SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
=========
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-8590
Equitable of Iowa Companies
(Exact name of registrant as specified in its charter)
Iowa 42-1083593
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
604 Locust Street, Des Moines, Iowa 50306
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (515) 245-6911
__________________________________________________________________________
Former name, former address and formal fiscal year, if changed since last
report
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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 31,756,676
shares of Common Stock as of October 31, 1995.
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Person for whom the Financial Information is given: EQUITABLE OF IOWA
COMPANIES AND ITS
SUBSIDIARIES
Consolidated Statements of Income (Unaudited):
FOR THE THREE MONTHS ENDED
September 30, 1995 September 30, 1994
________________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands)
REVENUES:
Universal life and annuity product
charges $13,269 $11,151
Traditional life insurance premiums 10,597 11,954
Net investment income 162,867 137,263
Realized gains on investments 1,114 3,343
Other income 4,194 4,670
________________ ________________
192,041 168,381
BENEFITS AND EXPENSES:
Universal life and annuity product benefits:
Interest credited to account balances 99,435 82,555
Benefit claims incurred in excess of
account balances 3,186 3,090
Traditional life insurance benefits:
Death benefits 6,367 4,595
Other benefits 8,171 8,665
Increase (decrease) in future policy benefits:
Life and annuity (283) 2,425
Other contracts (189) 143
Distributions to participating
policyholders 6,398 6,639
Underwriting, acquisition and insurance expenses:
Commissions 35,618 45,843
General expenses 10,306 11,827
Insurance taxes 2,670 2,779
Policy acquisition costs deferred (43,337) (56,414)
Amortization of deferred policy
acquisition costs 17,774 13,836
________________ ________________
146,116 125,983
Interest expense 4,046 1,811
Other expenses 2,208 2,477
________________ ________________
152,370 130,271
________________ ________________
39,671 38,110
Consolidated Statements of Income (Unaudited): (CONTINUATION)
FOR THE THREE MONTHS ENDED
September 30, 1995 September 30, 1994
________________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands,
except per share data)
Income taxes:
Current $10,325 $12,224
Deferred 2,535 1,013
________________ ________________
12,860 13,237
________________ ________________
26,811 24,873
Equity income (loss), net of related tax
benefit of $15 in 1995 and $(77) in 1994 29 (152)
________________ ________________
NET INCOME $26,840 $24,721
================ ================
NET INCOME PER COMMON SHARE (average
shares used: 1995 - 31,731,063;
1994 - 31,644,743): $0.85 $0.78
================ ================
CASH DIVIDENDS PAID PER COMMON SHARE $0.135 $0.12
Consolidated Statements of Income (Unaudited):
FOR THE NINE MONTHS ENDED
September 30, 1995 September 30, 1994
________________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands)
REVENUES:
Universal life and annuity product
charges $37,889 $32,262
Traditional life insurance premiums 32,815 35,167
Net investment income 469,633 382,562
Realized gains on investments 3,017 17,057
Other income 14,776 13,242
________________ ________________
558,130 480,290
BENEFITS AND EXPENSES:
Universal life and annuity product benefits:
Interest credited to account balances 289,561 232,432
Benefit claims incurred in excess of
account balances 7,693 5,886
Traditional life insurance benefits:
Death benefits 19,271 17,679
Other benefits 24,643 24,580
Increase (decrease) in future policy benefits:
Life and annuity 2,843 3,603
Other contracts (278) 187
Distributions to participating
policyholders 18,872 18,893
Underwriting, acquisition and insurance expenses:
Commissions 115,279 119,448
General expenses 31,108 31,446
Insurance taxes 7,724 7,412
Policy acquisition costs deferred (140,909) (145,064)
Amortization of deferred policy
acquisition costs 49,040 37,164
________________ ________________
424,847 353,666
Interest expense 9,819 5,996
Other expenses 6,107 7,602
________________ ________________
440,773 367,264
________________ ________________
117,357 113,026
Consolidated Statements of Income (Unaudited): (CONTINUATION)
FOR THE NINE MONTHS ENDED
September 30, 1995 September 30, 1994
________________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands,
except per share data)
Income taxes:
Current $32,468 $36,250
Deferred 7,677 3,359
________________ ________________
40,145 39,609
________________ ________________
77,212 73,417
Equity income (loss), net of related tax
benefit of $23 in 1995 and $(20) in 1994 42 (81)
________________ ________________
NET INCOME $77,254 $73,336
================ ================
NET INCOME PER COMMON SHARE (average
shares used: 1995 - 31,690,934;
1994 - 31,595,419): $2.44 $2.32
================ ================
CASH DIVIDENDS PAID PER COMMON SHARE $0.39 $0.345
Consolidated Balance Sheets (Unaudited):
September 30, 1995 December 31, 1994
________________ _________________
(Dollars in thousands)
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost
(market: 1995 - $5,462,094;
1994 - $5,059,090) $5,280,715 $5,393,798
Available for sale, at market
(cost: 1995 - $1,646,030;
1994 - $819,083) 1,713,981 778,486
Equity securities, at market
(cost: 1995 - $23,380; 1994 - $23,351) 25,666 22,978
Mortgage loans on real estate 1,040,445 613,208
Real estate, less allowances for
depreciation of $4,665 in 1995
and $4,659 in 1994 14,125 15,668
Policy loans 181,179 176,448
Short-term investments 18,055 50,975
________________ _________________
TOTAL INVESTMENTS 8,274,166 7,051,561
Cash and cash equivalents 8,871 12,674
Securities and indebtedness of
related parties 11,187 11,034
Accrued investment income 119,068 105,959
Notes and other receivables 27,406 23,173
Deferred policy acquisition costs 664,635 607,626
Property and equipment, less
allowances for depreciation of
$8,942 in 1995 and $6,795 in 1994 7,957 7,843
Current income taxes recoverable 6,866 14,491
Intangible assets 3,695 2,605
Other assets 46,057 43,664
Separate account assets 144,364 84,963
________________ _________________
TOTAL ASSETS $9,314,272 $7,965,593
================ =================
Consolidated Balance Sheets (Unaudited):
September 30, 1995 December 31, 1994
________________ _________________
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits:
Universal life and annuity products $7,192,810 $6,237,107
Traditional life insurance products 779,941 777,100
Unearned revenue reserve 14,103 14,317
Other policy claims and benefits 8,241 7,785
________________ _________________
7,995,095 7,036,309
Other policyholders' funds:
Supplementary contracts without
life contingencies 12,038 12,224
Advance premiums and other deposits 711 790
Accrued dividends 12,739 12,761
________________ _________________
25,488 25,775
Deferred income taxes 26,671 1,442
Notes and loans payable:
Commercial paper notes 181,000 90,450
Long-term debt 100,000 --
________________ _________________
281,000 90,450
Other liabilities 129,129 139,324
Separate account liabilities 144,364 84,963
________________ _________________
TOTAL LIABILITIES 8,601,747 7,378,263
Stockholders' equity:
Serial preferred stock, without par value,
authorized 2,500,000 shares -- --
Common stock, without par value (stated
value $1.00 per share), authorized 70,000,000
shares, issued and outstanding 31,756,463
shares in 1995 and 31,677,891 in 1994 31,756 31,678
Additional paid-in capital 80,008 78,661
Unrealized appreciation (depreciation) on
fixed maturity securities 29,866 (26,493)
Unrealized appreciation (depreciation) on
marketable equity securities 2,286 (373)
Retained earnings 570,467 505,622
Unearned compensation (deduction) (1,858) (1,765)
________________ _________________
TOTAL STOCKHOLDERS' EQUITY 712,525 587,330
________________ _________________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $9,314,272 $7,965,593
================ =================
Consolidated Statement of Cash Flows (Unaudited):
FOR THE NINE MONTHS ENDED
September 30, 1995 September 30, 1994
________________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $77,254 $73,336
Adjustments to reconcile net income to
net cash provided by operations:
Adjustments related to universal life
and annuity products:
Interest credited to account balances 289,561 232,432
Charges for mortality and
administration (40,012) (34,040)
Change in unearned revenues (416) (615)
Increase in traditional life policy
liabilities and accruals 3,406 1,634
Decrease in other policyholders' funds (287) (34)
Increase in accrued investment income (13,109) (10,450)
Policy acquisition costs deferred (140,909) (145,064)
Amortization of deferred policy
acquisition costs 49,040 37,164
Change in other assets, other liabilities,
and accrued income taxes (6,233) 23,914
Provision for depreciation and
amortization (3,857) 1,247
Provision for deferred income taxes 7,715 3,226
Share of (income) losses of related
parties (65) 58
Realized gains on investments (3,017) (17,057)
________________ ________________
NET CASH PROVIDED BY OPERATING
ACTIVITIES 219,071 165,751
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities - held for investment 171,793 256,416
Fixed maturities - available for sale 77,995 189,475
Equity securities 225 --
Mortgage loans on real estate 41,238 26,875
Real estate 1,799 1,279
Policy loans 20,170 23,761
Short-term investments - net 32,920 47,053
________________ ________________
346,140 544,859
Acquisition of investments:
Fixed maturities - held for investment (59,684) (1,361,086)
Fixed maturities - available for sale (893,832) (135,961)
Equity securities (257) (100)
Mortgage loans on real estate (467,988) (183,106)
Real estate (901) (395)
Policy loans (24,901) (22,249)
________________ ________________
(1,447,563) (1,702,897)
Consolidated Statement of Cash Flows (Unaudited): (CONTINUATION)
FOR THE NINE MONTHS ENDED
September 30, 1995 September 30, 1994
________________ ________________
(Current Year) (Preceding Year)
(Dollars in thousands)
INVESTING ACTIVITIES - continued
Disposal of investments accounted for
by the equity method $17 $2,731
Additions to investments accounted for
by the equity method -- (2)
Repayments of notes receivable 146 1
Issuance of notes receivable -- (1,262)
Sales of property and equipment 89 254
Purchases of property and equipment (2,477) (2,197)
________________ ________________
NET CASH USED IN INVESTING ACTIVITIES (1,103,648) (1,158,513)
FINANCING ACTIVITIES
Issuance of long term debt 100,000 --
Repayment of long term debt -- (50,214)
Issuance of commercial paper - net 90,550 140,500
Receipts from universal life policies
and annuity contracts credited to
policyholder account balances 1,332,037 1,355,844
Return of policyholder account balances
on universal life policies and
annuity contracts (625,883) (433,975)
Issuance of stock under employee stock
plans (3,521) 311
Cash dividends paid (12,409) (10,942)
________________ ________________
NET CASH PROVIDED BY FINANCING
ACTIVITIES 880,774 1,001,524
________________ ________________
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,803) 8,762
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 12,674 5,190
________________ ________________
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $8,871 $13,952
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $8,814 $5,110
Income taxes 20,702 46,794
Non-cash investing activities:
Foreclosure of mortgage loans -- 250
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for annual financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included. All adjustments were of a normal recurring nature, unless
otherwise noted in Management's Discussion and Analysis and the Notes to
Financial Statements. Operating results for the three months and nine
months ended September 30, 1995 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1995. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the company's Annual Report on Form 10-K for
the year ended December 31, 1994.
NOTE 2 -- INVESTMENT OPERATIONS
Fixed maturity securities that the company has the positive intent and
ability to hold to maturity are designated as "held for investment". Held
for investment securities are reported at cost adjusted for amortization of
premiums and discounts. Changes in the market value of these securities,
except for declines that are other than temporary, are not reflected in the
company's financial statements. Fixed maturity securities which may be
sold are designated as "available for sale". Available for sale securities
are reported at market value and unrealized gains and losses on these
securities are included directly in stockholders' equity, after adjustment
for changes in deferred policy acquisition costs, policy reserves and
deferred income taxes. Transfers of securities between categories are
restricted and are recorded at fair value at the time of transfer.
Securities that are determined to have a decline in value that is other
than temporary are written down to fair value, which becomes the security's
new cost basis, by a charge to realized losses in the company's Statement
of Income. Premiums and discounts are amortized/accrued utilizing the
scientific interest method which results in a constant yield over the
securities' expected life. Amortization/accrual of premiums and discounts
on mortgage-backed securities incorporates a prepayment assumption to
estimate the securities' expected life.
Equity securities (common and nonredeemable preferred stocks) are reported
at market if readily marketable, or at cost if not readily marketable. The
change in unrealized appreciation and depreciation of marketable equity
securities (net of related deferred income taxes, if any) is included
directly in stockholders' equity. Equity securities that are determined to
have a decline in value that is other than temporary are written down to
estimated fair value, which becomes the security's new cost basis, by a
charge to realized losses in the company's Statement of Income.
Mortgage loans on real estate are reported at cost adjusted for
amortization of premiums and accrual of discounts. If the value of any
mortgage loan is determined to be impaired (i.e. when it is probable that
the company will be unable to collect all amounts due according to the
contractual terms of the loan agreement), the carrying value of the
mortgage loan is reduced to the present value of expected future cash flows
from the loan, discounted at the loan's effective interest rate, or to the
loan's observable market price, or the fair value of the underlying
collateral. The carrying value of impaired loans is reduced by the
establishment of a valuation allowance which is adjusted at each reporting
date for significant changes in the calculated value of the loan. Changes
in this valuation allowance are charged or credited to income.
Real estate, which includes real estate acquired through foreclosure, is
reported at cost less allowances for depreciation. Real estate acquired
through foreclosure, or in-substance foreclosure, is recorded at the lower
of cost (which includes the balance of the mortgage loan, any accrued
interest and any costs incurred to obtain title to the property) or fair
value as determined at or before the foreclosure date. After foreclosure,
foreclosed real estate is carried at the lower of fair value less estimated
sale costs, or cost.
Policy loans are reported at unpaid principal. Short-term investments are
reported at cost adjusted for amortization of premiums and accrual of
discounts (which approximates estimated market value for these securities).
Estimated market values, as reported herein, of publicly traded fixed
maturity securities are as reported by an independent pricing service.
Market values of conventional mortgage-backed securities not actively
traded in a liquid market are estimated using a third party pricing system
which uses a matrix calculation assuming a spread over U.S. Treasury bonds
based upon the expected average lives of the securities. Market values of
private placement bonds are estimated using a matrix that assumes a spread
over U.S. Treasury bonds based upon interest rates and a risk assessment of
the bonds. Market values of redeemable preferred stocks are as reported by
the National Association of Insurance Commissioners ("NAIC"). Market
values of equity securities are based on the latest quoted market prices,
or where not readily marketable, at values which are representative of the
market values of issues of comparable yield and quality. Realized gains
and losses are determined on the basis of specific identification of
investments.
The company analyzes projected cash flows from investments and policy
liabilities under a variety of economic scenarios to determine what portion
of its investment portfolio might need to be sold under these scenarios.
Based upon this analysis and other factors, the company designates a
portion of its fixed maturity securities portfolio as "available for sale".
On September 30, 1995, fixed income securities with an amortized cost of
$1,646,030,000 and an estimated market value of $1,713,981,000 were
designated as available for sale. Unrealized gains on these securities, net
of adjustments to deferred policy acquisition costs and deferred taxes
increased stockholders' equity by $29,866,000, or $0.94 per share, at
September 30, 1995.
At September 30, 1995 and December 31, 1994, amortized cost, gross
unrealized gains and losses and estimated market values of fixed maturity
securities held for investment are as follows:
HELD FOR INVESTMENT
Gross Gross Estimated
Amortized Unrealized Unrealized Market
September 30, 1995 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $274,052 $10,792 ($552) $284,292
Other 5,186 360 (13) 5,533
States, municipalities and
political subdivisions 15,316 1,122 -- 16,438
Foreign governments 10,573 2,484 -- 13,057
Public utilities 1,187,359 50,609 (12,276) 1,225,692
Investment grade corporate 1,557,551 127,772 (7,212) 1,678,111
Below investment grade
corporate 174,028 3,931 (1,519) 176,440
Mortgage-backed securities 2,056,011 43,947 (37,830) 2,062,128
Redeemable preferred stocks 639 -- (236) 403
___________ ___________ ___________ ___________
TOTAL HELD FOR
INVESTMENT $5,280,715 $241,017 ($59,638) $5,462,094
=========== =========== =========== ===========
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $288,914 $2,971 ($13,949) $277,936
Other 3,980 66 (104) 3,942
States, municipalities and
political subdivisions 15,557 -- (1,128) 14,429
Foreign governments 10,573 719 -- 11,292
Public utilities 1,231,799 7,148 (99,517) 1,139,430
Investment grade corporate 1,594,095 33,750 (80,108) 1,547,737
Below investment grade
corporate 223,908 477 (19,074) 205,311
Mortgage-backed securities 2,024,281 4,389 (170,091) 1,858,579
Redeemable preferred stocks 691 -- (257) 434
___________ ___________ ___________ ___________
TOTAL HELD FOR
INVESTMENT $5,393,798 $49,520 ($384,228) $5,059,090
=========== =========== =========== ===========
At September 30, 1995 and December 31, 1994, amortized cost, gross
unrealized gains and losses and estimated market values of fixed maturity
securities designated as available for sale are as follows:
AVAILABLE FOR SALE
Gross Gross Estimated
Amortized Unrealized Unrealized Market
September 30, 1995 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $21,223 $262 $21,485
Other 63,603 2,878 66,481
Public utilities 104,783 5,148 ($1,121) 108,810
Investment grade corporate 807,214 53,358 (2,151) 858,421
Below investment grade
corporate 348,213 9,784 (9,541) 348,456
Mortgage-backed securities 300,994 9,442 (108) 310,328
___________ ___________ ___________ ___________
TOTAL AVAILABLE FOR SALE $1,646,030 $80,872 ($12,921) $1,713,981
=========== =========== =========== ===========
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $17,817 ($730) $17,087
Other 30,624 (1,178) 29,446
Public utilities 70,184 $704 (7,173) 63,715
Investment grade corporate 365,162 9,288 (19,574) 354,876
Below investment grade
corporate 199,597 589 (23,417) 176,769
Mortgage-backed securities 135,699 1,926 (1,032) 136,593
___________ ___________ ___________ ___________
TOTAL AVAILABLE FOR SALE $819,083 $12,507 ($53,104) $778,486
=========== =========== =========== ===========
Short-term investments with maturities of 30 days or less have been
excluded from the above schedules, since amortized cost approximates market
value for those securities.
Amortized cost and estimated market value of debt securities at September
30, 1995, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Market
HELD FOR INVESTMENT Cost Value
____________________________________________________________________________
(Dollars in thousands)
Due in one year or less $98 $98
Due after one year through five years 66,209 69,479
Due after five years through ten years 557,108 584,687
Due after ten years 2,327,237 2,461,410
_____________ _____________
2,950,652 3,115,674
Mortgage-backed securities 2,330,063 2,346,420
_____________ _____________
TOTAL HELD FOR INVESTMENT $5,280,715 $5,462,094
============= =============
Estimated
Amortized Market
AVAILABLE FOR SALE Cost Value
____________________________________________________________________________
(Dollars in thousands)
Due after one year through five years $99,620 $100,157
Due after five years through ten years 770,923 805,516
Due after ten years 453,270 476,495
_____________ _____________
1,323,813 1,382,168
Mortgage-backed securities 322,217 331,813
_____________ _____________
TOTAL AVAILABLE FOR SALE $1,646,030 $1,713,981
============= =============
Carrying value and estimated market value of mortgage-backed securities,
which comprise 38.1% of the company's investment in fixed maturity
securities as of September 30, 1995, are as follows:
Estimated
Carrying Market
Value Value
_____________________________
(Dollars in thousands)
Mortgage-backed securities:
Government and agency guaranteed pools:
Very accurately defined maturities $17,376 $18,105
Planned amortization class 84,688 87,704
Targeted amortization class 29,298 29,372
Sequential pay 70,317 71,753
Pass through 93,859 98,844
Private Label CMOs and REMICs:
Very accurately defined maturities 30,447 31,467
Planned amortization class 25,904 26,597
Targeted amortization class 447,140 439,996
Sequential pay 1,791,482 1,801,931
Mezzanines 38,099 38,218
Private placements and subordinate issues 33,266 34,246
_____________ _____________
TOTAL MORTGAGE-BACKED SECURITIES $2,661,876 $2,678,233
============= =============
During periods of significant interest rate volatility, the mortgages
underlying mortgage-backed securities may prepay more quickly or more
slowly than anticipated. If the principal amount of such mortgages are
prepaid earlier than anticipated during periods of declining interest
rates, investment income may decline due to reinvestment of these funds at
lower current market rates. If principal repayments are slower than
anticipated during periods of rising interest rates, increases in
investment yield may lag behind increases in interest rates because funds
will remain invested at lower historical rates rather than reinvested at
higher current rates. To mitigate this prepayment volatility, the company
invests primarily in intermediate tranche collateralized mortgage
obligations ("CMOs"). CMOs are pools of mortgages that are segregated into
sections, or tranches, which provide sequential retirement of bonds rather
than pro-rata share of principal return in the pass-through structure. The
company does not hold any "interest only" or "principal only" mortgage-
backed securities. Further, the company has not purchased obligations at
significant premiums, thereby limiting exposure to capital loss during
periods of accelerated prepayments. At September 30, 1995, unamortized
premiums on mortgage-backed securities totaled $5,972,000 and unaccrued
discounts on mortgage-backed securities totaled $67,302,000.
An analysis of sales, maturities and principal repayments of the company's
fixed maturities portfolio for the nine months ended September 30, 1995 and
1994 is as follows:
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
_______________________________________________
Nine months ended September 30, 1995
- ------------------------------------
Scheduled principal repayments
calls and tenders (available
for sale only):
Held for investment $141,185 $4,562 ($262) $145,485
Available for sale 37,935 126 (17) 38,044
Sales:
Held for investment 21,983 4,325 -- 26,308
Available for sale 39,370 584 (3) 39,951
___________ ___________ ___________ ___________
TOTAL $240,473 $9,597 ($282) $249,788
=========== =========== =========== ===========
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
_______________________________________________
Nine months ended September 30, 1994
- ------------------------------------
Scheduled principal repayments
calls and tenders (available
for sale only):
Held for investment $246,271 $10,162 ($17) $256,416
Available for sale 152,107 4,783 (11) 156,879
Sales - available for sale 29,446 3,164 (14) 32,596
___________ ___________ ___________ ___________
TOTAL $427,824 $18,109 ($42) $445,891
=========== =========== =========== ===========
During the second quarter of 1995, the company sold one security with an
amortized cost of $21,983,000 from the held for investment portfolio
generating a realized gain of $4,325,000. This sale was due to a
significant credit deterioration of the issuer's creditworthiness as a
result of a recent announcement of reorganization by the issuer.
During the second quarter of 1995, securities issued by two issuers were
transferred from the held for investment portfolio to the available for
sale portfolio due to significant deterioration in the issuers'
creditworthiness. At the dates of transfer, the amortized cost of the
securities totaled $12,230,000 and unrealized losses of $3,980,000 were
included in stockholders' equity. There were no other transfers between
the held for investment and available for sale portfolios during the nine
months ended September 30, 1995. During the nine months ended September
30, 1995, the change in the net unrealized gain or loss on available for
sale securities included in stockholders' equity, net of adjustments,
amounted to $56,359,000 of net appreciation.
During the first quarter of 1995, the company identified one below
investment grade security as having an impairment in value that was other
than temporary. As a result of this determination, the company recognized
a pre-tax loss of $2,103,000 in the first quarter of 1995 to reduce the
carrying value of this security to its estimated fair value of $900,000.
This security was sold in April 1995 at no gain or loss. During the second
quarter of 1995, the company identified an additional below investment
grade security as having an impairment in value that was other than
temporary. As a result of this determination, the company recognized a pre-
tax loss of $3,699,000 to reduce the carrying value of this security to its
estimated fair value of $3,360,000. During the third quarter of 1995, the
company sold a portion of the bond written down in the second quarter, with a
carrying value of $480,000, at a gain of $150,000.
At September 30, 1995, the company owned equity securities with a combined
book value of $23,380,000 and an estimated market value of $25,666,000,
resulting in gross unrealized appreciation of $2,461,000 and gross
unrealized depreciation of $175,000.
At September 30, 1995, the company had established a valuation allowance of
$35,000 on one mortgage loan to reduce the carrying value of this
investment to its estimated fair value, less costs to sell. At September
30, 1995, two mortgage loans with a combined carrying value of $859,000
were delinquent by 90 days or more. The company believes any impairment in
value of these loans to be temporary. In addition, the estimated fair
value of the underlying collateral exceeds the carrying value of the loans.
The company, therefore, expects to recover the carrying value of these
loans and, as a result of that determination, no valuation allowance has
been established.
The carrying value of investments which have been non-income producing for
the twelve months preceding September 30, 1995 totaled $239,000 related to
one real estate property.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States government) exceeded ten percent of
stockholders' equity at September 30, 1995.
NOTE 3 -- CREDIT ARRANGEMENTS
In February 1995, the company issued $100 million of 8.5% notes, maturing
on February 15, 2005, receiving net proceeds totaling approximately
$98,812,000, after expenses. The company contributed $50 million of the
proceeds to its insurance subsidiaries and applied the remaining net
proceeds to the repayment of outstanding commercial paper notes.
The company maintains a line of credit arrangement with several banks to
support its commercial paper notes payable and to provide short-term
liquidity. On March 30, 1995, the company entered into a new agreement
which provides for a line of credit totaling $225,000,000, expiring on
March 30, 2000.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, the company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance enterprises or reinsurers.
Reinsurance coverages for life insurance vary according to the age and risk
classification of the insured with retention limits ranging up to $500,000
of coverage per individual life. The company does not use surplus relief
reinsurance.
Reinsurance contracts do not relieve the company from its obligations to
its policyholders. To the extent that reinsuring companies are later
unable to meet obligations under reinsurance agreements, the company's life
insurance subsidiaries would be liable for these obligations and could
result in losses to the company. To limit the possibility of such losses
the company evaluates the financial condition of its reinsurers, monitors
concentrations of credit risk arising from factors such as similar
geographic regions, and limits its exposure to any one reinsurer. At
September 30, 1995, the company had reinsurance treaties with 18
reinsurers, all of which are deemed to be long-duration, retroactive
contracts, and has established a receivable totaling $12,837,000 for
reserve credits, reinsurance claims and other receivables from these
reinsurers. No allowance for uncollectible amounts has been established
since none of the receivables are deemed to be uncollectible, and because
such receivables, either individually or in the aggregate, are not material
to the company's operations. The company's liability for future policy
benefits and notes and other receivables has been increased by $10,072,000
at September 30, 1995 for reserve credits on reinsured policies. Insurance
premiums and product charges have been reduced by $4,699,000 in the first
nine months and $1,648,000 in the third quarter of 1995 compared to
$4,594,000 and $1,574,000, respectively, in the same periods of 1994, as a
result of the cession agreements. Insurance benefits and expenses have
been reduced by $6,976,000 in the first nine months and $3,450,000 in the
third quarter of 1995 compared to $3,198,000 and $2,171,000, respectively,
in the same periods of 1994. The amount of reinsurance assumed is not
significant.
The company's insurance subsidiaries are assessed contributions by life and
health guaranty associations in almost all states to indemnify
policyholders of failed companies. In some states, such assessments are
offset by reductions in future premium taxes. The company cannot predict
whether and to what extent legislative initiatives may affect the right to
offset. The amount of these assessments prior to 1991 was not material.
Failures of companies since 1990 could result in future assessments in
material amounts. The company has established a reserve to cover such
assessments and regularly reviews information regarding known failures and
revises its estimate of future guaranty fund assessments accordingly.
During the first nine months of 1995, the company accrued and charged to
expense an additional $492,000, and at September 30, 1995, the remaining
reserve for insurance guaranty fund assessments, net of expected future
premium tax credits, totaled $13,685,000. The company has received
information concerning an insurance company insolvency that has not previously
been contemplated by the company in the establishment of its reserve for
future assessments. As a result, there is reasonable possibility that the
company may accrue an additional amount to increase its reserve in the near
future and this amount could be material. However, sufficient information
has not yet been received upon which to base an accrual. The company is
anticipating some more specific information on guaranty fund assessments to
be available from the National Organization of Life and Health Insurance
Guaranty Associations in the next few months.
At September 30, 1995, outstanding commitments to fund mortgage loans on
real estate totaled $137,727,000. In addition, outstanding commitments to
purchase mortgage-backed securities totaled $10,280,000 at September 30,
1995.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The purpose of this section is to discuss and analyze the company's
consolidated results of operations, financial condition, and liquidity and
capital resources. This analysis should be read in conjunction with
the consolidated financial statements and related notes which appear
elsewhere in this report. The company reports financial results on a
consolidated basis. The consolidated financial statements include the
accounts of the company and its subsidiaries. All of the company's
significant subsidiaries are wholly-owned. The company's primary
subsidiaries are Equitable Life Insurance Company of Iowa ("Equitable
Life") and USG Annuity & Life Company ("USG").
RESULTS OF OPERATIONS
Sales
Total annuity and life insurance sales, as measured by first year and
single premiums, decreased $125,622,000, or 25.2%, to $372,356,000 in the
third quarter and $127,577,000, or 10.2%, to $1,127,791,000 in the first
nine months of 1995. Annuity sales decreased $129,267,000, or 26.3%, to
$362,245,000 in the third quarter and $140,203,000, or 11.3%, to
$1,096,787,000 in the first nine months of 1995. Total annuity premiums
(including renewal premiums) decreased $118,792,000, or 24.0%, to
$375,885,000 in the third quarter and $101,739,000, or 8.1%, to
$1,147,318,000 in the first nine months of 1995. The decrease in annuity
sales during the third quarter and the first nine months of 1995 reflects
the impact of the current challenging sales environment wherein high
short-term interest rates have allowed bank certificates of deposit and
other shorter duration investments to be more competitive than usual, while
declining long-term rates have caused returns on annuity and life products
to be comparatively lower than usual. However, the company believes that
the growth in the number of its agents, its commitment to customer service,
the quality of its investment portfolio, competitive pricing and its
overall financial strength will continue to attract consumers to its
annuity products as consumers seek a secure return on their retirement
savings. Insurance agents are attracted to sell the company's products by
several factors, including the company's diversified product portfolio,
competitive commissions, prompt policy issuance and weekly commission
payments. First year and single life insurance premiums increased
$3,645,000, or 56.4% to $10,111,000 in the third quarter and $12,626,000,
or 68.7%, to $31,004,000 in the first nine months of 1995 due to increases
in sales of the company's universal life and current interest products.
These increased sales are primarily a result of the company's introduction
of life insurance products through brokerage agents and the company's
revision of its career agents' contract which simplifies compensation
schedules and encourages the sale of life insurance products.
Revenues
Total revenues increased $23,660,000, or 14.1%, to $192,041,000 in the
third quarter and $77,840,000, or 16.2%, to $558,130,000 in the first nine
months of 1995. Universal life insurance and annuity product charges
increased $2,118,000, or 19.0%, to $13,269,000 in the third quarter and
$5,627,000, or 17.4%, to $37,889,000 in the first nine months of 1995, in
conjunction with the growth in the company's policyholder liabilities. In
addition withdrawals and surrenders of the company's annuity products which
contain a "market value adjustment" feature generate greater surrender charge
income as interest rates increase and lower surrender charge income as
interest rates decrease. Surrender charge income, which allows the company
to recover a portion of the expenses incurred to generate policy sales, was
offset by greater amortization of deferred policy acquisition costs. Premiums
from traditional life insurance products decreased $1,357,000, or 11.3%, to
$10,597,000 in the third quarter and $2,352,000, or 6.7%, to $32,815,000 in
the first nine months of 1995. These traditional life insurance product
premium decreases are a result of the company's decision to emphasize the
more popular universal life and current interest products.
Net investment income increased $25,604,000, or 18.7%, to $162,867,000 in
the third quarter and $87,071,000, or 22.8%, to $469,633,000 in the first
nine months of 1995 due to the increase in invested assets. During the
third quarter and first nine months of 1995, the company had realized gains
on the sale of investments of $1,114,000 and $3,017,000, compared to gains
of $3,343,000 and $17,057,000 in the same periods of 1994. The level of
realized gains in the first nine months of 1995 was lower than the same
period of 1994 because calls and repayments of fixed maturity securities
were lower as market interest rates were similar to the company's portfolio
rate.
Expenses
Total insurance benefits and expenses increased $20,133,000, or 16.0%, to
$146,116,000 in the third quarter and $71,181,000, or 20.1%, to
$424,847,000 in the first nine months of 1995. Interest credited to
universal life and investment product account balances increased
$16,880,000, or 20.4%, to $99,435,000 in the third quarter and $57,129,000,
or 24.6%, to $289,561,000 in the first nine months of 1995 as a result of
higher account balances associated with those products.
The company's policy is to change rates credited to inforce policy accounts
as the company's investment portfolio yield changes. Most of the company's
interest sensitive products, including annuities, universal life-type
policies and participating policies, allow for interest rate adjustments at
least annually. The following tables summarize the effective average
annual yield on assets invested to support policy accounts for interest-
sensitive products, the average annual interest rate credited to those
products and the interest rate spread at and for the nine months ended
September 30, 1994 and 1995.
Nine months ended September 30
Yield on Credited Interest
Assets Rate Rate Spread
_________ ________ ___________
Base rate (excluding first year bonus):
1995 8.6% 5.7% 2.9%
1994 8.6% 5.8% 2.8%
Total (including first year bonus):
1995 8.6% 6.1% 2.5%
1994 8.6% 6.3% 2.3%
At September 30
Yield on Credited Interest
Assets Rate Rate Spread
_________ ________ ___________
Base rate (excluding first year bonus):
1995 8.6% 5.7% 2.9%
1994 8.6% 5.7% 2.9%
Total (including first year bonus):
1995 8.6% 6.0% 2.6%
1994 8.6% 6.2% 2.4%
The base interest credited rate represents the average interest rate
credited to policy accounts for interest sensitive products, including
annuities, universal life-type policies and participating life policies.
Total interest credited rate includes first year bonus interest credited to
certain annuity policies.
Death benefits on traditional life products and benefit claims incurred in
excess of account balances increased $1,868,000, or 24.3%, to $9,553,000 in
the third quarter and $3,399,000, or 14.4%, to $26,964,000 in the first
nine months of 1995. The increase in individual life mortality benefits
negatively impacted earnings by approximately $200,000, or $0.01 per share,
for the third quarter 1995 and $1,200,000, or $0.04 per share, for the first
nine months of 1995 compared to the same periods of 1994, after consideration
of reserve released and taxes. Other benefits decreased $494,000, or 5.7%,
to $8,171,000 in the third quarter and increased $63,000, or 0.3%, to
$24,643,000 in the first nine months of 1995. These changes were offset
by a corresponding change in the reserve for future policy benefits and,
therefore, had a smaller impact on net income.
Most of the company's annuity products have surrender charges which are
designed to discourage early withdrawals and to allow the company to
recover a portion of the expenses incurred to generate annuity sales in the
event of early withdrawal. Withdrawal rates have been impacted by several
factors. (1) The company is experiencing an increase in withdrawals as its
annuity liabilities age. (2) Withdrawals tend to increase in periods of
rising interest rates as policyholders seek higher returns on their
savings. (3) A block of annuity policies sold in 1988 and 1989 primarily
by stockbrokers contained a five-year surrender charge and a portion also
contained a five-year interest guarantee. The company planned for, and has
experienced, higher surrenders related to this block of business.
The following table summarizes the annualized annuity withdrawal rates and
the life insurance lapse ratios for the three and the nine months ended
September 30, 1995 and 1994:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
Annuity Withdrawals 7.1% 10.7% 8.2% 9.1%
Excluding five year interest guarantee
and five year surrender charge
business sold in 1988 and 1989 6.9% 6.3% 7.3% 6.1%
Life lapse rates 9.0% 7.5% 8.3% 7.4%
The withdrawal ratio for the company's annuity products is calculated by
dividing aggregate surrenders and withdrawals by beginning of period
account balances. The company's annualized lapse ratio for life insurance
is measured in terms of face amount and uses A.M. Best's formula.
During the second quarter of 1995, the company made one fixed annuity
product available for sale through stockbrokers, but has modified the
pricing assumptions to reflect higher lapse expectations. Prior to this,
the company had not actively solicited fixed annuity sales through
stockbrokers since 1989. At September 30, 1995, policies originally issued
with a 5 year interest guarantee represent approximately 1.6% ($103
million) of the company's annuity liabilities.
Commissions decreased $10,225,000, or 22.3%, to $35,618,000 in the third
quarter and $4,169,000, or 3.5%, to $115,279,000 in the first nine months
of 1995. General expenses decreased $1,521,000, or 12.9%, to $10,306,000 in
the third quarter and $338,000, or 1.1%, to $31,108,000 in the first nine
months of 1995. Insurance taxes also decreased $109,000, or 3.9%, to
$2,670,000 in the third quarter and increased $312,000, or 4.2%, to
$7,724,000 in the first nine months of 1995. Decreases in commissions and
insurance taxes during the third quarter are directly related to annuity
sales during this period. General expenses decreased more slowly in the
first nine months as they relate more directly to policies in force and
total assets than to current period sales. Most costs incurred as the
result of new sales have been deferred, and thus have very little impact
on total insurance expenses.
The amortization of deferred policy acquisition costs increased by
$3,938,000, or 28.5%, in the third quarter and $11,876,000, or 32.0%, in
the first nine months of 1995. Amortization of deferred acquisition costs
related to operating earnings increased $4,519,000, or 35.9%, in the third
quarter and $15,424,000, or 48.8%, in the first nine months of 1995 due in
part to a 16.8% increase in the deferred policy acquisition cost asset
since September 30, 1994 as costs of generating sales of the company's
products are deferred and amortized in later periods. In addition, the
company has accelerated the amortization of the deferred policy acquisition
cost asset due to higher withdrawals experienced in 1994 and 1995 as well
as an expectation that future lapse rates will be higher than previously
assumed. Surrender charges assessed on certain withdrawals offset some of
this accelerated amortization. Amortization related to realized gains
decreased $581,000, or 46.4%, in the third quarter and $3,548,000, or
63.9%, in the first nine months of 1995 due to the decrease in total
realized gains. A breakdown of the amortization of deferred policy
acquisition costs for the three and nine months ended September 30, 1995
and 1994 is as follows:
Three Months Ended Nine Months Ended
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in thousands)
Amortization related to:
Operating income $17,102 $12,583 $47,032 $31,608
Realized gains 672 1,253 2,008 5,556
-------- -------- -------- --------
Total $17,774 $13,836 $49,040 $37,164
======== ======== ======== ========
Income
Operating income (income excluding realized gains and losses, commercial
mortgage and mortgage-backed securities prepayment gains and related
amortization of deferred policy acquisition costs, net of related income
taxes) increased $3,130,000, or 13.8%, in the third quarter and $9,101,000,
or 14.0%, in the first nine months of 1995. Net income increased
$2,119,000, or 8.6%, in the third quarter and $3,918,000 or 5.3%, in the
first nine months of 1995. A breakdown of income is as follows:
1995 1994
-------------------- --------------------
$ Per Share $ Per Share
--------- --------- --------- ---------
(Dollars in thousands,
except per share data)
Three months ended September 30:
Operating income $25,768 $0.81 $22,638 $0.72
Realized gains (net of tax):
Gains realized on disposal
of investments 724 0.02 2,226 0.06
Commercial mortgage and
mortgage-backed securities
prepayment gains 785 0.03 672 0.02
Realized gains related
amortization of DPAC (437) (0.01) (815) (0.02)
--------- --------- --------- ---------
1,072 0.04 2,083 0.06
--------- --------- --------- ---------
Net income $26,840 $0.85 $24,721 $0.78
========= ========= ========= =========
1995 1994
-------------------- --------------------
$ Per Share $ Per Share
--------- --------- --------- ---------
(Dollars in thousands,
except per share data)
Nine months ended September 30:
Operating income $74,140 $2.34 $65,039 $2.06
Realized gains (net of tax):
Gains realized on disposal
of investments 1,961 0.06 11,237 0.35
Commercial mortgage and
mortgage-backed securities
prepayment gains 2,458 0.08 672 0.02
Realized gains related (1,305) (0.04) (3,612) (0.11)
amortization of DPAC --------- --------- --------- ---------
3,114 0.10 8,297 0.26
--------- --------- --------- ---------
Net income $77,254 $2.44 $73,336 $2.32
========= ========= ========= =========
Average shares outstanding totaled 31,731,063 in the third quarter and
31,690,934 in the first nine months of 1995 up from 31,644,743 and
31,595,419 in the same periods of 1994.
FINANCIAL CONDITION
Investments
The company's total investment portfolio grew $1,240,463,000, or 18.1%, in
the first nine months of 1995 from $6.858 billion to $8.099 billion, as
$1,204,205,000 of fixed annuity and life insurance premiums were received
during the period. The company manages the growth of its insurance
operations in order to maintain adequate capital ratios and has established
a goal of growing assets at least 20% in 1995. However, based on the pace
of current sales, the company may fall short of its 20% asset growth goal.
To support the company's annuities and life insurance products, cash flow
was invested primarily in fixed income investments. At September 30, 1995,
the company's investment portfolio was comprised of the following:
Estimated Yield at
Carrying % of Market % of Amortized
Value Total Value Total Cost
_______________________________________________
Investment cash and short-term
investments $23,638 0.3% $23,638 0.3% 6.3%
Governments and agency mortgage-
backed securities 393,093 4.9% 407,286 4.9% 8.3%
Conventional mortgage-backed
securities 2,366,339 29.2% 2,372,456 28.5% 7.9%
Investment grade corporate
securities 3,712,780 45.8% 3,871,437 46.6% 8.4%
Below-investment grade corporate
securities 522,484 6.5% 524,896 6.3% 9.4%
Mortgage loans 1,040,445 12.8% 1,075,702 12.9% 8.6%
_______________________________________________
Total cash and fixed income
investments 8,058,779 99.5% 8,275,415 99.5% 8.3%
Equity securities 25,666 0.3% 25,666 0.3% 3.9%
Real estate 14,125 0.2% 14,125 0.2% 2.6%
_______________________________________________
Total investments $8,098,570 100.0% $8,315,206 100.0% 8.3%
===============================================
<FN>
Note: Estimated market values of publicly traded securities are as reported
by an independent pricing service. Market values of conventional
mortgage-backed securities not actively traded in a liquid market are
estimated using a third party pricing system, which uses a matrix
calculation assuming a spread over U.S. Treasury bonds based upon the
expected average lives of the securities. Market values of private
placement bonds are estimated using a matrix that assumes a spread
(based on interest rates and a risk assessment of the bonds) over U.S.
Treasury bonds. Estimated market values of redeemable preferred
stocks are as reported by the National Association of Insurance
Commissioners ("NAIC"). Market values of mortgage loans on real
estate are estimated by discounting expected cash flows, using
interest rates currently being offered for similar loans. Market value
of owned real estate is estimated to be equal to, or in excess of,
carrying value based upon appraised values.
At September 30, 1995, the ratings assigned by Standard & Poor's
Corporation ("Standard & Poor's") and Moody's Investors Service ("Moody's")
to the individual securities in the company's fixed maturities portfolio
are summarized as follows:
Carrying % of Estimated % of
Value Total Market Value Total
____________ _______ ____________ _______
(Dollars in thousands)
RATINGS ASSIGNED BY
STANDARD & POOR'S:
U.S. governments, agencies
& AAA Corporates $2,701,218 38.6% $2,719,043 37.9%
AA+ to AA- 338,445 4.8% 350,331 4.9%
A+ to A- 2,070,172 29.6% 2,170,159 30.2%
BBB+ to BBB- 1,226,639 17.5% 1,273,830 17.7%
BB+ to BB- 490,632 7.0% 492,665 6.9%
B+ to B- 66,954 1.0% 66,822 0.9%
D 3,742 0.1% 3,742 0.1%
Issues not rated by S & P
(by NAIC rating):
Rated 1 (AAA to A-) 29,434 0.4% 30,465 0.4%
Rated 2 (BBB+ to BBB-) 25,073 0.4% 26,051 0.4%
Rated 3 (BB+ to BB-) 39,335 0.6% 40,154 0.6%
Rated 4 (B+ to B-) 2,413 0.0% 2,410 0.0%
Redeemable preferred stock 639 0.0% 403 0.0%
____________ _______ ____________ _______
TOTAL FIXED MATURITIES $6,994,696 100.0% $7,176,075 100.0%
============ ======= ============ =======
Carrying % of Estimated % of
Value Total Market Value Total
____________ _______ ____________ _______
(Dollars in thousands)
RATINGS ASSIGNED BY MOODY'S:
U.S. governments, agencies
& Aaa Corporates $2,534,975 36.2% $2,554,285 35.6%
Aa1 to Aa3 400,942 5.7% 405,232 5.6%
A1 to A3 2,290,633 32.8% 2,410,041 33.6%
Baa1 to Baa3 1,083,752 15.5% 1,116,584 15.6%
Ba1 to Ba3 492,976 7.0% 496,231 6.9%
B1 to B3 89,976 1.3% 89,685 1.2%
Caa1 to Caa3 2,126 0.0% 2,126 0.0%
Ca 3,742 0.1% 3,742 0.1%
Issues not rated by Moody's
(by NAIC rating):
Rated 1 (Aaa to A3) 31,509 0.5% 32,571 0.5%
Rated 2 (Baa1 to Baa3) 25,073 0.4% 26,051 0.4%
Rated 3 (Ba1 to Ba3) 35,940 0.5% 36,714 0.5%
Rated 4 (B1 to B3) 2,413 0.0% 2,410 0.0%
Redeemable preferred stock 639 0.0% 403 0.0%
____________ _______ ____________ _______
TOTAL FIXED MATURITIES $6,994,696 100.0% $7,176,075 100.0%
============ ======= ============ =======
The company analyzes projected cash flows from investments and policy
liabilities under a variety of economic scenarios to determine what portion
of its investment portfolio might need to be sold under these scenarios.
Based upon this analysis and other factors, the company designates a
portion of its fixed maturity securities portfolio as "available for sale".
On September 30, 1995, fixed income securities with an amortized cost of
$1,646,030,000 and an estimated market value of $1,713,981,000 were
designated as available for sale. Unrealized holding gains on these
securities, net of adjustments to deferred policy acquisition costs and
deferred taxes, increased stockholders' equity by $29,866,000, or $0.94 per
share, at September 30, 1995.
Net unrealized appreciation of fixed maturity investments of $249,330,000
was comprised of gross appreciation of $321,889,000 and gross depreciation
of $72,559,000.
The percentage of the company's portfolio invested in below investment
grade securities has increased slightly during the first nine months of
1995. At September 30, 1995 the carrying value of the company's total
investment in below investment grade securities consisted of investments in
100 issuers totaling $522,484,000, or 6.5% of the company's investment
portfolio compared to 80 issuers totaling $400,677,000, or 5.9%, at
December 31, 1994. The company intends to purchase additional below
investment grade securities but it does not expect the percentage of its
portfolio invested in below investment grade securities to increase
significantly. At September 30, 1995, the yield on the company's below
investment grade portfolio was 9.4% compared to 8.4% for the company's
investment grade corporate bond portfolio. The company estimates that the
market value of its below investment grade portfolio was $524,896,000, or
100.5% of carrying value, at September 30, 1995.
Below investment grade securities have different characteristics than
investment grade corporate debt securities. Risk of loss upon default by
the borrower is significantly greater with respect to below investment
grade securities than with other corporate debt securities. Below
investment grade securities are generally unsecured and are often
subordinated to other creditors of the issuer. Also, issuers of below
investment grade securities usually have higher levels of debt and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than are investment grade issuers. The company attempts to
reduce the overall risk in its below investment grade portfolio, as in all
of its investments, through careful credit analysis, strict investment
policy guidelines, and diversification by company and by industry.
The company analyzes its investment portfolio, including below investment
grade securities, at least quarterly in order to determine if its ability
to realize its carrying value on any investment has been impaired. For
debt and equity securities, if impairment in value is determined to be
other than temporary (i.e. if it is probable that the company will be
unable to collect all amounts due according to the contractual terms of the
security), the cost basis of the impaired security is written down to fair
value, which becomes the security's new cost basis. The amount of the
writedown is included in earnings as a realized loss. Future events may
occur, or additional or updated information may be received, which may
necessitate future write-downs of securities in the company's portfolio.
Significant write-downs in the carrying value of investments could
materially adversely affect the company's net income in future periods.
During the first quarter of 1995, the Company identified one below
investment grade security as having an impairment in value that was other
than temporary. As a result of this determination, the Company recognized
a pre-tax loss of $2,103,000 in the first quarter of 1995 to reduce the
carrying value of this security to its fair value of $900,000. This
security was sold in April 1995 at no gain or loss. During the second
quarter of 1995, the company identified an additional below investment
grade security as having an impairment in value that was other than
temporary. As a result of this determination, the company recognized a pre-
tax loss of $3,699,000 to reduce the carrying value of this security to its
estimated fair value of $3,360,000. During the third quarter of 1995, the
company sold a portion of the security that was written down in the second
quarter with a carrying value of $480,000 at a gain of $150,000.
During the first nine months of 1995, fixed maturity securities designated
as held for investment with a combined amortized cost value of $141,185,000
were called or repaid by their issuers generating net realized gains
totaling $4,300,000. During the second quarter of 1995, the company sold
one security with an amortized cost of $21,983,000 from the held for
investment portfolio generating a realized gain of $4,325,000. This sale
was due to a significant credit deterioration of the issuer's
creditworthiness as a result of a recent announcement of reorganization by
the issuer. Also during the first nine months of 1995, fixed maturity
securities designated as available for sale with a combined amortized cost
value of $77,305,000 were called, repaid or tendered generating net
realized gains totaling $690,000. In total, pre-tax gains from sales,
calls, repayments, tenders and writedowns of fixed maturity investments
amounted to $3,513,000 in the first nine months of 1995.
During the second quarter of 1995, securities issued by two issuers were
transferred from the held for investment portfolio to the available for
sale portfolio due to a significant deterioration in the issuers'
creditworthiness. At the dates of transfer, the amortized cost of these
securities totaled $12,230,000 and unrealized losses of $3,980,000 were
included in stockholders' equity. There were no other transfers from the
held for investment portfolio to the available for sale portfolio during
the nine months ended September 30, 1995.
The company's fixed maturity investment portfolio had a combined amortized
cost yield of 8.3% at September 30, 1995 compared to 8.4% at December 31,
1994 as current market interest rates are at or below the company's
portfolio rate.
Mortgage loans make up approximately 12.8% of the company's investment
portfolio, as compared to an industry average of 15.1%, based on
information reported in the 1995 ACLI Fact Book. The company resumed
active mortgage lending in 1990 to broaden its investment alternatives, and
continues to increase its investment allocation in this area, due to the
availability of attractive yields and loan to value ratios. As a result of
this increase in lending activity, mortgages outstanding increased to
$1,040,445,000 from $613,208,000 during the first nine months of 1995. The
company expects the carrying value of this asset category to continue to
grow over the next several years. The company's mortgage loan portfolio
includes 393 loans with an average size of $2,674,000. Average seasoning
of the company's mortgage loan portfolio is 5.9 years if weighted by the
number of loans, or 1.9 years if weighted by mortgage loan carrying values.
The company's mortgage loans are typically secured by occupied buildings in
major metropolitan locations and not speculative developments, and are
diversified by type of property and geographic location. At September 30,
1995, the yield on the company's mortgage loan portfolio was 8.6%.
Distribution of these loans by type of collateral and geographic location
is as follows:
% of
# of Carrying Mortgage
Loans Value Portfolio
_______________________________
(Dollars in thousands)
Collateral Breakdown
- ------------------------------
Farm 4 $155 0.0%
Multi-family residential 73 263,139 25.3%
Industrial 152 269,447 25.9%
Office buildings 58 165,101 15.9%
Retail 103 329,988 31.7%
Other 3 12,615 1.2%
______ ____________ _________
TOTAL 393 $1,040,445 100.0%
====== ============ =========
% of
# of Carrying Mortgage
Loans Value Portfolio
_______________________________
(Dollars in thousands)
Geographic Breakdown
- ------------------------------
Middle Atlantic 48 167,266 16.1%
South Atlantic 50 130,517 12.5%
East North Central 93 263,379 25.3%
West North Central 48 136,921 13.2%
East South Central 14 45,057 4.3%
West South Central 21 54,167 5.2%
Mountain 25 64,701 6.2%
Pacific 94 178,437 17.2%
______ ____________ _________
TOTAL 393 $1,040,445 100.0%
====== ============ =========
At September 30, 1995, two mortgage loans with a carrying value of $859,000
were delinquent by 90 days or more. The company believes any impairment in
value of these loans to be temporary. In addition, the estimated fair
value of the underlying collateral exceeds the carrying value of the loans.
The company, therefore, expects to recover the carrying value of these
loans and, as a result of that determination, no valuation allowance has
been established. The company does not expect to incur material losses
from its mortgage loan portfolio since mortgage loans represent only 13% of
the company's investment portfolio and the company has been able to recover
84% of the principal amount of problem mortgages that have been resolved in
the last three years.
At September 30, 1995, the company owned real estate totaling $14,125,000,
including properties acquired through foreclosure valued at $10,291,000.
In total, the company has experienced a relatively small number of problems
with its total investment portfolio, with only 0.05% of the company's
investments in default at September 30, 1995. The company estimates its
total investment portfolio, excluding policy loans, had a market value
equal to 102.7% of carrying value at September 30, 1995.
Other assets
Accrued investment income increased $13,109,000 primarily due to an
increase in new fixed income investments and in the overall size of the
portfolio. Deferred policy acquisition costs increased $57,009,000 over
year-end 1994 levels as the deferral of current period costs (primarily
commissions) incurred to generate insurance and annuity sales totaled
$140,909,000. Amortization of deferred costs totaled $49,040,000. In
addition, the change in the adjustment to deferred acquisition costs
related to the valuation of fixed maturity securities designated as
available for sale under SFAS No. 115 reduced deferred acquisition costs by
$34,860,000 during the first nine months of 1995. At September 30, 1995,
the company had total assets of $9,314,272,000, an increase of 16.9% over
total assets at December 31, 1994.
Liabilities
In conjunction with the volume of insurance and annuity sales, and the
resulting increase in business in force, the company's liability for policy
liabilities and accruals increased $958,786,000, or 13.6%, during the first
nine months of 1995 and totaled $7,995,095,000 at September 30, 1995.
Reserves for the company's annuity policies increased $909,144,000, or
15.6%, during this period and totaled $6,736,108,000 at September 30, 1995.
Life insurance reserves increased $49,399,000, or 4.2%, during the first
nine months of 1995 and totaled $1,236,642,000 at September 30, 1995.
The company incorporates a number of features in its annuity products
designed to reduce early withdrawal or surrender of the policies and to
partially compensate the company for its costs if policies are withdrawn
early. Surrender charge periods on annuity policies currently range from
one year to the term of the policy, with 94.4% of such policies being issued
with a surrender charge period of seven years or more during the first nine
months of 1995. The initial surrender charge on deferred annuity policies
ranges from 5% to 20% of the premium and decreases over the surrender charge
period.
The following table summarizes the company's deferred annuity liabilities
and sales at and for the nine months ended September 30, 1995 by surrender
charge range category. Notwithstanding policy features, the withdrawal
rates of policyholder funds may be affected to some degree by changes in
interest rates.
Deferred Deferred
Annuity % of Annuity % of
Surrender Charge % Sales Total Liabilities Total
___________________________________________________________________
(Dollars in thousands)
No surrender charge $507,112 8.0%
1 to 4 percent 859,016 13.5%
5 to 6 percent $4,672 0.5% 823,491 13.0%
7 to 9 percent 882,394 85.9% 2,981,776 47.2%
10 percent and greater 139,563 13.6% 1,154,571 18.3%
_________________________________________
$1,026,629 100.0% $6,325,966 100.0%
=========================================
Total consolidated debt increased $190,550,000 during the first nine months
of 1995 as the company issued $100 million of 8.5% notes in February 1995.
Commercial paper, issued to offset timing differences in investment related
cash receipts and disbursements and to provide for short-term operating
needs, amounted to $181,000,000 at September 30, 1995. Other liabilities
decreased $10,195,000 from year-end 1994 levels as a result of a decrease
in the liability for securities purchased but not yet paid for, partially
offset by increases in liabilities for outstanding checks and liabilities
for premiums received but not yet applied.
At September 30, 1995, the company had total liabilities of $8,601,747,000
compared to $7,378,263,000 at December 31, 1994, a 16.6% increase.
Equity
At September 30, 1995, stockholders' equity was $712,525,000, or $22.44 per
share, compared to $587,330,000 or $18.54 per common share at year end
1994. Unrealized appreciation of available for sale fixed maturity
securities increased stockholders' equity by $29,866,000, or $0.94 per
share, after adjustments to deferred acquisition costs and deferred taxes.
The ratio of consolidated debt to total capital was 28.3% at September 30,
1995, up from 13.3% at year-end 1994 as a result of the increase in long-
term borrowings and commercial paper issued to offset timing differences in
investment related cash receipts and disbursements. Excluding commercial
paper issued to offset timing differences in investment related cash
receipts and disbursements, the ratio of debt to total capital was 19.1% at
September 30, 1995. At September 30, 1995, there were 31,756,463 common
shares outstanding compared to 31,677,891 shares at December 31, 1994.
The effects of inflation and changing prices on the company are not
material since insurance assets and liabilities are both primarily monetary
and remain in balance. An effect of inflation, which has been low in
recent years, is a decline in purchasing power when monetary assets exceed
monetary liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the company's subsidiaries are met by cash
flow from insurance and annuity premiums, investment income, and maturities
of fixed maturity investments and mortgage loans. The company primarily
uses funds for the payment of insurance and annuity benefits, operating
expenses and commissions, and the purchase of new investments. No material
capital expenditures are planned.
The company issues short-term debt, including commercial paper notes, for
working capital needs and to provide short-term liquidity. The company
also issues commercial paper to fund short-term advances to the company's
insurance subsidiaries to smooth timing differences between investment
related cash receipts and disbursements. At September 30, 1995 the company
had $181,000,000 in commercial paper notes outstanding, an increase of
$90,550,000 from December 31, 1994. The company's commercial paper is rated
A1 by Standard and Poor's, P2 by Moody's and D1 by Duff & Phelps Credit
Rating Co.
To enhance short term liquidity and back up its outstanding commercial
paper notes, the company maintains a line of credit agreement with several
banks. On March 30, 1995, the company entered into a new agreement which
provides for a line of credit totaling $225,000,000, expiring on March 30,
2000.
Since Equitable of Iowa Companies is a holding company, funds required to
meet its debt service requirements, dividend payments and other expenses
are primarily provided by its subsidiaries. The ability of the company's
insurance subsidiaries to pay dividends and other distributions to the
company is regulated by state law. Iowa law provides that an insurance
company may pay dividends, without prior approval of the Commissioner of
Insurance if, together with all dividends or distributions made during the
preceding twelve month period, the dividends would not exceed the greater
of (a) 10% of the insurer's statutory surplus as of the December 31st next
preceding; or (b) the statutory net gain from operations for the twelve
month period ending as of the next preceding December 31st. In addition,
the law provides that the insurer may only make dividend payments to its
shareholders from its earned surplus (i.e., its surplus as regards
policyholders less paid-in and contributed surplus). Equitable Life could
pay dividends to the company without prior approval of the Iowa
Commissioner of Insurance of approximately $63,906,000 during the remainder
of 1995. The company's insurance subsidiaries have maintained adequate
statutory capital and surplus and have not used surplus relief or financial
reinsurance, which have come under scrutiny by many state insurance
departments.
The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to identify
inadequately capitalized insurance companies based upon the type and
mixture of risks inherent in the company's operations. The formula
includes components for asset risk, liability risk, interest rate exposure
and other factors. The company's insurance subsidiaries have complied with
the NAIC's risk-based capital reporting requirements. Amounts reported
indicate that the company's insurance subsidiaries have total adjusted
capital (as defined in the requirements) which is well above all required
capital levels.
The terms of the line of credit agreement totaling $225,000,000 require the
company to maintain certain adjusted consolidated tangible net worth
levels. "Adjusted consolidated tangible net worth" is defined as
consolidated stockholders' equity, adjusted to exclude the effects of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", less intangible assets.
These covenants require the company to limit consolidated debt to less than
50% of the company's adjusted consolidated tangible net worth. At
September 30, 1995, $116,966,000 of retained earnings were free of
restrictions and could be distributed to the company's public stockholders.
Writing and supporting increased volumes of insurance and annuity business
requires increased amounts of capital and surplus for the company's
insurance operations. Historically, the company has funded growth in its
insurance operations internally through the retention of earnings.
Increased levels of growth in recent years have required capital
contributions in excess of amounts generated by operating activities. In
1993 the company completed a primary stock offering to the public and
contributed $70,000,000 of the proceeds from the offering to its insurance
operations. In February 1995, the company issued $100 million of 8.5%
notes, maturing on February 15, 2005, receiving net proceeds of
$98,812,000, after expenses. The company contributed $50 million of the
proceeds to its insurance subsidiaries and repaid outstanding commercial
paper notes with the remaining balance. Future growth in the company's
insurance operations, internally or through acquisitions, may require
additional capital although the company believes it has sufficient
resources to support internal growth in operations for the next few years.
The company's primary sources of capital are the retention of earnings and
issuance of common stock or debt.
INSURANCE REGULATION
Currently, the company's insurance subsidiaries are subject to regulation
and supervision by the states in which they are admitted to transact
business. State insurance laws generally establish supervisory agencies
with broad administrative and supervisory powers related to granting and
revoking licenses to transact business, establishing guaranty fund
associations, licensing agents, market conduct, approving policy forms,
regulating premium rates for some lines of business, establishing reserve
requirements, prescribing the form and content of required financial
statements and reports, determining the reasonableness and adequacy of
statutory capital and surplus and regulating the type and amount of
investments permitted. In addition, the company's insurance subsidiaries
are assessed contributions by life and health guaranty associations in
almost all states to indemnify policyholders of failed companies. The
company has received information concerning an insurance company insolvency
that has not previously been contemplated by the company in the establishment
of its reserve for future assessments. As a result, there is a reasonable
possibility that the company may accrue an additional amount to increase its
reserve in the near future and this amount could be material. However,
sufficient information has not yet been received upon which to base an
accrual. The company is anticipating some more specific information on
guaranty fund assessments to be available from the National Organization of
Life and Health Insurance Guaranty Associations in the next few months.
The insurance regulatory framework continues to be scrutinized by various
states, the federal government and the NAIC. The NAIC, in conjunction with
state regulators, has been reviewing existing insurance laws and
regulations. A committee of the NAIC has been working on the development
of proposals to govern insurance company investments and holding company
investments in subsidiaries and affiliates. It is presently anticipated
that final proposals will be considered for adoption as model laws in early
1996. The company does not presently anticipate any material adverse
change in its business if the proposals are adopted.
A task force of the NAIC is currently undertaking a project to codify a
comprehensive set of statutory insurance accounting rules and regulations.
This project is not expected to be completed until the end of 1996.
Specific recommendations have been set forth in papers issued by the NAIC
for industry review. The company is monitoring and, through an industry
trade association, actively participating in this process, but the
potential impact of any changes in insurance accounting standards is not
yet known.
The NAIC has adopted Guideline XXXIII which will require the company to
increase annuity reserves in its statutory financial statements by
approximately $15 to $30 million. The guideline allows this increase to be
phased in over a three year period if approved by the insurance department
in the state of domicile. The guideline would have no effect on financial
statements prepared in accordance with GAAP. The company is preparing to
comply with the guideline when required.
There has been increased scrutiny by insurance regulators and the insurance
industry itself of insurance sales and marketing activities. The company
has conducted a thorough review of its sales and marketing process and has
re-emphasized its compliance efforts.
Legislative and regulatory initiatives regarding changes in the regulation
of banks and other financial services businesses and restructuring of the
federal income tax system could, if adopted and depending on the form they
take, have an adverse impact on the company by altering the competitive
environment for its products. The outcome and timing of any such changes
cannot be anticipated at this time, but the company will continue to
monitor developments in order to respond to any opportunities or increased
competition that may occur.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Equitable of Iowa Companies, Equitable Life Insurance Company of
Iowa and Equitable American Insurance Company are defendants in a
class action lawsuit brought on May 2, 1995 in the Iowa District
Court for Polk County by a policyholder, Russell A. Kolsrud, claiming
unspecified damages as a result of sales of life insurance policies
with so-called "vanishing premiums" which use cash values to pay
insurance premiums under certain interest rate scenarios. The
complaint alleges the policyholders were misled by optimistic policy
illustrations. The company and its subsidiaries deny the allegations,
including the existence of a legitimate class, and believe that the
allegations are without merit because full and appropriate disclosure
was made as a matter of practice. The company intends to defend the
suit vigorously. The suit is in its early procedural stages. It has
not yet been certified as a class action.
In the ordinary course of business, the company and its subsidiaries
are also engaged in certain other litigation none of which
management believes is material.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4(a) Letter agreement to furnish Commission upon request
copies of other long-term debt instruments
11 Statement re: Computation of per share earnings
21 Subsidiary list
27 Financial Data Schedule (electronic filing only)
(b) The following report on Form 8-K was filed during the quarter
ended September 30, 1995:
(i) Form 8-K filed July 27, 1995 with respect to the Press
Release of the Registrant announcing the financial results
of the Registrant for the quarter ended June 30, 1995.
SIGNATURES
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.
DATE: November 3, 1995 EQUITABLE OF IOWA COMPANIES
By /s/ P. E. Larson
______________________________________
Executive Vice President and CFO
(Principal Financial Officer)
By /s/ D. A. Terwilliger
______________________________________
Vice President and Controller
(Principal Accounting Officer)
INDEX
Exhibits to Form 10-Q
Nine Months ended September 30, 1995
EQUITABLE OF IOWA COMPANIES
Page Number
3 Articles of Incorporation and By-Laws
(a) Restated Articles of Incorporation as amended through
April 29, 1993, filed as Exhibit 3(a) to Form 10-Q for
the period ended June 30, 1993, is incorporated by
reference --
(b) Amended and restated By-Laws filed as Exhibit 2 to
Form 8-K dated November 11, 1991, is incorporated by
reference --
4 Instruments Defining the Rights of Security Holders, Including
Indentures
(a) Letter Agreement to furnish Commission upon request copies
of other long-term debt instruments --
(b)(i) Rights Agreement filed as Exhibit 1 to Form 8-K dated
April 30, 1992, is incorporated by reference --
(ii) First amendment to Rights Agreement changing Rights Agent
filed as Exhibit 4(b)(ii) to Form 10-Q for the period
ended September 30, 1992, is incorporated by reference --
(iii) Second amendment to Rights Agreement dated April 29, 1993,
adjusting Purchase Price filed as Exhibit 2.2 to Form
8-A/A dated May 13, 1993, is incorporated by reference --
10 Material Contracts
(a) Executive compensation plans and arrangements *
(i) Restated Executive Severance Pay Plan filed as Exhibit
10(a) to Form 10-K for the year ended December 31, 1992,
is incorporated by reference --
(ii) Directors' Deferred Compensation Plan filed as Exhibit
10(b) to Form 10-K for the year ended December 31, 1989,
is incorporated by reference --
(iii) 1982 Stock Incentive Plan filed as Exhibit 10(c) to Form
10-K for the year ended December 31, 1989, is incorporated
by reference --
(iv) Excess Benefit Plan filed as Exhibit 10(d) to Form 10-K
for the year ended December 31, 1989, is incorporated by
reference --
(v) Supplemental Employee Retirement Plan filed as Exhibit
10(e) to Form 10-K for the year ended December 31, 1989,
is incorporated by reference --
(vi) Executive Flexible Perquisite Program filed as Exhibit
10(f) to Form 10-K for the year ended December 31, 1992,
is incorporated by reference --
INDEX
Exhibits to Form 10-Q
Nine Months ended September 30, 1995
EQUITABLE OF IOWA COMPANIES
Page Number
(vii) Restated and Amended Key Employee Incentive Plan filed as
Exhibit A of Registrant's Proxy Statement dated March 14,
1995, is incorporated by reference --
(viii) Restated and Amended 1992 Stock Incentive Plan Registration
Statement No. 33-57492 filed as Exhibit B of Registrant's
Proxy Statement dated March 14, 1995, is incorporated by
by reference --
* Management contracts or compensation plans required to
be filed as an Exhibit pursuant to Item 14(c) of Form
10(K).
11 Statement re: Computation of Per Share Earnings --
21 Subsidiaries List --
23 Consent of Experts and Counsel
(a) Consent of independent auditors (not required) --
(b) Consent of counsel (not required) --
27 Financial Data Schedule (electronic filing only) --
99 Additional Exhibits
Independence Policy filed as an Exhibit to Form 8-K dated November
11, 1991, is incorporated by reference --