SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the Quarterly Period Ended September 30, 1995
Commission File Number 0-4690
FINANCIAL INDUSTRIES CORPORATION
(Exact Name of Registrant as specified in its charter)
Texas 74-2126975
(State of Incorporation) (I.R.S. Employer Identification
Number)
The Austin Centre, 701 Brazos, 12th Floor
Austin, Texas 78701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (512) 404-5000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Number of common shares outstanding ($1.00 par value) at end of
period: 1,085,593
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994...............
Consolidated Statements of Income
For the three and nine month periods ended
September 30, 1995 and 1994............................
Consolidated Statements of Cash Flows
For the three and nine month periods ended
September 30, 1995 and 1994............................
Notes to Consolidated Financial Statements..................
Management's Discussion and Analysis of
Financial Conditions and Results of Operations.........
Part II
Other Information...........................................
Signature Page..............................................
Item 1. Financial Statements
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
Sept.30, Dec. 31,
1995 1994
Unaudited
ASSETS
Investments:
Fixed maturities available for sale,
at market value (amortized cost of
$79,210 and $83,397, respectively) $ 80,699 $ 77,468
Equity securities, at market (cost
approximately $11) 4 4
Policy loans 1,606 1,231
Short-term investments 28,368 28,365
Total investments 110,677 107,068
Cash 1,828 933
Investment in affiliate 39,921 24,912
Accrued investment income 780 1,166
Agent advances and other receivables 7,490 6,979
Reinsurance receivables 1,758 2,186
Due and deferred premiums 9,469 9,714
Property and equipment, net 7,453 4,057
Deferred policy acquisition costs 36,002 29,975
Present value of future profits of
acquired business 46,600 50,712
Deferred financing costs 194 389
Other assets 7,372 6,286
Separate account assets 8,372 8,723
Total assets $277,916 $253,100
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
Sept.30, Dec. 31,
1995 1994
Unaudited
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities and contractholder
deposit funds:
Future policy benefits payable $ 56,313 $ 60,411
Contractholder deposit funds 38,442 30,759
Unearned premiums 136 196
Other policy claims & benefits payable 5,008 6,579
99,899 97,945
Senior loans 8,856 17,060
Subordinated notes payable to affiliate 60,985 60,759
Deferred federal income taxes 8,329 7,010
Other liabilities 16,308 9,807
Separate account liabilities 8,372 8,723
Total liabilities 202,749 201,304
Commitments and contingencies
Shareholders' equity:
Common stock, $1.00 par value,
3,304,200 shares authorized;
1,169,060 shares issued, 1,085,593
shares outstanding in 1995 and 1994 1,169 1,169
Additional paid-in capital 7,225 7,225
Net unrealized gain (loss) on investments in
fixed maturities available for sale 2,729 (12,858)
Net unrealized loss on equity securities (1) (1)
Retained earnings 64,467 56,683
75,589 52,218
Common treasury stock, at cost, 83,467
shares in 1995 and 1994 (422) (422)
Total shareholders' equity 75,167 51,796
Total liabilities and shareholders'
equity $277,916 $253,100
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIOD
ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars, except per share data)
3 Months Ended
September 30,
1995 1994
Revenues:
Premiums $11,853 $12,104
Premiums ceded (228) (282)
Net premiums 11,625 11,822
Net investment income 1,929 1,758
Earned insurance charges 1,731 1,786
Other 803 802
Total revenues 16,088 16,168
Benefits and expenses:
Benefits and other expenses 5,420 4,437
Interest on insurance policies 510 442
Amortization of present value
of future profits of acquired
business 1,510 3,167
Amortization of deferred policy
acquisition costs 958 769
Operating expenses 4,075 3,466
Interest expense 1,197 1,223
Total benefits and expenses 13,670 13,504
Income before federal income
taxes and equity in net earnings of
affiliate 2,418 2,664
Provision for federal income taxes 495 712
Income before equity in net earnings
of affiliate 1,923 1,952
Equity in net earnings of affiliate, net
of tax 435 318
Net income $ 2,358 $ 2,270
Per Share Data:
Common stock and common stock equivalents 1,109 1,107
Net income per share available to common
shareholders $ 2.13 $ 2.05
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars, except per share data)
9 Months Ended
September 30,
1995 1994
Revenues:
Premiums $33,704 $38,831
Premiums ceded (688) (845)
Net premiums 33,016 37,986
Net investment income 5,682 5,247
Earned insurance charges 5,396 5,555
Other 2,429 2,462
Total revenues 46,523 51,250
Benefits and expenses:
Benefits and other expenses 15,264 14,708
Interest on insurance policies 1,433 1,256
Amortization of present value
of future profits of acquired
business 4,112 8,871
Amortization of deferred policy
acquisition costs 2,710 2,119
Operating expenses 10,987 11,712
Interest expense 3,566 3,661
Total benefits and expenses 38,072 42,327
Income before federal income
taxes and equity in net earnings of
affiliate 8,451 8,923
Provision for federal income taxes 2,061 2,257
Income before equity in net earnings
of affiliate 6,390 6,666
Equity in net earnings of affiliate, net
of tax 1,394 1,114
Net income $ 7,784 $ 7,780
Per Share Data:
Common stock and common stock equivalents 1,108 1,107
Net income per share available to common
shareholders $ 7.03 $ 7.03
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD
ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars)
3 Months Ended
September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,358 $ 2,270
Adjustments to reconcile net income to net
cash used in operating activities
Amortization of present value of future
profits 1,510 3,167
Amortization of deferred policy acquisition
costs 958 769
Financing costs amortized (141) 199
Equity in undistributed earnings of
affiliate (1,183) (966)
Changes in assets and liabilities net of
effects from purchase of insurance
subsidiaries:
Decrease in accrued investment income 314 507
Decrease (increase) in agent advances and
other receivables 212 (1,909)
(Increase) decrease in due and deferred
premiums (686) 178
Increase in deferred policy acquisition
costs (2,418) (2,339)
(Increase) decrease in other assets (723) 649
Increase (decrease) in policy liabilities
and accruals 1,298 (464)
Increase (Decrease) in other liabilities 2,743 (78)
Increase in policy loans (181) (125)
Decrease in deferred federal income taxes (2,672) (1,138)
Other, net (4) 783
Net cash provided by operating activities 1,385 1,503
Cash Flows From Investing Activities
Investments purchased -0- (3,444)
Proceeds from sale and maturities of
investments 399 921
Net change in short-term investments (207) 2,579
Retirement of equipment 1 -0-
Net cash provided by investing activities 193 56
Cash Flows From Financing Activities
Repayment of debt (2,091) (1,963)
Net cash used in financing activities (2,091) (1,963)
Net decrease in cash (513) (404)
Cash, beginning of period 2,341 1,708
Cash, end of period $ 1,828 $ 1,304
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLDIATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars)
9 Months Ended
September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,784 $ 7,780
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Amortization of present value of future
profits 4,112 8,871
Amortization of deferred policy acquisition
costs 2,710 2,119
Financing costs amortized 195 520
Loss on sale of equipment -0- 119
Equity in undistributed earnings of
affiliate (3,642) (3,251)
Changes in assets and liabilities net of
effects from purchase of insurance
subsidiaries:
Decrease in accrued investment income 386 286
Increase in agent advances and (83) (1,504)
other receivables
Decrease (Increase) in due and deferred 245 (1,451)
premiums
Increase in deferred policy acquisition (8,737) (7,153)
costs (1,086) (1,564)
Increase in other assets 1,954 514
Increase in policy liabilities and accruals 6,501 (2,714)
Increase (decrease) in other liabilities
Increase in policy loans (375) (256)
Increase (decrease) in deferred federal
income taxes 1,319 (2,444)
Other, net (12) 3,535
Net cash provided by operating activities 11,271 3,407
Cash Flows From Investing Activities
Investments purchased -0- (10,313)
Proceeds from sale and maturities of
investments 1,001 3,546
Net change in short-term investments (3) 11,754
Purchase of equipment, net (3,396) -0-
Net cash provided by investing activities (2,398) 4,987
Cash Flows From Financing Activities
Issuance of subordianted notes payable to
affiliate 226 201
Repayment of debt (8,204) (9,809)
Net cash used in financing activities (7,978) (9,608)
Net increase (decrease) in cash 895 (1,214)
Cash, beginning of period 933 2,518
Cash, end of period $ 1,828 $ 1,304
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The financial statements included herein reflect all adjustments
which are, in the opinion of management, necessary to present a
fair statement of the interim results. The statements have been
prepared to conform to the requirements of Form 10-Q and do not
necessarily include all disclosures required by generally
accepted accounting principles (GAAP). The reader should refer
to Form 10-K for the year ended December 31, 1994 previously
filed with the Commission for financial statements prepared in
accordance with GAAP. Certain prior year amounts have been
reclassified to conform with current year presentation.
The consolidated financial statements include the accounts of
Financial Industries Corporation ("FIC") and its wholly-owned
subsidiaries. The investment of FIC in InterContinental Life
Corporation ("ILCO") is presented using the equity method. All
significant intercompany items and transactions have been
eliminated.
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operation
For the nine-month period ended September 30, 1995, FIC's net
income was $7,784,000 ($7.03 per common share), as compared to
$7,780,000 ($7.03 per common share) for the nine-month period
ended September 30, 1994.
The decline in long-term interest rates during the first nine
months of 1995, which was related to general economic conditions,
had a positive effect upon the market value of the fixed
maturities available for sale segment of the portfolio. As of
September 30, 1995, the market value of the fixed maturities
available for sale segment was $80.7 million as compared to a
carrying value of $79.2 million, or an unrealized gain $1.5
million. There is no assurance that this unrealized gain may be
realized in the future.
The operating strategy of the Company's management emphasizes
several key objectives: expense management; marketing of
competitively priced insurance products which are designed to
generate an acceptable level of profitability; maintenance of a
high quality portfolio of investment grade securities; and the
provision of quality customer service.
The consolidated balance sheets at September 30, 1995 include
Separate Account assets of Family Life Insurance Company ("Family
Life") in the amount of $8.4 million. The Separate Account is
maintained by Family Life, which was acquired by FIC on June 12,
1991. Under the provisions of the purchase agreement between FIC
and Merrill Lynch Insurance Group, Inc., certain life insurance
companies affiliated with Merrill Lynch agreed to assume (on an
assumption reinsurance basis) the variable annuity contracts
related to such Separate Account assets. The transfer of these
assets, in accordance with the provisions of the reinsurance
agreement, is subject to certain regulatory approvals. Such
regulatory approvals have been obtained in a number of
jurisdictions, and the assumption of the business has been
completed in those states. However, the Company has not obtained
a definitive date from Merrill Lynch as to when the remaining
regulatory approvals will be obtained, so as to enable Family
Life to complete the transfer of the balance of the Separate
Account assets.
Equity in Net Income of InterContinental Life Corporation
General:
Prior to the acquisition of Family Life in June of 1991, FIC's
primary involvement in the life insurance business was through
its equity interest in InterContinental Life Corporation
("ILCO"). The Company's equity in the net earnings, net of
federal income tax, of ILCO, was $1,394,000 for the nine-month
period ended September 30, 1995, as compared to $1,114,000 for
the similar period in 1994.
FIC currently owns 1,795,146 shares of ILCO's common stock, and
holds options to acquire an additional 1,702,155 shares. The
options were granted under an Option Agreement between FIC and
ILCO which was entered into in March, 1986. In addition, Family
Life, a subsidiary of FIC, currently owns 171,200 shares of ILCO
common stock. As a result, FIC currently owns, directly and
indirectly through Family Life, 1,966,346 shares (approximately
48%) of ILCO's common stock. If all of FIC's rights under the
Option Agreement were to be presently exercised, FIC's ownership
would amount to approximately 63% of the issued and outstanding
shares of ILCO's common stock.
The fixed maturities available for sale portion of ILCO's
investment assets at September 30, 1995 was $469.4 million. The
amortized cost of the fixed maturities available for sale segment
as of September 30, 1995 was $463.3 million, representing a net
unrealized gain of $6.1 million. This unrealized gains
principally reflects changes in interest rates from the date the
respective investments were purchased. Since FIC owns
approximately 48% of the common stock of ILCO, such unrealized
gains, net of tax, are reflected in FIC's equity interest in
ILCO, and had the effect of increasing the reported value of such
equity interest by approximately $2.9 million.
ILCO's net income for the nine-month period ended September 30,
1995, as compared to the same period in 1994, was affected by an
increase in interest expense. Interest expense was $4.6 million
for the first nine months of 1995, as compared to $3.8 million
for the same period in 1994. The increase is attributable to an
increase in the average rate of interest paid on ILCO's senior
loans - 8.72% for the 1995 period, as compared to 6.56% for the
1994 period.
ILCO's results for the first nine months of 1995 include the
operations of Investors Life Insurance Company of Indiana
(formerly Meridian Life Insurance Company) for the period from
February 14, 1995 to September 30, 1995. Investors Life
Insurance Company of Indiana ("Investors-IN") was purchased by
ILCO and Investors Life Insurance Company of North America
("Investors-NA") for an adjusted purchase price of $17.1 million;
the transaction was completed on February 14, 1995.
Liquidity and Capital Resources of ILCO:
ILCO is a holding company whose principal assets consist of the
common stock of Investors-NA and its subsidiaries -
InterContinental Life Insurance Company ("ILIC") and, since
February, 1995, Investors-IN. ILCO's primary source of funds
consists of payments under the Surplus Debentures from Investors-
NA.
The cash requirements of ILCO consist primarily of its service of
the indebtedness created in connection with the 1988 acquisition
of the Investors Life Companies. As of December 31, 1994, the
unpaid principal of ILCO's Senior Loan was $66.6 million. On
January 2, 1995, ILCO made a scheduled payment of $4.5 million
under its Senior Loan. In connection with the acquisition of
Investors-IN in February, 1995, ILCO borrowed an additional $15
million under its Senior Loan to help finance the purchase. On
April 3, 1995, a principal payment in the amount of $13.2
million was made, which prepaid the Senior Loan until October 1,
1995. As a result, the Senior Loan had a principal balance at
September 30, 1995 of $63.9 million.
ILCO's principal source of liquidity consists of the periodic
payment of principal and interest to it by Investors-NA, pursuant
to the terms of the two surplus debentures. The surplus
debentures were originally issued by Standard Life Insurance
Company and its terms were previously approved by the Mississippi
Insurance Commissioner. One of the surplus debentures, in the
original amount of $15 million, was issued in connection with the
1986 acquisition of Standard Life by ILCO; the other, in the
original amount of $140 million was issued in connection with the
1988 acquisition by ILCO of the Investors Life Companies. Upon
the merger of Standard Life into Investors-NA, the obligations of
the surplus debentures were assumed by Investors-NA. As of
September 30, 1995, the outstanding principal balance of the
surplus debentures was $7.2 million and $64.3 million,
respectively. Since Investors-NA is domiciled in the State of
Washington, the Washington insurance law applies to the
administration of the terms of the surplus debentures. Under the
provisions of the surplus debentures and current law, no prior
approval of the Washington Insurance Commissioner is required for
Investors-NA to pay interest or principal on the surplus
debentures; provided that, after giving effect to such payments,
the statutory surplus of Investors-NA is in excess of $10 million
(the "surplus floor"). However, Investors-NA has voluntarily
agreed with the Washington Insurance Commissioner that it will
provide at least five days advance notice of payments which it
will make under the surplus debentures. As of September 30,
1995, the statutory capital and surplus of Investors-NA was $60.0
million, an amount substantially in excess of the surplus floor.
The funds required by Investors-NA to meet its obligations to
ILCO under the terms of the surplus debentures are generated from
operating income generated from insurance and investment
operations.
ILCO's ability to pay dividends to its shareholders is affected,
in part, by receipt of dividends from its insurance subsidiaries.
Under current Washington law, any proposed payment of a dividend
or distribution by the Company's insurance subsidiaries which,
together with dividends or distributions paid during the
preceding twelve months, exceeds the greater of (i) 10% of
statutory surplus as of the preceding December 31 or (ii)
statutory net gain from operations for the preceding calendar
year is called an "extraordinary dividend" and may not be paid
until either it has been approved, or a waiting period shall have
passed during which it has not been disapproved, by the insurance
commissioner.
In July, 1993, Washington amended its insurance code to retain
the "greater of" standard for dividends but enacted requirements
that prior notification of a proposed dividend be given to the
Washington Insurance Commissioner and that cash dividends may be
paid only from earned surplus. Investors-NA does not presently
have earned surplus as defined by the regulations adopted by the
Washington Insurance Commissioner and, therefore, is not
permitted to pay cash dividends. However, since the new law
applies only to dividend payments, the ability of Investors-NA to
make principal and interest payments under the surplus debentures
is not affected. ILCO does not anticipate that Investors-NA will
have any difficulty in making principal and interest payments on
the surplus debentures in the amounts necessary to enable ILCO to
service its Senior Loan for the foreseeable future.
Investors-IN is domiciled in the State of Indiana. Under the
Indiana insurance code, a domestic insurer may make dividend
distributions upon proper notice to the Department of Insurance,
as long as the distribution is reasonable in relation to
adequate levels of policyholder surplus and quality of earnings.
Under Indiana law the dividend must be paid from earned surplus.
Extraordinary dividend approval would be required where a
dividend exceeds the greater of 10% of surplus or the net gain
from operations for the prior fiscal year. Investors-IN
currently has earned surplus.
The Form 10-Q of ILCO for each of the quarters ended September
30, 1995 and September 30, 1994, sets forth the business
operations and financial results of ILCO and its life insurance
subsidiaries. Such 10-Q reports of ILCO, including the
discussion by ILCO's management under the caption "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations" are incorporated herein by reference.
Results of Operations
For the three-month period ended September 30, 1995, the
Company's income from operations before Federal income taxes and
before equity in net earnings of affiliate, was $2,418,000 on
revenues of $16,088,000, as compared to $2,664,000, on revenues
of $16,168,000 for the same period in 1994.
Premium income, net of reinsurance, for the third quarter of 1995
was $11.6 million, as compared to $11.8 million in the same
period in 1994.
Operating expenses were $4.1 million in the three-month period
ended September 30, 1995, as compared to $3.5 million in the same
period in 1994.
Liquidity and Capital Resources
FIC is a holding company whose principal assets consist of the
common stock of Family Life Insurance Company and its equity
ownership in InterContinental Life Corporation ("ILCO"). FIC's
primary sources of capital consists of cash flow from operations
of its subsidiaries and the proceeds from bank and institutional
borrowings.
The cash requirements of FIC and its subsidiaries consist
primarily of its service of the indebtedness created in
connection with its ownership of Family Life Insurance Company.
As of September 30, 1995 the outstanding balance of such
indebtedness was: (i) $8.9 million on the Senior Loan granted by
a group of banks and (ii) $61.0 million on the Subordinated Notes
granted by Investors-NA.
The principal source of liquidity for FIC's subsidiaries consists
of the periodic payment of principal and interest by Family Life
pursuant to the terms of a Surplus Debenture. The terms of the
Surplus Debenture were previously approved by the Washington
Insurance Commissioner. Under the provisions of the Surplus
Debenture and current law, no prior approval of the Washington
Insurance Department is required for Family Life to pay interest
or principal on the Surplus Debenture; provided that, after
giving effect to such payments, the statutory surplus of Family
Life is in excess of 6% of assets (the "surplus floor").
However, Family Life has voluntarily agreed with the Washington
Insurance Commissioner that it will provide at least five days
advance notice of payments which it will make under the surplus
debenture. As of September 30, 1995, the statutory capital and
surplus of Family Life was $ 25.6 million, an amount
substantially in excess of the surplus floor. As of September
30, 1995, the principal balance of the Surplus Debenture was
$52.4 million. The funds required by Family Life to meet its
obligations under the terms of the Surplus Debenture are
generated primarily from premium payments from policy holders,
investment income and the proceeds from the sale and redemption
of portfolio investments.
Effective July 25, 1993, Washington amended its insurance code to
retain the "greater of" standard for dividends but enacted
requirements that prior notification of a proposed dividend be
given to the Washington Insurance Commissioner and that cash
dividends may be paid only from earned surplus. Family Life does
not presently have earned surplus as defined by the regulations
adopted by the Washington Insurance Commissioner and, therefore,
is not permitted to pay cash dividends. However, since the new
law applies only to dividend payments, the ability of Family Life
to make principal and interest payments under the Surplus
Debenture is not affected. The Company does not anticipate that
Family Life will have any difficulty in making principal and
interest payments on the Surplus Debenture in the amounts
necessary to enable Family Life Corporation to service its
indebtedness for the foreseeable future.
The sources of funds for Family Life consist of premium payments
from policy holders, investment income and the proceeds from the
sale and redemption of portfolio investments. These funds are
applied primarily to provide for the payment of claims under
insurance and annuity policies, operating expenses, taxes,
investments in portfolio securities, shareholder dividends and
payments under the provisions of the Surplus Debenture.
FIC's net cash flow provided by (used in) operating activities
was $11.3 million in the nine-month period ended September 30,
1995, as compared to $3.4 million for the corresponding period of
1994. Net cash flow used in financing activities was $(8.0)
million for the nine-month period ended September 30, 1995, as
compared to $(9.6) million for the corresponding period of 1994.
In connection with the purchase of the Investors Life Companies
by ILCO, the purchase of Investors-IN by ILCO and Investors-NA
and the purchase of Family Life Insurance Company by a wholly-
owned subsidiary of FIC, FIC guaranteed the payment of the
indebtedness created in connection with such acquisitions. After
giving effect to the refinancing of the ILCO Senior Loan, the
repayment of the ILCO Subordinated Loans and the indebtedness
created in connection with the acquisition of Investors-IN, the
guaranty commitments of FIC with respect to the debt obligations
of ILCO relate to ILCO's senior loan, with an outstanding balance
at September 30, 1995 of $63.9 million.
The guaranty commitments of FIC under the loans incurred in
connection with the acquisition of Family Life (after taking into
account the repayments and new loans which occurred in July,
1993) relate to: (i) the Senior Loan of Family Life Corporation
to a bank group, with a balance of $8.9 million at September 30,
1995, (ii) the $22.5 million note issued by Family Life
Corporation to Investors Life Insurance Company of North America,
and (iii) the $34.5 million loaned by Investors-NA to two
subsidiaries of FIC.
Management believes that its cash, cash equivalents and short
term investments are sufficient to meet the needs of its business
and to satisfy debt service.
There are no trends, commitments or capital asset requirements
that are expected to have an adverse effect on the liquidity of
FIC.
Investments
As of September 30, 1995, the Company's invested assets totaled
$110.7 million, as compared to $107.1 million as of December 31,
1994.
The level of short-term investments at September 30, 1995
remained unchanged at the $28.4 million level which existed as of
December 31, 1994. The fixed maturities available for sale
portion represents $80.7 million of invested assets at September
30, 1995, as compared to $77.5 million at December 31, 1994. The
amortized cost of fixed maturities available for sale as of
September 30, 1995 was $79.2 million representing a net
unrealized gain of approximately $1.5 million. This unrealized
gain principally reflects changes in interest rates from the date
the respective investments were purchased. There is no assurance
that this unrealized gain may be realized in the future. To
reduce the exposure to interest rate changes, portfolio
investments are selected so that diversity, maturity and
liquidity factors approximate the duration of associated
policyholder liabilities.
The assets held by Family Life must comply with applicable state
insurance laws and regulations. In selecting investments for the
portfolios of its life insurance subsidiaries, the Company's
emphasis is to obtain targeted profit margins, while minimizing
the exposure to changing interest rates. This objective is
implemented by selecting primarily short-to medium-term,
investment grade fixed income securities. In making such
portfolio selections, the Company generally does not select new
investments which are commonly referred to as "high yield" or
"non-investment grade."
The Company's fixed maturities portfolio, as of September 30,
1995, consisted solely of fixed maturities investments which, in
the annual statements of the companies as filed with state
insurance departments, were designated under the National
Association of Insurance Commissioners ("NAIC") rating system as
a "1" (highest quality). As of December 31, 1994, approximately
96.3% of the fixed maturities portfolio consisted of investments
with an NAIC rating of "1" and the remaining portion were
designated with an NAIC rating of "2" (high quality).
Management believes that the absence of "high-yield" or "non-
investment grade" investments (as defined above) in the
portfolios of its life insurance subsidiary enhances the ability
of the Company to service its debt, provide security to its
policyholders and to credit relatively consistent rates of return
to its policyholders.
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
Part III. Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are defendants in certain legal
actions related to the normal business operations of the Company.
Management believes that the resolution of such legal actions
will not have a material impact upon the financial statements.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Form 10-K Annual Report of Registrant for the year ended
December 31, 1994 heretofore filed by Registrant with the
Securities and Exchange Commission, which is hereby incorporated
by reference.
(b) Reports on Form 8-K:
None
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FINANCIAL INDUSTRIES CORPORATION
/s/ James M. Grace
James M. Grace
Treasurer
Date: November 13, 1995