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 September 30, 2012 and 2011 and the
financial condition of the Company at September 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 $4.1 million and $4.5 million in the third
quarters of 2012 and 2011, respectively. Net income per share was $0.38 in the
third quarter of 2012, compared to $0.39 in the same period in the prior year.
Net income for the first nine months of 2012 was $32.0 million, an increase of
$11.5 million or 56% compared to last year. Net income per share for the nine
months was $2.88, an increase of $1.10 per share versus the same period one year
earlier. The following table presents variances between the results for the
third quarters and nine months ended September 30, 2012 and 2011. Additional
information on these items is presented below.
Quarter Ended Nine Months Ended
September 30 September 30
2012 Versus 2011 2012 Versus 2011
Insurance and other revenues $ (459 ) $ 2,184
Net investment income 1,552 (1,088 )
Net realized investment gains (104 ) 14,276
Policyholder benefits and interest
credited to policyholder account
balances (277 ) 4,428
Amortization of deferred
acquisition costs 4,426 1,693
Operating expenses (6,350 ) (5,027 )
Income tax expense 878 (4,926 )
Total variance $ (334 ) $ 11,540
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. Also, the Company provides support to
existing 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.
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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 third quarters and
nine months ended September 30, 2012 and 2011. New premiums are also detailed by
product.
Quarter Ended
September 30
2012 % Change 2011 % Change
New premiums:
Individual life insurance $ 4,284 1 $ 4,249 1
Immediate annuities 2,187 15 1,903 (72 )
Group life insurance 624 21 516 (5 )
Group accident and health insurance 2,894 (12 ) 3,301 13
Total new premiums 9,989 - 9,969 (31 )
Renewal premiums 37,453 1 37,079 7
Total premiums 47,442 1 47,048 (4 )
Reinsurance ceded (14,393 ) (1 ) (14,572 ) 9
Premiums, net $ 33,049 2 $ 32,476 (9 )
Nine Months Ended
September 30
2012 % Change 2011 % Change
New premiums:
Individual life insurance $ 13,054 1 $ 12,973 6
Immediate annuities 7,355 30 5,649 (66 )
Group life insurance 1,849 26 1,463 (13 )
Group accident and health insurance 8,637 (16 ) 10,292 9
Total new premiums 30,895 2 30,377 (24 )
Renewal premiums 111,736 2 109,034 3
Total premiums 142,631 2 139,411 (4 )
Reinsurance ceded (42,673 ) - (42,509 ) 5
Premiums, net $ 99,958 3 $ 96,902 (8 )
Consolidated total premiums increased $0.4 million or 1% in the third quarter of
2012 versus the same period in the prior year, as total new premiums were
essentially flat and total renewal premiums increased $0.4 million or 1%. New
immediate annuity premiums increased $0.3 million or 15% and new group life
premiums increased $0.1 million or 21%. These were offset by a $0.4 million
decrease in new group accident and health premiums. Immediate annuity receipts
can have sizeable fluctuations, as receipts from policyholders largely result
from one-time premiums rather than recurring premiums. The decrease in new
accident and health premiums resulted from a decrease in the short-term
disability line, which was partially offset by an increase in dental premiums.
The increase in consolidated renewal premiums reflected an increase in
short-term disability renewal premiums that was partially offset by a decrease
in dental renewal premiums.
Consolidated total premiums increased $3.2 million or 2% in the first nine
months of 2012 versus one year earlier, reflecting a $0.5 million or 2% increase
in total new premiums and a $2.7 million or 2% increase in total renewal
premiums. The increase in total new premiums was due to a $1.7 million or 30%
increase in new immediate annuity premiums and a $0.4 million or 26% increase in
new group life premiums. These improvements were partially offset by a $1.7
million or 16% decrease in new group accident and health premiums, primarily in
the short-term disability line. The increase in renewal premiums reflected an
increase in group accident and health renewal premiums. This increase was
largely from the short-term disability line and a partially offsetting decrease
in dental renewal premiums. In addition, individual life insurance premiums
increased $1.4 million, primarily from the Old American segment.
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The following table reconciles deposits with the Consolidated Statements of Cash
Flows and provides detail by new and renewal deposits for the third quarters and
nine months ended September 30, 2012 and 2011. New deposits are also detailed by
product.
Quarter Ended
September 30
2012 % Change 2011 % Change
New deposits:
Universal life insurance $ 2,980 25 $ 2,391 (39 )
Variable universal life insurance 144 (21 ) 183 (43 )
Fixed deferred annuities 11,982 (22 ) 15,368 (42 )
Variable annuities 4,863 18 4,119 44
Total new deposits 19,969 (9 ) 22,061 (34 )
Renewal deposits 34,903 (7 ) 37,459 6
Total deposits $ 54,872 (8 ) $ 59,520 (14 )
Nine Months Ended
September 30
2012 % Change 2011 % Change
New deposits:
Universal life insurance $ 9,140 2 $ 8,953 (14 )
Variable universal life insurance 404 (40 ) 676 (11 )
Fixed deferred annuities 43,601 (10 ) 48,285 (1 )
Variable annuities 13,466 (4 ) 14,098 (2 )
Total new deposits 66,611 (8 ) 72,012 (3 )
Renewal deposits 105,120 (4 ) 109,490 4
Total deposits $ 171,731 (5 ) $ 181,502 1
Total new deposits decreased $2.1 million or 9% in the third quarter of 2012
compared with the third quarter of 2011. This change was due to a $3.4 million
or 22% decrease in new fixed deferred annuity deposits. Partially offsetting
this, new variable annuity deposits increased $0.7 million or 18% and new
universal life deposits increased $0.6 million or 25%. Total renewal deposits
decreased $2.6 million or 7% in the third quarter of 2012 versus last year,
reflecting a $3.0 million or 25% decrease in fixed deferred annuity renewal
deposits. Total new deposits decreased $5.4 million or 8% in the first nine
months of 2012 compared with the prior year. This decrease was largely due to a
$4.7 million or 10% decline in new fixed deferred annuity deposits and a $0.6
million or 4% decrease in new variable annuity deposits. Total renewal deposits
decreased $4.4 million or 4%, reflecting a $2.2 million or 7% decrease in fixed
deferred annuity renewal deposits and a $1.0 million or 13% decrease in variable
annuity renewal deposits. New sales and renewals for deposit products have been
negatively affected for the third quarter and the first nine months of 2012 by
continuing low interest rates and the uncertain economic environment.
Insurance Revenues
Insurance revenues consist of premiums, net of reinsurance, and contract
charges. In the third quarter of 2012, total insurance revenues decreased $0.4
million or 1%, primarily due to a $1.0 million or 4% decrease in contract
charges compared to the prior year. Partially offsetting the reduction in
contract charges was a $0.6 million or 2% increase in net premiums. The increase
in net premiums largely resulted from a $0.3 million or 15% increase in total
immediate annuity premiums.
Insurance revenues increased $2.8 million or 2% in the first nine months of 2012
compared with the prior year. This increase was due to a $3.1 million or 3%
increase in net premiums, together with an offsetting $0.2 million decrease in
contract charges. The increase in premiums resulted from a $1.7 million or 2%
increase in total individual life insurance premiums, largely from the Old
American segment, and a $1.4 million or 24% 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.
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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. While the Company
is not actively pursuing marketing efforts to generate new sales for these
closed blocks, it has the intent of servicing this business to achieve long-term
profit streams.
Total contract charges on all blocks of business decreased $1.0 million or 4% in
the third quarter of 2012 compared to the same period in 2011. The results for
the third quarter of 2012 were largely due to a $0.5 million decrease in the
amortization of deferred revenue and a $0.3 million decrease in cost of
insurance charges. The decrease in cost of insurance charges was largely due to
the runoff of closed blocks. Amortization of deferred revenue decreased due to
lower actual gross profits on certain lines of business, largely related to
increased reinsurance resulting from unlocking that occurred in the second
quarter of 2012.
Total contract charges on all blocks of business decreased $0.2 million in the
first nine months of 2012 compared to one year earlier. These results reflected
a $0.7 million decrease in cost of insurance charges and a $0.5 million decrease
in expense loads, partially offset by a $1.2 million increase in the
amortization of deferred revenue. In addition to the results discussed above for
the quarter, the amortization of deferred revenue increased during 2012 compared
to the prior year due to a system upgrade during 2011 that led to enhanced
reinsurance modeling capabilities. The decrease in expense loads is attributed
to the increased sale of products with lower expense loads in 2012 than the
prior year. The decline in cost of insurance charges was largely due to the
runoff of closed blocks.
Total contract charges on closed blocks equaled 35% of total consolidated
contract charges for both third quarters and 35% and 36% for the first nine
months of 2012 and 2011, respectively. Total contract charges on closed blocks
decreased 4% in the third quarter and 3% in the first nine months of 2012
compared to the same periods in the prior year. These declines reflect the
results 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 1% in the third quarter of 2012 and increased $0.2 million or less
than 1% in the first nine months of 2012, as compared to the same periods in
2011. Reinsurance ceded for the Group segment increased $0.5 million or 17% in
the third quarter and $1.3 million or 16% in the nine months, reflecting
increased disability sales that were largely reinsured. Reinsurance ceded for
the Old American segment declined $0.1 million or 16% in the third quarter and
$0.3 million or 15% in the first nine months of 2012, reflecting the continued
runoff of a large closed block of reinsured business. Reinsurance ceded for the
Individual Insurance segment decreased $0.6 million or 5% in the third quarter
and $0.9 million or 3% in the first nine months of 2012.
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 increased $1.4 million or 3% in the third quarter of 2012 compared with
the third quarter of 2011, as both average invested assets and yields earned
increased. Gross investment income decreased $1.0 million or 1% in the first
nine months of 2012 compared with the prior year, as an increase in average
invested assets was more than offset by lower yields earned.
Fixed maturity securities provided a majority of the Company's investment income
during both the quarter and nine months ended September 30, 2012. Income on
these investments declined $0.4 million or 1% in the third quarter and $3.1
million or 3% in the first nine months of 2012 compared to the prior year,
reflecting declines in yields earned.
Investment income from mortgage loans increased $0.1 million or 1% in the third
quarter and $0.7 million or 3% in the first nine months of 2012 compared to the
same periods in 2011. The improvement in the nine months was largely the result
of prepayment fees received on loans that were paid off prior to maturity.
Investment income from real estate increased $0.5 million or 27% in the third
quarter and $1.1 million or 17% in the nine months compared to last year. These
improvements reflect higher rental income due to an increase in occupancy rates.
In addition, the fair value improved on an alternative investment fund, which
resulted in an increase of investment income of $1.4 million in the third
quarter of 2012 and $0.8 million in the first nine months, compared to the same
periods in 2011.
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.
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The following table provides detail concerning realized investment gains and
losses for the third quarters and nine months ended September 30, 2012 and 2011.
Quarter Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Gross gains resulting from:
Sales of investment
securities $ 399 $ 292 $ 712 $ 3,944
Investment securities
called and other 304 105 1,107 1,355
Sales of real estate 113 - 16,293 -
Total gross gains 816 397 18,112 5,299
Gross losses resulting
from:
Sales of investment
securities (44 ) (76 ) (76 ) (1,666 )
Investment securities
called and other (236 ) (118 ) (440 ) (297 )
Mortgage loans - - (178 ) (3 )
Total gross losses (280 ) (194 ) (694 ) (1,966 )
Change in allowance for
potential future losses on
mortgage loans 75 - 407 -
Amortization of DAC and
VOBA (5 ) 7 (21 ) (218 )
Net realized investment
gains, excluding impairment
losses 606 210 17,804 3,115
Net impairment losses
recognized in earnings:
Total other-than-temporary
impairment losses (697 ) (167 ) (1,153 ) (674 )
Portion of loss recognized
in othercomprehensive
income 47 17 197 131
Net impairment losses
recognized in earnings (650 ) (150 ) (956 ) (543 )
Net realized investment
gains (losses) $ (44 ) $ 60 $ 16,848 $ 2,572
The Company recorded a net realized investment loss of less than $0.1 million in
the third quarter of 2012, compared with a net realized gain of less than $0.1
million third quarter of 2011. During the third quarter of 2012, investment
gains on sales of real estate totaled $0.1 million. Net realized investment
gains for the first nine months totaled $16.8 million in 2012 compared to $2.6
million in 2011, largely reflecting gains on sales of real estate of $16.3
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 third quarter ended September 30,
2012 resulted in the determination that seven fixed-maturity residential
mortgage-backed securities and one corporate security had other-than-temporary
credit impairments and were written down by a combined $0.6 million. 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 third quarter of 2012, including less than $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 $55.5 million.
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The following table summarizes securities with other-than-temporary impairments
recognized in earnings by business segment during the first, second, and third
quarters of 2012 and 2011 by asset class:
Nine Months
Quarter Ended Quarter Ended Quarter Ended Ended
March 31 June 30 September 30 September 30
2012 2012 2012 2012
Bonds:
Corporate obligations:
Individual Insurance $ - $ - $ 515 $ 515
Total corporate
obligations $ - $ - $ 515 $ 515
Corporate private-labeled
residential
mortgage-backed
securities:
Individual Insurance $ 143 $ 134 $ 129 $ 406
Old American 17 12 6 35
Total $ 160 $ 146 $ 650 $ 956
Segment detail:
Individual Insurance $ 143 $ 134 $ 644 $ 921
Old American 17 12 6 35
Consolidated total $ 160 $ 146 $ 650 $ 956
Nine Months
Quarter Ended Quarter Ended Quarter Ended Ended
March 31 June 30 September 30 September 30
2011 2011 2011 2011
Bonds:
Corporate private-labeled
residential mortgage-backed
securities:
Individual Insurance $ 188 $ 164 $ 141 $ 493
Old American 23 18 9 50
Total $ 211 $ 182 $ 150 $ 543
Segment detail:
Individual Insurance $ 188 $ 164 $ 141 $ 493
Old American 23 18 9 50
Consolidated total $ 211 $ 182 $ 150 $ 543
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 September 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 $ 138,511 5% $ 136,365 $ 15,002 $ 2,146 $ 27
Federal agencies 1
26,250 1% 26,250 4,183 -
Federal agency issued residential
mortgage-backed securities 1 101,235 4% 100,932 9,272 303 1
Subtotal 265,996 10% 263,547 28,457 2,449 28
Corporate obligations:
Industrial 554,550 19% 543,263 53,980 11,287 1,749
Energy 206,712 7% 204,732 23,894 1,980 17
Communications and technology 225,310 8% 225,310 24,554 - -
Financial 328,837 11% 312,282 26,232 16,555 1,907
Consumer 560,544 19% 553,208 54,172 7,336 14
Public utilities 296,452 10% 293,217 41,256 3,235 355
Subtotal 2,172,405 74% 2,132,012 224,088 40,393 4,042
Corporate private-labeled residential
mortgage-backed securities 154,567 5% 101,659 3,787 52,908 1,575
Municipal securities 174,366 6% 171,287 27,755 3,079 5
Other 102,080 4% 58,993 6,256 43,087 8,973
Redeemable preferred stocks 9,211 - 6,690 261 2,521 126
Fixed maturities 2,878,625 99% 2,734,188 290,604 144,437 14,749
Equity securities 37,453 1% 36,302 1,893 1,151 106
Total $ 2,916,078 100% $ 2,770,490 $ 292,497 $ 145,588 $ 14,855
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 September 30, 2012, the Company's unrealized losses on investment
securities had decreased to $14.9 million and were offset by $292.5 million in
gross unrealized gains, with 27% of the gross unrealized losses in the category
of corporate obligations. The financial sector was the single largest
contributor to unrealized losses, reflecting the direct and indirect impact of
the troubled residential real estate, mortgage, and auction rate securities
markets. At September 30, 2012, 95% 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 September 30, 2012 and December 31, 2011.
September 30, 2012 December 31, 2011
Fair % Fair %
Value of Total Value of Total
AAA $ 132,256 5% $ 161,802 6%
AA 612,085 21% 570,157 21%
A 876,911 30% 799,565 30%
BBB 1,046,830 36% 939,373 35%
Total investment grade 2,668,082 92% 2,470,897 92%
BB 70,294 3% 79,760 3%
B and below 140,249 5% 131,485 5%
Total below investment grade 210,543 8% 211,245 8%
$ 2,878,625 100% $ 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 September 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 $ 1,362 $ 18 $ 784 $ 9 $ 2,146 $ 27
Federal agency issued residential
mortgage-backed securities 1 10 - 293 1 303 1
Subtotal 1,372 18 1,077 10 2,449 28
Corporate obligations:
Industrial 8,462 430 2,825 1,319 11,287 1,749
Energy 1,980 17 - - 1,980 17
Communications and technology - - - - - -
Financial 1,502 1 15,053 1,906 16,555 1,907
Consumer 7,336 14 - - 7,336 14
Public utilities 1,995 5 1,240 350 3,235 355
Subtotal 21,275 467 19,118 3,575 40,393 4,042
Corporate private-labeled
residential mortgage-backed
securities - - 52,908 1,575 52,908 1,575
Municipal securities 3,079 5 - - 3,079 5
Other - - 43,087 8,973 43,087 8,973
Redeemable preferred stocks - - 2,521 126 2,521 126
Fixed maturity securities 25,726 490 118,711 14,259 144,437 14,749
Equity securities - - 1,151 106 1,151 106
Total $ 25,726 $ 490 $ 119,862 $ 14,365 $ 145,588 $ 14,855
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 $14.4 million at September 30, 2012, a decrease of 40% 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 $8.4 million or 84% during the first nine months of 2012. Certain
securities continue to be challenged by the economy and recovering markets, 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 September 30, 2012.
Gross
Amortized Fair Unrealized
Cost Value Losses
Securities owned without realized impairment:
Unrealized losses of 10% or less $ 44,169 $ 43,156 $ 1,013
Unrealized losses of 20% or less and greater
than 10% 32,500 27,594 4,906
Subtotal 76,669 70,750 5,919
Unrealized losses greater than 20%:
Investment grade
Less than twelve months - - -
Twelve months or greater 5,854 4,335 1,519
Total investment grade 5,854 4,335 1,519
Below investment grade
Less than twelve months 4,145 2,825 1,320
Twelve months or greater 3,010 2,308 702
Total below investment grade 7,155 5,133 2,022
Unrealized losses greater than 20% 13,009 9,468 3,541
Subtotal 89,678 80,218 9,460
Securities owned with realized impairment:
Unrealized losses of 10% or less 48,841 47,939 902
Unrealized losses of 20% or less and greater
than 10% 9,367 8,174 1,193
Subtotal 58,208 56,113 2,095
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 1,590 1,240 350
Twelve months or greater 10,967 8,017 2,950
Total below investment grade 12,557 9,257 3,300
Unrealized losses greater than 20% 12,557 9,257 3,300
Subtotal 70,765 65,370 5,395
Total $ 160,443 $ 145,588 $ 14,855
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The following table summarizes the Company's investments in securities available
for sale with unrealized losses at 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
September 30, 2012.
Gross
Fair % Unrealized %
Value of Total Losses of Total
AAA $ 3,056 2% $ 65 1%
AA 30,043 21% 4,935 33%
A 8,404 6% 472 3%
BBB 20,425 14% 1,313 9%
Total investment grade 61,928 43% 6,785 46%
BB 9,545 7% 351 2%
B and below 72,964 50% 7,613 52%
Total below investment grade 82,509 57% 7,964 54%
$ 144,437 100% $ 14,749 100%
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-asset backed securities whose fair
value had been less than 80% of amortized cost for at least six consecutive
months at September 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 institutions Institutions impacted by housing and
mortgage crisis. These securities
continue 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. Agency mortgage-backed securities that were determined to
have such indications at September 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.
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The following tables present the range of significant assumptions used in
projecting the future cash flows at September 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.
September 30, 2012
Initial Default Rate Initial Severity Rate Prepayment Speed
Vintage Low High Low High Low High
2003 4.7% 4.7% 40% 40% 18.0% 18.0%
2004 5.7% 7.4% 35% 57% 8.0% 13.0%
2005 3.0% 15.2% 40% 73% 6.0% 15.0%
2006 5.1% 6.3% 46% 85% 8.0% 16.0%
2007 10.2% 10.2% 60% 60% 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 September 30, 2012, the fair value of
investments with subprime residential mortgage exposure was $15.4 million with a
related $2.7 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 September 30, 2012 and December 31, 2011.
These investments are included in the Company's process for evaluation of
other-than-temporarily impaired securities.
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.
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The following tables divide these investment types among vintage and credit
ratings at September 30, 2012.
Fair Amortized Unrealized
Value Cost Gains (Losses)
Residential & Non-agency MBS 1
Investment Grade:
Vintage 2003 and earlier $ 21,505 $ 20,703 $ 802
2004 28,657 27,543 1,114
2005 - - -
2006 - - -
2007 - - -
Total investment grade 50,162 48,246
1,916
Below Investment Grade:
Vintage 2003 and earlier - - -
2004 32,306 31,601 705
2005 77,344 81,364 (4,020 )
2006 7,411 6,763 648
2007 4,111 4,308 (197 )
Total below investment grade 121,172 124,036
(2,864 )
Other Structured Securities:
Investment grade 80,974 80,609 365
Below investment grade 2,760 2,722 38
Total other 83,734 83,331 403
Total structured securities $ 255,068$ 255,613 $
(545 )
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 $0.5
million at September 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 less than 1% at September 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 September 30, 2012 had a fair value
of $136.1 million with a net unrealized loss of $1.2 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 5% of its
investment portfolio in municipal bond securities and 6% in bond securities from
foreign issuers. Approximately 74% of the Company's foreign securities were from
issuers in Canada, Australia, and Great Britain at September 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 September 30, 2012 was $239.4 million with a net unrealized
gain of $17.9 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 September 30, 2012. The Company's indirect
exposure to financial guarantors totaled $34.8 million, which was approximately
1% of the Company's investments at September 30, 2012. The unrealized gain on
these investments totaled $3.1 million at September 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 3% in the third quarter and
9% in the first nine 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 nine months also reflected
lower supplementary contract considerations.
Policyholder Benefits
Policyholder benefits consist of death benefits, 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. Following is a discussion of significant fluctuations in policyholder
benefits during the periods presented.
Policyholder benefits increased $1.0 million or 2% in the third quarter of 2012
compared to the same period one year earlier. The largest factors were increased
death benefits, net of reinsurance, and increased benefit and contract reserves.
The increase in reserves was largely due to favorable changes in immediate
annuity premiums and benefits and a decrease that occurred during 2011 in
benefit and contract reserves that resulted from system changes and refinements.
Partially offsetting these was the change in the value of the GMWB rider
liability, as discussed below.
Policyholder benefits decreased $3.4 million or 3% in the first nine months
compared to the same period one year ago. The largest single factor in the
decrease in policyholder benefits resulted from a decline in death benefits, net
of reinsurance. Other contributing factors were reductions in group accident and
health benefits, supplementary contract payments, and policy dividends and
coupons. Partially offsetting these was an increase in benefit and contract
reserves. This increase was the result of several factors, including favorable
changes in immediate annuity premiums and benefits and prior year system changes
and refinements. Also, the Company recaptured a block of previously reinsured
policies in the second quarter of 2012 which also contributed to the increase in
reserves. Partially offsetting these items was the change in the value of the
GMWB rider liability, as discussed below.
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 September 30, 2012, the fair value of the liability decreased
$0.2 million compared to the fair value at December 31, 2011. The change in this
liability resulted in a decrease in reserves of $0.2 million in the first nine
months of 2012 compared to an increase in reserves of $3.5 million in the first
nine months of 2011. These changes resulted in a decrease of $3.7 million in the
year-over-year comparison. This fluctuation can be attributed to favorable
capital market returns and a decline in market volatility, partially offset by
declines in interest rates and issuer discount spreads.
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
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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 $0.7 million or 3% in the third
quarter and $1.0 million or 2% in the first nine months of 2012 compared with
the same periods one year earlier. While total policyholder account balances
have increased during 2012, average crediting rates have declined slightly.
Amortization of Deferred Acquisition Costs
The amortization of deferred acquisition costs decreased $4.4 million or 38% in
the third quarter and $1.7 million or 8% in the first nine months of 2012
compared with the prior year. Contributing to the decrease in both periods were
refinements in estimates made during the third quarter of 2011 that increased
the amortization of DAC by $2.4 million in the third quarter of 2011. In
addition, increases in account values decreased the amortization of DAC for
certain products. Partially offsetting these was the impact of unlocking during
the second quarter of 2012. 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.
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 acquisition of new business; expenses from
the Company's operations; the amortization of VOBA; and other expenses.
Operating expenses increased $6.4 million or 26% in the third quarter of 2012
and $5.0 million or 7% in the first nine months compared to last year. The
increase in the third quarter was largely due to increased salaries and employee
benefit costs, increased legal fees, and an increase in depreciation on a
long-lived asset. The increased depreciation expense of $3.7 million resulted
from of a change in accounting estimate for a long-lived asset, as described in
Note 3. The increase in the nine months reflected increases in salaries and
employee benefit costs, legal fees, and the depreciation on a long-lived asset.
These were partially offset by a decline in the amount charged to allowance for
doubtful accounts for agent receivables.
The amortization of VOBA decreased $0.3 million or 19% in the third quarter of
2012 and $0.1 million or 2% in the first nine months of 2012 compared to the
same periods one year earlier. The decrease in the third quarter of 2012
reflected $0.5 million in less amortization as the traditional life insurance
block from the Old American segment became fully amortized at December 31, 2011.
The increase in VOBA in the first nine months of 2012 reflected a $1.4 million
decrease resulting from the fully amortized traditional life insurance block
from in the Old American segment. Offsetting this, VOBA amortization increased
during the nine months due to unlocking that occurred during the second quarter
of 2012.
Income Taxes
The third quarter income tax expense was $2.1 million or 34% of income before
tax for 2012, versus $3.0 million or 40% of income before tax for the prior year
period. The income tax expense for the nine months ended September 30, 2012 was
$16.2 million or 34% of income before tax, versus $11.3 million or 36% of income
before tax for the prior year period.
The effective income tax rate was less than the prevailing corporate federal
income tax rate of 35% in the third quarter of 2012. Permanent differences,
including the dividends-received deduction, resulted in a benefit of
approximately 2% of income before tax. Partially offsetting the benefit from
permanent differences was tax expense of approximately 1% of income before tax
related to investments in affordable housing.
The effective income tax rate was less than the prevailing corporate federal
income tax rate of 35% in the nine months ended September 30, 2012, primarily
due to permanent differences that resulted in a benefit of approximately 1% of
income before tax.
The effective income tax rate in the third quarter of 2011 and for the nine
months ended September 30, 2011 was greater than the prevailing corporate
federal income tax rate of 35%, primarily due to adjustments related to the
Company's investments in affordable housing. The affordable housing adjustments
resulted in a tax expense of approximately 5% and 1% of income before tax in the
third quarter and nine months ended September 30, 2011, respectively.
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
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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 third quarters and nine months ended September 30, 2012 and
2011:
Quarter Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Insurance revenues:
Premiums, net $ 3,151 $ 2,950 $ 11,029 $ 9,238
Contract charges 24,464 25,427 75,187 75,413
Total insurance revenues 27,615 28,377 86,216 84,651
Investment revenues:
Net investment income 41,444 40,031 122,899 123,798
Net realized investment gains,
excluding impairment losses 665 209 17,890 3,149
Net impairment losses
recognized in earnings:
Total other-than-temporary
impairment losses (691 ) (157 ) (1,118 ) (607 )
Portion of impairment losses
recognized in other
comprehensive income 47 16 197 114
Net impairment losses
recognized in earnings (644 ) (141 ) (921 ) (493 )
Total investment revenues 41,465 40,099 139,868 126,454
Other revenues 2,110 2,176 6,523 7,162
Total revenues 71,190 70,652 232,607 218,267
Policyholder benefits 21,730 21,775 64,096 66,799
Interest credited to
policyholder account balances 20,436 21,119 61,371 62,366
Amortization of deferred
acquisition costs 3,701 8,267 10,438 11,750
Operating expenses 20,960 13,869 53,094 45,797
Total benefits and expenses 66,827 65,030 188,999 186,712
Income before income tax
expense 4,363 5,622 43,608 31,555
Income tax expense 1,365 2,280 14,419 11,171
Net income $ 2,998 $ 3,342 $ 29,189 $ 20,384
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The net income for this segment in the third quarter of 2012 was $3.0 million,
compared to $3.3 million in the third quarter of 2011. This change was primarily
the result of lower insurance revenues and higher operating expenses. Partially
offsetting these, net investment income increased, along with lower amortization
of deferred acquisition costs and interest credited to policyholder account
balances.
Net income for this segment was $29.2 million for the first nine months of 2012,
an increase of $8.8 million from the first nine months of 2011. Contributing to
this improvement were increases in net realized investment gains and insurance
revenues, along with lower policyholder benefits, amortization of deferred
acquisition costs, and interest credited to policyholder account balances.
Partially offsetting these changes was a decrease in net investment income and
increased operating expenses.
Total insurance revenues for this segment decreased $0.8 million or 3% in the
third quarter of 2012 compared with the same period in the prior year. Total
premiums decreased $0.4 million or 3%, reflecting a $0.6 million decrease in
individual life premiums that was partially offset by a $0.3 million increase in
immediate annuity premiums. Contract charges decreased $1.0 million or 4%, and
reinsurance ceded premiums decreased $0.6 million or 5%.
Total insurance revenues for this segment increased $1.6 million or 2% for the
first nine months of 2012 compared to one year earlier. Total premiums increased
$0.9 million or 2%, reflecting a $1.4 million or 24% increase in immediate
annuity premiums that was partially offset by a $0.5 million or 1% decrease in
individual life premiums. Contract charges decreased $0.2 million and
reinsurance ceded premiums decreased $0.9 million or 3%.
The following table presents gross premiums by new and renewal business, less
reinsurance ceded, as included in insurance revenues for the third quarters and
nine months ended September 30, 2012 and 2011. New premiums are also detailed by
product.
Quarter Ended
September 30
2012 % Change 2011 % Change
New premiums:
Individual life insurance $ 1,119 (6 ) $ 1,194 (7 )
Immediate annuities 2,187 15 1,903 (72 )
Total new premiums 3,306 7 3,097 (61 )
Renewal premiums 10,393 (5 ) 10,970 4
Total premiums 13,699 (3 ) 14,067 (24 )
Reinsurance ceded (10,548 ) (5 ) (11,117 ) 6
Premiums, net $ 3,151 7 $ 2,950 (63 )
Nine Months Ended
September 30
2012 % Change 2011 % Change
New premiums:
Individual life insurance $ 3,445 (9 ) $ 3,783 (2 )
Immediate annuities 7,355 30 5,649 (66 )
Total new premiums 10,800 15 9,432 (54 )
Renewal premiums 31,527 (1 ) 31,998 2
Total premiums 42,327 2 41,430 (20 )
Reinsurance ceded (31,298 ) (3 ) (32,192 ) 1
Premiums, net $ 11,029 19 $ 9,238 (54 )
Total new premiums for this segment increased $0.2 million or 7% in the third
quarter of 2012. 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 decreased $0.6 million or 5% compared
to last year, due to a decline in individual life renewal premiums.
Total new premiums for this segment increased $1.4 million or 15% in the first
nine months of 2012 versus the prior year. This improvement also resulted from
increased immediate annuities. Total renewal premiums decreased 1%, reflecting
lower individual life and annuity renewal premiums.
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The following table provides detail by new and renewal deposits for the third
quarters and nine months ended September 30, 2012 and 2011. New deposits are
also detailed by product.
Quarter Ended
September 30
2012 % Change 2011 % Change
New deposits:
Universal life insurance $ 2,980 25 $ 2,391 (39 )
Variable universal life insurance 144 (21 ) 183 (43 )
Fixed deferred annuities 11,982 (22 ) 15,368 (42 )
Variable annuities 4,863 18 4,119 44
Total new deposits 19,969 (9 ) 22,061 (34 )
Renewal deposits 34,903 (7 ) 37,459 6
Total deposits $ 54,872 (8 ) $ 59,520 (14 )
Nine Months Ended
September 30
2012 % Change 2011 % Change
New deposits:
Universal life insurance $ 9,140 2 $ 8,953 (14 )
Variable universal life insurance 404 (40 ) 676 (11 )
Fixed deferred annuities 43,601 (10 ) 48,285 (1 )
Variable annuities 13,466 (4 ) 14,098 (2 )
Total new deposits 66,611 (8 ) 72,012 (3 )
Renewal deposits 105,120 (4 ) 109,490 4
Total deposits $ 171,731 (5 ) $ 181,502 1
Total new deposits decreased $2.1 million or 9% in the third quarter of 2012
compared to last year, reflecting a $3.4 million or 22% decrease in new fixed
deferred annuity deposits. Partially offsetting this, new variable annuity
deposits increased $0.7 million or 18% and new universal life deposits increased
$0.6 million or 25%. Total renewal deposits decreased $2.6 million or 7% in the
third quarter of 2012. This decrease was due to a $3.0 million or 25% decline in
fixed deferred annuity renewal deposits. Total new deposits decreased $5.4
million or 8% in the first nine months of 2012 compared with the prior year.
This decrease reflected a $4.7 million or 10% decline in new fixed deferred
annuity deposits and a $0.6 million or 4% decline in new variable annuity
deposits. Total renewal deposits decreased $4.4 million or 4% in the first nine
months of 2012. This decline resulted from a $2.2 million or 7% decrease in
fixed deferred annuity renewal deposits and a $1.0 million or 13% decrease in
variable annuity renewal deposits. New sales and renewals for deposit products
have been negatively affected for the third quarter and the first nine months of
2012 by continuing low interest rates and the uncertain economic environment.
Total contract charges decreased $1.0 million or 4% in the third quarter of 2012
compared to the third quarter of 2011. This largely resulted from decreases in
cost of insurance charges and the amortization of deferred revenue. The decrease
in cost of insurance charges was largely due to the runoff of closed blocks.
Amortization of deferred revenue decreased due to lower actual gross profits on
certain lines of business, largely related to increased reinsurance resulting
from unlocking that occurred in the second quarter of 2012. Total contract
charges on the closed blocks equaled 35% of total consolidated contract charges
in both the third quarters of 2012 and 2011. Total contract charges on closed
blocks declined 4% in the third 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, decreased 4% in the third quarter of 2012.
Total contract charges decreased $0.2 million in the first nine months of 2012
compared to one year earlier, reflecting decreases in cost of insurance charges
and expense loads. These were partially offset by an increase in the
amortization of deferred revenue. 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 and led to enhanced reinsurance
modeling capabilities. The decrease in expense loads is attributed to the
increased sale of products with lower expense loads in 2012 than the prior year.
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 nine months of 2012 compared to 36% in the first
nine months of 2011. Total contract charges on closed blocks declined 3% in the
first nine months of 2012, while total contract charges on open blocks of
business increased 1%.
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Net investment income increased $1.4 million or 4% in the third quarter of 2012
compared to the third quarter of 2011, as both average invested assets and
yields earned increased. Net investment income decreased $0.9 million in the
first nine months of 2012 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 $17.0 million in the first nine months of
2012 compared to a net gain of $2.7 million in the first nine 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 three quarters of 2012 and 2011.
Other revenues decreased 3% in the third quarter and 9% in the first nine 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 nine months also reflected lower supplementary contract
considerations.
Policyholder benefits were flat for the third quarter of 2012 compared to the
prior year. However, a decrease in supplementary contract payments was partially
offset by an increase in benefit and contract reserves. Several factors
contributed to the increase in benefit and contract reserves, including
favorable changes in immediate annuity premiums and benefits and prior year
system changes and refinements. Partially offsetting these items was the change
in the value of the GMWB rider liability.
Policyholder benefits decreased $2.7 million or 4% in the first nine months of
2012 compared to the prior year. The largest factor in this decrease was death
benefits, net of reinsurance. Other factors contributing to the decrease in
policyholder benefits were reduced supplementary contract payments, dividends,
and coupons. Partially offsetting this was an increase in benefit and contract
reserves. This increase was the result of several factors, including favorable
changes in immediate annuity premiums and benefits and prior year system changes
and refinements. Also, the Company recaptured a block of previously reinsured
policies in the second quarter of 2012 which also contributed to the increase in
reserves. Partially offsetting these items was the change in the value of the
GMWB rider liability.
Interest credited to policyholder account balances decreased 3% in the third
quarter and 2% in the first nine 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 decreased $4.6 million in the
third quarter and $1.3 million in the first nine months of 2012 compared with
the prior year. Contributing to the decrease in both periods were the
aforementioned refinements in estimates made during the third quarter of 2011
that increased the amortization of DAC by $2.4 million in the third quarter of
2011. In addition, increases in account values decreased the amortization of DAC
for certain products. Partially offsetting these was the impact of unlocking
during the second quarter of 2012. 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.
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 $7.1 million or 51% in the
third quarter and $7.3 million or 16% in the first nine months of 2012 compared
with the same periods one year earlier. The increases for both periods were
largely attributable to higher salaries and employee benefit costs, legal fees,
and depreciation on a long-lived asset.
The amortization of VOBA increased $0.2 million or 18% in the third quarter and
$1.3 million or 32% in the first nine months of 2012 compared to one year
earlier. The increase in the third quarter reflected higher amortization of VOBA
on certain policies due to improved mortality. The increase in the nine months
was largely due to unlocking that occurred during the second quarter of 2012.
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Group Insurance
The following table presents financial data of the Group Insurance business
segment for the third quarters and nine months ended September 30, 2012 and
2011:
Quarter Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Insurance revenues:
Premiums, net $ 12,316 $ 12,613 $ 36,580 $ 37,413
Total insurance revenues 12,316 12,613 36,580 37,413
Investment revenues:
Net investment income 132 133 392 420
Other revenues 35 38 108 113
Total revenues 12,483 12,784 37,080 37,946
Policyholder benefits 6,590 6,289 20,203 21,373
Operating expenses 6,058 6,433 17,372 17,360
Total benefits and
expenses 12,648 12,722 37,575 38,733
Income (loss) before
income tax expense
(benefit) (165 ) 62 (495 ) (787 )
Income tax expense
(benefit) (57 ) 22 (173 ) (275 )
Net income (loss) $ (108 ) $ 40 $ (322 ) $ (512 )
The following table presents gross premiums by new and renewal business, less
reinsurance ceded, as included in insurance revenues for the third quarters and
nine months ended September 30, 2012 and 2011. New premiums are also detailed by
product.
Quarter Ended September 30
2012 % Change 2011 % Change
New premiums:
Group life insurance $ 624 21 $ 516 (5 )
Group dental insurance 1,261 51 834 (54 )
Group disability insurance 1,605 (34 ) 2,425 118
Other group insurance 28 (33 ) 42 500
Total new premiums 3,518 (8 ) 3,817 10
Renewal premiums 12,156 4 11,672 14
Total premiums 15,674 1 15,489 13
Reinsurance ceded (3,358 ) 17 (2,876 ) 30
Premiums, net $ 12,316 (2 ) $ 12,613 9
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Nine Months Ended September 30
2012 % Change 2011 % Change
New premiums:
Group life insurance $ 1,849 26 $ 1,463 (13 )
Group dental insurance 3,226 - 3,213 (47 )
Group disability insurance 5,293 (24 ) 6,967 110
Other group insurance 118 5 112 11
Total new premiums 10,486 (11 ) 11,755 6
Renewal premiums 35,939 5 34,166 6
Total premiums 46,425 1 45,921 6
Reinsurance ceded (9,845 ) 16 (8,508 ) 30
Premiums, net $ 36,580 (2 ) $ 37,413 2
Total new premiums decreased $0.3 million or 8% in the third quarter of 2012
compared with the prior year. This decrease was driven by a decline in new group
disability premiums of $0.8 million or 34%. Partially offsetting this was a $0.4
million or 51% increase in new dental premiums and a $0.1 million or 21%
increase in new group life premiums. Renewal premiums increased $0.5 million or
4% in the third quarter, reflecting an increase in short-term disability renewal
premiums that was partially offset by a decline in dental renewal premiums.
Total new premiums decreased $1.3 million or 11% in the first nine months of
2012, compared to one year earlier. This decrease was largely due to a $2.0
million or 33% decline in new short-term disability premiums. Partially
offsetting this change, new group life premiums increased $0.4 million or 26%.
Renewal premiums increased $1.8 million or 5% in the nine months, as an increase
in disability renewal premiums was partially offset by a decrease in dental
renewal premiums.
The Company uses reinsurance in several of its group product lines to help
mitigate risk. Reinsurance premiums increased $0.5 million or 17% in the third
quarter and $1.3 million or 16% in the first nine months of 2012 compared to the
prior year. The increase in both periods was largely due to an increase in
short-term disability renewal premiums that are highly reinsured.
Policyholder benefits consist of death benefits, accident and health benefits,
and the associated increase or decrease in reserves for future policy benefits.
Policyholder benefits increased $0.3 million or 5% in the third quarter and
decreased $1.2 million or 5% in the nine months compared to the prior year. The
increase during the third quarter was largely due to higher benefits paid for
the dental product line. The decrease in the nine months was largely due to a
reduction in the benefits paid for the group life and dental product lines.
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 third quarter and 55% for the first nine months of 2012, compared
to 50% in the third quarter and 57% first nine months of 2011. The policyholder
benefit ratios for the dental product line were approximately 68% in the third
quarter and 70% first nine months of 2012, compared to approximately 62% in the
third quarter and 72% first nine months of 2011.
Operating expenses consist of commissions, fees to third-party marketing and
administrative organizations, and expenses from the Company's operations.
Operating expenses decreased $0.4 million or 6% in the third quarter and were
essentially flat in the nine months. The decrease in the third quarter was
largely due to lower commission expenses associated with the disability and
dental products.
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Old American
The following table presents financial data for the Old American business
segment for the third quarters and nine months ended September 30, 2012 and
2011:
Quarter Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Insurance revenues:
Premiums, net $ 17,680 $ 17,048 $ 52,644 $ 50,655
Total insurance revenues 17,680 17,048 52,644 50,655
Investment revenues:
Net investment income 3,069 2,929 8,998 9,159
Net realized investment gains,
excluding impairment losses (59 ) 1 (86 ) (34 )
Net impairment losses
recognized in earnings:
Total other-than-temporary
impairment losses (6 ) (10 ) (35 ) (67 )
Portion of impairment losses
recognized in other
comprehensive income - 1 - 17
Net impairment losses
recognized in earnings (6 ) (9 ) (35 ) (50 )
Total investment revenues 3,004 2,921 8,877 9,075
Other revenues 1 1 12 14
Total revenues 20,685 19,970 61,533 59,744
Policyholder benefits 11,180 10,476 34,947 34,507
Amortization of deferred
acquisition costs 3,450 3,310 9,735 10,116
Operating expenses 4,023 4,426 11,812 14,203
Total benefits and expenses 18,653 18,212 56,494 58,826
Income before income tax
expense 2,032 1,758 5,039 918
Income tax expense 790 674 1,936 360
Net income $ 1,242 $ 1,084 $ 3,103 $ 558
Net income for this segment totaled $1.2 million in the third quarter of 2012
compared to $1.1 million in the prior year. The increase in net income for the
third quarter reflected a $0.6 million increase in insurance revenues, a $0.1
million increase in net investment income, and a $0.4 million decrease in
operating expenses. These were partially offset by a $0.7 million increase in
policyholder benefits. Net income for the first nine months of 2012 was $3.1
million compared to $0.6 million for the same period in 2011. The increase in
net income in the first nine months of 2012 reflected a $2.0 million increase in
insurance revenues, a $0.4 million decrease in the amortization of DAC, and a
$2.4 million decrease in operating expenses. These were partially offset by a
$0.2 million decrease in net investment income and a $0.4 million increase in
policyholder benefits.
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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 third quarters and
nine months ended September 30, 2012 and 2011.
Quarter Ended
September 30
2012 % Change 2011 % Change
New individual life premiums $ 3,165 4 $ 3,055 5
Renewal premiums 15,002 3 14,572 3
Total premiums 18,167 3 17,627 3
Reinsurance ceded (487 ) (16 ) (579 ) (12 )
Premiums, net $ 17,680 4 $ 17,048 4
Nine Months Ended
September 30
2012 % Change 2011 % Change
New individual life premiums $ 9,609 5 $ 9,190 10
Renewal premiums 44,565 3 43,274 2
Total premiums 54,174 3 52,464 3
Reinsurance ceded (1,530 ) (15 ) (1,809 ) (12 )
Premiums, net $ 52,644 4 $ 50,655 4
Total new premiums increased $0.1 million or 4% in the third quarter and $0.4
million or 5% in the nine months, while total renewal premiums increased $0.4
million or 3% in the third quarter and $1.3 million or 3% in the nine months.
The increases in premiums reflect 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 increased $0.1 million or 5% in the third quarter as both
average invested assets and yields earned increased. Net investment income
decreased $0.2 million or 2% in the first nine months as an increase in average
invested assets was more than offset by lower yields earned.
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 three quarters of 2012 and 2011.
Policyholder benefits increased $0.7 million or 7% in the third quarter versus
last year. The increase was largely due to a $0.6 million increase in death
benefits, net of reinsurance, and a $0.3 million increase in benefit and
contract reserves. Policyholder benefits increased $0.4 million or 1% in the
first nine months of 2012 compared with the prior year. This increase was due to
a $1.0 million increase in benefit and contract reserves. Partially offsetting
this change was a $0.4 million decrease in death benefits and a $0.2 million
decrease in life surrenders. The increase in reserves occurred in both the third
quarter and nine months of 2012, can largely be attributed to the increase in
both sales and retention of business. Mortality fluctuations occur each period,
and the Company monitors these fluctuations in relation to its pricing
expectations. While death benefits decreased during the first nine months of
2012, the results remained within pricing expectations.
Amortization of DAC increased $0.1 million or 4% in the third quarter but
decreased $0.4 million or 4% in the nine months compared to one year earlier.
The decline in the nine months was primarily due to the implementation of ASU
No. 2010-26, as described in Note 7 - Change in Accounting Principle and Change
in Accounting Estimate.
Operating expenses decreased $0.4 million or 9% in the third quarter and $2.4
million or 17% in the nine months compared to one year earlier. The decreases in
both periods were largely due to reduced agent meeting costs. In addition,
salaries and benefits decreased in the nine months. Also contributing to the
decreases for both periods was lower amortization of VOBA, due to the
traditional life insurance block being fully amortized at December 31, 2011.
This resulted in less VOBA amortization of $0.5 million and $1.4 million in the
third quarter and first nine months of 2012, respectively, compared to the same
periods in the prior year. Capitalized commissions increased in the nine months,
primarily related to the implementation of ASU No. 2010-26, as described in Note
3.
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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 provided by operating activities was $1.7 million in the nine months
ended September 30, 2012. The primary sources of cash from operating activities
in the first nine months of 2012 were premium receipts and net investment
income. The primary uses of cash from operating activities in the first nine
months of 2012 were for the payment of policyholder benefits and operating
expenses. Net cash used for investing activities was $33.1 million. The primary
sources of cash were sales, maturities, calls, and principal paydowns of
investments totaling $293.1 million. Offsetting these, the Company's new
investments totaled $348.1 million. Net cash provided by financing activities
was $28.1 million, primarily including $42.2 million of deposits net of
withdrawals from policyholder account balances, and reflecting the payment of
stockholder dividends.
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 September 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.
September 30 December 31
2012 2011
Total assets, excluding separate accounts $ 4,186,447 $ 4,081,633
Total stockholders' equity 756,422 710,705
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 September 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 $112.1 million at September 30, 2012.
This represents an increase of $31.0 million in net unrealized gains from the
$81.1 million in net unrealized investment gains at December 31, 2011.
Stockholders' equity increased $45.7 million from year-end 2011, largely due to
growth in retained earnings from increased net income experienced in the first
nine months of 2012. In addition, the Company experienced growth in accumulated
other comprehensive income, reflecting the increase in net unrealized gains.
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 nine months of 2012, the Company
purchased 72,126 shares under the stock repurchase program for $2.3 million.
Through the nine months ended September 30, 2011, the Company purchased 121,241
shares of stock under the stock repurchase program for $3.7 million.
During the nine months ended September 30, 2012, the Company purchased 2,669
shares and sold 660 shares of treasury stock from the Company's employee stock
ownership plan for a net increase in treasury stock of $0.1 million. During the
six months ended June 30, 2012, the Company purchased 8,098 shares and sold
18,588 shares of treasury stock from the Company's deferred compensation plans
for a net decrease in treasury stock of $0.5 million.
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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 October 22, 2012, the Board of Directors declared a quarterly dividend of
$0.27 per share, unchanged from the prior year, which will be paid November 7,
2012 to stockholders of record as of November 1, 2012. Total stockholder
dividends paid were $9.1 million and $9.3 million in the first nine months ended
September 30, 2012 and 2011, respectively.
