SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Earliest Event Reported: May 13, 1997
Jefferson-Pilot Corporation
(Exact name of registrant as specified in its charter)
North Carolina 1-5955 56-0896180
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
100 North Greene Street, Greensboro, North Carolina 27401
(Address of principal executive offices) (Zip Code)
(910) 691-3691
(Registrant's telephone number, including area code)
Item 2. Acquisition or Disposition of Assets
On May 13, 1997, Jefferson-Pilot Corporation ("JP Corp")
completed the acquisition of all outstanding shares of Chubb Life
Insurance Company of America ("Chubb Life") from The Chubb
Corporation ( Seller ).
Chubb Life's life insurance operations, principally universal
life, variable universal life and term insurance, are conducted
nationwide through Chubb Life and its life insurance
subsidiaries, Chubb Colonial Life Insurance Company and Chubb
Sovereign Life Insurance Company. Chubb Life's other
subsidiaries include Chubb Securities Corporation, a full service
NASD registered broker dealer.
The purchase price was $875 million, subject to certain potential
adjustments, which are not expected to be material.
JP Corp paid approximately $775 million at closing. In addition,
a dividend of approximately $100 million was paid by Chubb Life
to Seller immediately prior to closing.
The acquisition, which was effective as of April 30, 1997 for
financial reporting and tax purposes, was financed through sales
of portfolio securities (after tax proceeds of $260 million), issuances
of Capital Securities and MEDS (proceeds of $297 million and $75 million
respectively), and additional commercial paper borrowings of $143 million
backed up by a $375 million Amended and Restated Credit Agreement entered
into as of May 7, 1997 with a group of banks and NationsBank, N.A. (South)
as Agent.
Further Reporting
The Registrant will file an amendment to this Form 8-K within 60 days to
provide the required proforma financial information.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
(i) Audited Consolidated Financial Statements of Chubb
Life Insurance Company of America and subsidiaries including
report of independent public accountants, audited consolidated
balance sheets as of December 31, 1996 and 1995, audited
consolidated statements of income, shareholder's equity and cash
flows for the three years ended December 31, 1996, and notes to
consolidated financial statements.
(ii) Unaudited consolidated balance sheet at March 31,
1997, and unaudited consolidated condensed statements of income and
cash flows for the three months ended March 31, 1997 and 1996
for Chubb Life Insurance Company of America and subsidiaries.
(b) Pro forma financial information.
To be supplied by amendment.
(c) Exhibits
(2) Stock Purchase Agreement dated as of February 23,
1997 between Jefferson-Pilot Corporation and The Chubb
Corporation. (Confidential treatment requested with respect to
certain portions thereof.) Exhibits and Schedules set forth in
the Agreement have been omitted and have been provided
supplementally to the Securities and Exchange Commission.
(23) Consent of Ernst & Young, LLP
(99) A copy of JP Corp's May 13, 1997 press release.
(99a) Amended and Restated Credit Agreement dated as
of May 7, 1997 among the registrant and the banks named therein,
and NationsBank, N.A. (South) as Agent, is not being filed
because the total amount of borrowings available thereunder does
not exceed 10% of total consolidated assets. The registrant
agrees to furnish a copy of this agreement to the Commission upon
request.
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.
JEFFERSON-PILOT CORPORATION
By: /s/ Robert A. Reed
(name) Robert A. Reed
(title) Vice President
Dated: May 28, 1997
Index to Financial Statements and Exhibits
Number Description Page
a(i) Audited historical financial
statements AS-1
a(ii) Unaudited interim financial
statements US-1
c(2) Stock Purchase Agreement* SP-1
c(23) Consent of Ernst & Young, LLP CL-1
c(99) Press release PR-1
*Portions of this exhibit have been omitted pursuant to a request
for confidential treatment filed with the Securities and Exchange
Commission.
Audited Consolidated
Financial Statements
Chubb Life Insurance
Company of America and
Subsidiaries
Contents
Report of Independent Auditors 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 4
Consolidated Statements of Shareholder's Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Report of Independent Auditors
The Board of Directors
Chubb Life Insurance Company of America
We have audited the accompanying consolidated balance sheets of Chubb Life
Insurance Company of America and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Chubb Life
Insurance Company of America and subsidiaries at December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As described in Note 2 to the financial statements, the Company changed its
methods of accounting for certain investments in debt and equity securities
in 1994.
March 5, 1997
Chubb Life Insurance Company of America and Subsidiaries
Consolidated Balance Sheets
12/31/96 12/31/95
(In thousands)
Assets
Invested assets (Note 4)
Fixed maturities
Held-to-maturity, at amortized cost $ 381,230 $ 403,539
Available-for-sale, at market 2,498,281 2,244,192
Equity securities, at market 30,681 40,208
Short term investments, at cost 48,333 50,765
Policy loans 217,857 202,705
Mortgage loans on real estate 8,945 9,634
Total invested assets 3,185,327 2,951,043
Accrued investment income 52,473 46,000
Uncollected premiums 5,782 11,016
Reinsurance recoverable on life
and health policy liabilities 190,505 193,925
Deferred policy acquisition costs (Note 5) 644,653 575,614
Value assigned purchased insurance in force (Note 5)34,460 37,095
Goodwill, net of accumulated amortization of
$24,253 in 1996 and $22,067 in 1995 63,196 65,382
Property and equipment, net of accumulated
depreciation of $50,609 in 1996 and $61,876 in 1995 37,835 44,129
Receivable-sale of subsidiary (Note 3) 25,647 0
Separate account assets 401,430 261,764
Other assets 90,511 83,272
1,546,492 1,318,197
Total assets $ 4,731,819 $ 4,269,240
Chubb Life Insurance Company of America and Subsidiaries
Consolidated Balance Sheets
12/31/96 12/31/95
(In thousands)
Liabilities
Policy liabilities
Policy fund balances $2,415,001 $2,129,327
Future policy benefits 636,283 621,356
Policy and contract claims 72,422 85,831
Premiums paid in advance 1,628 2,136
Other policyholders' funds 105,322 98,723
3,230,656 2,937,373
Mortgage loan payable (Note 13) 4,369 5,212
Loans payable (Note 13) 50,500 36,000
Federal income taxes payable (Note 6) 10,364 8,833
Deferred federal income taxes (Note 6) 53,583 71,955
Separate account liabilities 401,430 261,764
Net liabilities of discontinued operations 18,499 0
Accrued expenses and other liabilities (Notes 7,8) 96,388 103,458
Total liabilities 3,865,789 3,424,595
Commitments and contingent liabilities (Notes 10,14)
Shareholder's equity
Common stock--$5 par value, 600,000 shares
authorized, issued and outstanding 3,000 3,000
Paid-in capital 249,872 249,872
Unrealized appreciation of investments, net(Note 4) 17,622 40,720
Retained earnings 595,536 551,053
Total shareholder's equity 866,030 844,645
Total liabilities and shareholder's equity $4,731,819 $4,269,240
Chubb Life Insurance Company of America and Subsidiaries
Consolidated Statements of Income
Years Ended December 31
1996 1995 1994
(In thousands)
Premiums and policy
charges (Note 11) $ 337,782 $ 311,275 $ 271,947
Net investment income (Note 4) 236,482 222,947 192,414
Realized investment gains (Note 4) 12,587 21,808 9,304
Other income 2,945 2,008 1,387
Total revenues 589,796 558,038 475,052
Benefits, Claims and Expenses
Policy benefits and claims 304,780 279,990 247,616
Change in reserves for
future policy benefits 16,034 24,659 20,016
320,814 304,649 267,632
Expenses
Commissions and other
operating expenses 95,034 96,392 79,617
Amortization 99,313 79,643 70,641
194,347 176,035 150,258
Total benefits, claims and expenses 515,161 480,684 417,890
Income from continuing operations
before federal income tax 74,635 77,354 57,162
Federal income tax (benefit) (Note 6)
Current 31,100 32,186 20,001
Deferred (6,001) (5,956) (2,241)
25,099 26,230 17,760
Income from continuing operations 49,536 51,124 39,402
Discontinued operations (Note 3):
Loss from operations, net of tax (1,045) (8,908) (18,851)
Net income $ 48,491 $ 42,216 $ 20,551
Chubb Life Insurance Company of America and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years Ended December 31
1996 1995 1994
(In thousands)
Common stock
Balance, beginning and end of year$ 3,000 $ 3,000 $ 3,000
Paid-in capital
Balance, beginning and end of year 249,872 249,872 249,872
Unrealized appreciation
(depreciation) of investments, net
Balance, beginning of year 40,720 (33,907) 9,245
Cumulative effect, as of January 1,
1994, of change in accounting
principle, net (Note 2) 0 0 25,140
Change, net (Note 4) (23,098) 74,627 (68,292)
Balance, end of year 17,622 40,720 (33,907)
Retained earnings
Balance, beginning of year 551,053 512,845 496,302
Net income 48,491 42,216 20,551
Dividends to parent (4,008) (4,008) (4,008)
Balance, end of year 595,536 551,053 512,845
Total shareholder's equity $ 866,030 $ 844,645 $ 731,810
Chubb Life Insurance Company of America and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31
1996 1995 1994
(In thousands)
Operating Activities
Net Income $ 48,491 $ 42,216 $ 20,551
Adjustments to reconcile
net income to net cash used in
operating activities:
Increase (decrease) in future
policy benefits, policy and
contract claims andpremiums
paid in advance, net 1,299 (31,034) (10,763)
Decrease in uncollected premiums 5,234 11,653 5,517
Increase in policy acquisition
costs deferred, net of amortization (56,603) (82,664) (63,693)
Net amortization of value assigned
purchased insurance in force 4,249 4,218 3,729
Decrease (increase) in accrued
investment income (6,473) (3,970) 918
Realized investment gains (12,587) (21,808) (9,304)
Accretion of investment discounts (3,264) (6,200) (4,129)
Provision for depreciation 7,442 8,483 8,698
Provision for deferred income tax (6,001) (5,956) (2,241)
Increase in federal income
tax payable 1,531 2,230 5,326
Other, net (15,445) 5,530 (33,609)
Net cash used in operating activities (32,127) (77,302) (79,000)
Chubb Life Insurance Company of America and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31
1996 1995 1994
(In thousands)
Investing Activities
Proceeds from sales of
fixed maturities $ 360,570 $ 599,100 $ 186,113
Proceeds from maturities of
fixed maturities 184,065 129,734 172,647
Proceeds from sales of
equity securities 56,355 109,682 56,312
Purchases of fixed maturities (815,231) (1,050,787) (446,048)
Purchases of equity securities (44,327) (50,894) (39,015)
(Increase) decrease in short term
investments, net 4,505 60,733 (52,477)
Policy loans issued, net of
repayments (15,152) (12,011) (11,499)
Mortgage loans, net 711 2,281 3,136
Other, net (1,147) (5,182) (5,878)
Net cash used for
investing activities (269,651) (217,344) (136,709)
Financing Activities
Deposits credited to
policyholders' funds 460,687 444,040 336,759
Withdrawals from
policyholders' funds (165,283) (138,071) (122,502)
Mortgage debt principal payments (843) (753) (672)
Dividends to Parent (4,008) (4,008) (4,008)
Increase in loans payable 14,500 0 4,700
Decrease in cash overdraft (3,275) (6,562) (818)
Capital contribution by minority
shareholder 0 0 2,250
Net cash provided by
financing activities 301,778 294,646 215,709
Increase (decrease) in cash 0 0 0
Cash, beginning and
end of year (Note 1) $ 0 $ 0 $ 0
Chubb Life Insurance Company of America and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) and include
the accounts of Chubb Life Insurance Company of America (the Company) and its
subsidiaries. Principal subsidiaries include Chubb Colonial Life Insurance
Company (Colonial), Chubb Sovereign Life Insurance Company (Sovereign), Chubb
America Service Corporation and Chubb Investment Advisory Corporation.
Significant intercompany transactions have been eliminated in consolidation.
Chubb Life Insurance Company of America is wholly-owned by The Chubb
Corporation (the Parent). On February 23, 1997, The Chubb Corporation entered
into a definitive agreement to sell its life and health subsidiaries to
Jefferson-Pilot Corporation. (see Note 15).
The consolidated financial statements reflect estimates and judgments made by
management which affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The Company is principally engaged in the sale of individual life insurance
and investment products. These products are marketed primarily through
personal producing general agents throughout the United States.
In the second quarter of 1996, the Company adopted a plan to exit the group
insurance business. Accordingly, the group insurance business has been
classified as discontinued operations in the consolidated financial
statements. (see Note 3).
Certain amounts in the financial statements for prior years have been
reclassified to conform with the 1996 presentation.
1. Summary of Significant Accounting Policies (continued)
Recognition of Revenues, Benefits, Claims and Expenses:
Universal Life Products
Universal life products include universal life insurance, variable universal
life insurance and other interest-sensitive life insurance policies. Revenues
for universal life products consist of policy charges for the cost of
insurance, policy administration and surrenders that have been assessed
against policy account balances during the period.
Policy fund liabilities for universal life and other interest-sensitive
life insurance policies are computed in accordance with the retrospective
deposit method and represent policy account balances before surrender charges.
Policy fund assets and liabilities for variable universal life insurance are
segregated and recorded as separate account assets and liabilities. Separate
account assets are carried at market values as of the balance sheet date and
are invested by the Company at the direction of the policyholder. Investments
are made in one or more of eighteen portfolios in a series fund. Each of the
portfolios has specific investment objectives and the investment income and
investment gains and losses accrue directly to, and investment risk is borne
by, the policyholders. Accordingly, operating results of the separate
account are not included in the consolidated statements of income.
Policy claims that are charged to expense include claims incurred in the
period in excess of related policy account balances. Other policy benefits
include interest credited to universal life and other interest-sensitive life
insurance policies. Interest crediting rates ranged from 4% to 6 7/8% in 1996,
4 3/4% to 7 5/8% in 1995 and 4 1/2% to 7 5/8% in 1994.
Investment Products
Investment products include flexible premium annuities, structured settlement
annuities and other supplementary contracts without life contingencies.
Revenues for investment products consist of policy charges for the cost of
insurance, policy administration and surrenders that have been assessed against
policy account balances during the period. Deposits for these products are
recorded as policy fund liabilities, which are increased by interest credited
to the liabilities and decreased by withdrawals and administrative charges
assessed against the contract holders. Interest crediting rates ranged from
3 1/2% to 6 3/4% in 1996, 3 1/2% to 8% in 1995 and 3 1/2% to 8 7/8% in 1994.
1. Summary of Significant Accounting Policies (continued)
Traditional Life Insurance Products
Traditional life insurance products include those products with fixed and
guaranteed premiums and benefits. Premium revenues for traditional life
insurance are recognized as revenues when due. The liabilities for future
policy benefits are computed by the net level premium method based on
estimated future investment yield, mortality and withdrawal experience.
Interest rate assumptions ranged from 3% to 9% in all periods presented.
Mortality is calculated principally on an experience multiple applied to
select and ultimate tables in common usage in the industry. Estimated
withdrawals are determined principally based on industry tables. Policy
benefits and claims are charged to expense as incurred.
Accident and Health Insurance
Accident and health insurance premiums are earned on a monthly pro rata basis
over the terms of the policies. Benefits include paid claims plus an estimate
for known claims and claims incurred but not reported as of the balance sheet
date.
Reinsurance
In the ordinary course of business, the Company and its insurance subsidiaries
assume and cede reinsurance with other insurance companies.
These arrangements minimize the maximum net loss potential arising from large
risks. Ceded reinsurance contracts do not relieve the Company and its insurance
subsidiaries from their obligation to policyholders. The Company evaluates
the financial condition of its reinsurers and monitors concentrations of
credit risk arising from similar activities or economic characteristics of
the reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies.
Reinsurance recoverable on life and health policy liabilities represent
estimates of the portion of such liabilities that will be recovered from
reinsurers, determined in a manner consistent with the liabilities associated
with the reinsured policies.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance contracts, principally commissions,
underwriting costs and certain variable field office expenses, are deferred.
Deferred policy acquisition costs for universal life and investment contracts
are amortized over the lives of the contracts in relation to the present value
of estimated gross profits expected to be realized. Deferred policy acquisition
costs related to universal life and investment contracts are also adjusted to
reflect the effects that the unrealized gains or losses on investments class-
ified as available-for-sale would have had on the present value of estimated
gross profits had such gains or losses actually been realized. This adjust-
ment is excluded from income and charged or credited directly to the unrealized
appreciation or depreciation of the investments component of shareholder's
equity, net of applicable deferred income tax.
1. Summary of Significant Accounting Policies (continued)
Deferred Policy Acquisition Costs (continued)
Traditional life insurance deferred policy acquisition costs are being
amortized over the premium-payment period of the related policies using
assumptions consistent with those used in computing policy benefit reserves.
Value Assigned Purchased Insurance In Force
The value assigned purchased insurance in force is amortized principally over
the estimated life of the insurance in force at the date of acquisition in
proportion to the emergence of profit using assumptions consistent with those
used in the amortization of the deferred policy acquisition costs. Interest
accrues on the unamortized balance at rates ranging from 6 1/4% to 9 1/2% in
1996, 6% to 9 1/4% in 1995 and 7 1/2% to 9 1/2% in 1994. Value assigned
purchased insurance in force related to universal life and investment contracts
also is adjusted to reflect the effects that the unrealized gains or losses
on investments classified as available-for-sale would have had on the present
value of estimated gross profits had such gains or losses actually been
realized. This adjustment is excluded from income and charged or credited
directly to the unrealized appreciation or depreciation of the investments
component of shareholder's equity, net of applicable deferred income tax.
Invested Assets
Short term investments, which have an original maturity of one year or less,
are carried at amortized cost.
Fixed maturities, which include bonds and redeemable preferred stocks, are
purchased to support the investment strategies of the Company. These strategies
are developed based on many factors including rate of return, maturity, credit
risk, tax considerations and regulatory requirements. Those fixed maturities
which the Company has the ability and intent to hold to maturity are considered
held-to-maturity and carried at amortized cost. Fixed maturities which may be
sold prior to maturity to support the investment strategies of the Company
are considered available-for-sale and carried at market value as of the balance
sheet date.
Equity securities, which include common stocks and non-redeemable preferred
stocks, are carried at market values as of the balance sheet date.
Policy loans are carried at the unpaid balances. Mortgage loans on real estate
are carried at the unpaid balances, adjusted for amortization of premium or
discount.
Realized gains and losses on the sale of investment are determined on the basis
of the cost of the specific investments sold and are credited or charged to
income. Unrealized appreciation or depreciation of investments classified as
available-for-sale, net of the deferred policy acquisition costs adjustment
discussed above and the applicable deferred income tax, is excluded from
income and credited or charged directly to a separate component of shareholders
equity.
1. Summary of Significant Accounting Policies (continued)
Goodwill
Goodwill, which represents the excess of the purchase price over the fair value
of net assets of subsidiaries acquired, is amortized using the straight-line
method over 40 years.
Property and Equipment
Property and equipment used in operations are carried at cost less accumulated
depreciation. Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets.
Federal Income Taxes
The Company files a consolidated federal income tax return with its parent.
Federal income tax is allocated as if the Company and its subsidiaries filed
a separate consolidated income tax return.
Deferred income tax assets and liabilities are recognized for the expected
future tax effects attributable to temporary differences between the financial
reporting and tax bases of assets and liabilities, based on enacted tax rates
and other provisions of tax law. Deferred income taxes related to unrealized
appreciation or depreciation of investments classified as available-for-sale
are charged or credited directly to a separate component of shareholder's
equity.
Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted market prices where
available. Fair values of financial instruments for which quoted market
prices are not available are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rates and the estimates of future
cash flows. Accordingly, the derived fair value estimates cannot be sub-
stantiated by comparison to independent markets and are not necessarily
indicative of the amounts that could be realized in immediate settlement of
the instrument. Certain financial instruments, particularly insurance
contracts, are excluded from fair value disclosure requirements.
1. Summary of Significant Accounting Policies (continued)
Fair Values of Financial Instruments (continued)
The methods and assumptions used to estimate the fair value of financial in-
struments are as follows:
Fair values of fixed maturities with active markets are based on quoted market
prices. For fixed maturities that trade in less active markets, fair values are
obtained from independent pricing services. Fair values of fixed maturities
are principally a function of current interest rates. Care should be used
in evaluating the significance of these estimated market values.
Fair values of equity securities are based on quoted market prices.
The carrying value of short term investments approximates fair value due to
the short maturities of these investments.
Fair values of policy loans and mortgage loans are estimated using discounted
cash flow analyses and approximate carrying values.
The carrying value of short term debt approximates fair value due to the short
maturities of the debt.
The carrying value and fair value of financial instruments were as follows:
December
1996 1995
Carrying Fair Carrying Fair
Value Value Value Value
(In thousands)
Assets
Invested assets
Fixed maturities
Held-to-maturity $ 381,230 $ 398,909 $ 403,539 $ 434,972
Available-for-sale 2,498,281 2,498,281 2,244,192 2,244,192
Equity securities 30,681 30,681 40,208 40,208
Short term investments 48,333 48,333 50,765 50,765
Policy loans 217,857 217,857 202,705 202,705
Mortgage loans on real estate 8,945 8,945 9,634 9,634
Liabilities
Loans payable 50,500 50,500 36,000 36,000
Cash Flow Information
In the statement of cash flows, short term investments are not considered to
be cash equivalents. Cash overdrafts are included in accrued expenses and other
liabilities. The overdrafts at December 31, 1996 and 1995 were $19,530,000 and
$22,805,000, respectively.
2. Changes in Accounting Principles
Effective January 1,1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Similar to the Company's previous accounting policy for investments
in fixed maturities and equity securities, SFAS No. 115 provides that the
accounting for such securities depends on their classification as either held-
to-maturity, available-for-sale or trading. However, SFAS No. 115 establishes
more stringent criteria for classifying fixed maturities as held-to-maturity.
SFAS No. 115 also requires that fixed maturities classified as available-
for-sale be carried at market value, with unrealized appreciation or
depreciation excluded from income and credited or charged directly to a
separate component of shareholder's equity. Prior to 1994, such fixed
maturities were carried at the lower of the aggregate amortized cost or market
value. In conjunction with the Company's adoption of SFAS No. 115, deferred
policy acquisition costs and value assigned purchased insurance in force
related to universal life and investment contracts were adjusted to reflect
the effects that would have been recognized had the unrealized gains relating
to investments classified as available-for-sale actually been realized, with
a corresponding charge directly to the separate component of shareholder's
equity.
The cumulative effect, as of January 1, 1994, of the change in accounting
principle was as follows:
(In thousands)
Unrealized appreciation of fixed maturities
considered available-for-sale $ 99,395
Adjustment to deferred policy acquisition costs (54,838)
Adjustment to value assigned purchased
insurance in force (5,882)
38,675
Deferred income tax 13,535
Increase in shareholder's equity $ 25,140
Adoption of SFAS No. 115 did not have an impact on net income.
Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. The Statement establishes accounting standards for the impair-
ment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets. Under SFAS No. 121, an impairment loss is recognized
if the sum of the undiscounted expected future cash flows is less than the
carrying amount of the asset. Measurement of impairment should be based on
the fair value of the asset. The adoption of SFAS 121 did not have an impact
on net income.
3. Discontinued Operations
In the second quarter of 1996, the Company adopted a plan to exit the group
health insurance business. Formerly, this business was the Company's group
insurance business segment.
Marketing of traditional group health business was discontinued. Due to various
contractual and regulatory requirements, traditional group coverages will be
renewed in certain jurisdictions until an orderly transition to another
carrier or termination of coverage can occur. It is expected that the exit
from this business will be completed by the end of 1998.
Managed care products were sold through ChubbHealth, Inc. (CHI), a health
maintenance organization (HMO). CHI commenced operations in the New York City
metropolitan area on June 1, 1994. ChubbHealth Holdings, Inc. (Holdings)
owned 100% of CHI and was jointly owned by the Company and Healthsource
Metropolitan New York Holding Company, Inc., formerly known as Healthsource
New York, Inc. (Healthsource). The Company owned 85% of the outstanding
stock of Holdings at December 31, 1995.
On May 31, 1996 the Company entered into a definitive agreement to sell
its interest in CHI to Healthsource for $25,647,000 in cash. The sale was
completed effective December 31, 1996 and the cash settlement was received
on January 6, 1997.
The sale resulted in an after tax gain of approximately $15,000,000 which was
substantially offset by estimated costs relating to the exit from the
remaining group insurance business. The discontinued group insurance
business had no effect on net income after April 1, 1996. It is expected that
the discontinued group insurance business will not affect the Company's net
income significantly in the future.
The identifiable assets and liabilities of the group insurance business
included in the accompanying consolidated balance sheets, by the respective
category, were as follows:
December 31
1996 1995
(In thousands)
Assets
Uncollected premium $ 3,742 $ 7,779
Reinsurance recoverable on life and health
policy liabilities 1,753 1,650
Other assets 8,414 8,383
$ 13,909 $ 17,812
Liabilities
Future policy benefits $ 9,294 $ 12,099
Policy and contract claims 50,311 61,690
Premiums paid in advance 1,047 1,493
Accrued expenses and other liabilities 5,660 8,827
$ 66,312 $ 84,109
3. Discontinued Operations (continued)
In addition to the assets and liabilities above, sufficient invested assets
were held for the payment of group insurance liabilities. It is not prac-
ticable to segregate the specific invested assets associated with those
liabilities.
The net assets of Holdings included in Other Assets at December 31, 1995 were
as follows:
(In thousands)
Assets $ 21,472
Liabilities 15,667
Minority interest in net assets 871
Net assets held-for-sale $ 4,934
The results of discontinued operations were as follows:
Years Ended December 31
1996 1995 1994
(In thousands)
Revenues $ 58,902 $ 320,852 $ 580,999
Benefits, claims and expenses 60,816 336,098 610,539
Loss from operations before income
tax benefit (1,914) (15,246) (29,540)
Income tax benefit (656) (5,373) (10,253)
Loss from discontinued operations
before minority interest
in subsidiary (1,258) (9,873) (19,287)
Minority interest in net loss of
consolidated subsidiary (213) (965) (436)
Loss from discontinued
operations $ (1,045) $ (8,908) $ (18,851)
Losses before income tax benefits for discontinued operations reflect all-
ocations of investment income and expenses using allocation methods deemed
to be reasonable. Other acceptable allocation methods could produce different
results.
4. Invested Assets
The sources of net investment income from continuing operations were as
follows:
Years Ended December 31
1996 1995 1994
(In thousands)
Fixed maturities $ 215,117 $ 201,573 $ 171,673
Equity securities 3,505 3,544 4,996
Short term investments 3,444 4,268 2,684
Policy loans 15,275 14,219 12,749
Mortgage loans 914 1,014 1,259
Other 515 1,039 1,214
Gross investment income 238,770 225,657 194,575
Investment expenses 2,288 2,710 2,161
Net investment income $ 236,482 $ 222,947 $ 192,414
Realized investment gains and losses were as follows:
Years Ended December 31
1996 1995 1994
(In thousands)
Gross realized investment gains
Fixed maturities $ 9,455 $ 14,902 $ 6,013
Equity securities 6,898 13,052 8,302
$ 16,353 $ 27,954 $ 14,315
Gross realized investment losses
Fixed maturities $ 1,774 $ 4,409 $ 3,618
Equity securities 1,992 1,737 1,393
$ 3,766 $ 6,146 $ 5,011
Net realized investment gains
Fixed maturities $ 7,681 $ 10,493 $ 2,395
Equity securities 4,906 11,315 6,909
$ 12,587 $ 21,808 $ 9,304
Proceeds from the sales of fixed maturities considered available-for-sale
were $360,570,000, $599,100,000 and $174,053,000 in 1996, 1995 and 1994,
respectively. Gross gains of $9,455,000, $14,902,000 and $5,918,000 and
gross losses of $1,774,000, $4,409,000 and $3,581,000 were realized on such
sales in 1996, 1995 and 1994, respectively.
4. Invested Assets (continued)
The components of unrealized appreciation (depreciation) of investments class-
ified as available-for-sale were as follows:
December 31
1996 1995
(In thousands)
Equity securities
Gross unrealized appreciation $ 3,797 $ 6,014
Gross unrealized depreciation 323 135
3,474 5,879
Fixed maturities
Gross unrealized appreciation 71,332 111,324
Gross unrealized depreciation 16,499 9,276
54,833 102,048
58,307 107,927
Deferred policy acquisition costs
adjustment (29,414) (41,850)
Value assigned purchased insurance
in force adjustment (1,783) (3,397)
(31,197) (45,247)
27,110 62,680
Minority interest in unrealized
appreciation 0 (34)
Deferred tax liability, net 9,488 21,926
$ 17,622 $ 40,720
4. Invested Assets (continued)
The changes in unrealized appreciation or depreciation of investments
classified as available-for-sale were as follows:
Years Ended December 31
1996 1995 1994
(In thousands)
Change in unrealized
appreciation of
equity securities $ (2,405) $ 913 $ (9,257)
Change in unrealized
appreciation of
fixed maturities (47,181) 158,427 (155,808)
Change in deferred policy
acquisition costs
adjustment 12,436 (65,395) 78,383
Change in value assigned
purchased Insurance in
force adjustment 1,614 (6,835) 9,320
(35,536) 87,110 (77,362)
Deferred income tax (credit) (12,438) 30,490 (27,077)
Increase (decrease) in
valuation allowance 0 (18,007) 18,007
(23,098) 74,627 (68,292)
Cumulative effect, as of
January 1, 1994,
of change in accounting
principle, net 0 0 25,140
$ (23,098) $ 74,627 $ (43,152)
4. Invested Assets (continued)
The cost of equity securities was $27,207,000 and $34,329,000 at December 31,
1996 and 1995, respectively.
The amortized costs and estimated market value of fixed maturities were as
follows:
December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(In thousands)
Held-to-maturity
Tax exempt bonds $ 967 $ 27 $ 0 $ 994
Taxable
U.S. Government and
government agency and
authority obligations 17,426 1,339 7 18,758
Corporate bonds 174,817 14,339 0 189,156
Foreign bonds 15,000 2,109 0 17,109
Mortgage-backed
securities 173,020 2,208 2,336 172,892
Total taxable 380,263 19,995 2,343 397,915
Total held-to-
maturity 381,230 20,022 2,343 398,909
Available-for-sale
Taxable
U.S. Government and
government agency and
authority obligations205,577 1,711 658 206,630
Corporate bonds 1,170,611 34,332 10,974 1,193,969
Foreign bonds 153,757 8,310 883 161,184
Mortgage-backed
securities 911,248 26,791 3,887 934,152
Redeemable preferred
stocks 2,255 188 97 2,346
Total available-
for-sale 2,443,448 71,332 16,499 2,498,281
Total fixed
maturities $2,824,678 $ 91,354 $18,842 $2,897,190
4. Invested Assets (continued)
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(In thousands)
Held-to-maturity
Tax exempt bonds $ 1,051 $ 38 $ 0 $ 1,089
Taxable
U.S. Government and
government agency and
authority obligations 17,947 2,350 0 20,297
Corporate bonds 191,126 21,621 0 212,747
Foreign bonds 15,119 2,259 0 17,378
Mortgage-backed
securities 178,296 5,211 46 183,461
Total taxable 402,488 31,441 46 433,883
Total held-to
maturity 403,539 31,479 46 434,972
Available-for-sale
Taxable
U.S. Government and
government agency and
authority obligations 187,073 6,670 3 193,740
Corporate bonds 805,768 49,752 6,794 848,726
Foreign bonds 134,224 6,847 70 141,001
Mortgage-backed
securities 1,012,600 47,621 2,389 1,057,832
Redeemable
preferred stocks 2,704 209 20 2,893
Total available-
for-sale 2,142,369 111,099 9,276 2,244,192
Total fixed
maturities 2,545,908 142,578 9,322 2,679,164
Discontinued operations (CHI)
Assets held-
for-sale 11,534 225 0 11,759
Total fixed
maturities $2,557,442 $ 142,803 $ 9,322 $2,690,923
The unrealized appreciation or depreciation of fixed maturities classified as
held-to-maturity are not reflected in the financial statements. The change
in net unrealized appreciation or depreciation of such fixed maturities was
depreciation of $13,754,000, appreciation of $46,406,000 and depreciation of
$166,767,000 for the years ended December 31, 1996, 1995 and 1994, respective
ly.
In December 1995, fixed maturities classified as held-to-maturity with an
aggregate amortized cost of $182,820,000 and unrealized appreciation of
$3,885,000 were reclassified as available-for-sale. Such reclassifications
resulted from the Company's reassessment of its classifications of fixed
maturities as permitted under SFAS No. 115 implementation guidance issued
by the Financial Accounting Standards Board (FASB) in November 1995.
4. Invested Assets (continued)
The amortized cost and estimated market value of fixed maturities by
contractual maturity were as follows:
December 31, 1996
Held-to-Maturity Available-for-Sale
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
(In thousands)
Due in one year or less $ 10,026 $ 10,207 $ 10,240 $ 10,266
Due after one year through
five years 63,785 68,892 257,205 266,921
Due after five years through
ten years 75,743 81,875 445,479 456,299
Due after ten years 58,656 65,043 819,276 830,643
Subtotal 208,210 226,017 1,532,200 1,564,129
Mortgage-backed securities 173,020 172,892 911,248 934,152
$ 381,230 $ 398,909 $ 2,443,448 $ 2,498,281
Actual maturities could differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
5. Deferred Policy Acquisition Costs and Value Assigned Purchased Insurance
In Force Policy acquisition costs deferred and the related amortization
charged to income from continuing operations were as follows:
Years Ended December 31
1996 1995 1994
(In thousands)
Balance, beginning of year $ 575,614 $ 558,345 $ 471,107
Cumulative effect, as of January 1,
1994, of change in accounting
principle (54,838)
Costs deferred during year 149,481 155,903 128,420
Amortization during year (92,878) (73,239) (64,727)
Change in adjustment to reflect the
effects of unrealized (appreciation)
depreciation of investments 12,436 (65,395) 78,383
Balance, end of year $ 644,653 $ 575,614 $ 558,345
Changes in the value assigned purchased insurance in force were as follows:
Years Ended December 31
1996 1995 1994
(In thousands)
Balance, beginning of year $ 37,095 $ 48,148 $ 48,439
Cumulative effect, as of
January 1, 1994, of
change in accounting principle (5,882)
Accrued interest 3,094 3,603 4,040
Amortization (7,343) (7,821) (7,769)
Change in adjustment to reflect
the effects of unrealized
(appreciation) depreciation
of investments 1,614 (6,835) 9,320
Balance, end of year $ 34,460 $37,095 $ 48,148
The estimated net amortization of the value assigned purchased insurance in
force is as follows:
Year Ending December 31: (In thousands)
1997 $ 3,670
1998 3,227
1999 2,764
2000 2,462
2001 2,347
Subsequent to 2001 19,990
$ 34,460
6. Federal Income Taxes
Federal income tax provisions for the years ended December 31, 1996, 1995 and
1994 have been computed using the tax rates and regulations in effect during
each year. The provision for federal income tax gives effect to permanent
differences between financial and taxable income. Accordingly, the effective
tax rate is less than the statutory federal corporate tax rate. The reasons
for the lower effective tax rate were as follows:
Years Ended December 31
1996 1995 1994
(In thousands)
Tax at statutory federal
income tax rate (35%) $ 26,122 $ 27,074 $ 20,007
Dividends received deduction
and tax exempt income (1,441) (1,469) (1,925)
Amortization of goodwill 394 394 394
Foreign taxes (451) (620) (952)
Other 475 851 236
Federal income tax expense $ 25,099 $ 26,230 $ 17,760
The tax effects of temporary differences that gave rise to deferred income tax
liabilities and assets were as follows:
December 31
1996 1995
(In thousands)
Deferred policy income tax liabilities:
Deferred policy acquisition costs $ 167,655 $ 156,873
Value assigned purchased insurance in force 19,753 19,365
Unrealized appreciation in investments 20,407 43,921
Other 10,323 7,529
Total 218,138 227,688
Deferred income tax assets:
Future policy benefits and policy fund balances 156,427 147,587
Postretirement benefits 8,128 8,146
Total 164,555 155,733
Net deferred income tax liabilities $ 53,583 $ 71,955
6. Federal Income Taxes (continued)
Prior to 1984, life insurance companies were allowed certain special deductions
for federal income tax purposes which could become subject to tax at normal
rates under certain circumstances, including distribution to shareholders.
These special deductions were set aside in a Policyholders' Surplus Account.
Under the 1984 Act, no further additions to this account are permitted. At
December 31, 1996, approximately $13,464,000 of untaxed retained earnings
remained. No income taxes have been provided since management does not
anticipate any transaction that would cause this remaining amount to become
taxable. The unrecognized deferred tax related to the Policyholders' Surplus
Account is $4,712,000.
Federal income taxes paid in 1996, 1995 and 1994 were $29,569,000, $29,957,000
and $14,667,000, respectively.
7. Pensions
In 1996, the Company's pension plans were merged into the pension plan of the
Parent. The Parent's plan covers substantially all employees. Pension costs
allocated to the Company for the year ended December 31, 1996, were $1,500,000.
The costs were offset by a net curtailment gain of $1,322,000, resulting from
workforce reductions. This gain was primarily due to the reduction of the pro-
jected benefit obligation associated with severed employees' pension benefits
offset by the recognition of the prior service costs related to those
employees.
Prior to the merger of the plans, the Company had several noncontributory
defined benefit pension plans covering substantially all employees. The
benefits were generally based on an employee's years of service and average
compensation during the last five years of employment. Pension costs were
determined using the projected unit credit method. The Company's policy was to
make annual contributions that met the minimum funding requirements of the
Employee Retirement Income Security Act of 1974. Contributions were intended
to provide not only for benefits attributed to service but also for those
expected to be earned in the future.
The components of net pension cost were as follows:
Years Ended December 31
1995 1994
(In thousands)
Service cost of current period $ 3,510 $ 3,387
Interest cost on projected benefit
obligation 5,687 5,098
Actual return on plan assets (6,286) (27)
Net amortization and deferral (152) (6,253)
Net pension cost $ 2,759 $ 2,205
7. Pensions (continued)
During 1995, the Company recognized a net curtailment gain of $3,058,000
resulting from workforce reductions. This gain was primarily due to the
reduction of the projected benefit obligation associated with severed
employees' pension benefits offset by the recognition of the prior service
costs related to those employees.
The following table sets forth the Company's prior plans' funded status and
amounts recognized in the balance sheet:
December 31
1995
(In thousands)
Actuarial present value of benefit obligations for service
rendered to date:
Accumulated benefit obligations, including
vested benefits of $61,983 $64,472
Additional amount related to projected future salary increases 16,303
Projected benefit obligation for service rendered to date 80,775
Plan assets at fair value 80,694
Projected benefit obligation in excess of plan assets 81
Unrecognized net gain from past experience different from that
assumed 7,230
Unrecognized prior service cost (2,499)
Unrecognized net obligation at January 1, 1986 being
recognized over thirteen years 890
Pension liability included in other liabilities $ 5,702
The weighted average discount rates used in determining the actuarial present
value of the projected benefit obligations at December 31, 1995 were 7 1/2%,
and the rate of increase in future compensation levels was 6%. The expected
long-term rate of return on assets was 9%.
Plan assets were principally invested in publicly traded stocks and bonds.
8. Other Postretirement Benefits
The Company provides certain other postretirement benefits, principally health
care and life insurance, to retired employees and their beneficiaries and
covered dependents. Substantially all employees may become eligible for
these benefits upon retirement if they meet minimum age and years of service
requirements.
The Company does not fund these benefits in advance. Benefits are paid as
covered expenses are incurred. Health care coverage is contributory.
Retiree contributions vary based upon a retiree's age, type of coverage and
years of service with the Company. Life insurance coverage is noncontributory.
8. Other Postretirement Benefits (continued)
The components of net postretirement benefit cost were as follows:
Years Ended December 31
1996 1995 1994
(In thousands)
Service cost of current period $ 1,076 $ 1,095 $ 1,022
Interest cost on accumulated benefit
obligation 1,613 1,540 1,505
Net postretirement benefit cost $ 2,689 $ 2,635 $ 2,527
During 1996 and 1995, the Company recognized net curtailment gains of $648,000
and $1,243,000, respectively, resulting from workforce reductions. These
gains were primarily due to the reduction of the accumulated postretirement
benefit obligation associated with severed employees' other postretirement
benefits.
The components of the accumulated postretirement benefit obligation were as
follows:
December 31
1996 1995
(In thousands)
Retirees $ 9,399 $ 9,392
Fully eligible active plan participants 1,001 1,310
Other active plan participants 10,160 11,139
Accumulated postretirement benefit
obligation 20,560 21,841
Unrecognized net gain from past
experience different from that assumed 3,609 1,066
Postretirement benefit liability included in
other liabilities $ 24,169 $ 22,907
The weighted average discount rate used in determining the actuarial present
value of the accumulated postretirement benefit obligation at December 31,
1996 and 1995 was 7 3/4% and 7 1/2%, respectively. The health care cost
trend rate used to measure the accumulated postretirement cost for medical
benefits is 11 3/4% for 1997. The rate is assumed to decrease gradually to
6% for the year 2008 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amount of the
accumulated postretirement benefit obligation and the net postretirement
benefit cost reported. To illustrate, a one percent increase in the trend
rate for each year would increase the accumulated postretirement benefit
obligation at December 31, 1996 by $3,445,000 and the aggregate of the
service and interest cost components of net postretirement benefit cost for
the year ended December 31, 1996 by $451,000.
9. Stock Ownership and Incentive Plans
Substantially all of the Company's employees are eligible to participate in the
stock ownership and incentive plans of the Parent. The aggregate costs ass-
ociated with the plans were approximately $3,414,000, $4,365,000 and $4,401,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
10. Rent Expense and Commitments
The Company occupies office facilities under lease agreements which expire
at various dates through 2009; such leases generally are renewed or replaced
by other leases. In addition, the Company leases office and transportation
equipment.
Total rent expense charged to operations amounted to approximately $4,708,000
for 1996, $5,560,000 for 1995 and $5,099,000 for 1994. All leases are
operating leases and generally contain renewal options. At December 31, 1996,
future minimum rental payments required under noncancellable operating leases
were as follows:
(In thousands)
Years Ending December 31:
1997 $ 3,341
1998 2,560
1999 1,916
2000 1,449
2001 1,334
Subsequent to 2001 5,715
$ 16,315
11. Reinsurance
The Company is involved in both the cession and assumption of reinsurance
with other insurance companies. Risks are reinsured with other companies to
permit the recovery of a portion of the direct losses. Sovereign had a re-
insurance recoverable resulting from a reinsurance agreement with a single re-
insurer of $98,716,000 and $101,656,000 at December 31, 1996 and 1995, re-
spectively. Sovereign coinsured fifty percent of a block of single premium
whole life policies under this agreement. Sovereign and the reinsurer are
joint and equal owners in securities and short-term investments of $191,878,000
and $193,146,000 at December 31, 1996 and 1995, respectively. The remaining
reinsurance recoverables were associated with numerous other reinsurers.
The maximum amount of individual life insurance retained on any one life,
including accidental death benefits, is $1,400,000.
11. Reinsurance (continued)
The effect of reinsurance on the premium and policy charges in the consolidated
statements of income was as follows:
Direct Ceded to Assumed from
Amount Other Companies Other Companies Net Amount
1996: (In thousands)
Premiums Earned and Policy Charges for the year:
Life Insurance $ 335,376 $ 18,818 $ 1,607 $ 318,165
Accident and
Health Insurance 28,824 9,207 0 19,617
Total Premiums and
Policy Charges $ 364,200 $ 28,025 $ 1,607 $ 337,782
1995:
Premiums Earned and Policy Charges
for the year:
Life Insurance $ 309,447 $ 20,145 $ 1,766 $ 291,068
Accident and
Health Insurance 29,784 9,577 0 20,207
Total Premiums and
Policy Charges $ 339,231 $ 29,722 $ 1,766 $ 311,275
1994:
Premiums Earned and Policy Charges for the year:
Life Insurance $ 270,649 $ 19,695 $ 1,566 $ 252,520
Accident and
Health Insurance 27,500 8,073 0 19,427
Total Premiums
and Policy
Charges $ 298,149 $ 27,768 $ 1,566 $ 271,947
Reinsurance recoveries which have been deducted from benefits, claims and
expenses in the consolidated statements of income were $46,093,000, $49,984,000
and $52,976,000 in 1996, 1995 and 1994, respectively.
12. Dividend Restrictions
The Company and its insurance subsidiaries are required to file annual state-
ments with state insurance regulatory authorities prepared on an accounting
basis prescribed or permitted by such authorities (statutory basis).
For such subsidiaries, GAAP differs in certain respects from statutory
accounting practices.
A comparison of shareholder's equity on a GAAP basis and policyholders'
surplus on a statutory basis is as follows:
December 31
1996 1995
(In thousands)
GAAP $ 866,030 $ 844,645
Statutory 328,327 317,624
A comparison of GAAP and statutory net income (loss) is as follows:
Years Ended December 31
1996 1995 1994
(In thousands)
GAAP $ 48,491 $ 42,216 $ 20,551
Statutory 33,988 26,828 (4,264)
The amount of GAAP surplus in excess of statutory surplus is unavailable for
distribution. In addition, various state insurance laws restrict the Company
and its insurance subsidiaries as to the amount of dividends from statutory
surplus they may pay without the prior approval of regulatory authorities.
The restrictions generally are based on net gains from operations and on
certain levels of policyholders' surplus as determined in accordance with
statutory accounting practices. Dividends in excess of such thresholds are
considered "extraordinary" and require prior regulatory approval. The
maximum ordinary dividend distribution that may be made by the Company to the
Parent during 1997 is approximately $32,800,000.
13. Debt and Credit Arrangements
December 31
1996 1995
(In thousands)
Notes $ 50,500 $ 10,000
Commercial Paper 0 26,000
$ 50,500 $ 36,000
The Company has a loan agreement with a bank providing for a revolving line
of credit, at a variable interest rate, of $60,000,000 and 36,000,000, at
December 31, 1996 and 1995, respectively. There were $50,500,000 and
$10,000,000 in borrowings against this line of credit at December 31, 1996
and 1995, respectively. Interest paid on these borrowings was $968,000 and
$683,000, and $382,000 in 1996, 1995, and 1994 respectively.
During 1996 and 1995, the Company borrowed in the short term commercial paper
market. These notes were issued by Chubb Capital Corporation, a subsidiary
of the Parent. The interest rate was variable and was based on Chubb Capital
Corporation's cost of funds. The outstanding balance of commercial paper was
repaid in the fourth quarter of 1996. The agreement remains in effect at
December 31, 1996. Interest paid on the borrowings in 1996, 1995 and 1994
was $1,206,000, $1,559,000 and $1,094,000, respectively.
A mortgage loan payable, which is secured by a portion of the Company's home
office property in Concord, New Hampshire, bears interest at 11 3/8% and is
payable monthly through December 2000.
Debt maturities of the mortgage loan payable are as follows:
Years ending December 31 (In thousands)
1997 $ 944
1998 1,057
1999 1,184
2000 1,184
$ 4,369
Interest paid on the mortgage loan in 1996, 1995 and 1994 was $550,000,
$640,000 and $721,000, respectively.
14. Litigation
The Company is involved in pending or threatened lawsuits arising from the
normal conduct of its insurance business. Several suits have been brought
against the Company seeking both punitive and compensatory damages.
Management is of the opinion that these suits are substantially without merit,
that valid defenses exist, and that such litigation will not have a material
effect on the consolidated financial statements.
15. Subsequent Event Relating to Change in Ownership
The Company's Parent, The Chubb Corporation, entered into a definitive
agreement, dated February 23, 1997, to sell the Company to Jefferson-Pilot
Corporation for $875,000,000 in cash, subject to various closing adjustments
and other customary conditions. The sale is subject to regulatory approvals
and is expected to be completed by the end of the second quarter of 1997.
Unaudited Consolidated
Financial Statements
Chubb Life Insurance
Company of America and
Subsidiaries
Quarter ended March 31, 1997
Chubb Life Insurance Company of America and Subsidiaries
Unaudited Consolidated Financial Statements
Quarter ended March 31, 1997
Contents
Unaudited Consolidated Financial Statements
Consolidated Balance Sheet as of March 31, 1997 1
Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996 3
Consolidated Statements of Shareholder's Equity
for the three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Chubb Life Insurance Company of America and Subsidiaries
Consolidated Balance Sheets
Unaudited
3/31/97
(In thousands)
Assets
Invested assets
Fixed maturities
Held-to-maturity, at amortized cost $ 375,383
Available-for-sale, at market 2,517,171
Equity securities, at market 24,674
Short term investments, at cost 30,040
Policy loans 221,847
Mortgage loans on real estate 7,966
Total invested assets 3,177,081
Accrued investment income 51,227
Uncollected premiums 8,330
Reinsurance recoverable on life
and health policy liabilities 198,879
Deferred policy acquisition costs 678,944
Value assigned purchased insurance in force 35,131
Goodwill, net 62,652
Property and equipment, net 36,859
Separate account assets 434,449
Other assets 83,851
1,590,322
Total assets $ 4,767,403
Chubb Life Insurance Company of America and Subsidiaries
Consolidated Balance Sheets
Unaudited
03/31/97
(In thousands)
Liabilities
Policy liabilities
Policy fund balances $2,461,413
Future policy benefits 645,701
Policy and contract claims 70,078
Premiums paid in advance 748
Other policyholders' funds 100,126
3,278,066
Mortgage loan payable 4,142
Loans payable 50,500
Federal income taxes payable 7,792
Deferred federal income taxes 36,050
Separate account liabilities 434,449
Net liabilities of discontinued operations 12,236
Accrued expenses and other liabilities 63,979
Total liabilities 3,887,214
Shareholder's equity
Common stock--$5 par value, 600,000 shares
authorized, issued and outstanding 3,000
Paid-in capital 249,872
Unrealized appreciation of investments, net 1,650
Retained earnings 625,667
Total shareholder's equity 880,189
Total liabilities and shareholder's equity $4,767,403
Chubb Life Insurance Company of America and Subsidiaries
Consolidated Statements of Income
Unaudited Unaudited
Three Months Ended March 31, 1997 1996
(In thousands)
Revenues
Premiums and policy charges $ 87,417 $ 83,359
Net investment income 61,474 57,939
Realized investment gains 3,441 2,909
Other income 947 634
Total revenues 153,279 144,841
Benefits and Claims
Policy benefits and claims 73,914 74,234
Change in reserves for
future policy benefits 6,803 5,463
Total benefits and claims 80,717 79,697
Expenses
Commissions and other
operating expenses 8,800 24,393
Amortization 29,201 23,325
Total expenses 38,001 47,718
Total benefits, claims and expenses 118,718 127,415
Income from continuing operations
before federal income tax 34,561 17,426
Federal income tax (benefit)
Current 17,365 6,072
Deferred (8,933) (694)
Total federal income tax 8,432 5,378
Income from continuing operations 26,129 12,048
Discontinued operations, net 6,006 (1,045)
Net income $ 32,135 $ 11,003
Note: Effective April 1, 1996, the group insurance business has been
accounted for as discontinued operations. In the first quarter of 1997,
group lines reported income of $6 million due to a one time benefit from
a revised estimate related to the New York Demographic Pool liability.
This compares to a $1 million loss for the first quarter of 1996 which
was the result of operations prior to the decision to exit the group
insurance business. Certain prior year amounts have been reclassified
to conform with the 1997 presentation.
Chubb Life Insurance Company of America and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited Unaudited
Three Months Ended March 31, 1997 1996
(In thousands)
Operating Activities
Net Income $ 32,135 $ 11,003
Adjustments to reconcile
net income to net cash used in
operating activities:
Decrease in future policy
benefits, claims and premiums (4,883) (1,218)
Increase in policy acquisition
costs deferred, net of amortization (6,770) (16,967)
Provision for deferred income tax (8,933) (665)
Increase (decrease) in investment
trades payable (693) 18,561
Other, net 3,814 10,339
Net cash provided by
operating activities 14,670 21,053
Investing Activities:
Proceeds from sales of
fixed maturities 86,533 132,255
Proceeds from maturities of
fixed maturities 33,338 30,527
Proceeds from sales of
equity securities 12,125 12,041
Purchases of fixed maturities (182,678) (221,046)
Purchases of equity securities (6,218) (12,080)
Increase in short term investments, net (11,635) (10,524)
Sale of subsidiary 30,432 0
Other, net (3,918) (987)
Net cash used for
investing activities (42,021) (69,814)
Financing Activities:
Deposits credited to
policyholders' funds 85,645 95,731
Withdrawals from
policyholders' funds (44,274) (38,054)
Decrease in cash overdraft (8,755) (7,780)
Dividends paid to minority
Other, net (5,265) (1,136)
Net cash provided by
financing activities 27,351 48,761
Increase (decrease) in cash 0 0
Cash, beginning and
end of period $ 0 $ 0