Amounts are stated in thousands, except share data, or as otherwise noted.
Management's Discussion and Analysis of Financial Condition and Results of
Operations is intended to provide in narrative form the perspective of the
management of Kansas City Life Insurance Company (the Company) on its financial
condition, results of operations, liquidity, and certain other factors that may
affect its future results. The following is a discussion and analysis of the
results of operations for the quarters ended June 30, 2012 and 2011 and the
financial condition of the Company at June 30, 2012. This discussion should be
read in conjunction with the consolidated financial statements and accompanying
notes included in this document, as well as the Company's 2011 Form 10-K.
Overview
Kansas City Life Insurance Company is a financial services company that is
predominantly focused on the underwriting, sales, and administration of life
insurance and annuity products. The consolidated entity (the Company) primarily
consists of three life insurance companies. Kansas City Life Insurance Company
(Kansas City Life) is the parent company. Sunset Life Insurance Company of
America (Sunset Life) and Old American Insurance Company (Old American) are
wholly-owned subsidiaries. For additional information, please refer to the
Overview included in Management's Discussion and Analysis of Financial Condition
and Results of Operations in the Company's 2011 Form 10-K.
Cautionary Statement on Forward-Looking Information
This report reviews the Company's financial condition and results of operations,
and historical information is presented and discussed. Where appropriate,
factors that may affect future financial performance are also identified and
discussed. Certain statements made in this report include "forward-looking
statements" that fall within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include any statement that may
predict, forecast, indicate or imply future results, performance, or
achievements rather than historical facts and may contain words like "believe,"
"expect," "estimate," "project," "forecast," "anticipate," "plan," "will,"
"shall," and other words, phrases, or expressions with similar meaning.
Actual results may differ materially from those included in the forward-looking
statements as a result of risks and uncertainties. Those risks and uncertainties
include, but are not limited to, the risk factors listed in Item 1A. Risk
Factors as filed in the Company's 2011 Form 10-K. For additional information,
please refer to the Overview included in Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Company's 2011 Form 10-K.
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Consolidated Results of Operations
Summary of Results
The Company earned net income of $8.4 million in the second quarter of 2012
compared to $11.2 million in the second quarter of 2011. Net income per share
was $0.78 in the second quarter of 2012 versus $0.97 in same period in the prior
year. Net income for the first six months of 2012 was $27.8 million, an increase
of $11.9 million or 74% compared to last year. Net income per share for the six
months was $2.50, an increase of $1.11 per share versus the same period one year
earlier. The following table presents variances between the results for the
second quarters and six months ended June 30, 2012 and 2011. Additional
information on these items is presented below.
Quarter Ended Six Months Ended
June 30 June 30
2012 Versus 2011 2012 Versus 2011
Insurance and other revenues $ 4,888 $ 2,643
Net investment income (1,458 ) (2,640 )
Net realized investment gains (496 ) 14,380
Policyholder benefits and interest
credited to policyholder account
balances (2,022 ) 4,705
Amortization of deferred acquisition
costs (4,416 ) (2,733 )
Operating expenses (580 ) 1,323
Income tax expense 1,308 (5,804 )
Total variance $ (2,776 ) $ 11,874
Sales
The Company measures sales in terms of new premiums and deposits. Sales of
traditional life insurance, immediate annuities, and accident and health
products are reported as premium income for financial statement
purposes. Deposits received from the sale of interest sensitive products,
including universal life insurance, fixed deferred annuities, variable universal
life, variable annuities, and supplementary contracts without life contingencies
are reflected as deposits in the Consolidated Statements of Cash Flows.
The Company's marketing plan for individual products focuses on three main
aspects: providing financial security with respect to life insurance, the
accumulation of long-term value, and future retirement income needs. The primary
emphasis is on the growth of individual life insurance business, including new
premiums for individual life products and new deposits for universal life and
variable universal life products.
Sales are primarily made through the Company's existing sales force. The Company
emphasizes growth of the sales force with the addition of new general agents and
agents. The Company believes that increased sales will result through both the
number and productivity of general agents and agents. In addition, the Company
places an emphasis on training and direct support to the field force to assist
new agents in their start-up phase. In addition, the Company provides support to
existing
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agents to stay abreast of the ever-changing regulatory environment and to
introduce agents to new products and enhanced features of existing products. On
occasion, the Company may also selectively utilize third-party marketing
arrangements to enhance its sales objectives. This allows the Company the
flexibility to identify niches or pursue unique avenues in the existing market
environment and to react quickly to take advantage of opportunities as they
occur.
The Company also markets a series of group products. These products include
group life, dental, disability, and vision products. The primary growth
strategies for these products include increased productivity of the existing
group representatives; planned expansion of the group distribution system; and
to selectively utilize third-party marketing arrangements. Further, growth is to
be supported by the addition of new products to the portfolio, particularly
voluntary-type products.
The following table presents gross premiums by new and renewal business, less
reinsurance ceded, as included in insurance revenues for the second quarters and
six months ended June 30, 2012 and 2011. New premiums are also detailed by
product.
Quarter Ended
June 30
2012 % Change 2011 % Change
New premiums:
Individual life insurance $ 4,414 2 $ 4,313 5
Immediate annuities 3,460 234 1,037 (77 )
Group life insurance 744 64 453 (9 )
Group accident and health insurance 3,199 (5 ) 3,367 5
Total new premiums 11,817 29 9,170 (26 )
Renewal premiums 37,033 1 36,509 2
Total premiums 48,850 7 45,679 (5 )
Reinsurance ceded (14,645 ) (2 ) (14,878 ) 6
Premiums, net $ 34,205 11 $ 30,801 (10 )
Six Months Ended
June 30
2012 % Change 2011 % Change
New premiums:
Individual life insurance $ 8,770 1 $ 8,724 9
Immediate annuities 5,168 38 3,746 (62 )
Group life insurance 1,225 29 947 (16 )
Group accident and health insurance 5,743 (18 ) 6,991 7
Total new premiums 20,906 2 20,408 (20 )
Renewal premiums 74,283 3 71,955 2
Total premiums 95,189 3 92,363 (4 )
Reinsurance ceded (28,280 ) 1 (27,937 ) 3
Premiums, net $ 66,909 4 $ 64,426 (7 )
Consolidated total premiums increased $3.2 million or 7% in the second quarter
of 2012 versus the same period in the prior year, as total new premiums
increased $2.6 million or 29% and total renewal premiums increased $0.5 million
or 1%. The increase in total new premiums was largely due to a $2.4 million
increase in immediate annuities. Immediate annuity receipts can have sizeable
fluctuations, as receipts from policyholders largely result from one-time
premiums rather than recurring premiums. In addition, new group life insurance
premiums increased. The increase in consolidated renewal premiums was largely
due to a $0.6 million increase in individual life insurance premiums,
attributable to the Old American segment.
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Consolidated total premiums increased $2.8 million or 3% in the first six months
of 2012 versus one year earlier, reflecting a $0.5 million or 2% increase in
total new premiums and a $2.3 million or 3% increase in total renewal premiums.
The increase in total new premiums was due to a $1.4 million or 38% increase in
new immediate annuity premiums and a $0.3 million increase in new group life
premiums. These improvements were partially offset by a $1.2 million or 18%
decrease in new group accident and health premiums, primarily in the dental and
short-term disability lines. The increase in renewal premiums reflected an
increase in individual life insurance premiums from both the Individual and Old
American segments. In addition, renewal group accident and health premiums
increased, largely from the short-term disability line.
The following table reconciles deposits with the Consolidated Statements of Cash
Flows and provides detail by new and renewal deposits for the second quarters
and six months ended June 30, 2012 and 2011. New deposits are also detailed by
product.
Quarter Ended
June 30
2012 % Change 2011 % Change
New deposits:
Universal life insurance $ 2,857 (24 ) $ 3,750 22
Variable universal life insurance 103 (62 ) 268 35
Fixed deferred annuities 12,469 (31 ) 18,025 58
Variable annuities 4,642 (24 ) 6,142 10
Total new deposits 20,071 (29 ) 28,185 39
Renewal deposits 35,325 (3 ) 36,333 -
Total deposits $ 55,396 (14 ) $ 64,518 14
Six Months Ended
June 30
2012 % Change 2011 % Change
New deposits:
Universal life insurance $ 6,160 (6 ) $ 6,562 1
Variable universal life insurance 260 (47 ) 493 12
Fixed deferred annuities 31,619 (4 ) 32,917 47
Variable annuities 8,603 (14 ) 9,979 (13 )
Total new deposits 46,642 (7 ) 49,951 22
Renewal deposits 70,217 (3 ) 72,031 3
Total deposits $ 116,859 (4 ) $ 121,982 10
Total new deposits decreased $8.1 million or 29% in the second quarter of 2012
compared with the second quarter of 2011. This change was primarily due to a
$5.6 million or 31% decrease in new fixed deferred annuity deposits and a $1.5
million or 24% decrease in new variable annuity deposits. Total renewal deposits
decreased $1.0 million or 3% in the second quarter of 2012 versus last year,
reflecting a $0.9 million or 33% decrease in renewal variable annuity deposits.
Total new deposits decreased $3.3 million or 7% in the first six months of 2012
compared with the prior year. This decrease was largely due to a $1.4 million or
14% decline in new variable annuity deposits and a $1.3 million or 4% decrease
in new fixed deferred annuity deposits. Total renewal deposits decreased $1.8
million or 3%, reflecting a $2.1 million or 35% decrease in renewal variable
annuity deposits. Partially offsetting this decline, renewal fixed deferred
annuity deposits increased $0.8 million or 5% compared to last year. New sales
and renewals for deposit products have been negatively affected for the second
quarter and first six months of 2012 by continuing low interest rates and the
uncertain economic environment.
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Insurance Revenues
Insurance revenues consist of premiums, net of reinsurance, and contract
charges. In the second quarter of 2012, total insurance revenues increased $5.2
million or 10%, reflecting a $3.4 million or 11% increase in net premiums and a
$1.8 million or 8% increase in contract charges compared to the prior year. The
increase in net premiums resulted from a $0.8 million or 3% increase in total
individual life premiums, largely from the Old American segment, and a $2.4
million increase in total immediate annuity premiums.
Insurance revenues increased $3.2 million or 3% in the first six months of 2012
compared with the prior year. This increase was due to a $2.5 million or 4%
increase in net premiums and a $0.7 million or 1% increase in contract charges.
The increase in net premiums largely resulted from a $1.6 million or 3% increase
in total individual life insurance premiums, also largely from the Old American
segment, and a $1.2 million or 29% increase in total immediate annuity premiums.
Contract charges consist of cost of insurance, expense loads, amortization of
unearned revenues, and surrender charges on policyholder account balances.
Certain contract charges are not recognized in income immediately but are
deferred and amortized into income in proportion to the expected future gross
profits of the business, in a manner similar to DAC. Profit expectations are
based upon assumptions of future interest spreads, mortality margins, expense
margins, and policy and premium persistency experience. At least annually, a
review is performed of the assumptions related to profit expectations. If it is
determined the assumptions should be revised, the impact is recorded as a change
in the revenue reported in the current period as an unlocking adjustment.
Contract charges are impacted by the sales of new products and the persistency
of both existing and closed blocks of business. The closed blocks of business
reflect policies and companies that the Company has purchased but to which the
Company is not actively pursuing marketing efforts to generate new sales and has
the intent of servicing to achieve long-term profit streams.
Total contract charges on all blocks of business increased $1.8 million or 8% in
the second quarter of 2012 compared to the same periods in 2011. The increase in
the second quarter of 2012 was largely due to a $2.5 million increase in the
amortization of deferred revenue. Amortization of deferred revenue increased
$1.8 million during the second quarter of 2012 due to unlocking. This unlocking
was due to changes in the interest and mortality margins that resulted in a
decrease to the deferred revenue liability. Conversely, deferred revenue
decreased $1.8 million during second quarter 2011 due to unlocking. The 2011
unlocking was primarily the result of the implementation of a new industry
mortality table and the impact of a system upgrade specific to reinsurance.
Total contract charges on all blocks of business increased $0.7 million in the
first six months of 2012 compared to one year earlier. In addition to the
results discussed above for the quarter, the amortization of deferred revenue
increased during 2012 due to a system upgrade that occurred during 2011 that led
to enhanced reinsurance modeling capabilities. Partially offsetting this
increase was a $0.4 million decrease in both expense loads and cost of insurance
charges. The decrease in expense loads resulted from a decline in value of
variable annuities held in the separate accounts, reflecting the existing market
conditions. The decline in cost of insurance charges was largely due to the
runoff of closed blocks.
Total contract charges on closed blocks equaled 34% and 37% of total
consolidated contract charges in the second quarters of 2012 and 2011, and 35%
and 36% for the first six months of 2012 and 2011, respectively. Total contract
charges on closed blocks decreased 1% in the second quarter and 2% in the first
six months of 2012 compared to the same periods in the prior year. These
declines reflect the runoff of the closed blocks. Total contract charges on
open, or ongoing, blocks of business increased 13% in the second quarter and 4%
in the first six months, reflecting in part new sales of these products and the
unlocking discussed above.
The Company uses reinsurance as a means to mitigate its risks and to reduce the
earnings volatility from claims. Reinsurance ceded premiums decreased $0.2
million or 2% in the second quarter of 2012 and increased $0.3 million or 1% in
the first six months of 2012, as compared to the same periods in 2011.
Reinsurance ceded for the Group segment increased $0.1 million or 4% in the
second quarter and $0.9 million or 15% in the six months, reflecting increased
disability sales that were largely reinsured. Reinsurance ceded for the Old
American segment declined $0.1 million or 12% in the second quarter and $0.2
million or 15% in the first six months of 2012, reflecting the continued runoff
of a large closed block of reinsured business. Reinsurance ceded for the
Individual Insurance segment decreased $0.3 million or 3% in the second quarter
and $0.3 million or 2% in the first six months of 2012.
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Investment Revenues
Gross investment income is largely composed of interest, dividends and other
earnings on fixed maturity securities, equity securities, short-term
investments, mortgage loans, real estate, and policy loans. Gross investment
income decreased $1.0 million or 2% in the second quarter and $2.5 million or 3%
in the first six months of 2012 compared with the same periods in 2011. While
average invested assets increased in both the second quarter and first six
months during 2012, these changes were more than offset by lower yields earned
on certain investments.
Fixed maturity securities provided a majority of the Company's investment income
during both the quarter and six months ended June 30, 2012. Income on these
investments declined $1.1 million or 3% in the second quarter and $2.7 million
or 4% in the first six months of 2012 compared to the prior year, reflecting
declines in yields earned.
Investment income from mortgage loans decreased 1% in the second quarter and
increased 4% in the first six months of 2012 compared to the same periods in
2011. The improvement in the six months was largely the result of higher
mortgage loan portfolio holdings in the first six months of 2012 compared to the
first six months of 2011, as the Company increased the mortgage loan balance
through purchases made during 2011.
Net investment income is stated net of investment expenses. Investment expenses
increased $0.4 million or 15% in the second quarter of 2012 and $0.2 million or
3% in the first six months of 2012 compared to the same periods in 2011. These
changes were largely attributable to increased real estate expenses.
The Company realizes investment gains and losses from several sources, including
write-downs of investments and sales of investment securities and real estate.
Many securities purchased by the Company contain call provisions, which allow
the issuer to redeem the securities at a particular price. Depending upon the
terms of the call provision and price at which the security was purchased, a
gain or loss may be realized.
The following table provides detail concerning realized investment gains and
losses for the second quarters and six months ended June 30, 2012 and 2011.
Quarter Ended Six Months Ended
June 30 June 30
2012 2011 2012 2011
Gross gains resulting from:
Sales of investment securities $ - $ 3,341 $ 313 $ 3,652
Investment securities called and other 595 387 803 1,250
Sales of real estate 1,010 - 16,180 -
Total gross gains 1,605 3,728 17,296 4,902
Gross losses resulting from:
Sales of investment securities (32 ) (1,590 ) (32 ) (1,590 )
Investment securities called and other (151 ) (125 ) (204 ) (179 )
Mortgage loans (13 ) - (178 ) (3 )
Total gross losses (196 ) (1,715 ) (414 ) (1,772 )
Change in allowance for potential future
losses on mortgage loans (32 ) - 332 -
Amortization of DAC and VOBA (16 ) (120 ) (16 ) (225 )
Net realized investment gains, excluding
impairment losses 1,361 1,893 17,198 2,905
Net impairment losses recognized in
earnings:
Total other-than-temporary impairment
losses (188 ) (238 ) (456 ) (507 )
Portion of loss recognized in other
comprehensive income 42 56 150 114
Net impairment losses recognized in
earnings (146 ) (182 ) (306 ) (393 )
Net realized investment gains $ 1,215 $ 1,711 $ 16,892 $ 2,512
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The Company recorded a net realized investment gain of $1.2 million in the
second quarter of 2012, compared with a $1.7 million net realized investment
gain in the second quarter of 2011. During the second quarter of 2012,
investment gains on sales of real estate totaled $1.0 million. Net realized
investment gains for the first six months totaled $16.9 million in 2012 compared
to $2.5 million in 2011, largely reflecting gains on sales of real estate of
$16.2 million. In the above table, investment securities called and other
includes, but is not limited to, principal payments and sinking funds.
The Company's analysis of securities for the second quarter ended June 30, 2012
resulted in the determination that eight fixed-maturity residential
mortgage-backed securities had other-than-temporary impairments and were written
down by a combined $0.1 million due to credit impairments. These residential
mortgage-backed securities had incremental losses, reflecting deterioration in
the present value of expected future cash flows. The additional losses from
these residential mortgage-backed securities totaled $0.2 million in the second
quarter of 2012, including $0.1 million that was determined to be non-credit and
was recognized in other comprehensive income. The total fair value of the
affected securities after the write-downs was $65.7 million.
The following table summarizes securities with other-than-temporary impairments
recognized in earnings by business segment during the first and second quarters
of 2012 and 2011 by asset class:
Six Months
Quarter Ended Quarter Ended Ended
March 31 June 30 June 30
2012 2012 2012
Bonds:
Corporate private-labeled
residential mortgage-backed
securities:
Individual Insurance $ 143 $ 134 $ 277
Group Insurance - - -
Old American 17 12 29
Total $ 160 $ 146 $ 306
Segment detail:
Individual Insurance $ 143 $ 134 $ 277
Group Insurance - - -
Old American 17 12 29
Consolidated total $ 160 $ 146 $ 306
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Six Months
Quarter Ended Quarter Ended Ended
March 31 June 30 June 30
2011 2011 2011
Bonds:
Corporate private-labeled
residential mortgage-backed
securities:
Individual Insurance $ 188 $ 164 $ 352
Group Insurance - - -
Old American 23 18 41
Total $ 211 $ 182 $ 393
Segment detail:
Individual Insurance $ 188 $ 164 $ 352
Group Insurance - - -
Old American 23 18 41
Consolidated total $ 211 $ 182 $ 393
Analysis of Investments
The Company seeks to protect policyholders' benefits and achieve a desired level
of organizational profitability by optimizing risk and return on an ongoing
basis through managing asset and liability cash flows, monitoring credit risk,
avoiding high levels of investments that may be redeemed by the issuer,
maintaining sufficiently liquid investments and avoiding undue asset
concentrations through diversification, among other things.
The primary sources of investment risk to which the Company is exposed include
credit risk, interest rate risk, and liquidity risk. The Company's ability to
manage these risks is essential to the success of the organization. In
particular, the Company devotes considerable resources to both the credit
analysis of each new investment and to ongoing credit positions. A default by an
issuer usually involves some loss of principal to the investor. Losses can be
mitigated by timely sales of affected securities or by active involvement in a
restructuring process. However, there can be no assurance that the efforts of an
investor will lead to favorable outcomes in a bankruptcy or restructuring.
Credit risk is managed primarily through industry, issuer, and structure
diversification.
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The following table provides information regarding fixed maturity and equity
securities by asset class at June 30, 2012.
Fair Value Fair Value
of Securities of Securities
Total with Gross Gross with Gross Gross
Fair % Unrealized Unrealized Unrealized Unrealized
Value of Total Gains Gains Losses Losses
U.S. Treasury securities and
obligations of U.S. Government $ 135,892 4% $ 134,213 $ 14,308 $ 1,679 $ 22
Federal agencies 1
26,123 1% 26,123 4,061 - 1
Federal agency issued residential
mortgage-backed securities 1 106,439 4% 105,813 9,281 626 -
Subtotal 268,454 9% 266,149 27,650 2,305 23
Corporate obligations:
Industrial 544,941 19% 520,208 48,437 24,733 1,727
Energy 193,676 7% 184,096 20,692 9,580 46
Communications and technology 219,485 8% 215,432 20,097 4,053 28
Financial 316,822 11% 283,253 20,753 33,569 2,624
Consumer 535,552 19% 520,485 47,467 15,067 53
Public utilities 292,514 10% 276,538 39,068 15,976 485
Subtotal 2,102,990 74% 2,000,012 196,514 102,978 4,963
Corporate private-labeled residential
mortgage-backed securities 151,638 5% 81,428 2,711 70,210 8,694
Municipal securities 174,148 6% 170,177 25,510 3,971 26
Other 103,178 4% 57,993 4,771 45,185 8,081
Redeemable preferred stocks 15,842 1% 12,382 328 3,460 222
Fixed maturities 2,816,250 99% 2,588,141 257,484 228,109 22,009
Equity securities 37,184 1% 36,057 1,815 1,127 130
Total $ 2,853,434 100% $ 2,624,198 $ 259,299 $ 229,236 $ 22,139
1 Federal agency securities are not backed by the full faith and credit of the
U.S. Government.
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The following table provides information regarding fixed maturity and equity
securities by asset class at December 31, 2011.
Fair Value Fair Value
of Securities of Securities
Total with Gross Gross with Gross Gross
Fair % Unrealized Unrealized Unrealized Unrealized
Value of Total Gains Gains Losses Losses
U.S. Treasury securities and
obligations of U.S. Government $ 134,437 5% $ 133,478 $ 13,856 $ 959 $ 12
Federal agencies 1 25,881 1% 25,881 3,480 - -
Federal agency issued residential
mortgage-backed securities 1 119,637 4% 118,694 9,901 943 2
Subtotal 279,955 10% 278,053 27,237 1,902 14
Corporate obligations:
Industrial 486,880 18% 461,425 43,710 25,455 860
Energy 171,711 6% 171,711 19,131 - -
Communications and technology 201,393 7% 194,154 16,566 7,239 156
Financial 318,078 12% 250,403 15,155 67,675 5,890
Consumer 496,487 18% 481,033 43,788 15,454 263
Public utilities 296,337 11% 280,475 38,094 15,862 1,366
Subtotal 1,970,886 72% 1,839,201 176,444 131,685 8,535
Corporate private-labeled residential
mortgage-backed securities 156,902 6% 53,304 1,856 103,598 12,620
Municipal securities 168,522 6% 164,613 18,316 3,909 61
Other 94,656 4% 38,253 3,576 56,403 9,235
Redeemable preferred stocks 11,221 1% 5,226 226 5,995 740
Fixed maturities 2,682,142 99% 2,378,650 227,655 303,492 31,205
Equity securities 36,689 1% 35,566 1,873 1,123 135
Total $ 2,718,831 100% $ 2,414,216 $ 229,528 $ 304,615 $ 31,340
1 Federal agency securities are not backed by the full faith and credit of the
U.S. Government.
At December 31, 2011, the Company had $31.3 million in gross unrealized losses
on investment securities which were offset by $229.5 million in gross unrealized
gains. At June 30, 2012, the Company's unrealized losses on investment
securities had decreased to $22.1 million and were offset by $259.3 million in
gross unrealized gains, with 22% of the gross unrealized losses in the category
of corporate obligations. The financial sector was the single largest
contributor to unrealized losses in this category, reflecting the direct and
indirect impact of the troubled residential real estate and mortgage markets. In
addition, 39% of the gross unrealized losses were in the category of corporate
private-labeled residential mortgage-backed securities, also due to the troubled
residential real estate and mortgage markets. At June 30, 2012, 92% of the total
fair value of the fixed maturities portfolio had unrealized gains, compared to
89% at December 31, 2011.
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The Company maintains a high quality securities portfolio. The following table
identifies fixed maturity securities available for sale by actual or equivalent
Standard & Poor's rating at June 30, 2012 and December 31, 2011.
June 30, 2012 December 31, 2011
Fair % Fair %
Value of Total Value of Total
AAA $ 133,497 5% $ 161,802 6%
AA 606,522 22% 570,157 21%
A 850,741 30% 799,565 30%
BBB 1,022,645 36% 939,373 35%
Total investment grade 2,613,405 93% 2,470,897 92%
BB 69,852 2% 79,760 3%
B and below 132,993 5% 131,485 5%
Total below investment grade 202,845 7% 211,245 8%
$ 2,816,250 100% $ 2,682,142 100%
The following table provides information regarding fixed maturity and equity
security investments available for sale with unrealized losses by length of
time, at June 30, 2012.
Less Than 12 Months 12 Months or Longer Total
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
U.S. Treasury securities and
obligations of U.S. Government $ 900 $ 8 $
779 $ 14 $ 1,679 $ 22
Federal agency issued residential
mortgage-backed securities 1
333 - 293 1 626 1
Subtotal 1,233 8 1,072 15 2,305 23
Corporate obligations:
Industrial 24,733 1,727 - - 24,733 1,727
Energy 9,580 46 - - 9,580 46
Communications and technology 4,053 28 - - 4,053 28
Financial 17,959 258 15,610 2,366 33,569 2,624
Consumer 14,480 46 587 7 15,067 53
Public utilities 9,236 74 6,740 411 15,976 485
Subtotal 80,041 2,179 22,937 2,784 102,978 4,963
Corporate private-labeled
residential mortgage-backed
securities - - 70,210 8,694 70,210 8,694
Municipal securities 3,078 18 893 8 3,971 26
Other - - 45,185 8,081 45,185 8,081
Redeemable preferred stocks - - 3,460 222 3,460 222
Fixed maturity securities 84,352 2,205 143,757 19,804 228,109 22,009
Equity securities - - 1,127 130 1,127 130
Total $ 84,352 $ 2,205 $ 144,884 $ 19,934 $ 229,236 $ 22,139
1 Federal agency securities are not backed by the full faith and credit of the
U.S. Government.
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The following table provides information regarding fixed maturity and equity
security investments available for sale with unrealized losses by length of
time, at December 31, 2011.
Less Than 12 Months 12 Months or Longer Total
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
U.S. Treasury securities and
obligations of U.S. Government $ - $ - $
959 $ 12 $ 959 $ 12
Federal agency issued residential
mortgage-backed securities 1
649 - 294 2 943 2
Subtotal 649 - 1,253 14 1,902 14
Corporate obligations:
Industrial 25,455 860 - - 25,455 860
Communications and technology 7,239 156 - - 7,239 156
Financial 51,273 2,107 16,402 3,783 67,675 5,890
Consumer 11,765 119 3,689 144 15,454 263
Public utilities 4,710 344 11,152 1,022 15,862 1,366
Subtotal 100,442 3,586 31,243 4,949 131,685 8,535
Corporate private-labeled
residential mortgage-backed
securities 41,734 2,668 61,864 9,952 103,598 12,620
Municipal securities - - 3,909 61 3,909 61
Other 9,257 921 47,146 8,314 56,403 9,235
Redeemable preferred stocks 2,939 115 3,056 625 5,995 740
Fixed maturity securities 155,021 7,290 148,471 23,915 303,492 31,205
Equity securities 69 104 1,054 31 1,123 135
Total $ 155,090 $ 7,394 $ 149,525 $ 23,946 $ 304,615 $ 31,340
1 Federal agency securities are not backed by the full faith and credit of the
U.S. Government.
Gross unrealized losses on fixed maturity and equity security investments
attributable to securities having gross unrealized losses of 12 months or longer
were $19.9 million at June 30, 2012, a decrease of 17% from $23.9 million at
December 31, 2011. The largest component of this decrease was from the corporate
private-labeled residential mortgage-backed securities category, which decreased
$1.3 million or 13% during the first six months of 2012. These securities
continue to be challenged by the economy and the Company continues to monitor
the cash flows on each of these investments.
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The following table summarizes the Company's investments in securities available
for sale with unrealized losses at June 30, 2012.
June 30, 2012
Gross
Amortized Fair Unrealized
Cost Value Losses
Securities owned without realized impairment:
Unrealized losses of 10% or less $ 104,608 $ 102,949 $ 1,659
Unrealized losses of 20% or less and greater
than 10% 36,702 31,992 4,710
Subtotal 141,310 134,941 6,369
Unrealized losses greater than 20%:
Investment grade
Less than twelve months 4,946 3,766 1,180
Twelve months or greater 908 465 443
Total investment grade 5,854 4,231 1,623
Below investment grade
Less than twelve months 4,273 3,104 1,169
Twelve months or greater 3,010 2,167 843
Total below investment grade 7,283 5,271 2,012
Unrealized losses greater than 20% 13,137 9,502 3,635
Subtotal 154,447 144,443 10,004
Securities owned with realized impairment:
Unrealized losses of 10% or less 33,294 31,815 1,479
Unrealized losses of 20% or less and greater
than 10% 40,730 34,841 5,889
Subtotal 74,024 66,656 7,368
Unrealized losses greater than 20%:
Investment grade
Less than twelve months - - -
Twelve months or greater - - -
Total investment grade - - -
Below investment grade
Less than twelve months 1,553 1,240 313
Twelve months or greater 21,351 16,897 4,454
Total below investment grade 22,904 18,137 4,767
Unrealized losses greater than 20% 22,904 18,137 4,767
Subtotal 96,928 84,793 12,135
Total $ 251,375 $ 229,236 $ 22,139
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The following table summarizes the Company's investments in securities available
for sale with unrealized losses at December 31, 2011.
December 31, 2011
Gross
Amortized Fair Unrealized
Cost Value Losses
Securities owned without realized impairment:
Unrealized losses of 10% or less $ 154,445 $ 151,008 $ 3,437
Unrealized losses of 20% or less and greater
than 10% 53,042 45,689 7,353
Subtotal 207,487 196,697 10,790
Unrealized losses greater than 20%:
Investment grade:
Less than twelve months 4,946 3,752 1,194
Twelve months or greater 908 450 458
Total investment grade 5,854 4,202 1,652
Below investment grade:
Less than twelve months 8,210 5,977 2,233
Twelve months or greater - - -
Total below investment grade 8,210 5,977 2,233
Unrealized losses greater than 20% 14,064 10,179 3,885
Subtotal 221,551 206,876 14,675
Securities owned with realized impairment:
Unrealized losses of 10% or less 37,639 36,420 1,219
Unrealized losses of 20% or less and greater
than 10% 24,789 20,843 3,946
Subtotal 62,428 57,263 5,165
Unrealized losses greater than 20%:
Investment grade:
Less than twelve months - - -
Twelve months or greater - - -
Total investment grade - - -
Below investment grade:
Less than twelve months 29,391 23,178 6,213
Twelve months or greater 22,585 17,298 5,287
Total below investment grade 51,976 40,476 11,500
Unrealized losses greater than 20% 51,976 40,476 11,500
Subtotal 114,404 97,739 16,665
Total $ 335,955 $ 304,615 $ 31,340
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The following table provides information on fixed maturity securities with gross
unrealized losses by actual or equivalent Standard & Poor's rating at June 30,
2012.
Gross
Fair % Unrealized %
Value of Total Losses of Total
AAA $ 3,332 1% $ 109 1%
AA 41,735 18% 4,261 19%
A 15,504 7% 484 2%
BBB 56,719 25% 1,983 9%
Total investment grade 117,290 51% 6,837 31%
BB 14,965 7% 1,071 5%
B and below 95,854 42% 14,101 64%
Total below investment grade 110,819 49% 15,172 69%
$ 228,109 100% $ 22,009 100%
The following table provides information on fixed maturity securities with gross
unrealized losses by actual or equivalent Standard & Poor's rating at
December 31, 2011.
Gross
Fair % Unrealized %
Value of Total Losses of Total
AAA $ 32,245 11% $ 4,475 14%
AA 8,986 3% 125 1%
A 32,550 11% 1,207 4%
BBB 65,557 21% 2,925 9%
Total investment grade 139,338 46% 8,732 28%
BB 45,845 15% 4,063 13%
B and below 118,309 39% 18,410 59%
Total below investment grade 164,154 54% 22,473 72%
$ 303,492 100% $ 31,205 100%
The following is a discussion of all non-residential mortgage-backed securities
whose fair value had been less than 80% of amortized cost for at least six
consecutive months at June 30, 2012. The Company has considered a wide variety
of factors to determine that these positions were not other-than-temporarily
impaired.
Security Description
Financial institution Institution impacted by housing and
mortgage crisis. The security
continues to perform within
contractual obligations.
Collateralized debt obligation Impacted by delinquencies and
foreclosures in subprime and Alt-A
markets and extreme declines in
market valuations regardless of
individual security performance.
There continues to be
overcollateralization within the
structure and the investment
continues to perform within
contractual obligations.
The discounted future cash flow calculation typically becomes the primary
determinant of whether any portion and to what extent an unrealized loss is due
to credit on loan-backed and similar asset-backed securities with significant
indications of potential other-than-temporary impairment. Such indications
typically include below investment grade ratings and significant unrealized
losses for an extended period of time, among other factors. The Company
identified 17 non-U.S.
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Agency mortgage-backed securities that were determined to have such indications
at June 30, 2012 and December 31, 2011. Discounted future cash flow analysis was
performed for each of these securities to determine if any portion of the
impairment was due to credit and deemed to be other-than-temporary. The discount
rate used in calculating the present value of future cash flows was the
investment yield at the time of purchase for each security. The initial default
rates were assumed to remain constant over a 24-month time frame and grade down
thereafter, reflecting the general perspective of a more stabilized residential
housing environment in the future.
The following tables present the range of significant assumptions used in
projecting the future cash flows at June 30, 2012 and December 31, 2011. The
Company believes that the assumptions below are reasonable because they are
based upon the actual results of the underlying security collateral.
June 30, 2012
Initial Default Rate Initial Severity Rate Prepayment Speed
Vintage Low High Low High Low High
2003 4.2% 4.2% 40% 40% 18.0% 18.0%
2004 5.7% 7.7% 40% 55% 8.0% 13.0%
2005 3.4% 15.1% 40% 74% 6.0% 15.0%
2006 4.6% 6.8% 51% 85% 8.0% 16.0%
2007 9.9% 9.9% 65% 65% 8.0% 8.0%
December 31, 2011
Initial Default Rate Initial Severity Rate Prepayment Speed
Vintage Low High Low High Low High
2003 3.9% 3.9% 40% 40% 18.0% 18.0%
2004 4.9% 7.7% 40% 56% 8.0% 13.0%
2005 3.5% 13.7% 40% 68% 6.0% 15.0%
2006 4.9% 10.0% 52% 90% 8.0% 18.0%
2007 8.8% 8.8% 66% 66% 8.0% 8.0%
For loan-backed and similar asset-backed securities, the determination of any
amount of impairment that is due to credit is based upon the present value of
projected future cash flows being less than the amortized cost of the security.
This amount is recognized as a realized loss in the Company's Consolidated
Statements of Comprehensive Income and the carrying value of the security is
written down by the same amount. The portion of an impairment that is determined
not to be due to credit is recorded as a component of accumulated other
comprehensive income in the Consolidated Balance Sheets.
Significant unrealized losses on securities can continue for extended periods of
time, particularly for certain individual securities. While this can be an
indication of potential credit impairments, it can also be an indication of
illiquidity in a particular sector or security. In addition, the fair value of
an individual security can be heavily influenced by the complexities of varying
market sentiment or uncertainty regarding the prospects for an individual
security. This has been the situation in the non-U.S. Agency mortgage-backed
securities market in recent periods. Based upon the process described above, the
Company is best able to determine if and to what extent credit impairment may
exist in these securities by performing present value calculations of projected
future cash flows at the conclusion of each reporting period. By reviewing the
most recent data available regarding the security and other relevant industry
and market factors, the Company can modify assumptions used in the cash flow
projections and determine the best estimate of the portion of any impairment
that is due to credit at the conclusion of each period.
The Company closely monitors its investments in securities classified as
subprime. Subprime securities include all bonds or portions of bonds where the
underlying collateral is made up of home equity loans or first mortgage loans to
borrowers whose credit scores at the time of origination were lower than the
level recognized in the market as prime. The Company's classification of
subprime does not include Alt-A or jumbo loans, unless the collateral otherwise
meets the preceding definition. At June 30, 2012, the fair value of investments
with subprime residential mortgage exposure was $16.7 million with a related
$2.5 million unrealized loss. At December 31, 2011, the Company had investments
with subprime residential mortgage exposure of $17.4 million and a related $3.5
million unrealized loss. This exposure amounted to less than 1% of the Company's
invested assets at both June 30, 2012 and December 31, 2011. These investments
are included in the Company's process for evaluation of other-than-temporarily
impaired securities.
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The Company has a significant level of non-U.S. Agency structured securities.
Structured securities include asset-backed, residential mortgage-backed
securities, along with collateralized debt obligations, collateralized mortgage
obligations and other collateralized obligations. The Company monitors these
securities through a combination of an analysis of vintage, credit ratings and
other factors.
The following tables divide these investment types among vintage and credit
ratings at June 30, 2012.
Unrealized
Fair Amortized Gains
Value Cost (Losses)
Residential & Non-agency MBS 1
Investment Grade:
Vintage 2003 and earlier $ 23,518 $ 22,658 $ 860
2004 28,996 27,829 1,167
2005 - - -
2006 - - -
2007 - - -
Total investment grade 52,514 50,487 2,027
Below Investment Grade:
Vintage 2003 and earlier - - -
2004 32,865 32,631 234
2005 72,879 83,762 (10,883 )
2006 7,248 6,996 252
2007 3,958 4,544 (586 )
Total below investment grade 116,950 127,933 (10,983 )
Other Structured Securities:
Investment grade 80,886 80,952 (66 )
Below investment grade 3,017 3,238 (221 )
Total other 83,903 84,190 (287 )
Total structured securities $ 253,367$ 262,610 $ (9,243 )
1 This chart accounts for all vintages owned by the Company.
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The following tables divide these investment types among vintage and credit
ratings at December 31, 2011.
Fair Amortized Unrealized
Value Cost Gains (Losses) Residential & Non-agency MBS: 1
Investment Grade:
Vintage 2003 and earlier $ 27,700 $ 26,974 $ 726
2004 29,682 28,693 989
2005 - - -
2006 - - -
2007 - - -
Total investment grade 57,382 55,667 1,715
Below Investment Grade:
Vintage 2003 and earlier - - -
2004 34,497 34,821 (324 )
2005 72,619 87,447 (14,828 )
2006 6,960 7,309 (349 )
2007 3,868 4,864 (996 )
Total below investment grade 117,944 134,441 (16,497 )
Other Structured Securities:
Investment grade 71,793 72,998 (1,205 )
Below investment grade 3,179 3,444 (265 )
Total other 74,972 76,442 (1,470 )
Total structured securities $ 250,298$ 266,550 $
(16,252 )
1 This chart accounts for all vintages owned by the Company.
Total unrealized losses on non-U.S. Agency structured securities totaled $9.2
million at June 30, 2012, compared to $16.3 million at December 31, 2011. Total
unrealized losses on these securities as a percent of total amortized cost
totaled 4% at June 30, 2012, an improvement from 6% at year-end 2011.
The Company has written down certain investments in previous periods. Securities
written down and continuing to be owned at June 30, 2012 had a fair value of
$132.2 million with a net unrealized loss of $9.8 million.
The Company evaluated the current status of all investments previously
written-down to assess the ongoing expectations of amounts to be collected. The
Company's evaluation process is similar to its impairment evaluation process. If
evidence exists that the Company believes that it will receive all or a
materially greater portion of its contractual maturities from securities
previously written down, the accretion of income is adjusted. The Company did
not change its evaluation of any investments under this process during the first
six months of 2012 or 2011.
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The Company maintains a diversified investment portfolio, including less than 5%
of its investment portfolio in municipal bond securities and 6% in bond
securities from foreign issuers. Approximately 60% of the Company's foreign
securities were form issuers in Canada and Australia at June 30, 2012. The
Company has no holdings in European sovereign debt and all investments are
denominated in U.S. dollars. The fair value of the Company's securities from
foreign issuers at June 30, 2012 was $230.5 million with a net unrealized gain
of $14.0 million. This compares to a fair value of $199.5 million with a net
unrealized gain of $8.7 million at December 31, 2011.
The Company does not have a material amount of direct or indirect guarantees for
the securities in its investment portfolio. The Company did not have any direct
exposure to financial guarantors at June 30, 2012. The Company's indirect
exposure to financial guarantors totaled $36.5 million, which was approximately
1% of the Company's investments at June 30, 2012. The unrealized gain on these
investments totaled $2.5 million at June 30, 2012. The Company's indirect
exposure to financial guarantors at December 31, 2011 totaled $36.8 million,
which was approximately 1% of the Company's investments. Total unrealized gains
on these investments totaled $1.7 million at December 31, 2011.
Other Revenues
Other revenues consist primarily of supplementary contract considerations;
policyholder dividends left with the Company to accumulate; income received on
the sale of low income housing tax credit (LIHTC) investments by a subsidiary of
the Company; and fees charged on products and sales from the Company's
broker-dealer subsidiary. Other revenues decreased 13% in the second quarter and
11% in the first six months of 2012 compared to the same periods one year
earlier. The decreases in both periods reflected lower income from the sale of
LIHTC investments. In addition, the decrease in the six months also reflected
lower supplementary contract considerations.
Policyholder Benefits
Policyholder benefits consist of death benefits (mortality), immediate annuity
benefits, accident and health benefits, surrenders, other benefits, and the
associated increase or decrease in reserves for future policy benefits. The
largest component of policyholder benefits was death benefits for the periods
presented. Death benefits reflect mortality results, after consideration of the
impact of reinsurance. Mortality will fluctuate from period to period. However
mortality experience has generally remained within pricing expectations for the
periods presented.
Policyholder benefits increased $2.4 million or 6% in the second quarter of 2012
compared to the same period one year earlier. This increase largely resulted
from an increase in benefit and contract reserves. Several factors contributed
to this increase, including a $2.4 million increase in immediate annuity
receipts in the second quarter, which results in a nearly one-for-one increase
in benefit and contract reserves. In addition, the change in the fair value of
the GMWB rider resulted in a $1.0 million increase in benefit and contract
reserves, and the Company recaptured a block of previously reinsured policies
that resulted in an increase of $0.8 million in reserves in the second quarter.
Partially offsetting the increase in benefit and contract reserves, death
benefits, net of reinsurance, decreased $3.0 million in the second quarter of
2012 versus 2011. Also contributing to the decrease in policyholder benefits was
a reduction in group dental benefits, as discussed in the Group Insurance
segment analysis.
Policyholder benefits decreased $4.4 million or 5% in the first six months
compared to the same period one year ago. The largest single factor in the
decrease in policyholder benefits resulted from a $7.7 million decline in death
benefits, net of reinsurance. Other benefits declined $2.4 million, net of
reinsurance, primarily reflecting reduced group accident and health benefits.
Partially offsetting these decreases, the Company had an increase in benefit and
contract reserves. This increase resulted from several factors, including a $1.2
million increase in immediate annuity receipts and a $0.4 million increase in
benefit and contract reserves from the increased value of the GMWB rider. The
Company also recaptured a block of previously reinsured policies, which resulted
in an increase of $0.8 million in reserves for the six months.
The Company has a GMWB rider for variable annuity contracts that is considered
to be a financial derivative and, as such, is accounted for at fair value. The
Company determines the fair value of the GMWB rider using a risk-neutral
valuation method. The value of the riders will fluctuate depending on market
conditions. At June 30, 2012, the fair value of the liability increased
$0.5 million compared to the fair value at December 31, 2011. This fluctuation
can be attributed to declines in interest rates and issuer discount spreads,
partially offset by favorable capital market returns and market volatilities.
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Interest Credited to Policyholder Account Balances
Interest is credited to policyholder account balances according to terms of the
policies or contracts for universal life, fixed deferred annuities, and other
investment-type products. There are minimum levels of interest crediting assumed
in certain policies or contracts, as well as allowances for adjustments to be
made to reflect current market conditions in certain policies or contracts.
Accordingly, the Company reviews and adjusts crediting rates as necessary and
appropriate. Amounts credited are a function of account balances and current
period crediting rates. As account balances fluctuate, so will the amount of
interest credited to policyholder account balances. Interest credited to
policyholder account balances decreased 2% in the second quarter and 1% in the
first six months of 2012 compared with the same periods one year earlier. While
total policyholder account balances have increased during 2012, average
crediting rates declined slightly.
Amortization of Deferred Acquisition Costs
The amortization of deferred acquisition costs increased $4.4 million in the
second quarter and $2.7 million in the first six months of 2012 compared with
the prior year. These increases were primarily the result of unlocking.
Unlocking in 2012 resulted in an increase to the DAC asset of $1.3 million and
was primarily attributable to refinements in mortality, interest, and
persistency assumptions. In 2011, the Company unlocked assumptions that resulted
in a change in estimate, increasing the DAC asset $7.8 million. The unlocking
was primarily the result of changes in assumptions about future mortality
experience, including the use of a new industry mortality table and changes in
reinsurance.
Operating Expenses
Operating expenses consist of incurred commission expense from the sale of
insurance products, net of the deferral of certain commissions and certain
expenses directly associated with the attainment of new business; expenses from
the Company's operations; the amortization of VOBA; and other expenses.
Operating expenses increased $0.6 million or 2% in the second quarter of 2012
and decreased $1.3 million or 3% in the first six months compared to last year.
The increase in the second quarter was largely due to the increase in VOBA
amortization, which is discussed below. The decrease in the six months reflected
a decline in pension expense and a decline in the amount charged to allowance
for doubtful accounts for agent receivables. Partially offsetting these,
salaries expense and legal fees increased.
The amortization of VOBA is included in operating expenses. VOBA is amortized
with each purchased block of business over a defined period. Generally, as
policies run off, the amortization will decline over time. In addition, VOBA is
evaluated on an ongoing basis for unlocking adjustments. If necessary,
adjustments are made in the current period VOBA amortization. The amortization
of VOBA increased $0.8 million or 31% in the second quarter of 2012 and $0.2
million or 4% in the first six months of 2012 compared to the same periods one
year earlier. The increase in VOBA amortization during 2012 was largely due to
unlocking. The Company had an unlocking adjustment due to the reassessment of
interest and mortality margins on certain interest sensitive products which
increased the amortization of VOBA $2.4 million in both the second quarter and
the first six months of 2012. In comparison, the Company had an unlocking
adjustment on certain interest sensitive products which increased the
amortization of VOBA $0.9 million in both the second quarter and the six months
of 2011. Partially offsetting this, the VOBA associated with the traditional
life insurance block from the Old American segment became fully amortized at
December 31, 2011, thus resulting in no amortization for this item in 2012
compared to $1.0 million in the first six months of 2011.
Income Taxes
The second quarter income tax expense was $4.5 million or 35% of income before
tax for 2012, versus $5.8 million or 34% of income before tax for the prior year
period. The income tax expense for the six months ended June 30, 2012 was $14.1
million or 34% of income before tax, versus $8.3 million or 34% of income before
tax for the prior year period.
The effective income tax rate was equal to the prevailing corporate federal
income tax rate of 35% in the second quarter of 2012. Permanent differences,
including the dividends-received deduction, resulted in a benefit of
approximately 1% of income before tax. Additionally, investments in affordable
housing resulted in a benefit of approximately 1% of income before tax.
Offsetting these items was tax expense of approximately 2% of income before tax
related to a change in the projected effective tax rate, which was largely based
upon historical and year-to-date pretax income.
The effective income tax rate was lower than the prevailing corporate federal
income tax rate of 35% in the second quarter of 2011 primarily due to permanent
differences, resulting in a benefit of approximately 1% of income before tax.
The effective income tax rate was lower than the prevailing corporate federal
income tax rate of 35% for the six months ended June 30, 2012 and 2011.
Permanent differences, including the dividends-received deduction, resulted in a
benefit of approximately 1% of income before tax.
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Operating Results by Segment
The Company has three reportable business segments, which are defined based on
the nature of the products and services offered: Individual Insurance, Group
Insurance, and Old American. The Individual Insurance segment consists of
individual insurance products for both Kansas City Life and Sunset Life. The
Individual Insurance segment is marketed through a nationwide sales force of
independent general agents and third-party marketing arrangements. The Group
Insurance segment consists of sales of group life, group disability, dental, and
vision products. This segment is marketed through a nationwide sales force of
independent general agents, group brokers, and third-party marketing
arrangements. Old American consists of individual insurance products designed
largely as final expense products. These products are marketed through a
nationwide general agency sales force with exclusive territories, using direct
response marketing to supply agents with leads. For more information, refer to
Note 15 - Segment Information in the Notes to Consolidated Financial Statements
(Unaudited).
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Individual Insurance
The following table presents financial data of the Individual Insurance business
segment for the second quarters and six months ended June 30, 2012 and 2011:
Quarter Ended Six Months Ended
June 30 June 30
2012 2011 2012 2011
Insurance revenues:
Premiums, net $ 4,442 $ 1,790 $ 7,878 $ 6,288
Contract charges 25,590 23,752 50,723 49,986
Total insurance revenues 30,032 25,542 58,601 56,274
Investment revenues:
Net investment income 40,334 41,654 81,455 83,767
Net realized investment gains, excluding
impairment losses 1,421 2,017 17,225 2,940
Net impairment losses recognized in
earnings:
Total other-than-temporary impairment
losses (177 ) (216 ) (427 ) (450 )
Portion of impairment losses recognized
in other comprehensive income 43 52 150 98
Net impairment losses recognized in
earnings (134 ) (164 ) (277 ) (352 )
Total investment revenues 41,621 43,507 98,403 86,355
Other revenues 2,274 2,620 4,413 4,986
Total revenues 73,927 71,669 161,417 147,615
Policyholder benefits 23,009 20,139 42,366 45,024
Interest credited to policyholder account
balances 20,377 20,766 40,935 41,247
Amortization of deferred acquisition
costs 2,727 (2,214 ) 6,737 3,483
Operating expenses 17,635 16,383 32,134 31,928
Total benefits and expenses 63,748 55,074 122,172 121,682
Income before income tax expense 10,179 16,595 39,245 25,933
Income tax expense 3,475 5,658 13,054 8,891
Net income $ 6,704 $ 10,937 $ 26,191 $ 17,042
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The net income for this segment in the second quarter of 2012 was $6.7 million,
a decrease of $4.2 million from the second quarter of 2011. The decline was
primarily the result of increased policyholder benefits, operating expenses, and
amortization of deferred acquisition costs, along with lower net investment
income. These were partially offset by an increase in insurance revenues.
Net income for this segment was $26.2 million for the first six months of 2012,
an increase of $9.1 million from the first six months of 2011. Contributing to
this improvement were increases in net realized investment gains and insurance
revenues, along with lower policyholder benefits. Partially offsetting these
changes was an increase in amortization of deferred acquisition costs.
Total insurance revenues for this segment increased $4.5 million or 18% in the
second quarter of 2012 compared with the same period in the prior year. Total
premiums increased $2.4 million or 18%, reflecting a $2.4 million increase in
immediate annuity premiums. Contract charges increased $1.8 million or 8%, and
reinsurance ceded premiums were flat.
Total insurance revenues for this segment increased $2.3 million or 4% for the
first six months of 2012 compared to one year earlier. Total premiums increased
$1.3 million or 5%, reflecting a $1.2 million or 29% increase in immediate
annuity premiums. Contract charges increased $0.7 million and reinsurance ceded
premiums were flat.
The following table presents gross premiums by new and renewal business, less
reinsurance ceded, as included in insurance revenues for the second quarters and
six months ended June 30, 2012 and 2011. New premiums are also detailed by
product.
Quarter Ended
June 30
2012 % Change 2011 % Change
New premiums:
Individual life insurance $ 1,172 (4 ) $ 1,219 (5 )
Immediate annuities 3,460 234 1,037 (77 )
Total new premiums 4,632 105 2,256 (61 )
Renewal premiums 10,591 - 10,607 1
Total premiums 15,223 18 12,863 (21 )
Reinsurance ceded (10,781 ) (3 ) (11,073 ) (1 )
Premiums, net $ 4,442 148 $ 1,790 (65 )
Six Months Ended
June 30
2012 % Change 2011 % Change
New premiums:
Individual life insurance $ 2,326 (10 ) $ 2,589 -
Immediate annuities 5,168 38 3,746 (62 )
Total new premiums 7,494 18 6,335 (49 )
Renewal premiums 21,134 1 21,028 1
Total premiums 28,628 5 27,363 (18 )
Reinsurance ceded (20,750 ) (2 ) (21,075 ) (1 )
Premiums, net $ 7,878 25 $ 6,288 (48 )
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Total new premiums for this segment increased $2.4 million in the second quarter
of 2012, more than double the total new premiums in the same period one year
earlier. This improvement resulted from increased sales of immediate annuities.
Immediate annuity receipts can have sizeable fluctuations, as receipts from
policyholders largely result from one-time premiums rather than recurring
premiums. Total renewal premiums were flat compared to last year.
Total new premiums for this segment increased $1.2 million or 18% in the first
six months of 2012 versus the prior year. This improvement also resulted from
increased immediate annuities. Total renewal premiums increased 1%, due to
higher individual life premiums.
The following table provides detail by new and renewal deposits for the second
quarters and six months ended June 30, 2012 and 2011. New deposits are also
detailed by product.
Quarter Ended
June 30
2012 % Change 2011 % Change
New deposits:
Universal life insurance $ 2,857 (24 ) $ 3,750 22
Variable universal life
insurance 103 (62 ) 268 35
Fixed deferred annuities 12,469 (31 ) 18,025 58
Variable annuities 4,642 (24 ) 6,142 10
Total new deposits 20,071 (29 ) 28,185 39
Renewal deposits 35,325 (3 ) 36,333 -
Total deposits $ 55,396 (14 ) $ 64,518 14
Six Months Ended
June 30
2012 % Change 2011 % Change
New deposits:
Universal life insurance $ 6,160 (6 ) $ 6,562 1
Variable universal life
insurance 260 (47 ) 493 12
Fixed deferred annuities 31,619 (4 ) 32,917 47
Variable annuities 8,603 (14 ) 9,979 (13 )
Total new deposits 46,642 (7 ) 49,951 22
Renewal deposits 70,217 (3 ) 72,031 3
Total deposits $ 116,859 (4 ) $ 121,982 10
Total new deposits decreased $8.1 million or 29% in the second quarter of 2012
compared to last year, reflecting a $5.6 million or 31% decrease in new fixed
deferred annuity deposits and a $1.5 million or 24% decrease in new variable
annuity deposits. Total renewal deposits decreased $1.0 million or 3% in the
second quarter of 2012. This decrease was due to a $0.9 million decline in
renewal variable annuity deposits. Total new deposits decreased $3.3 million or
7% in the first six months of 2012 compared with the prior year. This decrease
reflected a $1.4 million decline in new variable annuity deposits and a $1.3
million decline in new fixed deferred annuity deposits. Total renewal deposits
decreased $1.8 million or 3% in the first six months of 2012. This decline
resulted from a $2.1 million decrease in renewal variable annuity deposits. New
sales and renewals for deposit products have been negatively affected for the
second quarter and first six months of 2012 by continuing low interest rates and
the uncertain economic environment.
Total contract charges increased $1.8 million or 8% in the second quarter of
2012 compared to the second quarter of 2011. This largely resulted from an
increase in the amortization of deferred revenue. Amortization of deferred
revenue increased $1.8 million during the second quarter of 2012 due to
unlocking. The unlocking in 2012 was due to changes in the interest and
mortality margins that resulted in a decrease to the deferred revenue liability.
Conversely, the amortization of deferred revenue decreased $1.8 million during
second quarter 2011 due to unlocking. The 2011 unlocking was primarily the
result of the implementation of a new industry mortality table and the impact of
a system upgrade specific to reinsurance. Total contract charges on the closed
blocks equaled 34% of total consolidated contract charges in the second quarter
of 2012 compared to 37% in the second quarter of 2011. Total contract charges on
closed blocks declined 1% in the second quarter of 2012 compared to the same
period in 2011. Total contract charges on open blocks of business, where there
is ongoing marketing for new sales, increased 13% in the first six months of
2012.
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Total contract charges increased $0.7 million in the first six months of 2012
compared to one year earlier, due to the increase in the amortization of
deferred revenue described above. In addition to the results discussed above for
the quarter, the amortization of deferred revenue increased during 2012 due to a
system upgrade that occurred during 2011 that led to enhanced reinsurance
modeling capabilities. Partially offsetting this increase was a $0.4 million
decrease in both expense loads and cost of insurance charges. The decrease in
expense loads resulted from a decline in value of variable annuities held in the
separate accounts, reflecting the existing market conditions. The decline in
cost of insurance charges was largely due to the runoff of closed blocks. Total
contract charges on the closed blocks equaled 35% of total consolidated contract
charges in the first six months of 2012 compared to 36% in the first six months
of 2011. Total contract charges on closed blocks declined 2% in the first six
months of 2012, while total contract charges on open blocks of business
increased 4%.
Net investment income decreased $1.3 million or 3% in the second quarter of 2012
compared to the second quarter of 2011, as an increase in average invested
assets was offset by a decline in yields earned. Also, this segment experienced
a net realized investment gain of $1.3 million in the second quarter of 2012
compared to a net gain of $1.9 million in the second quarter of 2011. Net
investment income decreased $2.3 million in the first six months of 2011
compared to one year earlier, as an increase in average invested assets was
offset by a decline in yields earned. Also, this segment had a net realized gain
of $16.9 million in the first six months of 2012 compared to a net gain of $2.6
million in the first six months of 2011.
Please see Consolidated Results of Operations in Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations for a table that
provides securities that were written down through earnings by business segment
for the first two quarters of 2012 and 2011.
Other revenues decreased 13% in the second quarter and 11% in the first six
months of 2012 compared to the same periods one year earlier. The decreases in
both periods reflected lower income from the sale of LIHTC investments. In
addition, the decrease in the six months also reflected lower supplementary
contract considerations.
Policyholder benefits increased $2.9 million or 14% in the second quarter of
2012 compared to the prior year. This increase was largely due to an increase in
benefit and contract reserves. One contributing factor was a $2.4 million
increase in sales of immediate annuities, which results in a nearly one-for-one
increase in benefit and contract reserves. In addition, the change in the fair
value of the GMWB rider resulted in a $1.0 million increase in benefit and
contract reserves, and the Company recaptured a block of previously reinsured
policies that resulted in an increase of $0.8 million in reserves in the second
quarter. Partially offsetting the increase in reserves, death benefits, net of
reinsurance, decreased $2.6 million. This change reflected favorable mortality
experience.
Policyholder benefits decreased $2.7 million or 6% in the first six months of
2012 compared to the prior year. Death benefits, net of reinsurance ceded,
decreased $6.3 million. Partially offsetting this favorable mortality
experience, benefit and contract reserves increased. The reserve increase was
largely due to a $1.2 million increase in sales of immediate annuities and a
$0.4 million change in the fair value of the GMWB rider, as discussed above. The
Company also recaptured a block of previously reinsured policies that resulted
in an increase of $0.8 million in reserves for the six months.
Interest credited to policyholder account balances decreased 2% in the second
quarter and 1% in the first six months of 2012 compared to the same periods one
year earlier. While total policyholder account balances increased in 2012,
average crediting rates declined slightly.
The amortization of deferred acquisition costs increased $4.9 million in the
second quarter and $3.3 million in the first six months of 2012 compared with
the prior year. These increases were largely the result of unlocking. Unlocking
in 2012 resulted in an increase to the DAC asset of $1.3 million and was
primarily attributable to refinements in mortality, interest, and persistency
assumptions. In 2011, the Company unlocked assumptions that resulted in a change
in estimate, increasing the DAC asset $7.8 million. The unlocking was primarily
the result of changes in assumptions about future mortality experience including
the use of a new industry mortality table and change in reinsurance.
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Operating expenses consist of incurred commissions, net of the capitalization of
commissions, expenses from the Company's operations, the amortization of VOBA,
and other expenses. Operating expenses increased $1.3 million or 8% in the
second quarter and $0.2 million or less than 1% in the first six months of 2012
compared with the same periods one year earlier. The largest factor in this
increase for both periods was higher amortization of VOBA, as discussed below.
The amortization of VOBA increased $1.3 million or 63% in the second quarter and
$1.1 million or 37% in the first six months of 2012 compared to one year
earlier. The increase in VOBA amortization during 2012 was largely due to
unlocking. The Company had an unlocking adjustment due to the reassessment of
interest and mortality margins on certain interest sensitive products which
increased the amortization of VOBA $2.4 million in both the second quarter and
the first six months of 2012. Comparatively, during the second quarter of 2011,
the Company had an unlocking adjustment on certain interest sensitive products
which increased the amortization of VOBA $0.9 million in both the second quarter
and the six months.
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Group Insurance
The following table presents financial data of the Group Insurance business
segment for the second quarters and six months ended June 30, 2012 and 2011:
Quarter Ended Six Months Ended
June 30 June 30
2012 2011 2012 2011
Insurance revenues:
Premiums, net $ 12,197 $ 12,246 $ 24,264 $ 24,800
Total insurance revenues 12,197 12,246 24,264 24,800
Investment revenues:
Net investment income 132 142 260 287
Other revenues 36 38 73 75
Total revenues 12,365 12,426 24,597 25,162
Policyholder benefits 6,591 7,477 13,613 15,084
Operating expenses 5,589 5,183 11,314 10,927
Total benefits and
expenses 12,180 12,660 24,927 26,011
Income (loss) before
income tax expense
(benefit) 185 (234 ) (330 ) (849 )
Income tax expense
(benefit) 64 (82 ) (116 ) (297 )
Net income (loss) $ 121 $ (152 ) $ (214 ) $ (552 )
The following table presents gross premiums by new and renewal business, less
reinsurance ceded, as included in insurance revenues for the second quarters and
six months ended June 30, 2012 and 2011. New premiums are also detailed by
product.
Quarter Ended
June 30
2012 % Change 2011 % Change
New premiums:
Group life insurance $ 744 64 $ 453 (9 )
Group dental insurance 1,033 3 1,001 (52 )
Group disability insurance 2,105 (10 ) 2,332 114
Other group insurance 61 79 34 (13 )
Total new premiums 3,943 3 3,820 3
Renewal premiums 11,599 - 11,640 1
Total premiums 15,542 - 15,460 2
Reinsurance ceded (3,345 ) 4 (3,214 ) 45
Premiums, net $ 12,197 - $ 12,246 (5 )
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Six Months Ended
June 30
2012 % Change 2011 % Change
New premiums:
Group life insurance $ 1,225 29 $ 947 (16 )
Group dental insurance 1,965 (17 ) 2,379 (44 )
Group disability insurance 3,688 (19 ) 4,542 106
Other group insurance 90 29 70 (26 )
Total new premiums 6,968 (12 ) 7,938 4
Renewal premiums 23,783 6 22,494 3
Total premiums 30,751 1 30,432 3
Reinsurance ceded (6,487 ) 15 (5,632 ) 30
Premiums, net $ 24,264 (2 ) $ 24,800 (2 )
Total new premiums increased $0.1 million or 3% in the second quarter of 2012
and decreased $1.0 million or 12% in the six months compared with the prior
year. New group life premiums increased $0.3 million or 64% in the second
quarter and $0.3 million or 29% in the six months. These were partially offset
by a decrease in new group disability premiums of $0.2 million or 10% in the
second quarter and $0.9 million or 19% in the six months. Also contributing to
the decline in the six months, new dental premiums decreased $0.4 million or
17%. Total renewal premiums remained flat in the second quarter and increased
$1.3 million or 6% in the six months. The increase in the six months was
primarily driven by renewals on the short-term disability product.
The Company uses reinsurance in several of its group product lines to help
mitigate risk. Reinsurance premiums increased $0.1 million or 4% in the second
quarter and $0.9 million or 15% in the first six months of 2012 compared to the
prior year. The increase in the six months was largely due to an increase in
short-term disability renewal premiums.
Policyholder benefits consist of death benefits, accident and health benefits,
and the associated increase or decrease in reserves for future policy benefits.
Policyholder benefits declined $0.9 million or 12% in the second quarter and
$1.5 million or 10% in the six months compared to the prior year. These results
were largely due to a reduction in the benefits paid for the dental product
line. This reduction reflects the changes that this segment made to the dental
product line during 2011 to improve profitability, including increased pricing
and better claim cost controls.
The policyholder benefit ratio is derived by dividing policyholder benefits, net
of reinsurance, by total net premiums. The ratio for the Group Insurance segment
was 54% in the second quarter and 56% for the first six months of 2012, compared
to 61% in both the second quarter and first six months of 2011. These decreases
were primarily the result of the decline in dental benefits previously
mentioned. The policyholder benefit ratio for the dental product line decreased
from approximately 77% in both the second quarter and first six months of 2011
to approximately 72% in both the second quarter and first six months of 2012.
Operating expenses consist of commissions, fees to third-party marketing and
administrative organizations, and expenses from the Company's operations.
Operating expenses increased $0.4 million or 8% in the second quarter and $0.4
million or 4% in the six months. These increases were largely due to higher
commission expenses associated with the life and dental products.
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Old American
The following table presents financial data for the Old American business
segment for the second quarters and six months ended June 30, 2012 and 2011:
Quarter Ended Six Months Ended
June 30 June 30
2012 2011 2012 2011
Insurance revenues:
Premiums, net $ 17,664 $ 16,899 $ 34,964 $ 33,607
Total insurance revenues 17,664 16,899 34,964 33,607
Investment revenues:
Net investment income 2,969 3,097 5,929 6,230
Net realized investment gains, excluding
impairment losses (60 ) (124 ) (27 ) (35 )
Net impairment losses recognized in
earnings:
Total other-than-temporary impairment losses (11 ) (22 ) (29 ) (57 )
Portion of impairment losses recognized in
other comprehensive income (1 ) 4 - 16
Net impairment losses recognized in earnings (12 ) (18 )
(29 ) (41 )
Total investment revenues 2,897 2,955 5,873 6,154
Other revenues 2 8 11 13
Total revenues 20,563 19,862 40,848 39,774
Policyholder benefits 11,676 11,249 23,767 24,031
Amortization of deferred acquisition costs 2,394 2,919 6,285 6,806
Operating expenses 3,952 5,066 7,789 9,777
Total benefits and expenses 18,022 19,234 37,841 40,614
Income (loss) before income tax expense
(benefit) 2,541 628 3,007 (840 )
Income tax expense (benefit) 969 240 1,146 (314 )
Net income (loss) $ 1,572 $ 388 $ 1,861 $ (526 )
Net income for this segment totaled $1.6 million in the second quarter compared
to $0.4 million in the prior year. The increase in net income for the second
quarter reflected a $0.8 million increase in insurance revenues, a $0.5 million
decrease in amortization of DAC and a $1.1 million decrease in operating
expenses. These were partially offset by a $0.4 million increase in policyholder
benefits and a $0.7 million increase in income tax expense. Net income for the
first six months of 2012 was $1.9 million compared to a $0.5 million net loss
for the first six months of 2011. The increase in net income in the first six
months of 2012 reflected a $1.4 million increase in insurance revenues, a $0.3
million decrease in policyholder benefits, a $0.5 million decrease in the
amortization of DAC, and a $2.0 million decrease in operating expenses. These
were partially offset by a $0.3 million decrease in net investment income and a
$1.5 million increase in income tax expense.
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The following table presents gross premiums by new and renewal business, less
reinsurance ceded, as included in insurance revenues for the second quarters and
six months ended June 30, 2012 and 2011.
Quarter Ended
June 30
2012 % Change 2011 % Change
New individual life premiums $ 3,242 5 $ 3,094 10
Renewal premiums 14,941 4 14,396 2
Total premiums 18,183 4 17,490 4
Reinsurance ceded (519 ) (12 ) (591 ) (16 )
Premiums, net $ 17,664 5 $ 16,899 4
Six Months Ended
June 30
2012 % Change 2011 % Change
New individual life premiums $ 6,444 5 $ 6,135 13
Renewal premiums 29,563 3 28,702 2
Total premiums 36,007 3 34,837 4
Reinsurance ceded (1,043 ) (15 ) (1,230 ) (12 )
Premiums, net $ 34,964 4 $ 33,607 4
Total new premiums increased $0.1 million or 5% in the second quarter and $0.3
million or 5% in the six months, while total renewal premiums increased $0.5
million or 4% in the second quarter and $0.9 million or 3% in the six months.
The increase in premiums reflects a combination of expanded distribution efforts
and improved agency productivity. Old American continues to focus on the
recruitment and development of new agencies and agents, along with improved
production from existing agencies and agents. In addition, proactive territorial
management by agencies and the home office have contributed to the increased
sales.
Net investment income decreased $0.1 million or 4% in the second quarter and
$0.3 million or 5% in the first six months of 2012 compared with the prior year.
These declines were largely due to a reduction in yields available in the
market.
Please see Consolidated Results of Operations in Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations for a table that
provides securities that were written down through earnings by business segment
for the first two quarters of 2012 and 2011. This section also contains a table
that provides detail regarding individual investment securities by business
segment that were written down through earnings during the first six months of
2012 and 2011.
Policyholder benefits increased $0.4 million or 4% in the second quarter versus
last year. The increase was largely due to an increase in benefit and contract
reserves. Policyholder benefits decreased $0.3 million or 1% in the first six
months of 2012 compared with the prior year, largely due to lower death
benefits. Partially offsetting this change was a $0.7 million increase in
reserves. The increase in reserves occurred in the second quarter and six months
of 2012, largely from the increase in premiums. Mortality fluctuations occur
each period, and the Company monitors these fluctuations in relation to its
pricing expectations. While death benefits decreased during the first six months
of 2012, the results remained within pricing expectations.
Amortization of DAC decreased $0.5 million or 18% in the second quarter and $0.5
million or 8% in the six months compared to a year ago. The declines were
primarily due to the implementation of ASU No. 2010-26, as described in Note 7 -
Change in Accounting Principle.
Operating expenses decreased $1.1 million or 22% in the second quarter and $2.0
million or 20% in the six months compared to a year ago. The decreases in both
periods were largely due to lower salary and benefit expenses, as well as
reduced agent meeting costs. Also contributing to the decreases were lower
amortization of VOBA, due to the traditional life insurance block being fully
amortized at December 31, 2011. Capitalized commissions increased in the six
months, primarily related to the implementation of ASU No. 2010-26, as described
in Note 7 - Change in Accounting Principle.
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Liquidity and Capital Resources
Liquidity
Statements made in the Company's 2011 Form 10-K remain pertinent, as the
Company's liquidity position is materially unchanged from year-end 2011.
Net cash used for operating activities was $2.0 million in the six months ended
June 30, 2012. The primary sources of cash from operating activities in the
first six months of 2012 were premium receipts and net investment income. The
primary uses of cash from operating activities in the first six months of 2012
were for the payment of policyholder benefits and operating expenses. Net cash
used for investing activities was $22.2 million. The primary sources of cash
were sales, maturities, calls, and principal paydowns of investments totaling
$206.6 million. Included in this total, the Company had sizable real estate
sales in the first six months of 2012. Offsetting these, the Company's new
investments totaled $260.6 million. Net cash provided by financing activities
was $19.4 million, primarily including $30.1 million of deposits net of
withdrawals from policyholder account balances.
Debt and Short-term Borrowing
The Company and certain subsidiaries have access to borrowing capacity through
their membership affiliation with the Federal Home Loan Bank of Des Moines
(FHLB). At June 30, 2012, there were no outstanding balances with the FHLB, and
there were no outstanding balances at year-end 2011. The Company has access to
unsecured revolving lines of credit of $60.0 million with two major commercial
banks with no balances outstanding. These lines of credit will expire in June of
2013. The Company anticipates renewing these lines of credit as they come due.
Capital Resources
The Company considers existing capital resources to be adequate to support the
current level of business activities. In addition, the Company's statutory
equity exceeds the minimum capital deemed necessary to support its insurance
business, as determined by the risk-based capital calculations and guidelines
established by the National Association of Insurance Commissioners. The Company
believes these statutory limitations impose no practical restrictions on its
dividend payment plans.
The following table shows the capital adequacy for the Company.
June 30 December 31
2012 2011
Total assets, excluding separate accounts $ 4,143,798 $ 4,081,633
Total stockholders' equity 737,032 710,705
Ratio of stockholders' equity to assets,
excluding separate accounts 18% 17%
The ratio of equity to assets less separate accounts increased from 17% at
December 31, 2011 to 18% at June 30, 2012. Unrealized investment gains on
available for sale securities, which are included as a part of stockholders'
equity (net of securities losses, related taxes, policyholder account balances,
future policy benefits, and DAC), totaled $93.9 million at June 30, 2012. This
represents an increase of $12.8 million in net unrealized gains from the $81.1
million in net unrealized investment gains at year-end 2011. Stockholders'
equity increased $26.3 million from year-end 2011. This improvement was largely
due to growth in retained earnings, primarily driven by the increased net income
experienced in the first six months of 2012.
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The stock repurchase program was extended by the Board of Directors through
January 27, 2013 to permit the purchase of up to one million of the Company's
shares on the open market. During the first six months of 2012, the Company
purchased 72,126 shares under the stock repurchase program for $2.3 million. The
Company made no purchases of stock under this plan in the first six months of
2011.
During the six months ended June 30, 2012, the Company purchased 10,699 shares
and sold 19,014 shares of treasury stock from the Company's employee stock
ownership plan and deferred compensation plans for a net change in treasury
stock of $0.3 million. During the second quarter of 2012, the Company
reclassified 188,621 shares from other assets to treasury stock. Please see the
discussion of the immaterial correction in Note 1 - Nature of Operations and
Significant Accounting Policies for additional information.
On July 23, 2012, the Board of Directors declared a quarterly dividend of $0.27
per share, unchanged from the prior year, which will be paid August 8, 2012 to
stockholders of record as of August 2, 2012. Total stockholder dividends paid
were $6.1 million and $6.2 million in the first six months ended June 30, 2012
and 2011, respectively.
