------------
<S> <C> <C>
1994 10,062 1.0000
1993 13,550 1.3466
1993 13,442 1.3466
1992 15,743 1.5772
1992 15,472 1.5772
1991 17,593 1.7933
1991 17,143 1.7933
1990 15,845 1.6575
1990 15,257 1.6575
1989 13,134 1.4268
1989 12,461 1.4268
1988 12,488 1.4298
1988 10,972 1.4298
1987 9,689 1.2627
1987 7,432 1.2627
1986 7,765 1.3192
1986 4,165 1.3192
1985 2,946 0.9329
</TABLE>
*FOR EACH YEAR-TO-YEAR COMPARISON, THE AVERAGE TRENDED RESERVES AT
COMPARABLE MATURITIES ARE WEIGHTED BY IDENTICAL CLAIM COUNT WEIGHTS
FOR EACH MATURITY EQUAL TO THE LESSER OF THE OUTSTANDING CLAIM
COUNTS FOR THE TWO YEARS. IN EACH CASE, THE OLDEST MATURITY FOR THE
MORE RECENT YEAR IS EXCLUDED, SINCE NO COMPARABLE MATURITY EXISTS FOR
THE EARLIER YEAR.
<PAGE> 221
EXHIBIT X
Sheet 33
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
ADJUSTMENT OF HISTORICAL OUTSTANDING LOSS
TO CURRENT ADEQUACY LEVEL
ASSUMED ANNUAL TREND RATE: 7 PCT.
OUTSTANDING LOSS ADJUSTED TO CURRENT ADEQUACY LEVEL:
<TABLE>
<CAPTION>
ACCIDENT
YEAR 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 9,566 13,988 12,767 9,623 5,829 3,276 2,327 1,962 1,756 1,190
1986 6,930 12,346 11,114 7,931 6,221 2,628 2,260 1,553 1,138
1987 5,676 10,405 9,894 7,394 5,215 2,799 2,064 1,526
1988 7,151 10,279 9,758 7,593 7,086 7,071 2,432
1989 8,048 11,817 9,811 9,502 8,642 5,051
1990 8,076 14,585 11,452 10,881 9,247
1991 6,554 11,680 11,614 9,769
1992 6,382 10,434 14,766
1993 6,126 13,029
1994 8,330
</TABLE>
<PAGE> 222
EXHIBIT X
Sheet 34
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Reported Claim Counts
APPLICATION OF DEVELOPMENT METHOD
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
AGE-TO-AGE DEV.
CLAIMS DEV. FACTOR ULTIMATE
YEAR TO DATE FACTOR TO ULT. CLAIMS
-------- -------- ---------- ------- --------
<S> <C> <C> <C> <C>
1985 10,525 1.0075 1.0075 10,604
1986 7,286 1.0035 1.0110 7,366
1987 6,487 1.0049 1.0160 6,591
1988 7,217 1.0071 1.0232 7,384
1989 6,723 1.0082 1.0316 6,935
1990 7,257 1.0102 1.0421 7,563
1991 6,777 1.0157 1.0585 7,173
1992 6,730 1.0331 1.0935 7,359
1993 6,843 1.0784 1.1792 8,069
1994 4,267 2.0307 2.3947 10,218
TOTAL 70,112 79,263
</TABLE>
NOTES
(4) Cumulative multiplication of (3)
(5) (2) x (4)
<PAGE> 223
EXHIBIT X
Sheet 35
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Reported Claim Counts
CMP2_NOIN
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 4,237 8,923 9,550 9,860 10,066 10,226 10,351 10,428 10,488 10,525
1986 3,171 6,266 6,742 6,962 7,092 7,165 7,203 7,259 7,286
1987 2,475 5,528 6,006 6,222 6,332 6,402 6,450 6,487
1988 3,199 6,337 6,780 7,013 7,110 7,165 7,217
1989 2,848 5,853 6,323 6,557 6,661 6,723
1990 2,949 6,433 6,969 7,164 7,257
1991 3,004 6,104 6,585 6,777
1992 3,177 6,253 6,730
1993 3,406 6,843
1994 4,267
</TABLE>
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 ULT:117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 2.1060 1.0703 1.0325 1.0209 1.0159 1.0122 1.0074 1.0058 1.0035
1986 1.9760 1.0760 1.0326 1.0187 1.0103 1.0053 1.0078 1.0037
1987 2.2335 1.0865 1.0360 1.0177 1.0111 1.0075 1.0057
1988 1.9809 1.0699 1.0344 1.0138 1.0077 1.0073
1989 2.0551 1.0803 1.0370 1.0159 1.0093
1990 2.1814 1.0833 1.0280 1.0130
1991 2.0320 1.0788 1.0292
1992 1.9682 1.0763
1993 2.0091
1994
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 1.9887 1.0776 1.0286 1.0145 1.0085 1.0074 1.0068 1.0048 1.0035
4 2.0477 1.0797 1.0321 1.0151 1.0096 1.0081 1.0070 1.0048 1.0035
2 of 4 2.0206 1.0796 1.0318 1.0149 1.0098 1.0074 1.0071 1.0048 1.0035
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 2.0565 1.0772 1.0327 1.0169 1.0113 1.0085 1.0071 1.0049 1.0035
2 1.9894 1.0775 1.0286 1.0144 1.0085 1.0074 1.0068 1.0049 1.0035
3 2.0027 1.0795 1.0313 1.0142 1.0093 1.0067 1.0071 1.0049 1.0035
4 2.0448 1.0797 1.0321 1.0150 1.0096 1.0085 1.0071 1.0049 1.0035
5 2.0467 1.0777 1.0328 1.0158 1.0113 1.0085 1.0071 1.0049 1.0035
2 of 4 2.0198 1.0795 1.0318 1.0148 1.0098 1.0074 1.0072 1.0049 1.0035
3 of 5 2.0307 1.0784 1.0331 1.0157 1.0102 1.0082 1.0071 1.0049 1.0035
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 2.0289 1.0778 1.0326 1.0162 1.0102 1.0077 1.0071 1.0048 1.0035
2 1.9916 1.0774 1.0286 1.0142 1.0086 1.0074 1.0067 1.0048 1.0035
3 2.0038 1.0789 1.0303 1.0140 1.0092 1.0070 1.0071 1.0048 1.0035
4 2.0235 1.0793 1.0312 1.0148 1.0095 1.0077 1.0071 1.0048 1.0035
5 2.0278 1.0781 1.0322 1.0155 1.0102 1.0077 1.0071 1.0048 1.0035
</TABLE>
Selected Development Factors
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2.0307 1.0784 1.0331 1.0157 1.0102 1.0082 1.0071 1.0049 1.0035 1.0075
</TABLE>
<PAGE> 224
EXHIBIT X
Sheet 36
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Calculation of Ultimate CWIP's
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7) (8)
Est. % of % of % of
Ultimate Claims CWIP
Clms Open Closed In Period Claims % of Remaining
at Start Disposal in CWIP in CWIP's CWIP
Maturity of Period Rate Period Ratio Period Remaining Ratio
-------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
9 100.00 0.6122 61.22 0.5746 35.18 55.98 0.5598
21 38.78 0.4020 15.59 0.5239 8.17 20.81 0.5365
33 23.19 0.3460 8.02 0.5800 4.65 12.64 0.5450
45 15.17 0.2981 4.52 0.5800 2.62 7.99 0.5265
57 10.65 0.2981 3.17 0.5600 1.78 5.36 0.5038
69 7.47 0.2981 2.23 0.4800 1.07 3.59 0.4800
81 5.24 0.2981 1.56 0.4800 0.75 2.52 0.4800
93 3.68 0.2981 1.10 0.4800 0.53 1.77 0.4800
105 2.58 0.2981 0.77 0.4800 0.37 1.24 0.4800
117 1.81 1.0000 1.81 0.4800 0.87 0.87 0.4800
Total 100.00 55.98
</TABLE>
<TABLE>
<CAPTION>
(9) (10) (11) (12) (13) (14) (15)
Claims CWIP
Closed Open and Claims
Ultimate to Unrptd Remaining to Ultimate
Maturity Claims Date Claims CWIP's Date CWIP's
-------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
9 10,218 2,743 7,475 4,185 2,011 6,196
21 8,069 5,784 2,285 1,226 3,655 4,881
33 7,359 6,141 1,218 664 4,012 4,676
45 7,173 6,382 791 417 4,555 4,972
57 7,563 7,039 524 264 5,153 5,417
69 6,935 6,570 365 175 5,031 5,206
81 7,384 7,144 240 115 5,529 5,644
93 6,591 6,429 162 78 5,027 5,105
105 7,366 7,241 125 60 5,641 5,701
117 10,604 10,471 133 64 8,337 8,401
Total 79,263 65,944 13,319 7,248 48,951 56,199
</TABLE>
Notes: (4) = (2) x (3) (12) = (11) - (10)
(6) = (4) x (5) (13) = (12) x (8)
(7) = (6) accumulated from bottom.
(8) = (7) / (2) (15) = (13) + (14)
<PAGE> 225
12/08/94 EXHIBIT X
4:51 pm Sheet 37
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
CWIP Ratios: Ratio of In-Period CWIPs to In-Period Closed
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 0.9209 0.8108 0.7173 0.7204 0.6201 0.4964 0.4778 0.4086 0.2660 0.3913
1986 0.8878 0.7696 0.6912 0.7126 0.6486 0.6424 0.6000 0.4714 0.5294
1987 0.8814 0.7967 0.6951 0.6496 0.6984 0.6012 0.5357 0.4068
1988 0.8717 0.7598 0.7035 0.6958 0.5696 0.5462 0.6269
1989 0.8686 0.7685 0.6302 0.6097 0.7170 0.6213
1990 0.8497 0.7360 0.5654 0.5905 0.5865
1991 0.8538 0.6721 0.5594 0.6572
1992 0.7691 0.6158 0.5239
1993 0.7231 0.5746
1994 0.7331
</TABLE>
WEIGHTED AVERAGES:
Individual Column Averages
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 0.7286 0.5944 0.5413 0.6248 0.6481 0.5903 0.5917 0.4419 0.3586 0.3913
3 0.7403 0.6190 0.5501 0.6200 0.6215 0.5943 0.5942 0.4279 0.3586 0.3913
4 0.7655 0.6491 0.5693 0.6380 0.6423 0.6071 0.5484 0.4279 0.3586 0.3913
5 0.7807 0.6712 0.5920 0.6403 0.6437 0.5732 0.5484 0.4279 0.3586 0.3913
6 0.7939 0.6861 0.6084 0.6529 0.6382 0.5732 0.5484 0.4279 0.3586 0.3913
</TABLE>
Averages of All Remaining Columns
Individual Diagonal Averages
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.6254 0.5720 0.5672 0.5989 0.5647 0.5539 0.5176 0.4358 0.4500 0.3913
2 0.6360 0.5977 0.5642 0.5681 0.5527 0.4578 0.4153 0.3537 0.2660
3 0.6725 0.6344 0.5722 0.5787 0.5580 0.5506 0.5053 0.4086
4 0.7437 0.7022 0.6374 0.6433 0.6113 0.5516 0.4778
</TABLE>
Multiple Diagonal Averages
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 0.6304 0.5843 0.5658 0.5847 0.5593 0.5124 0.4724 0.3965 0.3692 0.3913
3 0.6436 0.6005 0.5680 0.5828 0.5589 0.5237 0.4806 0.3991 0.3692 0.3913
4 0.6679 0.6262 0.5848 0.5976 0.5719 0.5302 0.4800 0.3991 0.3692 0.3913
5 0.6852 0.6444 0.5957 0.5987 0.5716 0.5252 0.4800 0.3991 0.3692 0.3913
ALL 0.7423 0.6955 0.6272 0.6182 0.5767 0.5252 0.4800 0.3991 0.3692 0.3913
</TABLE>
Selected CWIP Ratios:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.5746 0.5239 0.5800 0.5800 0.5600 0.4800 0.4800 0.4800 0.4800
</TABLE>
<PAGE> 226
12/08/94 EXHIBIT X
4:52 pm Sheet 38
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Disposal Rates: In-Period Closed Counts / Ult. Open at Start
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 0.2899 0.6191 0.3787 0.3131 0.2925 0.3164 0.3429 0.2391 0.3176 0.3417
1986 0.2951 0.6169 0.4037 0.3549 0.3384 0.3259 0.2783 0.2842 0.2892
1987 0.2572 0.6140 0.4096 0.3505 0.3477 0.3554 0.2757 0.2674
1988 0.3039 0.6519 0.3845 0.3432 0.3179 0.2412 0.3579
1989 0.2776 0.6103 0.4169 0.3444 0.2841 0.3163
1990 0.2630 0.6233 0.4482 0.3435 0.3116
1991 0.2776 0.6115 0.3969 0.3484
1992 0.2724 0.6163 0.4070
1993 0.2766 0.6085
1994 0.2684
</TABLE>
WEIGHTED AVERAGES:
Individual Column Averages
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 0.2720 0.6122 0.4020 0.3460 0.2980 0.2802 0.3210 0.2762 0.3070 0.3417
3 0.2722 0.6120 0.4177 0.3455 0.3044 0.3039 0.3067 0.2594 0.3070 0.3417
4 0.2733 0.6149 0.4175 0.3449 0.3151 0.3095 0.3200 0.2594 0.3070 0.3417
5 0.2714 0.6140 0.4116 0.3460 0.3199 0.3116 0.3200 0.2594 0.3070 0.3417
6 0.2723 0.6201 0.4112 0.3475 0.3131 0.3116 0.3200 0.2594 0.3070 0.3417
</TABLE>
Averages of All Remaining Columns
Individual Diagonal Averages
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.3831 0.4862 0.3573 0.3279 0.3170 0.3197 0.3216 0.2989 0.3172 0.3417
2 0.3912 0.4783 0.3377 0.3011 0.2775 0.2738 0.2928 0.3024 0.3176
3 0.4006 0.4918 0.3716 0.3191 0.3042 0.2959 0.2574 0.2391
4 0.4129 0.5058 0.3716 0.3413 0.3401 0.3351 0.3429
</TABLE>
Multiple Diagonal Averages
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 0.3869 0.4824 0.3477 0.3150 0.2981 0.2981 0.3082 0.3006 0.3174 0.3417
3 0.3911 0.4854 0.3555 0.3163 0.2999 0.2975 0.2937 0.2849 0.3174 0.3417
4 0.3962 0.4904 0.3592 0.3220 0.3090 0.3055 0.3029 0.2849 0.3174 0.3417
5 0.3949 0.4902 0.3585 0.3246 0.3120 0.3071 0.3029 0.2849 0.3174 0.3417
ALL 0.3990 0.5100 0.3607 0.3234 0.3098 0.3071 0.3029 0.2849 0.3174 0.3417
</TABLE>
Selected Disposal Rates:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.6122 0.4020 0.3460 0.2981 0.2981 0.2981 0.2981 0.2981 0.2981
</TABLE>
<PAGE> 227
EXHIBIT X
Sheet 39
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid ALAE
(amounts in thousands)
Application of Generalized Cape Cod Method
on a Paid Basis
(using a decay rate of 75%)
(calculation includes 10 years)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected ALAE Portion of ALAE
Ultimate Ratio Exposure Ultimate Paid
Year Loss Index Base Paid to Date to Date
-------- --------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1985 56,541 1.0000 56,540.58 0.9302 15,169
1986 43,652 1.0000 43,652.11 0.8862 13,122
1987 41,321 1.0000 41,320.59 0.8174 11,953
1988 45,549 1.0000 45,549.05 0.7431 11,135
1989 47,280 1.0000 47,279.66 0.6303 10,879
1990 54,071 1.0413 56,304.61 0.5123 10,132
1991 46,028 1.0804 49,728.69 0.3688 9,138
1992 41,157 1.0804 44,466.44 0.2094 4,816
1993 39,637 1.0804 42,823.96 0.0745 2,025
1994 44,651 1.0804 48,240.40 0.0130 470
TOTAL 459,886 475,906.08 88,838
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10) (11)
Developed Expected
ALAE to ALAE to Expected Indicated
Exposure Exposure Ultimate Unpaid Ultimate
Year Ratio Ratio ALAE ALAE ALAE
------ ---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1985 0.288 0.329 18,614 1,299 16,468
1986 0.339 0.338 14,734 1,677 14,799
1987 0.354 0.345 14,237 2,599 14,552
1988 0.329 0.350 15,954 4,098 15,233
1989 0.365 0.359 16,990 6,281 17,160
1990 0.351 0.369 20,793 10,140 20,273
1991 0.498 0.385 19,156 12,092 21,230
1992 0.517 0.395 17,565 13,886 18,702
1993 0.635 0.401 17,176 15,897 17,922
1994 0.746 0.403 19,439 19,186 19,655
TOTAL 174,658 87,155 175,993
</TABLE>
Notes :
(4) (2) x (3)
(5) Reciprocal of development factor to ultimate.
(7) (6)/[(4)x(5)]
(8) Weighted average of (7) with weights equal to (4)x(5)x0.75 LAG
where LAG = absolute value of difference in years.
(9) (4) x (8)
(10) (9) x [1.0-(5)]
(11) (6) + (10)
<PAGE> 228
EXHIBIT X
Sheet 40
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid ALAE
(amounts in thousands)
APPLICATION OF DEVELOPMENT METHOD
ON PAID BASIS
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
AGE-TO-AGE DEV.
PAID DEV. FACTOR INDICATED
YEAR TO DATE FACTOR TO ULT. ULTIMATE RESERVES
-------- -------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1985 15,169 1.0750 1.0750 16,307 1,138
1986 13,122 1.0497 1.1284 14,807 1,685
1987 11,953 1.0841 1.2233 14,622 2,669
1988 11,135 1.1000 1.3457 14,983 3,849
1989 10,879 1.1790 1.5865 17,260 6,381
1990 10,132 1.2701 2.0151 20,417 10,285
1991 9,138 1.4000 2.8211 25,780 16,641
1992 4,816 1.7610 4.9679 23,924 19,108
1993 2,025 2.8127 13.9733 28,292 26,267
1994 470 6.0055 83.9165 39,422 38,952
TOTAL 88,838 215,814 126,975
</TABLE>
NOTES
(4) Cumulative multiplication of (3)
(5) (2) x (4)
<PAGE> 229
12/08/94 EXHIBIT X
4:58 pm Sheet 41
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense
Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid ALAE
(amounts in thousands)
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 46 831 2,339 4,894 7,176 9,343 11,308 13,295 14,451 15,169
1986 121 835 3,371 6,481 8,929 10,548 11,650 12,042 13,122
1987 23 476 2,189 5,044 7,756 10,485 11,414 11,953
1988 30 573 2,199 4,716 7,038 9,025 11,135
1989 31 766 2,852 6,011 8,813 10,879
1990 152 1,387 4,041 7,293 10,132
1991 377 1,943 5,270 9,138
1992 258 1,700 4,816
1993 359 2,025
1994 470
</TABLE>
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 ULT:117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 18.2095 2.8158 2.0924 1.4664 1.3018 1.2104 1.1757 1.0870 1.0497
1986 6.9193 4.0372 1.9224 1.3777 1.1814 1.1045 1.0336 1.0897
1987 20.5541 4.6021 2.3048 1.5375 1.3519 1.0887 1.0472
1988 19.1522 3.8388 2.1447 1.4923 1.2823 1.2337
1989 24.8748 3.7246 2.1073 1.4662 1.2344
1990 9.1280 2.9125 1.8049 1.3892
1991 5.1574 2.7122 1.7341
1992 6.5849 2.8325
1993 5.6366
1994
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 6.1108 2.7724 1.7695 1.4277 1.2584 1.1612 1.0404 1.0884 1.0497
4 6.6267 3.0455 1.9478 1.4713 1.2625 1.1593 1.0855 1.0884 1.0497
2 of 4 6.1108 2.8725 1.9561 1.4793 1.2584 1.1575 1.0759 1.0884 1.0497
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 7.5453 3.1816 1.9576 1.4473 1.2661 1.1550 1.0849 1.0883 1.0497
2 6.0332 2.7683 1.7648 1.4240 1.2557 1.1558 1.0403 1.0883 1.0497
3 5.7013 2.8081 1.8451 1.4419 1.2873 1.1378 1.0849 1.0883 1.0497
4 6.1557 2.9292 1.8910 1.4628 1.2582 1.1550 1.0849 1.0883 1.0497
5 6.6454 3.0110 1.9457 1.4441 1.2661 1.1550 1.0849 1.0883 1.0497
2 of 4 6.0332 2.8685 1.9300 1.4777 1.2557 1.1542 1.0755 1.0883 1.0497
3 of 5 6.6446 3.0386 1.9820 1.4419 1.2701 1.1547 1.0849 1.0883 1.0497
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 7.8312 3.0728 1.9870 1.4458 1.2649 1.1536 1.0676 1.0884 1.0497
2 5.9828 2.7750 1.7610 1.4198 1.2531 1.1639 1.0411 1.0884 1.0497
3 5.7055 2.8127 1.8181 1.4420 1.2792 1.1379 1.0676 1.0884 1.0497
4 6.0055 2.8712 1.8821 1.4620 1.2562 1.1536 1.0676 1.0884 1.0497
5 6.3737 2.9535 1.9472 1.4399 1.2649 1.1536 1.0676 1.0884 1.0497
</TABLE>
Selected Development Factors
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.0055 2.8127 1.7610 1.4000 1.2701 1.1790 1.1000 1.0841 1.0497 1.0750
</TABLE>
<PAGE> 230
11/25/94 EXHIBIT X
2:45 pm Sheet 42a
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid ALAE
(amounts in thousands)
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117 129 141 153 165 177
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 4,679 4,912
1986 6,316 6,795 7,245
1987 8,780 9,501 10,193 10,715
1988 8,822 10,164 11,067 11,584 12,212
1989 8,436 10,782 13,340 15,389 17,080 17,546
1990 46 831 2,339 4,894 7,176 9,343 11,308 13,295 14,451 15,169
1991 121 835 3,371 6,481 8,929 10,548 11,650 12,042 13,122
1992 23 476 2,189 5,044 7,756 10,485 11,414 11,953
1993 30 573 2,199 4,716 7,038 9,025 11,135
1994 31 766 2,852 6,011 8,813 10,879
1995 152 1,387 4,041 7,293 10,132
1996 377 1,943 5,270 9,138
1997 258 1,700 4,816
1998 359 2,025
1999 470
</TABLE>
<PAGE> 231
11/25/94 EXHIBIT X
2:45 pm Sheet 42b
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 20, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid ALAE
(amounts in thousands)
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 129:117 141:129 153:141 165:153 177:165 189:177
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985
1986 1.0760
1987 1.0821 1.0729
1988 1.1520 1.0889 1.0467
1989 1.2782 1.2372 1.1536 1.1099
1990 18.2095 2.8158 2.0924 1.4664 1.3018 1.2104 1.1757 1.0870 1.0497
1991 6.9193 4.0372 1.9224 1.3777 1.1814 1.1045 1.0336 1.0897
1992 20.5541 4.6021 2.3048 1.5375 1.3519 1.0887 1.0472
1993 19.1522 3.8388 2.1447 1.4923 1.2823 1.2337
1994 24.8748 3.7246 2.1073 1.4662 1.2344
1995 9.1280 2.9125 1.8049 1.3892
1996 5.1574 2.7122 1.7341
1997 6.5849 2.8325
1998 5.6366
1999
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 6.1108 2.7724 1.7695 1.4277 1.2584 1.1612 1.0404 1.0884 1.0497
4 6.6267 3.0455 1.9478 1.4713 1.2625 1.1593 1.1025 1.0833 1.0497
2 of 4 6.1108 2.8725 1.9561 1.4793 1.2584 1.1575 1.1004 1.0884 1.0497
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 7.5453 3.1816 1.9576 1.4473 1.2682 1.1696 1.0989 1.0831 1.0497
2 6.0332 2.7683 1.7648 1.4240 1.2557 1.1558 1.0403 1.0883 1.0497
3 5.7013 2.8081 1.8451 1.4419 1.2873 1.1378 1.0849 1.0965 1.0497
4 6.1557 2.9292 1.8910 1.4628 1.2582 1.1550 1.1041 1.0858 1.0497
5 6.6454 3.0110 1.9457 1.4441 1.2661 1.1727 1.1014 1.0838 1.0497
2 of 4 6.0332 2.8685 1.9300 1.4777 1.2557 1.1542 1.1045 1.0883 1.0497
3 of 5 6.6446 3.0386 1.9820 1.4419 1.2701 1.1790 1.1000 1.0841 1.0497
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 7.8312 3.0728 1.9870 1.4458 1.2688 1.1800 1.0875 1.0855 1.0497
2 5.9828 2.7750 1.7610 1.4198 1.2531 1.1639 1.0411 1.0884 1.0497
3 5.7055 2.8127 1.8181 1.4420 1.2792 1.1379 1.0676 1.0935 1.0497
4 6.0055 2.8712 1.8821 1.4620 1.2562 1.1536 1.0890 1.0881 1.0497
5 6.3737 2.9535 1.9472 1.4399 1.2649 1.1825 1.0887 1.0864 1.0497
</TABLE>
<PAGE> 232
EXHIBIT X
Sheet 43
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Salvage and Subrogation
(amounts in thousands)
Application of Generalized Cape Cod Method
for Salvage & Subrogation
(using a decay rate of 75%)
(calculation includes 10 years)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Selected S&S Portion of S&S
Ultimate Ratio Exposure Ultimate Reported
Year Loss Index Base Reported to Date
-------- --------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1985 56,541 1.0000 56,540.58 0.9615 1,798
1986 43,652 1.0000 43,652.11 0.9279 1,127
1987 41,321 1.0000 41,320.59 0.8832 392
1988 45,549 1.0000 45,549.05 0.8254 381
1989 47,280 1.0000 47,279.66 0.7504 841
1990 54,071 1.0000 54,071.46 0.6512 568
1991 46,028 1.0000 46,028.04 0.5287 182
1992 41,157 1.0000 41,157.39 0.2480 50
1993 39,637 1.0000 39,637.13 0.1000 57
1994 44,651 1.0000 44,650.50 0.0097 10
TOTAL 459,886 459,886.49 5,406
</TABLE>
<TABLE>
<CAPTION>
(1) (7) (8) (9) (10) (11)
Developed Expected
S&S to S&S to Expected Indicated
Exposure Exposure Ultimate IBNR Ultimate
Year Ratio Ratio S&S S&S S&S
-------- --------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1985 0.033 0.024 1,336 51 1,849
1986 0.028 0.022 952 69 1,196
1987 0.011 0.019 803 94 486
1988 0.010 0.018 830 145 526
1989 0.024 0.018 852 213 1,054
1990 0.016 0.017 921 321 889
1991 0.007 0.016 732 345 527
1992 0.005 0.015 634 477 527
1993 0.014 0.015 610 549 606
1994 0.023 0.015 689 682 692
TOTAL 8,360 2,946 8,352
</TABLE>
Notes :
(4) (2) x (3)
(5) Reciprocal of development factor to ultimate.
(7) (6)/[(4)x(5)]
(8) Weighted average of (7) with weights equal to (4)x(5)x 0.75 LAG
where LAG = absolute value of difference in years.
(9) (4) x (8)
(10) (9) x [1.0-(5)]
(11) (6) + (10)
<PAGE> 233
EXHIBIT X
Sheet 44
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Salvage and Subrogation
(amounts in thousands)
APPLICATION OF DEVELOPMENT METHOD
ON INCURRED BASIS
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
AGE-TO-AGE DEV.
REPORTED DEV. FACTOR INDICATED
YEAR TO DATE FACTOR TO ULT. ULTIMATE IBNR
-------- -------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1985 1,798 1.0400 1.0400 1,870 72
1986 1,127 1.0362 1.0776 1,215 88
1987 392 1.0507 1.1323 444 52
1988 381 1.0700 1.2115 462 81
1989 841 1.1000 1.3327 1,121 280
1990 568 1.1522 1.5355 872 304
1991 182 1.2318 1.8915 344 162
1992 50 2.1322 4.0330 202 152
1993 57 2.4798 10.0010 570 513
1994 10 10.3031 103.0416 1,030 1,020
TOTAL 5,406 8,129 2,723
</TABLE>
NOTES
(4) Cumulative multiplication of (3)
(5) (2) x (4)
<PAGE> 234
12/08/94 EXHIBIT X
5:14 pm Sheet 45
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Salvage and Subrogation
(amounts in thousands)
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 19 135 620 1,151 1,505 1,548 1,647 1,744 1,758 1,798
1986 11 81 189 515 694 960 1,048 1,067 1,127
1987 3 64 158 192 195 249 250 392
1988 3 47 104 176 236 238 381
1989 14 131 223 778 805 841
1990 11 142 179 399 568
1991 8 62 91 182
1992 4 16 50
1993 4 57
1994 10
</TABLE>
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 ULT:117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 7.1053 4.5926 1.8565 1.3076 1.0286 1.0640 1.0589 1.0080 1.0228
1986 7.3636 2.3333 2.7249 1.3476 1.3833 1.0917 1.0181 1.0562
1987 21.3333 2.4688 1.2152 1.0156 1.2769 1.0040 1.5680
1988 15.6667 2.2128 1.6923 1.3409 1.0085 1.6008
1989 9.3571 1.7023 3.4888 1.0347 1.0447
1990 12.9091 1.2606 2.2291 1.4236
1991 7.7500 1.4677 2.0000
1992 4.0000 3.1250
1993 14.2500
1994
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 9.1250 2.2964 2.1146 1.2292 1.0266 1.3024 1.2931 1.0321 1.0228
4 9.7273 1.8889 2.3526 1.2037 1.1784 1.1901 1.2150 1.0321 1.0228
2 of 4 10.3296 1.5850 2.1146 1.1878 1.1608 1.0779 1.1760 1.0321 1.0228
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 9.5455 2.3805 2.1695 1.2467 1.1168 1.1105 1.0876 1.0263 1.0228
2 9.1250 1.8077 2.1519 1.1665 1.0365 1.2957 1.1240 1.0263 1.0228
3 8.4375 1.4546 2.7566 1.1892 1.0744 1.1603 1.0876 1.0263 1.0228
4 10.2593 1.5470 2.5712 1.1676 1.1855 1.1105 1.0876 1.0263 1.0228
5 9.9512 1.6256 2.2874 1.2126 1.1168 1.1105 1.0876 1.0263 1.0228
2 of 4 10.7368 1.6269 2.1519 1.0912 1.0900 1.0746 1.0773 1.0263 1.0228
3 of 5 10.1515 1.7417 2.0241 1.1811 1.0531 1.0941 1.0876 1.0263 1.0228
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 10.2304 2.0327 2.0650 1.2290 1.0674 1.0998 1.0880 1.0289 1.0228
2 9.6944 1.8719 2.1401 1.1866 1.0378 1.3289 1.1444 1.0289 1.0228
3 8.5528 1.5050 2.5347 1.2145 1.0562 1.1539 1.0880 1.0289 1.0228
4 10.3141 1.5879 2.3278 1.1297 1.1048 1.0998 1.0880 1.0289 1.0228
5 9.9425 1.6709 2.1477 1.1732 1.0674 1.0998 1.0880 1.0289 1.0228
</TABLE>
Selected Development Factors
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.3031 2.4798 2.1322 1.2318 1.1522 1.1000 1.0700 1.0507 1.0362 1.0400
</TABLE>
<PAGE> 235
EXHIBIT X
Sheet 46
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Measurement of Calendar Year Trends
In Paid Losses Per Closed Claim
Non-Cumulative Paid Losses Per Closed Claim :
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 997 2,233 10,058 14,948 22,648 20,971 16,931 22,215 13,979 16,000
1986 868 2,760 9,523 19,929 18,556 35,024 18,021 19,529 28,275
1987 887 2,391 9,341 18,312 20,000 42,964 21,179 27,525
1988 1,082 2,301 10,125 25,452 17,130 23,958 59,970
1989 1,179 2,574 12,168 16,952 28,580 37,680
1990 1,235 2,895 14,759 16,246 25,072
1991 1,161 2,897 11,484 17,875
1992 1,115 2,167 6,380
1993 865 1,842
1994 919
</TABLE>
Non-Cumulative Numbers Closed :
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 3,074 4,662 1,086 558 358 274 203 93 94 69
1986 2,174 3,203 803 421 259 165 95 70 51
1987 1,695 3,006 774 391 252 168 84 59
1988 2,244 3,351 688 378 230 119 134
1989 1,925 3,058 814 392 212 169
1990 1,989 3,474 941 398 237
1991 1,991 3,169 799 423
1992 2,005 3,300 836
1993 2,232 3,552
1994 2,743
</TABLE>
<PAGE> 236
EXHIBIT X
Sheet 47
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
MEASUREMENT OF CALENDAR YEAR TRENDS
IN PAID LOSSES PER CLOSED CLAIM
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
CALENDAR AVERAGE SEVERITY ANNUAL EXPON. EXPON. EXPON. EXPON.
YEAR PAYMENT INDEX CHANGE FIT FIT FIT FIT
-------- -------- -------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 5,272 1.0000 102.60 1.0635 1.0596 1.0499 1.0450
1993 5,139 0.9747
1993 5,285 0.9747 86.89 1.0377 1.0349 1.0330 1.0301
1992 6,083 1.1218
1992 6,221 1.1218 98.99 1.0124 1.0107 1.0164 1.0155
1991 6,284 1.1333
1991 6,121 1.1333 123.55 0.9878 0.9870 1.0000 1.0011
1990 4,954 0.9172
1990 4,617 0.9172 99.29 0.9638 0.9640 0.9839 0.9869
1989 4,650 0.9238
1989 4,049 0.9238 108.17 0.9403 0.9414 0.9680 0.9729
1988 3,744 0.8541
1988 3,028 0.8541 93.23 0.9175 0.9194
1987 3,248 0.9161
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Fits Using All Availible Points Fits Using Latest 6 Points
Exponential Fit : 2.49 % R-squared = 0.359 Exponential Fit : 1.64 % R-squared = 0.108
Weighted Expon. Fit : 2.39 % R-squared = 0.335 Weighted Expon. Fit : 1.44 % R-squared = 0.088
ARITHMETIC AVERAGE : 1.82 ARITHMETIC AVERAGE : 3.25
WEIGHTED ARITH. AVG : 1.85 WEIGHTED ARITH. AVG : 3.04
GEOMETRIC AVERAGE : 1.26 GEOMETRIC AVERAGE : 2.66
WEIGHTED GEOM. AVG : 1.30 WEIGHTED GEOM. AVG : 2.46
</TABLE>
FOR EACH YEAR-TO-YEAR COMPARISON, THE AVERAGE TRENDED PAYMENTS AT
COMPARABLE MATURITIES ARE WEIGHTED BY IDENTICAL CLAIM COUNT WEIGHTS
FOR EACH MATURITY EQUAL TO THE LESSER OF THE CLOSED CLAIM
COUNTS FOR THE TWO YEARS.
EACH CALENDAR YEAR INDEX IS WEIGHTED BY TOTAL CLOSED CLAIM COUNTS
FOR THE CALENDAR YEAR
EACH YEAR-TO-YEAR CHANGE IS WEIGHTED BY THE TOTAL VALUE OF THE WEIGHTS
DETERMINED ACCORDING TO THE FIRST FOOTNOTE
<PAGE> 237
12/08/94 EXHIBIT X
5:29 pm Sheet 48
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Ratio of CWIP's to Ultimate CWIP's
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 0.3370 0.7869 0.8797 0.9275 0.9540 0.9701 0.9817 0.9862 0.9892 0.9924
1986 0.3385 0.7709 0.8682 0.9209 0.9503 0.9689 0.9789 0.9847 0.9894
1987 0.2927 0.7619 0.8673 0.9170 0.9515 0.9713 0.9801 0.9848
1988 0.3465 0.7976 0.8834 0.9300 0.9532 0.9647 0.9796
1989 0.3211 0.7725 0.8710 0.9170 0.9462 0.9663
1990 0.3120 0.7840 0.8823 0.9256 0.9513
1991 0.3419 0.7704 0.8603 0.9162
1992 0.3298 0.7643 0.8580
1993 0.3307 0.7488
1994 0.3246
</TABLE>
<PAGE> 238
12/08/94 EXHIBIT X
5:31 pm Sheet 49
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Ratio of Closed to Ultimate Counts
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 0.2899 0.7295 0.8320 0.8846 0.9183 0.9442 0.9633 0.9721 0.9810 0.9875
1986 0.2951 0.7299 0.8390 0.8961 0.9313 0.9537 0.9666 0.9761 0.9830
1987 0.2572 0.7133 0.8307 0.8900 0.9283 0.9538 0.9665 0.9755
1988 0.3039 0.7577 0.8508 0.9020 0.9332 0.9493 0.9674
1989 0.2776 0.7185 0.8359 0.8924 0.9230 0.9473
1990 0.2630 0.7224 0.8468 0.8994 0.9308
1991 0.2776 0.7193 0.8307 0.8897
1992 0.2724 0.7209 0.8345
1993 0.2766 0.7168
1994 0.2684
</TABLE>
<PAGE> 239
12/08/94 EXHIBIT X
6:08 pm Sheet 50
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Cumulative Ratio of CWIP Counts to Closed Counts
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 0.9209 0.8546 0.8377 0.8307 0.8230 0.8140 0.8073 0.8037 0.7989 0.7962
1986 0.8878 0.8174 0.8010 0.7953 0.7898 0.7863 0.7838 0.7808 0.7790
1987 0.8814 0.8273 0.8086 0.7980 0.7939 0.7887 0.7854 0.7819
1988 0.8717 0.8046 0.7936 0.7880 0.7807 0.7767 0.7739
1989 0.8686 0.8071 0.7823 0.7714 0.7696 0.7658
1990 0.8497 0.7774 0.7463 0.7371 0.7321
1991 0.8538 0.7422 0.7177 0.7137
1992 0.7691 0.6737 0.6533
1993 0.7231 0.6319
1994 0.7331
</TABLE>
<PAGE> 240
12/08/94 EXHIBIT X
6:12 pm Sheet 51
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Average Outstanding Claim Amount
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 7,673 15,546 22,143 28,665 25,354 25,369 30,684 25,792 27,488 22,037
1986 9,170 17,535 28,276 31,346 44,444 33,664 42,940 30,304 25,289
1987 9,188 17,989 26,586 34,424 43,701 38,052 34,750 26,310
1988 10,707 19,765 32,543 38,682 51,027 61,432 33,315
1989 12,440 22,513 33,451 40,723 44,758 33,013
1990 13,943 26,965 31,966 40,475 42,417
1991 11,602 19,515 24,982 24,732
1992 8,588 14,821 25,070
1993 7,026 12,303
1994 5,466
</TABLE>
Downward Percentage Change
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 19.50 12.80 27.70 9.36 75.30 32.70 39.94 17.50 -8.00
1986 0.21 2.59 -5.98 9.82 -1.67 13.03 -19.07 -13.18
1987 16.52 9.87 22.41 12.37 16.77 61.44 -4.13
1988 16.19 13.90 2.79 5.28 -12.29 -46.26
1989 12.08 19.78 -4.44 -0.61 -5.23
1990 -16.79 -27.63 -21.85 -38.90
1991 -25.98 -24.05 0.35
1992 -18.18 -16.99
1993 -22.21
</TABLE>
Simple Linear Least Squares Fit
<TABLE>
<CAPTION>
9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Constant 10,703.03 19,455.62 26,998.34 32,326.97 32,591.53 25,389.36 35,496.17 26,950.11
Slope -204.13 -181.08 250.83 455.63 2,673.90 4,305.58 -29.60 259.34
R-Squared 0.0564 0.0129 0.0220 0.0252 0.3335 0.2466 0.0001 0.0110
</TABLE>
Exponential Least Squares Fit
<TABLE>
<CAPTION>
9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Constant 9.30 9.88 10.19 10.39 10.35 10.17 10.46 10.20
% increase -0.029 -0.016 0.010 0.008 0.082 0.119 0.004 0.010
R-Squared 0.1008 0.0360 0.0265 0.0092 0.3620 0.3019 0.0010 0.0128
</TABLE>
<PAGE> 241
Appendix A-1
DEVELOPMENT FACTOR METHODS
Development factor methods (also known as "age-to-age factors," "link ratios,"
and "the chain-ladder method") are used to project ultimate values for various
quantities that emerge over time. For the remainder of this Appendix, we will
refer to paid losses as the quantity being projected to its ultimate value.
The basis of the method is using historical data to measure the emergence
pattern and then projecting future emergence according to the pattern. The
pattern is measured from a historical triangle of data.
DEFINING THE HISTORICAL DATA TRIANGLE
A paid loss data triangle (labeled "historical data development schedule") is
displayed on the top half of page 4 of this Appendix. The values displayed are
cumulative paid losses by accident year, valued at annual intervals (in this
case, each September 30), starting from September 30 of each accident year
through the current valuation date. The column headings refer to the number of
months from the beginning of the accident year to the valuation date. Each
diagonal of the triangle corresponds to a particular valuation date, with the
bottom diagonal representing the current valuation date.
CALCULATING AND SELECTING DEVELOPMENT FACTORS
The second array on page 4 displays the historical factors (or "age-to-age
factors" or "link ratios"), calculated by dividing each number in the data
triangle by the number on its left. For each column, the actuary must select a
development factor to use for projection purposes, i.e., the development
factor the actuary believes is most likely to occur in the future. The string
of selected development factors defines the selected development pattern.
Considerations commonly used in selecting development factors include: recent
values are considered more predictive than earlier values, values supported by
a greater volume of data are considered more predictive, outlying values are
often excluded or de-emphasized to improve the stability of the prediction.
To aid the actuary in this judgment, a number of different types of averages of
the historical development factors are calculated. On page 4 of this Appendix,
we display three types of averages:
- 1 -
<PAGE> 242
Appendix A-1
Arithmetic: Summing the values and dividing by the number
of values.
Volume Weighted: A weighted average in which the weights are
equal to the amounts in the denominators of the
development factors. Equivalently, it can be
calculated by summing all the amounts in the
numerators of the development factors and
dividing by the sum of all the amounts in the
denominators.
Formula Weighted: A more complex weighting scheme sometimes used
at M&R to simultaneously reflect all of the
considerations noted above. (Details are
provided at the end of this Appendix).
A number "n" to the left of a line of displayed averages indicates that the
displayed averages include only the most recent "n" values. The designation "n
of m" indicates that the highest and lowest values have been excluded and that
only the middle "n" of the most recent "m" values have been averaged.
Another technique sometime used by actuaries to aid in the selection of
development factors is fitting a methematical curve to the observed development
factors. That technique is not illustrated here.
Regardless of averaging method, the selection of the development factors for
projection purposes is a matter of actuarial judgment.
THE "TAIL" FACTOR
To the extent that the actuary does not believe that the development pattern
has ended by the last points available in the data triangle, an additional
development factor, often called the tail factor, must be selected. On page 4,
this is the last factor to the right of the line of selected development
factors. The tail factor represents the actuary's judgment of all additional
development projected after the period measured by the data triangle. Many
factors can contribute to this judgment, including: extrapolation from the
observed values in the data triangle: reference to other data in the same
analysis (for example, incurred loss data for the same business often
influences the tail selected for paid loss data); and reference to outside
sources, such as industry data or data from other insurers with longer
available development histories.
- 2 -
<PAGE> 243
Appendix A-1
ACCUMULATING DEVELOPMENT FACTORS AND PROJECTING ULTIMATE VALUES
- ---------------------------------------------------------------
The process of using development factors to project ultimate values is
displayed on page 5 of this Appendix.
Since each selected development factor represents development from one age to
the next age, all remaining development from any age is represented by the
cumulative product of all remaining age-to-age development factors. Column (2)
on page 5 displays the current valuation of cumulative paid losses by accident
year -- the same values as the bottom diagonal of the data triangle. Column (3)
displays the selected development factors, including the tail factor. Column
(4) displays the cumulative product of the values in column (3); thus, each
value represents all remaining development projected from a particular age. The
ultimate losses in column (5) are then projected by multiplying the current
cumulative paid losses in column (2) by the cumulative development factors in
column (4).
DETAILS OF "FORMULA WEIGHTED AVERAGE"
- -------------------------------------
The formula weight is a combination of three weighting systems:
VOLUME WEIGHT: The amount in the denominator of the
-------------- development factor.
"REGENCY" WEIGHT: An exponentially decaying weight. Using the
----------------- 80% decay displayed, the most recent value
gets a weight of 1.0, the first prior value a
weight of 0.8, the second prior value weight
of (0.8)2nd power, etc.
"CENTRALITY" WEIGHT: A stabilizing weight designed to give more
-------------------- weight to central values and less weight to
outlying values. The values to be averaged
are arranged in numerical order and assigned
weights in proportion to the binomial
coefficients. For example, if three value are
weighted, the relative weights are 1, 2, 1.
For four values: 1, 3, 3, 1. For five values:
1, 4, 6, 4, 1 etc.
For each value in the weighted average, the three different weights are
multiplied together, producing the "formula" weight. The weighted average using
the formula weights is then calculated.
- 3 -
<PAGE> 244
Appendix A-1
11/28/94 GREAT AMERICAN INSURANCE GROUP
3:45 pm Analysis of Loss and Loss Adjustment Expense
Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid Losses
(amounts in thousands)
CMP2_PD10
Historical Data Development Schedule
<TABLE>
<CAPTION>
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 3,065 13,476 24,399 32,740 40,848 46,594 50,031 52,097 53,411 54,515
1986 1,886 10,726 18,373 26,763 31,569 37,348 39,060 40,427 41,869
1987 1,504 8,690 15,920 23,080 28,120 35,338 37,117 38,741
1988 2,428 10,137 17,103 26,724 30,664 33,515 41,551
1989 2,270 10,142 20,047 26,692 32,751 39,119
1990 2,456 12,512 26,400 32,866 38,808
1991 2,311 11,491 20,667 28,228
1992 2,235 9,386 14,720
1993 1,930 8,473
1994 2,522
</TABLE>
Historical Development Factors
<TABLE>
<CAPTION>
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 ULT:117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 4.3967 1.8106 1.3419 1.2476 1.1407 1.0738 1.0413 1.0252 1.0207
1986 5.6872 1.7129 1.4566 1.1796 1.1831 1.0458 1.0350 1.0357
1987 5.7779 1.8320 1.4497 1.2184 1.2567 1.0503 1.0438
1988 4.1750 1.6872 1.5625 1.1474 1.0930 1.2398
1989 4.4678 1.9766 1.3315 1.2270 1.1944
1990 5.0945 2.1100 1.2449 1.1808
1991 4.9723 1.7985 1.3658
1992 4.1996 1.5683
1993 4.3902
1994
</TABLE>
Arithmetic Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 4.2949 1.6834 1.3054 1.2039 1.1437 1.1450 1.0394 1.0305 1.0207
4 4.6642 1.8634 1.3762 1.1934 1.1818 1.1024 1.0400 1.0305 1.0207
2 of 4 4.6813 1.8876 1.3487 1.1996 1.1888 1.0621 1.0404 1.0305 1.0207
</TABLE>
Volume Weighted Averaging Methods
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 4.7315 1.8210 1.3791 1.2007 1.1706 1.0979 1.0401 1.0298 1.0207
2 4.2879 1.6950 1.2980 1.2015 1.1454 1.1425 1.0393 1.0298 1.0207
3 4.5321 1.8505 1.3080 1.1847 1.1796 1.1085 1.0401 1.0298 1.0207
4 4.6868 1.8799 1.3597 1.1918 1.1805 1.0979 1.0401 1.0298 1.0207
5 4.6424 1.8435 1.3740 1.1894 1.1706 1.0979 1.0401 1.0298 1.0207
2 of 4 4.7074 1.8820 1.3489 1.1963 1.1889 1.0637 1.0404 1.0298 1.0207
3 of 5 4.6239 1.8199 1.3773 1.1909 1.1701 1.0860 1.0401 1.0298 1.0207
</TABLE>
Formula Weighted Averaging Methods (80% Decay)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL 4.6713 1.8013 1.3734 1.1957 1.1765 1.0874 1.0405 1.0304 1.0207
2 4.2985 1.6822 1.3047 1.1990 1.1510 1.1531 1.0398 1.0304 1.0207
3 4.4632 1.8078 1.3149 1.1848 1.1818 1.1051 1.0405 1.0304 1.0207
4 4.6259 1.8498 1.3493 1.1909 1.1843 1.0874 1.0405 1.0304 1.0207
5 4.5888 1.8184 1.3641 1.1873 1.1765 1.0874 1.0405 1.0304 1.0207
</TABLE>
Selected Development Factors
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.6239 1.8199 1.3773 1.1909 1.1701 1.0637 1.0401 1.0298 1.0207 1.0300
</TABLE>
<PAGE> 245
APPENDIX A-1
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Paid Losses
(amounts in thousands)
APPLICATION OF DEVELOPMENT METHOD
ON PAID BASIS
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
AGE-TO-AGE DEV.
PAID DEV. FACTOR INDICATED
YEAR TO DATE FACTOR TO ULT. ULTIMATE RESERVES
-------- -------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1985 54,515 1.0300 1.0300 56,150 1,635
1986 41,869 1.0207 1.0513 44,018 2,149
1987 38,741 1.0298 1.0827 41,943 3,202
1988 41,551 1.0401 1.1261 46,789 5,238
1989 39,119 1.0637 1.1978 46,857 7,738
1990 38,808 1.1701 1.4015 54,391 15,583
1991 28,228 1.1909 1.6691 47,115 18,887
1992 14,720 1.3773 2.2988 33,839 19,119
1993 8,473 1.8199 4.1837 35,448 26,975
1994 2,522 4.6239 19.3448 48,788 46,266
TOTAL 308,546 455,338 146,792
</TABLE>
NOTES
(4) Cumulative multiplication of (3)
(5) (2) x (4)
<PAGE> 246
Maturity Adjustment of Paid Losses Page 3
XYZ INSURANCE COMPANY
Sample Cumulative Closed Claim Data
SAMPLE NOPD
Historical Data Development Schedule
Projected
Year 12 24 36 48 Ultimate Claims
1982 1,784 1,935 2.032 2,081 2,174
1983 2,346 2,611 2,708 2,972
1984 2,856 3,057 3,597
1985 1,098 1,570
<PAGE> 247
Maturity Adjustment of Paid Losses Page 4
XYZ INSURANCE COMPANY
Sample Cumulative Average Closed Claim
1000 SAMPLE PD DIVID SAMPLE NOPD
Historical Data Development Schedule
Year 12 24 36 48
1982 2,001 2,609 3,205 3,593
1983 2,195 2,913 3,434
1984 2,548 3,285
1985 3,031
<PAGE> 248
Appendix A-3
RESERVE STRENGTH ADJUSTMENT OF INCURRED LOSSES
This illustration is drawn from page 2 of this Exhibit. The top triangle
displays average case reserves trended to the level of the last diagonal
using the selected severity trend rate. The corresponding numbers outstanding
are displayed in the next triangle.
For each pair of adjacent calendar years (represented by diagonals in the
triangles) trended average reserves are compared using weighted averages of the
observed values. Identical claim count weights by column (equal to the lesser
of the outstanding claim counts in each case) are used for both weighted
averages so that the comparison is based on comparable maturity
distributions. The exact calculation for the 1985/1984 comparison is
displayed below:
O/S CLAIMS CLAIM COUNT TRENDED AVERAGE O/S
COLUMN 1984 1985 WEIGHTS 1984 1985
- ------ ---------- ----------- -------------------
1 496 365 365 13,670 12,093
2 293 462 293 15,475 16,026
3 126 243 126 15,967 16,342
--- ------ ------
Total 784 14,714 14,246
Finally, the year-to-year changes in reserve adequacy are combined to create a
reserve adequacy index. Actual case reserves along each diagonal of the
historical outstanding loss triangles are divided by the corresponding value of
the adequacy index to adjust them to current adequacy levels. The adjusted
outstanding loss triangle is then added to the paid loss triangle to create
the reserve strength adjusted incurred.
-1-
<PAGE> 249
APPENDIX A-3
Reserve Strength Adjustment of Incurred Losses
XYZ INSURANCE COMPANY
Sample Data
ADJUSTMENT TO HISTORICAL OUTSTANDING LOSSES
TO CURRENT ADEQUACY LEVEL
ASSUMED ANNUAL TREND RATE: 10 PCT.
AVERAGE OUTSTANDING TRENDED TO CURRENT SEVERITY LEVELS:
11813 14781 15967 15452
10247 15475 16342 0
13670 16026 0 0
12093 0 0 0
NUMBERS OUTSTANDING:
273 195 126 93
382 293 243 0
496 462 0 0
365 0 0 0
<TABLE>
<CAPTION>
CALENDAR WEIGHTED AVERAGE RESERVE ADEQUACY
YEAR RESERVE* INDEX
-------- ---------------- ----------------
<S> <C> <C>
1985 14,246 1.0000
1984 14,714 1.0329
1984 14,280 1.0329
1983 11,779 0.8520
1983 10,247 0.8520
1982 11,813 0.9822
</TABLE>
OUTSTANDING LOSSES ADJUSTED TO CURRENT ADEQUACY LEVEL:
2467 2796 1771 1437
3797 3991 3971 0
5968 7404 0 0
4414 0 0 0
*FOR EACH YEAR-TO-YEAR COMPARISON, THE AVERAGE TRENDED RESERVES AT COMPARABLE
MATURITIES ARE WEIGHTED BY IDENTICAL CLAIM COUNT WEIGHTS FOR EACH MATURITY
EQUAL TO THE LESSER OF THE OUTSTANDING CLAIM COUNTS FOR THE TWO YEARS. IN EACH
CASE, THE OLDEST MATURITY FOR THE MORE RECENT YEAR IS EXCLUDED, SINCE NO
COMPARABLE MATURITY EXISTS FOR THE EARLIER YEARS.
<PAGE> 250
APPENDIX A-4
THE BORNHUETTER-FERGUSON METHOD
The Bornhuetter-Ferguson ("B-F") method is commonly used actuarial technique
for blending a development based loss estimate with a prior expected (or a
"priori") loss estimate. The a-priori loss estimate is usually expressed as the
earned premium multiplied by an expected loss ratio ("ELR"). The basis for
selecting the ELR is not discussed in this Appendix.
The purpose of the B-F method is to stabilize projections and it is most
frequently used where development based estimates are least reliable, such as
recent accident years or other accident years with particularly large
development factors.
Notation:
- ---------
ITD = Incurred losses reported to date
LDF = Incurred development factor to ultimate
EP = Earned premium
ELR = Expected loss ratio
Formula:
- --------
(Incurred Losses (A priori (Expected Portion
Estimated Ultimate Losses = + x
Reported to Date) Losses) Unreported)
1
= ITD + EP x ELR x (1 - ---)
LDF
Note that the a priori estimate is applied only to the unreported portion of
losses. The logic of the method is that the actual losses are incorporated into
the estimate as they are reported and the influence of the a priori estimate
declines as the unreported portion declined (i.e., the LDF's get closer to
unity).
The method can also be applied on a paid basis, with paid losses to date and
paid development factors replacing the incurred losses and incurred development
factors in the previous formula.
<PAGE> 251
APPENDIX A-5
THE "CAPE COD" METHOD
This method compared favorably with other loss reserve techniques in a study
by Stanard(1). Stanard also cites earlier unpublished work by Buhlmann(2).
Stanard's presentation of the method assumes that exposures are equal for all
years; our presentation below includes recognition of varying levels of
exposure.
Notation
Ei(3) = Exposure for year i.
TDi(3) = Losses to date (paid or incurred) for year i.
DFi = Development factor to ultimate for year i.
ELRi = Expected ratio of losses to exposures for year i.
Ui = Estimated ultimate losses for year i.
- ---------------
(1) James N. Stanard, "A Simulation Test of Prediction Errors of Loss Reserve
Estimation Techniques." PCAS LXXII, 1985, p. 124.
(2) Hans Buhlmann, "Estimation of IBNR Reserves by the Methods Chain Ladder,
Cape Cod and Complimentary Loss Ratio," unpublished, 1983.
(3) The losses and exposures must be directly comparable, i.e., if there is a
trend in the expected ratio of losses to exposures, then either the exposures
must be trended of the losses must be de-trended. The theory underlying the
method is most accurate if expected frequency is accounted for in the
exposures and the losses are adjusted to remove severity trend effects. In
practice, we generally account for all trends in the exposures, which increases
the weight on recent years modestly compared to the weights which would
theoretically be optimal.
- 1 -
<PAGE> 252
APPENDIX A-5
THE "CAPE COD" METHOD (continued)
The method is a special case of the Bornhuetter-Ferguson method, i.e., the
estimated ultimate losses are a combination of actual and expected results as
follows:
[EQUATION I]
1
U1 = TD1 + (1- ---) x E1 x ELR1
DF1
The expected losses per exposure (values of ELR) are calculated using the
combined experience of all years, as follows:
[EQUATION II]
TD1
ELR = ------
(E1
----
DF1)
Note that ELR is written without subscript, since the value is presumed to be
equal for all years
Rewriting the numerator of [EQUATION II], we have:
[EQUATION III]
[(TD1 x DF1 (E1
--------- x ----
E1 ) DF1 ]
ELR = --------------------
(E1
---
DF1)
In this form, the value of ELR can be seen to be a weighted average of the
projected ultimate losses per exposure for each year (TD x DF1/E1), with the
weights equal to (E1/DF1). Thus, the weight given to each year increases to
proportion to volume and decreases in proportion to the development factor.
The result produced by the method is a blend between a development result and
an exposure-based result. If projected ultimate claim counts are used as the
exposure, it becomes a blend between a development result and a counts and
trended averages result. Other candidates for the exposure base are exposures
counted for ratemaking purposes and premiums adjusted by a loss ratio index.
The method can also be applied to allocated loss adjustment expenses with
projected ultimate losses as the exposure base.
-2-
<PAGE> 253
APPENDIX A-5
THE "MODIFIED CAPE COD" METHOD
This modification of the Cape Cod Method is not currently documented in
actuarial literature however, note that the modified method is a compromise
between the development result and the unmodified Cape Cod result, both of
which are documented.
Returning to [EQUATION III], the cape Cod weighs (E1/DF1) are a function of
the volume and maturity of experience, but not age of data. The important effect
which is not accounted for could be described as the deterioration with time in
the value of information, or alternatively as the imprefection in measurements
of exposure and adjustments for trend. All other things equal, a projection
involving more years of trend is less reliable than one involving fewer years.
We account for this effect by allowing the value of ELR1 to "drift". We
calculate the varying values of ELR1 by introducing an exponential decay factor
to the Cape Cod weighting scheme, as follows:
[EQUATION IV]
[(TD1 = DF1 (E1
---------- x --- x Decay??? ]
E1) ] DF1)
ELR1 = --------------------------------
[(E1
--- x Decay??? ]
DF1)
If Decay = 1, [EQUATION IV] simplifies to [EQUATION III] and we have the
unmodified Cape Cod method.
If Decay = 0, [EQUATION IV] simplifies to
[EQUATION V]
TD1 x DF1
ELR1 = ---------
E1
Combining [EQUATION V] AND [EQUATION I]:
U1 = TD1 + (1 - 1/DF1) x E1 x (TD1 x DF1/E1)
= TD1 + (TD1 x DF1) - (TD1 x DF1/E1)
= TD1 x DF1 the development result
The value of the decay factor should be a function of the degree of uncertainty
in development projections compared to the degree of uncertainty in exposure
and trend measurement. Lower decay factors are appropriate for large stable
data bases. Higher decay factors are appropriate for smaller, more erratic
data bases.
-3-
<PAGE> 254
APPENDIX A-6
PROJECTION OF ULTIMATE CLAIMS CLOSED
WITH INDEMNITY PAYMENT ("CWIP's")
This Appendix explains the calculation of ultimate CWIP's. The data used
consist of the historical triangles of CWIP's and of total closed claims (i.e.,
CWIP's plus claims closed without indemnity payment, or "CWOP's"). Ultimate
reported claim counts are also used, presumably already projected from the
triangle of reported claim counts.
An example of the calculation is displayed on pages 3 through 5 of this
Appendix.
PROJECTED CWIP RATIOS
Page 3 displays the most important part of the calculation: the projection of
CWIP ratios (i.e., CWIP's / (CWIP's + CWOP's)). The triangle displays
historical non-cumulative values of the CWIP ratios. For each column except the
first, a projected value must be selected (the first column represents the CWIP
ratio for claims closing in the first 9 months. All years in the reserve are
beyond that age so the value is not needed in a reserve analysis).
Various volume weighted averages are calculated to aid in that selection. They
fall into two types: individual column averages and averages of all remaining
columns. The individual column averages are volume weighted averages of the
values directly above, while the all remaining column averages are volume
weighted averages of the values above and the values to the right.
As you move to the right in the non-cumulative triangle, the underlying data
tends to be sparse and the values are subject to more random fluctuation.
Variations in the CWIP ratio from column to column tend to become less
significant (apart from random fluctuation) and, in any case, hard to detect.
For this reason, we tend to use the following technique in selecting CWIP
ratios select individual column averages as long as a pattern is detectable,
select a constant value for all remaining columns after a pattern is no longer
detectable. The "all remaining column" averages are used for the latter
selection.
The "all remaining column" averages are further subdivided between "individual
diagonal" and "multiple diagonal" averages. The individual diagonal averages
combine values on a single diagonal only ("1" being the latest diagonal, "2"
the first prior diagonal, etc.). The latest value may be selected, the prior
individual diagonal values are rarely used expect to observe trends in the CWIP
ratios from year to year. Selected values usually come from the multiple
diagonal averages.
-1-
<PAGE> 255
APPENDIX A-6
Note that this calculation is frequently performed when a change in CWIP ratios
is evident. Thus, selections are often heavily influenced by recent values.
When a trend is evident, value trended beyond the observed values in the
triangle will occasionally be used.
PROJECTED DISPOSAL RATES (SEE PAGE 4 OF THIS APPENDIX)
Disposal rates are defined as the total claims closed in a period
(CWIP's + CWOP's) divided by the open and unreported claims ("ultimate labeled
open" on the attached exhibit) at the start of the period. Disposal rates are
required to project the closing pattern of open claims so that the various CWIP
ratios selected by period can be applied.
The averages displayed and the selection of disposal rates exactly parallels
the prior discussion of CWIP ratios. Note that once the CWIP ratios have been
selected to be constant for all remaining columns, variations in the disposal
rates do not affect the results of the calculation.
PROJECTING ULTIMATE CWIP's (SEE PAGE 5 OF THIS APPENDIX)
The first part of this calculation, on the top portion of the page, projects
the CWIP ratio for claims open and unreported at each maturity. The calculation
uses the selected CWIP ratios and disposal rates. The exact calculation is
documented in the footnotes.
On the bottom half of the page the "remaining CWIP ratios" in column (8) are
applied to the open and projected unreported claims at the appropriate
maturities (column 12)) to project the remaining CWIP's. Adding the CWIP's to
date yields the ultimate CWIP's in column (15).
-2-
<PAGE> 256
APPENDIX A-6
<TABLE>
<CAPTION>
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
CWIP Ratios: Ratio of In-Period CWIPs to In-Period Closed
CMP2CWIPRAT=CMP2*IPCWIP DIVID CMP2*IPNOPD
Historical Data Development Schedule
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 0.9209 0.8108 0.7173 0.7204 0.6201 0.4964 0.4778 0.4086 0.2660 0.3913
1986 0.8878 0.7696 0.6912 0.7126 0.6486 0.6424 0.6000 0.4714 0.5294
1987 0.8814 0.7967 0.6951 0.6496 0.6984 0.6012 0.5357 0.4068
1988 0.8717 0.7598 0.7035 0.6958 0.5696 0.5462 0.5269
1989 0.8686 0.7685 0.6302 0.6097 0.7170 0.6213
1990 0.8497 0.7360 0.5654 0.5905 0.5865
1991 0.8538 0.6721 0.5594 0.6572
1992 0.7691 0.6158 0.5239
1993 0.7231 0.5746
1994 0.7331
WEIGHTED AVERAGES:
Individual Column Averages
2 0.7286 0.5944 0.5413 0.6248 0.6481 0.5903 0.5917 0.4419 0.3586 0.3913
3 0.7403 0.6190 0.5501 0.6200 0.6215 0.5943 0.5942 0.4279 0.3586 0.3913
4 0.7655 0.6491 0.5693 0.6380 0.6423 0.6071 0.5484 0.4279 0.3586 0.3913
5 0.7807 0.6712 0.5920 0.6403 0.6437 0.5732 0.5484 0.4279 0.3586 0.3913
6 0.7939 0.6861 0.6084 0.6529 0.6382 0.5732 0.5484 0.4279 0.3586 0.3913
Average of All Remaining Columns
Individual Diagonal Averages
1 0.6254 0.5720 0.5672 0.5989 0.5647 0.5539 0.5176 0.4358 0.4500 0.3913
2 0.6360 0.5977 0.5642 0.5681 0.5527 0.4578 0.4153 0.3537 0.2660
3 0.6725 0.6344 0.5722 0.5787 0.5580 0.5506 0.5053 0.4086
4 0.7437 0.7022 0.6374 0.6433 0.6113 0.5516 0.4778
Multiple Diagonal Averages
2 0.6304 0.5843 0.5658 0.5847 0.5593 0.5124 0.4724 0.3965 0.3692 0.3913
3 0.6436 0.6005 0.5680 0.5828 0.5589 0.5237 0.4806 0.3991 0.3692 0.3913
4 0.6679 0.6262 0.5848 0.5976 0.5719 0.5302 0.4800 0.3991 0.3692 0.3913
5 0.6852 0.6444 0.5957 0.5987 0.5716 0.5252 0.4800 0.3991 0.3692 0.3913
ALL 0.7423 0.6955 0.6272 0.6182 0.5767 0.5252 0.4800 0.3991 0.3692 0.3913
Selected CWIP Ratios:
0.5746 0.5239 0.5800 0.5800 0.5600 0.4800 0.4800 0.4800 0.4800
</TABLE>
-3-
<PAGE> 257
APPENDIX A-6
<TABLE>
<CAPTION>
GREAT AMERICAN INSURANCE GROUP
Analysis of Loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Disposal Rates: In-Period Closed Counts/Ult. Open at Start
CMP2DISP=CMP2*IPNOPD DIVID CMP2*SHOS
Historical Data Development Schedule
Year 9 21 33 45 57 69 81 93 105 117
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 0.2899 0.6191 0.3787 0.3131 0.2925 0.3164 0.3429 0.2391 0.3176 0.3417
1986 0.2951 0.6169 0.4037 0.3549 0.3384 0.3259 0.2783 0.2842 0.2892
1987 0.2572 0.6140 0.4096 0.3505 0.3477 0.3554 0.2757 0.2674
1988 0.3039 0.6519 0.3845 0.3432 0.3179 0.2412 0.3579
1989 0.2776 0.6103 0.4169 0.3444 0.2841 0.3163
1990 0.2630 0.6233 0.4482 0.3435 0.3116
1991 0.2776 0.6115 0.3969 0.3484
1992 0.2724 0.6163 0.4070
1993 0.2766 0.6085
1994 0.2684
WEIGHTED AVERAGES:
Individual Column Averages
2 0.2720 0.6122 0.4020 0.3460 0.2980 0.2802 0.3210 0.2762 0.3070 0.3417
3 0.2722 0.6120 0.4177 0.3455 0.3044 0.3039 0.3067 0.2594 0.3070 0.3417
4 0.2733 0.6149 0.4175 0.3449 0.3151 0.3095 0.3200 0.2594 0.3070 0.3417
5 0.2714 0.6140 0.4116 0.3460 0.3199 0.3116 0.3200 0.2594 0.3070 0.3417
6 0.2723 0.6201 0.4112 0.3475 0.3131 0.3116 0.3200 0.2594 0.3070 0.3417
Average of All Remaining Columns
Individual Diagonal Averages
1 0.3831 0.4862 0.3573 0.3279 0.3170 0.3197 0.3216 0.2989 0.3172 0.3417
2 0.3912 0.4783 0.3377 0.3011 0.2775 0.2738 0.2928 0.3024 0.3176
3 0.4006 0.4918 0.3716 0.3191 0.3042 0.2959 0.2574 0.2391
4 0.4129 0.5058 0.3716 0.3413 0.3401 0.3351 0.3429
Multiple Diagonal Averages
2 0.3869 0.4824 0.3477 0.3150 0.2981 0.2981 0.3082 0.3006 0.3174 0.3417
3 0.3911 0.4854 0.3555 0.3163 0.2999 0.2975 0.2937 0.2849 0.3174 0.3417
4 0.3962 0.4904 0.3592 0.3220 0.3090 0.3055 0.3029 0.2849 0.3174 0.3417
5 0.3949 0.4902 0.3585 0.3246 0.3120 0.3071 0.3029 0.2849 0.3174 0.3417
ALL 0.3990 0.5100 0.3607 0.3234 0.3098 0.3071 0.3029 0.2849 0.3174 0.3417
Selected CWIP Ratios:
0.5746 0.5239 0.5800 0.5800 0.5600 0.4800 0.4800 0.4800 0.4800
</TABLE>
-4-
<PAGE> 258
APPENDIX A-6
<TABLE>
<CAPTION>
GREAT AMERICAN INSURANCE GROUP
Analysis of loss and Loss Adjustment Expense Reserves
as of September 30, 1994
Net of Reinsurance
Great American Pool - Direct
CMP Liability
Calculation of Ultimate CWIP's
<S> <C> <C> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5) (6) (7) (8)
Est. % of % of % of
Ultimate Claims CWIP
Clms Open Closed In Period Claims % of Remaining
at Start Disposal in CWIP in CWIP's CWIP
Maturity of Period Rate Period Ratio Period Remaining Ratio
- -------- --------- --------- ------ --------- ------- --------- ---------
9 100.00 0.6122 61.22 0.5746 35.18 55.98 0.5598
21 38.78 0.4020 15.59 0.5239 8.17 20.81 0.5365
33 23.19 0.3460 8.02 0.5800 4.65 12.64 0.5450
45 15.17 0.2981 4.52 0.5800 2.62 7.99 0.5265
57 10.65 0.2981 3.17 0.5600 1.78 5.36 0.5038
69 7.47 0.2981 2.23 0.4800 1.07 3.59 0.4800
81 5.24 0.2981 1.56 0.4800 0.75 2.52 0.4800
93 3.68 0.2981 1.10 0.4800 0.53 1.77 0.4800
105 2.58 0.2981 0.77 0.4800 0.37 1.24 0.4800
117 1.81 1.0000 1.81 0.4800 0.87 0.87 0.4800
Total 100.00 55.98
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(9) (10) (11) (12) (13) (14) (15)
Claims CWIP
Closed Open and Claims
Ultimate to Unrptd Remaining to Ultimate
Maturity Claims Date Claims CWIP's Date CWIP's
- -------- --------- --------- -------- --------- ------- ---------
9 10,218 2,743 7,475 4,185 2,011 6,196
21 8,069 5,784 2,285 1,226 3,655 4,881
33 7,359 6,141 1,218 664 4,012 4,676
45 7,173 6,382 791 417 4,555 4,972
57 7,563 7,039 524 264 5,153 5,417
69 6,935 6,570 365 175 5,031 5,206
81 7,384 7,144 240 115 5,529 5,644
93 6,591 6,429 162 78 5,027 5,105
105 7,366 7,241 125 60 5,641 5,701
117 10,604 10,471 133 64 8,337 8,401
Total 79,263 65,944 13,319 7,248 48,951 56,199
<FN>
Notes: (4) = (2) + (3) (12) = (11) - (10)
(6) = (4) + (5) (13) = (12) + (8)
(7) = (6) accumulated from bottom.
(8) = (7) + (2) (15) = (13) + (14)
</TABLE>
<PAGE> 259
APPENDIX B
SUBSIDIARIES
TECHNICAL APPENDIX
<PAGE> 260
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
SCOPE OF ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
METHODS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INDIVIDUAL SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
TRANSPORTATION INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Non-Standard Automobile Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Non-Standard Automobile Physical Damage . . . . . . . . . . . . . . . . . . . . . . . . . 3
Workers' Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Commerical Automobile Liability (Motor Carrier) . . . . . . . . . . . . . . . . . . . . . 3
Workers' Compensation (Motor Carrier) . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Special Risk (Motor Carrier) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
STONEWALL INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Primary Buffer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Excess and Umbrella . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
DIA - Los Angeles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
DIA - London . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY (AESLIC) . . . . . . . . . . . . . . . . . . . . 6
Short-Term Fidelity (Fidelity Environmental Insurance Company) . . . . . . . . . . . . . . 7
Buffer Liabilty (Stonewall Surplus Lines Insurance Company) . . . . . . . . . . . . . . . 7
Claims Made (Stonewall Surplus Lines Insurance Company) . . . . . . . . . . . . . . . . . 7
Primary Oil (Stonewall Surplus Lines Insurance Company) . . . . . . . . . . . . . . . . . 7
Primary Property and Casualty (Stonewall Surplus Lines Insurance Company) . . . . . . . . 7
Self-Insured Retention Auto (Stonewall Surplus Lines Insurance Company) . . . . . . . . . 8
Self-Insured Retention Non-Auto (Stonewall Surplus Lines Insurance Company) . . . . . . . 8
Umbrella (Stonewall Surplus Lines Insurance Company) . . . . . . . . . . . . . . . . . . . 8
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 261
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
MID-CONTINENT INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 262
SCOPE OF ANALYSIS
This Appendix documents our analysis of the Great American Insurance Group
subsidiaries:
- Transport Insurance Company
- Stonewall Insurance Company
- American Empire Surplus Lines Insurance Company
- Mid-Continent Insurance Company
We analyzed each subsidiary separately. Our method of analysis for each
subsidiary was similar. We grouped the individual lines of business into
business segments based on expected consistencies in the line of business loss
emergence patterns and our review of historical claim development patterns.
We projected ultimate loss and allocated loss adjustment expense by accident
year for each business segment. Our combined reserve estimates were calculated
by subtracting payments as of September 30, 1994 from projected ultimate
losses. In some instances, the payments as of September 30, 1994 were
estimated from the latest available information when the information could not
be provided to us by GAIG.
An additional reserve for unallocated loss adjustment expense (ULAE) was
estimated by applying a selected ratio of paid ULAE to paid loss plus ALAE to
the aggregate loss and allocated expense reserve for all accident years.
Our general approach regarding salvage and subrogation recoveries was to
analyze paid and incurred statistics net of historical recoveries. Therefore,
our ultimate loss estimates are net of estimated future salvage and subrogation
recoveries.
For each subsidiary, our projections are also net of specific reinsurance
recoverables. Therefore, except for instances where a subsidiary carries a
specific reserve for uncollectible reinsurance, we have assumed all reinsurance
applicable to the subsidiary's claims and reflected in the net statistics is
valid and collectible.
Intercompany reinsurance obligations were applied to our indicated net reserves
for each subsidiary. These obligations include cessions and assumptions
between subsidiaries as well as agreements with other members of GAIG.
- 1 -
<PAGE> 263
METHODS
We applied the same set of projection methods to select ultimate losses and
ALAE by business segment for the subsidiaries. These methods included paid and
incurred development, the Bornhuetter-Ferguson approach, and a count and
severity method called the Actuarial Reserve System (ARS). The ARS method
extrapolates incremental paid amounts per projected ultimate claim to develop
average ultimate claim costs. The product of the claim severity and the
projected number of ultimate claims yields the projected ultimate losses.
We supplemented these methods with a selected ultimate loss ratio for some
business segments with limited data. Our final selected ultimate losses and
ALAE are based on judgment after a review of various diagnostic statistics
indicated by the results of the applied methods. These diagnostic statistics
included loss ratios, claim severity, and implied average outstanding per
unpaid claim.
We used a selected ratio of expected unallocated loss adjustment expense to
loss and allocated loss adjustment expense to project the unallocated expense
reserve by business segment. This ratio was applied to M&R indicated IBNR
reserves as of September 30, 1994. One-half of the selected ratio was applied
to the case reserves as of September 30, 1994. This approach assumes that half
of the unallocated expenses is paid when a claim is opened and half is paid
when the claim is paid.
INDIVIDUAL SUBSIDIARIES
The following discussion outlines our analysis of each of the GAIG
subsidiaries. For each business segment we discuss material differences in our
analysis from the general approach discussed above. We also explain any
intercompany reinsurance agreements reflected in developing the M&R indicated
net reserves, in addition to "Other Considerations" pertinent to our analysis
for each subsidiary.
TRANSPORT INSURANCE COMPANY
We applied the techniques discussed in the METHODS section of the appendix to
develop projected ultimate loss and ALAE net of specific reinsurance and
salvage and subrogation recoveries for the following business segments:
- Large Fleet Automobile Liability
- Large Fleet Automobile Physical Damage
- Small Fleet Automobile Liability
- Small Fleet Automobile Physical Damage
- 2 -
<PAGE> 264
To develop ULAE reserves, we selected a ratio of ULAE payments to loss plus
ALAE payments based on insurance industry experience.
Exceptions to the general methodology by line of business are discussed below.
Non-Standard Automobile Liability
We relied solely on the Bornhuetter-Ferguson approach to develop our
reserve estimates because this business segment is new in 1993. The
development factors underlying our projections are based on insurance
industry experience.
Non-Standard Automobile Physical Damage
We relied solely on the Bornhuetter-Ferguson approach to develop our
reserve estimates because this business segment is new in 1993. The
development factors underlying our projections are based on insurance
industry experience.
Workers' Compensation
This business has been in runoff since 1987. Since we did not have
net statistics as of September 30, 1994, we reviewed the analysis
completed by the Great American Actuarial Department as of December
31, 1993. Based on our review, we accepted their projected ultimate
losses and reserves. We then estimated the amount of additional
payments during 1994 to develop a reserve estimate as of September 30,
1994.
Commercial Automobile Liability (Motor Carrier)
This segment has been in runoff since 1986. Since we did not have
statistics as of September 30, 1994, we projected ultimate losses
based on the experience as of December 31, 1993. We then subtracted
the actual payments made through September 30, 1994 to develop a
reserve estimate. The development factors underlying our analysis are
based on insurance industry experience.
Workers' Compensation (Motor Carrier)
This segment has been in runoff since 1986. Since we did not have
statistics as of September 30, 1994, we projected ultimate losses
based on the experience as of December 31, 1993. We then subtracted
the actual payments made through
- 3 -
<PAGE> 265
September 30, 1994 to develop a reserve estimate. The development
factors underlying our analysis are based on insurance industry
experience.
Both the automobile and workers' compensation business in the motor
carrier segment are subject to a quota share reinsurance with an
affiliate, the American Empire Surplus Lines Insurance Company. Our
net reserves account for this cession.
Special Risk (Motor Carrier)
This segment has been in runoff since 1986. Since we did not have
statistics as of September 30, 1994, we projected ultimate losses
based on the experience as of December 31, 1993. We then subtracted
estimated payments made through September 30, 1994 to develop a
reserve estimate. The development factors underlying our analysis are
based on insurance industry experience.
The special risk business we reviewed is ceded to American Empire.
Our net reserves for Transport account for this cession.
Other Considerations
Transport also has an exposure in the layer from $1 million per
occurrence to $5 million per occurrence for commercial automobile
liability claims from October 1, 1991 through May 31, 1993. We
estimated a reserve for this exposure using the Bornhuetter-Ferguson
approach with the initial expected losses calculated by multiplying
the net ultimate losses by an expected relationship of excess to net
losses. The expected relationship was based on commercial automobile
industry experience. The development factors used in this analysis
are based on experience collected by the Reinsurance Association of
America (RAA).
We did not review approximately $16.5 million of case reserves held in
Transport's general ledger. These amounts were primarily for business
segments in runoff.
With the exception of $1.1 million held for special risk liquidated
treaties, these non reviewed reserves as well as other net loss and
allocated expense reserves are subject to a 90% quota share cession to
the Great American pool. Our net reserves for Transport account for
this cession.
All of our Transport estimates, including amounts subject to
intercompany reinsurance agreements, have been reduced by the amounts
held for environmental claims. Liabilities for A&E exposure are
outside of the scope of this review.
- 4 -
<PAGE> 266
STONEWALL INSURANCE COMPANY
Primary Buffer
Data evaluated as of September 30, 1994 was not available for this
runoff business segment. We analyzed paid and incurred development
through September 30, 1993 to project ultimate losses and estimated
payments through September 30, 1994 to develop reserve estimates. We
supplemented the Company's own development patterns with insurance
industry data.
We used a ratio of ULAE to loss plus ALAE based on the Company's
carried reserves to develop our unallocated expense reserve.
Excess and Umbrella
Data evaluated as of September 30, 1994 was not available for this
runoff business segment. We analyzed paid and incurred development
through September 30, 1993 to project ultimate losses and estimated
payments through September 30, 1994 to develop reserve estimates. We
supplemented the Company's own development patterns with insurance
industry data.
We used a ratio of ULAE to loss plus ALAE based on the Company's
carried reserves to develop our unallocated expense reserve.
DIA - Los Angeles
Only calendar year incurred data through September 30, 1993 was
available for this business segment. We first reduced the case
outstanding reserves for estimated environmental claims based on
information supplied by the Company. We then analyzed the cumulative
incurred losses by calendar year and modeled the runoff to develop a
factor to apply to estimated case incurred loss and allocated expenses
as of September 30, 1994. Our estimated reserve was calculated by
subtracting projected payments as of September 30, 1994 from the
estimated ultimate losses.
We used a ratio of ULAE to loss plus ALAE based on the Company's
carried reserves to develop our unallocated expense reserve.
- 5 -
<PAGE> 267
Dia - London
Only calendar year incurred data through September 30, 1993 was
available for this business segment. We analyzed the cumulative
incurred losses by calendar year and modeled the runoff to develop a
factor to apply to estimated case incurred loss and allocated expenses
as of September 30, 1994. Our estimated reserve was calculated by
subtracting projected payments as of September 30, 1994 from the
estimated ultimate losses.
We used a ratio of ULAE to loss plus ALAE based on the Company's
carried reserves to develop our unallocated expense reserve.
Other Considerations
As noted above, we reduced the case incurred losses for the DIA-Los
Angeles segment for estimated A&E claims. Liabilities for A&E
exposures are outside of the scope of this review.
American Empire Surplus Lines Insurance Company (AESLIC)
We applied the techniques discussed in the METHODS section of this appendix to
develop projected ultimate loss and ALAE net of specific reinsurance and
salvage and subrogation recoveries for the following business segments.
- Combined Property Lines
- Short Tail Casualty
- Asbestos Abatement
- Claims Made
- Long Tail Casualty
- Medical Professional
- Naughton Programs
- Self-Insured Retention
- Facultative Reinsurance
- Long Term Fidelity (Fidelity Environmental Insurance Company)
- Short-Term Fidelity (Fidelity Environmental Insurance Company)
- Buffer Liability (Stonewall Surplus Lines Insurance Company)
- Claims-Made (Stonewall Surplus Lines Insurance Company)
- Primary Oil (Stonewall Surplus Lines Insurance Company)
- Primary Property and Casualty (Stonewall Surplus Lines
Insurance Company)
- Self-Insured Retention Auto (Stonewall Surplus Lines
Insurance Company)
- 6 -
<PAGE> 268
- Self-Insured Retention Non-Auto (Stonewall Surplus Lines
Insurance Company)
- Umbrella (Stonewall Surplus Lines Insurance Company)
We supplemented the Company's own loss history with insurance industry data to
select development patterns for most business segments. Salvage and
subrogation recoveries were analyzed separately.
To develop ULAE reserves we selected a ratio of ULAE payments to loss plus
ALAE payments based on insurance industry experience.
Exceptions to the general methodology by line of business are discussed below.
Short Term Fidelity (Fidelity Environmental Insurance Company)
We relied on the selected loss ratio and Bornhuetter-Ferguson results
due to the limited amount of actual experience.
Buffer Liability (Stonewall Surplus Lines Insurance Company)
Due to the low volume of data, we relied heavily on the Bornhuetter-
Ferguson and selected loss ratio methods.
Claims Made (Stonewall Surplus Lines Insurance Company)
Due to the low volume of data, we relied heavily on the Bornhuetter-
Ferguson and selected loss ratio methods.
Primary Oil (Stonewall Surplus Lines Insurance Company)
Due to the low volume of data, we relied heavily on the Bornhuetter-
Ferguson and selected loss ratio methods.
Primary Property and Casualty (Stonewall Surplus Lines Insurance
Company)
Due to the low volume of data, we relied heavily on the Bornhuetter-
Ferguson and selected loss ratio methods.
- 7 -
<PAGE> 269
Self-Insured Retention Auto (Stonewall Surplus Lines Insurance Company)
Due to the low volume of data, we relied heavily on the Bornhuetter-
Ferguson and selected loss ratio methods.
Self-Insured Retention Non-Auto (Stonewall Surplus Lines Insurance
Company)
Due to the low volume of data, we relied heavily on the Bornhuetter-
Ferguson and selected loss ratio methods.
Umbrella (Stonewall Surplus Lines Insurance Company)
Due to the low volume of data, we relied heavily on the Bornhuetter-
Ferguson and selected loss ratio methods.
Other Considerations
In addition to these business segments, there are approximately $6.0
million of AESLIC reserves that we did not review. These reserves
include $5 million for potentially uncollectible reinsurance and a
credit of $1 million for future salvage and subrogation recoveries, as
well as some other items.
As explained above, AESLIC assumes reserves from Transport for the
motor carrier business segments. In addition, AESLIC assumes reserves
for accident years 1987 and prior from the Republic Indemnity Company
of California. Our net reserves for AESLIC account for these
assumptions.
We also reduced our estimated reserves by the amounts held for
environmental claims. Liabilities for A&E exposures are outside of
the scope of this review.
MID-CONTINENT INSURANCE COMPANY
We applied the techniques discussed in the METHODS section of this appendix to
develop projected ultimate loss and ALAE net of specific reinsurance and
salvage and subrogation recoveries for the following business segments.
- Personal Automobile Liability
- Commercial Automobile Liability
- Automobile Physical Damage
- Workers' Compensation
- 8 -
<PAGE> 270
- Other Liability
- Products Liability
- Property
- Surety and Fidelity
- Umbrella
- Automobile Liability (Oklahoma Surety)
- Automobile Physical Damage (Oklahoma Surety)
To develop ULAE reserves, we selected a ratio of ULAE payments to loss plus
ALAE payments based on Mid-Continent data.
Other Considerations
In addition to these business segments, there are approximately $1.9
million of reserves we did not review. These reserves include amounts
held for large deductibles plus some reconciliation items.
We also reduced our estimated reserves by the amounts held for A&E
claims. Liabilities for A&E exposure are outside of the scope of this
review.
- 9 -
<PAGE> 271
EXHIBIT B-1
GREAT AMERICAN INSURANCE GROUP
Transport Insurance Group
Net of Reinsurance
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
<TABLE>
<CAPTION>
(1) (2) (3)
Total M&R
Loss & LAE Indicated
Reserves Loss & LAE Redundancy
Carried Reserves /(Deficiency)
LINE OF BUSINESS at 9/30/94 at 9/30/94 (1) - (2)
---------- ---------- -------------
<S> <C> <C> <C>
Large Fleet Automobile Liability $ 34,539
Large Fleet Automobile Physical Damage 251
Small Fleet Automobile Liability 9,827
Small Fleet Automobile Physical Damage 61
Non-Standard Automobile Liability 7,708
Non-Standard Automobile Physical Damage 556
Workers' Compensation 15,606
Commercial Automobile Liability and
Workers' Compensation (Motor Carrier) 19,241
Special Risk (Motor Carrier) 14,350
Subtotal $102,139
Other Cessions (a) (107,031)
Reserves of $4M excess $1M 2,809
Other Assumptions 0
Environmental (224)
Non-Reviewed 16,491
Total $14,798 $ 14,184 $614
<FN>
Notes:
(a) Other cessions include $76.8 million to Great American, $14.4 million of
Special Risk to American Empire Surplus Lines Insurance Company, and
$15.9 million of Motor Carrier to American Empire Surplus Lines
Insurance Company.
</TABLE>
<PAGE> 272
EXHIBIT B-2
GREAT AMERICAN INSURANCE GROUP
Stonewall Insurance Company
(in Runoff)
Net of Reinsurance
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
<TABLE>
<CAPTION>
(1) (2) (3)
Total M&R
Loss & LAE Indicated
Reserves Loss & LAE Redundancy
Carried Reserves /(Deficiency)
LINE OF BUSINESS at 9/30/94 at 9/30/94 (1) - (2)
---------- ---------- -------------
<S> <C> <C> <C>
Primary Buffer $ 2,962
Excess & Umbrella 27,088
DIA - Los Angeles 4,449
DIA - London 2,966
Subtotal $37,465
Other Cessions 0
Other Assumptions 0
Environmental 0
Non-Reviewed 0
Total $37,641 $37,465 $176
</TABLE>
<PAGE> 273
EXHIBIT B-3
<TABLE>
<CAPTION>
GREAT AMERICAN INSURANCE GROUP
American Empire Surplus Lines Insurance Company
Net of Reinsurance
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
(1) (2) (3)
Total M&R
Loss & LAE Indicated
Reserves Loss & LAE Redundancy
Carried Reserves /(Deficiency
LINE OF BUSINESS at 9/30/94 at 9/30/94 (1) - (2)
---------- ---------- ------------
<S> <C> <C> <C>
Combined Property Lines $ 1,933
Short Tail Casualty 43,306
Asbestos Abatement 1,766
Claims Made 993
Long Tail Casualty 23,338
Medical Professional 306
Naughton Programs 16,262
Self Insured Retention 12,460
Facultative Reinsurance 3,295
Long Tail Fidelity (Fidelity Environmental) 11,276
Short Tail Fidelity (Fidelity Environmental) 7,103
Buffer Liability (Stonewall Surplus Lines Insurance Company) 487
Claims Made (Stonewall Surplus Lines Insurance Company) 175
Primary Oil (Stonewall Surplus Lines Insurance Company) 765
Primary Property and Casualty (Stonewall Surplus Lines Insurance Company) 1,780
Self Insured Retention Auto (Stonewall Surplus Lines Insurance Company) 508
Self Insured Retention Non-Auto (Stonewall Surplus Lines Insurance Company) 562
Umbrella (Stonewall Surplus Lines Insurance Company) 3,589
Subtotal $129,904
Other Cessions 0
Other Assumptions (b) 35,648
Environmental (6,573)
Non-Reviewed (a) 5,974
Total $208,609 $164,953 $43,656
<FN>
Notes:
(a) The non-reviewed reserve include $5 million for TID solvency, $1.114 million for commutations,
$1 million for 1984 and prior, and a credit $1.14 million for salvage and subrogation.
(b) Other assumptions include $5.4 million from Republic Indemnity of California, $15.9 million from
Transport Motor Carrier, and $14.4 million from Transport Special Risk.
</TABLE>
<PAGE> 274
EXHIBIT B-4
<TABLE>
<CAPTION>
GREAT AMERICAN INSURANCE GROUP
Mid-Continent Insurance Company
Net of Reinsurance
Excluding Asbestos and Environmental Exposures
(amounts in $000's)
(1) (2) (3)
Total M&R
Loss & LAE Indicated
Reserves Loss & LAE Redundancy
Carried Reserves /(Deficiency
LINE OF BUSINESS at 9/30/94 at 9/30/94 (1) - (2)
---------- ---------- ------------
<S> <C> <C> <C>
Personal Automobile Liability $ 7,140
Commercial Automobile Liability 15,002
Automobile Physical Damage 844
Worker's Compensation 18,947
Other Liability 14,468
Products Liability 1,312
Property 804
Surety & Fidelity 482
Umbrella 587
Automobile Liability (Oklahoma Surety) 2,118
Automobile Physical Damage (Oklahoma Surety) 127
Subtotal $61,831
Other Cessions 0
Other Assumptions 0
Environmental (352)
Non-Reviewed (a) 1,863
Total $61,861 $63,342 ($1,481)
<FN>
Notes:
(a) Non-reviewed reserves include case reserve for large deductibles plus reconciliation items.
</TABLE>
<PAGE> 275
EXHIBIT B-5
<TABLE>
<CAPTION>
GREAT AMERICAN INSURANCE GROUP
Transport Insurance Group
Excluding Asbestos and Environmental Exposures
(amounts in thousands)
Net Loss and ALAE Ratio as of September 30, 1994
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
- ------------------------------------------------------------------------------------------------------------------------------
Large Small Non-
Large Fleet Small Fleet Non- Standard
Fleet Physical Fleet Physical Standard Automobile
Accident Automobile Automobile Automobile Automobile Automobile Physical Workers'
Year Liability Damage Liability Damage Liability Damage Compensation Total
- -------- ---------- ---------- ---------- ---------- ---------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985 $ 20,812 $ 5,783 $ 0 $ 0 $ 0 $ 0 $2,086 $ 28,681
1986 31,067 1,426 7,735 2,800 0 0 570 43,598
1987 16,866 759 3,909 1,216 0 0 861 23,611
1988 31,683 606 4,299 658 0 0 0 37,246
1989 36,049 912 4,283 556 0 0 0 41,800
1990 25,703 650 1,491 566 0 0 0 28,410
1991 16,823 327 257 65 0 0 0 17,472
1992 12,091 304 2,895 221 0 0 0 15,511
1993 13,976 394 4,124 181 2,783 1,125 0 22,583
1994 8,756 438 4,788 177 8,876 3,026 0 34,749
Total $216,745 $11,745 $35,377 $6,499 $14,618 $5,160 $3,517 $293,661
</TABLE>
<TABLE>
<CAPTION>
Net Earned Premiums
- ------------------------------------------------------------------------------------------------------------------------------
Large Small Non-
Large Fleet Small Fleet Non- Standard
Fleet Physical Fleet Physical Standard Automobile
Accident Automobile Automobile Automobile Automobile Automobile Physical Workers'
Year Liability Damage Liability Damage Liability Damage Compensation Total
- -------- ---------- ---------- ---------- ---------- ---------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985 $ 0 NA $ 0 NA NA NA NA NA
1986 0 NA 0 NA NA NA NA NA
1987 39,960 NA 7,428 NA NA NA NA NA
1988 45,595 NA 4,849 NA NA NA NA $50,444
1989 51,070 NA 6,449 NA NA NA NA 57,519
1990 34,806 NA 3,116 NA NA NA NA 37,922
1991 24,944 NA 1,127 NA NA NA NA 26,071
1992 26,222 NA 3,193 NA NA NA NA 29,415
1993 25,136 NA 6,555 NA 7,751 NA NA 39,442
1994 12,023 NA 5,708 NA 20,510 NA NA 50,989
</TABLE>
<TABLE>
<CAPTION>
M&R Indicated Loss & ALAE Ratios
- ------------------------------------------------------------------------------------------------------------------------------
Large Small Non-
Large Fleet Small Fleet Non- Standard
Fleet Physical Fleet Physical Standard Automobile
Accident Automobile Automobile Automobile Automobile Automobile Physical Workers'
Year Liability Damage Liability Damage Liability Damage Compensation Total
- -------- ---------- ---------- ---------- ---------- ---------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985 NA NA NA NA NA NA NA NA
1986 NA NA NA NA NA NA NA NA
1987 42.21% 1.90% 52.63% 16.37% NA NA NA NA
1988 69.49% 1.33% 88.66% 13.57% NA NA NA 73.84%
1989 70.59% 1.79% 66.41% 8.62% NA NA NA 72.67%
1990 73.85% 1.87% 47.85% 18.16% NA NA NA 74.92%
1991 67.44% 1.31% 22.80% 5.77% NA NA NA 67.02%
1992 46.11% 1.16% 90.67% 6.92% NA NA NA 52.73%
1993 55.60% 1.57% 62.91% 2.76% 35.91% 14.51% NA 57.26%
1994 72.83% 3.64% 83.88% 3.10% 43.28% 14.75% NA 68.15%
</TABLE>
<PAGE> 276
EXHIBIT B-6
<TABLE>
<CAPTION>
GREAT AMERICAN INSURANCE GROUP
Stonewall Insurance Group
Excluding Asbestos and Environmental Exposures
(amounts in thousands)
Net Loss and ALAE Ratio as of September 30, 1994
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
- -----------------------------------------------------------------------------------------------------------------------------
Primary Self Self
Property Insured Insured
Accident Buffer Claims Primary and Retention Retention
Year Liability Made Oil Casualty Auto Non-Auto Umbrella Total
- -------- --------- ------ ------- -------- --------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $222 $ 0 $ 0 $ 596 $ 0 $ 0 $ 522 $ 1,340
1992 77 16 17 593 318 278 1,126 2,425
1993 187 62 303 1,906 320 267 919 3,964
1994 57 81 414.75 1,092 249 120.75 696 3,614
Total $562 $186 $ 873 $4,551 $970 $ 706 $3,495 $11,343
</TABLE>
<TABLE>
<CAPTION>
Net Earned Premiums
- -----------------------------------------------------------------------------------------------------------------------------
Primary Self Self
Property Insured Insured
Accident Buffer Claims Primary and Retention Retention
Year Liability Made Oil Casualty Auto Non-Auto Umbrella Total
- -------- --------- ------ ------- -------- --------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $341 $ 0 $ 0 $ 75 $ 0 $ 0 $1,044 $1,460
1992 32 25 26 913 342 427 2,048 3,813
1993 287 96 466 1,725 493 411 1,532 5,010
1994 88 125 639 1,680 383 186 1,071 5,563
</TABLE>
<TABLE>
<CAPTION>
M&R Indicated Loss & ALAE Ratios
- -----------------------------------------------------------------------------------------------------------------------------
Primary Self Self
Property Insured Insured
Accident Buffer Claims Primary and Retention Retention
Year Liability Made Oil Casualty Auto Non-Auto Umbrella Total
- -------- --------- ------ ------- -------- --------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 65.10% NA NA 794.67% NA NA 50.00% 91.78%
1992 240.63% 64.00% 65.38% 64.95% 92.98% 65.11% 54.98% 63.60%
1993 65.16% 64.58% 65.02% 110.49% 64.91% 64.96% 59.99% 79.12%
1994 64.96% 64.67% 64.91% 65.00% 64.97% 64.92% 64.99% 64.96%
</TABLE>
<PAGE> 277
EXHIBIT B-7
<TABLE>
<CAPTION>
GREAT AMERICAN INSURANCE GROUP
American Empire Surplus Lines Insurance Company
Excluding Asbestos and Environmental Exposures
(amounts in thousands)
Net Loss and ALAE Ratio as of September 30, 1994
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
- -----------------------------------------------------------------------------------------------------------------------
Short Long
Accident Tail Asbestos Claims Tail Medical Naughton
Year Property Casualty Abatement Made Casualty Professional Programs
- -------- -------- -------- --------- ------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
1985 $ 3,949 $ 10,075 $ 61 $ 0 $ 1,760 $ 0 $ 1,817
1986 3,718 27,741 385 458 10,905 0 11,612
1987 3,854 35,345 222 629 10,424 198 9,070
1988 3,035 22,142 1,442 29 3,098 84 7,980
1989 5,418 14,945 1,689 15 3,855 581 4,600
1990 7,158 11,969 262 534 4,323 51 4,081
1991 5,645 11,261 835 0 3,386 0 3,513
1992 4,096 7,794 180 1,020 1,792 85 3,221
1993 2,200 9,927 135 272 403 0 4,362
1994 1,866 9,307 87 431 333 0 3,178
Total $41,561 $161,608 $5,327 $3,531 $40,390 $999 $54,493
</TABLE>
<TABLE>
<CAPTION>
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
- ------------------------------------------------------------------------------------------------------
Long Short
Self Tail Tail
Accident Insured Facultative (Fidelity (Fidelity
Year Retention Reinsurance Environmental) Environmental) Total
- ------- --------- ----------- -------------- -------------- -----
<S> <C> <C> <C> <C> <C>
1985 $ 1,240 $ 0 $ 0 $ 0 $ 18,902
1986 4,023 0 0 0 58,842
1987 5,385 0 0 0 65,127
1988 5,553 0 0 342 43,363
1989 2,291 194 3,007 1,442 33,588
1990 2,647 159 3,389 1,631 31,184
1991 532 292 1,801 2,027 25,464
1992 529 1,050 1,609 1,741 19,767
1993 329 1,067 1,113 1,288 18,695
1994 212 1,090 652 890 22,004
Total $22,812 $4,215 $11,788 $9,657 $336,936
</TABLE>
<TABLE>
<CAPTION>
Net Earned Premiums
- -----------------------------------------------------------------------------------------------------------------------
Short Long
Accident Tail Asbestos Claims Tail Medical Naughton
Year Property Casualty Abatement Made Casualty Professional Programs
- -------- -------- -------- --------- ------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
1985 $ 6,733 $11,738 $ 2,196 $ 0 $ 2,350 $ 0 $ 471
1986 10,414 62,590 12,841 2,650 36,333 0 6,322
1987 10,945 83,176 18,981 3,335 34,747 48 10,459
1988 7,909 58,310 13,176 1,337 10,327 388 8,184
1989 8,133 39,465 6,747 456 3,509 423 5,953
1990 11,334 27,693 3,180 505 2,276 222 5,057
1991 8,571 20,357 3,380 1,068 2,064 13 4,242
1992 5,611 14,818 451 1,651 1,580 1 3,442
1993 5,085 15,606 337 1,781 536 0 3,239
1994 6,087 10,904 218 1,386 421 0 2,604
</TABLE>
<TABLE>
<CAPTION>
Net Earned
- ------------------------------------------------------------------------------------------------------
Long Short
Self Tail Tail
Accident Insured Facultative (Fidelity (Fidelity
Year Retention Reinsurance Environmental) Environmental) Total
- ------- --------- ----------- -------------- -------------- -----
<S> <C> <C> <C> <C> <C>
1985 $ 1,492 $ 0 NA NA NA
1986 14,205 0 NA NA NA
1987 15,391 0 $ 18 $ 26 NA
1988 7,425 0 1,299 1,949 NA
1989 4,496 161 4,626 6,939 $80,908
1990 2,711 1,458 5,214 7,821 67,471
1991 1,713 1,931 2,770 3,777 47,886
1992 1,073 1,907 2,475 3,482 36,491
1993 565 2,267 1,712 2,428 33,578
1994 285 2,216 1,003 1,461 35,447
</TABLE>
<TABLE>
<CAPTION>
M&R Indicated Loss & ALAE Ratios
- -----------------------------------------------------------------------------------------------------------------------
Short Long
Accident Tail Asbestos Claims Tail Medical Naughton
Year Property Casualty Abatement Made Casualty Professional Programs
- -------- -------- -------- --------- ------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
1985 58.65% 85.83% 2.78% NA 74.89% NA 385.77%
1986 35.70% 44.32% 3.00% 17.28% 30.18% NA 183.68%
1987 35.21% 42.49% 1.17% 18.86% 30.00% 412.50% 86.72%
1988 38.37% 37.97% 10.94% 2.17% 30.00% 21.65% 97.51%
1989 66.62% 37.87% 25.03% 3.29% 109.86% 137.35% 77.27%
1990 63.16% 43.22% 8.24% 105.74% 139.94% 22.97% 80.70%
1991 65.86% 55.32% 60.51% 0.00% 164.05% 0.00% 82.81%
1992 73.00% 52.60% 39.91% 61.78% 111.42% 400.00% 93.58%
1993 43.26% 63.61% 40.06% 35.26% 72.48% NA 134.67%
1994 30.66% 85.35% 39.86% 31.06% 79.14% NA 122.03%
</TABLE>
<TABLE>
<CAPTION>
M&R Indicated Loss & ALAE Ratios
- ------------------------------------------------------------------------------------------------------
Long Short
Self Tail Tail
Accident Insured Facultative (Fidelity (Fidelity
Year Retention Reinsurance Environmental) Environmental) Total
- ------- --------- ----------- -------------- -------------- -----
<S> <C> <C> <C> <C> <C>
1985 83.11% NA NA NA NA
1986 28.32% NA NA NA NA
1987 34.99% NA 0.00% 0.00% NA
1988 74.79% NA 0.00% 17.55% NA
1989 50.96% 120.50% 65.00% 20.78% 41.51%
1990 97.64% 10.91% 65.00% 20.85% 46.22%
1991 31.06% 15.12% 65.02% 53.67% 53.18%
1992 49.30% 55.06% 65.01% 50.00% 54.17%
1993 58.23% 47.07% 65.00% 53.04% 55.68%
1994 74.47% 49.17% 65.00% 60.88% 62.08%
</TABLE>
<PAGE> 278
EXHIBIT B-8
<TABLE>
<CAPTION>
GREAT AMERICAN INSURANCE GROUP
Mid-Continental Insurance Company
Excluding Asbestos and Environmental Exposures
(amounts in thousands)
Net Loss and ALAE Ratio as of September 30, 1994
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
- --------------------------------------------------------------------------------------------------------------
Personal Commercial Automobile
Accident Automobile Automobile Physical Workers' Other Products
Year Liability Liability Damage Compensation Liability Liability
- -------- --------- --------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1985 $ 7,824 $ 4,253 $ 9,333 $ 16,010 $ 3,623 $ 552
1986 8,442 4,645 7,562 15,629 2,651 179
1987 10,880 5,384 7,291 18,828 2,416 269
1988 8,879 6,889 8,348 24,260 3,254 487
1989 13,038 4,391 7,219 25,021 3,377 252
1990 14,499 8,505 7,773 33,662 3,738 71
1991 11,722 7,022 6,817 23,509 4,253 158
1992 7,687 7,751 5,351 10,862 5,044 425
1993 6,418 9,502 5,200 1,589 5,488 306
1994 4,295 8,882 4,072 0 4,878 290
Total $95,115 $70,185 $70,323 $169,370 $40,348 $3,085
</TABLE>
<TABLE>
<CAPTION>
M&R Indicated Ultimate Loss and ALAE Net of Salvage & Subrogation
- ---------------------------------------------------------------------------------------------------------------
Automobile
Automobile Physical
Liability Damage
Accident Surety & (Oklahoma (Oklahoma
Year Property Fidelity Umbrella Surety) Surety) Total
- ------- --------- --------- --------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
1985 $ 910 $ 3,520 $ 0 $ 1,934 $ 792 $ 48,751
1986 1,188 2,119 0 2,657 834 45,906
1987 1,741 2,035 0 2,814 790 52,448
1988 1,591 1,546 0 2,759 965 58,978
1989 994 327 0 3,127 756 58,502
1990 1,707 144 0 3,822 845 74,766
1991 1,228 260 0 3,770 902 59,641
1992 1,486 163 46 2,862 899 42,576
1993 1,061 170 184 2,856 800 33,574
1994 1,556 738 304 1,826 506 36,459
Total $13,981 $11,268 $635 $29,035 $8,257 $511,601
</TABLE>
<TABLE>
<CAPTION>
Net Earned Premiums
- ----------------------------------------------------------------------------------------------------------------
Personal Commercial Automobile
Accident Automobile Automobile Physical Workers' Other Products
Year Liability Liability Damage Compensation Liability Liability
- -------- --------- --------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1985 $ 3,640 $ 5,224 $ 0 $ 0 $ 0 $ 0
1986 10,321 7,562 0 0 0 0
1987 11,636 8,619 0 0 0 0
1988 12,815 8,005 0 22,791 11,400 1,602
1989 14,145 7,321 15,470 23,121 10,514 2,077
1990 14,626 7,624 14,539 25,089 11,985 1,665
1991 11,983 7,988 13,401 24,171 11,836 2,153
1992 10,187 11,098 11,222 12,508 12,175 1,981
1993 8,471 13,139 10,219 2,312 14,266 2,217
1994 5,896 12,020 8,171 0 11,332 2,278
</TABLE>
<TABLE>
<CAPTION>
Net Earned Premiums
- ----------------------------------------------------------------------------------------------------------------
Automobile
Automobile Physical
Liability Damage
Accident Surety & (Oklahoma (Oklahoma
Year Property Fidelity Umbrella Surety) Surety) Total
- ------- --------- --------- --------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
1985 $ 0 $ 0 $ 0 $ 0 $ 0 NA
1986 0 0 0 0 0 NA
1987 0 0 0 0 0 NA
1988 2,592 0 0 4,443 2,110 NA
1989 2,407 1,136 0 4,338 1,818 $82,349
1990 2,385 1,107 0 4,357 1,834 85,311
1991 2,371 2,245 0 4,737 1,941 84,828
1992 2,429 2,864 175 4,635 1,728 71,002
1993 2,756 3,411 465 4,355 1,524 63,328
1994 2,715 2,727 507 2,910 1,030 68,831
</TABLE>
<TABLE>
<CAPTION>
M&R Indicated Loss and ALAE Ratios
- ---------------------------------------------------------------------------------------------------------------
Personal Commercial Automobile
Accident Automobile Automobile Physical Workers' Other Products
Year Liability Liability Damage Compensation Liability Liability
- -------- --------- --------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1985 90.56% 81.41% NA NA NA NA
1986 81.78% 61.41% NA NA NA NA
1987 93.50% 62.32% NA NA NA NA
1988 69.29% 86.06% NA 106.45% 28.54% 30.40%
1989 92.17% 59.96% 46.66% 108.22% 32.12% 12.13%
1990 99.13% 111.56% 53.10% 134.17% 31.19% 4.26%
1991 83.83% 87.91% 50.87% 97.25% 35.93% 7.34%
1992 75.46% 69.84% 47.68% 86.84% 41.43% 21.45%
1993 75.75% 71.28% 50.89% 68.71% 38.47% 13.80%
1994 72.84% 73.67% 49.82% NA 36.59% 12.71%
</TABLE>
<TABLE>
<CAPTION>
M&R Indicated Loss and ALAE Ratios
- ------------------------------------------------------------------------------------------------------------------
Automobile
Automobile Physical
Liability Damage
Accident Surety & (Oklahoma (Oklahoma
Year Property Fidelity Umbrella Surety) Surety) Total
- ------- --------- --------- --------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
1985 NA NA NA NA NA NA
1986 NA NA NA NA NA NA
1987 NA NA NA NA NA NA
1988 61.38% NA NA 62.10% 45.73% NA
1989 41.30% 28.79% NA 72.08% 41.58% 71.04%
1990 71.57% 13.01% NA 87.72% 46.07% 87.64%
1991 51.79% 11.58% NA 79.59% 46.47% 70.31%
1992 61.18% 5.69% 26.29% 61.75% 52.03% 59.96%
1993 38.50% 4.98% 39.57% 65.58% 52.49% 53.02%
1994 57.32% 27.06% 59.96% 62.73% 49.08% 52.97%
</TABLE>
<PAGE> 1
Exhibit 99.3
AMERICAN PREMIER UNDERWRITERS, INC.
ANALYSIS OF
ASBESTOS AND ENVIRONMENTAL EXPOSURES
FOR
GREAT AMERICAN INSURANCE GROUP
AT
SEPTEMBER 30, 1994
Prepared For:
Special Committee of the Board of Directors
American Premier Underwriters, Inc.
Prepared by:
Raja Bhagavatula, FCAS, Consulting Actuary
Joy A. Schwartzman, FCAS, Consulting Actuary
Milliman & Robertson, Inc.
December 9, 1994
<PAGE> 2
GREAT AMERICAN INSURANCE GROUP
------------------------------
ANALYSIS OF
-----------
ASBESTOS AND ENVIRONMENTAL EXPOSURES
------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. SCOPE OF ENGAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. ANALYSIS AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
A. ANALYSIS AND SUMMARY OF FINDINGS OF GAIG RESERVE LEVELS . . . . . . . . . . . . . . . . 3
1. RESERVES RELATIVE TO INDUSTRY LEVELS . . . . . . . . . . . . . . . . . . . . . . 3
2. NET RESERVES TO PAYMENT LEVELS . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. GAIG RESERVES TO INDUSTRY RESERVES . . . . . . . . . . . . . . . . . . . . . . . 8
4. GAIG ULTIMATE LOSS ESTIMATES . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. GAIG ENVIRONMENTAL CLAIM REVIEW . . . . . . . . . . . . . . . . . . . . . . . 11
B. ANALYSIS OF INDIVIDUAL BUSINESS UNITS . . . . . . . . . . . . . . . . . . . . . . . 14
1. GREAT AMERICAN COMMERCIAL AND SPECIALTY DIVISIONS . . . . . . . . . . . . . . 14
2. STONEWALL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3. CONSTELLATION REINSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4. TRANSPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5. GREAT AMERICAN REINSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6. MID-CONTINENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7. AESLIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8. AGRICULTURAL E&S COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
III. ADDITIONAL REVIEW THAT COULD
BE DONE TO EVALUATE A&E EXPOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
IV. LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
<PAGE> 3
I. SCOPE OF ENGAGEMENT
-------------------
Milliman & Robertson, Inc. (M&R) has been engaged by the Special Committee of
the Board of Directors of American Premier Underwriters, Inc. to conduct an
independent analysis of the asbestos and environmental (A&E) exposures for the
Great American Insurance Group (GAIG). This report discusses M&R's findings
with regard to reserve adequacy net of all retrocessions as of September 30,
1994.
This report contains the results of complex actuarial projections. In order to
fully comprehend this report, readers unfamiliar with actuarial analyses should
be aided by a professional who is familiar with actuarial projection
techniques. This report must be read in its entirety in order to be
understood.
There is an important discussion of the LIMITATIONS on our analysis beginning
on page 24 of this report.
This report is intended for the exclusive use of the Special Committee of the
Board of Directors of American Premier Underwriters, Inc. and their advisors.
No other distribution, in whole or in part, is authorized without the prior
written consent of M&R. M&R is available to answer any questions pertaining to
this report.
This analysis deals with A&E exposures arising from the following business
segments of GAIG:
a. Great American Commercial and Specialty Divisions (GAC&S)
- 1 -
<PAGE> 4
b. Stonewall
c. Constellation Reinsurance
d. Transport
e. Great American reinsurance (GA Re)
f. Mid-Continent
g. American Empire Surplus Lines Insurance Company (AESLIC)
h. Agricultural E&S Company
Throughout this report, A&E claims are defined as claims arising out of the
following categories of exposure as represented to us by GAIG: waste sites,
asbestos, DES, breast implants, Agent Orange, Silica, repetitive stress on
keyboards and other latent injuries. These A&E claims arise out of general
liability and commercial multi-peril policies issued by GAIG in the time period
prior to the early 1980's when providing coverage for A&E exposures was not
specifically contemplated by GAIG policies. The liabilities due to programs
specifically written by GAIG to provide asbestos and pollution coverage are not
reflected in this analysis.
The definition of environmental claims varies from company to company. GAIG
appears to use a broad definition for such claims. Many companies use a
narrower definition and refer to environmental claims as being due to an
insured's exposure associated with
- 2 -
<PAGE> 5
hazardous waste sites (Superfund and non-Superfund sites). This narrower
definition also appears to be the definition used by A.M. Best & Co. in their
study entitled "Environmental/Asbestos: The Industry's Black Hole." Our
analysis uses the A.M. Best & Co. study extensively, and therefore, we are
applying some of the conclusions reached by A.M. Best & Co. for environmental
claims to a broader class of claims. To the extent that GAIG's definition of
A&E claims vary from hazards contemplated by the A.M. Best & Co. study, our
results will be affected.
II. ANALYSIS AND CONCLUSIONS
------------------------
Our analysis and conclusions are addressed in two sections - (A) Analysis of
GAIG Reserve Levels, and (B) Analysis of Individual Business Units within GAIG.
A. ANALYSIS AND SUMMARY OF FINDINGS OF GAIG RESERVE LEVELS
-------------------------------------------------------
1. RESERVES RELATIVE TO INDUSTRY LEVELS
------------------------------------
a. We conclude that GAIG A&E reserves are lower than industry
average reserve levels for A&E liabilities.
b. We used two methods to evaluate GAIG's reserves relative
to industry average reserve levels for A&E liabilities.
One method considers the current rate of A&E payments by
GAIG and results in an indicated reserve of $193 million.
The second method applies the GAIG market share for
general liability and commercial multi-peril business to
industry A&E
- 3 -
<PAGE> 6
reserve levels and results in an indicated reserve of $249
million. Based on the results of these two methods, M&R
selected a $225 million reserve for GAIG to be consistent
with projected 1994 industry average A&E levels.
INDICATED RESERVE BASED ON INDUSTRY
RESERVE LEVELS
ALL DOLLAR AMOUNTS IN MILLIONS
<TABLE>
<CAPTION>
(1) (2) (3)
ESTIMATED INDICATED
CARRIED RESERVES ANNUAL 1994
------------------- NET LOSS RESERVE
9/30/94 10/31/94 PAYMENTS LEVEL
------- -------- -------- -----
<S> <C> <C> <C> <C>
(1) Great American Commercial & 31.4 31.4 20.0
Specialty Divisions
(2) Stonewall Insurance Company 62.0 62.7 3.0
Case 23.4
IBNR 38.6
(3) Constellation Re 19.7 21.8 2.7
(4) Great American Re 8.2 8.2 0.4
(5) AESLIC 0.7 1.8 0.5
(6) Transport 8.2 6.3 0.4
(7) Mid-Continent 0.4 0.4 0.5
(8) Agricultural E&S 0.0 0.0 0.5
Subtotal (2) - (8) 99.2 101.2 8.0
----- ----- ---- -----
TOTAL 130.5 132.6 28.0 225.0
</TABLE>
- 4 -
<PAGE> 7
c. We believe that the entire shortfall in carried reserves
is attributable to environmental exposures. This is
discussed further in item (j) of the following section of
this report.
d. The $225 million reserve does not represent GAIG's
ultimate liability for A&E exposures. Due primarily to
the inability of the insurance industry to estimate with
reasonable certainty ultimate liabilities for A&E
exposures because of the factors discussed in item (e)
below, the U.S. insurance industry has not recorded an
estimate of the ultimate liability associated with A&E
exposures in financial statements. As a result, the $225
million reserve or some other appropriate reserve level
would need to be maintained on GAIG's balance sheet into
the foreseeable future while GAIG makes annual loss, LAE
and declaratory judgment expense payments for these
exposures.
The appropriate reserve for A&E exposures for GAIG would
need to be reevaluated regularly based on an analysis of
the company's exposures together with industry reserving
levels and financial reporting principals. There are
factors that would tend to cause the industry reserve
adequacy for A&E exposures to increase over the next few
years. These factors are discussed in item (l) in the
following section of this report.
e. The appropriate level of A&E reserves and the future A&E
claim payments to be made by GAIG are subject to an
unusual degree of uncertainty. This uncertainty stems
from several factors including lack of historical data,
inapplicability of standard actuarial projection
techniques,
- 5 -
<PAGE> 8
and uncertainty with regard to claim costs, coverage
interpretation and the judicial, statutory and regulatory
provisions under which the claims may be ultimately
resolved. These factors affect both the evaluation of
these liabilities and the timing of the payout of these
liabilities.
2. NET RESERVES TO PAYMENT LEVELS
------------------------------
f. A&E payments by GAC&S divisions have approximated $20
million per year based on payment levels in the last
three years.
g. The net annual payments for Stonewall, Constellation Re,
Great American Re, Agricultural E&S, American Empire
Surplus Lines Insurance Company, Transport and
Mid-Continent in total have approximated $8 million based
on information provided by GAIG management. These
payments were based on payment history ranging from one to
three years. Due to data limitations, payments had to be
approximated by GAIG management for certain segments.
h. Based on the information in items (f) and (g) above, the
total net annual payments for GAIG might be estimated to
be $28 million.
i. The 6.9 year "reserve to payment ratio" projected by A.M.
Best & Co. for the industry by year-end 1994 implies a
reserve for GAIG of $193 million. M&R selected a reserve
of $225 million in consideration of the results of the
review of GAIG reserves as a percentage of industry
reserves.
- 6 -
<PAGE> 9
j. We believe that the indicated reserve increase of $94
million ($225 million - $131 million) should be earmarked
for environmental exposures. Based on an estimated split
of carried reserves and annual payments between asbestos
and environmental exposures for GAIG, the "reserve to
payment ratio" exhibited by the carried reserves for
asbestos compares reasonably to that of the industry,
while the environmental reserves exhibit a shortfall.
ALL DOLLAR AMOUNTS IN MILLIONS
<TABLE>
<CAPTION>
ASBESTOS ENVIRONMENTAL TOTAL
-------- ------------- -----
<S> <C> <C> <C>
Estimated Net Annual Payments $ 8.4 $ 19.6 $ 28.0
Carried Reserves at 9/30/94 $60.0 $ 71.0 $131.0
"Reserve to Payment Ratio" Based 7.1 3.6 4.7
on Carried Reserves
Indicated Reserves $ 60.0 $165.0 $225.0
"Reserve to Payment Ratio" Based 7.1 8.4 8.0
on Indicated Reserves
Projected "Reserve to Payment 6.2 7.5 7.1
Ratio" for the Industry at Year-
End 1994 using GAIG Payment Mix
</TABLE>
By increasing environmental reserves by $94 million, the
"reserve to payment ratios" exhibited by both asbestos and
environmental reserves look reasonable when compared to
those of the industry.
- 7 -
<PAGE> 10
3. GAIG RESERVES TO INDUSTRY RESERVES
----------------------------------
k. GAIG's share of general liability and commercial
multi-peril premium during the 1975-1985 period is
approximately 1.6%. Exhibit A provides a description of
our market share analysis.
The P&C industry reserve for A&E at December 31, 1994 is
projected by A.M. Best & Co. to be approximately $15.535
billion. GAIG's share of the industry reserves using a
1.6% market share is $249 million.
A $225 million indicated A&E reserve is somewhat less than
the 1.6% market share for GAIG in consideration of the
results of the "reserve to payment ratio" analysis.
l. It is possible that industry reserve standards for A&E
liability will increase the indicated reserve for GAIG
beyond the reserve levels projected at December 31, 1994.
We note several pressures that will tend to increase the
industrywide reserve adequacy over the next few years.
These include:
. Clarification of insurers liabilities through
case law and Superfund reform will make ultimate
liabilities more subject to estimation.
. Financial reporting pressure for more adequate
reserving and more complete disclosure of A&E
liabilities.
- 8 -
<PAGE> 11
. Reluctance of insurance rating agencies to give
the highest ratings to companies not perceived to
be adequately reserved.
. Reluctance of actuaries and auditors to give
clean opinions to companies with questionable A&E
reserves.
4. GAIG ULTIMATE LOSS ESTIMATES
----------------------------
m. A.M. Best & Co. published a study in March 1994 which
provides ultimate loss estimates for the P&C industry
which range from $30 billion to $50 billion for asbestos
and $60 billion to $608 billion for environmental. The
expected value of ultimate losses by A.M. Best & Co. for
A&E are $40 billion and $255 billion, respectively. These
values are on an undiscounted basis.
The wide range of estimates developed in the A.M. Best &
Co. study highlights the large uncertainty in these values.
n. If GAIG were to share in the ultimate insurance industry
liability in proportion to their market share, GAIG's
ultimate losses would be in the range of $1.4 to 10.5
billion or $4.7 billion on an expected value basis (1.6% x
$295 billion). There are factors that might lead us to
believe that GAIG's ultimate losses could be materially
different than that indicated by mechanically applying a
premium market share to an A.M. Best & Co. estimate of
ultimate losses. First, the ultimate losses projected by
A.M. Best & Co. are highly uncertain. In addition, GAIG's
share of these
- 9 -
<PAGE> 12
ultimate losses may be different than that indicated by
their premium market share because of the factors
discussed below. Finally, GAIG's definition of A&E claims
is broader than the definition used in the A.M. Best & Co.
study.
o. Factors Indicating Lower than Market Share Costs
. The business written by GAC&S is mainstream
business with little exposure to Fortune 500
Companies who are generally believed to be the
source of a large portion of the insurance
industry exposure to environmental liability
claims.
This observation regarding the number of Fortune
500 Company exposures of GAC&S is based on both
their statements to us and the absence of a
significant number of A&E claims from Fortune 500
companies in the claim lists they provided to us.
We have not audited the decade long history of
insureds necessary to further confirm that
observation.
. The payments for GAC&S are 0.9% of the industry
total payments in the 1990-1994 time period.
This is considerably below the market share of
1.6% for GAIG, a substantial portion of which is
represented by GAC&S.
. The net to gross ratio for paid (or to be paid)
settlements for environmental claims to date for
Stonewall approximate 25%.
- 10 -
<PAGE> 13
Stonewall's net to gross premiums for 1981-1988
approximate 60%. This would indicate that
Stonewall may be ceding a larger percentage of
gross losses than indicated by its ceded
premiums.
p. Factors Indicating Higher than Market Share Costs
. Constellation Re reinsured a number of insurance
companies with significant general liability
market share and appears to have reported claims
from many of the major potentially responsible
parties (PRPs) and asbestos defendants.
. Constellation Re appears to have provided
reinsurance with relatively low attachment
points. This will increase the likelihood that
they will make payments on those claims.
. Stonewall Insurance Company also has some
exposure to Fortune 500 companies.
5. GAIG ENVIRONMENTAL CLAIM REVIEW
-------------------------------
M&R claim management consultants visited with the managers of the A&E claim
units for GAC&S, Stonewall, Constellation Re, GA Re, AESLIC and Transport to
review the case reserving practices of the units and to provide second opinions
on case reserves for a random sample of A&E claims. Their major findings are
discussed below:
- 11 -
<PAGE> 14
a. The reserving practices of GAIG's environmental claim units (ECUs) are not
in accordance with generally observed sound industry practice. There is
not one centralized unit to handle all environmental claims with
consistency, instead there are six different units within GAIG to handle
the claims. We believe that for GAIG, two ECUs, one to handle business
written on a direct basis and the other to handle business reinsured by
GAIG, would be appropriate to ensure state of the art knowledge on coverage
issues and recent settlements and consistency in the handling of claims.
b. The Great American Commercial division and Stonewall do not establish case
reserves for allocated loss adjustment expense (ALAE) and Declaratory
Judgment Action (DJA) expenses. DJA loss reserves are established on a
case basis.
c. In general, Stonewall does not appear to establish case reserves for
pollution claims. Stonewall is reluctant to record reserves as case
estimates for fear that the reserve information will be obtained by
plaintiffs during litigation and be used against the insurer as an
admission of coverage, bad faith, claim handling and the like. Instead,
they review these cases on a claim by claim basis and carry a bulk reserve
for these exposures.
d. The case reserves for the various GAIG companies on an aggregate basis are
generally less than the M&R estimates for the claims M&R reviewed, with the
exception of Stonewall. This implies that there will be adverse
development in GAIG's financial statements, not only associated with newly
reported claims, but also associated with reported claims. M&R estimates
as compared to the case
- 12 -
<PAGE> 15
reserves held by GAIG on the claims reviewed by M&R claim consultants are
as shown below:
COMPARATIVE GROSS CASE LOSS RESERVE ESTIMATES
ALL DOLLAR AMOUNTS IN 000'S
<TABLE>
<CAPTION>
DIFFERENCE
DIVIDED BY
NUMBER OF COMPANY (COMPANY
FILES FILE M&R FILE
NAME OF DIVISION REVIEWED ESTIMATE ESTIMATE DIFFERENCE ESTIMATE)
---------------- -------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Great American Commercial 13 727 782 <55> <8>%
AESLIC/Transport 13 330 5,704 <5,374> <1,628>%
Great American Re 34 540 929 <389> <72>
Constellation Re 21 53 316 <263> <496>%
Great American Specialty 11 255 308 <52> <21>%
Stonewall 4* 4,200 2,650 1,550 37 %
-- ----- ------ ----- -----
TOTAL 96 6,105 10,689 4,584 75 %
<FN>
* Does not include 90 files not case reserved by Stonewall, but reviewed by M&R.
</TABLE>
Excluding one case where the M&R estimated case reserve was $5 million versus
$5 for the company, the company estimate would be $6.1 million compared to M&R
estimate of $5.7 million.
For Stonewall we reviewed an additional 90 claims for which the company does
not establish dedicated case reserves. On these 90 files, M&R estimate was
$14.8 million compared to the company's gross exposure estimate of $39.6
million. This result is consistent with Stonewall's contention that the gross
exposure estimates are higher than what they would put up as a case reserve.
- 13 -
<PAGE> 16
STONEWALL
ALL DOLLAR AMOUNTS IN $000'S
<TABLE>
<CAPTION>
NUMBER OF COMPANY DIFFERENCE
DIVIDED BY
COMPANY
FILES EXPOSURE M&R CASE EXPOSURE
TYPE REVIEWED ESTIMATE ESTIMATE DIFFERENCE ESTIMATE
- ----------------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Asbestos/Products 30 18,516 8,306 10,210 55%
Pollution 60 21,037 6,500 14,537 69%
-- ------ ------ ------ --
TOTAL 90 39,553 14,806 24,747 63%
</TABLE>
Our observations are based on an extremely small sample of claims. A more
extensive claim review could yield different findings.
B. ANALYSIS OF INDIVIDUAL BUSINESS UNITS
-------------------------------------
This section addresses our analysis of individual business units and our
quantitative and qualitative conclusions. GAC&S is the only business for which
we calculated reserves based on industry reserve levels due to the amount of
historical information available for our analysis. For the other business
units detailed historical information was lacking.
1. GREAT AMERICAN COMMERCIAL AND SPECIALTY DIVISIONS
-------------------------------------------------
It appears that GAC&S wrote mainstream business and do not have material
exposure to Fortune 500 corporations. This observation is based on
conversations with the company and a review of the claims submitted thus far.
- 14 -
<PAGE> 17
The different benchmarks considered by M&R in developing the reserve indication
include the following:
a. An estimate of the ultimate losses for reported claims
plus the ultimate losses associated with 5 years worth of
new claim reportings. (Report Year Method)
b. Reserves that approximate 7 years worth of "loss + ALAE +
DJA" payments. ("reserve to payment ratio" Method)
In the Report Year Method, two separate components of reserve are estimated:
development on reported claims and "pure" IBNR for a selected number of report
years.
The development on reported claims is estimated by configuring incurred claim
amounts by year of report. Each report year thus refers to a fixed group of
claims. Successive evaluations produce a triangle of cumulative claims data.
The ultimate claim amount for each report year is estimated by analyzing the
development patterns in the triangle, using traditional actuarial methods.
The "pure" IBNR is calculated as five report years worth of losses.
The results of these two methods are summarized in Exhibit 1, Sheet 1. We use
the results of the two methods to select a reserve level of $145 million for
year end 1994.
- 15 -
<PAGE> 18
2. STONEWALL
---------
Stonewall went into runoff in 1991 and has some exposure to Fortune 500
companies.
The net case and IBNR indemnity reserves for A&E at September 30, 1994 for
Stonewall are $10.4 million and $38.6 million, respectively, totaling $49.0
million. In addition, Stonewall carried an ALAE reserve of $13.0 million,
producing a total A&E reserve of $62.0 million as of September 30, 1994.
Stonewall does not establish case reserves for most pollution claims and some
asbestos claims, citing fear of discovery. This is common industry practice.
They have, however, established a process to identify and assess their exposure
to A&E claims that are not case reserved. The process is based on an exposure
analysis on a claim by claim basis. Stonewall views these exposure estimates
as being largely worst case estimates, and they indicated to us that they have
typically settled pollution claims at a fraction of the gross exposure
estimates. Asbestos claims, on the other hand, are more likely to settle at or
near the exposure estimate in the view of Stonewall.
Stonewall estimates their net indemnity exposure on non-case-reserved claims to
be $25.2 million -- $16.5 for pollution and $8.7 for asbestos. When added to
case reserves on known claims, this provision for indemnity totals $35.6
million, $13.4 million less than the carried total (case and IBNR) indemnity
reserve of $49.0 million. This difference can be viewed as a provision for
adverse development on case reserved and non-case-reserved claims and "pure"
IBNR claims, i.e. additional unreported defendants or claims. This level of
reserve adequacy is superior to that found throughout the industry.
- 16 -
<PAGE> 19
With respect to ALAE, carried reserves represent 6 to 9 years of payments at
approximate current payment levels.
Stonewall's net total loss and ALAE reserves represent a "reserve to payment
ratio" of 20.7, which is substantially higher than projected industry "reserve
to payment ratio" at year-end 1994.
3. CONSTELLATION REINSURANCE
-------------------------
Constellation Reinsurance assumed business from insurance companies who are
known to have large exposures to environmental liabilities. Constellation was
active in the 1954-1977 time period which is considered a high risk period in
terms of exposure to A&E hazards. Constellation also wrote at relatively low
attachment points.
The evaluation of reserve levels based on industry reserve levels is
complicated for this company because of the lack of historical data.
Constellation was sold on October 1, 1977 with a reserve guarantee. The
attachment point for the reserve guarantee was pierced in 1984 and Great
American made payments in 1984 and 1985 of approximately $8.5 million. GAIG
cannot separate these payments between A&E and non-A&E categories, although
management believes that only a small percentage (less than 2%) of these
payments is related to A&E. Constellation went into liquidation in 1987 and as
a result of this there was a halt in payments.
Payments resumed in 1993 and approximately $10.4 million in payments were made
on A&E claims in 1993 and 1994 on excess of loss treaties. On pro rata
treaties, management believes that approximately $3.2 million in payments were
made on
- 17 -
<PAGE> 20
environmental claims. (The pro rata payments were judgmentally apportioned
between non-A&E and A&E categories by GAIG as they do not have access to
detailed claim records from their cedants.) GAIG believes that the amounts
paid in 1993 and 1994 should be spread over a five year period due to a halt in
payments in 1987. This results in an estimate of historical annual payments of
$2.7 million (($10.4M + $3.2M) divided by 5).
The carried reserves of Constellation for A&E at November 15, 1994 approximate
$21.8 million. Constellation is carrying the reserves reported to them by
their cedants without posting any additional case reserves based on their own
evaluation of the exposures.
The lack of historical data, prior to when the attachment point was pierced,
and Constellation's exposure to large commercial writers make the process of
estimating a reserve based on industry reserve levels subject to even greater
uncertainty.
While Constellation's "reserve to payment ratio" based on carried reserves of
$21.8 million and expected annual payments of $2.7 million is 8 which compares
reasonably to the industry standard, the potential appears to exist for
considerable future adverse development beyond the carried case reserves of
$21.8 million.
This finding is based on our review of asbestos claims from a selected group of
cedants that represented approximately 308 claims out of a total of 809 claims.
A large portion of these 308 claims represents insureds who will likely exhaust
all available policy limits. We posted the aggregate indemnity limit for which
Constellation would be responsible and compared it to their incurred loss
amount to date. The details of the aggregate limits were provided by GAIG
management.
- 18 -
<PAGE> 21
This comparison showed that the total limits to which Constellation is exposed
on these 308 claims is $17.9 million compared to the incurred loss amount at
November 15, 1994 of $8.1 million, or a difference of $9.8 million.
Constellation would be responsible for amounts in excess of $9.8 million to the
extent that it is required to make ALAE payments in addition to limits. (GAIG
management has informed us that on the majority of claims ALAE is included
within limits.) Some companies have taken the position of reserving at maximum
limits (plus a provision for ALAE) for some of the insureds who are represented
in these 308 claims.
4. TRANSPORT
---------
Transport business generating A&E exposures is currently in runoff. The A&E
exposure in Transport is due to policies written during the mid- 1970's through
1985. Most of Transport policies are high layer excess policies with
attachment points ranging from $0.5 million to $300 million. For most policies
the attachment points range from $25 million to $50 million. Limits offered to
insureds on reported claims range from $1 million to $10 million with most
policies providing $5 million to $10 million in limits. In addition to the
indemnity limit, Transport will be responsible for ALAE costs. Transport had a
net retention of $50,000 up to 1983 which increased to $100,000 in 1984.
At November 10, 1994 there were 83 open claims with case loss and ALAE reserves
of $6.3 million for environmental, and 13 open claims with reserves of $0.04
million for asbestos. Transport's net annual payments approximated $0.3 to
$0.4 million per year in the last three years.
- 19 -
<PAGE> 22
For pollution, Transport's involvement in very high layers seems to provide a
reasonable degree of protection on most of the reported claims involving the
significantly exposed insureds. In addition, most of the business was written
during the time period which had a sudden and accidental pollution exclusion.
For asbestos, Transport's low net retention combined with just 13 claims being
open provides some indication that reserve increases in the future will remain
at manageable levels.
Our claim consultants have noted that Transport is significantly under-reserved
on one particular matter. M&R claim consultants conclude that $5 million of
gross reserves are indicated for these exposures versus a carried reserve of
$5.
Transport's indicated "reserve to payment ratio" based on carried reserves at
October 31, 1994 of $6.34 million is 15.9 which is above industry standards.
5. GREAT AMERICAN REINSURANCE
--------------------------
Great American Reinsurance (GA Re) has responsibility for an assumed book of
treaty business written during the time period 1979-84. GA Re typically
participated in 1-5% of a layer with their participation maximum normally less
than $50,000. The retention was higher on several treaties with Integrity
Insurance Company which involved participation maximums in the $100,000 to
$300,000 range. GA Re's low net retention in combination with the fact it was
involved for only five years seem to provide some degree of protection. On the
other hand, we have not reviewed a complete list of GA Re cedants, and there
may be cedants with significant A&E exposures.
- 20 -
<PAGE> 23
There are 51 open environmental claims for a total reserve of $8.2 million at
October 31, 1994. A review of these open claims showed that in the majority of
cases, the carried reserve plus paid losses to date equals GA Re's limit. GA
Re may be responsible for ALAE in excess of limits on contracts where such
protection was provided. GA Re has booked little in the way of ALAE reserves,
perhaps because most of their cedants have not reported these reserves to them.
It is GA Re's practice to book reserves as reported by their cedants.
There are 1,400 precautionary notices which are not summarized by GA Re. All
these notices are in paper files and have not been sorted or summarized by GA
Re. We do not know the extent of A&E notices and the cedants and insureds
involved. This introduces an unusual degree of uncertainty in our analysis and
is a serious gap in the data available to us.
GA Re annual payments have approximated $0.3 to $0.4 million per year during
the last three years. The "reserve to payment ratio" for GA Re indicated by
the $8.2 million in reserves at October 31, 1994 and approximate annual
payments of $0.4 million is 20.5 which is considerably in excess of industry
reserve levels.
6. MID-CONTINENT
-------------
We were told by management that Mid-Continent's A&E claims are handled in the
normal course of business by claim adjusters who handle non-A&E claims. The
case reserves at September 30, 1994 equal $0.3 million and we were informed by
management that the A&E exposure is minimal.
- 21 -
<PAGE> 24
Our individual company A&E review did not include Mid-Continent.
7. AESLIC
------
At November 15, 1994, there is an outstanding loss and ALAE reserve of $1.76
million on 99 claims. AESLIC mostly wrote low level excess policies over self
insured retentions. The annual payments for AESLIC approximated $0.5 million
per management.
Up until 1984, AESLIC retained $72,000 of the first $1 million. The amount in
excess of $1 million was 100% ceded to General Re.
The "reserve to payment ratio" indicated by reserves of $1.76 million and
annual payments of $0.5 million is 3.5 which is well below industry reserve
levels.
8. AGRICULTURAL E&S COMPANY
------------------------
We are told that there are approximately 40 claims pending, mostly on high
excess layers. These claims are handled within the Agricultural E&S Company
along with other non-environmental claims. The company estimated annual
payments of $0.5 million for this company.
Our individual company A&E review did not include Agricultural E&S Company.
- 22 -
<PAGE> 25
III. ADDITIONAL STEPS THAT COULD BE TAKEN TO EVALUATE A&E EXPOSURES
--------------------------------------------------------------
The following steps could be taken to provide additional management information
about A&E exposures. However, none of these methods will provide a point
estimate of GAIG's ultimate losses which could be considered reasonably
certain.
1. A more extensive claim review by our claim consultants to include a broader
sample of claims.
2. A detailed actuarial claim by claim review of a large proportion of the
claim files using alternate data sources such as the EPA and publicly
available information on asbestos defendants.
For pollution, a detailed review of a large proportion of the claim files
would involve checking the policyholders against a data base of PRPs on the
EPA Superfund and non-Superfund sites, using an actuarial model to develop
estimates of costs by site and policyholder, and evaluating the amount and
probability of insurance coverage by GAIG (often spread over a series of
policies, some of which may exclude coverage of pollution). Extrapolation
would then be used to reflect the claim files not included in the sample,
and IBNR estimates would be projected. The advantage of this approach is
that it would result in direct estimates by M&R of the ultimate costs. The
disadvantage is that such models produce very wide ranges of estimates.
There is no indication that any one number in the range is a better
estimate than the low end of the range.
- 23 -
<PAGE> 26
For asbestos, a detailed review of a large proportion of the claim files
would involve evaluating GAIG's share of losses based on policy limits and
attachment points applied to the manufacturer's total gross losses prior to
the application of insurance policy limits and coverages.
IV. LIMITATIONS
-----------
Our analysis addresses GAIG's A&E liabilities in the context of what may emerge
in the next five to ten years. Our analysis assumes that the insurance
industry will continue to fund A&E liabilities on a pay as you go basis where
year-end reserves would support approximately seven years worth of payments.
We have not attempted to project ultimate A&E losses, except to provide some
guidance on the possible magnitude of the ultimate losses.
We assumed that the "reserve to payment ratio" projected by A.M. Best & Co. for
the industry for environmental liabilities is appropriate for all exposures
which GAIG classifies as environmental (DES, breast implants, Agent Orange,
Silica, repetitive stress on keyboards and other latent injuries).
There is always uncertainty surrounding estimates of property & casualty
insurance company reserves. Reserve estimates for A&E exposures are subject to
an unusual degree of uncertainty. This uncertainty stems from several factors
including lack of historical data, inapplicability of standard actuarial
projection techniques, and uncertainty with regard to claim costs, coverage
interpretation and the judicial, statutory and regulatory provisions under
which the claims may be ultimately resolved.
- 24 -
<PAGE> 27
In performing this analysis, we relied on the data and other information
provided to us by GAIG. We also relied on data from certain external sources
such as the A.M. Best & Co. study and SEC filings, among other sources. We did
not audit, verify or review this data for reasonableness or consistency. Such
a review is beyond the scope of our assignment. If the underlying data or
information is inaccurate or incomplete, the results of our analysis may
likewise be inaccurate or incomplete.
It is impossible to predict how the courts will interpret coverage issues which
will have a material impact on the magnitude of A&E liabilities. A recent
court decision provided virtually unlimited coverage to Fibreboard on policies
issued by Chubb and CNA in the late 1950's. In a settlement offer, Chubb and
CNA agreed to set aside $3 billion to reimburse pending and future asbestos
personal injury claimants on only two policies. This emphasizes some of the
flaws in the market share approach where premium is not necessarily a predictor
of ultimate losses. This also shows the uncertainty that surrounds the
estimation process where court decisions can cause wide swings in losses.
The "reserve to payment ratio" test, which is one measure used to evaluate GAIG
reserves relative to industry reserves, has the following limitations:
1. If a company is aggressively pursuing settlements and
making higher than average payments, the "reserve to
payment ratio" may be low. However, this does not
necessarily represent a weak reserve position for the
company. On the other hand, if a company is making lower
than average payments, the "reserve to payment ratio" may
be high. However, this does not necessarily represent a
strong reserve position for the company.
- 25 -
<PAGE> 28
2. For reinsurers, a "reserve to payment ratio" larger than
the industry average may be appropriate, given the payment
lag associated with claim settlements that exists between
direct writers and reinsurers. Also, reinsurers may be at
a higher risk on A&E liabilities because of larger policy
limits and smaller premiums that are associated with
non-proportional reinsurance treaties.
There are certain business segments in runoff for which historical data is
limited, specifically Constellation Reinsurance, GA Re and Transport.
The M&R indicated reserves are net of ceded reinsurance and assume that all
reinsurance cessions as evaluated by GAIG are valid and collectible. The
reserve estimate does not consider any contingent liabilities that could arise
if the reinsurers do not meet their obligations to GAIG.
None of the procedures described in this report should be considered as "the
method" to analyze A&E reserves. The methods of estimation are still evolving
and the actual amount of reserves held by a company are often a function of an
analysis of the company's own exposures, together with current facts and
financial reporting principles.
This report is intended for the exclusive use of the Special Committee of the
Board of Directors of American Premier Underwriters, Inc. and their advisors.
No other distribution, in whole or in part, is authorized without the prior
written consent of M&R. M&R is available to answer any questions pertaining to
this report.
- 26 -
<PAGE> 29
Exhibit A
Sheet 1
GAIG MARKET SHARE ESTIMATE
Our selection of a market share of 1.6% for GAIG is based on the following
indications:
(1) An S&P study on environmental liabilities shows that the market share for
GAIG for the time period 1948-85 for "other liability" line of business is
approximately equal to 1.6%. S&P states that the market shares for
individual companies were computed using the individual company premiums
net of reinsurance related to total premium income of U.S. insurers
(including foreign business of U.S. insurers).
(2) M&R analysis of "other liability" and "commercial multi peril" (CMP)
premiums for the time period 1975-85 using net premiums for GAIG and net
premiums for the insurance industry is 1.6%.
(3) M&R analysis of "other liability" and CMP premiums for the time period
1975-85 using direct premiums for GAIG and direct premiums for the
insurance industry is 1.7%.
For items (2) and (3) see Exhibit A Sheet 3.
In our analysis we apply the selected market share to industry net reserves and
net ultimate losses as projected by A.M. Best & Co. for Asbestos and
Environmental (A&E) exposures.
<PAGE> 30
Exhibit A
Sheet 2
We have selected "other liability" and CMP lines of business because we believe
that those lines are vulnerable to A&E liabilities. However it is important to
note that the market share calculated for GAIG was intended to provide a very
rough idea of what GAIG's share could be and was not intended to be a precise
number. The market share calculation has limitations, including the following:
(1) The "other liability" premiums include GAIG and industry participation in
lines such as professional and directors and officers liability which are
not subject to A&E claims. Likewise, the CMP line of business includes
property premiums which may be less exposed to A&E claims than liability
premiums.
(2) The type of insured the company wrote, the limits provided, the contract
terms offered and the years in which the company was active may all serve
to increase or decrease the market share of a particular company.
<PAGE> 31
<TABLE>
Exhibit A
Sheet 3
GREAT AMERICAN INSURANCE GROUP
Market Share Calculation
Written Premiums in $000's
<CAPTION>
G A I Consolidated
----------------------------------------------------------
C M P Other Liability Total
---------------- ---------------- ----------------
Year Direct Net Direct Net Direct Net
---- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1975 63,776 60,337 75,050 54,548 138,826 114,886
1976 73,848 68,009 108,350 68,461 182,199 136,471
1977 80,749 67,691 101,957 86,004 182,706 153,695
1978 90,757 71,808 125,407 102,803 216,164 174,611
1979 112,829 95,695 123,861 97,254 236,689 192,949
1980 123,767 106,350 117,196 90,563 240,963 196,913
1981 139,890 123,019 104,362 75,791 244,252 198,810
1982 142,971 123,784 87,371 62,169 230,342 185,953
1983 126,120 149,003 85,566 52,872 211,686 201,875
1984 135,388 238,485 117,008 68,153 252,396 306,638
1985 205,081 195,197 368,276 197,999 573,357 393,195
1986 234,328 218,691 614,247 410,552 848,575 629,243
1987 241,130 228,353 473,561 325,191 714,691 553,544
1988 226,451 217,680 338,334 232,296 564,785 449,976
1989 219,895 207,553 276,757 178,987 496,653 386,540
1990 239,331 229,818 297,106 230,740 536,438 460,559
---- ------- ------- ------- ------- ------- -------
Total (1975-1990) 2,456,312 2,401,474 3,414,410 2,334,384 5,870,722 4,735,858
Total (1975-1985) 1,295,176 1,299,379 1,414,404 956,617 2,709,580 2,255,996
</TABLE>
<TABLE>
<CAPTION>
Industry
-----------------------------------------------------------------------
CMP Other Liab. Total Net / Net Direct / Direct
--------------------- ------------------ ------------------ ------------------- -------------------
Other Other
Direct Net Direct Net Direct Net CMP Liab. Total CMP Liab. Total
------ --- ------ --- ------ --- --- ----- ----- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3,342,942 3,176,373 3,247,016 3,085,226 6,589,958 6,261,599 1.9% 1.8% 1.8% 1.9% 2.3% 2.1%
4,264,261 4,051,785 4,474,237 4,251,298 8,738,498 8,303,083 1.7% 1.6% 1.6% 1.7% 2.4% 2.1%
5,231,162 4,970,508 6,151,592 5,845,075 11,382,754 10,815,583 1.4% 1.5% 1.4% 1.5% 1.7% 1.6%
6,135,510 5,829,795 6,830,404 6,490,064 12,965,914 12,319,859 1.2% 1.6% 1.4% 1.5% 1.8% 1.7%
7,016,431 6,666,822 6,959,233 6,612,474 13,975,664 13,279,296 1.4% 1.5% 1.5% 1.6% 1.8% 1.7%
7,246,218 6,885,159 6,751,065 6,414,678 13,997,282 13,299,837 1.5% 1.4% 1.5% 1.7% 1.7% 1.7%
7,230,241 6,869,978 6,363,360 6,046,292 13,593,601 12,916,270 1.8% 1.3% 1.5% 1.9% 1.6% 1.8%
7,376,958 7,009,385 5,965,714 5,668,459 13,342,672 12,677,844 1.8% 1.1% 1.5% 1.9% 1.5% 1.7%
7,675,151 7,292,720 5,977,118 5,679,295 13,652,269 12,972,015 2.0% 0.9% 1.6% 1.6% 1.4% 1.6%
9,622,035 8,310,482 9,063,720 6,571,979 18,685,755 14,882,461 2.9% 1.0% 2.1% 1.4% 1.3% 1.4%
14,141,867 12,096,578 16,048,871 11,560,494 30,190,738 23,657,072 1.6% 1.7% 1.7% 1.5% 2.3% 1.9%
18,483,557 16,241,724 24,836,356 19,425,924 43,319,913 35,667,648 1.3% 2.1% 1.8% 1.3% 2.5% 2.0%
19,215,384 17,260,409 25,654,534 20,866,938 44,869,918 38,127,347 1.3% 1.6% 1.5% 1.3% 1.8% 1.6%
19,372,939 17,655,562 23,875,586 19,081,618 43,248,525 36,737,180 1.2% 1.2% 1.2% 1.2% 1.4% 1.3%
19,127,068 17,486,236 23,233,099 18,485,946 42,360,167 35,972,182 1.2% 1.0% 1.1% 1.1% 1.2% 1.2%
19,379,817 17,728,455 23,300,114 18,128,487 42,679,931 35,856,942 1.3% 1.3% 1.3% 1.2% 1.3% 1.3%
---------- ---------- ---------- ---------- ---------- ---------- ---- ---- ---- ---- ---- ----
174,861,541 159,531,971 198,732,017 164,214,247 373,593,559 323,746,218 1.5% 1.4% 1.5% 1.4% 1.7% 1.6%
79,282,776 73,159,585 77,832,328 68,225,334 157,115,105 141,384,919 1.8% 1.4% 1.6% 1.6% 1.8% 1.7%
Selected = 1.6%
-----
<FN>
Source of Industry Premiums: A.M. Best Aggregates and Averages.
</TABLE>
<PAGE> 32
Exhibit 1
Sheet 1
GREAT AMERICAN COMMERCIAL AND SPECIALTY DIVISIONS
Asbestos and Environmental Claims
Net of Reinsurance
(amount in $ millions)
- -----------------------------------------------------------------------------
(1) Method 1: Reserve @ 9/30/94 Based on 7 Times Annual Payments 140
(7 x 20,000) (a)
(2) Method 2: Reserve @ 9/30/94 Based on Report Year Analysis (b) 147
(3) Selected Reserve 145
- ---------------------------------
(a) See Exhibit 1, Sheet 2.
(b) See Exhibit 1, Sheet 3.
<PAGE> 33
<TABLE>
Exhibit 1
Sheet 2
GREAT AMERICAN COMMERCIAL AND SPECIALTY DIVISIONS
A & E Claims
Net of Reinsurance
(amounts in $000's)
<CAPTION>
Fiscal Year Paid
----------------------------------------------
Fiscal Year Loss +
Ending 9/30 Loss ALAE+DJA ALAE+DJA
----------- -------------- ------------ -------------
<S> <C> <C> <C>
1985 0 0 0
1986 447 671 1,118
1987 85 2,133 2,218
1988 972 2,356 3,328
1989 2,838 4,418 7,256
1990 3,989 5,539 9,528
1991 1,666 8,360 10,026
1992 8,778 10,112 18,890
1993 14,957 10,527 25,484
1994 7,397 9,059 16,456
Total Paid @ 9/30/94 41,127 53,175 94,302
Average Yearly Payments
Last 3 Years 10,377 9,899 20,276
Last 5 Years 7,357 8,719 16,077
Selected 10,000 10,000 20,000
</TABLE>
<PAGE> 34
<TABLE>
Exhibit 1
Sheet 3
GREAT AMERICAN COMMERCIAL AND SPECIALTY DIVISIONS
A & E Claims (Pollution, Asbestos and Other Latent Injuries)
Total All Lines
Net of Reinsurance
(amounts in $000's)
<S> <C>
(1) Selected Indemnity Estimate for Reported Losses (a) 84,270
(2) Provision for 5 Years Future Reported Indemnity Losses 50,000
(5 x 10,000) (b)
(3) Selected Estimate for Reported Losses Plus 5 Years of Future Reportings 134,270
= (1) + (2)
(4) Selected ALAE+DJA to Indemnity Ratio 80.0%
(5) Selected Estimate for Reported ALAE+DJA Plus 5 Years of Future Reportings 107,416
= (3) x (4)
(6) Total Ultimate Reported Losses & ALAE+DJA Plus 5 Years of Future Reportings 241,686
= (5) + (6)
(7) Paid Losses & ALAE+DJA @ 9/30/94 (c) 94,302
(8) Total Reserve @ 9/30/94 for Indemnity Losses & ALAE+DJA 147,384
= (6) - (7)
<FN>
(a) See Exhibit 1, Sheet 4.
(b) See Exhibit 1, Sheet 4.
(c) See Exhibit 1, Sheet 2.
</TABLE>
<PAGE> 35
<TABLE>
Exhibit 1
Sheet 4
GREAT AMERICAN COMMERCIAL AND SPECIALTY DIVISIONS
A & E Claims
Net of Reinsurance
(amounts in $000's)
<CAPTION>
Incurred Loss Estimate
Report Losses Development Ultimate
Year @ 9/30/94 Factor (a) Reported
---- --------- ------------ ----------
<S> <C> <C> <C>
1980 35 1.00 35
1981 785 1.00 785
1982 27 1.00 27
1983 1,562 1.00 1,562
1984 4,806 1.00 4,806
1985 5,658 1.00 5,658
1986 4,009 1.02 4,089
1987 1,752 1.07 1,876
1988 10,025 1.12 11,274
1989 3,673 1.18 4,337
1990 7,639 1.24 9,471
1991 10,121 1.33 13,426
1992 4,065 1.46 5,932
1993 8,052 1.75 14,099
1994 2,460 2.80 6,893
Total 64,667 84,270
Average
Last 3 Years 8,975
Last 5 Years 9,964
Selected 10,000
------
<FN>
(a) See Exhibit 1, Sheet 5.
</TABLE>
<PAGE> 36
<TABLE>
Exhibit 1
Sheet 5
GREAT AMERICAN COMMERCIAL AND SPECIALTY DIVISIONS
A & E Claims (Pollution, Asbestos and Other Latent Injuries)
Total All Lines
Net of Reinsurance
Incurred Losses
(amounts in $000's)
<CAPTION>
Report
Year 9 21 33 45 57 69 81 93 105 117 129 141 153 165 177
---- -- ---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1980 0 35 35 35 35 35 35 35 35 35
1981 0 1 770 1,055 1,055 808 808 808 785 785
1982 0 65 65 30 27 27 27 27 27 27
1983 0 806 1,255 2,417 1,637 1,834 2,008 2,079 1,512 1,562
1984 75 1,817 2,188 3,592 4,225 4,349 4,376 4,485 4,727 4,806
1985 0 2,305 3,361 4,650 4,282 4,844 4,617 5,110 5,726 5,658
1986 633 1,698 2,377 2,475 3,569 3,548 4,301 3,879 4,009
1987 361 849 1,018 928 1,130 982 1,581 1,752
1988 3,129 5,438 5,537 6,308 9,181 10,260 10,025
1989 1,494 3,777 3,962 3,937 3,685 3,673
1990 1,994 4,558 5,124 7,590 7,639
1991 9,194 11,081 10,352 10,121
1992 2,009 4,412 4,065
1993 5,340 8,052
1994 2,460
Report
Year 21:9 33:21 45:33 57:45 69:57 81:69 93:81 105:93 117:105 129:117 141:129 153:141 165:153 177:165 Ult:177
---- ---- ----- ----- ----- ----- ----- ----- ------ ------- ------- ------- ------- ------- ------- -------
1980 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
1981 770.00 1.37 1.00 0.77 1.00 1.00 0.97 1.00
1982 1.00 0.47 0.90 1.00 1.00 1.00 1.00 1.00
1983 1.56 1.93 0.68 1.12 1.09 1.04 0.73 1.03
1984 24.23 1.20 1.64 1.18 1.03 1.01 1.02 1.05 1.02
1985 1.46 1.38 0.92 1.13 0.95 1.11 1.12 0.99
1986 2.68 1.40 1.04 1.44 0.99 1.21 0.90 1.03
1987 2.35 1.20 0.91 1.22 0.87 1.61 1.11
1988 1.74 1.02 1.14 1.46 1.12 0.98
1989 2.53 1.05 0.99 0.94 1.00
1990 2.29 1.12 1.48 1.01
1991 1.21 0.93 0.98
1992 2.20 0.92
1993 1.51
1994
Arithmetic Average
All 2.06 3.70 1.14 1.27 1.15 97.12 1.06 1.04 0.97 0.95 1.01 0.99 1.00 1.00
Last 3 1.64 0.99 1.15 1.13 0.99 1.27 1.04 1.06 1.03 0.91 1.01 0.99 1.00 1.00
Last 5 1.94 1.01 1.10 1.21 1.02 1.16 1.05 1.05 0.97 0.95 1.01 0.99 1.00 1.00
Weighted Average
All 1.75 1.10 1.16 1.19 1.12 1.04 1.04 1.06 1.00 0.94 1.02 0.97 1.00 1.00
Last 3 1.42 0.97 1.11 1.15 1.07 1.08 1.02 1.06 1.02 0.93 1.02 0.97 1.00 1.00
Last 5 1.59 0.99 1.11 1.19 1.07 1.04 1.03 1.07 1.00 0.94 1.02 0.97 1.00 1.00
Selected 1.60 1.20 1.10 1.07 1.05 1.05 1.05 1.05 1.02 1.00 1.00 1.00 1.00 1.00 1.00
Cumulative 2.80 1.75 1.46 1.33 1.24 1.18 1.12 1.07 1.02 1.00 1.00 1.00 1.00 1.00 1.00
</TABLE>
<PAGE> 1
EXHIBIT 99.4
ACTUARIAL ANALYSIS OF
GREAT AMERICAN
LIFE INSURANCE COMPANY
AS OF SEPTEMBER 30, 1994
PREPARED FOR:
Special Committee of the Board of
Directors of American Premier
Underwriters Inc.
PREPARED BY:
John P. Schreiner, F.S.A., M.A.A.A.
December 9, 1994
<PAGE> 2
[LOGO]
MILLIMAN & ROBERTSON, INC.
Actuaries and Consultants
40th Floor
55 West Monroe Street
Chicago, Illinois 60608-5011
Telephone: 312/726-0677
Fax: 312/726-5225
December 9, 1994
Mr. Alfred W. Martinelli
Chairman of the Special Committee of the Board of Directors
American Premier Underwriters, Inc.
One East Fourth Street
14th Floor
Cincinnati, Ohio 45202
Board of Directors
American Premier Underwriters, Inc.
One East Fourth Street
14th Floor
Cincinnati, Ohio 45202
Dear Mr. Martinelli and Board Members:
The attached report summarizes the results of our analyses of Great American
Life Insurance Company.
Section I outlines the scope and qualifications associated with the analysis.
Actuarial values and projected statutory profits are included in Section II.
The underlying models and assumptions are summarized in Section III. Section
IV summarizes the sensitivity tests we performed to key assumptions.
I am available to answer questions concerning the methodology and assumptions
underlying this analysis.
Sincerely,
/s/ JOHN P. SCHREINER
- -------------------------
John P. Schreiner, F.S.A.
Consulting Actuary
JPS:sm
Albany * Atlanta * Boston * Chicago * Cincinatti * Dallas * Denver * Hartford
Houston * Indianapolis * Irvine * Los Angeles * Milwaukee * Minneapolis
New York * Omaha * Philadelphia * Phoenix * Portland * St. Louis
Salt Lake City * San Diego * San Francisco * Seattle * Tokyo * Washington, D.C.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
I Introduction and Qualifications 1
II Summary of Results 7
III Summary of Models and Actuarial Assumptions 17
IV Summary of Sensitivity Testing 44
APPENDIX
- --------
A Detailed Statutory Income Statement Projections A-1
</TABLE>
<PAGE> 4
SECTION I
INTRODUCTION AND QUALIFICATIONS
SCOPE AND LIMITATIONS
Milliman & Robertson, Inc. (M&R), was retained by the Special Committee of the
Board of Directors of American Premier Underwriters, Inc. (Special Committee)
to develop actuarial values and related analysis of Great American Life
Insurance Company (GALIC) as of September 30, 1994. The terms of the
engagement are outlined in our engagement letter dated November 22, 1994.
We have prepared this analysis for the internal use of the Special Committee
and its advisors. Distribution of our report to third parties, including but
not limited to state insurance department regulators, and other regulatory
bodies is prohibited without the prior written consent of M&R. Any
distribution of this report must be in its entirety.
The report is intended to provide certain actuarial information and analysis as
of September 30, 1994. In order to fully comprehend this report, any user of
this report should be advised by an actuary with a substantial level of
expertise in areas relevant to this analysis to appreciate the significance of
the underlying assumptions and the impact of those assumptions on the
illustrated results. This report must be read in its entirety to be
understood.
We have projected future statutory profits computed according to regulatory
reporting criteria. The validity of these projections depends on how well
future experience conforms to our assumptions. Our assumptions for future
persistency, investment spread, expenses, and other actuarial factors are based
upon
- 1 -
<PAGE> 5
our evaluation of GALIC experience, our knowledge of the industry in general,
and discussions with the management of GALIC. Actual experience may be more or
less favorable than the assumptions which underlie the results provided in this
report. To the extent actual experience differs from the assumptions used in
this report, actual results will be more or less favorable than the results
shown in this report.
M&R is not expert in the area of asset valuation and we have relied upon
GALIC's investment personal for certain assumptions as to cash flows on
mortgages, real estate investments and default costs on below investment grade
bonds. Furthermore, we used market values, provided by GALIC, on certain CMOs
on which we were unable to obtain cash flows from publicly available sources.
Detailed investment assumptions are found in Section III.
RATIONALE FOR STATUTORY APPROACH
Our development of the projected amounts and actuarial values in this report
reflect statutory accounting practices. Two reasons why we believe it is
appropriate to analyze a life company using the statutory approach are:
1. Statutory accounting determines the availability of earnings for
dividends to life company shareholders.
2. Statutory surplus constitutes the funds available for investments in new
business or other ventures requiring capital.
This analysis should not be considered an analysis prepared in accordance with
GAAP.
- 2 -
<PAGE> 6
RELATIONSHIP OF ACTUARIAL VALUE TO MARKET VALUE
An actuarial value does not necessarily represent the value of a company in the
open market. Rather, it is derived from a carefully constructed projection of
future earnings and, therefore, reflects the value of a company's earnings
potential under a specific set of assumptions. Of course the value of any
business enterprise is a matter of informed judgement. Different parties will
arrive at different values depending upon their outlook and upon the
opportunities they see for the company for the future. Market valuation is
determined by the parties involved based upon the respective evaluation of all
relevant factors.
ENTITY VALUED
The entity valued in this analysis is GALIC. We have not reflected the assets
and liabilities of GALIC's immediate parent, American Annuity Group, Inc. It
should be noted that GALIC's yearend 1993 statutory financial statement list
the following affiliated company investments being carried (in whole or in
part) on GALIC's balance sheet.
<TABLE>
<CAPTION>
Statutory
Entity Carry Value
------ -----------
<S> <C>
Chatham Inn Corporation $ 1,000
Chatbar, Inc. 10,000
Chiquita Brands International, Inc. 30,734,578
GALIC Brothers, Inc. 800
-----------
$30,746,378
===========
</TABLE>
We have included the carrying value of these investments within GALIC in our
valuation.
- 3 -
<PAGE> 7
DATA RELIANCE
We have relied upon information and data supplied by or caused to be provided
by, American Premier Underwriters, Inc. The majority of data we used was
provided by GALIC. We have not audited or independently verified any of the
information furnished to us. Although we have no reason to suspect the
integrity of the underlying data, to the extent the data is materially flawed,
the results of our analysis may be materially impacted. The principle
materials relied upon include:
1. Information contained in both internal and published financial statements
prepared by the Company.
2. Inventories of deferred annuity and payout annuities inforce at September
30, 1994 including information on annuitization value, surrender value,
statutory reserve, and premium.
3. Information on policies inforce including commission rates, surrender
charges, credited interest rates, statutory reserve factors, policy
loads, bonuses and other policy information provided to us by the
Company.
4. Information and statistical data provided to us by the Company on GALIC's
historic policy persistency premium persistency, annuitization
experience, budgeted expenses and other factors.
- 4 -
<PAGE> 8
5. Data concerning statutory book value, market value, book yields, and
other information for invested assets as of September 30, 1994. In
addition, GALIC provided us with their anticipated investment strategy in
the future.
6. New business sales information along with projected budgeted expenses.
RESERVE RELIANCE
We relied upon information provided to us by GALIC as to its statutory reserve
methodology and practice. We have not audited the statutory reserves to see
whether the reserves comply with state insurance law or regulation. Finally,
we have not necessarily prepared the same analysis an Appointed Actuary of
GALIC would prepare in forming an opinion as to the appropriateness of
statutory reserves.
There continues to be regulatory activity today as to the appropriate statutory
reserve methodology for two-tiered annuities. The regulatory proposal is the
so-called Guideline GGG which has evolved over the last several years and is
expected to be enacted soon. GALIC has one major product, TSA II, which may
require additional statutory reserves under certain readings of GGG. It is
thought that the regulators may currently be working on clarifying the reading
of GGG, in a way that would be adverse to GALIC. GALIC has estimated the
additional reserve to range from $20 million - $40 million depending upon the
final outcome of GGG.
GALIC is currently investigating certain options it may have to effectively
restructure the TSA II product so that additional reserves might be avoided.
- 5 -
<PAGE> 9
We have not included the potential impact of Guideline GGG or any restructuring
of TSA II in this analysis.
- 6 -
<PAGE> 10
SECTION II
SUMMARY OF RESULTS
SUMMARY OF ACTUARIAL VALUES
Tables 1A-1C summarize the results of our analysis of the components of values
as of September 30, 1994. The items included are (1) the adjusted statutory
book value, (2) the present value of statutory profits from business inforce at
September 30, 1994, and (3) the present value of statutory profits from
business to be written after September 30, 1994.
We illustrated five, ten, and alternatively twenty years of new business values
(tables 1A, 1B, and 1C respectively). The values reflect cost of capital and
federal income taxes at a 35% tax rate, both of which are discussed later in
this section.
Table 2 provides a summary of 20 years of projected profits with interest on
surplus and AVR reflecting a capital level equal to GALIC's current capital
with a minimum capital going forward equal to 200% of NAIC Risk Based Capital
(RBC), i.e. 400% of NAIC Authorized Control Level Capital. Table 3 illustrates
available cash flows to GALIC's parent again assuming a 35% tax rate and a
statutory capital level consistent with a minimum of 200% of RBC. Table 3
reflects twenty years of new business production. The values illustrated in
Table 3, are consistent with the values in Table 1 and, reflect the present
value of twenty years dividend payments, plus the present value of surplus
remaining at the end of twenty years, plus the present value of statutory
profits remaining on business inforce at the end of twenty years.
Detailed projections of annual statutory pre-tax profits by line of business
are provided in Appendix A.
- 7 -
<PAGE> 11
TABLE 1A
GREAT AMERICAN LiFE
SUMMARY OF ACTUARIAL VALUES
AS OF SEPTEMBER 30, 1994
(in millions)
<TABLE>
<CAPTION>
Discount Rate of:
--------------------------------------------
10.0% 12.0% 14.0% 16.0%
------- ------- ------- -------
<S> <C> <C> <C> <C>
1) Adjusted Statutory Book Value (ABV) $336.8 $336.8 $336.8 $336.8
2) Business Inforce as of 9/30/94
TSA Deferred Annuities $365.1 $318.5 $280.9 $250.1
Single Premium Deferred Annuities 55.5 48.4 42.6 37.8
All Other 36.1 32.1 28.8 26.1
Current & Projected Payout Annuities 53.4 46.5 41.0 36.5
------- ------- ------- -------
Subtotal Pre-Tax Existing Business $510.1 $445.5 $393.2 $350.4
------- ------- ------- -------
IMR Runoff $28.3 $26.5 $24.9 $23.5
------- ------- ------- -------
Federal Income Taxes
Base Federal Income Taxes @ 35% ($178.5) ($155.9) ($137.6) ($122.6)
DAC Tax 0.8 0.7 0.7 0.6
Subtotal FIT ($177.7) ($155.2) ($136.9) ($122.0)
------- ------- ------- -------
EB Cost of Capital ($85.9) ($111.7) ($132.3) ($149.0)
------- ------- ------- -------
ABV plus Existing Business After-Tax Profit $611.5 $541.9 $485.7 $439.7
------- ------- ------- -------
3) Five Years New Business
TSA Deferred Annuities $78.8 $60.3 $46.5 $36.1
Bank Deferred Annuities 12.8 10.8 9.2 7.9
Single Premium Deferred Annuities 46.9 37.9 30.9 25.5
Payout Annuities 1.4 1.2 1.0 0.8
------- ------- ------- -------
Subtotal Five Years Pre-Tax New Business $139.9 $110.2 $87.6 $70.4
------- ------- ------- -------
Unallocated Expense - Five Years, Pre-Tax ($61.0) ($57.9) ($55.0) ($52.4)
------- ------- ------- -------
Federal Income Taxes
Base Federal Income Taxes @ 35% ($27.6) ($18.3) ($11.4) ($6.3)
DAC Tax (1.1) (1.2) (1.2) (1.3)
Subtotal FIT ($28.7) ($19.5) ($12.6) ($7.6)
------- ------- ------- -------
FB Cost of Capital ($41.4) ($51.1) ($57.3) ($61.0)
------- ------- ------- -------
Future Business After-Tax Profit $8.8 ($18.4) ($37.4) ($50.7)
------- ------- ------- -------
4) Total ABV, EB, Five Years of Production $620.2 $523.6 $448.4 $389.0
======= ======= ======= =======
</TABLE>
- 8 -
<PAGE> 12
TABLE 1B
GREAT AMERICAN LIFE
SUMMARY OF ACTUARIAL VALUES
As OF SEPTEMBER 30, 1994
(in millions)
<TABLE>
<CAPTION>
Discount Rate of:
------------------------------------------------------
10.0% 12.0% 14.0% 16.0%
------- ------- ------- -------
<S> <C> <C> <C> <C>
1) Adjusted Statutory Book Value (ABV) $336.8 $336.8 $336.8 $336.8
------- ------- ------- -------
2) Business Inforce as of 9/30/94
TSA Deferred Annuities $365.1 $318.5 $280.9 $250.1
Single Premium Deferred Annuities 55.5 48.4 42.6 37.8
All Other 36.1 32.1 28.8 26.1
Current & Projected Payout Annuities 53.4 46.5 41.0 36.5
------- ------- ------- -------
Subtotal Pre-Tax Existing Business $510.1 $445.5 $393.2 $350.4
------- ------- ------- -------
IMR Runoff $28.3 $26.5 $24.9 $23.5
------- ------- ------- -------
Federal Income Taxes
Base Federal Income Taxes @ 35% ($178.5) ($155.9) ($137.6) ($122.6)
DAC Tax 0.8 0.7 0.7 0.6
Subtotal FIT ($177.7) ($155.2) ($136.9) ($122.0)
EB Cost of Capital ($85.9) ($111.7) ($132.3) ($149.0)
------- ------- ------- -------
ABV plus Existing Business After-Tax Profit $611.5 $541.9 $485.7 $439.7
------- ------- ------- -------
3) Ten Years New Business
TSA Deferred Annuities $141.2 $104.0 $77.3 $58.0
Bank Deferred Annuities 24.5 19.8 16.3 13.5
Single Premium Deferred Annuities 89.8 69.5 54.6 43.3
Payout Annuities 2.5 2.0 1.6 1.4
------- ------- ------- -------
Subtotal Ten Years Pre-Tax New Business $257.9 $195.3 $149.7 $116.2
------- ------- ------- -------
Unallocated Expense - Ten Years, Pre-Tax ($102.0) ($93.6) ($86.1) ($79.6)
------- ------- ------- -------
Federal Income Taxes
Base Federal Income Taxes @ 35% ($54.6) ($35.6) ($22.3) ($12.8)
DAC Tax (2.1) (2.2) (2.2) (2.2)
Subtotal FIT ($56.7) ($37.8) ($24.5) ($15.0)
------- ------- ------- -------
FB Cost of Capital ($59.5) ($72.3) ($79.6) ($83.5)
------- ------- ------- -------
Future Business After-Tax Profit $39.7 ($8.3) ($40.5) ($61.9)
------- ------- ------- -------
4) Total ABV, EB, Ten Years of Production $651.2 $533.6 $445.2 $377.8
======= ======= ======= =======
</TABLE>
- 9 -
<PAGE> 13
TABLE 1C
GREAT AMERICAN LIFE
SUMMARY OF ACTUARIAL VALUES
AS OF SEPTEMBER 30, 1994
(in millions)
<TABLE>
<CAPTION>
Discount Rate of:
-------------------------------------------------
10.0% 12.0% 14.0% 16.0%
------- ------- ------- -------
<S> <C> <C> <C> <C>
1) Adjusted Statutory Book Value (ABV) $336.8 $336.8 $336.8 $336.8
------- ------- ------- -------
2) Business Inforce as of 9/30/94
TSA Deferred Annuities $365.1 $318.5 $280.9 $250.1
Single Premium Deferred Annuities 55.5 48.4 42.6 37.8
All Other 36.1 32.1 28.8 26.1
Current & Projected Payout Annuities 53.4 46.5 41.0 36.5
------- ------- ------- -------
Subtotal Pre-Tax Existing Business $510.1 $445.5 $393.2 $350.4
------- ------- ------- -------
IMR Runoff $28.3 $26.5 $24.9 $23.5
------- ------- ------- -------
Federal Income Taxes
Base Federal Income Taxes @ 35% ($178.5) ($155.9) ($137.6) ($122.6)
DAC Tax 0.8 0.7 0.7 0.6
Subtotal FIT ($177.7) ($155.2) ($136.9) ($122.0)
------- ------- ------- -------
EB Cost of Capital ($85.9) ($111.7) ($132.3) ($149.0)
------- ------- ------- -------
ABV plus Existing Business After-Tax Profit $611.5 $541.9 $485.7 $439.7
------- ------- ------- -------
3) Twenty Years New Business
TSA Deferred Annuities $229.9 $158.5 $111.3 $79.4
Bank Deferred Annuities 44.9 33.6 25.7 20.1
Single Premium Deferred Annuities 164.5 117.8 86.3 64.6
Payout Annuities 4.0 3.0 2.3 1.9
------- ------- ------- -------
Subtotal Twenty Years Pre-Tax New Business $443.2 $312.9 $225.7 $165.9
------- ------- ------- -------
Unallocated Expense - Twenty Years, Pre-Tax ($135.1) ($119.1) ($106.1) ($95.2)
------- ------- ------- -------
Federal Income Taxes
Base Federal Income Taxes @ 35% ($107.9) ($67.8) ($41.9) ($24.7)
DAC Tax (3.9) (3.7) (3.5) (3.2)
Subtotal FIT ($111.7) ($71.5) ($45.3) ($28.0)
------- ------- ------- -------
FB Cost of Capital ($74.8) ($90.2) ($97.9) ($100.8)
------- ------- ------- -------
Future Business After-Tax Profit $121.7 $32.1 ($23.6) ($58.0)
------- ------- ------- -------
4) Total ABV, EB, Twenty Years of Production $733.1 $574.0 $462.1 $381.6
======= ======= ======= =======
</TABLE>
- 10 -
<PAGE> 14
TABLE 2
GREAT AMERICAN LIFE
AS OF SEPTEMBER 30, 1994
(in millions)
<TABLE>
<CAPTION>
TWENTY YEARS OF FUTURE ISSUES
STATUTORY INCOME PROJECTIONS 9/94 9/95 9/96 9/97 9/98
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Existing Business
TSA Deferred Annuities $40.9 $35.8 $35.6 $40.8
Single Premium Deferred Annuities 5.5 5.0 5.6 6.1
All Other 5.2 4.6 4.7 4.6
Current & Projected Payout Annuities 5.6 5.7 5.8 5.9
-------- -------- -------- -------- --------
Total Existing Business $57.2 $51.2 $51.8 $57.4
-------- -------- -------- -------- --------
Future Business
TSA Deferred Annuities $0.2 ($2.5) ($2.7) ($2.9)
Bank Deferred Annuities (1.9) 1.3 2.4 2.7
Single Premium Deferred Annuities (1.7) (0.4) 0.9 2.4
Payout Annuities 0.0 0.1 0.1 0.1
-------- -------- -------- -------- --------
Total Future Business ($3.3) ($1.6) $0.6 $2.3
-------- -------- -------- -------- --------
Unallocated Expense (14.4) (15.6) (16.5) (17.0)
Interest on Surplus 28.0 28.1 28.2 28.4
IMR Amortization 7.4 6.7 5.8 4.9
-------- -------- -------- -------- --------
Total Statutory Pre-Tax Profit $74.8 $68.8 $69.9 $75.9
-------- -------- -------- -------- --------
Base Federal Income Taxes @ 35% (23.6) (21.7) (22.4) (24.9)
DAC Tax (0.5) (0.5) (0.5) (0.5)
-------- -------- -------- -------- --------
Total Statutory After-Tax Profit $50.7 $46.5 $47.0 $50.6
-------- -------- -------- -------- --------
Dividend Paid $50.7 $46.5 $47.0 $49.8
-------- -------- -------- -------- --------
RESERVES
Business Inforce @ 9/30/94 $4,517.2 $4,574.5 $4,580.0 $4,550.7 $4,462.1
Future Business 0.0 298.5 648.1 1,050.0 1,503.5
Existing IMR 29.9 25.0 20.4 16.3 12.8
-------- -------- -------- -------- --------
Total Reserves $4,547.1 $4,898.0 $5,248.5 $5,617.0 $5,978.4
-------- -------- -------- -------- --------
Capital & Surplus & AVR $336.8 $336.8 $336.8 $336.8 $337.5
RBC Ratio 245% 228% 217% 208% 200%
-------- -------- -------- -------- --------
</TABLE>
- 11 -
<PAGE> 15
TABLE 2
GREAT AMERICAN LIFE
AS OF SEPTEMBER 30, 1994
(in millions)
<TABLE>
<CAPTION>
TWENTY YEARS OF FUTURE ISSUES
STATUTORY INCOME PROJECTIONS 9/99 9/00 9/01 9/02 9/03 9/04
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Existing Business
TSA Deferred Annuities $44.0 $46.1 $46.0 $46.2 $47.5 $42.3
Single Premium Deferred Annuities 6.5 7.0 7.3 7.5 7.7 8.0
All Other 4.4 4.4 4.5 4.3 4.2 4.1
Current & Projected Payout Annuities 6.0 6.1 6.2 6.3 6.6 7.0
-------- -------- -------- -------- -------- --------
Total Existing Business $61.0 $63.6 $64.0 $64.3 $66.1 $61.4
-------- -------- -------- -------- -------- --------
Future Business
TSA Deferred Annuities ($2.8) ($0.8) $3.9 $9.1 $14.8 $21.0
Bank Deferred Annuities 3.0 1.8 1.3 2.3 3.2 4.1
Single Premium Deferred Annuities 4.0 5.5 7.1 8.9 11.2 13.7
Payout Annuities 0.2 0.2 0.3 0.3 0.4 0.4
-------- -------- -------- -------- -------- --------
Total Future Business $4.4 $6.8 $12.7 $20.6 $29.5 $39.2
-------- -------- -------- -------- -------- --------
Unallocated Expense (17.7) (17.7) (17.6) (17.5) (17.2) (16.9)
Interest on Surplus 28.6 30.1 31.5 33.7 35.9 38.3
IMR Amortization 4.1 3.3 2.7 2.0 1.4 0.9
-------- -------- -------- -------- -------- --------
Total Statutory Pre-Tax Profit $80.3 $86.1 $93.2 $103.1 $115.7 $122.9
-------- -------- -------- -------- -------- --------
Base Federal Income Taxes @ 35% (26.7) (29.0) (31.7) (35.4) (40.0) (42.7)
DAC Tax (0.5) (0.4) (0.4) (0.4) (0.4) (0.4)
-------- -------- -------- -------- -------- --------
Total Statutory After-Tax Profit $53.1 $56.7 $61.1 $67.3 $75.3 $79.8
-------- -------- -------- -------- -------- --------
Dividend Paid $36.4 $39.8 $36.2 $40.6 $46.9 $48.0
-------- -------- -------- -------- -------- --------
RESERVES
Business Inforce @ 9/30/94 $4,364.6 $4,235.4 $4,097.0 $3,950.7 $3,795.9 $3,658.2
Future Business 2,008.6 2,566.4 3,156.7 3,788.7 4,461.6 5,177.1
Existing IMR 9.8 7.3 5.2 3.6 2.5 1.9
-------- -------- -------- -------- -------- --------
Total Reserves $6,383.0 $6,809.1 $7,259.0 $7,743.0 $8,260.0 $8,837.2
-------- -------- -------- -------- -------- --------
Capital & Surplus & AVR $354.3 $371.2 $396.1 $422.7 $451.1 $482.9
RBC Ratio 200% 200% 200% 200% 200% 200%
</TABLE>
- 11 -
<PAGE> 16
TABLE 2
GREAT AMERICAN LIFE
AS OF SEPTEMBER 30, 1994
(in millions)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
TWENTY YEARS OF FUTURE ISSUES
-----------------------------------------------------------------------------------------------------------
STATUTORY INCOME PROJECTIONS 9/05 9/06 9/07 9/08 9/09
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Existing Business
TSA Deferred Annuities $47.9 $47.7 $46.5 $45.4 $46.1
Single Premium Deferred Annuities 7.7 7.6 7.3 7.0 7.0
All Other 3.9 3.8 3.6 3.4 3.2
Current & Projected Payout Annuities 7.1 7.2 7.2 7.0 7.0
-------- -------- -------- -------- --------
Total Existing Business $66.6 $66.3 $64.5 $62.8 $63.3
======== ======== ======== ======== ========
Future Business
TSA Deferred Annuities $20.7 $23.3 $30.2 $36.2 $42.6
Bank Deferred Annuities 5.0 6.0 6.9 7.8 8.8
Single Premium Deferred Annuities 16.4 19.4 22.6 26.2 30.1
Payout Annuities 0.5 0.6 0.6 0.7 0.8
-------- -------- -------- -------- --------
Total Future Business $42.7 $49.2 $60.3 $70.9 $82.3
======== ======== ======== ======== ========
Unallocated Expense (16.4) (15.9) (15.4) (14.8) (14.1)
Interest on Surplus 41.0 43.9 47.0 50.7 54.7
IMR Amortization 0.5 0.4 0.3 0.2 0.1
-------- -------- -------- -------- --------
Total Statutory Pre-Tax Profit $134.4 $143.9 $156.7 $169.8 $186.3
======== ======== ======== ======== ========
Base Federal Income Taxes @ 35% (46.9) (50.2) (54.8) (59.4) (65.2)
DAC Tax (0.5) (0.5) (0.5) (0.6) (0.6)
-------- -------- -------- -------- --------
Total Statutory After-Tax Profit $87.1 $93.2 $101.4 $109.9 $120.5
======== ======== ======== ======== ========
Dividend Paid $53.2 $56.9 $57.7 $63.1 $70.8
======== ======== ======== ======== ========
RESERVES
Business Inforce @ 9/30/94 $3,512.9 $3,365.7 $3,220.8 $3,076.6 $2,929.2
Future Business 5,939.7 6,748.9 7,575.1 8,449.0 9,373.1
Existing IMR 1.5 1.2 1.1 1.0 1.0
-------- -------- -------- -------- --------
Total Reserves $9,454.1 $10,115.8 $10,797.0 $11,526.6 $12,303.3
======== ======== ======== ======== ========
Capital & Surplus & AVR $516.8 $553.1 $596.9 $643.6 $693.3
RBC Ratio 200% 200% 200% 200% 200%
======== ======== ======== ======== ========
</TABLE>
TABLE 2
GREAT AMERICAN LIFE
AS OF SEPTEMBER 30, 1994
(in millions)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
TWENTY YEARS OF FUTURE ISSUES
----------------------------------------------------------------------------------------------------------
STATUTORY INCOME PROJECTIONS 9/10 9/11 9/12 9/13 9/14
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Existing Business
TSA Deferred Annuities $45.6 $45.1 $44.0 $43.5 $43.1
Single Premium Deferred Annuities 6.8 6.5 6.1 5.9 5.7
All Other 3.1 3.1 2.9 2.7 2.5
Current & Projected Payout Annuities 6.9 6.8 6.6 6.4 6.1
--------- --------- --------- --------- ---------
Total Existing Business $62.4 $61.5 $59.7 $58.5 $57.4
========= ========= ========= ========= =========
Future Business
TSA Deferred Annuities $49.6 $57.8 $66.4 $75.4 $84.8
Bank Deferred Annuities 9.8 10.9 12.0 13.1 14.3
Single Premium Deferred Annuities 34.3 38.8 43.7 49.0 54.8
Payout Annuities 0.9 0.9 1.0 1.1 1.2
--------- --------- --------- --------- ---------
Total Future Business $94.6 $108.4 $123.0 $138.7 $155.1
========= ========= ========= ========= =========
Unallocated Expense (13.3) (12.4) (11.5) (10.4) (9.2)
Interest on Surplus 58.9 63.4 68.2 73.3 78.7
IMR Amortization 0.1 0.1 0.1 0.1 0.1
--------- --------- --------- --------- ---------
Total Statutory Pre-Tax Profit $202.7 $221.0 $239.6 $260.2 $282.2
Base Federal Income Taxes @ 35% (70.9) (77.3) (83.8) (91.0) (98.7)
DAC Tax (0.7) (0.7) (0.8) (0.9) (0.9)
--------- --------- --------- --------- ---------
Total Statutory After-Tax Profit $131.1 $143.0 $155.0 $168.3 $182.5
========= ========= ========= ========= =========
Dividend Paid $78.2 $86.7 $95.3 $105.1 $115.6
========= ========= ========= ========= =========
RESERVES
Business Inforce @ 9/30/94 $2,780.1 $2,629.9 $2,478.6 $2,325.9 $2,172.2
Future Business 10,350.6 11,383.8 12,475.5 13,626.5 14,839.9
Existing IMR 1.0 0.9 0.9 0.8 0.7
--------- --------- --------- --------- ---------
Total Reserves $13,131.7 $14,014.6 $14,955.0 $15,953.1 $17,012.8
========= ========= ========= ========= =========
Capital & Surplus & AVR $746.2 $802.4 $862.2 $925.4 $992.4
RBC Ratio 200% 200% 200% 200% 200%
========= ========= ========= ========= =========
</TABLE>
- 12 -
<PAGE> 17
Table 3
Great American Life
As of September 30, 1994
(in millions)
Twenty Years of Future Issues
<TABLE>
<CAPTION>
Pre-Tax
Before Interest on Surplus Taxes
----------------------------- ---------------------------------------------
Adjusted Interest on Interest on
EB FB Unallocated IMR Book Adjusted Unallocated Target
Year Profit Profit Expense Amort Value Book Value EB FB Expense Surplus Dividend
- ---- ------ ------ ----------- ----- -------- ----------- ------ ------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/94 $0.0 $0.0 $0.0 $0.0 $336.8 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
9/95 57.2 (3.3) (14.4) 7.4 336.8 28.0 (19.9) 0.5 5.0 (9.8) 50.7
9/96 51.2 (1.6) (15.6) 6.7 336.8 28.1 (17.8) (0.1) 5.5 (9.8) 46.5
9/97 51.8 0.6 (16.5) 5.8 336.8 28.2 (18.0) (0.9) 5.8 (9.9) 47.0
9/98 57.4 2.3 (17.0) 4.9 337.5 28.4 (19.9) (1.4) 5.9 (9.9) 49.8
9/99 61.0 4.4 (17.7) 4.1 354.3 28.6 (21.2) (2.1) 6.2 (10.0) 36.4
9/00 63.6 6.8 (17.7) 3.3 371.2 30.1 (22.1) (2.9) 6.2 (10.5) 39.8
9/01 64.0 12.7 (17.6) 2.7 396.1 31.5 (22.3) (5.0) 6.2 (11.0) 36.2
9/02 64.3 20.6 (17.5) 2.0 422.7 33.7 (22.4) (7.7) 6.1 (11.8) 40.6
9/03 66.1 29.5 (17.2) 1.4 451.1 35.9 (23.1) (10.8) 6.0 (12.6) 46.9
9/04 61.4 39.2 (16.9) 0.9 482.9 38.3 (21.5) (14.2) 5.9 (13.4) 48.0
9/05 66.6 42.7 (16.4) 0.5 516.8 41.0 (23.3) (15.4) 5.8 (14.4) 53.2
9/06 66.3 49.2 (15.9) 0.4 553.1 43.9 (23.2) (17.7) 5.6 (15.4) 56.9
9/07 64.5 60.3 (15.4) 0.3 596.9 47.0 (22.6) (21.6) 5.4 (16.5) 57.7
9/08 62.8 70.9 (14.8) 0.2 643.6 50.7 (22.0) (25.4) 5.2 (17.8) 63.1
9/09 63.3 82.3 (14.1) 0.1 693.3 54.7 (22.1) (29.4) 4.9 (19.1) 70.8
9/10 62.4 94.6 (13.3) 0.1 746.2 58.9 (21.8) (33.8) 4.7 (20.6) 78.2
9/11 61.5 108.4 (12.4) 0.1 802.4 63.4 (21.5) (38.7) 4.4 (22.2) 86.7
9/12 59.7 123.0 (11.5) 0.1 862.2 68.2 (20.9) (43.9) 4.0 (23.9) 95.3
9/13 58.5 138.7 (10.4) 0.1 925.4 73.3 (20.5) (49.4) 3.6 (25.6) 105.1
9/14 57.4 155.1 (9.2) 0.1 992.4 78.7 (20.1) (55.2) 3.2 (27.5) 115.6
</TABLE>
<TABLE>
<CAPTION>
After-Tax
Profit Years
Present Value @ Dividend Surplus 21 and Later Total
- --------------- -------- ------- ------------ -----
<S> <C> <C> <C> <C> <C>
10.00% $447.6 $147.5 $138.1 $733.1
12.00% 384.3 102.9 86.8 574.0
14.00% 334.6 72.2 55.4 462.1
16.00% 294.9 51.0 35.7 381.6
</TABLE>
- 13 -
<PAGE> 18
DISCOUNT RATES
The actuarial values in Table 1 were developed using a range of discount rates
from 10% to 16%. Table 1 illustrates the importance of the discount rate in
the determination of value. The rates we have used here were provided to us by
Furman Selz. M&R is available to prepare values at alternative discount rates
as requested.
STATUTORY SURPLUS, COST OF REQUIRED CAPITAL AND RISK BASED CAPITAL
We have reflected the cost of capital directly in the actuarial values
illustrated in Table 1. The cost of capital reflects the fact the statutory
book values and future statutory profits are not necessarily immediately
available to GALIC's parent but rather some level of capital must be retained
within the operating company to support existing business and the going concern
nature of GALIC, along with desired ratings from insurance industry rating
agencies. That capital which is retained in GALIC will earn an investment rate
of return (e.g., 7 - 9%) which is less than an investor's required rate of
return (i.e., the discount rate) and hence there is a cost associated with the
retention of capital within the operating company.
The cost of capital in Tables 1 reflect the retention of capital, surplus, and
AVR at a level consistent with GALIC's current level, but in no event less than
200% of NAIC Risk Based Capital (RBC), or 400% of NAIC Authorized Control Level
capital. At yearend 1993 GALIC's capital, surplus, and AVR was at 245% of RBC.
As GALIC is projected to grow, capital must be retained at some point in the
future to maintain a 200% RBC ratio.
The impact of holding more or less capital than what we have illustrated can be
estimated from Table 1 where the cost of capital is shown separately.
- 14 -
<PAGE> 19
ADJUSTED STATUTORY BOOK VALUE
Adjusted statutory book value was set equal to September 30, 1994 capital,
surplus, and AVR which are shown in the table below:
<TABLE>
<S> <C>
Capital $2.5 million
Surplus 253.0
AVR 81.3
Adjusted Statutory Book Value $336.8 million
</TABLE>
The amortization of and interest on the September 30, 1994 IMR of $29.9
million was included in existing business profits.
FEDERAL INCOME TAXES
It is our understanding that GALIC is part of American Financial Corporation's
consolidated return. The values shown in this report reflect a 35% tax rate
applied to statutory income. Tax reserves and statutory reserves are nearly
identical. We also reflected DAC tax under the assumption that 75% of the Bank
Product, 50% of the Single Premium products, and zero percent of the Flexible
premium products are non- qualified. Given the relatively high proportion of
qualified business in GALIC, the DAC tax impact is minor relative to most
industry non- qualified annuity writers.
Taxes are very complex and the 35% tax rate used in this report does not
necessarily reflect the tax consolidations with American Financial Corporation
or any other special tax considerations associated with American Annuity Group,
Inc., GALIC's immediate parent. Finally, the 35% does not reflect any special
taxes, or tax savings which might be associated with a transaction. M&R is not
expert in taxes. M&R is available to prepare values under different tax
scenarios with GALIC.
- 15 -
<PAGE> 20
FUTURE BUSINESS
Future business values reflect production amounts provided by GALIC. Those
amounts are:
<TABLE>
<S> <C>
Flexible Premium TSA: $45 million of annual premium growing 5% per year distributed
40% TSA 3
40% TSA 6
20% TSA 8
Single Sum TSA: $105 million to TSA 6-SS growing 5% per year
Single Premium: $105 million of SP7R/Plus 6 growing annually at 8%
Bank Product: $85 million growing annually at 8%.
</TABLE>
EXPENSES
Expenses reflect GALIC's budget. Certain expenses, based upon unit factors
provided by GALIC, are built directly into the line of business projections.
Remaining, unallocated, expenses are shown separately.
A detailed discussion of all actuarial assumptions is included in Section III.
The results of sensitivity testing on those key assumptions is shown in Section
IV.
- 16 -
<PAGE> 21
SECTION III
SUMMARY OF MODEL AND ACTUARIAL ASSUMPTIONS
IN FORCE
The projections are based upon September 30, 1994 inforce. The inforce, by
model plan, is summarized in the table below:
GREAT AMERICAN LIFE
SEPTEMBER 31, 1994 INFORCE
(IN MILLIONS)
<TABLE>
<CAPTION>
Annuitization Surrender Statutory
Product Value Value Reserve
<S> <C> <C> <C>
TSA 1 $1,474 $1,406 $1,415
TSA 2 1,375 1,188 1,278
TSA 3 55 55 55
TSA 4 361 316 328
TSA 5 39 39 36
TSA 6 99 93 97
SP 7 56 53 52
SP 10 132 125 118
SP 7R/7R Plus 6 466 410 426
SP 80 213 184 188
Bank Product 2 2 2
IRA 131 106 123
Flexible Premium 46 44 45
Deferred Compensation 72 66 69
AFC 30 30 30
TOTAL DEFERRED ANNUITY $4,552 $4,119 $4,264
TOTAL IMMEDIATE ANNUITY - - $253
</TABLE>
Surrender Value in the above table is the lower tier value before application
of any surrender charges. The aggregate surrender charge is approximately $40
million.
A more detailed summary of the model is included at the end of this Section.
- 17 -
<PAGE> 22
DESCRIPTION OF PRODUCTS
The large majority of GALIC's inforce consists of 403(b) tax-sheltered deferred
annuities (TSA), both single and flexible premium, sold to public school
teachers. The products with the largest volume are designed with a two-tier
structure. The lower-tier "surrender value" is the amount available for cash
surrender before deduction of any surrender charges. The upper-tier
"annuitization value" is available only as a life or period certain annuity
purchased from GALIC, with certain minimum payout periods. A general
description of each of the major products is given below:
TSA 1: TSA 1 is a two-tier flexible premium tax qualified annuity,
with both tiers receiving the same credited interest rate. The
lower-tier surrender value reflects a 20% load on first year premium.
Partial withdrawals are deducted dollar for dollar from both tiers.
Annuitizations must take place over a minimum of five years, although
50% of the total premiums plus accumulated interest may be taken
immediately.
TSA 2: Like TSA I, TSA 2 is a flexible premium tax-qualified annuity
with a two-tier structure. The two tiers are credited interest at
different rates that are currently 2.5% apart on new premium and 2.0%
apart on old premium (i.e., premium received at least one year past).
It is expected that the lower-tier rate will move up halfway to the
upper-tier rate beginning in contract year eleven. This is not
guaranteed, but is reflected in our projections.
The 20% first-year load is returned, without interest, equally over
contract years five through fourteen as long as the surrender value is
at least three times first year premium. This return of load is
reflected in our projections on all policies. Partial withdrawals
from the surrender value are deducted proportionally (i.e., same
percentage) from the annuitization value. Annuitizations require a
minimum payout of three years.
- 18 -
<PAGE> 23
A lump sum premium provision (primarily to accommodate policy
rollovers) on TSA 2 is written on a separate policy form. This is
TSA 2 - Single Sum.
TSA 3: This product is a flexible premium, tax-qualified annuity with
a single-tier fund structure. There are no front loads. A surrender
charge of 5% in year one declining linearly to 0% in year 6 is
assessed on surrender. Annuitizations must be taken over a minimum of
five years.
TSA 4: TSA 4 is a flexible premium, tax qualified annuity with a
two-tier fund structure. The two-tiers receive different credited
rates, currently at a 2.5% spread on new premium and a 2.0% spread on
old premium. First-year premiums and any premium increases are
subject to a 20% load. Partial withdrawals are in general deducted
proportionally from the annuitization fund, but proportionality does
not apply to amounts under 10% of surrender value withdrawn after the
age of 59 1/2. A five-year minimum payout is required at
annuitization.
TSA 5: Like TSA 3, this product is a single-tier, flexible premium,
tax-qualified annuity. There are no front loads. A 3% bonus applies
to all first-year premium. Surrender charges vary by issue age, from
19% at issue ages below 49 to 13% at issue ages above 54 in the first
year, and grade off over fourteen years (thirteen at ages above 54).
Annuitizations receive the full account value, without surrender
charge, if annuitization occurs in contract year six or later and is
taken over at least five years.
TSA 6: TSA 6 is a two-tier flexible premium tax qualified annuity. A
load equal to 30% of first year premium is deducted from annuitization
value (upper-tier) to obtain surrender value (lower-tier). Both tiers
then accumulate at the same interest rate and both tiers receive an
annual bonus equal to 1% of premium paid in that year. On the tenth
anniversary the upper-tier and lower-tier
- 19 -
<PAGE> 24
values are set equal. If the renewal premiums during the ten years
are not equal to at least four times the first year premium then the
upper-tier value is reduced to the lower-tier value. If the renewal
premiums are at least equal to seven times the first year premium then
both the upper-tier and lower-tier values are set equal to 103% of
upper-tier. In all other instances the lower-tier is set equal to the
upper-tier value.
Our model reflects the lower-tier value set equal to the upper-tier
value in year ten, based upon Company expectations of bonuses to be
paid.
TSA 6 - SINGLE SUM: This product is the lump sum premium counterpart
to TSA 6. The product is two-tiered with the upper-tier equal to the
lower-tier until the end of the fifth year at which time the
upper-tier is increased by 15%. At the end of year 12, the lower-tier
is also increased by 15% so that the upper-tier and lower-tier are
equal thereafter.
A surrender charge, deducted from the lower-tier, applies for twelve
years. The surrender charge is initially 12% of lower-tier grading
uniformly to 0% over the surrender charge period.
TSA 8: This is a single-tier flexible premium tax qualified annuity
with a 15 year surrender charge and a bonus of 1% of account value
applied on anniversaries in years ten through fourteen.
BANK PRODUCT: This is a flexible premium annuity designed to be sold
primarily as a "vanilla" single premium annuity through financial
institutions. The product has a surrender charge of 7%, 7%, 7%, 6%,
5%, 4%, 0%. A 1% premium bonus applies in the first year. The
product has a return of premium guarantee.
- 20 -
<PAGE> 25
SINGLE PREMIUM PRODUCTS: GALIC's single premium products are
available for both tax-qualified and non-qualified money; the majority
is qualified. The products all have a two-tier structure, with
differing credited rates. The contract holder is allowed to elect a
0%, 1%, or 2% spread between upper- and lower-tier credited rates. At
the 0% spread, the product become single-tier. The spread is not
guaranteed by contract. The bulk of the inforce is currently at a 2%
spread. The products have no front-end load. Most of the single
premium contracts have varying surrender charge scales which apply
both to the lower-tier fund on surrender and the upper-tier fund on
annuitization. Partial withdrawals are deducted proportionally from
the annuitization fund. Annuitization must be paid out over at least
five years. There are four major single premium products.
a. SP7: The surrender charge scale begins at 7% and grades
linearly to 0% at duration eight.
b. SP10: The surrender charge scale begins at 10% and grades
linearly to 0% at duration eleven. Initial credited rates
are guaranteed through the calendar year following year of
issue.
c. SP7R AND SP7R PLUS 6: The surrender charge scale, like SP7,
begins at 7% and runs off over seven years. On the SP7R a
replenishment bonus to the account value applies to new
premium to replace any surrender charges lost, up to 15% of
premium, on moving the fund from another carrier. The SP7R
Plus 6 contract gives a flat 6% bonus to all new premium.
- 21 -
<PAGE> 26
d. SP80: The surrender charge scale begins at 7% and grades
off linearly to 0% at duration eight. A bailout threshold of
1.25% below initial credited rates applies, and has largely
been pierced but could be re-implemented if credited rates
rise. Spreads between upper- and lower-tier credited rates on
SP80 are set by the company. Annuitizations must be paid out
over at least ten years.
FLEX PRODUCTS: This series of products (1, 2, 3, 4, 5, and 6) is
designed as non-qualified flexible premium deferred annuities. The
largest inforce product is Flex 4, which has the product features of
TSA 1 but with a 35% first-year load.
INDIVIDUAL RETIREMENT ANNUITIES: GALIC offers a flexible premium IRA,
along with a single premium IRA designed as a companion product for
lump-sum deposits. Both products are comparable to GALIC's TSA 2
Series (flexible premium and single sum, respectively).
DEFERRED COMPENSATION PRODUCTS: These are flexible premium
annuities for non-qualified money deposits as deferred compensation.
Of the largest inforce plans, 533, and 633, the first is essentially
identical to TSA 1 and the second to TSA 2.
AFC: This flexible premium deferred annuity is designed for employees
of the parent American Financial Corporation. It is a no-load,
no-surrender charge, single-tier contract.
IMMEDIATE ANNUITIES: GALIC offers a wide range of settlement options
of the standard varieties: certain period only, life only, life with
certain period, and various joint-life selections. The credited rates
implicit in the settlement option increase with the expected duration
of the contract. On minimum pay-out periods (generally 5 years, but 3
years on the TSA 2 contract) GALIC credits
- 22 -
<PAGE> 27
the guaranteed interest rate, generally 4%. On lifetime payouts a
more current rate is applied. Our model reflects settlement options
as a period certain (for the minimum number of years allowed by the
contract). This reflects the majority of annuitization elections.
ASSETS
The earned rates in our existing business projection reflect the actual asset
portfolio in GALIC as of September 30, 1994 along with an assumption as to
reinvestment rates on any positive cash flow. The base projections reflect a
constant Treasury yield curve equal to the November 14, 1994 curve. That curve
is:
<TABLE>
<CAPTION>
Treasury Yield Curve
November 14, 1994
Maturity Nominal Rate
-------- --------------------
<S> <C>
3 month 5.38%
6 month 5.91
1 year 6.49
2 year 7.03
3 year 7.38
5 year 7.66
10 year 7.94
30 year 8.10
</TABLE>
Modelled assets were set equal to modelled liabilities. Modelled assets
include:
<TABLE>
<CAPTION>
Book Value Market Value
---------- ------------
<S> <C> <C>
Bonds $3,154.8 $3,029.7
CMOs 1,183.2 1,124.3
Policy Loans 179.2 179.2
-------- --------
$4,517.2 $4,333.2
======== ========
</TABLE>
The CMOs represent GALIC's CMOs for which we could obtain projected cash flows
from the GAT Precision System. These cash flows implied a yield of
approximately 8% on the statutory book value under a level interest rate
scenario. GALIC's bond portfolio had a nominal book yield at September 30,
1994 of approximately 7.9%.
- 23 -
<PAGE> 28
We allocated certain assets, which we did not model, to capital, surplus, AVR,
IMR, and the miscellaneous non-modelled liabilities. These assets are:
<TABLE>
<S> <C>
Preferred Stock $7.1 million
Common Stock 51.0
CMOs 158.5
Mortgages 55.6
Real Estate 20.9
Cash and Short Term 37.1
Other Invested Assets 1.1
Other Non-Invested Assets 6.9
Prorata Portion of Modelled Assets 109.9
--------------
$448.1 million
==============
</TABLE>
These assets were allocated to:
<TABLE>
<S> <C>
Capital and Surplus $255.5
AVR 81.3
IMR 29.9
Non-modelled Policyholder Liabilities 45.9
Other Liabilities 35.5
------
$448.1
======
</TABLE>
The non-modelled CMOs were those for which we were unable to obtain cash flow
information.
The book value, market value relationship on the non-modelled CMOs at September
30, 1994 was:
<TABLE>
<S> <C>
Book Value $158.5 million
Market Value $144.0 million
</TABLE>
based upon information provided to us by GALIC. For purposes of calculating
investment income on capital, surplus, AVR, and IMR, we applied a new money
rate to the CMO market value. The mortgages and real estate had a statutory
book yield of approximately 9% at September 30, 1994 based upon information
provided by GALIC. Preferred stock, common stock, short term, and other assets
were assumed to yield the net new money rate of 8.5% into the future.
- 24 -
<PAGE> 29
This resulted in a composite assumed interest rate for assets backing capital,
surplus, AVR, and IMR of:
<TABLE>
<CAPTION>
Amount Yield
------ -----
<S> <C> <C>
Non-modelled CMOs 144.0 8.5
Mortgages and Real Estate 76.5 9.0
Modelled Bonds and CMOs 109.9 7.9
Other 103.2 8.5
Mark to Market on CMOs 14.5 0
------ ---
$448.1 8.2%
====== ===
</TABLE>
This rate was graded to the assumed new money rate of 8.5% over five years.
New money, to the extent of positive cash flow, was invested based upon the
following strategy provided by GALIC:
<TABLE>
<CAPTION>
Percentage Allocation Quality Spread to Treasury
--------------------- ------- ------------------
<S> <C> <C>
50% NAIC 1 65 bp
10 NAIC 2 125 bp
25 MBSs 105 bp
5 NAIC 5 350 bp
10 Mortgage Real Estate 250 bp
</TABLE>
<TABLE>
<CAPTION>
Percentage Allocation Maturity
--------------------- --------
<S> <C>
10% 5 years
30 7 years
60 10 years
</TABLE>
This produced a net annual effective new money rate of 8.5% net of 10 bp of
investment expense and assumed default cost.
To fund any negative cash flow, bonds were liquidated at the then assumed
market value picking bonds to minimize capital losses, maximize capital gains.
- 25 -
<PAGE> 30
Annual default costs were provided to us by GALIC's investment department and
are based upon default costs in the Altman study covering the period 1971-1993.
The default costs used in this analysis are:
<TABLE>
<CAPTION>
NAIC Category Annual Default Cost
------------- -------------------
<S> <C>
Exempt .4 bp
1 7
2 29
3 111
4 335
5 650
</TABLE>
All future business was modelled using a constant net earned rate.
CREDITED INTEREST RATES
GALIC credited interest rates are declared from time to time. Each premium, as
it is received, is credited a declared rate of interest. Although interest
rates, once declared, are not guaranteed for any specific period of time it has
been company practice to keep the interest rate credited to each premium in
place for generally a period of approximately one year. At the end of the
initial interest crediting period, that rate of interest is changed to the rate
applied to all premium received approximately one year prior and before. For
example, as of today all premium received prior to March 1, 1993 receives the
same rate while premium received subsequent to that date is being credited a
rate which varies by time period received.
The base projections reflect the current credited rates held constant for six
months at which time rates are adjusted to maintain GALIC's target spread.
That spread is generally 200 basis points but exceeds 200 bp on certain
products, primarily those that provide significant bonuses. On two-tier
products with a dual crediting rate (higher rate applying to annuitization
value; lower rate applying to surrender value), the credited rate referred to
(and the one on which spread is based) is the average of the lower tier and
upper tier credited rates.
- 26 -
<PAGE> 31
The actual credited rates in place at September 30, 1994 along with the target
spreads are summarized in the table below.
<TABLE>
<CAPTION>
September 30, 1994 Approximate Target Two-Tier
Product Statutory Reserve Average Credited Rate Spread Rate?
------- ------------------ --------------------- ------ --------
<S> <C> <C> <C> <C>
TSA 1 $1,415 million 5.30% 200 bp No
TSA 2 1,278 5.35 200 Yes1
TSA 3 55 5.30 200 No
TSA 4 328 5.45 200 Yes2
TSA 5 36 5.80 200 No3
TSA 6 27 6.00 200 No4
TSA 6-SS 71 6.00 250 No5
TSA 8 - N/A 200 No
SP Products 786 5.25 225 Yes6
IRA 123 4.75 250 Yes7
Flex 45 4.25 300 No
Deferred Comp. 69 5.30 200 No/Yes8
AFC 30 6.25 200 No
------ ---- ------
Total $4,264 5.32% 208 bp
====== ==== ======
</TABLE>
Guaranteed rates are generally 4% on inforce business and 3% on new sales.
________________________
1 +100 bp on AV; - 100 bp on SV.
2 Same as (1) except no adjustment to SV in policy year
11-on.
3 3% bonus on first policy year premium.
4 1% bonus on all premium.
5 15% bonus paid end of year 5.
6 Products sold with either 0, 100 bp, or 200 bp spread
between AV and SV. Majority of business sold with 200
bp spread, i.e., + 100 bp on AV; - 100 bp on SV.
7 Same as (1).
8 Two separate products like TSA 1 and TSA 2 respectively.
- 27 -
<PAGE> 32
As of September 30, 1994, it appeared that GALIC was achieving a spread of
approximately 20 bp above its composite target after provision for investment
expense and default cost.
Credited rates on new business reflect net earned rate minus target spread.
We also performed certain sensitivity testing as to changes in the external
interest rate environment, the results of which are summarized in Section IV.
In that sensitivity testing, a crediting strategy was modelled which was
dependent upon the change in external interest rates. Specifically, the
crediting strategy was to again credit the net portfolio rate minus the target
spread but:
a) never credit more than the market rate;
b) never credit less than 200 basis points under the market rate.
The market rate was defined as the five year treasury rate minus 50 bp.
POLICY SURRENDER RATES
The base projections reflect policy surrender rates which were developed based
upon GALIC's experience through September 1994, and our knowledge of industry
experience on similar products. Those surrender rates are summarized in the
table below.
- 28 -
<PAGE> 33
<TABLE>
<S> <C>
TSA 1: 7% through attained age 62 grading up 1% per attained age with 15% at
attained age 70 and beyond.
TSA 2, 3, 4, 5, 8: 3% through attained age 62 grading up 1% per attained age with 10% at
attained age 69 and 15% at attained age 70 and beyond.
TSA 6: Same as TSA 2 but with additional 10% surrender at the end of the tenth
policy year when surrender value is set equal to annuitization value.
TSA 6 - Single Sum: Same as TSA 6 but with the additional surrender rate at the end of policy
year 13 (when surrender charge expires). Additional surrender rate, at
that time, equal to 25%.
Single Premium Products: 5% through attained age 65
6% at attained age 66
7% at attained age 67
8% at attained age 68
9% at attained age 69
15% at attained age 70-on
Bank Product: 5% during surrender charge period, 25% at end of surrender charge, 15%
thereafter
Deferred Compensation: 10% through attained age 65; 15% thereafter
AFC and Flex: 15% through attained age 65; 20% thereafter
IRA: 5% through attained age 65; 15% thereafter.
</TABLE>
The base lapse rates above were adjusted to reflect the relationship of
credited rate (cr) to market rate (mr). This adjustment is most important in
the interest sensitivity testing summarized in Section 4. The adjustment took
the form of:
2
A * (mr - cr - sc/4), where
A = 2 in policy year one grading to 1 in policy year
ten and later and is designed to reflect the
"seasoning" of the business.
cr = mean tier crediting rate.
mr = market rate defined, to be consistent with GALIC's
current new money rate, as five year Treasury
minus 94 bp.
sc = "surrender charge" defined as one minus the ratio
of cash surrender value over annuitization value.
Annuitization rates were modelled in addition to the surrender rates.
- 29 -
<PAGE> 34
POLICY ANNUITIZATION RATES
Annuitizations were all modelled as going to the shortest payout period at the
guaranteed interest rate (generally 4%). Over 80% of annuitization during the
past three years have taken this option.
Annuitization rates (i.e., percentage of active policyholders annuitizing) are
assumed to be:
TSA 2:
2% through attained age 62
3% at attained age 63
4% at attained age 64
5% at attained age 65-on
Single Premium Products:
3% through attained age 62
4% at attained age 63
5% at attained age 65-on
All Other Products:
1% through attained age 60
2% at attained age 61
3% at attained age 62
4% at attained age 63
5% at attained age 64
5% at attained age 65-on
- 30 -
<PAGE> 35
Base annuitization rates, like surrender rates, were adjusted to reflect the
relationship between market rates and GALIC policy credited rates. Just as we
might expect increased surrenders if market rates exceeded GALIC credited rates
(i.e., in a rising interest rate environment) it is also reasonable to expect
increased annuitization rates. The additional annuitizations are expressed as
a formula:
2
A * (mr - cr - sc/4 , where
A = 2 in policy year one grading to 1 in policy year
ten and later and is designed to reflect the
seasoning of the business.
CR = mean tier crediting rate.
MR = market rate defined, defined to be consistent with
GALIC's current new money rate, as five year
Treasury minus 94 bp.
SC = "surrender charge" defined as the economic loss
the policyholder incurs upon annuitization due to
the 4% implied credited rate. That loss is
approximated as:
(mr - .04) x 3 on TSA 2 (3 year payout)
(mr - .04) x 5 on All Other (5 year payout)
PREMIUM
The starting premium in the projections on existing business flexible premium
products is based upon the prior twelve months collected premium (double for
duration one business given the monthly nature of premium payments). Premium
suspensions (net of premium increases) is projected at 35% in policy year 1,
13% per year thereafter up through attained age 60, 25% at attained ages 61 -
64, and 100% at attained age 65. We projected premium suspensions on a net
basis, i.e., net of premium increases. Although premium increases are
generally paid a first year commission, there is also generally a first year
load or new surrender charge associated with that premium. Projecting premiums
on a net basis has the implicit assumption that first year commissions are
offset by first year loads or additional surrender charges.
- 31 -
<PAGE> 36
STATUTORY RESERVES
The initial statutory reserves are based upon the actual reported amounts at
September 30, 1994 as provided to us by GALIC. Subsequent statutory reserves
on most products are set equal to the greater of:
1) cash surrender value, and;
2) annuitization value multiplied by a factor.
The factor applied to the annuitization value is expressed as [UNFORMATTABLE
ARITHMETIC FORMULA] where n is the shortest payout period allowed under the
contract, j is the corresponding implicit guaranteed credited rate for that
contract (the purchase rate), and i is the valuation rate for the settlement
option of that contract at the date of issue of the base contract. This
methodology is consistent with GALIC's current reserving practice. A summary
of the resulting reserve factors which are applied to annuitization value are
summarized in the table below:
<TABLE>
<CAPTION>
Year of Issue SP80 TSA 2, IRA All Other (1)
------------- ---- ----------- -------------
<S> <C> <C> <C>
1975 - 1980 .925 .972 .955
1981 .762 .902 .847
1982 .721 .881 .817
1983 - 1984 .769 .905 .851
1985 .775 .908 .856
1986 .822 .929 .888
1987 .859 .945 .913
1988 - 1989 .837 .935 .898
1990 - 1991 .851 .942 .908
1992 .867 .948 .918
1993 .891 .958 .933
1994 .871 .951 .922
</TABLE>
(1) excluding TSA 6 - Single Sum, Bank Product,
TSA 8
For TSA 6- Single Sum reserves equal annuitization value. The Bank Product
reserves are CARVM, but not less than premium due to the return of premium
guarantee. The TSA 8 product reserves were modelled as CARVM.
- 32 -
<PAGE> 37
Reserves on annuitized policies are equal to the present value of future
benefits at the valuation interest rate and mortality table. The valuation
mortality table is generally the 1983 IAM Table, although we only reflected an
interest rate in that all annuitizations were modelled as a period certain.
MORTALITY
Mortality on the deferred annuity business is based upon 50% 1975 - 80 ultimate
table, male/female combined.
EXPENSES
The projections include unit expenses which are based upon GALIC's original
pricing assumptions. Those unit expenses are:
<TABLE>
<CAPTION>
Policy Year
-----------------------
Unit Base/Product First Year Renewal
----------------- ---------- -------
<S> <C> <C>
Percent Premium
Non-qualified Flex Annuities 12.0% 10.2%
AFC 5.0 4
TSA, IRA, Def Comp. 4.6 4
Percent Fund
IRA, TSA 2/Single Sum .45% .35%
Single Premium Products .50 .40
SPIA .25 .25
</TABLE>
The percent of premium expenses were inflated annually at 3%. The unit
expenses result in a projected expense level which is less than GALIC's current
budget of $30.1 million for the annuity line. We included an additional
expense equal to the difference between GALIC's budgeted expense and the
projected expense based upon GALIC pricing unit expenses.
- 33 -
<PAGE> 38
Total expenses, based upon GALIC's total budget less $1.4 million of expenses
allocated to the life insurance line of business are projected as:
<TABLE>
<CAPTION>
Projection Year Total Expense
--------------- -------------
<S> <C>
1 $30.1 million
2 31.7
3 33.4
4 34.9
5 37.0
6-on + 4%
</TABLE>
The number of years of unallocated expenses included in the values in Section
II is consistent with the number of years of new business production.
COMMISSIONS
Commission rates (reflecting payment at all levels of agent) are summarized in
the table below.
TSA 1
<TABLE>
<CAPTION>
Issue Age Year 1 Year 2 - 5 Year 6+
--------- ------ ---------- -------
<S> <C> <C> <C>
0 - 50 15% 3% 6%
51 - 55 13 3 6
56 - 60 10 3 6
61 + 7 3 6
</TABLE>
TSA 2
<TABLE>
<CAPTION>
Issue Age Year 1 Year 2 - 5 Year 6+
--------- ------ ---------- -------
<S> <C> <C> <C>
0 - 52 22% 3% 6%
53 - 57 15 3 6
58+ 10 3 6
</TABLE>
TSA 3
<TABLE>
<CAPTION>
Issue Age Year 1 Year 2 - 5 Year 6+
--------- ------ ---------- -------
<S> <C> <C> <C>
0 - 47 10% 2% 4%
48 - 52 8 2 4
53+ 5 2 4
</TABLE>
- 34 -
<PAGE> 39
TSA 4
<TABLE>
<CAPTION>
Issue Age Year 1 Year 2 +
--------- ------ --------
<S> <C> <C>
0 - 52 22% 4%
53 - 57 15 4
58+ 10 4
</TABLE>
TSA 5
<TABLE>
<CAPTION>
Issue Age Year 1 Year 2 Year 3+
--------- ------ ------ -------
<S> <C> <C> <C>
0 - 52 20% 8% 3%
53 - 57 12 6 2.5
58+ 8 4 2
</TABLE>
TSA 6
<TABLE>
<CAPTION>
Issue Age First Year Renewal Years
--------- ---------- -------------
<S> <C> <C>
0 - 52 25% 3%
53 - 57 14 2.5
58-on 9 2
</TABLE>
TSA 6 - Single Sum 7.5%
TSA 8
<TABLE>
<CAPTION>
Issue Age First Year Renewal Years
--------- ---------- -------------
<S> <C> <C>
18 - 55 14.5% 7%
56+ 10 5
</TABLE>
<TABLE>
<S> <C>
Bank Product 6.25% premium
.20% of fund years 2 - on.
SP80 5% of single premium
SP7 7% of single premium
SP10 9% of single premium
</TABLE>
- 35 -
<PAGE> 40
<TABLE>
<S> <C>
SP7R/7R Plus 6 7% of single premium (issue ages through 52)
6% of single premium (issue ages 53-57)
5% of single premium (issue ages 58-62)
3% of single premium (issue ages 63 and older)
IRA, Flex, Deferred Compensation Same as comparable TSA plan.
AFC Not applicable
Annuitizations 2%
</TABLE>
Commissions on the flexible premium business (which is primarily monthly
premium) are annualized with the agent receiving approximately 50% of the
annualized commission at the time the policy is sold.
POLICY LOANS
Policy loans totalled $179 million at September 1994. The rate credited to
policyholders on loans is generally 4% with the rate charged policy loans being
6% resulting in a net spread of 2%. New loans are being charged a 300 bp
spread.
Policy loans are modelled as a constant percentage of statutory reserves on
existing business.
- 36 -
<PAGE> 41
GREAT AMERICAN LIFE INSURANCE COMPANY
ANNUITY INFORCE AS OF SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
GALIC M & R Annuitization Surrender Statutory
Plan Plan Code Duration Count Value Value Reserve
--------------- --------- -------- ------ ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
AFC 1 1 66 909 909 909
AFC 1 2 76 968 968 968
AFC 1 3 119 1,040 1,040 1,040
AFC 1 4 189 3,289 3,289 3,289
AFC 1 5 104 1,693 1,693 1,693
AFC 1 6 98 1,540 1,540 1,540
AFC 1 7 85 1,466 1,466 1,466
AFC 1 8 217 9,646 9,646 9,646
AFC 1 9 72 1,582 1,582 1,582
AFC 1 10 46 1,047 1,047 1,047
AFC 1 11 44 851 851 851
AFC 1 12 48 1,573 1,573 1,573
AFC 1 13 111 4,738 4,738 4,738
------ --------- --------- ---------
Total AFC 1,275 30,343 30,343 30,343
------ --------- --------- ---------
TSA I 1030 1 2,100 57,819 53,407 53,349
TSA I 1030 2 728 17,731 16,409 16,724
TSA I 1030 3 758 20,548 18,848 19,146
TSA I 1030 4 871 22,821 21,222 21,435
TSA I 1030 5 724 18,682 17,242 17,421
TSA I 1030 6 650 17,373 16,513 16,578
TSA I 1030 7 883 18,963 17,975 18,096
TSA I 1030 8 1,553 30,543 29,017 29,242
TSA I 1030 9 2,831 63,120 60,025 60,393
TSA I 1030 10 3,423 91,149 86,718 87,121
TSA I 1030 11 4,786 134,230 127,790 128,415
TSA I 1030 12 5,893 191,615 182,319 183,199
TSA I 1030 13 5,536 225,351 215,293 216,262
TSA I 1030 14 3,673 163,568 156,925 158,024
TSA I 1030 15 3,420 162,568 156,311 157,838
TSA I 1030 16 2,131 113,210 109,495 110,272
TSA I 1030 17 1,602 83,104 80,233 81,064
TSA I 1030 18 792 40,497 39,013 39,592
TSA I 1030 19 25 1,201 1,156 1,173
------ --------- --------- ---------
Total TSA I 42,379 1,474,094 1,405,913 1,415,344
------ --------- --------- ---------
TSA II 2630 1 1,778 2,066 1,646 1,979
TSA II 2630 2 2,398 8,240 6,974 7,854
TSA II 2630 3 3,652 24,142 21,311 22,797
TSA II 2630 4 6,575 65,320 58,335 61,569
TSA II 2630 5 7,475 102,193 91,147 96,093
TSA II 2630 6 7,970 137,437 121,386 128,556
TSA II 2630 7 11,921 234,421 205,244 220,015
TSA II 2630 8 8,043 201,156 174,557 189,224
TSA II 2630 9 8,575 248,814 211,073 229,459
TSA II 2630 10 6,383 238,536 199,925 216,635
TSA II 2630 11 254 15,515 12,805 14,052
TSA II 2630 12 1 45 44 44
TSA II 2630 13 2 150 139 148
TSA II 2630 14 3 137 131 131
TSA II 2630 16 1 67 64 64
------ --------- --------- ---------
Total TSA II 65,031 1,278,239 1,104,779 1,188,618
====== ========= ========= =========
</TABLE>
- 37 -
<PAGE> 42
GREAT AMERICAN LIFE INSURANCE COMPANY
ANNUITY INFORCE AS OF SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
GALIC M & R Annuitization Surrender Statutory
Plan Plan Code Duration Count Value Value Reserve
----- --------- -------- ----- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
TSA II/S.P. 2632 1 30 856 845 845
TSA II/S.P. 2632 2 24 388 361 373
TSA II/S.P. 2632 3 35 469 437 444
TSA II/S.P. 2632 4 182 4,283 3,981 4,038
TSA II/S.P. 2632 5 367 8,740 7,985 8,209
TSA II/S.P. 2632 6 563 14,733 13,204 13,776
TSA II/S.P. 2632 7 600 14,452 12,702 13,540
TSA II/S.P. 2632 8 362 9,382 7,989 8,837
TSA II/S.P. 2632 9 653 18,633 15,548 17,180
TSA II/S.P. 2632 10 734 23,184 18,899 21,060
TSA II/S.P. 2632 11 4 138 117 125
TSA II/S.P. 2632 12 9 410 338 366
TSA II/S.P. 2632 13 7 338 302 309
TSA II/S.P. 2632 14 6 292 244 266
TSA II/S.P. 2632 15 3 125 105 122
------ ------- ------- -------
Total TSA II/S.P. 3,579 96,422 83,055 89,491
------ ------- ------- -------
TSA III 3730 1 1,085 2,775 2,775 2,775
TSA III 3730 2 1,723 8,481 8,475 8,479
TSA III 3730 3 1,340 11,622 11,622 11,622
TSA III 3730 4 1,034 12,805 12,805 12,805
TSA III 3730 5 660 9,229 9,229 9,229
TSA III 3730 6 526 8,630 8,629 8,629
TSA III 3730 7 106 1,634 1,634 1,634
------ ------- ------- -------
Total TSA III 6,474 55,176 55,169 55,173
------ ------- ------- -------
TSA IV 4640 1 1,938 3,135 2,504 2,918
TSA IV 4640 2 3,084 11,865 10,000 10,999
TSA IV 4640 3 6,454 39,313 34,284 35,969
TSA IV 4640 4 9,950 94,252 83,010 85,721
TSA IV 4640 5 9,792 128,989 113,437 116,939
TSA IV 4640 6 5,474 83,104 72,617 74,817
TSA IV 4640 7 3 77 69 69
TSA IV 4640 9 1 12 12 12
TSA IV 4640 11 1 48 45 45
TSA IV 4640 12 1 59 57 57
TSA IV 4640 13 3 211 205 205
TSA IV 4640 16 2 121 117 117
------ ------- ------- -------
Total TSA IV 36,703 361,187 316,357 327,868
------ ------- ------- -------
TSA V 5750 1 1,575 3,743 3,743 3,508
TSA V 5750 2 2,201 10,335 10,335 9,586
TSA V 5750 3 2,627 20,762 20,762 18,991
TSA V 5750 4 404 4,136 4,136 3,756
------ ------- ------- -------
Total TSA V 6,807 38,976 38,976 35,840
====== ======= ======= =======
</TABLE>
- 38 -
<PAGE> 43
GREAT AMERICAN LIFE INSURANCE COMPANY
ANNUITY INFORCE AS OF SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
GALIC M & R Annuitization Surrender Statutory
Plan Plan Code Duration Count Value Value Reserve
----- --------- -------- ----- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
TSA VI 6780 1 6,165 7,432 5,235 6,979
TSA VI 6780 2 5,711 19,470 15,253 18,083
TSA VI 6780 3 317 1,661 1,373 1,525
------ ------ ------ ------
Total TSA VI 12,193 28,563 21,860 26,587
------ ------ ------ ------
TSA VI-SS 6598 1 1,309 30,766 30,766 30,766
TSA VI-SS 6598 2 1,301 35,928 35,927 35,928
TSA VI-SS 6598 3 107 3,917 3,917 3,917
TSA VI-SS 6598 4 2 49 43 45
TSA VI-SS 6598 5 1 12 10 11
TSA VI-SS 6598 6 1 45 40 41
TSA VI-SS 6598 9 1 13 13 13
TSA VI-SS 6598 15 1 138 138 138
------ ------ ------ ------
Total TSA VI-SS 2,723 70,869 70,856 70,860
------ ------ ------ ------
FLEX 6557 3 1 5 4 5
FLEX 6557 5 6 81 81 81
FLEX 6557 6 73 226 204 214
FLEX 6557 7 180 598 529 563
FLEX 6557 8 264 843 724 801
FLEX 6557 9 561 2,570 2,250 2,432
FLEX 6557 10 332 2,188 1,846 1,994
FLEX 6557 11 901 6,106 5,471 5,774
FLEX 6557 12 1,540 12,468 12,221 12,326
FLEX 6557 13 1,356 13,242 13,242 13,242
FLEX 6557 14 417 2,333 2,333 2,333
FLEX 6557 15 547 1,884 1,884 1,884
FLEX 6557 16 274 1,254 1,254 1,254
FLEX 6557 17 128 871 871 871
FLEX 6557 18 92 590 590 590
FLEX 6557 19 124 808 808 808
FLEX 6557 20 12 78 78 78
------ ------ ------ ------
Total FLEX 6,808 46,146 44,389 45,251
====== ====== ====== ======
</TABLE>
- 39 -
<PAGE> 44
GREAT AMERICAN LIFE INSURANCE COMPANY
ANNUITY INFORCE AS OF SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
GALIC M & R Annuitization Surrender Statutory
Plan Plan Code Duration Count Value Value Reserve
----- --------- -------- ----- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SP7 0% 7070 1 113 3,975 3,975 3,752
SP7 0% 7070 2 129 3,481 3,481 3,315
SP7 0% 7070 3 54 1,380 1,380 1,327
SP7 0% 7070 4 37 1,234 1,234 1,198
SP7 0% 7070 5 47 1,332 1,332 1,306
SP7 0% 7070 6 95 3,052 3,052 3,022
SP7 0% 7070 7 2 93 93 93
SP7 1% 7071 1 4 214 212 200
SP7 1% 7071 2 7 119 117 111
SP7 1% 7071 3 2 13 13 12
SP7 1% 7071 4 2 17 16 16
SP7 1% 7071 5 7 118 113 111
SP7 1% 7071 6 38 1,794 1,706 1,689
SP7 2% 7072 1 59 1,831 1,814 1,725
SP7 2% 7072 2 85 2,095 2,035 1,947
SP7 2% 7072 3 59 2,133 2,031 1,957
SP7 2% 7072 4 199 6,888 6,442 6,270
SP7 2% 7072 5 330 10,575 9,704 9,567
SP7 2% 7072 6 473 15,571 14,065 13,984
SP7 2% 7072 7 9 252 225 226
----- ------- ------- -------
Total SP7 1,751 56,168 53,042 51,830
----- ------- ------- -------
SP10 0% 7100 1 121 4,529 4,529 4,215
SP10 0% 7100 2 130 4,110 4,110 3,810
SP10 0% 7100 3 101 3,258 3,258 3,044
SP10 0% 7100 4 52 1,972 1,971 1,859
SP10 0% 7100 5 50 1,635 1,635 1,557
SP10 0% 7100 6 66 1,731 1,730 1,664
SP10 0% 7100 7 4 81 81 79
SP10 1% 7101 1 3 136 135 125
SP10 1% 7101 2 4 212 209 193
SP10 1% 7101 3 10 342 334 312
SP10 1% 7101 4 10 225 217 205
SP10 1% 7101 5 21 569 545 519
SP10 1% 7101 6 32 874 833 801
SP10 1% 7101 7 2 77 73 71
SP10 2% 7102 1 514 16,307 16,164 15,028
SP10 2% 7102 2 415 15,984 15,555 14,394
SP10 2% 7102 3 459 12,159 11,599 10,840
SP10 2% 7102 4 721 19,797 18,549 17,500
SP10 2% 7102 5 652 20,243 18,599 17,714
SP10 2% 7102 6 812 27,182 24,603 23,660
SP10 2% 7102 7 6 294 263 256
----- ------- ------- -------
Total SP10 4,185 131,719 124,992 117,846
===== ======= ======= =======
</TABLE>
- 40 -
<PAGE> 45
GREAT AMERICAN LIFE INSURANCE COMPANY
ANNUITY INFORCE AS OF SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
GALIC M & R Annuitization Surrender Statutory
Plan Plan Code Duration Count Value Value Reserve
------ --------- -------- ----- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
SP7R 0% 7170 1 500 11,292 11,112 10,684
SP7R 0% 7170 2 282 7,299 7,076 6,884
SP7R 0% 7170 3 82 2,255 2,103 2,073
SP7R 0% 7170 4 91 4,131 3,987 3,903
SP7R 0% 7170 5 228 7,364 6,866 6,782
SP7R 0% 7170 11 1 17 17 17
SP7R 0% 7170 13 2 18 18 18
SP7R 1% 7171 1 2 11 11 11
SP7R 1% 7171 2 6 218 199 202
SP7R 1% 7171 3 2 75 69 69
SP7R 1% 7171 4 8 235 213 213
SP7R 1% 7171 5 20 484 429 439
SP7R 2% 7172 1 787 23,007 21,282 21,553
SP7R 2% 7172 2 2,055 52,064 47,467 48,391
SP7R 2% 7172 3 2,019 53,698 47,818 49,138
SP7R 2% 7172 4 4,061 133,455 116,120 121,196
SP7R 2% 7172 5 5,106 169,882 145,060 154,115
SP7R 2% 7172 6 1 40 35 36
SP7R 2% 7172 13 2 32 27 29
------ ------- ------- -------
Total SP7R 15,255 465,577 409,908 425,753
------ ------- ------- -------
SP80 7529 2 1 11 11 11
SP80 7529 3 2 21 20 20
SP80 7529 4 10 368 343 343
SP80 7529 5 15 593 541 541
SP80 7529 6 78 2,709 2,444 2,444
SP80 7529 7 388 12,903 11,424 11,424
SP80 7529 8 245 10,208 9,092 9,092
SP80 7529 9 429 15,504 13,683 13,683
SP80 7529 10 442 15,250 13,383 13,383
SP80 7529 11 411 14,677 12,721 12,721
SP80 7529 12 813 33,010 28,327 28,328
SP80 7529 13 889 39,603 33,763 33,763
SP80 7529 14 414 19,762 16,754 17,129
SP80 7529 15 938 43,585 37,050 40,583
SP80 7529 16 62 1,509 1,509 1,509
SP80 7529 17 54 1,508 1,508 1,508
SP80 7529 18 48 1,765 1,765 1,765
SP80 7529 19 2 110 110 110
Total SP80 5,241 213,097 184,451 188,358
------ ------- ------- -------
Bank Product 9618 1 104 2,374 2,367 2,326
------ ------- ------- -------
Total Bank Product 104 2,374 2,367 2,326
====== ======= ======= =======
</TABLE>
- 41 -
<PAGE> 46
GREAT AMERICAN LIFE INSURANCE COMPANY
ANNUITY INFORCE AS OF SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
GALIC M & R Annuitization Surrender Statutory
Plan Plan Code Duration Count Value Value Reserve
----- --------- -------- ----- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
IRA 8630 1 276 588 468 566
IRA 8630 2 159 1,206 1,082 1,166
IRA 8630 3 183 1,010 860 953
IRA 8630 4 244 1,627 1,366 1,533
IRA 8630 5 210 2,276 1,931 2,143
IRA 8630 6 1,085 8,331 7,144 7,879
IRA 8630 7 1,428 11,008 9,475 10,485
IRA 8630 8 3,107 18,042 14,038 17,089
IRA 8630 9 7,906 51,105 38,384 47,512
IRA 8630 12 1 4 2 4
------ ------ ------ ------
Total IRA 14,599 95,197 74,752 89,329
------ ------ ------ ------
IRA/S.P. 8632 1 32 138 137 137
IRA/S.P. 8632 2 47 490 436 469
IRA/S.P. 8632 3 73 515 490 491
IRA/S.P. 8632 4 109 1,075 1,007 1,014
IRA/S.P. 8632 5 165 1,127 1,033 1,058
IRA/S.P. 8632 6 432 4,669 4,204 4,365
IRA/S.P. 8632 7 736 9,012 7,933 8,445
IRA/S.P. 8632 8 694 9,224 7,867 8,692
IRA/S.P. 8632 9 802 9,865 8,289 9,169
IRA/S.P. 8632 10 1 1 1 1
------ ------ ------ ------
Total IRA/S.P. 3,091 36,117 31,397 33,841
------ ------ ------ ------
DEF. COMP I 9530 1 40 2,787 2,766 2,781
DEF. COMP I 9530 2 4 1,276 1,275 1,275
DEF. COMP I 9530 3 18 365 355 356
DEF. COMP I 9530 4 70 2,549 2,540 2,542
DEF. COMP I 9530 5 44 1,538 1,533 1,534
DEF. COMP I 9530 6 22 1,622 1,611 1,615
DEF. COMP I 9530 7 113 2,030 1,959 1,981
DEF. COMP I 9530 8 44 1,198 1,143 1,154
DEF. COMP I 9530 9 49 2,546 2,488 2,493
DEF. COMP I 9530 10 42 1,449 1,416 1,419
DEF. COMP I 9530 11 48 2,372 2,279 2,287
DEF. COMP I 9530 12 169 4,482 4,099 4,143
DEF. COMP I 9530 13 65 3,417 3,134 3,191
DEF. COMP I 9530 14 47 3,030 2,900 2,918
DEF. COMP I 9530 15 45 3,380 3,173 3,226
DEF. COMP I 9530 16 8 322 310 313
DEF. COMP I 9530 17 6 267 240 258
DEF. COMP I 9530 18 26 1,487 1,472 1,472
------ ------ ------ ------
Total DEF. COMP I 860 36,116 34,694 34,958
====== ====== ====== ======
</TABLE>
- 42 -
<PAGE> 47
GREAT AMERICAN LIFE INSURANCE COMPANY
ANNUITY INFORCE AS OF SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
GALIC M & R Annuitization Surrender Statutory
Plan Plan Code Duration Count Value Value Reserve
----- --------- -------- ----- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
DEF. COMP II 9630 1 333 4,484 4,452 4,478
DEF. COMP II 9630 2 184 478 440 465
DEF. COMP II 9630 3 262 2,256 2,166 2,214
DEF. COMP II 9630 4 302 3,291 3,133 3,204
DEF. COMP II 9630 5 413 3,404 2,962 3,206
DEF. COMP II 9630 6 326 3,971 3,461 3,747
DEF. COMP II 9630 7 308 5,940 5,075 5,580
DEF. COMP II 9630 8 136 3,468 2,877 3,271
DEF. COMP II 9630 9 169 5,758 4,850 5,327
DEF. COMP II 9630 10 127 2,738 2,216 2,486
DEF. COMP II 9630 11 5 97 73 88
DEF. COMP II 9630 15 1 52 52 52
DEF. COMP II 9630 19 1 48 48 48
------- --------- --------- ---------
Total DEF. COMP II 2,567 35,985 31,804 34,167
------- --------- --------- ---------
Total Deferred Annuity 231,625 4,552,364 4,119,104 4,263,784
------- --------- --------- ---------
Total Immediate Annuity 253,400
=========
</TABLE>
- 43 -
<PAGE> 48
SECTION IV
SUMMARY OF SENSITIVITY TESTING
We tested the sensitivity of the existing business values to certain key
assumptions. These included spreads, surrender and annuitization rates and the
seven interest scenarios specified by insurance regulators to use in cash flow
testing statutory reserves. The specific sensitivities tested were:
1) 50 bp lower spread on existing business
2) 50 bp higher spread on existing business
3) 125% of base surrender rates
4) 75% of base surrender rates
5) Double base annuitization rate
6) Zero annuitization
7) Interest rate pop-up 300 bp and remain at that level forever
8) Interest rates grade up 50 bp per year to a level 500 bp above
current rates and remain there forever
9) Interest rates grade up 100 bp per year for five year then
grade down 100 bp per year for five years and remain at
current levels thereafter
10) Interest rates pop down 300 bp and remain at that level
thereafter
11) Interest rates grade down 50 bp per year to a level 500 bp
below current rates and remain there forever
12) Interest rates grade down 100 bp per year for five years then
grade up 100 bp per year for five years and remain at current
levels thereafter
- 44 -
<PAGE> 49
The results of the sensitivity testing expressed as the adjusted book value
plus existing business values, after cost of capital and reflecting taxes
at 35%, at a 14% discount rate are shown below.
<TABLE>
<CAPTION>
ABV and Existing Business
Sensitivity Test Value at 14%
---------------- -------------------------
<S> <C>
Base Case $485.7
1 397.6
2 573.8
3 485.3
4 485.1
5 446.8
6 539.1
7 296.2
8 357.3
9 325.5
10 540.4
11 497.2
12 525.2
</TABLE>
- 45 -
<PAGE> 50
APPENDIX A
Detailed Statutory Income Statement Projections
# Existing Deferred Annuities
# SPIAs From Existing Business
# TSA 20 Years New Business
# Bank Product 20 Years New Business
# Single Premium 20 Years New Business
# SPIAs From New Business
A - 1
<PAGE> 51
EXISTING DEFERRED ANNUITIES
<PAGE> 52
REPORT: 16
GREAT AMERICAN LIFE PAGE: 1
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:18 PM
PRODUCT: EXISTING BUSINESS TSA DEFERRED ANNUITIES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/94 9/95 9/96 9/97 9/98
<S> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - 210,379 165,832 128,239 99,648
GROSS INVESTMENT INCOME - 250,183 251,211 253,520 253,690
ACCRUAL OF DISCOUNT - -3,371 -2,681 -3,224 -3,064
LESS INVESTMENT EXPENSE - 3,004 3,037 3,060 3,051
LESS INCOME LOST ON DEFAULTS - 6,743 6,673 6,822 7,131
TOTAL INCOME - 447,445 404,653 368,653 340,092
NET SURRENDERS - 303,431 297,635 296,931 294,319
PARTIAL SURRENDERS - - - - -
DEATH BENEFITS - 17,002 17,562 18,063 18,483
DIVIDENDS - - - - -
ACQUISITION EXPENSES - - - - -
OTHER EXPENSES - 9,252 7,450 6,022 4,902
NET COMMISSIONS - 11,660 6,975 5,513 4,388
SURPLUS RELIEF CHARGE - - - - -
INCREASE IN LOADING - - - - -
INCREASE IN RESERVES - 65,135 39,135 6,503 -22,809
INCR IN DIVIDEND LIABILITY - - - - -
TOTAL DISBURSEMENTS - 406,480 368,758 333,032 299,282
STATUTORY GAIN - 40,965 35,895 35,620 40,810
CAPITAL GAINS - - - - -
GAIN ON CALLS AND ROLLOVER - -98 -86 23 -40
LESS DEFAULT LOSSES - - - - -
BOOK PROFIT - 40,866 35,809 35,644 40,770
INCR IN SURPLUS - - - - -
TAXES - - - - -
PROFITS RELEASED - 40,866 35,809 35,644 40,770
STATUTORY RESERVE 3,209,891 3,275,025 3,314,160 3,320,663 3,297,854
DIVIDEND LIABILITY - - - - -
TOTAL LIABILITY 3,209,891 3,275,025 3,314,160 3,320,663 3,297,854
SURPLUS - - - - -
TAX RESERVE 3,209,891 3,275,025 3,314,160 3,320,663 3,297,854
POLICIES IN FORCE (UNSCALED) 175,889 163,305 151,713 140,845 130,656
ANNUITIZATION VALUE IN FORCE 3,403,526 3,472,505 3,511,242 3,511,885 3,484,747
CASH SURRENDER VALUE IN FORCE 3,082,305 3,131,292 3,152,538 3,137,318 3,096,253
SURRENDER VALUE IN FORCE 3,096,966 3,146,279 3,167,252 3,151,355 3,109,340
POLICY LOANS IN FORCE 143,312 145,594 146,564 145,829 143,884
GROSS DEFERRED PREMIUMS - - - - -
NET DEFERRED PREMIUMS - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED - 36,488 65,035 90,405 116,316
PV AT 14.00% PROFITS RELEASED - 35,848 63,402 87,460 111,600
PV AT 16.00% PROFITS RELEASED - 35,230 61,842 84,677 107,194
PV AT AFTER TAX EARNED RATE - 38,000 68,980 97,669 128,194
</TABLE>
<TABLE>
<CAPTION>
9/99 9/ 0
<S> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 78,494 61,726
GROSS INVESTMENT INCOME 251,036 247,786
ACCRUAL OF DISCOUNT -2,718 -1,577
LESS INVESTMENT EXPENSE 3,019 2,969
LESS INCOME LOST ON DEFAULTS 6,680 7,032
TOTAL INCOME 317,114 297,935
NET SURRENDERS 290,786 285,661
PARTIAL SURRENDERS - -
DEATH BENEFITS 18,869 19,211
DIVIDENDS - -
ACQUISITION EXPENSES - -
OTHER EXPENSES 4,049 3,349
NET COMMISSIONS 3,680 3,000
SURPLUS RELIEF CHARGE - -
INCREASE IN LOADING - -
INCREASE IN RESERVES -44,345 -59,407
INCR IN DIVIDEND LIABILITY - -
TOTAL DISBURSEMENTS 273,039 251,815
STATUTORY GAIN 44,075 46,120
CAPITAL GAINS - -
GAIN ON CALLS AND ROLLOVER -42 -33
LESS DEFAULT LOSSES - -
BOOK PROFIT 44,033 46,086
INCR IN SURPLUS - -
TAXES - -
PROFITS RELEASED 44,033 46,086
STATUTORY RESERVE 3,253,509 3,194,102
DIVIDEND LIABILITY - -
TOTAL LIABILITY 3,253,509 3,194,102
SURPLUS - -
TAX RESERVE 3,253,509 3,194,102
POLICIES IN FORCE (UNSCALED) 121,098 112,153
ANNUITIZATION VALUE IN FORCE 3,446,895 3,384,457
CASH SURRENDER VALUE IN FORCE 3,036,837 2,964,169
SURRENDER VALUE IN FORCE 3,048,779 2,974,838
POLICY LOANS IN FORCE 141,082 137,660
GROSS DEFERRED PREMIUMS - -
NET DEFERRED PREMIUMS - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 141,301 164,650
PV AT 14.00% PROFITS RELEASED 134,469 155,465
PV AT 16.00% PROFITS RELEASED 128,159 147,075
PV AT AFTER TAX EARNED RATE 158,857 188,694
</TABLE>
A-2
<PAGE> 53
REPORT: 16
GREAT AMERICAN LIFE PAGE: 2
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:18 PM
PRODUCT: EXISTING BUSINESS TSA DEFERRED ANNUITIES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 1 9/ 2 9/ 3 9/ 4 9/ 5 9/ 6
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 48,408 37,334 28,745 22,183 17,030 13,039
GROSS INVESTMENT INCOME 243,730 238,932 235,028 234,895 229,590 223,830
ACCRUAL OF DISCOUNT -287 335 1,320 761 1,984 2,562
LESS INVESTMENT EXPENSE 2,903 2,840 2,754 2,670 2,580 2,483
LESS INCOME LOST ON DEFAULTS 7,558 7,635 7,552 7,992 8,389 8,462
TOTAL INCOME 281,391 266,126 254,787 247,177 237,635 228,485
NET SURRENDERS 280,050 274,737 272,406 271,289 266,362 262,556
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 19,496 19,748 19,956 20,124 20,253 20,336
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 2,772 2,270 1,864 1,540 1,268 1,046
NET COMMISSIONS 2,340 1,792 1,371 1,053 806 615
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -69,308 -78,624 -88,387 -89,169 -99,001 -103,824
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 235,350 219,922 207,210 204,838 189,688 180,727
STATUTORY GAIN 46,041 46,204 47,577 42,340 47,947 47,758
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER -31 -29 -28 -26 -25 -24
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 46,010 46,174 47,549 42,313 47,922 47,734
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 46,010 46,174 47,549 42,313 47,922 47,734
STATUTORY RESERVE 3,124,795 3,046,171 2,957,784 2,868,615 2,769,615 2,665,790
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 3,124,795 3,046,171 2,957,784 2,868,615 2,769,615 2,665,790
SURPLUS - - - - - -
TAX RESERVE 3,124,795 3,046,171 2,957,784 2,868,615 2,769,615 2,665,790
POLICIES IN FORCE (UNSCALED) 103,782 95,922 88,349 80,998 74,168 67,869
ANNUITIZATION VALUE IN FORCE 3,310,904 3,227,433 3,133,578 3,032,299 2,927,734 2,818,518
CASH SURRENDER VALUE IN FORCE 2,881,848 2,791,066 2,691,529 2,592,472 2,484,696 2,379,344
SURRENDER VALUE IN FORCE 2,891,067 2,798,713 2,697,519 2,596,750 2,487,224 2,380,428
POLICY LOANS IN FORCE 133,784 129,510 124,827 120,165 115,096 110,154
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 185,462 204,111 221,258 234,881 248,658 260,910
PV AT 14.00% PROFITS RELEASED 173,852 190,039 204,661 216,074 227,414 237,321
PV AT 16.00% PROFITS RELEASED 163,354 177,439 189,942 199,533 208,898 216,940
PV AT AFTER TAX EARNED RATE 216,374 242,178 266,833 287,151 308,439 328,038
</TABLE>
A-3
<PAGE> 54
REPORT 16
GREAT AMERICAN LIFE PAGE: 3
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:18 PM
PRODUCT: EXISTING BUSINESS TSA DEFERRED ANNUITIES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 7 9/ 8 9/ 9 9/10 9/11 9/12
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 9,811 7,373 5,546 4,141 3,065 2,210
GROSS INVESTMENT INCOME 218,182 210,761 201,905 194,076 186,173 176,899
ACCRUAL OF DISCOUNT 1,722 776 1,857 1,399 890 328
LESS INVESTMENT EXPENSE 2,401 2,318 2,207 2,109 2,011 1,910
LESS INCOME LOST ON DEFAULTS 8,508 8,395 8,146 7,923 7,752 7,405
TOTAL INCOME 218,806 208,198 198,955 189,583 180,365 170,122
NET SURRENDERS 254,841 247,365 243,220 237,746 231,582 224,826
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 20,381 20,399 20,356 20,244 20,068 19,827
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 851 697 578 480 399 329
NET COMMISSIONS 460 343 257 190 140 101
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -104,307 -106,238 -111,516 -114,687 -116,926 -118,994
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 172,226 162,566 152,895 143,974 135,263 126,089
STATUTORY GAIN 46,580 45,631 46,060 45,610 45,102 44,033
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER -106 -240 -2 -1 -3 -1
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 46,474 45,391 46,058 45,608 45,099 44,032
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 46,474 45,391 46,058 45,608 45,099 44,032
STATUTORY RESERVE 2,561,484 2,455,246 2,343,730 2,229,043 2,112,117 1,993,123
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 2,561,484 2,455,246 2,343,730 2,229,043 2,112,117 1,993,123
SURPLUS - - - - - -
TAX RESERVE 2,561,484 2,455,246 2,343,730 2,229,043 2,112,117 1,993,123
POLICIES IN FORCE (UNSCALED) 62,023 56,593 51,482 46,691 42,211 38,030
ANNUITIZATION VALUE IN FORCE 2,708,888 2,596,880 2,479,182 2,358,115 2,234,682 2,108,991
CASH SURRENDER VALUE IN FORCE 2,267,570 2,155,336 2,039,546 1,922,457 1,804,979 1,687,455
SURRENDER VALUE IN FORCE 2,267,913 2,155,336 2,039,546 1,922,457 1,804,979 1,687,455
POLICY LOANS IN FORCE 104,947 99,738 94,380 88,961 83,525 78,087
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 271,561 280,849 289,263 296,703 303,271 308,997
PV AT 14.00% PROFITS RELEASED 245,783 253,032 259,485 265,090 269,951 274,115
PV AT 16.00% PROFITS RELEASED 223,689 229,372 234,343 238,586 242,203 245,248
PV AT AFTER TAX EARNED RATE 345,661 361,557 376,446 390,048 402,451 413,616
</TABLE>
A-4
<PAGE> 55
REPORT 16
GREAT AMERICAN LIFE PAGE: 4
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:18 PM
PRODUCT: EXISTING BUSINESS TSA DEFERRED ANNUITIES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/13 9/14
<S> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 1,605 1,177
GROSS INVESTMENT INCOME 166,502 156,343
ACCRUAL OF DISCOUNT 394 211
LESS INVESTMENT EXPENSE 1,798 1,686
LESS INCOME LOST ON DEFAULTS 6,981 6,577
TOTAL INCOME 159,722 149,469
NET SURRENDERS 217,456 209,445
PARTIAL SURRENDERS - -
DEATH BENEFITS 19,511 19,114
DIVIDENDS - -
ACQUISITION EXPENSES - -
OTHER EXPENSES 274 230
NET COMMISSIONS 72 53
SURPLUS RELIEF CHARGE - -
INCREASE IN LOADING - -
INCREASE IN RESERVES -121,077 -122,443
INCR IN DIVIDEND LIABILITY - -
TOTAL DISBURSEMENTS 116,236 106,398
STATUTORY GAIN 43,486 43,070
CAPITAL GAINS - -
GAIN ON CALLS AND ROLLOVER -15 -
LESS DEFAULT LOSSES - -
BOOK PROFIT 43,471 43,070
INCR IN SURPLUS - -
TAXES - -
PROFITS RELEASED 43,471 43,070
STATUTORY RESERVE 1,872,046 1,749,602
DIVIDEND LIABILITY - -
TOTAL LIABILITY 1,872,046 1,749,602
SURPLUS - -
TAX RESERVE 1,872,046 1,749,602
POLICIES IN FORCE (UNSCALED) 34,139 30,529
ANNUITIZATION VALUE IN FORCE 1,980,943 1,851,330
CASH SURRENDER VALUE IN FORCE 1,570,120 1,453,656
SURRENDER VALUE IN FORCE 1,570,120 1,453,656
POLICY LOANS IN FORCE 72,657 67,268
GROSS DEFERRED PREMIUMS - -
NET DEFERRED PREMIUMS - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 314,045 318,510
PV AT 14.00% PROFITS RELEASED 277,721 280,855
PV AT 16.00% PROFITS RELEASED 247,839 250,052
PV AT AFTER TAX EARNED RATE 423,780 433,064
</TABLE>
A-5
<PAGE> 56
REPORT 16
GREAT AMERICAN LIFE PAGE: 1
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:18 PM
PRODUCT: EXISTING BUSINESS SPDA UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/94 9/95 9/96 9/97 9/98 9/99 9/ 0
<S> <C> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - - - - - - -
GROSS INVESTMENT INCOME - 57,981 53,241 49,573 46,085 42,620 39,482
ACCRUAL OF DISCOUNT - -780 -567 -630 -557 -462 -252
LESS INVESTMENT EXPENSE - 695 643 598 554 513 474
LESS INCOME LOST ON DEFAULTS - 1,560 1,413 1,333 1,296 1,135 1,122
TOTAL INCOME - 54,947 50,618 47,011 43,678 40,511 37,635
NET SURRENDERS - 96,019 88,131 81,391 75,498 70,106 64,521
PARTIAL SURRENDERS - - - - - - -
DEATH BENEFITS - 7,144 6,894 6,648 6,398 6,141 5,880
DIVIDENDS - - - - - - -
ACQUISITION EXPENSES - - - - - - -
OTHER EXPENSES - 2,973 2,682 2,441 2,219 2,013 1,824
NET COMMISSIONS - - - - - - -
SURPLUS RELIEF CHARGE - - - - - - -
INCREASE IN LOADING - - - - - - -
INCREASE IN RESERVES - -56,702 -52,137 -49,103 -46,505 -44,286 -41,584
INCR IN DIVIDEND LIABILITY - - - - - - -
TOTAL DISBURSEMENTS - 49,435 45,570 41,376 37,609 33,973 30,641
STATUTORY GAIN - 5,512 5,048 5,635 6,069 6,538 6,995
CAPITAL GAINS - - - - - - -
GAIN ON CALLS AND ROLLOVER - -23 -18 5 -7 -7 -5
LESS DEFAULT LOSSES - - - - - - -
BOOK PROFIT - 5,489 5,030 5,639 6,062 6,530 6,989
INCR IN SURPLUS - - - - - - -
TAXES - - - - - - -
PROFITS RELEASED - 5,489 5,030 5,639 6,062 6,530 6,989
STATUTORY RESERVE 783,787 727,085 674,948 625,845 579,339 535,053 493,469
DIVIDEND LIABILITY - - - - - - -
TOTAL LIABILITY 783,787 727,085 674,948 625,845 579,339 535,053 493,469
SURPLUS - - - - - - -
TAX RESERVE 783,787 727,085 674,948 625,845 579,339 535,053 493,469
POLICIES IN FORCE (UNSCALED) 26,432 23,330 20,598 18,174 16,016 14,089 12,381
ANNUITIZATION VALUE IN FORCE 866,562 802,263 743,263 687,924 635,730 586,291 540,130
CASH SURRENDER VALUE IN FORCE 746,700 684,247 627,508 574,776 524,612 477,076 432,930
SURRENDER VALUE IN FORCE 772,393 702,868 640,072 582,256 528,831 479,327 433,979
POLICY LOANS IN FORCE 35,742 32,525 29,619 26,944 24,472 22,181 20,082
GROSS DEFERRED PREMIUMS - - - - - - -
NET DEFERRED PREMIUMS - - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED - 4,901 8,910 12,924 16,777 20,482 24,023
PV AT 14.00% PROFITS RELEASED - 4,815 8,685 12,491 16,080 19,472 22,656
PV AT 16.00% PROFITS RELEASED - 4,732 8,469 12,082 15,430 18,539 21,408
PV AT AFTER TAX EARNED RATE - 5,104 9,455 13,994 18,532 23,080 27,605
</TABLE>
A-6
<PAGE> 57
REPORT: 16
GREAT AMERICAN LIFE PAGE: 2
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:18 PM
PRODUCT: EXISTING BUSINESS SPDA UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 1 9/ 2 9/ 3 9/ 4 9/ 5 9/ 6
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - - - - - -
GROSS INVESTMENT INCOME 36,565 33,825 31,468 29,802 27,591 25,583
ACCRUAL OF DISCOUNT -43 47 177 97 239 294
LESS INVESTMENT EXPENSE 436 403 370 340 311 285
LESS INCOME LOST ON DEFAULTS 1,136 1,083 1,014 1,017 1,011 970
TOTAL INCOME 34,950 32,386 30,261 28,543 26,508 24,622
NET SURRENDERS 59,202 54,370 50,138 46,330 42,444 38,755
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 5,620 5,364 5,111 4,860 4,616 4,380
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 1,650 1,492 1,348 1,215 1,095 986
NET COMMISSIONS - - - - - -
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -38,821 -36,308 -34,080 -31,867 -29,385 -27,058
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 27,651 24,918 22,517 20,538 18,769 17,063
STATUTORY GAIN 7,299 7,468 7,745 8,005 7,739 7,559
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER -5 -4 -4 -3 -3 -3
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 7,294 7,463 7,741 8,001 7,736 7,556
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 7,294 7,463 7,741 8,001 7,736 7,556
STATUTORY RESERVE 454,648 418,340 384,260 352,393 323,007 295,949
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 454,648 418,340 384,260 352,393 323,007 295,949
SURPLUS - - - - - -
TAX RESERVE 454,648 418,340 384,260 352,393 323,007 295,949
POLICIES IN FORCE (UNSCALED) 10,870 9,531 8,342 7,284 6,351 5,530
ANNUITIZATION VALUE IN FORCE 497,279 457,398 420,060 385,211 353,094 323,514
CASH SURRENDER VALUE IN FORCE 392,186 354,656 320,164 288,582 259,967 234,084
SURRENDER VALUE IN FORCE 392,635 354,859 320,220 288,582 259,967 234,084
POLICY LOANS IN FORCE 18,169 16,421 14,818 13,354 12,030 10,832
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 27,323 30,337 33,128 35,705 37,928 39,868
PV AT 14.00% PROFITS RELEASED 25,571 28,187 30,568 32,726 34,557 36,125
PV AT 16.00% PROFITS RELEASED 23,989 26,266 28,301 30,115 31,626 32,899
PV AT AFTER TAX EARNED RATE 31,993 36,164 40,177 44,019 47,456 50,558
</TABLE>
A-7
<PAGE> 58
REPORT 16
GREAT AMERICAN LIFE PAGE: 3
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:18 PM
PRODUCT: EXISTING BUSINESS SPDA UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 7 9/ 8 9/ 9 9/10 9/11 9/12
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - - - - - -
GROSS INVESTMENT INCOME 23,771 21,888 19,988 18,324 16,786 15,255
ACCRUAL OF DISCOUNT 188 81 185 133 81 28
LESS INVESTMENT EXPENSE 263 242 219 200 182 165
LESS INCOME LOST ON DEFAULTS 930 875 810 751 702 641
TOTAL INCOME 22,767 20,852 19,144 17,505 15,983 14,476
NET SURRENDERS 35,447 32,658 30,185 27,564 25,038 22,740
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 4,154 3,933 3,709 3,487 3,273 3,066
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 888 798 714 637 567 504
NET COMMISSIONS - - - - - -
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -25,008 -23,587 -22,455 -20,938 -19,366 -17,962
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 15,480 13,801 12,153 10,750 9,511 8,348
STATUTORY GAIN 7,286 7,051 6,991 6,755 6,471 6,128
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER -12 -25 - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 7,275 7,026 6,991 6,755 6,471 6,128
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 7,275 7,026 6,991 6,755 6,471 6,128
STATUTORY RESERVE 270,941 247,354 224,899 203,961 184,594 166,632
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 270,941 247,354 224,899 203,961 184,594 166,632
SURPLUS - - - - - -
TAX RESERVE 270,941 247,354 224,899 203,961 184,594 166,632
POLICIES IN FORCE (UNSCALED) 4,808 4,169 3,601 3,102 2,666 2,284
ANNUITIZATION VALUE IN FORCE 296,180 270,399 245,846 222,947 201,767 182,128
CASH SURRENDER VALUE IN FORCE 210,596 188,940 168,833 150,480 133,842 118,725
SURRENDER VALUE IN FORCE 210,596 188,940 168,833 150,480 133,842 118,725
POLICY LOANS IN FORCE 9,745 8,743 7,813 6,963 6,194 5,494
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 41,535 42,973 44,250 45,352 46,294 47,091
PV AT 14.00% PROFITS RELEASED 37,449 38,572 39,551 40,381 41,079 41,658
PV AT 16.00% PROFITS RELEASED 33,956 34,835 35,590 36,218 36,737 37,161
PV AT AFTER TAX EARNED RATE 53,316 55,777 58,036 60,051 61,830 63,384
</TABLE>
A-8
<PAGE> 59
REPORT 16
GREAT AMERICAN LIFE PAGE: 4
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:18 PM
PRODUCT: EXISTING BUSINESS SPDA UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/13 9/14
<S> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - -
GROSS INVESTMENT INCOME 13,745 12,351
ACCRUAL OF DISCOUNT 33 17
LESS INVESTMENT EXPENSE 149 134
LESS INCOME LOST ON DEFAULTS 579 522
TOTAL INCOME 13,050 11,712
NET SURRENDERS 20,756 18,985
PARTIAL SURRENDERS - -
DEATH BENEFITS 2,867 2,667
DIVIDENDS - -
ACQUISITION EXPENSES - -
OTHER EXPENSES 446 393
NET COMMISSIONS - -
SURPLUS RELIEF CHARGE - -
INCREASE IN LOADING - -
INCREASE IN RESERVES -16,913 -16,050
INCR IN DIVIDEND LIABILITY - -
TOTAL DISBURSEMENTS 7,156 5,994
STATUTORY GAIN 5,894 5,717
CAPITAL GAINS - -
GAIN ON CALLS AND ROLLOVER -1 -
LESS DEFAULT LOSSES - -
BOOK PROFIT 5,893 5,717
INCR IN SURPLUS - -
TAXES - -
PROFITS RELEASED 5,893 5,717
STATUTORY RESERVE 149,719 133,669
DIVIDEND LIABILITY - -
TOTAL LIABILITY 149,719 133,669
SURPLUS - -
TAX RESERVE 149,719 133,669
POLICIES IN FORCE (UNSCALED) 1,949 1,655
ANNUITIZATION VALUE IN FORCE 163,638 146,087
CASH SURRENDER VALUE IN FORCE 104,829 91,986
SURRENDER VALUE IN FORCE 104,829 91,986
POLICY LOANS IN FORCE 4,851 4,257
GROSS DEFERRED PREMIUMS - -
NET DEFERRED PREMIUMS - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 47,775 48,368
PV AT 14.00% PROFITS RELEASED 42,147 42,563
PV AT 16.00% PROFITS RELEASED 37,512 37,806
PV AT AFTER TAX EARNED RATE 64,762 65,994
</TABLE>
A-9
<PAGE> 60
REPORT 16
GREAT AMERICAN LIFE PAGE: 1
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: EXISTING BUSINESS OTHER DEFERRED UNIT FACTOR IS 1,000.
ANNUITIES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/94 9/95 9/96 9/97 9/98 9/99 9/ 0
<S> <C> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - 11,527 8,161 5,817 4,171 3,061 2,250
GROSS INVESTMENT INCOME - 20,527 19,145 18,045 16,925 15,784 14,747
ACCRUAL OF DISCOUNT - -286 -211 -237 -211 -177 -97
LESS INVESTMENT EXPENSE - 255 239 225 210 196 183
LESS INCOME LOST ON DEFAULTS - 572 526 502 492 434 432
TOTAL INCOME - 30,942 26,330 22,898 20,183 18,038 16,285
NET SURRENDERS - 38,086 34,245 31,616 28,869 26,198 24,207
PARTIAL SURRENDERS - - - - - - -
DEATH BENEFITS - 1,340 1,311 1,279 1,245 1,211 1,176
DIVIDENDS - - - - - - -
ACQUISITION EXPENSES - - - - - - -
OTHER EXPENSES - 623 462 359 284 230 188
NET COMMISSIONS - 645 273 206 158 143 120
SURPLUS RELIEF CHARGE - - - - - - -
INCREASE IN LOADING - - - - - - -
INCREASE IN RESERVES - -15,003 -14,615 -15,233 -14,971 -14,153 -13,833
INCR IN DIVIDEND LIABILITY - - - - - - -
TOTAL DISBURSEMENTS - 25,691 21,675 18,227 15,585 13,630 11,858
STATUTORY GAIN - 5,251 4,655 4,671 4,598 4,408 4,427
CAPITAL GAINS - - - - - - -
GAIN ON CALLS AND ROLLOVER - -8 -7 2 -3 -3 -2
LESS DEFAULT LOSSES - - - - - - -
BOOK PROFIT - 5,242 4,648 4,673 4,595 4,405 4,425
INCR IN SURPLUS - - - - - - -
TAXES - - - - - - -
PROFITS RELEASED - 5,242 4,648 4,673 4,595 4,405 4,425
STATUTORY RESERVE 270,107 255,104 240,489 225,255 210,285 196,132 182,299
DIVIDEND LIABILITY - - - - - - -
TOTAL LIABILITY 270,107 255,104 240,489 225,255 210,285 196,132 182,299
SURPLUS - - - - - - -
TAX RESERVE 270,107 255,104 240,489 225,255 210,285 196,132 182,299
POLICIES IN FORCE (UNSCALED) 29,304 25,462 22,291 19,545 17,173 15,133 13,325
ANNUITIZATION VALUE IN FORCE 282,277 266,621 251,422 235,607 220,082 205,371 191,016
CASH SURRENDER VALUE IN FORCE 249,331 233,078 217,468 201,565 186,112 171,571 157,627
SURRENDER VALUE IN FORCE 249,746 233,338 217,655 201,700 186,207 171,638 157,628
POLICY LOANS IN FORCE 110 104 98 92 86 81 66
GROSS DEFERRED PREMIUMS - - - - - - -
NET DEFERRED PREMIUMS - - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED - 4,681 8,386 11,712 14,632 17,132 19,374
PV AT 14.00% PROFITS RELEASED - 4,599 8,175 11,329 14,050 16,338 18,354
PV AT 16.00% PROFITS RELEASED - 4,519 7,974 10,967 13,505 15,602 17,419
PV AT AFTER TAX EARNED RATE - 4,875 8,896 12,657 16,097 19,165 22,029
</TABLE>
A-10
<PAGE> 61
REPORT 16
GREAT AMERICAN LIFE PAGE: 2
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: EXISTING BUSINESS OTHER DEFERRED UNIT FACTOR IS 1,000.
ANNUITIES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 1 9/ 2 9/ 3 9/ 4 9/ 5 9/ 6
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 1,657 1,159 828 620 463 345
GROSS INVESTMENT INCOME 13,744 12,778 11,960 11,435 10,715 10,053
ACCRUAL OF DISCOUNT -17 18 69 38 95 119
LESS INVESTMENT EXPENSE 169 157 145 134 124 115
LESS INCOME LOST ON DEFAULTS 440 422 397 401 403 391
TOTAL INCOME 14,775 13,376 12,316 11,558 10,745 10,010
NET SURRENDERS 22,438 20,364 18,571 16,792 15,406 14,357
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 1,137 1,096 1,057 1,020 987 953
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 154 125 103 88 76 65
NET COMMISSIONS 89 63 45 34 26 20
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -13,506 -12,602 -11,667 -10,444 -9,633 -9,206
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 10,312 9,046 8,109 7,491 6,861 6,189
STATUTORY GAIN 4,462 4,330 4,207 4,067 3,885 3,821
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER -2 -2 -1 -1 -1 -1
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 4,460 4,329 4,205 4,066 3,883 3,820
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 4,460 4,329 4,205 4,066 3,883 3,820
STATUTORY RESERVE 168,794 156,192 144,525 134,081 124,448 115,242
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 168,794 156,192 144,525 134,081 124,448 115,242
SURPLUS - - - - - -
TAX RESERVE 168,794 156,192 144,525 134,081 124,448 115,242
POLICIES IN FORCE (UNSCALED) 11,701 10,280 9,043 7,973 7,017 6,148
ANNUITIZATION VALUE IN FORCE 177,001 163,912 151,787 140,926 130,887 121,270
CASH SURRENDER VALUE IN FORCE 144,200 131,799 120,412 110,285 101,079 92,458
SURRENDER VALUE IN FORCE 144,200 131,799 120,412 110,285 101,079 92,458
POLICY LOANS IN FORCE 50 41 33 27 22 18
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 21,391 23,140 24,656 25,965 27,081 28,062
PV AT 14.00% PROFITS RELEASED 20,136 21,654 22,947 24,043 24,962 25,755
PV AT 16.00% PROFITS RELEASED 18,997 20,317 21,423 22,344 23,103 23,747
PV AT AFTER TAX EARNED RATE 24,713 27,132 29,312 31,264 32,989 34,558
</TABLE>
A-11
<PAGE> 62
REPORT 16
GREAT AMERICAN LIFE PAGE: 3
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: EXISTING BUSINESS OTHER DEFERRED UNIT FACTOR IS 1,000.
ANNUITIES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 7 9/ 8 9/ 9 9/10 9/11 9/12
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 251 183 134 98 72 51
GROSS INVESTMENT INCOME 9,442 8,794 8,146 7,599 7,079 6,531
ACCRUAL OF DISCOUNT 77 33 77 56 35 12
LESS INVESTMENT EXPENSE 107 100 92 85 79 72
LESS INCOME LOST ON DEFAULTS 379 360 338 319 303 281
TOTAL INCOME 9,284 8,550 7,927 7,350 6,804 6,241
NET SURRENDERS 13,226 12,208 11,160 10,367 9,748 8,968
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 919 885 852 820 787 752
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 56 49 42 37 32 28
NET COMMISSIONS 14 11 8 6 4 3
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -8,571 -8,021 -7,372 -7,015 -6,843 -6,406
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 5,645 5,131 4,691 4,215 3,727 3,345
STATUTORY GAIN 3,639 3,419 3,237 3,135 3,077 2,895
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER -5 -10 - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 3,635 3,409 3,237 3,135 3,076 2,895
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 3,635 3,409 3,237 3,135 3,076 2,895
STATUTORY RESERVE 106,671 98,649 91,277 84,262 77,419 71,013
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 106,671 98,649 91,277 84,262 77,419 71,013
SURPLUS - - - - - -
TAX RESERVE 106,671 98,649 91,277 84,262 77,419 71,013
POLICIES IN FORCE (UNSCALED) 5,382 4,711 4,128 3,605 3,126 2,704
ANNUITIZATION VALUE IN FORCE 112,310 103,918 96,202 88,847 81,658 74,927
CASH SURRENDER VALUE IN FORCE 84,535 77,207 70,535 64,306 58,375 52,907
SURRENDER VALUE IN FORCE 84,535 77,207 70,535 64,306 58,375 52,907
POLICY LOANS IN FORCE 15 12 10 8 7 5
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 28,895 29,592 30,184 30,695 31,143 31,520
PV AT 14.00% PROFITS RELEASED 26,417 26,961 27,415 27,800 28,132 28,405
PV AT 16.00% PROFITS RELEASED 24,275 24,701 25,051 25,342 25,589 25,789
PV AT AFTER TAX EARNED RATE 35,936 37,129 38,176 39,110 39,956 40,690
</TABLE>
A-12
<PAGE> 63
REPORT 16
GREAT AMERICAN LIFE PAGE: 4
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: EXISTING BUSINESS OTHER DEFERRED UNIT FACTOR IS 1,000.
ANNUITIES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/13 9/14
<S> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 36 27
GROSS INVESTMENT INCOME 5,981 5,481
ACCRUAL OF DISCOUNT 15 8
LESS INVESTMENT EXPENSE 66 61
LESS INCOME LOST ON DEFAULTS 258 237
TOTAL INCOME 5,707 5,218
NET SURRENDERS 8,278 7,554
PARTIAL SURRENDERS - -
DEATH BENEFITS 718 684
DIVIDENDS - -
ACQUISITION EXPENSES - -
OTHER EXPENSES 25 22
NET COMMISSIONS 2 2
SURPLUS RELIEF CHARGE - -
INCREASE IN LOADING - -
INCREASE IN RESERVES -6,029 -5,564
INCR IN DIVIDEND LIABILITY - -
TOTAL DISBURSEMENTS 2,994 2,697
STATUTORY GAIN 2,714 2,520
CAPITAL GAINS - -
GAIN ON CALLS AND ROLLOVER -1 -
LESS DEFAULT LOSSES - -
BOOK PROFIT 2,713 2,520
INCR IN SURPLUS - -
TAXES - -
PROFITS RELEASED 2,713 2,520
STATUTORY RESERVE 64,984 59,420
DIVIDEND LIABILITY - -
TOTAL LIABILITY 64,984 59,420
SURPLUS - -
TAX RESERVE 64,984 59,420
POLICIES IN FORCE (UNSCALED) 2,335 2,017
ANNUITIZATION VALUE IN FORCE 68,589 62,741
CASH SURRENDER VALUE IN FORCE 47,828 43,188
SURRENDER VALUE IN FORCE 47,828 43,188
POLICY LOANS IN FORCE 4 4
GROSS DEFERRED PREMIUMS - -
NET DEFERRED PREMIUMS - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 31,835 32,096
PV AT 14.00% PROFITS RELEASED 28,630 28,814
PV AT 16.00% PROFITS RELEASED 25,951 26,081
PV AT AFTER TAX EARNED RATE 41,325 41,868
</TABLE>
A-13
<PAGE> 64
SPIAs FROM EXISTING BUSINESS
MILLIMAN & ROBERTSON, INC.
<PAGE> 65
REPORT:16
GREAT AMERICAN LIFE PAGE: 1
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: EXISTING BUSINESS SPIA UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/94 9/95 9/96 9/97 9/98 9/99 9/ 0
<S> <C> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - 126,995 125,147 123,411 121,715 120,202 118,240
GROSS INVESTMENT INCOME - 17,325 20,917 23,410 24,474 24,550 24,346
ACCRUAL OF DISCOUNT - -241 -231 -308 -306 -275 -160
LESS INVESTMENT EXPENSE - 215 261 292 304 305 301
LESS INCOME LOST ON DEFAULTS - 483 575 651 711 675 714
TOTAL INCOME - 143,382 144,997 145,569 144,867 143,497 141,411
NET SURRENDERS - - - - - - -
PARTIAL SURRENDERS - 71,948 104,217 109,194 141,224 130,232 147,685
DEATH BENEFITS - - - - - - -
DIVIDENDS - - - - - - -
ACQUISITION EXPENSES - - - - - - -
OTHER EXPENSES - 644 729 802 794 808 775
NET COMMISSIONS - 1,264 1,247 1,233 1,218 1,203 1,185
SURPLUS RELIEF CHARGE - - - - - - -
INCREASE IN LOADING - - - - - - -
INCREASE IN RESERVES - 63,903 33,121 28,534 -4,306 5,246 -14,368
INCR IN DIVIDEND LIABILITY - - - - - - -
TOTAL DISBURSEMENTS - 137,758 139,313 139,764 138,930 137,489 135,277
STATUTORY GAIN - 5,623 5,683 5,806 5,937 6,008 6,134
CAPITAL GAINS - - - - - - -
GAIN ON CALLS AND ROLLOVER - -9 -9 3 -5 -5 -4
LESS DEFAULT LOSSES - - - - - - -
BOOK PROFIT - 5,614 5,674 5,809 5,933 6,002 6,130
INCR IN SURPLUS - - - - - - -
TAXES - - - - - - -
PROFITS RELEASED - 5,614 5,674 5,809 5,933 6,002 6,130
STATUTORY RESERVE 253,400 317,303 350,424 378,958 374,653 379,898 365,530
DIVIDEND LIABILITY - - - - - - -
TOTAL LIABILITY 253,400 317,303 350,424 378,958 374,653 379,898 365,530
SURPLUS - - - - - - -
TAX RESERVE 253,400 317,303 350,424 378,958 374,653 379,898 365,530
POLICIES IN FORCE (UNSCALED) - - - - - - -
ANNUITIZATION VALUE IN FORCE - 317,303 350,424 378,958 374,653 379,898 365,530
CASH SURRENDER VALUE IN FORCE - 317,303 350,424 378,958 374,653 379,898 365,530
SURRENDER VALUE IN FORCE - - - - - - -
POLICY LOANS IN FORCE - - - - - - -
GROSS DEFERRED PREMIUMS - - - - - - -
NET DEFERRED PREMIUMS - - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED - 5,013 9,536 13,671 17,441 20,847 23,952
PV AT 14.00% PROFITS RELEASED - 4,925 9,291 13,212 16,724 19,842 22,634
PV AT 16.00% PROFITS RELEASED - 4,840 9,057 12,778 16,055 18,913 21,428
PV AT AFTER TAX EARNED RATE - 5,221 10,130 14,805 19,247 23,427 27,395
</TABLE>
A-14
<PAGE> 66
REPORT:16
PAGE: 2
GREAT AMERICAN LIFE
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: EXISTING BUSINESS SPIA UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 1 9/ 2 9/ 3 9/ 4 9/ 5 9/ 6
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 116,183 114,197 112,485 110,967 109,059 107,111
GROSS INVESTMENT INCOME 23,318 22,106 20,878 20,526 20,246 19,958
ACCRUAL OF DISCOUNT -28 32 121 69 180 235
LESS INVESTMENT EXPENSE 287 271 253 241 235 228
LESS INCOME LOST ON DEFAULTS 747 730 693 720 762 777
TOTAL INCOME 138,439 135,334 132,540 130,600 128,489 126,299
NET SURRENDERS - - - - - -
PARTIAL SURRENDERS 147,026 146,035 144,862 128,038 126,979 124,632
DEATH BENEFITS - - - - - -
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 736 691 641 628 612 596
NET COMMISSIONS 1,166 1,147 1,130 1,115 1,096 1,077
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -16,717 -18,831 -20,662 -6,183 -7,286 -7,176
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 132,211 129,042 125,972 123,597 121,401 119,129
STATUTORY GAIN 6,228 6,292 6,568 7,003 7,088 7,171
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER -4 -3 -3 -3 -3 -3
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 6,225 6,289 6,565 7,001 7,085 7,168
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 6,225 6,289 6,565 7,001 7,085 7,168
STATUTORY RESERVE 348,813 329,982 309,321 303,137 295,851 288,676
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 348,813 329,982 309,321 303,137 295,851 288,676
SURPLUS - - - - - -
TAX RESERVE 348,813 329,982 309,321 303,137 295,851 288,676
POLICIES IN FORCE (UNSCALED) - - - - - -
ANNUITIZATION VALUE IN FORCE 348,813 329,982 309,321 303,137 295,851 288,676
CASH SURRENDER VALUE IN FORCE 348,813 329,982 309,321 303,137 295,851 288,676
SURRENDER VALUE IN FORCE - - - - - -
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 26,768 29,308 31,675 33,929 35,966 37,806
PV AT 14.00% PROFITS RELEASED 25,122 27,326 29,345 31,234 32,910 34,398
PV AT 16.00% PROFITS RELEASED 23,631 25,549 27,275 28,862 30,247 31,454
PV AT AFTER TAX EARNED RATE 31,140 34,654 38,059 41,420 44,568 47,511
</TABLE>
A-15
<PAGE> 67
REPORT:16
GREAT AMERICAN LIFE PAGE: 3
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: EXISTING BUSINESS SPIA UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 7 9/ 8 9/ 9 9/10 9/11 9/12
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 105,178 103,538 101,888 99,587 96,853 93,603
GROSS INVESTMENT INCOME 19,729 19,356 18,918 18,645 18,371 17,940
ACCRUAL OF DISCOUNT 160 73 179 138 90 34
LESS INVESTMENT EXPENSE 224 219 213 208 204 199
LESS INCOME LOST ON DEFAULTS 792 793 785 783 786 771
TOTAL INCOME 124,051 121,955 119,987 117,379 114,324 110,606
NET SURRENDERS - - - - - -
PARTIAL SURRENDERS 122,174 119,728 117,483 115,356 113,058 110,409
DEATH BENEFITS - - - - - -
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 581 567 554 540 526 510
NET COMMISSIONS 1,057 1,041 1,025 1,003 976 944
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -6,927 -6,398 -6,059 -6,438 -7,083 -7,893
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 116,886 114,938 113,004 110,460 107,477 103,969
STATUTORY GAIN 7,166 7,017 6,983 6,919 6,847 6,637
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER -12 -28 - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 7,154 6,990 6,983 6,919 6,846 6,637
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 7,154 6,990 6,983 6,919 6,846 6,637
STATUTORY RESERVE 281,749 275,351 269,292 262,854 255,771 247,878
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 281,749 275,351 269,292 262,854 255,771 247,878
SURPLUS - - - - - -
TAX RESERVE 281,749 275,351 269,292 262,854 255,771 247,878
POLICIES IN FORCE (UNSCALED) - - - - - -
ANNUITIZATION VALUE IN FORCE 281,749 275,351 269,292 262,854 255,771 247,878
CASH SURRENDER VALUE IN FORCE 281,749 275,351 269,292 262,854 255,771 247,878
SURRENDER VALUE IN FORCE - - - - - -
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 39,446 40,876 42,152 43,280 44,277 45,140
PV AT 14.00% PROFITS RELEASED 35,700 36,817 37,795 38,645 39,383 40,011
PV AT 16.00% PROFITS RELEASED 32,493 33,368 34,122 34,766 35,315 35,774
PV AT AFTER TAX EARNED RATE 50,224 52,672 54,929 56,993 58,876 60,559
</TABLE>
A-16
<PAGE> 68
REPORT: 16
GREAT AMERICAN LIFE PAGE: 4
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: EXISTING BUSINESS SPIA UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/13 9/14
<S> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 89,977 86,005
GROSS INVESTMENT INCOME 17,353 16,747
ACCRUAL OF DISCOUNT 42 23
LESS INVESTMENT EXPENSE 192 185
LESS INCOME LOST ON DEFAULTS 747 723
TOTAL INCOME 106,432 101,866
NET SURRENDERS - -
PARTIAL SURRENDERS 107,396 104,058
DEATH BENEFITS - -
DIVIDENDS - -
ACQUISITION EXPENSES - -
OTHER EXPENSES 492 473
NET COMMISSIONS 908 869
SURPLUS RELIEF CHARGE - -
INCREASE IN LOADING - -
INCREASE IN RESERVES -8,740 -9,640
INCR IN DIVIDEND LIABILITY - -
TOTAL DISBURSEMENTS 100,056 95,760
STATUTORY GAIN 6,376 6,107
CAPITAL GAINS - -
GAIN ON CALLS AND ROLLOVER -2 -
LESS DEFAULT LOSSES - -
BOOK PROFIT 6,374 6,107
INCR IN SURPLUS - -
TAXES - -
PROFITS RELEASED 6,374 6,107
STATUTORY RESERVE 239,138 229,497
DIVIDEND LIABILITY - -
TOTAL LIABILITY 239,138 229,497
SURPLUS - -
TAX RESERVE 239,138 229,497
POLICIES IN FORCE (UNSCALED) - -
ANNUITIZATION VALUE IN FORCE 239,138 229,497
CASH SURRENDER VALUE IN FORCE 239,138 229,497
SURRENDER VALUE IN FORCE - -
POLICY LOANS IN FORCE - -
GROSS DEFERRED PREMIUMS - -
NET DEFERRED PREMIUMS - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 45,880 46,513
PV AT 14.00% PROFITS RELEASED 40,540 40,984
PV AT 16.00% PROFITS RELEASED 36,154 36,468
PV AT AFTER TAX EARNED RATE 62,050 63,366
</TABLE>
A-17
<PAGE> 69
TSA 20 YEARS NEW BUSINESS
MILLIMAN & ROBERTSON, INC.
<PAGE> 70
REPORT: 16
GREAT AMERICAN LIFE PAGE: 1
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB TSA PLANS - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/94 9/95 9/96 9/97 9/98 9/99 9/ 0
<S> <C> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - 121,260 157,073 189,622 219,021 245,853 271,227
GROSS INVESTMENT INCOME - 9,114 20,737 35,784 54,006 75,291 99,585
ACCRUAL OF DISCOUNT - - - - - - -
LESS INVESTMENT EXPENSE - - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - - -
TOTAL INCOME - 130,374 177,810 225,406 273,027 321,144 370,812
NET SURRENDERS - 4,073 9,272 15,880 24,254 33,846 44,638
PARTIAL SURRENDERS - - - - - - -
DEATH BENEFITS - 440 992 1,686 2,525 3,514 4,714
DIVIDENDS - - - - - - -
ACQUISITION EXPENSES - - - - - - -
OTHER EXPENSES - 1,236 3,021 4,619 6,121 7,544 8,931
NET COMMISSIONS - 10,405 13,807 15,143 16,423 17,665 18,931
SURPLUS RELIEF CHARGE - - - - - - -
INCREASE IN LOADING - - - - - - -
INCREASE IN RESERVES - 113,990 153,188 190,821 226,634 261,342 294,379
INCR IN DIVIDEND LIABILITY - - - - - - -
TOTAL DISBURSEMENTS - 130,144 180,281 228,148 275,957 323,912 371,592
STATUTORY GAIN - 230 -2,471 -2,742 -2,930 -2,768 -780
CAPITAL GAINS - - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - - -
LESS DEFAULT LOSSES - - - - - - -
BOOK PROFIT - 230 -2,471 -2,742 -2,930 -2,768 -780
INCR IN SURPLUS - - - - - - -
TAXES - - - - - - -
PROFITS RELEASED - 230 -2,471 -2,742 -2,930 -2,768 -780
STATUTORY RESERVE - 113,990 267,178 457,999 684,633 945,975 1,240,354
DIVIDEND LIABILITY - - - - - - -
TOTAL LIABILITY - 113,990 267,178 457,999 684,633 945,975 1,240,354
SURPLUS - - - - - - -
TAX RESERVE - 113,990 267,178 457,999 684,633 945,975 1,240,354
POLICIES IN FORCE (UNSCALED) - 26,965 49,819 73,081 96,775 120,939 145,616
ANNUITIZATION VALUE IN FORCE - 123,475 285,717 484,345 716,571 980,645 1,292,826
CASH SURRENDER VALUE IN FORCE - 108,966 253,294 433,056 645,957 890,575 1,166,491
SURRENDER VALUE IN FORCE - 121,429 279,463 473,635 701,129 960,165 1,250,011
POLICY LOANS IN FORCE - - - - - - -
GROSS DEFERRED PREMIUMS - - - - - - -
NET DEFERRED PREMIUMS - - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED - 205 -1,765 -3,716 -5,578 -7,149 -7,544
PV AT 14.00% PROFITS RELEASED - 202 -1,700 -3,551 -5,285 -6,723 -7,078
PV AT 16.00% PROFITS RELEASED - 198 -1,638 -3,395 -5,013 -6,331 -6,651
PV AT AFTER TAX EARNED RATE - 211 -1,869 -3,986 -6,062 -7,861 -8,326
</TABLE>
A-18
<PAGE> 71
REPORT: 16
GREAT AMERICAN LIFE PAGE: 2
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB TSA PLANS - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 1 9/ 2 9/ 3 9/ 4 9/ 5 9/ 6
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 295,587 319,294 342,377 365,078 387,833 410,812
GROSS INVESTMENT INCOME 126,739 156,527 188,887 223,762 260,976 300,928
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 422,326 475,822 531,265 588,841 648,810 711,740
NET SURRENDERS 56,971 70,976 87,388 105,337 129,110 155,093
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 6,144 7,775 9,617 11,676 13,964 16,485
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 10,298 11,657 13,005 14,347 15,705 17,083
NET COMMISSIONS 20,228 21,529 22,834 24,154 25,505 26,894
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 324,754 354,793 383,642 412,351 443,813 472,843
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 418,395 466,730 516,486 567,865 628,095 688,398
STATUTORY GAIN 3,930 9,091 14,778 20,975 20,714 23,342
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 3,930 9,091 14,778 20,975 20,714 23,342
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 3,930 9,091 14,778 20,975 20,714 23,342
STATUTORY RESERVE 1,565,108 1,919,901 2,303,544 2,715,894 3,159,707 3,632,550
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 1,565,108 1,919,901 2,303,544 2,715,894 3,159,707 3,632,550
SURPLUS - - - - - -
TAX RESERVE 1,565,108 1,919,901 2,303,544 2,715,894 3,159,707 3,632,550
POLICIES IN FORCE (UNSCALED) 170,835 196,625 223,001 250,000 277,345 305,072
ANNUITIZATION VALUE IN FORCE 1,636,416 2,010,915 2,414,944 2,848,350 3,307,157 3,791,244
CASH SURRENDER VALUE IN FORCE 1,472,795 1,809,199 2,174,624 2,568,932 2,992,813 3,441,722
SURRENDER VALUE IN FORCE 1,569,961 1,919,489 2,297,283 2,703,130 3,137,823 3,596,740
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED -5,766 -2,094 3,235 9,989 15,943 21,935
PV AT 14.00% PROFITS RELEASED -5,507 -2,320 2,224 7,882 12,784 17,628
PV AT 16.00% PROFITS RELEASED -5,260 -2,487 1,399 6,154 10,202 14,134
PV AT AFTER TAX EARNED RATE -6,176 -1,613 5,191 14,052 22,079 30,378
</TABLE>
A-19
<PAGE> 72
REPORT: 16
GREAT AMERICAN LIFE PAGE: 3
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB TSA PLANS - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 7 9/ 8 9/ 9 9/10 9/11 9/12
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 434,252 458,218 482,835 508,349 534,874 562,515
GROSS INVESTMENT INCOME 342,228 384,542 429,215 476,300 525,846 577,825
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 776,480 842,760 912,050 984,649 1,060,720 1,140,340
NET SURRENDERS 210,200 238,004 267,876 299,291 332,836 368,830
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 19,105 21,837 24,813 28,049 31,559 35,356
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 18,462 19,838 21,243 22,692 24,189 25,739
NET COMMISSIONS 28,331 29,820 31,365 32,976 34,660 36,422
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 470,231 497,097 524,158 552,011 579,657 607,570
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 746,329 806,595 869,456 935,020 1,002,902 1,073,917
STATUTORY GAIN 30,151 36,165 42,594 49,628 57,818 66,423
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 30,151 36,165 42,594 49,628 57,818 66,423
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 30,151 36,165 42,594 49,628 57,818 66,423
STATUTORY RESERVE 4,102,781 4,599,878 5,124,036 5,676,047 6,255,705 6,863,274
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 4,102,781 4,599,878 5,124,036 5,676,047 6,255,705 6,863,274
SURPLUS - - - - - -
TAX RESERVE 4,102,781 4,599,878 5,124,036 5,676,047 6,255,705 6,863,274
POLICIES IN FORCE (UNSCALED) 332,907 361,505 390,910 421,189 452,398 484,590
ANNUITIZATION VALUE IN FORCE 4,270,784 4,777,199 5,310,703 5,872,048 6,461,505 7,079,365
CASH SURRENDER VALUE IN FORCE 3,902,412 4,389,491 4,903,130 5,444,096 6,012,155 6,607,547
SURRENDER VALUE IN FORCE 4,066,555 4,562,758 5,085,541 5,635,627 6,213,263 6,818,711
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 28,845 36,245 44,026 52,122 60,543 69,181
PV AT 14.00% PROFITS RELEASED 23,118 28,894 34,861 40,960 47,193 53,474
PV AT 16.00% PROFITS RELEASED 18,513 23,040 27,637 32,255 36,892 41,485
PV AT AFTER TAX EARNED RATE 40,213 51,035 62,729 75,228 88,589 102,670
</TABLE>
A-20
<PAGE> 73
REPORT: 16
GREAT AMERICAN LIFE PAGE: 4
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB TSA PLANS - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/13 9/14 9/15 9/16 9/17 9/18
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 591,309 621,355 330,685 268,283 216,172 174,132
GROSS INVESTMENT INCOME 632,183 688,870 699,130 704,458 702,508 694,031
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 1,223,492 1,310,225 1,029,815 972,740 918,680 868,164
NET SURRENDERS 408,997 451,693 463,471 473,390 480,758 484,684
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 39,443 43,817 44,841 45,675 46,251 46,561
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 27,338 28,990 27,160 23,945 21,303 18,996
NET COMMISSIONS 38,264 40,193 14,595 7,678 6,350 5,278
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 634,023 660,724 391,310 321,995 258,567 201,787
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 1,148,065 1,225,417 941,377 872,682 813,229 757,305
STATUTORY GAIN 75,427 84,808 88,438 100,058 105,451 110,858
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 75,427 84,808 88,438 100,058 105,451 110,858
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 75,427 84,808 88,438 100,058 105,451 110,858
STATUTORY RESERVE 7,497,297 8,158,021 8,263,472 8,285,315 8,228,722 8,099,590
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 7,497,297 8,158,021 8,263,472 8,285,315 8,228,722 8,099,590
SURPLUS - - - - - -
TAX RESERVE 7,497,297 8,158,021 8,263,472 8,285,315 8,228,722 8,099,590
POLICIES IN FORCE (UNSCALED) 517,790 552,057 508,115 476,460 445,171 414,257
ANNUITIZATION VALUE IN FORCE 7,724,192 8,396,261 8,488,458 8,498,786 8,434,612 8,304,433
CASH SURRENDER VALUE IN FORCE 7,228,784 7,876,082 7,980,767 8,011,317 7,968,524 7,859,510
SURRENDER VALUE IN FORCE 7,450,506 8,108,890 8,192,147 8,198,554 8,130,360 7,996,103
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 77,938 86,730 94,916 103,185 110,966 118,269
PV AT 14.00% PROFITS RELEASED 59,731 65,901 71,546 77,148 82,327 87,103
PV AT 16.00% PROFITS RELEASED 45,981 50,339 54,257 58,078 61,549 64,695
PV AT AFTER TAX EARNED RATE 117,340 132,472 146,949 161,976 176,505 190,518
</TABLE>
A-21
<PAGE> 74
REPORT: 16
GREAT AMERICAN LIFE PAGE: 5
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB TSA PLANS - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/19 9/20 9/21 9/22 9/23 9/24
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 140,701 113,029 90,029 70,840 55,496 43,460
GROSS INVESTMENT INCOME 679,424 658,923 633,034 602,461 567,490 528,389
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 820,125 771,952 723,062 673,302 622,985 571,849
NET SURRENDERS 486,683 486,875 484,416 479,035 468,858 456,269
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 46,599 46,212 45,354 44,108 42,459 40,392
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 16,983 15,153 13,468 11,900 10,467 9,154
NET COMMISSIONS 4,426 3,633 2,884 2,260 1,766 1,383
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 149,852 104,359 68,035 34,820 7,082 -17,839
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 704,543 656,232 614,157 572,124 530,632 489,359
STATUTORY GAIN 115,582 115,719 108,905 101,178 92,354 82,490
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 115,582 115,719 108,905 101,178 92,354 82,490
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 115,582 115,719 108,905 101,178 92,354 82,490
STATUTORY RESERVE 7,901,978 7,641,500 7,326,457 6,959,044 6,543,782 6,082,481
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 7,901,978 7,641,500 7,326,457 6,959,044 6,543,782 6,082,481
SURPLUS - - - - - -
TAX RESERVE 7,901,978 7,641,500 7,326,457 6,959,044 6,543,782 6,082,481
POLICIES IN FORCE (UNSCALED) 383,692 353,447 323,523 293,934 264,735 235,919
ANNUITIZATION VALUE IN FORCE 8,114,049 7,821,541 7,472,485 7,069,546 6,617,791 6,119,104
CASH SURRENDER VALUE IN FORCE 7,689,137 7,459,656 7,174,674 6,836,218 6,448,464 6,013,166
SURRENDER VALUE IN FORCE 7,801,623 7,550,037 7,244,450 6,887,550 6,484,175 6,036,320
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 125,068 131,146 136,253 140,489 143,942 146,695
PV AT 14.00% PROFITS RELEASED 91,471 95,307 98,473 101,054 103,121 104,740
PV AT 16.00% PROFITS RELEASED 67,523 69,964 71,944 73,529 74,777 75,738
PV AT AFTER TAX EARNED RATE 203,922 216,234 226,864 235,924 243,511 249,729
</TABLE>
A-22
<PAGE> 75
REPORT: 16
GREAT AMERICAN LIFE PAGE: 6
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB TSA PLANS - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/25 9/26 9/27 9/28 9/29 9/30
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 33,690 25,857 19,457 14,451 10,647 7,538
GROSS INVESTMENT INCOME 485,754 438,661 390,933 343,611 293,276 239,952
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 519,444 464,518 410,390 358,062 303,923 247,490
NET SURRENDERS 429,982 399,669 294,013 262,826 228,282 191,881
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 37,892 34,948 31,931 28,815 25,255 21,224
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 7,914 6,736 5,680 4,763 3,903 3,072
NET COMMISSIONS 1,072 822 618 458 338 239
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -47,504 -68,027 -1,769 -10,758 -17,150 -22,373
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 429,355 374,148 330,472 286,105 240,629 194,044
STATUTORY GAIN 90,089 90,370 79,918 71,957 63,294 53,446
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 90,089 90,370 79,918 71,957 63,294 53,446
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 90,089 90,370 79,918 71,957 63,294 53,446
STATUTORY RESERVE 5,569,342 5,012,398 4,497,267 3,947,479 3,364,347 2,747,694
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 5,569,342 5,012,398 4,497,267 3,947,479 3,364,347 2,747,694
SURPLUS - - - - - -
TAX RESERVE 5,569,342 5,012,398 4,497,267 3,947,479 3,364,347 2,747,694
POLICIES IN FORCE (UNSCALED) 208,325 181,968 157,684 133,855 110,487 87,532
ANNUITIZATION VALUE IN FORCE 5,585,583 5,019,181 4,500,742 3,948,692 3,364,347 2,747,694
CASH SURRENDER VALUE IN FORCE 5,529,949 5,012,398 4,497,267 3,947,479 3,364,347 2,747,694
SURRENDER VALUE IN FORCE 5,543,377 5,019,181 4,500,742 3,948,692 3,364,347 2,747,694
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 149,380 151,784 153,683 155,209 156,408 157,312
PV AT 14.00% PROFITS RELEASED 106,291 107,655 108,714 109,550 110,196 110,674
PV AT 16.00% PROFITS RELEASED 76,643 77,425 78,022 78,484 78,835 79,091
PV AT AFTER TAX EARNED RATE 255,958 261,691 266,342 270,185 273,285 275,687
</TABLE>
A-23
<PAGE> 76
REPORT: 16
GREAT AMERICAN LIFE PAGE: 7
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB TSA PLANS - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/31 9/32 9/33
<S> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 4,975 2,845 1,213
GROSS INVESTMENT INCOME 183,677 124,706 63,371
ACCRUAL OF DISCOUNT - - -
LESS INVESTMENT EXPENSE - - -
LESS INCOME LOST ON DEFAULTS - - -
TOTAL INCOME 188,653 127,550 64,583
NET SURRENDERS 152,175 108,437 56,215
PARTIAL SURRENDERS - - -
DEATH BENEFITS 16,694 11,640 6,069
DIVIDENDS - - -
ACQUISITION EXPENSES - - -
OTHER EXPENSES 2,264 1,476 721
NET COMMISSIONS 158 90 38
SURPLUS RELIEF CHARGE - - -
INCREASE IN LOADING - - -
INCREASE IN RESERVES -23,611 -21,952 -12,634
INCR IN DIVIDEND LIABILITY - - -
TOTAL DISBURSEMENTS 147,680 99,691 50,408
STATUTORY GAIN 40,973 27,860 14,175
CAPITAL GAINS - - -
GAIN ON CALLS AND ROLLOVER - - -
LESS DEFAULT LOSSES - - -
BOOK PROFIT 40,973 27,860 14,175
INCR IN SURPLUS - - -
TAXES - - -
PROFITS RELEASED 40,973 27,860 14,175
STATUTORY RESERVE 2,100,088 1,422,941 722,352
DIVIDEND LIABILITY - - -
TOTAL LIABILITY 2,100,088 1,422,941 722,352
SURPLUS - - -
TAX RESERVE 2,100,088 1,422,941 722,352
POLICIES IN FORCE (UNSCALED) 64,977 42,830 21,171
ANNUITIZATION VALUE IN FORCE 2,100,088 1,422,941 722,352
CASH SURRENDER VALUE IN FORCE 2,100,088 1,422,941 722,352
SURRENDER VALUE IN FORCE 2,100,088 1,422,941 722,352
POLICY LOANS IN FORCE - - -
GROSS DEFERRED PREMIUMS - - -
NET DEFERRED PREMIUMS - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 157,931 158,306 158,477
PV AT 14.00% PROFITS RELEASED 110,995 111,187 111,272
PV AT 16.00% PROFITS RELEASED 79,260 79,359 79,402
PV AT AFTER TAX EARNED RATE 277,376 278,430 278,922
</TABLE>
A-24
<PAGE> 77
BANK PRODUCT 20 YEARS NEW BUSINESS
MILLIMAN & ROBERTSON, INC.
<PAGE> 78
REPORT: 16
GREAT AMERICAN LIFE PAGE: 1
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB BANK SPDA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/94 9/95 9/96 9/97 9/98 9/99 9/ 0
<S> <C> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - 85,000 91,800 99,144 107,076 115,642 124,893
GROSS INVESTMENT INCOME - 6,930 14,700 22,921 31,813 41,491 52,007
ACCRUAL OF DISCOUNT - - - - - - -
LESS INVESTMENT EXPENSE - - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - - -
TOTAL INCOME - 91,930 106,500 122,065 138,888 157,132 176,899
NET SURRENDERS - 4,116 8,600 13,457 18,752 24,515 30,776
PARTIAL SURRENDERS - - - - - - -
DEATH BENEFITS - 953 2,084 3,413 4,967 6,776 8,873
DIVIDENDS - - - - - - -
ACQUISITION EXPENSES - - - - - - -
OTHER EXPENSES - 428 808 1,220 1,666 2,147 2,667
NET COMMISSIONS - 5,312 5,910 6,557 7,255 8,010 8,824
SURPLUS RELIEF CHARGE - - - - - - -
INCREASE IN LOADING - - - - - - -
INCREASE IN RESERVES - 82,990 87,788 95,053 103,573 112,655 123,974
INCR IN DIVIDEND LIABILITY - - - - - - -
TOTAL DISBURSEMENTS - 93,800 105,191 119,700 136,214 154,103 175,115
STATUTORY GAIN - -1,870 1,309 2,365 2,675 3,030 1,784
CAPITAL GAINS - - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - - -
LESS DEFAULT LOSSES - - - - - - -
BOOK PROFIT - -1,870 1,309 2,365 2,675 3,030 1,784
INCR IN SURPLUS - - - - - - -
TAXES - - - - - - -
PROFITS RELEASED - -1,870 1,309 2,365 2,675 3,030 1,784
STATUTORY RESERVE - 82,990 170,778 265,831 369,405 482,059 606,034
DIVIDEND LIABILITY - - - - - - -
TOTAL LIABILITY - 82,990 170,778 265,831 369,405 482,059 606,034
SURPLUS - - - - - - -
TAX RESERVE - 82,990 170,778 265,831 369,405 482,059 606,034
POLICIES IN FORCE (UNSCALED) - 7,375 11,324 15,383 19,571 23,906 28,408
ANNUITIZATION VALUE IN FORCE - 86,245 179,750 280,993 390,478 508,734 636,320
CASH SURRENDER VALUE IN FORCE - 80,812 168,426 263,291 366,661 479,096 601,182
SURRENDER VALUE IN FORCE - 86,245 179,750 280,993 390,478 508,734 636,320
POLICY LOANS IN FORCE - - - - - - -
GROSS DEFERRED PREMIUMS - - - - - - -
NET DEFERRED PREMIUMS - - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED - -1,669 -625 1,058 2,758 4,477 5,381
PV AT 14.00% PROFITS RELEASED - -1,640 -632 964 2,548 4,121 4,934
PV AT 16.00% PROFITS RELEASED - -1,612 -639 877 2,354 3,796 4,529
PV AT AFTER TAX EARNED RATE - -1,715 -613 1,213 3,108 5,077 6,141
</TABLE>
A-25
<PAGE> 79
REPORT: 16
GREAT AMERICAN LIFE PAGE: 2
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB BANK SPDA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 1 9/ 2 9/ 3 9/ 4 9/ 5 9/ 6
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 134,884 145,675 157,329 169,915 183,509 198,189
GROSS INVESTMENT INCOME 62,717 73,325 84,159 95,296 106,814 118,795
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 197,602 219,000 241,488 265,211 290,323 316,984
NET SURRENDERS 55,484 70,427 85,395 100,503 115,862 131,587
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 11,102 13,392 15,834 18,438 21,217 24,168
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 3,188 3,701 4,227 4,768 5,329 5,914
NET COMMISSIONS 9,686 10,591 11,553 12,579 13,676 14,850
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 116,819 118,621 121,281 124,806 129,207 134,515
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 196,280 216,731 238,290 261,095 285,291 311,033
STATUTORY GAIN 1,322 2,269 3,198 4,116 5,031 5,951
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 1,322 2,269 3,198 4,116 5,031 5,951
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 1,322 2,269 3,198 4,116 5,031 5,951
STATUTORY RESERVE 722,853 841,474 962,755 1,087,561 1,216,768 1,351,282
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 722,853 841,474 962,755 1,087,561 1,216,768 1,351,282
SURPLUS - - - - - -
TAX RESERVE 722,853 841,474 962,755 1,087,561 1,216,768 1,351,282
POLICIES IN FORCE (UNSCALED) 32,589 36,786 41,052 45,435 49,980 54,731
ANNUITIZATION VALUE IN FORCE 755,561 876,799 1,000,906 1,128,764 1,261,267 1,399,342
CASH SURRENDER VALUE IN FORCE 717,613 835,815 956,643 1,080,961 1,209,639 1,343,584
SURRENDER VALUE IN FORCE 755,561 876,799 1,000,906 1,128,764 1,261,267 1,399,342
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 5,979 6,895 8,048 9,374 10,820 12,348
PV AT 14.00% PROFITS RELEASED 5,462 6,258 7,241 8,351 9,542 10,777
PV AT 16.00% PROFITS RELEASED 4,996 5,689 6,529 7,462 8,446 9,448
PV AT AFTER TAX EARNED RATE 6,864 8,003 9,475 11,214 13,164 15,279
</TABLE>
A-26
<PAGE> 80
REPORT: 16
GREAT AMERICAN LIFE PAGE: 3
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB BANK SPDA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 7 9/ 8 9/ 9 9/10 9/11 9/12
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 214,044 231,168 249,661 269,634 291,205 314,502
GROSS INVESTMENT INCOME 131,319 144,474 158,347 173,031 188,623 205,225
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 345,364 375,642 408,009 442,666 479,828 519,726
NET SURRENDERS 147,792 164,594 182,114 200,472 219,799 240,225
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 27,307 30,646 34,198 37,977 41,995 46,271
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 6,526 7,171 7,851 8,572 9,339 10,155
NET COMMISSIONS 16,108 17,458 18,908 20,468 22,146 23,952
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 140,749 147,943 156,133 165,364 175,689 187,166
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 338,482 367,812 399,204 432,853 468,967 507,769
STATUTORY GAIN 6,881 7,830 8,805 9,813 10,861 11,957
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 6,881 7,830 8,805 9,813 10,861 11,957
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 6,881 7,830 8,805 9,813 10,861 11,957
STATUTORY RESERVE 1,492,032 1,639,974 1,796,107 1,961,471 2,137,160 2,324,326
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 1,492,032 1,639,974 1,796,107 1,961,471 2,137,160 2,324,326
SURPLUS - - - - - -
TAX RESERVE 1,492,032 1,639,974 1,796,107 1,961,471 2,137,160 2,324,326
POLICIES IN FORCE (UNSCALED) 59,729 65,018 70,638 76,631 83,040 89,909
ANNUITIZATION VALUE IN FORCE 1,543,936 1,696,031 1,856,649 2,026,856 2,207,776 2,400,591
CASH SURRENDER VALUE IN FORCE 1,483,717 1,630,995 1,786,409 1,950,997 2,125,848 2,312,109
SURRENDER VALUE IN FORCE 1,543,936 1,696,031 1,856,649 2,026,856 2,207,776 2,400,591
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 13,925 15,527 17,136 18,736 20,318 21,873
PV AT 14.00% PROFITS RELEASED 12,030 13,281 14,514 15,720 16,891 18,022
PV AT 16.00% PROFITS RELEASED 10,448 11,428 12,378 13,291 14,162 14,989
PV AT AFTER TAX EARNED RATE 17,524 19,867 22,285 24,756 27,266 29,801
</TABLE>
A-27
<PAGE> 81
REPORT: 16
GREAT AMERICAN LIFE PAGE: 4
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB BANK SPDA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/13 9/14 9/15 9/16 9/17 9/18
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 339,662 366,835 - - - -
GROSS INVESTMENT INCOME 222,945 241,896 228,946 213,630 197,887 180,819
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 562,606 608,731 228,946 213,630 197,887 180,819
NET SURRENDERS 261,890 284,940 288,550 292,271 296,221 300,254
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 50,822 55,669 55,680 55,218 54,218 52,585
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 11,028 11,961 10,922 10,184 9,381 8,510
NET COMMISSIONS 25,899 27,997 5,475 5,107 4,707 4,273
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 199,858 213,838 -155,868 -159,757 -173,663 -191,827
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 549,497 594,404 204,759 203,023 190,864 173,795
STATUTORY GAIN 13,110 14,326 24,186 10,607 7,023 7,024
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 13,110 14,326 24,186 10,607 7,023 7,024
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 13,110 14,326 24,186 10,607 7,023 7,024
STATUTORY RESERVE 2,524,184 2,738,022 2,570,251 2,397,638 2,210,091 2,003,269
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 2,524,184 2,738,022 2,570,251 2,397,638 2,210,091 2,003,269
SURPLUS - - - - - -
TAX RESERVE 2,524,184 2,738,022 2,570,251 2,397,638 2,210,091 2,003,269
POLICIES IN FORCE (UNSCALED) 97,286 105,216 79,261 69,944 60,841 51,926
ANNUITIZATION VALUE IN FORCE 2,606,550 2,826,977 2,651,150 2,459,579 2,251,480 2,026,071
CASH SURRENDER VALUE IN FORCE 2,510,990 2,723,772 2,565,014 2,391,983 2,203,983 1,996,672
SURRENDER VALUE IN FORCE 2,606,550 2,826,977 2,651,150 2,459,579 2,251,480 2,026,071
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 23,395 24,880 27,119 27,996 28,514 28,977
PV AT 14.00% PROFITS RELEASED 19,109 20,151 21,695 22,289 22,634 22,936
PV AT 16.00% PROFITS RELEASED 15,771 16,507 17,578 17,983 18,214 18,414
PV AT AFTER TAX EARNED RATE 32,350 34,907 38,866 40,459 41,427 42,314
</TABLE>
A-28
<PAGE> 82
REPORT: 16
GREAT AMERICAN LIFE PAGE: 5
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB BANK SPDA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/19 9/20 9/21 9/22 9/23 9/24
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - - - - - -
GROSS INVESTMENT INCOME 162,038 141,458 122,245 105,968 91,291 78,066
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 162,038 141,458 122,245 105,968 91,291 78,066
NET SURRENDERS 304,406 308,717 229,729 199,147 171,571 146,723
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 50,212 46,981 43,658 40,621 37,479 34,245
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 7,568 6,552 5,639 4,888 4,211 3,601
NET COMMISSIONS 3,804 3,297 2,835 2,458 2,117 1,811
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -210,880 -238,506 -178,008 -157,088 -137,822 -120,057
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 155,109 127,041 103,853 90,026 77,557 66,322
STATUTORY GAIN 6,929 14,417 18,392 15,942 13,734 11,744
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 6,929 14,417 18,392 15,942 13,734 11,744
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 6,929 14,417 18,392 15,942 13,734 11,744
STATUTORY RESERVE 1,776,195 1,520,199 1,323,303 1,145,815 985,961 842,109
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 1,776,195 1,520,199 1,323,303 1,145,815 985,961 842,109
SURPLUS - - - - - -
TAX RESERVE 1,776,195 1,520,199 1,323,303 1,145,815 985,961 842,109
POLICIES IN FORCE (UNSCALED) 43,173 34,557 28,429 23,290 18,986 15,384
ANNUITIZATION VALUE IN FORCE 1,782,569 1,520,199 1,323,303 1,145,815 985,961 842,109
CASH SURRENDER VALUE IN FORCE 1,769,070 1,520,199 1,323,303 1,145,815 985,961 842,109
SURRENDER VALUE IN FORCE 1,782,569 1,520,199 1,323,303 1,145,815 985,961 842,109
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 29,384 30,141 31,004 31,671 32,185 32,577
PV AT 14.00% PROFITS RELEASED 23,198 23,676 24,211 24,618 24,925 25,155
PV AT 16.00% PROFITS RELEASED 18,583 18,887 19,222 19,472 19,657 19,794
PV AT AFTER TAX EARNED RATE 43,118 44,652 46,447 47,875 49,003 49,888
</TABLE>
A-29
<PAGE> 83
REPORT: 16
GREAT AMERICAN LIFE PAGE: 6
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB BANK SPDA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/25 9/26 9/27 9/28 9/29 9/30
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - - - - - -
GROSS INVESTMENT INCOME 66,158 55,439 45,792 37,108 29,285 22,231
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 66,158 55,439 45,792 37,108 29,285 22,231
NET SURRENDERS 124,346 104,205 86,076 69,755 55,053 41,794
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 30,907 27,539 24,122 20,669 17,195 13,709
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 3,052 2,557 2,112 1,712 1,351 1,025
NET COMMISSIONS 1,535 1,286 1,063 861 680 516
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -103,634 -88,487 -74,468 -61,471 -49,398 -38,157
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 56,206 47,100 38,904 31,526 24,880 18,887
STATUTORY GAIN 9,952 8,340 6,888 5,582 4,405 3,344
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 9,952 8,340 6,888 5,582 4,405 3,344
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 9,952 8,340 6,888 5,582 4,405 3,344
STATUTORY RESERVE 712,777 596,536 492,093 398,250 313,890 237,975
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 712,777 596,536 492,093 398,250 313,890 237,975
SURPLUS - - - - - -
TAX RESERVE 712,777 596,536 492,093 398,250 313,890 237,975
POLICIES IN FORCE (UNSCALED) 12,372 9,855 7,752 5,995 4,525 3,293
ANNUITIZATION VALUE IN FORCE 712,777 596,536 492,093 398,250 313,890 237,975
CASH SURRENDER VALUE IN FORCE 712,777 596,536 492,093 398,250 313,890 237,975
SURRENDER VALUE IN FORCE 712,777 596,536 492,093 398,250 313,890 237,975
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 32,873 33,095 33,259 33,377 33,461 33,517
PV AT 14.00% PROFITS RELEASED 25,327 25,453 25,544 25,609 25,654 25,684
PV AT 16.00% PROFITS RELEASED 19,894 19,966 20,017 20,053 20,078 20,094
PV AT AFTER TAX EARNED RATE 50,576 51,105 51,506 51,804 52,020 52,170
</TABLE>
A-30
<PAGE> 84
REPORT: 16
GREAT AMERICAN LIFE PAGE: 7
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB BANK SPDA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/31 9/32 9/33
<S> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - - -
GROSS INVESTMENT INCOME 15,856 10,077 4,816
ACCRUAL OF DISCOUNT - - -
LESS INVESTMENT EXPENSE - - -
LESS INCOME LOST ON DEFAULTS - - -
TOTAL INCOME 15,856 10,077 4,816
NET SURRENDERS 29,810 18,946 9,056
PARTIAL SURRENDERS - - -
DEATH BENEFITS 10,237 6,788 3,372
DIVIDENDS - - -
ACQUISITION EXPENSES - - -
OTHER EXPENSES 731 465 222
NET COMMISSIONS 368 234 112
SURPLUS RELIEF CHARGE - - -
INCREASE IN LOADING - - -
INCREASE IN RESERVES -27,676 -17,871 -8,670
INCR IN DIVIDEND LIABILITY - - -
TOTAL DISBURSEMENTS 13,471 8,561 4,092
STATUTORY GAIN 2,385 1,515 724
CAPITAL GAINS - - -
GAIN ON CALLS AND ROLLOVER - - -
LESS DEFAULT LOSSES - - -
BOOK PROFIT 2,385 1,515 724
INCR IN SURPLUS - - -
TAXES - - -
PROFITS RELEASED 2,385 1,515 724
STATUTORY RESERVE 169,519 107,606 51,371
DIVIDEND LIABILITY - - -
TOTAL LIABILITY 169,519 107,606 51,371
SURPLUS - - -
TAX RESERVE 169,519 107,606 51,371
POLICIES IN FORCE (UNSCALED) 2,257 1,382 639
ANNUITIZATION VALUE IN FORCE 169,519 107,606 51,371
CASH SURRENDER VALUE IN FORCE 169,519 107,606 51,371
SURRENDER VALUE IN FORCE 169,519 107,606 51,371
POLICY LOANS IN FORCE - - -
GROSS DEFERRED PREMIUMS - - -
NET DEFERRED PREMIUMS - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 33,553 33,574 33,582
PV AT 14.00% PROFITS RELEASED 25,702 25,713 25,717
PV AT 16.00% PROFITS RELEASED 20,104 20,109 20,111
PV AT AFTER TAX EARNED RATE 52,269 52,326 52,351
</TABLE>
A-31
<PAGE> 85
SINGLE PREMIUM 20 YEARS NEW BUSINESS
MILLIMAN & ROBERTSON, INC.
<PAGE> 86
REPORT: 16
GREAT AMERICAN LIFE PAGE: 1
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SP7R+6 SPDA - 20 YEARS UNIT FACTOR IS 1,000.
OF ISSUES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/94 9/95 9/96 9/97 9/98 9/99 9/ 0
<S> <C> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - 105,000 113,400 122,472 132,270 142,851 154,279
GROSS INVESTMENT INCOME - 8,587 17,995 28,036 38,725 50,079 62,155
ACCRUAL OF DISCOUNT - - - - - - -
LESS INVESTMENT EXPENSE - - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - - -
TOTAL INCOME - 113,587 131,395 150,508 170,995 192,931 216,435
NET SURRENDERS - 7,649 15,765 24,393 34,372 44,902 56,056
PARTIAL SURRENDERS - - - - - - -
DEATH BENEFITS - 750 1,596 2,547 3,609 4,786 6,088
DIVIDENDS - - - - - - -
ACQUISITION EXPENSES - - - - - - -
OTHER EXPENSES - 518 964 1,434 1,930 2,452 3,003
NET COMMISSIONS - 5,152 5,564 6,009 6,490 7,009 7,570
SURPLUS RELIEF CHARGE - - - - - - -
INCREASE IN LOADING - - - - - - -
INCREASE IN RESERVES - 101,230 107,952 115,215 122,200 129,805 138,178
INCR IN DIVIDEND LIABILITY - - - - - - -
TOTAL DISBURSEMENTS - 115,299 131,841 149,598 168,602 188,955 210,895
STATUTORY GAIN - -1,712 -446 910 2,393 3,976 5,540
CAPITAL GAINS - - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - - -
LESS DEFAULT LOSSES - - - - - - -
BOOK PROFIT - -1,712 -446 910 2,393 3,976 5,540
INCR IN SURPLUS - - - - - - -
TAXES - - - - - - -
PROFITS RELEASED - -1,712 -446 910 2,393 3,976 5,540
STATUTORY RESERVE - 101,230 209,182 324,397 446,597 576,403 714,581
DIVIDEND LIABILITY - - - - - - -
TOTAL LIABILITY - 101,230 209,182 324,397 446,597 576,403 714,581
SURPLUS - - - - - - -
TAX RESERVE - 101,230 209,182 324,397 446,597 576,403 714,581
POLICIES IN FORCE (UNSCALED) - 8,313 12,685 17,136 21,671 26,319 31,107
ANNUITIZATION VALUE IN FORCE - 109,794 226,879 351,841 484,379 625,166 774,890
CASH SURRENDER VALUE IN FORCE - 95,864 197,816 306,325 421,085 542,642 671,558
SURRENDER VALUE IN FORCE - 102,310 210,159 324,023 443,569 569,364 701,984
POLICY LOANS IN FORCE - - - - - - -
GROSS DEFERRED PREMIUMS - - - - - - -
NET DEFERRED PREMIUMS - - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED - -1,528 -1,884 -1,236 284 2,540 5,347
PV AT 14.00% PROFITS RELEASED - -1,502 -1,845 -1,231 186 2,251 4,775
PV AT 16.00% PROFITS RELEASED - -1,476 -1,807 -1,224 97 1,990 4,264
PV AT AFTER TAX EARNED RATE - -1,571 -1,946 -1,243 452 3,036 6,339
</TABLE>
A-32
<PAGE> 87
REPORT: 16
GREAT AMERICAN LIFE PAGE: 2
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SP7R+6 SPDA - 20 YEARS UNIT FACTOR IS 1,000.
OF ISSUES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 1 9/ 2 9/ 3 9/ 4 9/ 5 9/ 6
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 166,622 179,952 194,348 209,895 226,687 244,822
GROSS INVESTMENT INCOME 75,024 88,759 103,383 118,905 135,410 152,988
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 241,646 268,710 297,731 328,801 362,097 397,810
NET SURRENDERS 67,905 80,515 94,847 109,843 125,610 142,252
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 7,526 9,111 10,847 12,738 14,798 17,035
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 3,585 4,201 4,852 5,540 6,267 7,039
NET COMMISSIONS 8,176 8,830 9,536 10,299 11,123 12,013
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 147,327 157,177 166,478 176,706 187,895 200,099
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 234,519 259,834 286,560 315,125 345,692 378,438
STATUTORY GAIN 7,127 8,877 11,171 13,676 16,405 19,372
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 7,127 8,877 11,171 13,676 16,405 19,372
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 7,127 8,877 11,171 13,676 16,405 19,372
STATUTORY RESERVE 861,908 1,019,085 1,185,563 1,362,269 1,550,164 1,750,263
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 861,908 1,019,085 1,185,563 1,362,269 1,550,164 1,750,263
SURPLUS - - - - - -
TAX RESERVE 861,908 1,019,085 1,185,563 1,362,269 1,550,164 1,750,263
POLICIES IN FORCE (UNSCALED) 36,063 41,218 46,583 52,191 58,082 64,291
ANNUITIZATION VALUE IN FORCE 934,270 1,104,069 1,283,940 1,474,882 1,677,934 1,894,195
CASH SURRENDER VALUE IN FORCE 808,421 953,859 1,106,876 1,268,325 1,439,087 1,620,089
SURRENDER VALUE IN FORCE 842,037 990,164 1,146,085 1,310,670 1,484,820 1,669,481
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 8,571 12,156 16,184 20,588 25,304 30,276
PV AT 14.00% PROFITS RELEASED 7,623 10,735 14,170 17,859 21,741 25,762
PV AT 16.00% PROFITS RELEASED 6,786 9,493 12,431 15,531 18,737 22,000
PV AT AFTER TAX EARNED RATE 10,238 14,693 19,836 25,613 31,971 38,858
</TABLE>
A-33
<PAGE> 88
REPORT: 16
GREAT AMERICAN LIFE PAGE: 3
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SP7R+6 SPDA - 20 YEARS UNIT FACTOR IS 1,000.
OF ISSUES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 7 9/ 8 9/ 9 9/10 9/11 9/12
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 264,408 285,560 308,405 333,078 359,724 388,502
GROSS INVESTMENT INCOME 171,733 191,716 213,006 235,723 259,991 285,944
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 436,141 477,277 521,412 568,800 619,715 674,446
NET SURRENDERS 159,869 179,247 199,727 221,447 244,547 269,168
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 19,467 22,101 24,947 28,022 31,340 34,921
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 7,859 8,730 9,656 10,643 11,695 12,819
NET COMMISSIONS 12,974 14,011 15,132 16,343 17,650 19,062
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 213,378 226,980 241,852 258,060 275,686 294,824
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 413,546 451,069 491,315 534,515 580,919 630,794
STATUTORY GAIN 22,595 26,207 30,097 34,285 38,795 43,651
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 22,595 26,207 30,097 34,285 38,795 43,651
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 22,595 26,207 30,097 34,285 38,795 43,651
STATUTORY RESERVE 1,963,641 2,190,621 2,432,473 2,690,533 2,966,219 3,261,043
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 1,963,641 2,190,621 2,432,473 2,690,533 2,966,219 3,261,043
SURPLUS - - - - - -
TAX RESERVE 1,963,641 2,190,621 2,432,473 2,690,533 2,966,219 3,261,043
POLICIES IN FORCE (UNSCALED) 70,858 77,811 85,194 93,055 101,442 110,406
ANNUITIZATION VALUE IN FORCE 2,124,824 2,370,173 2,631,615 2,910,593 3,208,640 3,527,390
CASH SURRENDER VALUE IN FORCE 1,812,309 2,016,100 2,232,628 2,463,116 2,708,861 2,971,242
SURRENDER VALUE IN FORCE 1,865,653 2,073,711 2,294,847 2,530,313 2,781,434 3,049,621
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 35,454 40,817 46,316 51,908 57,559 63,235
PV AT 14.00% PROFITS RELEASED 29,876 34,061 38,278 42,491 46,673 50,801
PV AT 16.00% PROFITS RELEASED 25,282 28,563 31,811 35,001 38,113 41,131
PV AT AFTER TAX EARNED RATE 46,228 54,071 62,333 70,969 79,933 89,187
</TABLE>
A-34
<PAGE> 89
REPORT: 16
GREAT AMERICAN LIFE PAGE: 4
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SP7R+6 SPDA - 20 YEARS UNIT FACTOR IS 1,000.
OF ISSUES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/13 9/14 9/15 9/16 9/17 9/18
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 419,582 453,149 - - - -
GROSS INVESTMENT INCOME 313,695 343,360 330,806 316,623 301,858 286,640
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 733,277 796,508 330,806 316,623 301,858 286,640
NET SURRENDERS 296,097 324,729 315,058 305,285 295,372 281,583
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 38,777 42,924 42,863 42,629 42,199 41,575
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 14,020 15,304 14,113 13,359 12,594 11,824
NET COMMISSIONS 20,587 22,234 - - - -
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 314,750 336,508 -108,400 -110,659 -113,107 -111,756
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 684,232 741,699 263,634 250,614 237,057 223,226
STATUTORY GAIN 49,045 54,809 67,173 66,009 64,801 63,414
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 49,045 54,809 67,173 66,009 64,801 63,414
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 49,045 54,809 67,173 66,009 64,801 63,414
STATUTORY RESERVE 3,575,793 3,912,301 3,753,456 3,588,317 3,416,372 3,241,070
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 3,575,793 3,912,301 3,753,456 3,588,317 3,416,372 3,241,070
SURPLUS - - - - - -
TAX RESERVE 3,575,793 3,912,301 3,753,456 3,588,317 3,416,372 3,241,070
POLICIES IN FORCE (UNSCALED) 119,994 130,264 101,938 92,815 84,225 76,214
ANNUITIZATION VALUE IN FORCE 3,867,698 4,231,543 4,058,322 3,878,198 3,690,611 3,499,297
CASH SURRENDER VALUE IN FORCE 3,251,090 3,550,077 3,387,263 3,218,798 3,044,306 2,867,180
SURRENDER VALUE IN FORCE 3,335,739 3,641,498 3,455,955 3,267,901 3,076,982 2,886,760
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 68,929 74,611 80,829 86,284 91,066 95,243
PV AT 14.00% PROFITS RELEASED 54,869 58,857 63,145 66,840 70,023 72,755
PV AT 16.00% PROFITS RELEASED 44,054 46,871 49,846 52,367 54,500 56,300
PV AT AFTER TAX EARNED RATE 98,726 108,506 119,502 129,415 138,343 146,359
</TABLE>
A-35
<PAGE> 90
REPORT: 16
GREAT AMERICAN LIFE PAGE: 5
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SP7R+6 SPDA - 20 YEARS UNIT FACTOR IS 1,000.
OF ISSUES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/19 9/20 9/21 9/22 9/23 9/24
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - - - - - -
GROSS INVESTMENT INCOME 271,091 255,166 238,774 221,834 204,512 187,075
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 271,091 255,166 238,774 221,834 204,512 187,075
NET SURRENDERS 267,849 254,032 240,025 225,776 207,060 189,092
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 40,762 39,739 38,486 36,984 35,249 33,299
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 11,056 10,287 9,517 8,744 7,976 7,220
NET COMMISSIONS - - - - - -
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -110,578 -110,045 -109,971 -109,743 -103,268 -97,122
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 209,090 194,013 178,057 161,761 147,017 132,489
STATUTORY GAIN 62,001 61,154 60,717 60,073 57,495 54,586
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 62,001 61,154 60,717 60,073 57,495 54,586
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 62,001 61,154 60,717 60,073 57,495 54,586
STATUTORY RESERVE 3,061,864 2,877,699 2,687,679 2,491,483 2,294,847 2,096,886
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 3,061,864 2,877,699 2,687,679 2,491,483 2,294,847 2,096,886
SURPLUS - - - - - -
TAX RESERVE 3,061,864 2,877,699 2,687,679 2,491,483 2,294,847 2,096,886
POLICIES IN FORCE (UNSCALED) 68,731 61,727 55,160 48,992 43,279 37,968
ANNUITIZATION VALUE IN FORCE 3,303,653 3,103,198 2,897,527 2,686,270 2,474,485 2,261,223
CASH SURRENDER VALUE IN FORCE 2,686,995 2,503,421 2,316,190 2,125,047 1,937,518 1,752,743
SURRENDER VALUE IN FORCE 2,696,776 2,506,680 2,316,190 2,125,047 1,937,518 1,752,743
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 98,891 102,102 104,950 107,465 109,614 111,436
PV AT 14.00% PROFITS RELEASED 75,098 77,125 78,890 80,423 81,709 82,781
PV AT 16.00% PROFITS RELEASED 57,817 59,107 60,211 61,152 61,929 62,565
PV AT AFTER TAX EARNED RATE 153,550 160,056 165,982 171,362 176,085 180,199
</TABLE>
A-36
<PAGE> 91
REPORT: 16
GREAT AMERICAN LIFE PAGE: 6
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SP7R+6 SPDA - 20 YEARS UNIT FACTOR IS 1,000.
OF ISSUES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/25 9/26 9/27 9/28 9/29 9/30
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - - - - - -
GROSS INVESTMENT INCOME 169,450 151,568 133,367 114,934 96,383 77,638
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 169,450 151,568 133,367 114,934 96,383 77,638
NET SURRENDERS 171,688 154,693 138,000 118,328 99,176 80,349
PARTIAL SURRENDERS - - - - - -
DEATH BENEFITS 31,112 28,688 26,003 23,065 19,885 16,445
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 6,473 5,731 4,993 4,261 3,540 2,825
NET COMMISSIONS - - - - - -
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -91,155 -85,270 -79,372 -69,554 -59,803 -49,951
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 118,118 103,843 89,623 76,100 62,798 49,668
STATUTORY GAIN 51,332 47,725 43,744 38,834 33,585 27,970
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 51,332 47,725 43,744 38,834 33,585 27,970
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 51,332 47,725 43,744 38,834 33,585 27,970
STATUTORY RESERVE 1,896,826 1,693,938 1,487,538 1,280,795 1,072,827 862,858
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 1,896,826 1,693,938 1,487,538 1,280,795 1,072,827 862,858
SURPLUS - - - - - -
TAX RESERVE 1,896,826 1,693,938 1,487,538 1,280,795 1,072,827 862,858
POLICIES IN FORCE (UNSCALED) 33,012 28,370 24,004 19,939 16,134 12,553
ANNUITIZATION VALUE IN FORCE 2,045,649 1,826,984 1,604,489 1,381,585 1,157,326 930,875
CASH SURRENDER VALUE IN FORCE 1,569,976 1,388,533 1,207,777 1,030,308 855,262 681,881
SURRENDER VALUE IN FORCE 1,569,976 1,388,533 1,207,777 1,030,308 855,262 681,881
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 112,966 114,236 115,275 116,099 116,735 117,208
PV AT 14.00% PROFITS RELEASED 83,664 84,385 84,965 85,416 85,758 86,008
PV AT 16.00% PROFITS RELEASED 63,080 63,494 63,820 64,070 64,256 64,390
PV AT AFTER TAX EARNED RATE 183,749 186,777 189,322 191,396 193,041 194,298
</TABLE>
A-37
<PAGE> 92
REPORT: 16
GREAT AMERICAN LIFE PAGE: 7
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SP7R+6 SPDA - 20 YEARS UNIT FACTOR IS 1,000.
OF ISSUES
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/31 9/32 9/33
<S> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - - -
GROSS INVESTMENT INCOME 58,633 39,300 19,717
ACCRUAL OF DISCOUNT - - -
LESS INVESTMENT EXPENSE - - -
LESS INCOME LOST ON DEFAULTS - - -
TOTAL INCOME 58,633 39,300 19,717
NET SURRENDERS 61,679 43,044 21,339
PARTIAL SURRENDERS - - -
DEATH BENEFITS 12,743 8,759 4,507
DIVIDENDS - - -
ACQUISITION EXPENSES - - -
OTHER EXPENSES 2,114 1,404 699
NET COMMISSIONS - - -
SURPLUS RELIEF CHARGE - - -
INCREASE IN LOADING - - -
INCREASE IN RESERVES -39,876 -29,469 -14,770
INCR IN DIVIDEND LIABILITY - - -
TOTAL DISBURSEMENTS 36,660 23,739 11,774
STATUTORY GAIN 21,973 15,562 7,943
CAPITAL GAINS - - -
GAIN ON CALLS AND ROLLOVER - - -
LESS DEFAULT LOSSES - - -
BOOK PROFIT 21,973 15,562 7,943
INCR IN SURPLUS - - -
TAXES - - -
PROFITS RELEASED 21,973 15,562 7,943
STATUTORY RESERVE 650,163 434,049 217,703
DIVIDEND LIABILITY - - -
TOTAL LIABILITY 650,163 434,049 217,703
SURPLUS - - -
TAX RESERVE 650,163 434,049 217,703
POLICIES IN FORCE (UNSCALED) 9,164 5,938 2,895
ANNUITIZATION VALUE IN FORCE 701,452 468,313 234,899
CASH SURRENDER VALUE IN FORCE 509,463 337,343 167,878
SURRENDER VALUE IN FORCE 509,463 337,343 167,878
POLICY LOANS IN FORCE - - -
GROSS DEFERRED PREMIUMS - - -
NET DEFERRED PREMIUMS - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 117,540 117,749 117,845
PV AT 14.00% PROFITS RELEASED 86,181 86,288 86,336
PV AT 16.00% PROFITS RELEASED 64,480 64,536 64,560
PV AT AFTER TAX EARNED RATE 195,204 195,793 196,068
</TABLE>
A-38
<PAGE> 93
SPIAs FROM NEW BUSINESS
MILLIMAN & ROBERTSON, INC.
<PAGE> 94
REPORT: 16
GREAT AMERICAN LIFE PAGE: 1
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SPIA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/94 9/95 9/96 9/97 9/98 9/99 9/ 0
<S> <C> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS - 353 726 1,111 1,561 2,020 2,491
GROSS INVESTMENT INCOME - - 26 75 141 223 314
ACCRUAL OF DISCOUNT - - - - - - -
LESS INVESTMENT EXPENSE - - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - - -
TOTAL INCOME - 353 752 1,185 1,701 2,243 2,804
NET SURRENDERS - - - - - - -
PARTIAL SURRENDERS - - 78 238 482 826 1,271
DEATH BENEFITS - - - - - - -
DIVIDENDS - - - - - - -
ACQUISITION EXPENSES - - - - - - -
OTHER EXPENSES - - 2 3 5 8 11
NET COMMISSIONS - - - - - - -
SURPLUS RELIEF CHARGE - - - - - - -
INCREASE IN LOADING - - - - - - -
INCREASE IN RESERVES - 330 621 859 1,086 1,236 1,302
INCR IN DIVIDEND LIABILITY - - - - - - -
TOTAL DISBURSEMENTS - 330 701 1,100 1,574 2,070 2,583
STATUTORY GAIN - 23 52 86 128 173 221
CAPITAL GAINS - - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - - -
LESS DEFAULT LOSSES - - - - - - -
BOOK PROFIT - 23 52 86 128 173 221
INCR IN SURPLUS - - - - - - -
TAXES - - - - - - -
PROFITS RELEASED - 23 52 86 128 173 221
STATUTORY RESERVE - 330 951 1,810 2,896 4,132 5,433
DIVIDEND LIABILITY - - - - - - -
TOTAL LIABILITY - 330 951 1,810 2,896 4,132 5,433
SURPLUS - - - - - - -
TAX RESERVE - 330 951 1,810 2,896 4,132 5,433
POLICIES IN FORCE (UNSCALED) - - - - - - -
ANNUITIZATION VALUE IN FORCE - 330 951 1,810 2,896 4,132 5,433
CASH SURRENDER VALUE IN FORCE - 330 951 1,810 2,896 4,132 5,433
SURRENDER VALUE IN FORCE - - - - - - -
POLICY LOANS IN FORCE - - - - - - -
GROSS DEFERRED PREMIUMS - - - - - - -
NET DEFERRED PREMIUMS - - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED - 20 61 123 204 302 414
PV AT 14.00% PROFITS RELEASED - 20 60 118 193 283 384
PV AT 16.00% PROFITS RELEASED - 20 58 113 183 266 357
PV AT AFTER TAX EARNED RATE - 21 64 131 221 333 465
</TABLE>
A-39
<PAGE> 95
REPORT: 16
GREAT AMERICAN LIFE PAGE: 2
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SPIA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 1 9/ 2 9/ 3 9/ 4 9/ 5 9/ 6
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 2,984 3,492 4,077 4,670 5,273 5,897
GROSS INVESTMENT INCOME 409 510 614 726 845 968
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 3,393 4,001 4,691 5,396 6,118 6,865
NET SURRENDERS - - - - - -
PARTIAL SURRENDERS 1,742 2,239 2,763 3,317 3,901 4,514
DEATH BENEFITS - - - - - -
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 14 16 20 23 26 30
NET COMMISSIONS - - - - - -
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 1,366 1,422 1,526 1,614 1,686 1,753
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 3,121 3,677 4,309 4,954 5,613 6,296
STATUTORY GAIN 272 324 382 442 504 569
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 272 324 382 442 504 569
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 272 324 382 442 504 569
STATUTORY RESERVE 6,799 8,221 9,748 11,361 13,047 14,800
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 6,799 8,221 9,748 11,361 13,047 14,800
SURPLUS - - - - - -
TAX RESERVE 6,799 8,221 9,748 11,361 13,047 14,800
POLICIES IN FORCE (UNSCALED) - - - - - -
ANNUITIZATION VALUE IN FORCE 6,799 8,221 9,748 11,361 13,047 14,800
CASH SURRENDER VALUE IN FORCE 6,799 8,221 9,748 11,361 13,047 14,800
SURRENDER VALUE IN FORCE - - - - - -
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 537 668 806 948 1,093 1,239
PV AT 14.00% PROFITS RELEASED 492 606 724 843 962 1,080
PV AT 16.00% PROFITS RELEASED 453 552 652 752 851 947
PV AT AFTER TAX EARNED RATE 614 777 953 1,140 1,335 1,537
</TABLE>
A-40
<PAGE> 96
REPORT: 16
GREAT AMERICAN LIFE PAGE: 3
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SPIA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/ 7 9/ 8 9/ 9 9/10 9/11 9/12
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 6,535 7,240 7,957 8,691 9,450 10,230
GROSS INVESTMENT INCOME 1,097 1,229 1,368 1,514 1,665 1,821
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 7,632 8,469 9,326 10,204 11,114 12,051
NET SURRENDERS - - - - - -
PARTIAL SURRENDERS 5,155 5,826 6,522 7,246 7,998 8,781
DEATH BENEFITS - - - - - -
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 34 38 42 46 51 55
NET COMMISSIONS - - - - - -
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 1,808 1,899 1,982 2,057 2,131 2,200
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 6,997 7,762 8,546 9,349 10,180 11,036
STATUTORY GAIN 635 706 780 856 934 1,015
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 635 706 780 856 934 1,015
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 635 706 780 856 934 1,015
STATUTORY RESERVE 16,608 18,507 20,488 22,545 24,676 26,876
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 16,608 18,507 20,488 22,545 24,676 26,876
SURPLUS - - - - - -
TAX RESERVE 16,608 18,507 20,488 22,545 24,676 26,876
POLICIES IN FORCE (UNSCALED) - - - - - -
ANNUITIZATION VALUE IN FORCE 16,608 18,507 20,488 22,545 24,676 26,876
CASH SURRENDER VALUE IN FORCE 16,608 18,507 20,488 22,545 24,676 26,876
SURRENDER VALUE IN FORCE - - - - - -
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 1,385 1,529 1,672 1,811 1,947 2,079
PV AT 14.00% PROFITS RELEASED 1,196 1,309 1,418 1,523 1,624 1,720
PV AT 16.00% PROFITS RELEASED 1,039 1,128 1,212 1,291 1,366 1,436
PV AT AFTER TAX EARNED RATE 1,745 1,956 2,170 2,386 2,601 2,817
</TABLE>
A-41
<PAGE> 97
REPORT: 16
GREAT AMERICAN LIFE PAGE: 4
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SPIA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/13 9/14 9/15 9/16 9/17 9/18
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 11,081 11,951 11,612 11,248 10,887 10,385
GROSS INVESTMENT INCOME 1,982 2,151 2,258 2,302 2,292 2,241
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 13,063 14,101 13,871 13,551 13,179 12,626
NET SURRENDERS - - - - - -
PARTIAL SURRENDERS 9,594 10,440 10,963 11,305 11,456 11,411
DEATH BENEFITS - - - - - -
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 60 65 67 68 67 65
NET COMMISSIONS - - - - - -
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES 2,307 2,406 1,651 1,003 506 42
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 11,962 12,911 12,681 12,375 12,029 11,518
STATUTORY GAIN 1,101 1,190 1,190 1,175 1,150 1,108
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 1,101 1,190 1,190 1,175 1,150 1,108
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 1,101 1,190 1,190 1,175 1,150 1,108
STATUTORY RESERVE 29,183 31,589 32,293 32,303 31,766 30,712
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 29,183 31,589 32,293 32,303 31,766 30,712
SURPLUS - - - - - -
TAX RESERVE 29,183 31,589 32,293 32,303 31,766 30,712
POLICIES IN FORCE (UNSCALED) - - - - - -
ANNUITIZATION VALUE IN FORCE 29,183 31,589 32,293 32,303 31,766 30,712
CASH SURRENDER VALUE IN FORCE 29,183 31,589 32,293 32,303 31,766 30,712
SURRENDER VALUE IN FORCE - - - - - -
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 2,207 2,331 2,441 2,538 2,623 2,696
PV AT 14.00% PROFITS RELEASED 1,811 1,898 1,974 2,040 2,096 2,144
PV AT 16.00% PROFITS RELEASED 1,502 1,563 1,616 1,661 1,699 1,730
PV AT AFTER TAX EARNED RATE 3,031 3,243 3,438 3,614 3,773 3,913
</TABLE>
A-42
<PAGE> 98
REPORT: 16
GREAT AMERICAN LIFE PAGE: 5
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SPIA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/19 9/20 9/21 9/22 9/23 9/24
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 9,893 9,406 8,899 8,392 7,721 7,075
GROSS INVESTMENT INCOME 2,154 2,050 1,940 1,825 1,708 1,577
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 12,047 11,456 10,839 10,217 9,429 8,652
NET SURRENDERS - - - - - -
PARTIAL SURRENDERS 11,134 10,619 10,070 9,485 8,865 8,205
DEATH BENEFITS - - - - - -
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 62 59 56 52 49 45
NET COMMISSIONS - - - - - -
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -208 -230 -240 -219 -318 -363
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 10,987 10,448 9,885 9,319 8,596 7,887
STATUTORY GAIN 1,060 1,008 954 899 832 765
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 1,060 1,008 954 899 832 765
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 1,060 1,008 954 899 832 765
STATUTORY RESERVE 29,354 27,916 26,407 24,857 23,140 21,309
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 29,354 27,916 26,407 24,857 23,140 21,309
SURPLUS - - - - - -
TAX RESERVE 29,354 27,916 26,407 24,857 23,140 21,309
POLICIES IN FORCE (UNSCALED) - - - - - -
ANNUITIZATION VALUE IN FORCE 29,354 27,916 26,407 24,857 23,140 21,309
CASH SURRENDER VALUE IN FORCE 29,354 27,916 26,407 24,857 23,140 21,309
SURRENDER VALUE IN FORCE - - - - - -
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 2,758 2,811 2,856 2,893 2,925 2,950
PV AT 14.00% PROFITS RELEASED 2,184 2,217 2,245 2,268 2,287 2,302
PV AT 16.00% PROFITS RELEASED 1,756 1,777 1,795 1,809 1,820 1,829
PV AT AFTER TAX EARNED RATE 4,036 4,143 4,236 4,317 4,385 4,443
</TABLE>
A-43
<PAGE> 99
REPORT: 16
GREAT AMERICAN LIFE PAGE: 6
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SPIA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/25 9/26 9/27 9/28 9/29 9/30
<S> <C> <C> <C> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 6,449 5,816 5,195 4,452 3,732 3,028
GROSS INVESTMENT INCOME 1,438 1,293 1,145 997 841 679
ACCRUAL OF DISCOUNT - - - - - -
LESS INVESTMENT EXPENSE - - - - - -
LESS INCOME LOST ON DEFAULTS - - - - - -
TOTAL INCOME 7,886 7,109 6,340 5,450 4,573 3,706
NET SURRENDERS - - - - - -
PARTIAL SURRENDERS 7,506 6,773 6,009 5,215 4,400 3,565
DEATH BENEFITS - - - - - -
DIVIDENDS - - - - - -
ACQUISITION EXPENSES - - - - - -
OTHER EXPENSES 41 37 33 28 24 19
NET COMMISSIONS - - - - - -
SURPLUS RELIEF CHARGE - - - - - -
INCREASE IN LOADING - - - - - -
INCREASE IN RESERVES -359 -330 -261 -276 -257 -206
INCR IN DIVIDEND LIABILITY - - - - - -
TOTAL DISBURSEMENTS 7,189 6,480 5,780 4,967 4,167 3,378
STATUTORY GAIN 698 628 559 483 405 328
CAPITAL GAINS - - - - - -
GAIN ON CALLS AND ROLLOVER - - - - - -
LESS DEFAULT LOSSES - - - - - -
BOOK PROFIT 698 628 559 483 405 328
INCR IN SURPLUS - - - - - -
TAXES - - - - - -
PROFITS RELEASED 698 628 559 483 405 328
STATUTORY RESERVE 19,409 17,461 15,500 13,440 11,309 9,135
DIVIDEND LIABILITY - - - - - -
TOTAL LIABILITY 19,409 17,461 15,500 13,440 11,309 9,135
SURPLUS - - - - - -
TAX RESERVE 19,409 17,461 15,500 13,440 11,309 9,135
POLICIES IN FORCE (UNSCALED) - - - - - -
ANNUITIZATION VALUE IN FORCE 19,409 17,461 15,500 13,440 11,309 9,135
CASH SURRENDER VALUE IN FORCE 19,409 17,461 15,500 13,440 11,309 9,135
SURRENDER VALUE IN FORCE - - - - - -
POLICY LOANS IN FORCE - - - - - -
GROSS DEFERRED PREMIUMS - - - - - -
NET DEFERRED PREMIUMS - - - - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 2,971 2,988 3,001 3,011 3,019 3,024
PV AT 14.00% PROFITS RELEASED 2,314 2,323 2,331 2,336 2,340 2,343
PV AT 16.00% PROFITS RELEASED 1,836 1,841 1,846 1,849 1,851 1,853
PV AT AFTER TAX EARNED RATE 4,491 4,531 4,564 4,589 4,609 4,624
</TABLE>
A-44
<PAGE> 100
REPORT: 16
GREAT AMERICAN LIFE PAGE: 7
TRIAL: 1 RISK ANALYSIS SYSTEM DATE: 12/02/94 TIME: 2:19 PM
PRODUCT: FB SPIA - 20 YEARS OF ISSUES UNIT FACTOR IS 1,000.
STRATEGY: (WSID: READ994A)
<TABLE>
<CAPTION>
9/31 9/32 9/33
<S> <C> <C> <C>
STATUTORY GAINS (STATEMENT BASIS)
FISCAL PERIODS
PREMIUMS 2,319 1,618 797
GROSS INVESTMENT INCOME 513 345 177
ACCRUAL OF DISCOUNT - - -
LESS INVESTMENT EXPENSE - - -
LESS INCOME LOST ON DEFAULTS - - -
TOTAL INCOME 2,832 1,963 974
NET SURRENDERS - - -
PARTIAL SURRENDERS 2,708 1,828 926
DEATH BENEFITS - - -
DIVIDENDS - - -
ACQUISITION EXPENSES - - -
OTHER EXPENSES 15 10 5
NET COMMISSIONS - - -
SURPLUS RELIEF CHARGE - - -
INCREASE IN LOADING - - -
INCREASE IN RESERVES -141 -47 -43
INCR IN DIVIDEND LIABILITY - - -
TOTAL DISBURSEMENTS 2,582 1,791 888
STATUTORY GAIN 250 172 86
CAPITAL GAINS - - -
GAIN ON CALLS AND ROLLOVER - - -
LESS DEFAULT LOSSES - - -
BOOK PROFIT 250 172 86
INCR IN SURPLUS - - -
TAXES - - -
PROFITS RELEASED 250 172 86
STATUTORY RESERVE 6,928 4,712 2,391
DIVIDEND LIABILITY - - -
TOTAL LIABILITY 6,928 4,712 2,391
SURPLUS - - -
TAX RESERVE 6,928 4,712 2,391
POLICIES IN FORCE (UNSCALED) - - -
ANNUITIZATION VALUE IN FORCE 6,928 4,712 2,391
CASH SURRENDER VALUE IN FORCE 6,928 4,712 2,391
SURRENDER VALUE IN FORCE - - -
POLICY LOANS IN FORCE - - -
GROSS DEFERRED PREMIUMS - - -
NET DEFERRED PREMIUMS - - -
PRESENT VALUE OF PROFITS RELEASED TO DATE
PV AT 12.00% PROFITS RELEASED 3,028 3,030 3,031
PV AT 14.00% PROFITS RELEASED 2,345 2,346 2,347
PV AT 16.00% PROFITS RELEASED 1,854 1,854 1,854
PV AT AFTER TAX EARNED RATE 4,634 4,641 4,644
</TABLE>
A-45
