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Delaware | 6311 | 20-0978027 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
William J. Whelan III, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 (212) 474-1000 | George C. Pagos, Esq. Senior Vice President, General Counsel and Secretary Symetra Financial Corporation 777 108th Avenue NE, Suite 1200 Bellevue, WA 98004 (425) 256-8000 | Gary I. Horowitz, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, NY 10017 (212) 455-2000 |
Title of Each Class of | Proposed Maximum Aggregate | Amount of | ||||
Securities to be Registered | Offering Price(1)(2) | Registration Fee | ||||
Common Stock, $0.01 par value per share | $750,000,000 | $23,025(3) | ||||
(1) | Includes shares to be sold upon exercise of the underwriters’ over-allotment option. See “Underwriting.” | |
(2) | Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(o) of Regulation C under the Securities Act of 1933, as amended. | |
(3) | Previously paid. |
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The information in this preliminary prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we and the selling stockholders are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
Per Share | Total | |||||||
Public offering price | $ | $ | ||||||
Underwriting discount | $ | $ | ||||||
Proceeds to selling stockholders | $ | $ |
Merrill Lynch & Co. | Goldman, Sachs & Co. | JPMorgan | Lehman Brothers |
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EXHIBIT 10.17 | ||||||||
EXHIBIT 23.1 |
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• | Group. We offer medical stop-loss insurance, limited medical benefit plans, group life insurance, accidental death and dismemberment insurance and disability insurance mainly to employer groups of 50 to 1,000 individuals. Our Group segment generated segment pre-tax income of $68.0 million during 2006 and $42.7 million during the six months ended June 30, 2007. As a result of our recent acquisition of Medical Risk Managers, Inc., we also offer managing general underwriting, or MGU, services. | |
• | Retirement Services. We offer fixed and variable deferred annuities, including tax sheltered annuities, individual retirement accounts, or IRAs, and group annuities to qualified retirement plans, including Section 401(k) and 457 plans. We also provide record keeping services for qualified retirement plans invested in mutual funds. Our Retirement Services segment generated segment pre-tax income of $43.2 million during 2006 and $13.4 million during the six months ended June 30, 2007. | |
• | Income Annuities. We offer single premium immediate annuities, or SPIAs, for customers seeking a reliable source of retirement income and structured settlement annuities to fund third-party personal injury settlements. Our Income Annuities segment generated segment pre-tax income of $62.6 million during 2006 and $52.5 million during the six months ended June 30, 2007. | |
• | Individual. We offer a wide array of term, universal and variable life insurance as well as bank-owned life insurance, or BOLI. Our Individual segment generated segment pre-tax income of $62.6 million during 2006 and $28.6 million during the six months ended June 30, 2007. | |
• | Other. This segment consists of unallocated corporate income, composed primarily of investment income on unallocated surplus, unallocated corporate expenses, interest expense on debt, the results of small, non-insurance businesses that are managed outside of our operating segments and inter-segment |
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elimination entries. Our Other segment generated segment pre-tax income of $7.6 million during 2006 and $5.8 million during the six months ended June 30, 2007. |
• | Growing demand for affordable health insurance. According to the Kaiser Family Foundation, health insurance premiums in the U.S. increased 87% from2000-2006, while the Consumer Price Index increased only 17% over the same period. As increases in health care costs continue to outpace inflation, the demand for affordable health insurance options has increased. We believe we can grow our business by providing employees with affordable access to health insurance through employer-sponsored limited benefit employee health plans and by offering group medical stop-loss insurance to medium and large businesses. We also believe that the trend toward reductions in employer-paid benefits and the uncertainty over the future of government benefit programs provide us with the opportunity to successfully offer other attractive employee benefits products. | |
• | Increasing retirement savings and income needs. According to the U.S. Census Bureau, approximately 77 million Americans born between 1946 and 1964 are approaching retirement age. However, according to the Employee Benefit Research Institute, in 2006, 52% of workers over the age of 55 and their spouses had accumulated less than $50,000 in retirement savings and only 14% of workers report that a traditional pension plan will be their primary source of retirement income. These projected demographic trends, along with a shift in the burden for funding retirement needs from governments and employers to individuals, increase the need for retirement savings and income. We expect greater demand for additional sources of retirement savings, such as our annuities and other investment products that will help consumers supplement their social security benefits with reliable retirement income. | |
• | Expanding mass affluent market. As of June 2006, the mass affluent market included 13.7 million households with investible assets between $250,000 and $1.0 million, representing 28% of total financial assets. We believe that the mass affluent population is growing and that it underutilizes various financial products, such as insurance to protect assets, annuities to provide adequate income to support a desired future lifestyle and wealth transfer products to ensure its legacy. We believe we are well positioned to reach consumers in this target market given our relationships with financial institutions and independent agents, which are often their primary sources of guidance and advice. As such, we expect increased demand for our life insurance, variable and fixed annuity and wealth transfer products. |
• | Innovative and collaborative product development capabilities. We design innovative products to meet the changing demands of the market. By working closely with our distributors, we are able to anticipate opportunities in the marketplace and rapidly address them. For example, we introduced Complete, an innovative variable life insurance policy designed for wealth transfer and centered on minimizing the |
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inherent cost of insurance and thus maximizing the underlying account value. We also recently introduced our Focus variable annuity, which features low total cost to the contractholders, well-respected investment options and simplified product features. |
• | High-quality distribution relationships. We offer consumers access to our products through a national multi-channel network, including financial institutions, employee benefits brokers, third party administrators, worksite specialists, specialty brokers and independent agents. By treating our distributors as clients and providing them with outstanding levels of service, we have cultivated strong relationships over decades and are able to avoid competing on price alone. | |
• | Leading group medical stop-loss insurance provider. We believe we have been a leading provider of group medical stop-loss insurance since 1976. We have built a consistently profitable platform with high levels of customer service and disciplined underwriting practices. In the last 25 years, our group medical stop-loss insurance business has experienced only two calendar years of net losses. | |
• | Diverse businesses provide flexibility, earnings stability and capital efficiency. We have an attractive and diverse mix of businesses that allows us to make profitability-driven decisions in each business across various market environments. We believe that this mix offers us a greater level of financial stability than many of our similarly-sized competitors across business and economic cycles. Our diverse business mix also allows us to reallocate our resources to product lines that generate the most attractive returns on capital invested while reducing our overall capital requirements. | |
• | Flexible information technology platform integrated with our distributors. We have a flexible information technology platform that allows us to seamlessly integrate our products onto the operating platforms of our distributors, which we believe provides us with a competitive advantage in attracting new distributors. For example, our ExpressTM tool allows our distributors to capture all the necessary data to make products and services instantly available at the point of sale. We will continue to leverage our information technology platform to market our current and future product offerings. | |
• | Experienced management team with investor-aligned compensation. We have a high-quality management team with an average of 25 years of insurance-industry experience, led by Randy Talbot who has been our chief executive officer since 1998. Mr. Talbot has spent a significant portion of his30-year career in the insurance industry operating an insurance brokerage, providing him with the knowledge to intimately understand the needs of our distributors. We also have an experienced board of directors, consisting of industry professionals who have worked closely with us since the Acquisition to develop our strategies and operating philosophies. Our compensation structure aligns management’s incentives with our stockholders through our long-term incentive plan that rewards long-term growth in tangible book value and in the intrinsic value of our business. |
• | Target large and growing markets. We will continue to capitalize on favorable demographic trends, including the growing demand for affordable health insurance, increasing retirement savings and income needs and an expanding mass affluent market. We will continue to identify key opportunities within these markets and provide tailored solutions that address the evolving needs of these customers. | |
• | Broaden and deepen distribution relationships. Our distribution strategy is to deliver multiple products through a single point of sale, thereby leveraging the cost of distribution. We utilize diverse distribution channels, including financial institutions, employee benefits brokers, third party administrators, worksite specialists, specialty brokers and independent agents. We intend to deepen our long-standing distribution relationships while adding new large-scale and high quality distributors. | |
• | Be innovative in anticipating customer needs. We will continue to work closely with our distributors to develop customer-responsive products that meet our stringent return requirements, address our target markets and can be delivered efficiently across our information technology platforms. We will also |
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continue to pursue non-traditional avenues of product development and be innovative in enhancing our product offering. For example, we recently began offering funding services to holders of our structured settlements to offer them an attractive financial alternative. |
• | Effectively manage capital. We intend to manage our capital prudently to maximize our profitability and long-term growth in stockholder value. Our capital management strategy is to maintain financial strength through conservative and disciplined risk management practices while deploying or returning excess capital as situations warrant. We will also maintain our conservative investment management philosophy, which includes holding a high quality investment portfolio and carefully matching our investment assets against the duration of our insurance product liabilities. For example, we have a portfolio of equities that supports the longest duration benefits in our Income Annuities segment. We have experienced strong performance on this equity portfolio. | |
• | Pursue complementary acquisitions. We will continue to seek acquisition opportunities that fit strategically within our existing business lines, provide us with a larger distribution presence and meet our stringent return objectives. We believe we have ample financial capacity to remain a prudent acquirer while maintaining a conservative balance sheet. |
• | Exposure to interest rate fluctuations. Many of our insurance and investment products are sensitive to interest rate fluctuations. Generally, declines in interest rates would have an adverse effect on our financial condition, results of operations and cash flows. | |
• | Reserve requirements. Our calculation of reserves for estimated future benefit payments are based upon estimates and assumptions with regard to our future experience. Future experience is subject to many uncertainties and we cannot predict the ultimate amounts we will pay for future benefits or the timing of the payments. If reserves are insufficient to cover actual benefits and payments, we could be required to increase our reserves, which could adversely affect our financial condition and results. | |
• | Deviation from assumptions upon which pricing is established.The price and expected future profitability of our insurance and deferred annuity products are based in part upon expected patterns of premiums, expenses and benefits, using a number of assumptions, including those related to persistency, mortality and morbidity. Significant deviations from these assumptions could have an adverse affect on our financial condition, results of operations and cash flows. | |
• | Amortization of deferred acquisition costs. Deferred acquisition costs, or DAC, represent certain costs which vary with, and are primarily related to, the sale and issuance of insurance policies and investment contracts and are deferred and amortized over the estimated policy and contract lives. Unfavorable experience with regard to expenses, investment returns, mortality, morbidity, withdrawals or lapses may increase the amortization of DAC, resulting in higher expenses and lower profitability. | |
• | Potential downgrade in financial strength ratings. A downgrade in our financial strength ratings could have an adverse effect on our financial condition, results of operation, and cash flows in several ways, including reducing new sales of products; adversely affecting our relationship with sales agents; increasing the number of policy surrenders and withdrawals; requiring us to reduce prices and adversely impacting our ability to obtain reinsurance. | |
• | Highly regulated industry. Our insurance businesses are subject to a wide variety of laws and regulations in various jurisdictions. Compliance with applicable laws and regulations is time consuming and personnel intensive, and changes in these laws and regulations may materially increase our direct and indirect compliance efforts and other expenses of doing business. |
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• | Constraints related to holding company structure. As a holding company, we have no significant direct operations. Dividends and other permitted distributions from subsidiaries are expected to be our principal source of funds to meet ongoing cash requirements. These payments are limited by regulations in the jurisdictions in which our subsidiaries operate. If our subsidiaries are unable to pay dividends, we may have difficulty servicing our debt, paying dividends on our common stock and meeting our holding company expenses. |
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Common stock offered by the selling stockholders | shares |
Common stock to be outstanding after this offering | 10,649,000 shares |
Over-allotment option | The underwriters have an option to purchase a maximum of additional shares from the selling stockholders to cover over-allotments. | |
Use of proceeds | We will not receive any proceeds from this offering. See “Use of Proceeds.” | |
Listing | We have applied to list our common stock on the New York Stock Exchange, or NYSE, under the symbol “SYA.” | |
Dividend policy | We intend to pay quarterly dividends on our common shares. The declaration, payment and amount of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend on many factors, including our financial condition and results of operations, liquidity requirements, market opportunities, capital requirements of our subsidiaries, legal requirements, regulatory constraints and other factors that our board of directors deems relevant. Dividends on our common shares will also be paid to holders of our outstanding warrants. | |
Risk factors | See “Risk Factors” for a discussion of factors you should consider before investing in our common stock. |
• | assumes the common stock will be sold at $ per share (the midpoint of the price range set forth on the cover of this prospectus); | |
• | assumes no exercise of the underwriters’ over-allotment option; |
• | excludes 900,000 shares of common stock reserved for issuance pursuant to awards granted under our Equity Plan, of which shares are subject to awards to be granted to employees under the IPO grant program on or about the date of this offering; |
• | excludes 100,000 shares of common stock reserved for issuance pursuant to our Employee Stock Purchase Plan; |
• | assumes no exercise of outstanding warrants to purchase 2,181,120 shares of common stock at an exercise price of $100 per share; and |
• | assumes a for stock dividend that will occur prior to the date of this offering. |
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Predecessor | ||||||||||||||||||||||||
Period from | ||||||||||||||||||||||||
August 2 | January 1 | |||||||||||||||||||||||
Six Months | Year Ended | through | through | |||||||||||||||||||||
Ended June 30, | December 31, | December 31, | August 1, | |||||||||||||||||||||
2007 | 2006 | 2006 | 2005 | 2004 | 2004 | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Premiums | $ | 265.0 | $ | 269.2 | $ | 525.7 | $ | 575.5 | $ | 263.2 | $ | 357.9 | ||||||||||||
Net investment income | 490.9 | 490.5 | 984.9 | 994.0 | 411.1 | 693.7 | ||||||||||||||||||
Other revenues | 32.7 | 29.7 | 56.1 | 58.6 | 27.1 | 43.9 | ||||||||||||||||||
Net realized investment gains (losses) | 24.5 | (0.5 | ) | 1.7 | 14.1 | 7.0 | 34.9 | |||||||||||||||||
Total revenues | 813.1 | 788.9 | 1,568.4 | 1,642.2 | 708.4 | 1,130.4 | ||||||||||||||||||
Benefits and Expenses: | ||||||||||||||||||||||||
Policyholder benefits and claims | 136.1 | 147.6 | 264.3 | 327.4 | 127.5 | 223.6 | ||||||||||||||||||
Interest credited | 374.1 | 382.2 | 765.9 | 810.9 | 360.2 | 556.4 | ||||||||||||||||||
Other underwriting and operating expenses | 141.2 | 129.8 | 260.5 | 273.2 | 123.3 | 182.3 | ||||||||||||||||||
Fair value of warrants issued to investors | — | — | — | — | 101.5 | — | ||||||||||||||||||
Interest expense | 9.3 | 9.8 | 19.1 | 12.4 | 3.5 | — | ||||||||||||||||||
Amortization of deferred policy acquisition costs | 9.4 | 7.6 | 14.6 | 11.9 | 1.6 | 34.2 | ||||||||||||||||||
Intangible asset amortization | — | — | — | — | — | 4.9 | ||||||||||||||||||
Total benefits and expenses | 670.1 | 677.0 | 1,324.4 | 1,435.8 | 717.6 | 1,001.4 | ||||||||||||||||||
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Predecessor | ||||||||||||||||||||||||
Period from | ||||||||||||||||||||||||
August 2 | January 1 | |||||||||||||||||||||||
Six Months | Year Ended | through | through | |||||||||||||||||||||
Ended June 30, | December 31, | December 31, | August 1, | |||||||||||||||||||||
2007 | 2006 | 2006 | 2005 | 2004 | 2004 | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 143.0 | 111.9 | 244.0 | 206.4 | (9.2 | ) | 129.0 | |||||||||||||||||
Provisions for income taxes: | ||||||||||||||||||||||||
Current | 49.0 | 59.4 | 92.4 | 22.2 | 21.3 | 0.9 | ||||||||||||||||||
Deferred | (2.2 | ) | (20.2 | ) | (7.9 | ) | 39.7 | 10.7 | 30.5 | |||||||||||||||
Total provision for income taxes | 46.8 | 39.2 | 84.5 | 61.9 | 32.0 | 31.4 | ||||||||||||||||||
Income (loss) from continuing operations | 96.2 | 72.7 | 159.5 | 144.5 | (41.2 | ) | 97.6 | |||||||||||||||||
Income (loss) from discontinued operations (net of taxes) | — | — | — | 1.0 | (2.4 | ) | 2.3 | |||||||||||||||||
Net income (loss) | $ | 96.2 | $ | 72.7 | $ | 159.5 | $ | 145.5 | $ | (43.6 | ) | $ | 99.9 | |||||||||||
Net income per common share(1): | ||||||||||||||||||||||||
Basic | $ | 7.50 | $ | 5.66 | $ | 12.43 | $ | 11.34 | ||||||||||||||||
Diluted | $ | 7.50 | $ | 5.66 | $ | 12.43 | $ | 11.34 | ||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||
Basic | 12.8 | 12.8 | 12.8 | 12.8 | ||||||||||||||||||||
Diluted | 12.8 | 12.8 | 12.8 | 12.8 | ||||||||||||||||||||
Non-GAAP Financial Measures(2): | ||||||||||||||||||||||||
Net operating income (loss) | $ | 87.3 | $ | 78.5 | $ | 172.1 | $ | 141.9 | $ | (46.0 | ) | $ | 75.5 | |||||||||||
Reconciliation to Net Income (Loss): | ||||||||||||||||||||||||
Net income (loss) | $ | 96.2 | $ | 72.7 | $ | 159.5 | $ | 145.5 | $ | (43.6 | ) | $ | 99.9 | |||||||||||
Less: Net realized investment gains (losses) (net of taxes) | 15.9 | (0.3 | ) | 1.1 | 9.2 | 4.6 | 22.7 | |||||||||||||||||
Add: | ||||||||||||||||||||||||
Net realized and unrealized investment gains (losses) on fixed indexed annuities (FIA) options (net of taxes) | 0.7 | (0.7 | ) | 1.4 | (2.9 | ) | 1.3 | (1.7 | ) | |||||||||||||||
Net realized and unrealized investment gains on equity securities (net of taxes) | 6.3 | 6.2 | 12.3 | 8.5 | 0.9 | — | ||||||||||||||||||
Net operating income (loss) | $ | 87.3 | $ | 78.5 | $ | 172.1 | $ | 141.9 | $ | (46.0 | ) | $ | 75.5 | |||||||||||
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As of June 30, | As of December 31, | |||||||||||||||
Consolidated Balance Sheet Data: | 2007 | 2006 | 2005 | 2004 | ||||||||||||
(Unaudited) | ||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||
Total investments | $ | 16,695.0 | $ | 17,305.3 | $ | 18,332.8 | $ | 19,244.8 | ||||||||
Total assets | 19,845.8 | 20,114.6 | 20,980.1 | 22,182.0 | ||||||||||||
Total debt | 298.8 | 298.7 | 300.0 | 300.0 | ||||||||||||
Separate account assets | 1,268.5 | 1,233.9 | 1,188.8 | 1,228.4 | ||||||||||||
Accumulated other comprehensive income (loss) (net of taxes) (AOCI) | (178.9 | ) | (0.5 | ) | 136.6 | 312.9 | ||||||||||
Total stockholders’ equity | $ | 1,247.6 | $ | 1,327.3 | $ | 1,404.9 | $ | 1,435.8 | ||||||||
Book value per common share: | ||||||||||||||||
Basic(3) | $ | 133.96 | $ | 124.69 | $ | 119.10 | $ | 105.45 | ||||||||
Diluted(4) | $ | 128.18 | $ | 120.49 | $ | 115.85 | $ | 104.52 | ||||||||
U.S. Statutory Financial Information: | ||||||||||||||||
Statutory capital and surplus | $ | 1,304.6 | $ | 1,266.2 | $ | 1,260.1 | $ | 1,138.4 | ||||||||
Asset valuation reserve (AVR) | 177.4 | 158.4 | 140.9 | 107.6 | ||||||||||||
Statutory capital and surplus and AVR | $ | 1,482.0 | $ | 1,424.6 | $ | 1,401.0 | $ | 1,246.0 | ||||||||
(1) | Net income per common share (basic and diluted) assumes that all participating securities, including warrants, have been outstanding since the beginning of the period, using the two-class method. |
(2) | Management considers certain non-GAAP financial measures, including net operating income (loss), to be a useful supplement to comparable GAAP measures in evaluating our financial performance and condition. These measures have been reconciled to their most comparable GAAP financial measures. We believe that the non-GAAP presentation of net operating income is valuable because excluding certain realized capital gains and losses, many of which are driven by investment decisions and external economic developments unrelated to the insurance and underwriting aspects of the business, reveals trends that may be otherwise obscured. For a definition of these non-GAAP measures and other metrics used in our analysis, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of non-GAAP Financial Measures.” |
(3) | Basic book value per common share is calculated based on total stockholders’ equity less AOCI divided by common shares outstanding of 10,649,000. |
(4) | Diluted book value per common share is calculated based on total stockholders’ equity less AOCI plus the proceeds from the assumed exercise of outstanding warrants, divided by common shares and shares subject to outstanding warrants of 12,830,120 in the aggregate. |
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• | The interest rate spread on our Retirement Services segment’s fixed deferred annuity products was 1.70%, 1.76% and 1.58% for the six months ended June 30, 2007 and for the years ended December 31, 2006 and 2005, respectively, which yielded gains of $44.1 million, $102.3 million and $103.4 million, respectively. | |
• | The interest rate spread on our Income Annuities segment’s variable annuity products was 0.90%, 0.76% and 0.67% for the six months ended June 30, 2007 and for the years ended December 31, 2006 and 2005, respectively, which yielded gains of $39.0 million, $66.3 million and $59.6 million, respectively. | |
• | The interest rate spread on our Individual segment’s universal life insurance products was 1.20%, 1.31% and 0.66% for the six months ended June 30, 2007 and for the years ended December 31, 2006 and 2005, respectively, which yielded gains of $5.1 million, $10.8 million and $7.5 million, respectively. |
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• | reducing new sales of insurance products, annuities and other investment products; | |
• | limiting our ability to offer structured settlement products; | |
• | adversely affecting our relationships with independent sales intermediaries and our dedicated sales specialists; | |
• | materially increasing the number or amount of policy surrenders and withdrawals by contractholders and policyholders; | |
• | requiring us to reduce prices for many of our products and services to remain competitive; and | |
• | adversely affecting our ability to obtain reinsurance or obtain reasonable pricing on reinsurance. |
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• | asset/liability duration management; | |
• | structuring our bond and commercial mortgage loan portfolios to limit the effects of prepayments; and | |
• | consistent monitoring of, and making appropriate changes to, the pricing of our products. |
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• | the amount of sales commissions and fees we pay; | |
• | the breadth of our product offerings; | |
• | the strength of our brand; | |
• | our perceived stability and our financial strength ratings; | |
• | the marketing and services we provide to them; and | |
• | the strength of the relationships we maintain with individuals at those firms. |
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• | cyclical movements in the insurance industry; | |
• | levels of unemployment; | |
• | levels of consumer lending; | |
• | levels of inflation; and | |
• | movements of the financial markets. |
• | individuals and businesses may choose not to purchase our insurance products and other related products and services, may terminate existing policies or contracts or permit them to lapse, may choose to reduce the amount of coverage purchased or, in our group employer health insurance, may have fewer employees requiring insurance coverage due to rising unemployment levels; | |
• | new disability insurance claims and claims on other specialized insurance products tend to rise; | |
• | there is a higher loss ratio due to rising unemployment levels; and | |
• | insureds tend to increase their utilization of health benefits if they anticipate unemployment or loss of benefits. |
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• | inadequate information on which to base pricing, underwriting and reserving decisions; | |
• | the loss of existing customers; | |
• | difficulty in attracting new customers; | |
• | customer, provider and agent disputes; | |
• | regulatory compliance problems, such as failure to meet prompt payment obligations; | |
• | litigation exposure; or | |
• | increases in administrative expenses. |
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• | fund liquidity needs; |
• | refinance our senior notes; |
• | satisfy letter of credit or guarantee bond requirements that may be imposed by our clients or by regulators; |
• | acquire new businesses or invest in existing businesses; |
• | expand our business into new regions; or |
• | otherwise respond to competitive pressures. |
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• | licensing companies and agents to transact business; | |
• | calculating the value of assets to determine compliance with statutory requirements; | |
• | mandating certain insurance benefits; | |
• | regulating certain premium rates; | |
• | reviewing and approving policy forms; | |
• | regulating unfair trade and claims practices, including the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements; | |
• | establishing statutory capital and reserve requirements and solvency standards; | |
• | fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life insurance policies and annuity contracts; | |
• | requiring regular market conduct examinations; | |
• | approving changes in control of insurance companies; | |
• | restricting the payment of dividends and other transactions between affiliates; and | |
• | regulating the types, amounts and valuation of investments. |
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Medical advances, such as genetic research and diagnostic imaging, and related legislation could adversely affect the financial performance of our life insurance and annuities businesses.
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• | lack of availability of cash to pay dividends due to changes in our operating cash flow, capital expenditure requirements, working capital requirements and other cash needs; | |
• | unexpected or increased operating or other expenses or changes in the timing thereof; | |
• | restrictions under Delaware law or other applicable law on the amount of dividends that we may pay; | |
• | a decision by our board of directors to modify or revoke its policy to pay dividends; and | |
• | the other risks described under “Risk Factors.” |
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• | prepare and distribute periodic public reports and other stockholder communications in compliance with our obligations under the federal securities laws and NYSE rules; | |
• | create or expand the roles and duties of our board of directors and committees of the board; | |
• | institute more comprehensive financial reporting and disclosure compliance functions; | |
• | involve and retain to a greater degree outside counsel and accountants in the activities listed above; | |
• | enhance our investor relations function; | |
• | establish new internal policies, including those relating to disclosure controls and procedures; and | |
• | comply with the Sarbanes-Oxley Act of 2002, in particular Section 404. |
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• | market conditions in the broader stock market in general; | |
• | actual or anticipated fluctuations in our quarterly financial and operating results; | |
• | changes in interest rates; | |
• | introduction of new services or announcements of significant contracts, acquisitions or capital commitments by us or our competitors; | |
• | regulatory or political developments; | |
• | issuance of new or changed securities analysts’ reports or recommendations, or the announcement of any changes to our credit rating; | |
• | additions or departures of key personnel; | |
• | availability of capital; | |
• | litigation and government investigations; | |
• | legislative and regulatory developments; | |
• | future sales of our common stock; | |
• | investor perceptions of us and the life insurance industry; and | |
• | economic conditions. |
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• | our ability to issue preferred stock with terms that the board of directors may determine, without stockholder approval; | |
• | a classified board of directors; | |
• | advance notice requirements for stockholder proposals and nominations; | |
• | the absence of cumulative voting in the election of directors; and | |
• | limitations on convening stockholder meetings. |
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• | changes in economic conditions, including changes in interest rates and the performance of financial markets, which may: |
• | increase defaults on and impairments of our bond portfolio; | |
• | reduce sales of our variable and investment management products and the fees we receive on assets under management; and | |
• | increase the level of our guaranteed minimum death benefit and reserves. |
• | a change in our ratings by nationally recognized ratings organizations; | |
• | changes in laws, regulations and taxes; | |
• | competitive pressures on product pricing and services, including competition by other insurance companies and financial services companies; | |
• | terrorist attacks and military and other actions; | |
• | changes in lapse rates, morbidity, mortality or unemployment rates which differ significantly from our pricing expectations, including as a result of extremely rare, severe and widespread events, such as a possible global avian flu pandemic; and | |
• | the relative success and timing of our business strategies. |
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• | the offering of $150.0 million aggregate principal amount of CENts in October 2007; and |
• | the payment of two dividends to our stockholders totaling $200.0 million in the aggregate on October 19, 2007, of which approximately $146.8 million is being funded from the offering of the CENts. |
As of | ||||||||
June 30, | As of | |||||||
2007 | June 30, 2007 | |||||||
(In Millions) | Actual | As Adjusted | ||||||
Cash and cash equivalents | $ | 362.4 | $ | 309.2 | ||||
Borrowings and other obligations: | ||||||||
Revolving credit facilities(1) | $ | — | $ | — | ||||
Senior notes | 298.8 | 298.8 | ||||||
CENts | — | 149.8 | (2) | |||||
Total borrowings and other obligations | 298.8 | 448.6 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $0.01 par value; 15.0 million shares authorized, 10.6 million shares issued and outstanding | 0.1 | 0.1 | ||||||
Additional paid-in capital | 1,166.3 | 1,166.3 | ||||||
Total paid-in capital | 1,166.4 | 1,166.4 | ||||||
Retained earnings | 260.1 | 60.1 | ||||||
Accumulated other comprehensive income (loss), net of taxes | (178.9 | ) | (178.9 | ) | ||||
Total stockholders’ equity | 1,247.6 | 1,047.6 | ||||||
Total capitalization | $ | 1,546.4 | $ | 1,496.2 | ||||
(1) | The revolving credit facilities collectively provide for borrowings of up to $120 million. As of September 30, 2007, we had no balance outstanding under our revolving credit facilities. On August 16, 2007, we entered into a new $200.0 million revolving credit facility. This facility replaced the $70 million revolving credit facility that was in place as of June 30, 2007, and, together with our two existing $25.0 million credit facilities, results in us having credit facilities for an aggregate of $250.0 million. |
(2) | The CENts were issued at a price of $149.8 million with an initial aggregate principal amount of $150.0 million. |
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Predecessor | ||||||||||||||||||||||||||||||||
Period from | ||||||||||||||||||||||||||||||||
August 2 | January 1 | |||||||||||||||||||||||||||||||
Year Ended | through | through | Year Ended | |||||||||||||||||||||||||||||
Six Months Ended June 30, | December 31, | December 31, | August 1, | December 31, | ||||||||||||||||||||||||||||
2007 | 2006 | 2006 | 2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||||||||||||||
Consolidated Income Statement Data: | ||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Premiums | $ | 265.0 | $ | 269.2 | $ | 525.7 | $ | 575.5 | $ | 263.2 | $ | 357.9 | $ | 680.5 | $ | 599.6 | ||||||||||||||||
Net investment income | 490.9 | 490.5 | 984.9 | 994.0 | 411.1 | 693.7 | 1,210.6 | 1,205.3 | ||||||||||||||||||||||||
Other revenues | 32.7 | 29.7 | 56.1 | 58.6 | 27.1 | 43.9 | 63.9 | 62.1 | ||||||||||||||||||||||||
Net realized investment gains (losses) | 24.5 | (0.5 | ) | 1.7 | 14.1 | 7.0 | 34.9 | (9.6 | ) | (152.3 | ) | |||||||||||||||||||||
Total revenues | 813.1 | 788.9 | 1,568.4 | 1,642.2 | 708.4 | 1,130.4 | 1,945.4 | 1,714.7 | ||||||||||||||||||||||||
Benefits and Expenses: | ||||||||||||||||||||||||||||||||
Policyholder benefits and claims | 136.1 | 147.6 | 264.3 | 327.4 | 127.5 | 223.6 | 381.9 | 341.7 | ||||||||||||||||||||||||
Interest credited | 374.1 | 382.2 | 765.9 | 810.9 | 360.2 | 556.4 | 990.8 | 968.7 |
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Predecessor | ||||||||||||||||||||||||||||||||
Period from | ||||||||||||||||||||||||||||||||
August 2 | January 1 | |||||||||||||||||||||||||||||||
Year Ended | through | through | Year Ended | |||||||||||||||||||||||||||||
Six Months Ended June 30, | December 31, | December 31, | August 1, | December 31, | ||||||||||||||||||||||||||||
2007 | 2006 | 2006 | 2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||||||||||||||
Other underwriting and operating expenses | 141.2 | 129.8 | 260.5 | 273.2 | 123.3 | 182.3 | 324.9 | 267.5 | ||||||||||||||||||||||||
Fair value of warrants issued to investors | — | — | — | — | 101.5 | — | — | — | ||||||||||||||||||||||||
Interest expense | 9.3 | 9.8 | 19.1 | 12.4 | 3.5 | — | — | — | ||||||||||||||||||||||||
Amortization of deferred policy acquisition costs | 9.4 | 7.6 | 14.6 | 11.9 | 1.6 | 34.2 | 51.3 | 40.8 | ||||||||||||||||||||||||
Intangible asset amortization | — | — | — | — | — | 4.9 | 8.3 | 8.8 | ||||||||||||||||||||||||
Total benefits and expenses | 670.1 | 677.0 | 1,324.4 | 1,435.8 | 717.6 | 1,001.4 | 1,757.2 | 1,627.5 | ||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 143.0 | 111.9 | 244.0 | 206.4 | (9.2 | ) | 129.0 | 188.2 | 87.2 | |||||||||||||||||||||||
Provisions for income taxes: | ||||||||||||||||||||||||||||||||
Current | 49.0 | 59.4 | 92.4 | 22.2 | 21.3 | 0.9 | 42.1 | 58.8 | ||||||||||||||||||||||||
Deferred | (2.2 | ) | (20.2 | ) | (7.9 | ) | 39.7 | 10.7 | 30.5 | 9.1 | (30.3 | ) | ||||||||||||||||||||
Total provision for income taxes | 46.8 | 39.2 | 84.5 | 61.9 | 32.0 | 31.4 | 51.2 | 28.5 | ||||||||||||||||||||||||
Income (loss) from continuing operations | 96.2 | 72.7 | 159.5 | 144.5 | (41.2 | ) | 97.6 | 137.0 | 58.7 | |||||||||||||||||||||||
Income (loss) from discontinued operations (net of taxes) | — | — | — | 1.0 | (2.4 | ) | 2.3 | 1.7 | 1.5 | |||||||||||||||||||||||
Net income (loss) | $ | 96.2 | $ | 72.7 | $ | 159.5 | $ | 145.5 | $ | (43.6 | ) | $ | 99.9 | $ | 138.7 | $ | 60.2 | |||||||||||||||
Net income per common share:(1) | ||||||||||||||||||||||||||||||||
Basic | $ | 7.50 | $ | 5.66 | $ | 12.43 | $ | 11.34 | ||||||||||||||||||||||||
Diluted | $ | 7.50 | $ | 5.66 | $ | 12.43 | $ | 11.34 | ||||||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||
Basic | 12.8 | 12.8 | 12.8 | 12.8 | ||||||||||||||||||||||||||||
Diluted | 12.8 | 12.8 | 12.8 | 12.8 | ||||||||||||||||||||||||||||
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Predecessor | ||||||||||||||||||||||||||||||||
Period from | ||||||||||||||||||||||||||||||||
August 2 | January 1 | |||||||||||||||||||||||||||||||
Year Ended | through | through | Year Ended | |||||||||||||||||||||||||||||
Six Months Ended June 30, | December 31, | December 31, | August 1, | December 31, | ||||||||||||||||||||||||||||
2007 | 2006 | 2006 | 2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||||||||||||||
Non-GAAP Financial Measures(2): | ||||||||||||||||||||||||||||||||
Net operating income (loss) | $ | 87.3 | $ | 78.5 | $ | 172.1 | $ | 141.9 | $ | (46.0 | ) | $ | 75.5 | |||||||||||||||||||
Reconciliation to Net Income (Loss): | ||||||||||||||||||||||||||||||||
Net income (loss) | $ | 96.2 | $ | 72.7 | $ | 159.5 | $ | 145.5 | $ | (43.6 | ) | $ | 99.9 | |||||||||||||||||||
Less: Net realized investment gains (losses) (net of taxes) | 15.9 | (0.3 | ) | 1.1 | 9.2 | 4.6 | 22.7 | |||||||||||||||||||||||||
Add: | ||||||||||||||||||||||||||||||||
Net realized and unrealized investment gains (losses) on FIA options (net of taxes) | 0.7 | (0.7 | ) | 1.4 | (2.9 | ) | 1.3 | (1.7 | ) | |||||||||||||||||||||||
Net realized and unrealized investment gains on equity securities (net of taxes) | 6.3 | 6.2 | 12.3 | 8.5 | �� | 0.9 | — | |||||||||||||||||||||||||
Net operating income (loss) | $ | 87.3 | $ | 78.5 | $ | 172.1 | $ | 141.9 | $ | (46.0 | ) | $ | 75.5 | |||||||||||||||||||
As of June 30, | As of December 31, | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||||||
Total investments | $ | 16,695.0 | $ | 17,305.3 | $ | 18,332.8 | $ | 19,244.8 | $ | 19,197.6 | $ | 17,913.1 | ||||||||||||
Total assets | 19,845.8 | 20,114.6 | 20,980.1 | 22,182.0 | 22,512.0 | 21,393.6 | ||||||||||||||||||
Total debt | 298.8 | 298.7 | 300.0 | 300.0 | — | — | ||||||||||||||||||
Separate account assets | 1,268.5 | 1,233.9 | 1,188.8 | 1,228.4 | 1,137.4 | 899.2 | ||||||||||||||||||
Accumulated other comprehensive income (loss) (AOCI) (net of taxes) | (178.9 | ) | (0.5 | ) | 136.6 | 312.9 | ||||||||||||||||||
Total stockholders’ equity | 1,247.6 | 1,327.3 | 1,404.9 | 1,435.8 | 2,566.7 | 2,244.7 | ||||||||||||||||||
Book value per common share: | ||||||||||||||||||||||||
Basic(3) | $ | 133.96 | $ | 124.69 | $ | 119.10 | $ | 105.45 | ||||||||||||||||
Diluted(4) | $ | 128.18 | $ | 120.49 | $ | 115.85 | $ | 104.52 | ||||||||||||||||
U.S. Statutory Financial Information: | ||||||||||||||||||||||||
Statutory capital and surplus | $ | 1,304.6 | $ | 1,266.2 | $ | 1,260.1 | $ | 1,138.4 | $ | 1,059.6 | $ | 903.4 | ||||||||||||
Asset valuation reserve (AVR) | 177.4 | 158.4 | 140.9 | 107.6 | 71.5 | 39.5 | ||||||||||||||||||
Statutory capital and surplus and AVR | $ | 1,482.0 | $ | 1,424.6 | $ | 1,401.0 | $ | 1,246.0 | $ | 1,131.1 | $ | 942.9 | ||||||||||||
(1) | Net income per common share (basic and diluted) assumes that all participating securities, including warrants, have been outstanding since the beginning of the period, using the two-class method. |
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(2) | Management considers certain non-GAAP financial measures, including net operating income (loss), to be a useful supplement to comparable GAAP measures in evaluating our financial performance and condition. These unaudited measures have been reconciled to their most comparable GAAP financial measures. We believe that the non-GAAP presentation of net operating income is valuable because excluding certain realized capital gains and losses, many of which are driven by investment decisions and external economic developments unrelated to the insurance and underwriting aspects of the business reveals trends that may be otherwise obscured. For a definition of these non-GAAP measures and other metrics used in our analysis, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of non-GAAP Financial Measures.” |
(3) | Basic book value per common share is calculated based on total stockholders’ equity less AOCI divided by common shares outstanding of 10,649,000. |
(4) | Diluted book value per common share is calculated based on total stockholders’ equity less AOCI plus the proceeds from the assumed exercise of outstanding warrants, divided by common shares and shares subject to outstanding warrants of 12,830,120 in the aggregate. |
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• | Group. We offer medical stop-loss insurance, limited medical benefit plans, group life insurance, accidental death and dismemberment insurance and disability insurance mainly to employer groups of 50 to 1,000 individuals. As a result of our recent acquisition of Medical Risk Managers, Inc., we also offer MGU services. | |
• | Retirement Services. We offer fixed and variable deferred annuities, including tax sheltered annuities, IRAs, and group annuities to qualified retirement plans, including Section 401(k) and 457 plans. We also provide record keeping services for qualified retirement plans invested in mutual funds. | |
• | Income Annuities. We offer SPIAs for customers seeking a reliable source of retirement income and structured settlement annuities to fund third-party personal injury settlements. | |
• | Individual. We offer a wide array of term, universal and variable life insurance as well as BOLI. | |
• | Other. This segment consists of unallocated corporate income, composed primarily of investment income on unallocated surplus, unallocated corporate expenses, interest expense on debt, the results of small, non-insurance businesses that are managed outside of our operating segments and inter-segment elimination entries. |
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• | how long and by how much the fair value has been below cost or amortized cost; | |
• | the financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operations or earnings potential, or compliance with terms and covenants of the security; | |
• | our intent and ability to keep the security long enough for it to recover its value; | |
• | any downgrades of the security by a rating agency; and | |
• | any reduction or elimination of dividends or nonpayment of scheduled interest payments. |
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As of | As of | As of | ||||||||||
June 30, | December 31, | December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||||
(Unaudited) | ||||||||||||
(Dollars In Millions) | ||||||||||||
Group | 3.3 | 4.0 | 5.3 | |||||||||
Retirement Services | 66.6 | 54.5 | 25.5 | |||||||||
Income Annuities | 8.7 | 6.8 | 4.3 | |||||||||
Individual | 28.5 | 22.9 | 13.9 | |||||||||
Total | 107.1 | 88.2 | 49.0 | |||||||||
• | Retirement Services. The DAC amortization period is typically 20 years for the deferred annuities, although most of the DAC amortization occurs within the first 10 years because the EGPs are highest during that period. It is common for deferred annuity policies to lapse after the surrender charge period expires. | |
• | Income Annuities. The DAC amortization period for SPIAs, including structured settlement annuities, is the benefit payment period, which ranges from 5 to 100 years. | |
• | Individual. The DAC amortization period related to universal life and variable life policies is typically 25 years and 20 years, respectively. DAC amortization related to our term life insurance policies is the premium paying period, which ranges from 10 to 30 years. |
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• | the book values of our invested assets were increased by $1.0 billion to reset the book value to fair value, based on the prevailing market rates on August 2, 2004. The prevailing market interest rates were relatively low at the time of the Acquisition, which resulted in a significant increase in the book value of our invested assets. We recorded a PGAAP adjustment representing the difference between book value and the fair value of our invested assets. The difference between the updated book value and the par value of our fixed maturities invested assets of $27.0 million is amortized against investment income over the expected life of the invested assets, resulting in a lower earned yield; | |
• | our funds held under deposit contracts, which our invested assets support, were increased to reflect the lower market interest rates compared to interest rates originally used to determine policy pricing and reserving. As a result, our reserves related to fixed deferred annuities, structured settlements, immediate annuities and BOLI products were increased by $1.2 billion; | |
• | our deferred policy acquisition costs, goodwill and intangible asset balances at August 2, 2004 were reset to zero. The PGAAP resulted in a $30.0 million intangible asset related to our discontinued |
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operations, which was received in cash in 2004. In our continuing operations, the purchase accounting resulted in minimal intangibles and no goodwill; and |
• | all other assets and liabilities were recorded at fair value on August 2, 2004. |
Predecessor | ||||||||||||
Period From | Period From | |||||||||||
January 1, | August 2, | |||||||||||
2004 | 2004 | |||||||||||
through | through | Combined | ||||||||||
August 1, | December 31, | 2004 | ||||||||||
2004 | 2004 | (non-GAAP) | ||||||||||
(Dollars in millions) | ||||||||||||
Revenues: | ||||||||||||
Premiums | $ | 357.9 | $ | 263.2 | $ | 621.1 | ||||||
Net investment income | 693.7 | 411.1 | 1,104.8 | |||||||||
Other revenues | 43.9 | 27.1 | 71.0 | |||||||||
Net realized investment gains | 34.9 | 7.0 | 41.9 | |||||||||
Total revenues | 1,130.4 | 708.4 | 1,838.8 |
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Predecessor | ||||||||||||
Period From | Period From | |||||||||||
January 1, | August 2, | |||||||||||
2004 | 2004 | |||||||||||
through | through | Combined | ||||||||||
August 1, | December 31, | 2004 | ||||||||||
2004 | 2004 | (non-GAAP) | ||||||||||
(Dollars in millions) | ||||||||||||
Benefits and Expenses: | ||||||||||||
Policyholder benefits and claims | 223.6 | 127.5 | 351.1 | |||||||||
Interest credited | 556.4 | 360.2 | 916.6 | |||||||||
Other underwriting and operating expenses | 182.3 | 123.3 | 305.6 | |||||||||
Fair value of warrants issued to investors | — | 101.5 | 101.5 | |||||||||
Interest expense | — | 3.5 | 3.5 | |||||||||
Amortization of deferred policy acquisition costs | 34.2 | 1.6 | 35.8 | |||||||||
Intangible asset amortization | 4.9 | — | 4.9 | |||||||||
Total benefits and expenses | 1,001.4 | 717.6 | 1,719.0 | |||||||||
Income (loss) from continuing operations before income taxes | 129.0 | (9.2 | ) | 119.8 | ||||||||
Provisions for income taxes: | ||||||||||||
Current | 0.9 | 21.3 | 22.2 | |||||||||
Deferred | 30.5 | 10.7 | 41.2 | |||||||||
Total provision for income taxes | 31.4 | 32.0 | 63.4 | |||||||||
Income (loss) from continuing operations | 97.6 | (41.2 | ) | 56.4 | ||||||||
Income (loss) from discontinued operations (net of taxes) | 2.3 | (2.4 | ) | (0.1 | ) | |||||||
Net income (loss) | $ | 99.9 | $ | (43.6 | ) | $ | 56.3 | |||||
Non-GAAP Financial Measures: | ||||||||||||
Net operating income (loss) | $ | 75.5 | $ | (46.0 | ) | $ | 29.5 | |||||
Reconciliation to Net Income (Loss): | ||||||||||||
Net income (loss) | $ | 99.9 | $ | (43.6 | ) | $ | 56.3 | |||||
Less: Net realized investment gains (net of taxes) | 22.7 | 4.6 | 27.3 | |||||||||
Add: | ||||||||||||
Net realized and unrealized investment gains (losses) on FIA options (net of taxes) | (1.7 | ) | 1.3 | (0.4 | ) | |||||||
Net realized and unrealized investment gains on equity securities (net of taxes) | — | 0.9 | 0.9 | |||||||||
Net operating income (loss) | $ | 75.5 | $ | (46.0 | ) | $ | 29.5 | |||||
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Year Ended December 31, | ||||||||||||||||||||
Six Months Ended | Combined | |||||||||||||||||||
June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Premiums | $ | 265.0 | $ | 269.2 | $ | 525.7 | $ | 575.5 | $ | 621.1 | ||||||||||
Net investment income | 490.9 | 490.5 | 984.9 | 994.0 | 1,104.8 | |||||||||||||||
Other revenues | 32.7 | 29.7 | 56.1 | 58.6 | 71.0 | |||||||||||||||
Net realized investment gains (losses) | 24.5 | (0.5 | ) | 1.7 | 14.1 | 41.9 | ||||||||||||||
Total revenues | 813.1 | 788.9 | 1,568.4 | 1,642.2 | 1,838.8 | |||||||||||||||
Benefits and Expenses: | ||||||||||||||||||||
Policyholder benefits and claims | 136.1 | 147.6 | 264.3 | 327.4 | 351.1 | |||||||||||||||
Interest credited | 374.1 | 382.2 | 765.9 | 810.9 | 916.6 | |||||||||||||||
Other underwriting and operating expenses | 141.2 | 129.8 | 260.5 | 273.2 | 305.6 | |||||||||||||||
Fair value of warrants issued to investors | — | — | — | — | 101.5 | |||||||||||||||
Interest expense | 9.3 | 9.8 | 19.1 | 12.4 | 3.5 | |||||||||||||||
Amortization of deferred policy acquisition costs | 9.4 | 7.6 | 14.6 | 11.9 | 35.8 | |||||||||||||||
Intangible asset amortization | — | — | — | — | 4.9 | |||||||||||||||
Total benefits and expenses | 670.1 | 677.0 | 1,324.4 | 1,435.8 | 1,719.0 | |||||||||||||||
Income from continuing operations before income taxes | 143.0 | 111.9 | 244.0 | 206.4 | 119.8 | |||||||||||||||
Provisions for income taxes | ||||||||||||||||||||
Current | 49.0 | 59.4 | 92.4 | 22.2 | 22.2 | |||||||||||||||
Deferred | (2.2 | ) | (20.2 | ) | (7.9 | ) | 39.7 | 41.2 | ||||||||||||
Total provision for income taxes | 46.8 | 39.2 | 84.5 | 61.9 | 63.4 | |||||||||||||||
Income from continuing operations | 96.2 | 72.7 | 159.5 | 144.5 | 56.4 | |||||||||||||||
Income (loss) from discontinued operations (net of taxes) | — | — | — | 1.0 | (0.1 | ) | ||||||||||||||
Net income | $ | 96.2 | $ | 72.7 | $ | 159.5 | $ | 145.5 | $ | 56.3 | ||||||||||
Net income per common share(1): | ||||||||||||||||||||
Basic | $ | 7.50 | $ | 5.66 | $ | 12.43 | $ | 11.34 | ||||||||||||
Diluted | $ | 7.50 | $ | 5.66 | $ | 12.43 | $ | 11.34 | ||||||||||||
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Year Ended December 31, | ||||||||||||||||||||
Six Months Ended | Combined | |||||||||||||||||||
June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 12.8 | 12.8 | 12.8 | 12.8 | ||||||||||||||||
Diluted | 12.8 | 12.8 | 12.8 | 12.8 | ||||||||||||||||
Non-GAAP Financial Measures: | ||||||||||||||||||||
Net operating income | $ | 87.3 | $ | 78.5 | $ | 172.1 | $ | 141.9 | $ | 29.5 | ||||||||||
Reconciliation to Net Income: | ||||||||||||||||||||
Net income | $ | 96.2 | $ | 72.7 | $ | 159.5 | $ | 145.5 | $ | 56.3 | ||||||||||
Less: Net realized investment gains (losses) (net of taxes) | 15.9 | (0.3 | ) | 1.1 | 9.2 | 27.3 | ||||||||||||||
Add: | ||||||||||||||||||||
Net realized and unrealized investment gains (losses) on FIA options (net of taxes) | 0.7 | (0.7 | ) | 1.4 | (2.9 | ) | (0.4 | ) | ||||||||||||
Net realized and unrealized investment gains on equity securities (net of taxes) | 6.3 | 6.2 | 12.3 | 8.5 | 0.9 | |||||||||||||||
Net operating income | $ | 87.3 | $ | 78.5 | $ | 172.1 | $ | 141.9 | $ | 29.5 | ||||||||||
(1) | Net income per common share (basic and diluted) assumes that all participating securities including warrants have been outstanding since the beginning of the period, using the two-class method. |
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Year Ended December 31, | ||||||||||||||||||||
Six Months | Combined | |||||||||||||||||||
Ended June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Premiums | $ | 195.0 | $ | 199.5 | $ | 387.3 | $ | 438.3 | $ | 500.6 | ||||||||||
Net investment income | 8.8 | 9.0 | 18.0 | 19.3 | 22.4 | |||||||||||||||
Other revenues | 6.3 | 5.5 | 10.2 | 11.8 | 14.0 | |||||||||||||||
Net realized investment gains (losses) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | 0.1 | |||||||||||
Total revenues | 210.0 | 213.9 | 415.4 | 469.3 | 537.1 | |||||||||||||||
Benefits and Expenses: | ||||||||||||||||||||
Policyholder benefits and claims | 107.7 | 132.2 | 230.8 | 296.0 | 320.5 | |||||||||||||||
Other underwriting and operating expenses | 55.1 | 53.4 | 105.7 | 115.3 | 133.1 | |||||||||||||||
Amortization of deferred policy acquisition costs | 4.5 | 5.7 | 10.9 | 10.5 | 11.9 | |||||||||||||||
Intangible asset amortization | — | — | — | — | 0.8 | |||||||||||||||
Total benefits and expenses | 167.3 | 191.3 | 347.4 | 421.8 | 466.3 | |||||||||||||||
Segment pre-tax income | $ | 42.7 | $ | 22.6 | $ | 68.0 | $ | 47.5 | $ | 70.8 | ||||||||||
Non-GAAP Financial Measures: | ||||||||||||||||||||
Segment pre-tax operating income | $ | 42.8 | $ | 22.7 | $ | 68.1 | $ | 47.6 | $ | 70.7 | ||||||||||
Reconciliation to segment pre-tax income: | ||||||||||||||||||||
Segment pre-tax income | $ | 42.7 | $ | 22.6 | $ | 68.0 | $ | 47.5 | $ | 70.8 | ||||||||||
Less: Net realized investment gains (losses) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | 0.1 | |||||||||||
Add: | ||||||||||||||||||||
Net realized and unrealized investment gains on FIA options | — | — | — | — | — | |||||||||||||||
Net realized and unrealized investment gains on equity securities | — | — | — | — | — | |||||||||||||||
Segment pre-tax operating income | $ | 42.8 | $ | 22.7 | $ | 68.1 | $ | 47.6 | $ | 70.7 | ||||||||||
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Year Ended December 31, | ||||||||||||||||||||
Six Months Ended | Combined | |||||||||||||||||||
June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Group loss ratio(1) | 55.2 | % | 66.3 | % | 59.6 | % | 67.5 | % | 64.0 | % | ||||||||||
Expense ratio(2) | 28.0 | % | 27.2 | % | 27.7 | % | 26.4 | % | 24.0 | % | ||||||||||
Combined ratio(3) | 83.2 | % | 93.5 | % | 87.3 | % | 93.9 | % | 88.0 | % | ||||||||||
Medical stop-loss — loss ratio(4) | 55.8 | % | 69.8 | % | 62.4 | % | 69.4 | % | 62.3 | % | ||||||||||
Total sales(5) | $ | 56.4 | $ | 48.6 | $ | 69.1 | $ | 81.9 | $ | 84.1 |
(1) | Group loss ratio represents policyholder benefits and claims divided by premiums earned. | |
(2) | Expense ratio is equal to other underwriting and operating expenses of our insurance operations and amortization of DAC divided by premiums earned. | |
(3) | Combined ratio is equal to the sum of the loss ratio and the expense ratio. | |
(4) | Medical stop-loss — loss ratio represents medical stop-loss policyholder benefits and claims divided by medical stop-loss premiums earned. | |
(5) | Total sales represents annualized first-year premiums for group life and health policies and represents earned premiums for our limited medical benefit policies. |
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Six Months | Year Ended December 31, | |||||||||||||||||||
Ended | Combined | |||||||||||||||||||
June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Premiums | $ | — | $ | 0.1 | $ | 0.1 | $ | 0.1 | $ | 0.2 | ||||||||||
Net investment income | 124.5 | 137.7 | 269.8 | 292.8 | 349.2 | |||||||||||||||
Other revenues | 12.4 | 11.6 | 22.8 | 23.2 | 27.2 | |||||||||||||||
Net realized investment gains (losses) | (3.7 | ) | (16.4 | ) | (17.0 | ) | (17.1 | ) | 6.5 | |||||||||||
Total revenues | 133.2 | 133.0 | 275.7 | 299.0 | 383.1 | |||||||||||||||
Benefits and Expenses: | ||||||||||||||||||||
Policyholder benefits and claims | (4.0 | ) | (9.7 | ) | (16.5 | ) | (25.7 | ) | (15.7 | ) | ||||||||||
Interest credited | 84.3 | 91.4 | 186.2 | 211.5 | 264.6 | |||||||||||||||
Other underwriting and operating expenses | 35.8 | 30.4 | 61.7 | 62.6 | 63.5 | |||||||||||||||
Amortization of deferred policy acquisition costs | 3.7 | 0.5 | 1.1 | 0.1 | 16.5 | |||||||||||||||
Intangible asset amortization | — | — | — | — | 0.8 | |||||||||||||||
Total benefits and expenses | 119.8 | 112.6 | 232.5 | 248.5 | 329.7 | |||||||||||||||
Segment pre-tax income | $ | 13.4 | $ | 20.4 | $ | 43.2 | $ | 50.5 | $ | 53.4 | ||||||||||
Non-GAAP Financial Measures: | ||||||||||||||||||||
Segment pre-tax operating income | $ | 18.1 | $ | 35.7 | $ | 62.4 | $ | 63.2 | $ | 46.3 | ||||||||||
Reconciliation to segment pre-tax income: | ||||||||||||||||||||
Segment pre-tax income | $ | 13.4 | $ | 20.4 | $ | 43.2 | $ | 50.5 | $ | 53.4 | ||||||||||
Less: Net realized investment gains (losses) | (3.7 | ) | (16.4 | ) | (17.0 | ) | (17.1 | ) | 6.5 | |||||||||||
Add: | ||||||||||||||||||||
Net realized and unrealized investment gains (losses) on FIA options | 1.0 | (1.1 | ) | 2.2 | (4.4 | ) | (0.6 | ) | ||||||||||||
Net realized and unrealized investment gains on equity securities | — | — | — | — | — | |||||||||||||||
Segment pre-tax operating income | $ | 18.1 | $ | 35.7 | $ | 62.4 | $ | 63.2 | $ | 46.3 | ||||||||||
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Year Ended December 31, | ||||||||||||||||||||
Six Months Ended | Combined | |||||||||||||||||||
June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Account values — Fixed annuities | $ | 4,574.0 | $ | 5,226.8 | $ | 4,922.5 | $ | 5,580.8 | $ | 6,416.4 | ||||||||||
Account values — Variable annuities | 1,142.8 | 1,057.9 | 1,115.5 | 1,074.5 | 1,114.8 | |||||||||||||||
PGAAP reserve balance | 14.3 | 25.4 | 18.4 | 35.3 | 62.3 | |||||||||||||||
Interest spread on average account values(1) | 1.70 | % | 1.83 | % | 1.76 | % | 1.58 | % | 1.59 | % | ||||||||||
Total sales(2) | $ | 248.7 | $ | 253.1 | $ | 573.2 | $ | 390.4 | $ | 326.6 |
(1) | Interest spread is the difference between net investment yield earned and the credited interest rate to policyholders. The investment yield is the approximate yield on invested assets in the general account attributed to the segment. The credited interest rate is the approximate rate credited on policyholder fixed account values within the segment. Interest credited is subject to contractual terms, including minimum guarantees. Interest spread tends to move gradually over time to reflect market interest rate movements and may reflect actions by management to respond to competitive pressures and profit targets. | |
(2) | Total sales represent deposits for new policies. |
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Year Ended December 31, | ||||||||||||||||||||
Six Months | Combined | |||||||||||||||||||
Ended June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Net investment income | $ | 223.8 | $ | 217.7 | $ | 439.0 | $ | 441.4 | $ | 474.4 | ||||||||||
Other revenues | 0.5 | 0.4 | 0.8 | 0.5 | 0.5 | |||||||||||||||
Net realized investment gains | 24.2 | 15.4 | 16.8 | 17.4 | 9.5 | |||||||||||||||
Total revenues | 248.5 | 233.5 | 456.6 | 459.3 | 484.4 | |||||||||||||||
Benefits and Expenses: | ||||||||||||||||||||
Interest credited | 183.8 | 187.0 | 371.8 | 392.5 | 438.9 | |||||||||||||||
Other underwriting and operating expenses | 11.7 | 10.6 | 21.6 | 19.4 | 16.8 | |||||||||||||||
Amortization of deferred policy acquisition costs | 0.5 | 0.3 | 0.6 | 0.3 | — | |||||||||||||||
Total benefits and expenses | 196.0 | 197.9 | 394.0 | 412.2 | 455.7 | |||||||||||||||
Segment pre-tax income | $ | 52.5 | $ | 35.6 | $ | 62.6 | $ | 47.1 | $ | 28.7 | ||||||||||
Non-GAAP Financial Measures: | ||||||||||||||||||||
Segment pre-tax operating income | $ | 38.0 | $ | 29.8 | $ | 64.7 | $ | 42.8 | $ | 20.5 | ||||||||||
Reconciliation to segment pre-tax income: | ||||||||||||||||||||
Segment pre-tax income | $ | 52.5 | $ | 35.6 | $ | 62.6 | $ | 47.1 | $ | 28.7 | ||||||||||
Less: Net realized investment gains | 24.2 | 15.4 | 16.8 | 17.4 | 9.5 | |||||||||||||||
Add: | ||||||||||||||||||||
Net realized and unrealized investment gains on FIA options | — | — | — | — | — | |||||||||||||||
Net realized and unrealized investment gains on equity securities | 9.7 | 9.6 | 18.9 | 13.1 | 1.3 | |||||||||||||||
Segment pre-tax operating income | $ | 38.0 | $ | 29.8 | $ | 64.7 | $ | 42.8 | $ | 20.5 | ||||||||||
Year Ended December 31, | ||||||||||||||||||||
Six Months Ended | Combined | |||||||||||||||||||
June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Reserves(1) | $ | 6,964.8 | $ | 7,097.9 | $ | 7,012.6 | $ | 7,176.0 | $ | 7,285.0 | ||||||||||
Interest spread on reserves(2) | 0.90 | % | 0.74 | % | 0.76 | % | 0.67 | % | 0.16 | % | ||||||||||
Mortality gains(3) | $ | 1.8 | $ | 2.7 | $ | 6.3 | $ | 0.8 | $ | 3.8 | ||||||||||
Total sales(4) | 63.0 | 45.8 | 96.6 | 93.1 | 76.0 |
(1) | Reserves represent the present value of future income annuity benefits and assumed expenses, discounted by the assumed interest rate. This metric represents the amount of our in-force book of business. |
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(2) | Interest spread is the difference between net investment yield earned and the credited interest rate on policyholder reserves. The investment yield is the approximate yield on invested assets in the general account attributed to the segment. This yield includes both realized and unrealized gains on our equity investments that back the policyholder reserves. The credited interest rate is the approximate rate credited on policyholder reserves within the segment and excludes the gains and losses from funding services and mortality. | |
(3) | Mortality gains (losses) represents the difference between actual and expected reserves released on death of a life contingent annuity. | |
(4) | Sales represent deposits for new policies. |
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Year Ended December 31, | ||||||||||||||||||||
Six Months | Combined | |||||||||||||||||||
Ended June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Premiums | $ | 70.0 | $ | 69.6 | $ | 138.3 | $ | 137.1 | $ | 120.3 | ||||||||||
Net investment income | 120.3 | 114.7 | 232.8 | 222.6 | 228.3 | |||||||||||||||
Other revenues | 7.1 | 6.8 | 12.9 | 14.0 | 21.0 | |||||||||||||||
Net realized investment gains (losses) | 0.1 | (1.9 | ) | (3.8 | ) | 1.3 | 8.0 | |||||||||||||
Total revenues | 197.5 | 189.2 | 380.2 | 375.0 | 377.6 | |||||||||||||||
Benefits and Expenses: | ||||||||||||||||||||
Policyholder benefits and claims | 32.4 | 25.1 | 50.0 | 57.1 | 46.3 | |||||||||||||||
Interest credited | 106.4 | 103.9 | 208.2 | 206.9 | 213.1 | |||||||||||||||
Other underwriting and operating expenses | 29.3 | 28.6 | 57.4 | 61.4 | 64.6 | |||||||||||||||
Amortization of deferred policy acquisition costs | 0.8 | 1.0 | 2.0 | 1.0 | 7.4 | |||||||||||||||
Intangible asset amortization | — | — | — | — | 1.7 | |||||||||||||||
Total benefits and expenses | 168.9 | 158.6 | 317.6 | 326.4 | 333.1 | |||||||||||||||
Segment pre-tax income | $ | 28.6 | $ | 30.6 | $ | 62.6 | $ | 48.6 | $ | 44.5 | ||||||||||
Non-GAAP Financial Measures: | ||||||||||||||||||||
Segment pre-tax operating income | $ | 28.5 | $ | 32.5 | $ | 66.4 | $ | 47.3 | $ | 36.5 | ||||||||||
Reconciliation to segment pre-tax income: | ||||||||||||||||||||
Segment pre-tax income | $ | 28.6 | $ | 30.6 | $ | 62.6 | $ | 48.6 | $ | 44.5 | ||||||||||
Less: Net realized investment gains (losses) | 0.1 | (1.9 | ) | (3.8 | ) | 1.3 | 8.0 | |||||||||||||
Add: | ||||||||||||||||||||
Net realized and unrealized investment gains on FIA options | — | — | — | — | — | |||||||||||||||
Net realized and unrealized investment gains on equity securities | — | — | — | — | — | |||||||||||||||
Segment pre-tax operating income | $ | 28.5 | $ | 32.5 | $ | 66.4 | $ | 47.3 | $ | 36.5 | ||||||||||
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Year Ended December 31, | ||||||||||||||||||||
Six Months Ended | Combined | |||||||||||||||||||
June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Insurance in force(1) | $ | 52,180.7 | $ | 52,301.9 | $ | 52,295.3 | $ | 51,796.9 | $ | 50,499.3 | ||||||||||
Mortality ratio(2) | 92.6 | % | 81.6 | % | 74.7 | % | 79.4 | % | 79.6 | % | ||||||||||
BOLI account value(3) | $ | 3,443.7 | $ | 3,287.6 | $ | 3,346.8 | $ | 3,224.6 | $ | 3,115.2 | ||||||||||
UL account value(3) | 569.8 | 562.2 | 565.1 | 561.1 | 561.2 | |||||||||||||||
PGAAP reserve balance | 69.3 | 85.4 | 77.1 | 94.5 | 115.0 | |||||||||||||||
BOLI ROA(4) | 1.23 | % | 1.14 | % | 1.18 | % | 0.97 | % | 1.04 | % | ||||||||||
UL interest spread(5) | 1.20 | % | 1.31 | % | 1.31 | % | 0.66 | % | 1.51 | % | ||||||||||
Total sales(6) | $ | 4.7 | $ | 4.9 | $ | 9.3 | $ | 11.8 | $ | 14.8 |
(1) | Insurance in force represents dollar face amounts of policies. | |
(2) | Mortality ratio represents actual mortality experience as a percentage of benchmark. Benchmark is based on the90-95 Society of Actuaries, or SOA, mortality table applied to current in force business. This ratio excludes BOLI mortality experience. | |
(3) | Account Value — BOLI Accounts and universal life, or UL, represents Symetra’s liability to the policyholder. | |
(4) | The BOLI ROA is a measure of the gross margin on our BOLI book of business. This metric is calculated as the difference between our BOLI revenue earnings rate and our BOLI policy benefits rate. The revenue earnings rate is calculated as total revenues net of allocated surplus investment income divided by average invested assets. The policy benefits rate is calculated as total policy benefits divided by average account value. The policy benefits used in this metric do not include expenses. | |
(5) | Interest spread is the difference between net investment yield earned and the credited interest rate to policyholders. The investment yield is the approximate yield on invested assets in the general account attributed to the UL policies. The credited interest rate is the approximate rate credited on UL policyholder fixed account values. Interest credited to UL policyholders’ account values is subject to contractual terms, including minimum guarantees. Interest credited tends to move gradually over time to reflect market interest rate movements and may reflect actions by management to respond to competitive pressures and profit targets. | |
(6) | Total sales represent annualized first year premiums and deposits for new policies. |
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Six Months | Year Ended December 31, | |||||||||||||||||||
Ended | Combined | |||||||||||||||||||
June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (non-GAAP) | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Net investment income | $ | 13.5 | $ | 11.4 | $ | 25.3 | $ | 17.9 | $ | 30.5 | ||||||||||
Other revenues | 6.4 | 5.4 | 9.4 | 9.1 | 8.3 | |||||||||||||||
Net realized investment gains | 4.0 | 2.5 | 5.8 | 12.6 | 17.8 | |||||||||||||||
Total revenues | 23.9 | 19.3 | 40.5 | 39.6 | 56.6 | |||||||||||||||
Benefits and Expenses: | ||||||||||||||||||||
Interest credited | (0.4 | ) | (0.1 | ) | (0.3 | ) | — | — | ||||||||||||
Other underwriting and operating expenses | 9.3 | 6.8 | 14.1 | 14.5 | 27.6 | |||||||||||||||
Fair value of warrants issued to investors | — | — | — | — | 101.5 | |||||||||||||||
Interest expense | 9.3 | 9.8 | 19.1 | 12.4 | 3.5 | |||||||||||||||
Amortization of deferred policy acquisition costs | (0.1 | ) | 0.1 | — | — | — | ||||||||||||||
Intangible asset amortization | — | — | — | — | 1.6 | |||||||||||||||
Total benefits and expenses | 18.1 | 16.6 | 32.9 | 26.9 | 134.2 | |||||||||||||||
Segment pre-tax income (loss) | $ | 5.8 | $ | 2.7 | $ | 7.6 | $ | 12.7 | $ | (77.6 | ) | |||||||||
Non-GAAP Financial Measures: | ||||||||||||||||||||
Segment pre-tax operating income (loss) | $ | 1.8 | $ | 0.2 | $ | 1.8 | $ | 0.1 | $ | (95.4 | ) | |||||||||
Reconciliation to segment pre-tax income (loss): | ||||||||||||||||||||
Segment pre-tax income (loss) | $ | 5.8 | $ | 2.7 | $ | 7.6 | $ | 12.7 | $ | (77.6 | ) | |||||||||
Less: Net realized investment gains | 4.0 | 2.5 | 5.8 | 12.6 | 17.8 | |||||||||||||||
Add: | ||||||||||||||||||||
Net realized and unrealized investment gains on FIA options | — | — | — | — | — | |||||||||||||||
Net realized and unrealized investment gains on equity securities | — | — | — | — | — | |||||||||||||||
Segment pre-tax operating income (loss) | $ | 1.8 | $ | 0.2 | $ | 1.8 | $ | 0.1 | $ | (95.4 | ) | |||||||||
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Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
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As of June 30, | As of December 31, | |||||||||||
2007 | 2006 | 2005 | ||||||||||
(Unaudited) | ||||||||||||
(Dollars in millions) | ||||||||||||
Types of Investments | ||||||||||||
Fixed maturities | $ | 15,440.8 | $ | 16,049.9 | $ | 17,183.2 | ||||||
Marketable equity securities | 209.9 | 201.7 | 162.3 | |||||||||
Mortgage loans | 789.6 | 794.3 | 776.9 | |||||||||
Policy loans | 77.8 | 79.2 | 80.5 | |||||||||
Short-term investments | 5.3 | 48.9 | 7.4 | |||||||||
Investments in limited partnerships | 159.8 | 112.6 | 93.4 | |||||||||
Other invested assets(1) | 11.8 | 18.7 | 29.1 | |||||||||
Total | $ | 16,695.0 | $ | 17,305.3 | $ | 18,332.8 | ||||||
(1) | Includes investments such as embedded derivatives, notes receivable and options. |
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Year Ended December 31, | ||||||||||||||||||||
Six Months | Combined | |||||||||||||||||||
Ended June 30, | 2004 | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | (Non-GAAP) | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Net investment income | $ | 490.9 | $ | 490.5 | $ | 984.9 | $ | 994.0 | $ | 1,104.8 | ||||||||||
Yield on average invested assets(1) | 5.62 | % | 5.41 | % | 5.48 | % | 5.33 | % | 6.02 | % | ||||||||||
Net realized investment gains (losses): | ||||||||||||||||||||
Gross gains on sales | $ | 37.5 | $ | 23.8 | $ | 47.6 | $ | 40.4 | $ | 80.4 | ||||||||||
Gross losses on sales | (9.9 | ) | (9.4 | ) | (19.9 | ) | (28.2 | ) | (46.6 | ) | ||||||||||
Impairments: | ||||||||||||||||||||
Credit related | (0.7 | ) | (8.1 | ) | (8.9 | ) | (6.3 | ) | (3.5 | ) | ||||||||||
Other | (4.2 | ) | (5.6 | ) | (16.8 | ) | (1.4 | ) | (6.9 | ) | ||||||||||
Total impairments | (4.9 | ) | (13.7 | ) | (25.7 | ) | (7.7 | ) | (10.4 | ) | ||||||||||
Other net investment gains (losses)(2): | ||||||||||||||||||||
Other gross gains | 6.9 | 4.7 | 7.5 | 35.1 | 30.3 | |||||||||||||||
Other gross losses | (5.1 | ) | (5.9 | ) | (7.8 | ) | (25.5 | ) | (11.8 | ) | ||||||||||
Net realized gains (losses) before taxes | $ | 24.5 | $ | (0.5 | ) | $ | 1.7 | $ | 14.1 | $ | 41.9 | |||||||||
(1) | Represents annualized net investment income (excluding income related to marketable equity securities available for sale) divided by the monthly weighted average invested assets at cost or amortized cost, as applicable, excluding marketable equity securities available for sale. Information presented is unaudited. | |
(2) | Primarily consists of changes in fair value on derivatives instruments, the impact on DAC and gains (losses) on calls and redemptions. |
Fair Value | June 30, 2007 | |||||||||||||||||||
at Sale | Net | |||||||||||||||||||
Issuer’s Industry | (Proceeds) | Loss on Sale | Impairment | Holdings | Unrealized Loss | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Consumer staples | $ | 9.5 | $ | (1.9 | ) | $ | — | $ | 19.1 | $ | (0.3 | ) | ||||||||
Consumer staples | — | — | (1.7 | ) | 52.9 | (0.2 | ) | |||||||||||||
Telecommunications | 31.5 | (1.5 | ) | — | 26.8 | (0.1 | ) | |||||||||||||
Utilities | 29.2 | (1.0 | ) | — | 12.1 | (0.1 | ) | |||||||||||||
U.S. Fed. Government | — | — | (0.7 | ) | 45.5 | (0.7 | ) | |||||||||||||
Totals | $ | 70.2 | $ | (4.4 | ) | $ | (2.4 | ) | $ | 156.4 | $ | (1.4 | ) | |||||||
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December 31, 2006 | ||||||||||||||||||||
Fair Value | Net | |||||||||||||||||||
at Sale | Unrealized | |||||||||||||||||||
Industry | (Proceeds) | Loss on Sale | Impairment | Holdings | Gain (Loss) | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Business services | $ | 36.5 | $ | (2.2 | ) | $ | (8.1 | ) | $ | — | $ | — | ||||||||
Paper products | — | — | (7.5 | ) | 17.6 | 1.8 | ||||||||||||||
Food retail | 21.0 | (1.4 | ) | (1.7 | ) | 22.0 | (0.8 | ) | ||||||||||||
Electronics store | 27.8 | (1.0 | ) | (0.8 | ) | — | — | |||||||||||||
Wireless telecom | 9.5 | (0.0 | ) | (1.8 | ) | 9.9 | 1.1 | |||||||||||||
Totals | $ | 94.8 | $ | (4.6 | ) | $ | (19.9 | ) | $ | 49.5 | $ | 2.1 | ||||||||
Six Months | ||||||||||||
Ended June 30, | Year Ended December 31, | |||||||||||
2007 | 2006 | 2005 | ||||||||||
Public equity | 8.9 | % | 26.1 | % | 30.9 | % | ||||||
S&P 500 Index (total return) | 6.9 | % | 15.8 | % | 4.9 | % |
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• | For group annuity products ($1.0 billion of reserves as of June 30, 2007), the surrender charge amounts and periods can vary significantly, depending on the terms of each contract and the compensation structure for the producer. Generally, surrender charge percentages for group products are less than individual products because we incur lower expenses at contract origination for group products. In addition, approximately 17% of the general account group annuity reserves are subject to a fair value adjustment at withdrawal. | |
• | For individual annuity products ($3.5 billion of reserves as of June 30, 2007), the surrender charge is generally calculated as a percentage of the withdrawal amount and is assessed at declining rates generally during the first three to eight years after the initial deposit is made. | |
• | Approximately 33% of the combined individual and group deferred annuities fund value is subject to surrender charges. | |
• | Life insurance policies are less susceptible to withdrawal than annuity products because policyholders generally must undergo a new underwriting process and may incur a surrender fee in order to obtain a new insurance policy. |
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June 30, | December 31, | |||||||||||
2007 | 2006 | 2005 | ||||||||||
(Unaudited) | ||||||||||||
(Dollars in millions) | ||||||||||||
Senior notes payable | $ | 298.8 | $ | 298.7 | $ | 300.0 | ||||||
Stockholders’ equity, excluding accumulated other comprehensive income (loss) or AOCI | 1,426.5 | 1,327.8 | 1,268.3 | |||||||||
AOCI | (178.9 | ) | (0.5 | ) | 136.6 | |||||||
Total stockholders’ equity | 1,247.6 | 1,327.3 | 1,404.9 | |||||||||
Total capital | $ | 1,546.4 | $ | 1,626.0 | $ | 1,704.9 | ||||||
Debt to capital ratio, excluding AOCI | 17.3 | % | 18.4 | % | 19.1 | % |
Maximum Amount Available as of | Amount Outstanding as of | |||||||||||||||||||||||||||
Description | Maturity Date | 6/30/2007 | 12/31/2006 | 12/31/2005 | 6/30/2007 | 12/31/2006 | 12/31/2005 | |||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||
Senior notes payable | 4/1/2016 | $ | 300.0 | $ | 300.0 | $ | — | $ | 300.0 | $ | 300.0 | $ | — | |||||||||||||||
Revolving credit facilities: | ||||||||||||||||||||||||||||
Bank of America, N.A.(1) | 6/14/2009 | 70.0 | 70.0 | 370.0 | — | — | 300.0 | |||||||||||||||||||||
The Bank of New York: | ||||||||||||||||||||||||||||
Holding company | n/a | 25.0 | 25.0 | 25.0 | — | — | — | |||||||||||||||||||||
Insurance subsidiary | n/a | 25.0 | 25.0 | 25.0 | — | — | — | |||||||||||||||||||||
Total notes payable and revolving credit facilities | $ | 420.0 | $ | 420.0 | $ | 420.0 | $ | 300.0 | $ | 300.0 | $ | 300.0 | ||||||||||||||||
(1) | On August 16, 2007, we entered into a new $200.0 million revolving credit facility which replaced the $70 million credit facility in place as of June 30, 2007. See pages 68 and 131 for a description of this new facility. |
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Six Months Ended | Year Ended December 31, | |||||||||||||||||||
June 30, | Combined | |||||||||||||||||||
(Unaudited) | 2004 | |||||||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2006 | 2005 | (Non-GAAP) | |||||||||||||||
Net cash flows from operating activities | $ | 341.5 | $ | 423.0 | $ | 841.6 | $ | 866.2 | $ | 963.9 | ||||||||||
Net cash flows from investing activities | 390.2 | 392.2 | 758.0 | 620.4 | (1,178.1 | ) | ||||||||||||||
Net cash flows from financing activities | (622.5 | ) | (707.9 | ) | (1,457.3 | ) | (1,527.9 | ) | 260.0 |
• | Six months ended June 30, 2007 and 2006 — Net cash flows from operating activities for the six months ended June 30, 2007 were $341.5 million, an $81.5 million decrease over the same period in 2006. This decrease was primarily the result of the timing of certain cash settlements related to other assets and other liabilities. | |
• | Years ended December 31, 2006 and 2005— Net cash flows from operating activities during the year ended December 31, 2006 were $841.6 million, a $24.6 million decrease from 2005, which for 2005 included net cash flows used in discontinued operations of $3.7 million. The decrease was primarily the result of the amounts and timing of certain cash settlements related to other assets and other liabilities and a decline in premiums received from our group medical stop-loss products, partially offset by a reduced level of cash disbursed to fund policyholder benefits and claims, primarily group medical stop-loss products, as well as decreased underwriting and operating expenses. | |
Years ended December 31, 2005 and 2004 — Net cash flows from operating activities for the year ended December 31, 2005 were $866.2 million, a $97.7 million decrease from 2004, which included net cash flows used in discontinued operations of $3.7 million in 2005 and $3.0 million in 2004. The decrease was primarily the result of a decline in premiums received from our group medical stop-loss products, increased amounts of cash paid to settle policyholder benefits and claims and a reduced amount of cash arising from other receivables and other assets and liabilities, partially offset by a reduction in cash disbursed to fund underwriting and operating expenses. |
• | Net cash flows from investing activities for the six months ended June 30, 2007 were $390.2 million, a $2.0 million decrease from the same period in 2006. Net cash outflows from the routine management of our investment portfolio increased $54.8 million and we paid $21.9 million to acquire MRM. These outflows were offset by a $44.9 million increase in cash from short-term investments and $21.7 million increase related to mortgage loan activity. | |
• | Years ended December 31, 2006 and 2005— Net cash flows from investing activities during the year ended December 31, 2006 were $758.0 million, a $137.6 million increase from 2005, which for 2005 included net cash flows provided by discontinued operations of $29.6 million. The increase was |
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primarily the result of a $543.5 million reduction of cash used in net purchases of investments and a $31.5 million reduction of cash used in purchases of property, equipment and leasehold improvements, partially offset by a $437.7 million decrease in proceeds from maturities and calls of fixed maturity investments. |
• | Years ended December 31, 2005 and 2004— Net cash flows from investing activities during the year ended December 31, 2005 were $620.4 million, a $1,798.5 million increase from 2004, which included net cash flows provided by discontinued operations of $29.6 million in 2005 and $22.4 million in 2004. The increase was primarily the result of consideration paid during 2004 of $1,349.9 million in conjunction with the acquisition of the life insurance and investment companies from Safeco Corporation, and a $1,000.3 million reduction of cash used in net purchases of investments, partially offset by a $487.5 million decrease in proceeds from maturities and calls of fixed maturity investments, a $34.6 million increase in cash used in purchases of property, equipment and leasehold improvements and our receipt in 2004 of $30.0 million related to our sale of our mutual funds business. |
• | Six months ended June 30, 2007 and 2006— Net cash flows from financing activities for the six months ended June 30, 2007 were $(622.5) million, an $85.4 million increase over the same period in 2006. We incurred a net cash outflow from financing activities in both periods as policyholder withdrawals exceeded deposits; however, the increase in the interim 2007 period relative to the same period in 2006 was primarily the result of an increase in policyholder deposits and a reduction in policyholder withdrawals. | |
• | Years ended December 31, 2006 and 2005— Net cash flows from financing activities during the year ended December 31, 2006 were $(1,457.3) million, a $70.6 million increase from 2005, which for 2005 included net cash flows used in discontinued operations of $29.2 million. The increase was primarily the result of a $170.1 million reduction in net policyholder withdrawals from certain life insurance and annuity policies, partially offset by our payment during 2006 of a $100.0 million dividend to our stockholders. | |
• | Years ended December 31, 2005 and 2004 — Net cash flows from financing activities during the year ended December 31, 2005 were $(1,527.9) million, a $1,787.9 million decrease from 2004, which included net cash flows used in discontinued operations of $29.2 million in 2005 and $20.0 million in 2004. The decrease was primarily the result of a $486.1 million increase in net policyholder withdrawals from certain life insurance and annuity policies and our receipt during 2004 of financing proceeds of $1,364.9 million that were used to fund the purchase of the life insurance and investment companies from Safeco Corporation, partially offset by our payment during 2004 of $64.3 million of dividends to Safeco Corporation. |
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Payments Due by Year | ||||||||||||||||||||
2012 and | ||||||||||||||||||||
Contractual Obligations | Total | 2007 | 2008-2009 | 2010-2011 | thereafter | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Senior notes payable | $ | 300.0 | $ | — | $ | — | $ | — | $ | 300.0 | ||||||||||
Interest on notes payable | 183.8 | 18.4 | 36.8 | 36.8 | 91.8 | |||||||||||||||
Operating lease obligations(1) | 56.1 | 6.9 | 13.4 | 12.7 | 23.1 | |||||||||||||||
Licensing fees(2) | 48.8 | 13.2 | 27.2 | 8.4 | — | |||||||||||||||
Purchase and lending commitments: | ||||||||||||||||||||
Investments in limited partnerships(3) | 68.7 | 24.3 | 29.3 | 15.1 | — | |||||||||||||||
Commercial mortgage loans(4) | 14.5 | 14.5 | — | — | — | |||||||||||||||
Securities collateral on securities lending(5) | 439.3 | 439.3 | — | — | — | |||||||||||||||
Insurance obligations(6) | 37,611.0 | 1,965.9 | 2,672.6 | 2,392.2 | 30,580.3 | |||||||||||||||
Total | $ | 38,722.2 | $ | 2,482.5 | $ | 2,779.3 | $ | 2,465.2 | $ | 30,995.2 | ||||||||||
(1) | Includes minimum rental commitments on leases for office space, commercial real estate and certain equipment. For more information, see note 14, “Commitments and Contingencies,” of the notes to our 2006 consolidated financial statements included in this prospectus. | |
(2) | Includes contractual commitments for a service agreement to outsource the majority of our information technology infrastructure. For more information, see note 14, “Commitments and Contingencies,” of the notes to our 2006 consolidated financial statements included in this prospectus. | |
(3) | Related to investments in six limited partnership interests related to tax sheltered affordable housing projects and state tax credit funds and two private equity partnerships. We will provide capital contributions to the two private equity partnerships through 2015 up to a committed amount of $17.5 million at the discretion of the general partner, subject to certain contribution limits. Since the timing of payment is uncertain, the unfunded amount has been included in the payment due in less than one year. For more information, see note 14, “Commitments and Contingencies,” of the notes to our consolidated financial statements included in this prospectus. Amounts recorded on the balance sheet are included in “other liabilities”. | |
(4) | Unfunded mortgage loan commitments as of December 31, 2006. | |
(5) | We have accepted cash collateral of $439.3 million in connection with our securities lending program. Since the timing of the return of collateral is uncertain, the return of collateral has been included in the payments due in less than one year. For more information, see note 5, “Securities Lending Program,” of the notes to our 2006 consolidated financial statements included in this prospectus. | |
(6) | Includes estimated claim and benefit, policy surrender and commission obligations on in-force insurance policies and deposit contracts. Estimated claim and benefit obligations are based on mortality, morbidity and lapse assumptions comparable with our historical experience. In contrast to this table, our obligations recorded in our consolidated balance sheets do not incorporate future credited interest for deposit contracts or tabular interest for insurance policies. Therefore, the estimated obligations for insurance liabilities presented in this table significantly exceed the liabilities recorded in reserves for future annuity and contract benefits and the liability for policy and contract claims. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. We have not included the variable separate account obligations as these obligations are legally insulated from general account obligations and will be fully funded by cash flows from separate account assets. We expect to fund the obligations for insurance liabilities from cash flows from general account investments and future deposits and premiums. |
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• | Group. We offer medical stop-loss insurance, limited medical benefit plans, group life insurance, accidental death and dismemberment insurance and disability insurance mainly to employer groups of 50 to 1,000 individuals. Our Group segment generated segment pre-tax income of $68.0 million during 2006 and $42.7 million during the six months ended June 30, 2007. As a result of our recent acquisition of Medical Risk Managers, Inc., we also offer MGU services. | |
• | Retirement Services. We offer fixed and variable deferred annuities, including tax sheltered annuities, IRAs, and group annuities to qualified retirement plans, including Section 401(k) and 457 plans. We also provide record keeping services for qualified retirement plans invested in mutual funds. Our Retirement Services segment generated segment pre-tax income of $43.2 million during 2006 and $13.4 million during the six months ended June 30, 2007. | |
• | Income Annuities. We offer SPIAs for customers seeking a reliable source of retirement income and structured settlement annuities to fund third-party personal injury settlements. Our Income Annuities segment generated segment pre-tax income of $62.6 million during 2006 and $52.5 million during the six months ended June 30, 2007. | |
• | Individual. We offer a wide array of term, universal and variable life insurance as well as BOLI. Our Individual segment generated segment pre-tax income of $62.6 million during 2006 and $28.6 million during the six months ended June 30, 2007. | |
• | Other. This segment consists of unallocated corporate income, composed primarily of investment income on unallocated surplus, unallocated corporate expenses, interest expense on debt, the results of small, non-insurance businesses that are managed outside of our operating segments and inter-segment elimination entries. Our Other segment generated segment pre-tax income of $7.6 million during 2006 and $5.8 million during the six months ended June 30, 2007. |
• | Growing demand for affordable health insurance. According to the Kaiser Family Foundation, health insurance premiums in the U.S. increased 87% from2000-2006, while the Consumer Price Index increased only 17% over the same period. As increases in health care costs continue to outpace |
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inflation, the demand for affordable health insurance options has increased. We believe we can grow our business by providing employees with affordable access to health insurance through employer-sponsored limited benefit employee health plans and by offering group medical stop-loss insurance to medium and large businesses. We also believe that the trend toward reductions in employer-paid benefits and the uncertainty over the future of government benefit programs provide us with the opportunity to successfully offer other attractive employee benefits products. |
• | Increasing retirement savings and income needs. According to the U.S. Department of Health and Human Services, from approximately 1950 to 2004, U.S. life expectancy at birth increased from 65.6 years to 75.2 years for men and from 71.1 years to 80.4 years for women and is expected to increase further. In addition, the U.S. Census Bureau estimates that approximately 77 million Americans born between 1946 and 1964 are approaching retirement age. However, according to the Employee Benefit Research Institute, in 2006, 52% of workers over the age of 55 and their spouses had accumulated less than $50,000 in retirement savings and only 14% of workers report that a traditional pension plan will be their primary source of retirement income. These projected demographic trends, along with a shift in the burden for funding retirement needs from governments and employers to individuals, increase the need for retirement savings and income. We expect greater demand for additional sources of retirement savings, such as our annuities and other investment products that will help consumers supplement their social security benefits with reliable retirement income. | |
• | Expanding mass affluent market. As of June 2006, the mass affluent market included 13.7 million households with investible assets between $250,000 and $1.0 million, representing 28% of total financial assets. We believe that the mass affluent population is growing and that it underutilizes various financial products, such as insurance to protect assets, annuities to provide adequate income to support a desired future lifestyle and wealth transfer products to ensure its legacy. We believe we are well positioned to reach consumers in this target market given our relationships with financial institutions and independent agents, which are often their sources of guidance and advice. As such, we expect increased demand for our life insurance, variable and fixed annuity and wealth transfer products. |
• | Innovative and collaborative product development capabilities. We design innovative products to meet the changing demands of the market. By working closely with our distributors, we are able to anticipate opportunities in the marketplace and rapidly address them. For example, we introduced Complete, an innovative variable life insurance policy designed for wealth transfer and centered on minimizing the inherent COI and thus maximizing the underlying account value. We also recently introduced our Focus variable annuity, which features low total cost to the contractholders, well-respected investment options and simplified product features. | |
• | High-quality distribution relationships. We offer consumers access to our products through a national multi-channel network, including financial institutions, employee benefits brokers, third party administrators, worksite specialists, specialty brokers and independent agents. We have cultivated many of these relationships over decades by treating our distributors as clients and providing them with outstanding levels of service. We provide them with products specifically tailored to their needs, and supported by customized training and education services for their sales representatives. They value our reputation for our easy processes, simple forms and rapid turnaround time. By providing our distributors with excellent levels of service, we are able to develop strong relationships and avoid competing on price alone. | |
• | Leading group medical stop-loss insurance provider. We believe we have been a leading provider of group medical stop-loss insurance since 1976. We have built a consistently profitable platform with high-levels of customer service and disciplined underwriting practices. In the last 25 years, our group medical stop-loss insurance business has experienced only two calendar years of net losses. We have driven profitable growth in our Group segment through disciplined underwriting practices, by |
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developing related products, such as our Select Benefits limited medical benefit product, by using and by making strategic acquisitions, including, most recently, Medical Risk Managers in 2007. For the first six months of 2007, our group medical stop-loss insurance business drove a favorable loss ratio while experiencing improved persistency in our Group segment. |
• | Diverse businesses provide flexibility, earnings stability and capital efficiency.We have an attractive and diverse mix of businesses that allows us to make profitability-driven decisions in each business across various market environments. In general, our four operating business segments are not affected in the same way by economic and operating trends. For example, the level of competitive pricing and performance varies across our segments over time. We believe that this mix offers us a greater level of financial stability than many of our similarly-sized competitors across business and economic cycles. Our diverse business mix also allows us to reallocate our resources to product lines that generate the most attractive returns on capital while reducing our overall capital requirements. | |
• | Flexible information technology platform integrated with our distributors.We have a flexible information technology platform that allows us to seamlessly integrate our products onto the operating platforms of our distributors, which we believe provides us with a competitive advantage in attracting new distributors. We also continuously develop innovative tools designed to enhance the service levels and operational performance of our distributors, which strengthens these relationships. For example, our ExpressTM tool allows our distributors to capture all the necessary data to make products and services instantly available at the point of sale. We will continue to leverage our information technology platform to market our current and future product offerings. | |
• | Experienced management team with investor-aligned compensation. We have a high-quality management team with an average of 25 years of insurance-industry experience, led by Randy Talbot who has been our chief executive officer since 1998. Mr. Talbot has spent a significant portion of his30-year career in the insurance industry operating an insurance brokerage, providing him with the knowledge to intimately understand the needs of our distributors. We have enhanced our original team with several key additions since the Acquisition, each of whom brings substantial experience in their discipline. We also have an experienced board of directors, consisting of industry professionals who have worked closely with us since the Acquisition to develop our strategies and operating philosophies. Our compensation structure aligns management’s incentives with our stockholders through our long-term incentive plan that rewards long-term growth in tangible book value and in the intrinsic value of our business. |
• | Target large and growing markets. We will continue to capitalize on favorable demographic trends, including the growing demand for affordable health insurance, increasing retirement savings and income needs and an expanding mass affluent market. For example, our Select Benefits product allows employers who cannot afford to provide comprehensive health care coverage to offer some level of benefits to their employees. Additionally, as consumers live longer after retirement, their need for life-long financial security is expanding. We will continue to identify key opportunities within these markets and provide tailored solutions that address the evolving needs of these customers. | |
• | Broaden and deepen distribution relationships. Our distribution strategy is to deliver multiple products through a single point of sale, thereby leveraging the cost of distribution. We utilize diverse distribution channels, including financial institutions, employee benefits brokers, third party administrators, worksite specialists, specialty brokers and independent agents. We intend to deepen our long-standing distribution relationships while adding new large-scale and high quality distribution partners. As an example, since June 30, 2006, we have increased our relationships with major financial institutions from 10 to 22 and we have recently signed selling agreements with an additional 14 major financial institutions. Through this growth, we have added approximately 10,000 financial institution representatives selling our products. We will continue to leverage our existing relationships by |
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distributing additional products through our existing partnerships. Since the Acquisition, we have maintained distribution staff and new business processing staff to support higher levels of new sales, making incremental sales relatively more profitable. |
• | Be innovative in anticipating customer needs. We work closely with our distributors to develop customer-responsive products that meet our stringent return requirements, address our target markets and can be delivered efficiently across our information technology platforms. Recent examples include the Focus Variable Annuity product for retirement savings and Complete, our new Variable Life product designed for the wealth transfer market. We will continue to pursue non-traditional avenues of product development. For example, we recently began offering funding services to holders of our structured settlements to offer them an attractive financial alternative. We continually seek to be the first to improve upon an existing leading product. For example, we believe we were the first to offer a hybrid BOLI separate account and an experience rating to customers, both of which provide greater transparency of the investment portfolio. We have also introduced a commutation benefit on a SPIA, which gives the owner greater flexibility to cash out some of his or her future benefits after a certain period of time. | |
• | Effectively manage capital. We intend to manage our capital prudently to maximize our profitability and long-term growth in stockholder value. Our capital management strategy is to maintain financial strength through conservative and disciplined risk management practices while deploying or returning excess capital as situations warrant. We will also maintain our conservative investment management philosophy, which includes holding a high quality investment portfolio and carefully matching our investment assets against the duration of our insurance product liabilities. | |
• | Pursue complementary acquisitions. We will continue to seek acquisition opportunities that fit strategically within our existing business lines, provide us with a larger distribution presence and meet our stringent return objectives. For example, our recent acquisition of Medical Risk Managers has provided us with key benefits in our group medical stop-loss business. As part of the acquisition, we acquired a database of underwriting experience, which provides us with superior underwriting knowledge. We also gained an MGU that provides us with fee income in addition to access to an existing book of business, a portion of which we may be able to integrate with our existing book of group medical stop-loss business. We believe we have ample financial capacity to remain a prudent acquirer while maintaining a conservative balance sheet. |
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Name | Operating Segment | Other Information | ||
Symetra Life Insurance Company | All segments | Primary operating subsidiary | ||
First Symetra National Life Insurance Company of New York | Primarily Retirement Services | |||
Clearscape Funding Corporation | Other | |||
Employee Benefit Consultants, Inc. | Group | Third party administrator | ||
Symetra Assigned Benefits Service Company | Income Annuities | Structured settlements | ||
Symetra Securities, Inc. | Retirement Services | Broker-dealer; distributor | ||
Symetra Investment Services, Inc. | Other | Broker-dealer; distributor | ||
Medical Risk Managers, Inc. | Group | Managing general underwriter |
• | employee benefits brokers and TPAs; and | |
• | worksite specialists. |
• | financial institutions; | |
• | worksite specialists; and | |
• | brokerage general agencies and independent agents. |
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by Distribution Channel
Segment | ||||||||||||||||
Retirement | Income | |||||||||||||||
Distribution Channel | Group(1) | Services(2) | Annuities(3) | Individual(4) | ||||||||||||
(Unaudited) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Financial institutions | $ | — | $ | 374.8 | $ | 14.8 | $ | 1.4 | ||||||||
Employee benefits brokers/TPAs | 59.9 | — | — | — | ||||||||||||
Worksite specialists | 9.2 | 160.3 | 5.4 | 1.6 | ||||||||||||
Independent agents/BGAs | — | 38.1 | 65.3 | 6.2 | ||||||||||||
Structured settlements/BOLI | — | — | 11.1 | — |
(1) | Includes medical stop-loss, health insurance and life and disability and limited medical benefits. | |
(2) | Includes deferred and variable annuities and retirement programs. | |
(3) | Includes immediate annuities and structured settlements. | |
(4) | Includes term, universal, single premium, BOLI and variable life insurance. |
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• | Principal’s objective is to invest in investment grade private placements with target average lives of three to 30 years. | |
• | Pioneer’s investment objective is to provide a consistently high current yield, maintain preservation of principal and, provided the first two objectives are met, seek to achieve a competitive total rate of return relative to the Merrill Lynch U.S. High Yield BB/B combined index. |
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As of June 30, 2007 | As of December 31, 2006 | |||||||||||||||||||||||||||
% of | % of | |||||||||||||||||||||||||||
Amortized | Total | Amortized | Total | |||||||||||||||||||||||||
S&P | NAIC | Cost | Fair Value | Fair Value | Cost | Fair Value | Fair Value | |||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||
AAA | 1 | $ | 5,197.9 | $ | 5,093.9 | 33.0 | % | $ | 5,192.8 | $ | 5,160.5 | 32.1 | % | |||||||||||||||
AA | 1 | 1,078.7 | 1,059.3 | 6.9 | 1,112.3 | 1,122.8 | 7.0 | |||||||||||||||||||||
A | 1 | 3,507.1 | 3,444.9 | 22.3 | 3,639.2 | 3,653.4 | 22.8 | |||||||||||||||||||||
BBB | 2 | 4,619.9 | 4,491.1 | 29.2 | 4,838.3 | 4,782.3 | 29.8 | |||||||||||||||||||||
BB | 3 | 309.8 | 315.5 | 2.0 | 394.9 | 419.4 | 2.6 | |||||||||||||||||||||
B | 4 | 297.4 | 299.3 | 1.9 | 253.9 | 256.5 | 1.6 | |||||||||||||||||||||
CCC | 5 | 37.4 | 37.5 | 0.2 | 23.5 | 23.5 | 0.2 | |||||||||||||||||||||
D | 6 | 0.4 | 1.7 | 0.0 | 1.1 | 2.2 | 0.0 | |||||||||||||||||||||
NR | 711.1 | 697.6 | 4.5 | 630.6 | 629.3 | 3.9 | ||||||||||||||||||||||
Total | $ | 15,759.7 | $ | 15,440.8 | 100.0 | % | $ | 16,086.6 | $ | 16,049.9 | 100.0 | % | ||||||||||||||||
June 30, 2007 | December 31, 2006 | |||||||||||||||
Amortized | Estimated | Amortized | Estimated | |||||||||||||
Years to Maturity | Cost | Fair Value | Cost | Fair Value | ||||||||||||
(Dollars in millions) | ||||||||||||||||
Due in one year or less | $ | 325.5 | $ | 323.9 | $ | 377.1 | $ | 374.6 | ||||||||
Due after one year through five years | 2,716.7 | 2,667.7 | 2,655.7 | 2,613.7 | ||||||||||||
Due after five years through ten years | 2,494.0 | 2,416.4 | 2,746.5 | 2,701.7 | ||||||||||||
Due after ten years | 5,872.2 | 5,778.0 | 5,919.7 | 6,014.2 | ||||||||||||
Mortgage-backed securities | 4,351.3 | 4,254.8 | 4,387.6 | 4,345.7 | ||||||||||||
Total | $ | 15,759.7 | $ | 15,440.8 | $ | 16,086.6 | $ | 16,049.9 | ||||||||
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June 30, 2007 | December 31, 2006 | |||||||||||||||
Estimated | % of | Estimated | % of | |||||||||||||
Security Sector | Fair Value | Total | Fair Value | Total | ||||||||||||
(Unaudited) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
U.S. Government and agencies | $ | 259.1 | 1.7 | % | $ | 157.9 | 1.0 | % | ||||||||
State and political subdivisions | 494.7 | 3.2 | 670.9 | 4.2 | ||||||||||||
Foreign governments | 156.0 | 1.0 | 208.9 | 1.3 | ||||||||||||
Corporate securities | 10,276.1 | 66.5 | 10,666.5 | 66.4 | ||||||||||||
Mortgage-backed securities | 4,254.9 | 27.6 | 4,345.7 | 27.1 | ||||||||||||
Total | $ | 15,440.8 | 100.0 | % | $ | 16,049.9 | 100.0 | % | ||||||||
June 30, 2007 | December 31, 2006 | |||||||||||||||
Estimated | % of | Estimated | % of | |||||||||||||
Security Sector | Fair Value | Total | Fair Value | Total | ||||||||||||
(Dollars in millions) | ||||||||||||||||
Consumer discretionary | $ | 963.5 | 6.2 | % | $ | 1,012.4 | 6.3 | % | ||||||||
Consumer staples | 1,283.6 | 8.3 | 1,247.7 | 7.8 | ||||||||||||
Energy | 476.5 | 3.1 | 650.4 | 4.0 | ||||||||||||
Financials | 3,896.6 | 25.2 | 3,882.2 | 24.2 | ||||||||||||
Foreign governments | 156.0 | 1.0 | 193.7 | 1.2 | ||||||||||||
Health care | 441.8 | 2.9 | 457.3 | 2.8 | ||||||||||||
Industrials | 1,359.7 | 8.8 | 1,325.1 | 8.3 | ||||||||||||
Information technology | 165.5 | 1.1 | 186.7 | 1.1 | ||||||||||||
Internal/other | 22.0 | 0.1 | 23.1 | 0.1 | ||||||||||||
Materials | 714.4 | 4.6 | 694.7 | 4.3 | ||||||||||||
Supranationals | 23.4 | 0.2 | 24.2 | 0.2 | ||||||||||||
Telecommunication services | 577.7 | 3.8 | 688.1 | 4.3 | ||||||||||||
U.S. federal government | 2,859.9 | 18.5 | 2,994.4 | 18.7 | ||||||||||||
U.S. municipals | 494.7 | 3.2 | 571.1 | 3.6 | ||||||||||||
Utilities | 2,005.5 | 13.0 | 2,098.8 | 13.1 | ||||||||||||
Total | $ | 15,440.8 | 100 | % | $ | 16,049.9 | 100.0 | % | ||||||||
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Reinsurance | ||||||||
recoverable | A.M. Best rating | |||||||
(Dollars in millions) | ||||||||
Reinsurance Group of America | $ | 70.7 | A+ | |||||
Transamerica Life Insurance Company | $ | 66.1 | A+ | |||||
UNUM Life Insurance Company of America | $ | 64.9 | A– | |||||
Lincoln National Life Insurance Company | $ | 25.1 | A+ |
• | Reinsurance Group of America — Under our agreements with RGA, RGA reinsures the risk of a large loss on term life insurance and universal life insurance policies. These are typically coinsurance arrangements, whereby we cede fifty percent or more of the claims liability to RGA. These agreements do not have a fixed term. Either party can terminate these agreements with respect to future business with 90 days’ written notice to the other party. | |
• | Lincoln National Life Insurance Company — Under our agreements with Lincoln, we primarily cede claims liability under 10, 15 and20-year term life insurance policies to Lincoln. These are typically coinsurance arrangements, whereby we cede fifty percent or more of the claims liability to Lincoln. These agreements do not have a fixed term. Either party can terminate these agreements with respect to future business upon 90 days’ written notice to the other party. | |
• | UNUM Life Insurance Company of America — We cede nearly all of our Group Long-Term-Disability and Short-Term-Disability claims liability through a reinsurance pool. The pool of reinsurers may change each year for new claims. UNUM covers the substantial majority of this business. This agreement does not have a fixed term. Either party can terminate the agreement with respect to future business by providing 90 days’ written notice to the other party on or before October 1 of any given year. | |
• | Transamerica Life Insurance Company — Under an agreement with Transamerica, we act as their reinsurer with respect to 28.6% of a bank owned life insurance (BOLI) policy. BOLI is life insurance purchased by a bank to insure the lives of bank employees, usually officers and other highly compensated employees. BOLI policies are commonly used by banks to fund employee pension plans and benefit plans. Transamerica invests the policy premiums paid by the bank, and manages those investments subject to the terms of the policy. We have assumed 28.6% of the claims liability under this policy, and receive 28.6% of the proceeds generated under the policy. The term of this agreement is perpetual. We are only allowed to terminate this agreement in the event Transamerica fails to pay amounts due to us under this agreement, or in the event of fraud, misrepresentation or breach of this agreement by Transamerica. |
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• | investment risks; | |
• | pricing risks, including determination of adequate spreads or premiums, and estimation of claims, both expected and catastrophic; | |
• | interest rate risk, including asset liability duration matching exposures; and | |
• | other business risks, including business continuity, data security and other operational risks. |
• | Data center: mainframe, Wintel systems, storage, web services, disaster recovery; | |
• | Distributed computing: field office services, desktop support, asset management; | |
• | Data network: network infrastructure, carrier services, secured remote access; | |
• | Voice communications: voice systems, wireless, contact center technologies; | |
• | Help desk supporting: infrastructure, packaged software, password resets; | |
• | Output processing: print and mail fulfillment, archive and online viewing; and | |
• | Content management: imaging and content management system. |
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• | quality of service; | |
• | product features; | |
• | price; | |
• | scope of distribution; | |
• | financial strength ratings; and | |
• | name recognition. |
Financial Strength Rating | ||||||||||||||||
A.M. Best | S&P | Moody’s | Fitch | |||||||||||||
Symetra Life Insurance Company | A | A− | A2 | A+ |
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• | 10% of the insurer’s statutory surplus as of the immediately prior year end; or | |
• | the statutory net gain from the insurer’s operations for the prior year. |
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Name | Age | Positions | ||||
David T. Foy | 41 | Director, Chairman of the Board | ||||
Randall H. Talbot | 54 | Director, President and Chief Executive Officer | ||||
Roger F. Harbin | 56 | Executive Vice President and Chief Operating Officer | ||||
Margaret A. Meister | 42 | Executive Vice President and Chief Financial Officer | ||||
Allyn D. Close | 45 | Senior Vice President — Marketing, Symetra Life Insurance Company | ||||
Jennifer V. Davies | 49 | Senior Vice President — Enterprise Development | ||||
Richard J. Lindsay | 51 | Senior Vice President — Life & Annuities Division, Symetra Life Insurance Company | ||||
Patrick B. McCormick | 50 | Senior Vice President — Distribution, Symetra Life Insurance Company | ||||
M. Scott Taylor | 64 | Senior Vice President — Group Department, Symetra Life Insurance Company | ||||
George C. Pagos | 57 | Senior Vice President, General Counsel and Secretary | ||||
Tommie D. Brooks | 37 | Vice President and Chief Actuary, Symetra Life Insurance Company | ||||
Christine A. Katzmar | 48 | Vice President — Human Resources | ||||
Troy J. Olson-Blair | 52 | Vice President — Information Technology | ||||
Lois W. Grady | 62 | Director | ||||
Sander M. Levy | 45 | Director | ||||
Robert R. Lusardi | 50 | Director | ||||
David I. Schamis | 33 | Director | ||||
Lowndes A. Smith | 68 | Director |
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• | Class 1 directors will be Messrs. Lusardi and Schamis, and their terms will expire at the annual meeting of stockholders to be held in 2008; |
• | Class 2 directors will be Messrs. Levy and Smith, and their terms will expire at the annual meeting of stockholders to be held in 2009; and |
• | Class 3 directors will be Messrs. Foy and Talbot and Ms. Grady, and their terms will expire at the annual meeting of stockholders to be held in 2010. |
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• | Randall H. Talbot, President and Chief Executive Officer | |
• | Roger F. Harbin, Executive Vice President and Chief Operating Officer | |
• | Margaret A. Meister, Executive Vice President and Chief Financial Officer | |
• | M. Scott Taylor, Senior Vice President, Group Department, Symetra Life Insurance Company | |
• | Patrick B. McCormick, Senior Vice President, Distribution, Symetra Life Insurance Company | |
• | Oscar C. Tengtio, Former Executive Vice President and Chief Financial Officer. Mr. Tengtio resigned as an executive officer and employee on February 17, 2006. |
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• | 20% (or $2.9 million) will be awarded in the form of fully-vested shares of common stock, the number of such shares to be determined based on the initial public offering price per share; |
• | 40% (or $5.8 million) will be awarded in the form of restricted stock units, the number of such units to be determined based on the initial public offering price per share, with 50% of such units vesting on the second anniversary of this offering and the remainder vesting on the fourth anniversary of this offering; and |
• | 40% (or $5.8 million) will be awarded in the form of stock options, the number of such options to be based on a Black- Scholes valuation performed as of the date of this offering, with such options having an exercise price of $ , equal to 110% of the midpoint of the stock price range set forth on the cover page of this prospectus, and with 50% of such options vesting on the third anniversary of this offering and the remainder vesting on the fifth anniversary of this offering. |
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Non-Equity | ||||||||||||||||||||
Incentive Plan | All Other | Total | ||||||||||||||||||
Name and | Salary | Compensation | Compensation | Compensation | ||||||||||||||||
Principal Position | Year | ($) | ($)(a) | ($)(b) | ($) | |||||||||||||||
Randall H. Talbot | 2006 | 525,000 | 4,523,083 | 13,200 | 5,061,283 | |||||||||||||||
President and Chief Executive Officer | ||||||||||||||||||||
Roger F. Harbin | 2006 | 400,000 | 3,010,789 | 13,200 | 3,423,989 | |||||||||||||||
Executive Vice President and COO | ||||||||||||||||||||
Margaret A. Meister(c) | 2006 | 269,615 | 380,331 | 11,560 | 661,506 | |||||||||||||||
Executive Vice President and Chief Financial Officer | ||||||||||||||||||||
Oscar C. Tengtio(d) | 2006 | 48,750 | — | 13,180 | 61,930 | |||||||||||||||
Executive Vice President and Chief Financial Officer | ||||||||||||||||||||
M. Scott Taylor | 2006 | 276,050 | 492,033 | 13,200 | 781,283 | |||||||||||||||
Senior Vice President Group Division | ||||||||||||||||||||
Patrick B. McCormick | 2006 | 200,000 | 494,154 | 12,092 | 706,246 | |||||||||||||||
Senior Vice President Sales and Distribution |
(a) | Represents (i) 2006 annual incentive bonuses paid in March 2007 (other than with respect to Mr. McCormick), (ii) in the case of Mr. McCormick, amounts earned under the 2006 Sales Incentive Plan, and (iii) amounts earned under the2004-2006 Performance Share Plan and paid in March 2007. Mr. Talbot earned $241,500 for the 2006 annual incentive bonus and $4,281,583 for the2004-2006 Performance Share Plan. Mr. Harbin earned $156,400 for the 2006 annual incentive bonus and $2,854,389 for the2004-2006 Performance Share Plan. Ms. Meister earned $130,572 for the 2006 annual incentive |
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bonus and $249,759 for the2004-2006 Performance Share Plan. Mr. Taylor earned $99,555 for the 2006 annual incentive bonus and $392,478 for the2004-2006 Performance Share Plan. Mr. McCormick earned $137,355 in his Sales Incentive Plan and $356,799 for the2004-2006 Performance Share Plan. |
(b) | Represents employer contributions to the Symetra Retirement Savings Plan. In addition, in the case of Ms. Meister, this amount also includes a grossed up employee referral bonus of $1,360. In the case of Mr. Tengtio, this amount also includes payment of $10,231 for accrued vacation upon the resignation of his employment. | |
(c) | Ms. Meister was promoted to Executive Vice President and Chief Financial Officer on February 17, 2006. | |
(d) | Mr. Tengtio resigned as an executive officer and employee on February 17, 2006. |
Estimated Future Payouts Under | ||||||||||||||||||||
Number of | Non-Equity Incentive Plan Awards | |||||||||||||||||||
Non-Equity | Units | Threshold | Target | Maximum | ||||||||||||||||
Name | Incentive Plan(a) | Cycle | Granted | ($) | ($) | ($) | ||||||||||||||
Randall H. Talbot | Annual Incentive Bonus Plan | 2006 | n/a | 0 | 262,500 | 525,000 | ||||||||||||||
Performance Share Plan | 2006 - 2008 | 30,000 | 0 | 4,320,000 | 9,360,000 | |||||||||||||||
Roger F. Harbin | Annual Incentive Bonus Plan | 2006 | n/a | 0 | 200,000 | 400,000 | ||||||||||||||
Performance Share Plan | 2006 - 2008 | 12,500 | 0 | 1,800,000 | 3,900,000 | |||||||||||||||
Margaret A. Meister | Annual Incentive Bonus Plan | 2006 | n/a | 0 | 126,719 | 253,438 | ||||||||||||||
Performance Share Plan | 2006 - 2008 | 6,500 | 0 | 936,000 | 2,028,000 | |||||||||||||||
M. Scott Taylor | Annual Incentive Bonus Plan | 2006 | n/a | 0 | 96,618 | 193,235 | ||||||||||||||
Performance Share Plan | 2006 - 2008 | 4,000 | 0 | 576,000 | 1,248,000 | |||||||||||||||
Patrick B. McCormick | Sales Incentive Plan | 2006 | n/a | 0 | 171,190 | 456,506 | ||||||||||||||
Performance Share Plan | 2006 - 2008 | 2,750 | 0 | 396,000 | 858,000 |
(a) | On May 17, 2006, the 2006 targets of the Annual Incentive Bonus Plan were approved for Messrs. Talbot, Harbin, Taylor and Ms. Meister. Mr. McCormick’s 2006 Sales Incentive Plan was approved by Mr. Talbot on January 25, 2006. On May 17, 2006, all Named Executive Officers were granted units in the2006-2008 Performance Share Plan. Each unit was initially valued at $100.00. |
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• | Stock Options. The Equity Plan provides for the grant of incentive stock options (commonly referred to as ISOs) to employees and nonqualified stock options (commonly referred to as NSOs) to employees, directors and consultants. The compensation committee determines the terms of options, provided that ISOs are subject to statutory limitations. The compensation committee determines the exercise price for a stock option, within the terms and conditions of the Equity Plan and applicable law, provided that the exercise price of an ISO may not be less than 100% (or 110% in the case of a recipient who is a ten percent stockholder) of the fair market value of our common stock on the date of grant. ISOs exercisable for no more than 50,000 shares may be issued to a participant in any one year. |
• | Stock Appreciation Rights. Stock appreciation rights provide for a payment, or payments, in cash or shares of common stock, to the participant based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price. The exercise price of a stock appreciation right may not be less than 100% of the fair market value of our common stock on the date of grant of the stock appreciation right. Stock appreciation rights are otherwise generally subject to the same terms and limitations as described above for stock options, including vesting acceleration upon termination following a change of control. |
• | Restricted Stock. A restricted stock award is an offer by us to sell shares of our common stock subject to a right of repurchase by us upon the termination of employment of the participant on such terms (including price and timing) as may be determined by the compensation committee. This right of repurchase may lapse according to vesting conditions, which may include performance conditions, a time-based schedule or a combination thereof, to be determined in each case by the compensation committee. In the event of death or disability of a holder of restricted stock subject to vesting other than monthly vesting, our right to repurchase such shares shall lapse with respect to a pro rata portion of the restricted shares equal to the percentage of the vesting period that has elapsed. The compensation |
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committee also has the discretion to waive all or a portion of our right to repurchase shares of restricted stock in the event of a participant’s voluntary resignation or retirement. In the event of a change of control followed by termination without cause or constructive termination of the participant within 12 months, the restrictions on such participant’s restricted stock will lapse. |
• | Restricted Stock Units. Restricted stock units represent the right to receive, without payment to the company, an amount of shares of our common stock equal to the number of shares underlying the restricted stock units multiplied by the fair market value of a share on the date of vesting of the restricted stock units. The compensation committee may, at its discretion, impose vesting conditions, which may include performance conditions, a time-based vesting schedule or a combination thereof, on the exercise of such units. A participant’s restricted stock units generally terminate in the event the participant’s employment terminates prior to payment with respect to the units. However, in the event of death or disability of a holder of restricted stock units that are subject to vesting other than monthly vesting, the holder will receive payment for a pro rata percentage of the unvested units equal to the percentage of the vesting period that has elapsed. The committee also has the discretion to make payment with respect to all or a portion of the unvested restricted stock units held by a participant in the event of such participant’s voluntary resignation or retirement. In the event of a change of control followed by termination without cause or constructive termination of the participant within 12 months, such participant’s restricted stock units that were outstanding on the date of termination will be cancelled and such participant will receive a cash payment equal to the product of the number of restricted stock units and the fair market value of a share of our common stock on the date of termination. |
• | Performance Shares/Units. A performance share award entitles a participant to receive all or part of the value of a specified number of hypothetical shares if specified performance objectives, as determined by the committee, are satisfied during a specified award period. The payout under a performance share award is the product of (i) the target number of performance shares subject to award, (ii) the performance percentage and (iii) the fair market value of a share on the date the award is paid or becomes payable to the participant. |
• | Other Stock-Based Awards. The compensation committee also has the discretion to issue other equity-based awards under the Equity Plan, including fully-vested shares of common stock. |
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• | a multiple, ranging from 1.5 to 2.0, of such officer’s annual base salary at the time of termination; and | |
• | the officer’s target annual incentive bonus in the year of termination, or in the case of Mr. McCormick, the sales incentive bonus earned in the year prior to termination. |
2006 Annual | 2005-2007 | 2006-2008 | ||||||||||||||
Incentive | Performance | Performance | ||||||||||||||
Executive | Bonus Plan ($)(a) | Share Plan ($)(b) | Share Plan ($)(b) | Total ($) | ||||||||||||
Randall H. Talbot | 262,500 | 3,413,110 | 3,087,610 | 6,763,220 | ||||||||||||
Roger F. Harbin | 200,000 | 1,422,129 | 1,286,504 | 2,908,633 | ||||||||||||
Margaret A. Meister | 126,719 | 255,983 | 668,982 | 1,051,684 | ||||||||||||
M. Scott Taylor | 96,618 | 455,081 | 411,681 | 963,380 | ||||||||||||
Patrick B. McCormick | 137,355 | 312,868 | 283,031 | 733,254 |
(a) | Reflects the amount payable under the 2006 Annual Incentive Bonus Plan, except with respect to Mr. McCormick, who would instead receive payment under his Sales Incentive Plan. This amount is payable in the event of death, disability, retirement at age 65 or older or elimination of position, whether or not a change of control of the company has occurred. | |
(b) | Payable in the event a Named Executive Officer’s employment is terminated without cause or constructively terminated within 24 months following a change of control of the company. In addition, the board of directors, at its discretion, may elect to award all or a portion of such amounts to an officer in the event of such executive’s death, retirement, disability or leave of absence, or in the event of termination in a manner not determined to be seriously detrimental to the company. |
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Fees Earned | ||||||||
or Paid in | ||||||||
Name | Cash ($) | Total ($) | ||||||
David T. Foy, Chairman(a) | 67,000 | 67,000 | ||||||
John D. Gillespie(b) | 28,000 | 28,000 | ||||||
Lois W. Grady(c) | 32,800 | 32,800 | ||||||
Sander M. Levy(d) | 54,500 | 54,500 | ||||||
Robert R. Lusardi(e) | 30,000 | 30,000 | ||||||
Ronald P. McIntosh(f) | 30,700 | 30,700 | ||||||
David I. Schamis(g) | 38,800 | 38,800 | ||||||
Randall H. Talbot(h) | — | — |
(a) | Includes Chairman of the Board retainer, annual retainer, and Board, Audit Committee and Compensation Committee meeting fees. | |
(b) | Includes annual retainer and Board meeting fees. Mr. Gillespie retired as a member of the Board as of June 26, 2007. | |
(c) | Includes annual retainer, and Board and Compensation Committee meeting fees. Ms. Grady also serves on the First Symetra National Life Insurance Company of New York Board of Directors and Audit Committee. | |
(d) | Includes Chairman of the Audit Committee retainer, annual retainer and Board and Audit Committee meeting fees. Mr. Levy also serves on the First Symetra National Life Insurance Company of New York Board of Directors and Audit Committee. All compensation is paid to Vestar Capital Partners. | |
(e) | Includes annual retainer and Board meeting fees. | |
(f) | Includes annual retainer and Board meeting fees. Mr. McIntosh also served on the First Symetra National Life Insurance Company of New York Board of Directors. Mr. McIntosh retired as a member of the Board of Symetra Financial Corporation as of June 21, 2007 and from the board of directors of First Symetra National Life Insurance Company of New York as of June 25, 2007. | |
(g) | Includes annual retainer, and Board and Audit Committee meeting fees. Mr. Schamis also serves on the First Symetra National Life Insurance Company of New York Board of Directors and Audit Committee. All compensation is paid to JC Flowers & Co. LLC. | |
(h) | Mr. Talbot is our employee and receives no additional retainer or fee for Board participation. |
• | Chairman of the Board Annual Retainer: $150,000 |
• | Board (excluding Chair) Annual Retainer: $75,000 |
• | Attendance at Board Meeting: $2,000 |
• | Audit Committee Chair retainer: $30,000 |
• | Audit Committee member (excluding Chair) retainer: $10,000 |
• | Compensation Committee Chair retainer: $10,000 |
• | Nominating and Corporate Governance Committee Chair retainer: $10,000 |
• | Attendance at each Committee Meeting: $2,000 |
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Value | Annual Fee | |||
Investment grade fixed income: | ||||
Up to $1 billion | Book | 10.0 basis points (0.1% or 0.001) | ||
$1 billion — $2 billion | Book | 8.5 basis points | ||
$2 billion — $5 billion | Book | 7.5 basis points | ||
Greater than $5 billion | Book | 2.5 basis points | ||
High yield debt | Market | 25.0 basis points | ||
Fully funded hedge funds, limited partnerships & limited liability companies | Market | 100.0 basis points | ||
Private equities & other deferred fundings: | ||||
First two years of fund’s life | Committed | 100.0 basis points | ||
Thereafter | Market | 100.0 basis points |
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Assets Under Management | Annual Fee | |
Up to $200 million | 100.0 basis points | |
$200 million to $400 million | 50.0 basis points | |
Greater than $400 million | 25.0 basis points |
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• | the nature of the related person’s interest in the transaction; | |
• | the material terms of the transaction, including, without limitation, the amount and type of transaction; | |
• | the importance of the transaction to the related person; | |
• | the importance of the transaction to us; |
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• | whether the transaction would impair the judgment of a director or executive officer to act in the best interest of the company; and | |
• | any other matters the audit committee deems appropriate. |
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• | each person known by us to beneficially own more than 5% of the outstanding shares of our common stock; | |
• | each selling stockholder; | |
• | each of our current directors; | |
• | each of our named executive officers; and | |
• | our directors and named executive officers as a group. |
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Shares Beneficially Owned | ||||||||||||||||||||||||||||||||
Shares Offered Hereby | After Offering | |||||||||||||||||||||||||||||||
Shares of | Assuming No | Assuming Full | Assuming No | Assuming Full | ||||||||||||||||||||||||||||
Common Stock | Exercise of | Exercise of | Exercise of | Exercise of | ||||||||||||||||||||||||||||
Beneficially Owned | Over-Allotment | Over-Allotment | Over-Allotment | Over-Allotment | ||||||||||||||||||||||||||||
Prior to the Offering | Option | Option | Option | Option | ||||||||||||||||||||||||||||
Beneficial Owner | Number | % | Number | Number | Number | % | Number | % | ||||||||||||||||||||||||
Selling Stockholders: | ||||||||||||||||||||||||||||||||
Berkshire Hathaway Inc. | 3,090,560 | (1)(2) | 24.1 | % | ||||||||||||||||||||||||||||
White Mountains Insurance Group, Ltd. | 3,090,560 | (1)(3) | 24.1 | |||||||||||||||||||||||||||||
Franklin Mutual Advisers, LLC | 1,250,000 | (4) | 9.7 | |||||||||||||||||||||||||||||
Highfields Capital Management LP | 700,000 | (5) | 5.5 | |||||||||||||||||||||||||||||
Caxton Associates, L.L.C. | 700,000 | (6) | 5.5 | |||||||||||||||||||||||||||||
OZ Master Fund, Ltd. | 700,000 | (7) | 5.5 | |||||||||||||||||||||||||||||
Vestar Capital Partners | 700,000 | (8) | 5.5 | |||||||||||||||||||||||||||||
Prospector Partners, LLC | 400,000 | (9) | 3.1 | |||||||||||||||||||||||||||||
CSFB Private Equity- DLJ Growth Capital Partners | 250,000 | (10) | 1.9 | |||||||||||||||||||||||||||||
J.C. Flowers & Co. LLC | 250,000 | (11) | 1.9 | |||||||||||||||||||||||||||||
Fairholme Capital Management, LLC | 200,000 | (12) | 1.6 | |||||||||||||||||||||||||||||
Marshfield Associates | 200,000 | (13) | 1.6 | |||||||||||||||||||||||||||||
Scion Capital, LLC | 200,000 | (14) | 1.6 | |||||||||||||||||||||||||||||
Montpelier Reinsurance Ltd. | 200,000 | (15) | 1.6 | |||||||||||||||||||||||||||||
Sayro Fund Investors III, LLC | 112,000 | (16) | * | |||||||||||||||||||||||||||||
Ulysses Partners, L.P. | 85,000 | (17) | * | |||||||||||||||||||||||||||||
Bay Pond Partners, L.P. | 75,000 | (18) | * | |||||||||||||||||||||||||||||
Rho Capital Partners, Inc. | 74,750 | (19) | * | |||||||||||||||||||||||||||||
The Sulam Trust | 27,500 | (20) | * | |||||||||||||||||||||||||||||
Bay Pond Investors (Bermuda) LP | 25,000 | (18) | * | |||||||||||||||||||||||||||||
Chou Associates Management, Inc. | 20,000 | (21) | * | |||||||||||||||||||||||||||||
James A. Stern | 10,000 | * | ||||||||||||||||||||||||||||||
Roger Taylor | 10,000 | * | ||||||||||||||||||||||||||||||
Terry Baxter | 5,000 | * | ||||||||||||||||||||||||||||||
Snyder, Cahoon & Co., PLLC Profit Sharing Plan | 2,000 | (22) | * | |||||||||||||||||||||||||||||
Michael J. Batal III | 750 | * | ||||||||||||||||||||||||||||||
Gene Lee | 500 | * | ||||||||||||||||||||||||||||||
Directors and Executive Officers: | ||||||||||||||||||||||||||||||||
David T. Foy | 3,090,560 | (1)(23) | 24.1 | % | ||||||||||||||||||||||||||||
Randall H. Talbot | 7,500 | * | — | — | 7,500 | * | 7,500 | * | ||||||||||||||||||||||||
Roger F. Harbin | 2,500 | * | — | — | 2,500 | * | 2,500 | * | ||||||||||||||||||||||||
Patrick B. McCormick | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Margaret A. Meister | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
M. Scott Taylor | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Lois W. Grady | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Sander M. Levy | 700,000 | (24) | 5.5 | |||||||||||||||||||||||||||||
Robert R. Lusardi | 3,090,560 | (1)(25) | 24.1 | |||||||||||||||||||||||||||||
David I. Schamis | 250,000 | (26) | 1.9 | |||||||||||||||||||||||||||||
Lowndes A. Smith | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Directors and executive officers as a group (18 persons) | 4,050,560 | 31.5 | % | — | — | |||||||||||||||||||||||||||
* | Represents ownership of less than 1% |
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(1) | Includes 1,090,560 of exercisable warrants. | |
(2) | Represents shares held by General Reinsurance Corporation. | |
(3) | Represents shares held by White Mountains Holdings (NL) B.V. | |
(4) | Represents 136,000 shares held by Franklin Mutual Beacon Fund, 51,200 shares held by Franklin Mutual Recovery Fund, 29,400 shares held by Mutual Beacon Fund (Canada), 117,300 shares held by Mutual Financial Services Fund, 394,800 shares held by Mutual Qualified Fund, 9,700 shares held by Mutual Recovery Fund, Ltd. and 511,600 shares held by Mutual Beacon Fund, collectively “the Funds.” Franklin Mutual Advisers, LLC (“FMA”), an indirect wholly owned subsidiary of Franklin Resources, Inc. (“FRI”), is the investment manager for each of the Funds. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of FRI. However, because FMA exercises voting and investment control on behalf of its advisory clients independently of FRI, the principal shareholders, and their respective affiliates, beneficial ownership of the shares is being attributed only to FMA. FMA disclaims any economic interest or beneficial ownership in any of the shares. The address of FMA is 101 John F. Kennedy Parkway, Short Hills, NJ 07078. | |
(5) | Represents 63,664 shares held by Highfields Capital I LP, 150,164 shares held by Highfields Capital II LP and 486,172 shares held by Highfields Capital III L.P., collectively “the Funds.” Highfields Capital Management LP serves as the investment manager to each of the Funds. Highfields GP LLC is the general partner of Highfields Capital Management LP. Highfields Associates LLC is the general partner of the Funds. Jonathon S. Jacobson and Richard L. Grubman are Senior Managing Directors of Highfields Capital Management LP, Managing Members of Highfields GP LLC, and Senior Managing Members of Highfields Associates LLC. Each of Highfields Capital Management LP, Highfields GP LLC, Highfields Associates LLC, Mr. Jacobson and Mr. Grubman has complete voting and investment control over the shares. The address of Highfields Capital Management LP, Highfields GP LLC, Highfields Associates LLC, Mr. Jacobson and Mr. Grubman isc/o Highfields Capital Management LP, John Hancock Tower, 200 Clarendon Street, 59th Floor, Boston, MA 02116. | |
(6) | Represents shares held by CxLife, LLC. Caxton Associates, L.L.C. is the manager of CxLife, LLC. Bruce S. Kovner is the Chairman of Caxton Associates, L.L.C. and the sole shareholder of Caxton Corporation, the manager and majority owner of Caxton Associates, L.L.C. As a result of the foregoing, Mr. Kovner may be deemed to beneficially own the shares. The address of Caxton Associates, L.L.C. is 500 Park Avenue, New York, NY 10022. The address of Caxton Corporation is 731 Alexander Road, Building 2, Princeton, NJ 08540. | |
(7) | OZ Management LP. Daniel S. Och, Senior Managing Member of Och-Ziff GP, LLC may be deemed to have investment and/or voting control of OZMD. The address of OZ Management LP is 9 West 57th Street, 39th Floor, New York, NY 10019. | |
(8) | Represents 14,761 shares held by Vestar Symetra LLC and 685,239 shares held by Vestar Capital Partners IV, LP, entities which are affiliated with or managed by Vestar Capital Partners. Sander M. Levy is a managing director of Vestar Capital Partners. Mr. Levy disclaims beneficial ownership in the shares except to the extent of any pecuniary interest therein. The address of Vestar Capital Partners is 245 Park Avenue, 41st Floor, New York, NY 10167. | |
(9) | Represents (i) 380,000 common shares owned by various funds (235,300 shares held by Prospector Partners Fund, LP, 112,200 shares held by Prospector Offshore Fund (Bermuda), Ltd., 28,000 shares held by Prospector Partners Small Cap Fund, LP, and 4,500 shares held by Prospector Turtle Fund, LP) of Prospector Partners, LLC in which John D. Gillespie is a managing member, (ii) 10,000 common shares held by Main Street America Assurance Corporation to which Mr. Gillespie serves as an investment manager and (iii) 10,000 common shares held by National Grange Mutual Insurance Company to which Mr. Gillespie serves as an investment manager. Mr. Gillespie disclaims beneficial ownership of such common shares owned by Prospector Partners, LLC, except to the extent of his pecuniary interest therein. The address of Prospector Partners, LLC is 370 Church Street, Guilford, CT 06437. | |
(10) | Represents 202,020 shares held by DLJ Growth Capital Partners, L.P. and 47,980 shares held by GCP Plan Investors, L.P. Voting and investment control over the shares held by DLJ Growth Capital Partners, L.P. and GCP Plan Investors, L.P. are exercised by an investment committee of DLJ Growth Capital, L.P., |
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which is the Associate General Partner of DLJ Growth Capital Partners, L.P. The investment committee consists of the following individuals: Nicole S. Arnaboldi, Edward A. Johnson and Thompson Dean. Such individuals disclaim beneficial ownership of the shares, except to the extent of their direct pecuniary interest therein. The business address of DLJ Growth Capital Partners, L.P. and GCP Plan Investors, L.P. is 11 Madison Avenue, New York, NY 10010. | ||
(11) | Represents shares held by J.C. Flowers I L.P. JCF Associates I LLC is the general partner of J.C. Flowers I L.P., and J. Christopher Flowers is the managing member of JCF Associates I LLC and possesses voting and investment control over the shares held by J.C. Flowers I L.P. J. Christopher Flowers disclaims beneficial ownership of the shares, except to the extent of his direct pecuniary interest therein. The business address of J.C. Flowers I L.P. is 717 Fifth Avenue, 26th Floor, New York, NY 10022. | |
(12) | Represents 100,000 shares held by Fairholme Ventures II, LLC and 100,000 shares held by Fairholme Holdings, Ltd. Fairholme Capital Management, LLC acts as the Managing Member of Fairholme Ventures II, LLC and is the Investment Manager to Fairholme Holdings, Ltd. Bruce R. Berkowitz is the Managing Member of Fairholme Capital Management, LLC, and the Chairman and Director of Fairholme Holdings, Ltd., a Bermuda exempted mutual fund, and has the sole voting and investment control over the shares. The address of Fairholme Capital Management, LLC is 1001 Brickell Bay Drive, Suite 3112, Miami, FL 33131. | |
(13) | Represents shares held by Marshfield Insurance II, LLC. Marshfield Management II, LLC is the Managing Member of Marshfield Insurance II, LLC. Christopher M. Niemczewski, Melissa Vinick, Elise Hoffmann, Carolyn Miller, Sara J. Cavendish and William G. Stott are the Managers of Marshfield Management II, LLC and share voting and investment control over the shares held by Marshfield Insurance II, LLC. The Managers of Marshfield Management II, LLC disclaim beneficial ownership of the shares, except to the extent of their direct pecuniary interest in the shares. The address of Marshfield Management II, LLC is 21 Dupont Circle, Washington, DC 20036. | |
(14) | Represents 165,415 shares held by Scion Qualified Value Fund and 34,585 shares held by Scion Value Fund. Scion Capital, LLC is the managing member of both Scion Value Fund and Scion Qualified Value Fund. Dr. Michael J. Burry is the managing member of Scion Capital, LLC and has sole voting and investment control over the shares held by Scion Value Fund and Scion Qualified Value Fund. The managing member of Scion Capital, LLC disclaims beneficial ownership of the shares, except to the extent of his direct pecuniary interest in the shares. The address of Scion Capital, LLC is 20400 Stevens Creek Blvd., Suite 840, Cupertino, CA 95014. | |
(15) | The board of directors of Montpelier Reinsurance Ltd., consisting of Anthony Taylor, Thomas G.S. Busher and Christopher L. Harris, exercises shared voting and investment control over such shares. Each of Messrs. Taylor, Busher and Harris disclaim beneficial ownership of the shares owned by Montpelier Reinsurance Ltd., except to the extent of their direct pecuniary interest in the shares. The address of Montpelier Reinsurance Ltd. is 94 Pitts Bay Road, Pembroke HM08, Bermuda. | |
(16) | Sayro Ventures, Ltd. is the managing member of Sayro Fund Investors III, LLC. George D. Kean, Kenneth J. Simpson, and Ashley Cox are the directors of Sayro Ventures, Ltd., and possess shared voting and investment control over the shares. The address of Sayro Ventures, Ltd. is Barclays Wealth, P.O. Box 487, First Caribbean House, 4th Floor, 25 Main Street, Grand Cayman KY1-1106, Cayman Islands. | |
(17) | Joshua Nash LLC is a general partner of Ulysses Partners, L.P. and has voting and investment control over the shares held by Ulysses Partners, L.P. Joshua Nash is the managing member of Joshua Nash LLC and has the sole power to vote, direct the voting of, dispose of and direct the disposition of the shares of common stock beneficially owned by Ulysses Partners, L.P. Joshua Nash expressly disclaims any such beneficial ownership which exceeds the proportionate interest in the common stock which he may be deemed to own indirectly through Ulysses Partners, L.P. The address of Joshua Nash isc/o Ulysses Partners, L.P., 280 Park Avenue, New York, NY 10017. | |
(18) | Wellington Management Company, LLP (“Wellington”) is an investment adviser registered under the Investment Advisers Act of 1940, as amended. Wellington, in such capacity, may be deemed to share |
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beneficial ownership over the shares held by its client accounts. The address of Wellington is 75 State Street, Boston, MA 02109. | ||
(19) | Represents shares held by Rho Management Trust I (“RMT I”). Pursuant to an Investment Advisory Agreement between RMT I and Rho Management Partners L.P. (“Rho”), Rho exercises sole voting and investment control over the shares held of record by RMT I. Altas Capital Corp., a Delaware corporation, is sole general partner of Rho. As sole stockholder of Atlas Capital Corp., Joshua Ruch may be deemed to have sole voting and investment control over the shares held by RMT I. Joshua Ruch disclaims beneficial ownership of the shares held of record by RMT I, except to the extent of his indirect pecuniary interest in such shares. The address of RMT I, Rho, and Joshua Ruch isc/o Rho Capital Partners, Inc., 152 W. 57th Street, 23rd Floor, New York, NY 10019. | |
(20) | Represents shares held by JP Morgan Trust Co. of Delaware as Trustee for the Sulam Trust. Pursuant to the Trust instrument, Moris Tabacinic serves as investment adviser to the Trust and possesses sole voting and investment control over the shares. The address of JP Morgan Trust Co. of Delaware is 500 Stanton Christiana Road, Newark, DE 19713. | |
(21) | Represents shares held by Chou RRSP Fund. The manager of Chou RRSP Fund is Chou Associates Management, Inc. Francis Chou is the Chief Executive Officer of the manager and portfolio manager for Chou RRSP Fund. The address of Chou Associates Management, Inc. is 95 Wellington St., West, Suite 701, Toronto, Ontario M5J 2N7. | |
(22) | Robert E. Snyder and Michael Cahoon, trustees of the Snyder, Cahoon & Co., PLLC Profit Sharing Plan (“Plan”) possess voting and investment control over the shares. The address of the Plan and trustees isc/o Snyder, Cahoon & Co., PLLC, 80 South S. Main Street, Suite 202, Hanover, NH 03755. | |
(23) | Represents shares owned by affiliates of White Mountains Insurance Group, Ltd. of which Mr. Foy is an executive officer. Mr. Foy disclaims beneficial ownership of all such shares. | |
(24) | Represents shares owned by affiliates of Vestar Capital Partners of which Mr. Levy is a Managing Director. Mr. Levy disclaims beneficial ownership of all such shares. | |
(25) | Represents shares owned by affiliates of White Mountains Insurance Group, Ltd. of which Mr. Lusardi is an executive officer. Mr. Lusardi disclaims beneficial ownership of all such shares. | |
(26) | Represents shares owned by affiliates of J.C. Flowers & Co. LLC of which Mr. Schamis is a Managing Director. Mr. Schamis disclaims beneficial ownership of all such shares. |
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• | for breach of duty of loyalty; | |
• | for acts or omissions not in good faith or involving intentional misconduct or knowing violation of law; | |
• | under Section 174 of the DGCL (unlawful dividends); or | |
• | for transactions from which the director derived improper personal benefit. |
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• | create liens; | |
• | enter into certain sale and leaseback transactions; and | |
• | enter into certain mergers and acquisitions. |
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• | 1% of the then outstanding shares of common stock, which will equal approximately 106,490 shares of common stock immediately after this offering; and |
• | the average weekly trading volume of the common stock on the open market during the four calendar weeks preceding the filing of notice with respect to such sale. |
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• | an individual citizen or resident of the United States; | |
• | a corporation or other entity taxable as a corporation created or organized in, or under the laws of, the United States or any political subdivision of the United States; | |
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; | |
• | a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust; or | |
• | a trust that has a valid election in place to be treated as a U.S. person. |
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• | the gain is effectively connected with your conduct of a trade or business within the United States (and, under certain income tax treaties, is attributable to a U.S. permanent establishment you maintain); | |
• | you are an individual, you are present in the United States for 183 days or more in the taxable year of disposition and you meet other conditions, and you are not eligible for relief under an applicable income tax treaty; or | |
• | we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes (which we believe we are not and have never been, and do not anticipate we will become) and you hold or have held, directly or indirectly, at any time within the shorter of the five-year period preceding disposition or your holding period for your shares of common stock, more than 5% of our common stock. |
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Underwriter | Number of Shares | |||
Merrill Lynch, Pierce, Fenner & Smith Incorporated | ||||
Goldman, Sachs & Co. | ||||
J.P. Morgan Securities Inc. | ||||
Lehman Brothers Inc. | ||||
Total | ||||
Per Share | Without Option | With Option | ||||||||||
Public offering price | $ | $ | $ | |||||||||
Underwriting discount | $ | $ | $ | |||||||||
Proceeds, before expenses, to the selling stockholders | $ | $ | $ |
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• | offer, pledge, sell or contract to sell any common stock; | |
• | sell any option or contract to purchase any common stock; | |
• | purchase any option or contract to sell any common stock; | |
• | grant any option, right or warrant for the sale of any common stock; | |
• | lend or otherwise dispose of or transfer any common stock; | |
• | request or demand that we file a registration statement related to the common stock; or | |
• | enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise. |
• | the valuation multiples of publicly traded companies that the representatives believe to be comparable to us; | |
• | our financial information; | |
• | the history of, and the prospects for, our company and the industry in which we compete; | |
• | an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues; |
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• | the present state of our development; and | |
• | the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. |
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• | to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; | |
• | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; | |
• | to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or | |
• | in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. |
• | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and | |
• | it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom. |
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Page | ||||
Audited Consolidated Financial Statements of Symetra Financial Corporation | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-9 | ||||
Unaudited Consolidated Financial Statements | ||||
F-44 | ||||
F-45 | ||||
F-46 | ||||
F-47 | ||||
F-48 | ||||
F-49 |
F-1
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December 31, | ||||||||
2006 | 2005 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Investments:(Note 3) | ||||||||
Available-for-sale securities: | ||||||||
Fixed maturities, at fair value (amortized cost: | ||||||||
$16,086,596 and $16,987,097, respectively) | $ | 16,049,878 | $ | 17,183,197 | ||||
Marketable equity securities, at fair value (cost: | ||||||||
$171,003 and $148,917, respectively) | 201,706 | 162,301 | ||||||
Mortgage loans | 794,283 | 776,923 | ||||||
Policy loans | 79,244 | 80,463 | ||||||
Short-term investments | 48,882 | 7,364 | ||||||
Investments in limited partnerships | 112,648 | 93,400 | ||||||
Other invested assets | 18,705 | 29,125 | ||||||
Total investments | 17,305,346 | 18,332,773 | ||||||
Cash and cash equivalents | 253,210 | 111,023 | ||||||
Accrued investment income | 206,717 | 213,914 | ||||||
Accounts receivable and other receivables | 81,993 | 50,909 | ||||||
Reinsurance recoverables(Note 7) | 238,764 | 229,888 | ||||||
Deferred policy acquisition costs(Note 8) | 88,237 | 49,017 | ||||||
Goodwill | 3,687 | 3,687 | ||||||
Current income tax recoverable | — | 26,281 | ||||||
Deferred income tax assets, net(Note 12) | 219,091 | 137,347 | ||||||
Property, equipment, and leasehold improvements, net(Note 9) | 28,076 | 30,522 | ||||||
Other assets | 16,275 | 7,429 | ||||||
Securities lending collateral(Note 5) | 439,292 | 598,451 | ||||||
Separate account assets | 1,233,929 | 1,188,820 | ||||||
Total assets | $ | 20,114,617 | $ | 20,980,061 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Funds held under deposit contracts | $ | 15,986,198 | $ | 16,697,903 | ||||
Future policy benefits | 376,363 | 371,457 | ||||||
Policy and contract claims(Note 10) | 119,514 | 135,655 | ||||||
Unearned premiums | 11,721 | 11,560 | ||||||
Other policyholders’ funds | 46,369 | 47,532 | ||||||
Notes payable(Note 11) | 298,737 | 300,000 | ||||||
Current income taxes payable(Note 12) | 2,551 | — | ||||||
Other liabilities | 272,630 | 223,815 | ||||||
Securities lending payable(Note 5) | 439,292 | 598,451 | ||||||
Separate account liabilities | 1,233,929 | 1,188,820 | ||||||
Total liabilities | 18,787,304 | 19,575,193 | ||||||
Commitments and contingencies(Note 14) | ||||||||
Capital stock(Note 1) | 106 | 106 | ||||||
Additional paid-in capital | 1,166,325 | 1,166,325 | ||||||
Retained earnings | 161,432 | 101,902 | ||||||
Accumulated other comprehensive income (loss), net of taxes(Note 13) | (550 | ) | 136,535 | |||||
Total stockholders’ equity | 1,327,313 | 1,404,868 | ||||||
Total liabilities and stockholders’ equity | $ | 20,114,617 | $ | 20,980,061 | ||||
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Predecessor | ||||||||||||||||
Period from | Period from | |||||||||||||||
August 2, 2004 | January 1, 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August 1, | |||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Premiums(Note 7) | $ | 525,657 | $ | 575,459 | $ | 263,195 | $ | 357,925 | ||||||||
Net investment income(Note 3) | 984,927 | 994,048 | 411,120 | 693,702 | ||||||||||||
Other revenues | 56,172 | 58,559 | 27,050 | 43,943 | ||||||||||||
Net realized investment gains(Note 3) | 1,680 | 14,140 | 7,003 | 34,892 | ||||||||||||
Total revenues | 1,568,436 | 1,642,206 | 708,368 | 1,130,462 | ||||||||||||
Benefits and expenses: | ||||||||||||||||
Policyholder benefits and claims | 264,252 | 327,427 | 127,499 | 223,578 | ||||||||||||
Interest credited | 765,871 | 810,928 | 360,196 | 556,433 | ||||||||||||
Other underwriting and operating expenses | 260,541 | 273,247 | 123,242 | 182,334 | ||||||||||||
Fair value of warrants issued to investors | — | — | 101,531 | — | ||||||||||||
Interest expense (Note 11) | 19,155 | 12,388 | 3,466 | — | ||||||||||||
Amortization of deferred policy acquisition costs(Note 8) | 14,589 | 11,861 | 1,626 | 34,164 | ||||||||||||
Intangible asset amortization | — | — | — | 4,929 | ||||||||||||
Total benefits and expenses | 1,324,408 | 1,435,851 | 717,560 | 1,001,438 | ||||||||||||
Income (loss) from continuing operations before income taxes | 244,028 | 206,355 | (9,192 | ) | 129,024 | |||||||||||
Provision (benefit) for income taxes(Note 12): | ||||||||||||||||
Current | 92,414 | 22,193 | 21,299 | 916 | ||||||||||||
Deferred | (7,916 | ) | 39,720 | 10,683 | 30,486 | |||||||||||
Total provision for income taxes | 84,498 | 61,913 | 31,982 | 31,402 | ||||||||||||
Income (loss) from continuing operations | 159,530 | 144,442 | (41,174 | ) | 97,622 | |||||||||||
Income (loss) from discontinued operations (net of taxes of $(0), $536, $(1,335), and $1,235, respectively)(Note 15) | — | 1,045 | (2,411 | ) | 2,296 | |||||||||||
Net income (loss) | $ | 159,530 | $ | 145,487 | $ | (43,585 | ) | $ | 99,918 | |||||||
Net income per common share | ||||||||||||||||
Basic | $ | 12.43 | $ | 11.34 | ||||||||||||
Diluted | $ | 12.43 | $ | 11.34 | ||||||||||||
Weighted average number of common shares outstanding (in millions) | ||||||||||||||||
Basic | 12.8 | 12.8 | ||||||||||||||
Diluted | 12.8 | 12.8 |
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Predecessor | ||||||||||||||||
Period from | Period from | |||||||||||||||
August 2, 2004 | January 1, 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August 1, | |||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
(In thousands) | ||||||||||||||||
Capital stock: | ||||||||||||||||
Balance at beginning of period | $ | 106 | $ | 106 | $ | 7,459 | $ | 7,459 | ||||||||
Purchase method accounting adjustment | — | — | (7,459 | ) | — | |||||||||||
Capital contribution from stockholders | — | — | 106 | — | ||||||||||||
Balance at end of period | 106 | 106 | 106 | 7,459 | ||||||||||||
Additional paid-in capital: | ||||||||||||||||
Balance at beginning of period | 1,166,325 | 1,166,325 | 407,683 | 397,354 | ||||||||||||
Purchase method accounting adjustment | — | — | (407,683 | ) | — | |||||||||||
Capital contribution from Safeco | — | — | — | 8,834 | ||||||||||||
Capital contributions from stockholders | — | — | 1,064,794 | — | ||||||||||||
Issuance of warrants to investors | — | — | 101,531 | — | ||||||||||||
Stock option expense allocation from Safeco | — | — | — | 1,495 | ||||||||||||
Balance at end of period | 1,166,325 | 1,166,325 | 1,166,325 | 407,683 | ||||||||||||
Retained earnings (deficit): | ||||||||||||||||
Balance at beginning of period | 101,902 | (43,585 | ) | 1,367,690 | 1,332,072 | |||||||||||
Purchase method accounting adjustment | — | — | (1,367,690 | ) | — | |||||||||||
Net income (loss) | 159,530 | 145,487 | (43,585 | ) | 99,918 | |||||||||||
Dividend distributions | (100,000 | ) | — | — | (64,300 | ) | ||||||||||
Balance at end of period | 161,432 | 101,902 | (43,585 | ) | 1,367,690 | |||||||||||
Accumulated other comprehensive income (loss), net of taxes(Note 13): | ||||||||||||||||
Balance at beginning of period | 136,535 | 312,931 | 636,149 | 829,772 | ||||||||||||
Purchase method accounting adjustment | — | — | (636,149 | ) | — | |||||||||||
Other comprehensive income (loss) | (137,085 | ) | (176,396 | ) | 312,931 | (193,623 | ) | |||||||||
Balance at end of period | (550 | ) | 136,535 | 312,931 | 636,149 | |||||||||||
Total stockholders’ equity | $ | 1,327,313 | $ | 1,404,868 | $ | 1,435,777 | $ | 2,418,981 | ||||||||
F-5
Table of Contents
Predecessor | ||||||||||||||||
Period from | Period from | |||||||||||||||
August 2, 2004 | January 1, 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August 1, | |||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
(In thousands) | ||||||||||||||||
Net income (loss).. | $ | 159,530 | $ | 145,487 | $ | (43,585 | ) | $ | 99,918 | |||||||
Other comprehensive income (loss), net of taxes: | ||||||||||||||||
Changes in unrealized gains and losses on available-for-sales securities (net of tax: | ||||||||||||||||
$(75,838), $(91,878), $170,296, and $(103,157), respectively) | (140,843 | ) | (170,629 | ) | 316,262 | (191,578 | ) | |||||||||
Reclassification adjustment for net realized investment (gains) losses included in net income (net of tax: $383, $(3,525), $(1,551), and $(12,395), respectively) | 712 | (6,547 | ) | (2,879 | ) | (23,018 | ) | |||||||||
Derivatives qualifying as cash flow hedges — net change in fair value (net of tax: | ||||||||||||||||
$1,601, $(0), $(0), and $(2,390), respectively) | 2,976 | — | — | (4,439 | ) | |||||||||||
Adjustment for deferred policy acquisition costs valuation allowance (net of tax: $38, $421, $(243), and $13,683, respectively) | 70 | 780 | (452 | ) | 25,412 | |||||||||||
Other comprehensive income (loss) | (137,085 | ) | (176,396 | ) | 312,931 | (193,623 | ) | |||||||||
Comprehensive income (loss) | $ | 22,445 | $ | (30,909 | ) | $ | 269,346 | $ | (93,705 | ) | ||||||
F-6
Table of Contents
Predecessor | ||||||||||||||||
Period from | Period from | |||||||||||||||
August 2, 2004 | January 1, 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August 1, | |||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
(In thousands) | ||||||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net income (loss) | $ | 159,530 | $ | 145,487 | $ | (43,585 | ) | $ | 99,918 | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Net realized investment gains | (1,680 | ) | (16,394 | ) | (7,129 | ) | (35,017 | ) | ||||||||
Accretion of fixed maturity investments and mortgage loans | 72,474 | 99,068 | 62,768 | 4,109 | ||||||||||||
Accrued interest on accrual bonds | (43,444 | ) | (45,383 | ) | (19,502 | ) | (27,504 | ) | ||||||||
Amortization and depreciation | 12,077 | 9,069 | 1,090 | 6,104 | ||||||||||||
Deferred income tax provision (benefit) | (7,916 | ) | 39,994 | 10,764 | 30,486 | |||||||||||
Interest credited on deposit contracts | 765,871 | 810,928 | 360,196 | 556,433 | ||||||||||||
Mortality and expense charges and administrative fees | (91,187 | ) | (89,185 | ) | (35,825 | ) | (50,718 | ) | ||||||||
Fair value of warrants issued to investors | — | — | 101,531 | — | ||||||||||||
Changes in: | ||||||||||||||||
Accrued investment income | 7,197 | 15,459 | 9,539 | (7,522 | ) | |||||||||||
Deferred policy acquisition costs | (39,112 | ) | (33,438 | ) | (13,816 | ) | 11,011 | |||||||||
Other receivables | (28,957 | ) | (7,790 | ) | (3,359 | ) | 20,143 | |||||||||
Policy and contract claims | (16,141 | ) | (17,518 | ) | (113 | ) | 14,061 | |||||||||
Future policy benefits | 4,906 | 16,545 | (5,234 | ) | 5,710 | |||||||||||
Unearned premiums | 161 | 2,157 | (710 | ) | 275 | |||||||||||
Accrued income taxes | 28,832 | (27,436 | ) | 11,889 | (37,579 | ) | ||||||||||
Other assets and liabilities | 17,793 | (34,910 | ) | 4,248 | (59,893 | ) | ||||||||||
Other, net | 1,170 | (415 | ) | 247 | 863 | |||||||||||
Total adjustments | 682,044 | 720,751 | 476,584 | 430,962 | ||||||||||||
Net cash provided by operating activities | 841,574 | 866,238 | 432,999 | 530,880 | ||||||||||||
Cash flows from investing activities | ||||||||||||||||
Purchases of: | ||||||||||||||||
Fixed maturities | (1,613,303 | ) | (2,931,413 | ) | (1,229,884 | ) | (1,685,424 | ) | ||||||||
Equity securities | (114,008 | ) | (121,143 | ) | (42,992 | ) | (3,375 | ) | ||||||||
Other invested assets and investments in limited partnerships | (12,457 | ) | (68,659 | ) | (19,410 | ) | (173 | ) | ||||||||
Issuance of mortgage loans | (121,987 | ) | (101,992 | ) | (15,543 | ) | (40,854 | ) | ||||||||
Issuance of policy loans | (19,574 | ) | (17,895 | ) | (7,546 | ) | (12,550 | ) | ||||||||
Maturities and calls of fixed maturities available-for-sale | 840,885 | 1,278,633 | 791,391 | 974,773 | ||||||||||||
Sales of: | ||||||||||||||||
Fixed maturities | 1,603,453 | 2,370,396 | 386,719 | 724,198 | ||||||||||||
Equity securities | 106,657 | 81,776 | 42,578 | 4,478 | ||||||||||||
Other invested assets and investments in limited partnerships | 13,235 | 1,525 | 17,320 | 1,621 | ||||||||||||
Repayment of mortgage loans | 99,085 | 134,774 | 70,230 | 152,745 | ||||||||||||
Repayment of policy loans | 20,663 | 19,244 | 8,555 | 12,956 | ||||||||||||
Net (increase) decrease in short-term investments | $ | (41,518 | ) | $ | 10,158 | $ | (6,067 | ) | $ | 18,857 | ||||||
Purchase of Safeco Life & Investments | — | — | (1,349,911 | ) | — |
F-7
Table of Contents
Predecessor | ||||||||||||||||
Period from | Period from | |||||||||||||||
August 2, 2004 | January 1, 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August 1, | |||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
(In thousands) | ||||||||||||||||
Purchase of property, equipment, and leasehold improvements | (3,164 | ) | (34,614 | ) | — | — | ||||||||||
Cash received from sale of discontinued operations | — | — | 30,000 | — | ||||||||||||
Other, net | (10 | ) | (356 | ) | (1,099 | ) | 281 | |||||||||
Net cash provided by (used in) investing activities | 757,957 | 620,434 | (1,325,659 | ) | 147,533 | |||||||||||
Cash flows from financing activities | ||||||||||||||||
Capital contributions received | — | — | — | 1,131 | ||||||||||||
Policyholder account balances: | ||||||||||||||||
Deposit | 656,526 | 444,638 | 179,250 | 211,851 | ||||||||||||
Withdrawals | (2,014,315 | ) | (1,972,483 | ) | (675,351 | ) | (757,495 | ) | ||||||||
Repayment of notes payable | (300,000 | ) | — | (15,000 | ) | — | ||||||||||
Proceeds from notes payable | 298,671 | — | 315,000 | — | ||||||||||||
Proceeds from sale of capital stock | — | — | 1,064,900 | — | ||||||||||||
Dividend distributions | (100,000 | ) | — | — | (64,300 | ) | ||||||||||
Other, net | 1,774 | (11 | ) | — | — | |||||||||||
Net cash provided by (used in) financing activities | (1,457,344 | ) | (1,527,856 | ) | 868,799 | (608,813 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents | 142,187 | (41,184 | ) | (23,861 | ) | 69,600 | ||||||||||
Cash and cash equivalents at beginning of period | 111,023 | 148,832 | 165,617 | 102,480 | ||||||||||||
Plus: Cash and cash equivalents at beginning of period, discontinued operations | — | 3,375 | 10,451 | 3,988 | ||||||||||||
Less: Cash and cash equivalents at end of period, discontinued operations | — | — | (3,375 | ) | (10,451 | ) | ||||||||||
Cash and cash equivalents at end of period | $ | 253,210 | $ | 111,023 | $ | 148,832 | $ | 165,617 | ||||||||
Supplemental disclosures of cash flow information | ||||||||||||||||
Net cash paid during the year for: | ||||||||||||||||
Interest | $ | 17,840 | $ | 12,040 | $ | 3,312 | $ | — | ||||||||
Income taxes | 62,795 | 59,756 | 7,898 | 39,817 | ||||||||||||
Non-cash transactions during the year: | ||||||||||||||||
Issuance of warrants to investors | — | — | 101,531 | — | ||||||||||||
Investments in limited partnerships and capital obligation incurred | 19,864 | 31,599 | — | — | ||||||||||||
Other capital contribution | — | — | — | 7,703 | ||||||||||||
Acquisitions: | ||||||||||||||||
Purchase price adjustment to intangible assets | — | 4,200 | — | — | ||||||||||||
Fair value of assets acquired: | — | — | 21,912,561 | — | ||||||||||||
Cash paid in acquisition | — | — | 1,349,910 | — | ||||||||||||
Liabilities assumed in acquisition | — | — | 20,562,651 | — |
F-8
Table of Contents
1. | Organization and Description of Business |
• | Symetra Life Insurance Company (formerly Safeco Life Insurance Company) | |
• | Symetra National Life Insurance Company (formerly Safeco National Life Insurance Company) | |
• | American States Life Insurance Company | |
• | First Symetra National Life Insurance Company of New York (formerly First Safeco National Life Insurance Company of New York) | |
• | Symetra Administrative Services, Inc. (formerly Safeco Administrative Services, Inc.) | |
• | Symetra Asset Management Company (formerly Safeco Asset Management Company) | |
• | Symetra Securities, Inc. (formerly Safeco Securities, Inc.) | |
• | Symetra Services Corporation (formerly Safeco Services Corporation) | |
• | Symetra Investment Services, Inc. (formerly Safeco Investment Services, Inc.) | |
• | Symetra Assigned Benefits Service Company (formerly Safeco Assigned Benefits Service Company) |
F-9
Table of Contents
Seven Months Ended | ||||
August 1, 2004 | ||||
Net income as reported in Consolidated Statements of Operations | $ | 99,918 | ||
Add back: Amortization of DAC and intangibles | 25,410 | |||
Pro forma net income | $ | 125,328 | ||
2. | Summary of Significant Accounting Policies |
F-10
Table of Contents
F-11
Table of Contents
• | How long and by how much the fair value has been below its cost or amortized cost. | |
• | The financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operations or earnings potential. | |
• | The Company’s intent and ability to hold the security long enough for it to recover its value, considering any long-range plans that may affect the Company’s ability to hold securities. | |
• | Any downgrades of the security by a rating agency. | |
• | Any reduction or elimination of dividends, or nonpayment of scheduled interest payments. |
F-12
Table of Contents
F-13
Table of Contents
F-14
Table of Contents
F-15
Table of Contents
F-16
Table of Contents
F-17
Table of Contents
3. | Investments |
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
December 31, 2006 | ||||||||||||||||
Fixed maturities: | ||||||||||||||||
U.S. government and agencies | $ | 157,000 | $ | 1,775 | $ | (879 | ) | $ | 157,896 | |||||||
State and political subdivisions | 666,101 | 9,329 | (4,532 | ) | 670,898 | |||||||||||
Foreign governments | 205,186 | 4,166 | (477 | ) | 208,875 | |||||||||||
Corporate securities | 10,670,752 | 164,266 | (168,550 | ) | 10,666,468 | |||||||||||
Mortgage-backed securities | 4,387,557 | 26,750 | (68,566 | ) | 4,345,741 | |||||||||||
Total fixed maturities | 16,086,596 | 206,286 | (243,004 | ) | 16,049,878 | |||||||||||
Marketable equity securities | 171,003 | 32,046 | (1,343 | ) | 201,706 | |||||||||||
Total | $ | 16,257,599 | $ | 238,332 | $ | (244,347 | ) | $ | 16,251,584 | |||||||
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
December 31, 2005 | ||||||||||||||||
Fixed maturities: | ||||||||||||||||
U.S. government and agencies | $ | 652,304 | $ | 49,460 | $ | (799 | ) | $ | 700,965 | |||||||
State and political subdivisions | 741,671 | 25,217 | (1,636 | ) | 765,252 | |||||||||||
Foreign governments | 353,333 | 13,119 | (227 | ) | 366,225 | |||||||||||
Corporate securities | 10,881,369 | 267,274 | (137,063 | ) | 11,011,580 | |||||||||||
Mortgage-backed securities | 4,358,420 | 42,290 | (61,535 | ) | 4,339,175 | |||||||||||
Total fixed maturities | 16,987,097 | 397,360 | (201,260 | ) | 17,183,197 | |||||||||||
Marketable equity securities | 148,917 | 15,234 | (1,850 | ) | 162,301 | |||||||||||
Total | $ | 17,136,014 | $ | 412,594 | $ | (203,110 | ) | $ | 17,345,498 | |||||||
F-18
Table of Contents
3. | Investments — (Continued) |
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
December 31, 2006 | ||||||||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||||||
U.S. government and agencies | $ | 52,723 | $ | (671 | ) | $ | 24,683 | $ | (208 | ) | $ | 77,406 | $ | (879 | ) | |||||||||
State and political subdivisions | 219,608 | (2,922 | ) | 65,722 | (1,610 | ) | 285,330 | (4,532 | ) | |||||||||||||||
Foreign governments | 14,404 | (214 | ) | 11,103 | (263 | ) | 25,507 | (477 | ) | |||||||||||||||
Corporate securities | 2,732,600 | (55,864 | ) | 3,686,854 | (112,686 | ) | 6,419,454 | (168,550 | ) | |||||||||||||||
Mortgage-backed securities | 1,501,485 | (22,776 | ) | 1,888,331 | (45,790 | ) | 3,389,816 | (68,566 | ) | |||||||||||||||
Total fixed maturities | 4,520,820 | (82,447 | ) | 5,676,693 | (160,557 | ) | 10,197,513 | (243,004 | ) | |||||||||||||||
Marketable equity securities | 9,829 | (206 | ) | 2,926 | (1,137 | ) | 12,755 | (1,343 | ) | |||||||||||||||
Total | $ | 4,530,649 | $ | (82,653 | ) | $ | 5,679,619 | $ | (161,694 | ) | $ | 10,210,268 | $ | (244,347 | ) | |||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
December 31, 2005 | ||||||||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||||||
U.S. government and agencies | $ | 43,881 | $ | (642 | ) | $ | 10,547 | $ | (157 | ) | $ | 54,428 | $ | (799 | ) | |||||||||
State and political subdivisions | 87,574 | (675 | ) | 51,278 | (961 | ) | 138,852 | (1,636 | ) | |||||||||||||||
Foreign governments | 20,927 | (225 | ) | 2,502 | (2 | ) | 23,429 | (227 | ) | |||||||||||||||
Corporate securities | 4,956,275 | (123,274 | ) | 697,497 | (13,789 | ) | 5,653,772 | (137,063 | ) | |||||||||||||||
Mortgage-backed securities | 2,077,490 | (36,639 | ) | 1,044,399 | (24,896 | ) | 3,121,889 | (61,535 | ) | |||||||||||||||
Total fixed maturities | 7,186,147 | (161,455 | ) | 1,806,223 | (39,805 | ) | 8,992,370 | (201,260 | ) | |||||||||||||||
Marketable equity securities | 10,729 | (1,759 | ) | 228 | (91 | ) | 10,957 | (1,850 | ) | |||||||||||||||
Total | $ | 7,196,876 | $ | (163,214 | ) | $ | 1,806,451 | $ | (39,896 | ) | $ | 9,003,327 | $ | (203,110 | ) | |||||||||
F-19
Table of Contents
3. | Investments — (Continued) |
Cost or | ||||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
One year or less | $ | 377,113 | $ | 374,632 | ||||
Over one year through five years | 2,655,755 | 2,613,674 | ||||||
Over five years through ten years | 2,746,470 | 2,701,652 | ||||||
Over ten years | 5,919,701 | 6,014,179 | ||||||
Mortgage-backed securities | 4,387,557 | 4,345,741 | ||||||
Total fixed maturities | $ | 16,086,596 | $ | 16,049,878 | ||||
Predecessor | ||||||||||||||||
Period from | ||||||||||||||||
Period from | January 1, | |||||||||||||||
August 2, 2004 | 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August 1, | |||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
Interest: | ||||||||||||||||
Fixed maturities | $ | 926,678 | $ | 945,737 | $ | 390,111 | $ | 633,756 | ||||||||
Mortgage loans | 48,849 | 46,052 | 21,943 | 44,233 | ||||||||||||
Short-term investments and cash and cash equivalents | 9,851 | 4,156 | 1,159 | 2,000 | ||||||||||||
Dividends: | ||||||||||||||||
Marketable equity securities | 6,759 | 3,967 | 2,671 | 3,302 | ||||||||||||
Redeemable preferred stock | 3,640 | 3,387 | 492 | 2,965 | ||||||||||||
Policy loans | 4,870 | 5,112 | 2,241 | 3,067 | ||||||||||||
Income from equity method investments | 4,658 | 2,514 | — | — | ||||||||||||
Other | 3,612 | 6,058 | 3,208 | 9,287 | ||||||||||||
Total investment income | 1,008,917 | 1,016,983 | 421,825 | 698,610 | ||||||||||||
Investment expenses | (23,990 | ) | (22,935 | ) | (10,705 | ) | (4,908 | ) | ||||||||
Net investment income | $ | 984,927 | $ | 994,048 | $ | 411,120 | $ | 693,702 | ||||||||
F-20
Table of Contents
3. | Investments — (Continued) |
Predecessor | ||||||||||||||||
Period from | ||||||||||||||||
Period from | January 1, | |||||||||||||||
August 2, 2004 | 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August | |||||||||||||
2006 | 2005 | 2004 | 1, 2004 | |||||||||||||
Fixed maturities | $ | (16,089 | ) | $ | 1,840 | $ | 4,117 | $ | 34,345 | |||||||
Marketable equity securities | 14,842 | 8,221 | 291 | 972 | ||||||||||||
Other invested assets | 1,737 | 3,992 | 2,584 | 92 | ||||||||||||
Deferred policy acquisition costs adjustment | 1,190 | 87 | 11 | (517 | ) | |||||||||||
Net realized investment gains | $ | 1,680 | $ | 14,140 | $ | 7,003 | $ | 34,892 | ||||||||
Year Ended December 31, 2006 | ||||||||||||||||
Marketable | ||||||||||||||||
Fixed | Equity | |||||||||||||||
Maturities | Securities | Other | Total | |||||||||||||
Proceeds from sales | $ | 1,603,453 | $ | 106,657 | $ | 13,235 | $ | 1,723,345 | ||||||||
Gross realized investment gains | $ | 26,847 | $ | 18,274 | $ | 2,497 | $ | 47,618 | ||||||||
Gross realized investment losses | (18,373 | ) | (1,437 | ) | (112 | ) | (19,922 | ) | ||||||||
Net realized investment gains | 8,474 | 16,837 | 2,385 | 27,696 | ||||||||||||
Impairments | (24,608 | ) | (1,111 | ) | — | (25,719 | ) | |||||||||
Other, including gains (losses) on calls and redemptions | 45 | (884 | ) | 542 | (297 | ) | ||||||||||
Net realized investment gains (losses) | $ | (16,089 | ) | $ | 14,842 | $ | 2,927 | $ | 1,680 | |||||||
F-21
Table of Contents
3. | Investments — (Continued) |
Year Ended December 31, 2005 | ||||||||||||||||
Marketable | ||||||||||||||||
Fixed | Equity | |||||||||||||||
Maturities | Securities | Other | Total | |||||||||||||
Proceeds from sales | $ | 2,364,806 | $ | 59,782 | $ | 1,525 | $ | 2,426,113 | ||||||||
Gross realized investment gains | $ | 30,782 | $ | 9,626 | $ | — | $ | 40,408 | ||||||||
Gross realized investment losses | (27,027 | ) | (1,184 | ) | — | (28,211 | ) | |||||||||
Net realized investment gains | 3,755 | 8,442 | — | 12,197 | ||||||||||||
Impairments | (7,664 | ) | — | — | (7,664 | ) | ||||||||||
Other, including gains (losses) on calls and redemptions | 5,749 | (221 | ) | 4,079 | 9,607 | |||||||||||
Net realized investment gains | $ | 1,840 | $ | 8,221 | $ | 4,079 | $ | 14,140 | ||||||||
Period from August 2, | ||||||||||||||||
2004 through December 31, 2004 | ||||||||||||||||
Marketable | ||||||||||||||||
Fixed | Equity | |||||||||||||||
Maturities | Securities | Other | Total | |||||||||||||
Proceeds from sales | $ | 363,859 | $ | 41,573 | $ | 17,320 | $ | 422,752 | ||||||||
Gross realized investment gains | $ | 8,379 | $ | 978 | $ | 6,345 | $ | 15,702 | ||||||||
Gross realized investment losses | (7,862 | ) | (224 | ) | (5,747 | ) | (13,833 | ) | ||||||||
Net realized investment gains | 517 | 754 | 598 | 1,869 | ||||||||||||
Impairments | (27 | ) | (87 | ) | — | (114 | ) | |||||||||
Other, including gains (losses) on calls and redemptions | 3,627 | (376 | ) | 1,997 | 5,248 | |||||||||||
Net realized investment gains | $ | 4,117 | $ | 291 | $ | 2,595 | $ | 7,003 | ||||||||
Period from January 1, 2004 through | ||||||||||||||||
August 1, 2004 — Predecessor | ||||||||||||||||
Marketable | ||||||||||||||||
Fixed | Equity | |||||||||||||||
Maturities | Securities | Other | Total | |||||||||||||
Proceeds from sales | $ | 713,652 | $ | 4,491 | $ | 1,621 | $ | 719,764 | ||||||||
Gross realized investment gains | $ | 45,705 | $ | 1,137 | $ | 17,846 | $ | 64,688 | ||||||||
Gross realized investment losses | (17,163 | ) | (165 | ) | (15,467 | ) | (32,795 | ) | ||||||||
Net realized investment gains | 28,542 | 972 | 2,379 | 31,893 | ||||||||||||
Impairments | (10,272 | ) | — | — | (10,272 | ) | ||||||||||
Other, including gains (losses) on calls and redemptions | 16,075 | — | (2,804 | ) | 13,271 | |||||||||||
Net realized investment gains (losses) | $ | 34,345 | $ | 972 | $ | (425 | ) | $ | 34,892 | |||||||
F-22
Table of Contents
3. | Investments — (Continued) |
Predecessor | ||||||||||||||||
Period from | Period from | |||||||||||||||
August 2, | January 1, | |||||||||||||||
2004 | 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August 1, | |||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
Allowance at beginning of period | $ | 3,903 | $ | 10,172 | $ | 10,172 | $ | 10,172 | ||||||||
Provision | 109 | — | — | — | ||||||||||||
Adjustment | — | (6,269 | ) | — | — | |||||||||||
Allowance at end of period | $ | 4,012 | $ | 3,903 | $ | 10,172 | $ | 10,172 | ||||||||
December 31, | ||||||||
2006 | 2005 | |||||||
Options | $ | 2,053 | $ | 3,331 | ||||
Note receivable — agency | 7,823 | 7,930 | ||||||
Embedded derivatives | 8,257 | 17,164 | ||||||
Other | 572 | 700 | ||||||
Total other invested assets | $ | 18,705 | $ | 29,125 | ||||
4. | Derivative Financial Instruments |
F-23
Table of Contents
F-24
Table of Contents
5. | Securities Lending Program |
6. | Fair Value of Financial Instruments |
F-25
Table of Contents
December 31, 2006 | December 31, 2005 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Financial assets: | ||||||||||||||||
Fixed maturities | $ | 16,049,878 | $ | 16,049,878 | $ | 17,183,197 | $ | 17,183,197 | ||||||||
Marketable equity securities | 201,706 | 201,706 | 162,301 | 162,301 | ||||||||||||
Mortgage loans | 794,283 | 796,078 | 776,923 | 798,430 | ||||||||||||
Investment in limited partnerships | 112,648 | 112,648 | 93,400 | 93,400 | ||||||||||||
Other invested assets: | ||||||||||||||||
Options | 2,053 | 2,053 | 3,331 | 3,331 | ||||||||||||
Embedded derivatives | 8,257 | 8,257 | 17,164 | 17,164 | ||||||||||||
Note receivable — agency | 7,823 | 7,823 | 7,930 | 7,930 | ||||||||||||
Other | 572 | 572 | — | — | ||||||||||||
Securities lending collateral | 439,292 | 439,292 | 598,451 | 598,451 | ||||||||||||
Separate account assets | 1,233,929 | 1,233,929 | 1,188,820 | 1,188,820 | ||||||||||||
Financial liabilities: | ||||||||||||||||
Funds held under deposit contracts | 15,986,198 | 15,954,265 | 16,697,903 | 16,960,272 | ||||||||||||
Other liabilities: | ||||||||||||||||
Limited partnership contributions payable | 44,646 | 44,646 | 31,599 | 31,599 | ||||||||||||
Securities lending payable | 439,292 | 439,292 | 598,451 | 598,451 | ||||||||||||
Separate account liabilities | 1,233,929 | 1,233,929 | 1,188,820 | 1,188,820 |
7. | Reinsurance |
F-26
Table of Contents
December 31, | ||||||||
2006 | 2005 | |||||||
Life insurance | ||||||||
Reinsurance recoverables on: | ||||||||
Policy and contract claims | $ | 5,861 | $ | 6,694 | ||||
Paid claims | 10 | 77 | ||||||
Future policy benefits | 166,621 | 149,853 | ||||||
Total life insurance | 172,492 | 156,624 | ||||||
Accident and health insurance | ||||||||
Reinsurance recoverables on: | ||||||||
Policy and contract claims | 725 | 338 | ||||||
Paid claims | 79 | 295 | ||||||
Future policy benefits | 65,468 | 72,631 | ||||||
Total accident and health insurance | 66,272 | 73,264 | ||||||
Total reinsurance recoverables | $ | 238,764 | $ | 229,888 | ||||
2006 | 2005 | 2004 | ||||||||||
Direct life insurance in-force | $ | 55,656,360 | $ | 56,928,623 | $ | 69,610,844 | ||||||
Amounts assumed from other companies | 211,656 | 219,626 | 228,006 | |||||||||
Amounts ceded to other companies | (21,944,907 | ) | (20,266,656 | ) | (19,081,945 | ) | ||||||
Net life insurance in-force. | $ | 33,923,109 | $ | 36,881,593 | $ | 50,756,905 | ||||||
Percentage of amount assumed to net | 0.62 | % | 0.59 | % | 0.44 | % |
F-27
Table of Contents
Predecessor | ||||||||||||||||
Period from | Period from | |||||||||||||||
August 2, | January 1, | |||||||||||||||
2004 | 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August 1, | |||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
Direct: | ||||||||||||||||
Accident and health premiums | $ | 390,873 | $ | 430,821 | $ | 185,464 | $ | 264,032 | ||||||||
Life insurance premiums | 191,881 | 192,854 | 84,743 | 118,226 | ||||||||||||
Total | 582,754 | 623,675 | 270,207 | 382,258 | ||||||||||||
Assumed: | ||||||||||||||||
Accident and health premiums | (1 | ) | 15,277 | 18,753 | 23,220 | |||||||||||
Life insurance premiums | 209 | 240 | 165 | 229 | ||||||||||||
Total | 208 | 15,517 | 18,918 | 23,449 | ||||||||||||
Ceded: | ||||||||||||||||
Accident and health premiums | (10,215 | ) | (22,529 | ) | (8,544 | ) | (11,804 | ) | ||||||||
Life insurance premiums | (47,090 | ) | (41,204 | ) | (17,386 | ) | (35,978 | ) | ||||||||
Total | (57,305 | ) | (63,733 | ) | (25,930 | ) | (47,782 | ) | ||||||||
Total premiums | $ | 525,657 | $ | 575,459 | $ | 263,195 | $ | 357,925 | ||||||||
Percentage of amount assumed to net | 0.04 | % | 2.70 | % | 7.19 | % | 6.55 | % |
8. | Deferred Policy Acquisition Costs and Deferred Sales Inducements |
December 31, | ||||||||
2006 | 2005 | |||||||
Unamortized balance at beginning of period | $ | 48,511 | $ | 15,073 | ||||
Deferral of acquisition costs | 52,511 | 45,213 | ||||||
Amortization related to investment gains | 1,190 | 86 | ||||||
Amortization related to other expenses | (14,589 | ) | (11,861 | ) | ||||
Unamortized balance at end of period | 87,623 | 48,511 | ||||||
Accumulated effect of net unrealized investment gains | 614 | 506 | ||||||
Balance at end of period | $ | 88,237 | $ | 49,017 | ||||
F-28
Table of Contents
December 31, | ||||||||
2006 | 2005 | |||||||
Unamortized balance at beginning of period | $ | 2,905 | $ | 293 | ||||
Capitalizations | 6,113 | 2,612 | ||||||
Amortization | (8 | ) | — | |||||
Unamortized balance at end of period | $ | 9,010 | $ | 2,905 | ||||
9. | Property, Equipment, and Leasehold Improvements |
December 31, | ||||||||
2006 | 2005 | |||||||
Computer equipment and software | $ | 6,151 | $ | 4,060 | ||||
Office equipment, furniture, and fixtures | 8,977 | 8,785 | ||||||
Equipment and software under capital leases | 13,825 | 13,586 | ||||||
Leasehold improvements | 13,728 | 13,598 | ||||||
42,681 | 40,029 | |||||||
Less accumulated depreciation and amortization | 14,605 | 9,507 | ||||||
Total property, equipment, and leasehold improvements, net | $ | 28,076 | $ | 30,522 | ||||
F-29
Table of Contents
10. | Policy and Contract Claims |
2006 | 2005 | 2004 | ||||||||||
Balance as of January 1 | $ | 135,655 | $ | 153,173 | $ | 139,113 | ||||||
Less: reinsurance recoverable | 7,032 | 4,176 | 5,571 | |||||||||
Net balance as of January 1 | 128,623 | 148,997 | 133,542 | |||||||||
Incurred related to insured events of: | ||||||||||||
The current year | 298,269 | 364,832 | 369,948 | |||||||||
Prior years | (1,445 | ) | 1,807 | 12,158 | ||||||||
Total incurred | 296,824 | 366,639 | 382,106 | |||||||||
Paid related to insured events of: | ||||||||||||
The current year | 231,890 | 292,482 | 290,857 | |||||||||
Prior years | 80,629 | 94,531 | 75,794 | |||||||||
Total paid | 312,519 | 387,013 | 366,651 | |||||||||
Net balance as of December 31 | 112,928 | 128,623 | 148,997 | |||||||||
Add: reinsurance recoverable | 6,586 | 7,032 | 4,176 | |||||||||
Balance as of December 31 | $ | 119,514 | $ | 135,655 | $ | 153,173 | ||||||
11. | Notes Payable |
F-30
Table of Contents
12. | Income Taxes |
Predecessor | ||||||||||||||||||||||||||||||||
Period from | Period from | |||||||||||||||||||||||||||||||
August 2, 2004 | January 1, 2004 | |||||||||||||||||||||||||||||||
through | through | |||||||||||||||||||||||||||||||
Year Ended December 31, 2006 | Year Ended December 31, 2005 | December 31, 2004 | August 1, 2004 | |||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | $ | 244,028 | $ | 206,355 | $ | (9,192 | ) | $ | 129,024 | |||||||||||||||||||||||
Computed “expected” tax expense | 85,410 | 35.00 | % | 72,224 | 35.00 | % | (3,217 | ) | 35.00 | % | 45,158 | 35.00 | % | |||||||||||||||||||
Separate account dividend received deduction | (1,981 | ) | (0.81 | ) | (3,960 | ) | (1.92 | ) | (1,103 | ) | 12.00 | (1,461 | ) | (1.13 | ) | |||||||||||||||||
Purchase transaction costs | (402 | ) | (0.17 | ) | (413 | ) | (0.20 | ) | (455 | ) | 4.95 | — | — | |||||||||||||||||||
Miscellaneous permanent differences | (308 | ) | (0.13 | ) | (158 | ) | (0.08 | ) | (237 | ) | 2.58 | 117 | 0.09 | |||||||||||||||||||
IRS audit adjustments | — | — | — | — | — | — | (8,749 | ) | (6.78 | ) | ||||||||||||||||||||||
Warrants | — | — | — | — | 35,536 | (386.60 | ) | — | — | |||||||||||||||||||||||
Valuation allowance | — | — | (5,440 | ) | (2.64 | ) | — | — | — | — | ||||||||||||||||||||||
Low income housing credits | (838 | ) | (0.34 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
Othertrue-up adjustments | 2,617 | 1.08 | (340 | ) | (0.16 | ) | 1,458 | (15.86 | ) | (3,663 | ) | (2.84 | ) | |||||||||||||||||||
Provision for income taxes | $ | 84,498 | 34.63 | % | $ | 61,913 | 30.00 | % | $ | 31,982 | (347.93 | )% | $ | 31,402 | 24.34 | % | ||||||||||||||||
F-31
Table of Contents
December 31, | ||||||||
2006 | 2005 | |||||||
Deferred income tax assets: | ||||||||
Goodwill | $ | 3,453 | $ | 5,289 | ||||
Intangibles | 18,408 | 19,036 | ||||||
Adjustment to life policy liabilities | 343,120 | 369,329 | ||||||
Capitalization of policy acquisition costs | 50,150 | 57,785 | ||||||
Long-term incentive plan | 4,451 | 4,266 | ||||||
Warrants | 2,720 | 35,536 | ||||||
Investment impairments | 9,002 | 8,927 | ||||||
Uncollected premium adjustment | 194 | — | ||||||
Guaranty fund assessments | 502 | 522 | ||||||
Furniture and fixtures | 510 | 2,262 | ||||||
Bond discount accrual | 504 | — | ||||||
Unrealized depreciation of investment securities (net of deferred policy acquisition costs adjustment: $(215) and $(0), respectively) | 296 | — | ||||||
Other | 6,442 | 11,019 | ||||||
Total deferred income tax assets | 439,752 | 513,971 | ||||||
Deferred income tax liabilities: | ||||||||
Unrealized appreciation of investment securities (net of deferred policy acquisition costs adjustment: $(0) and $(177), respectively) | — | 73,520 | ||||||
Securities — basis adjustment | 185,164 | 242,909 | ||||||
Mortgage loans | 1,234 | 3,170 | ||||||
Warrants | 2,720 | 35,536 | ||||||
Deferred policy acquisition costs | 30,668 | 16,641 | ||||||
Bond discount accrual | — | 4,546 | ||||||
Other | 875 | 302 | ||||||
Total deferred income tax liabilities | 220,661 | 376,624 | ||||||
Net deferred income tax asset | $ | 219,091 | $ | 137,347 | ||||
F-32
Table of Contents
13. | Comprehensive Income |
December 31, | ||||||||
2006 | 2005 | |||||||
Net unrealized gains (losses) on available-for-sale securities | $ | (6,037 | ) | $ | 209,549 | |||
Net unrealized gains on derivative financial instruments | 4,577 | — | ||||||
Adjustment for deferred policy acquisition costs | 614 | 506 | ||||||
Deferred income taxes | 296 | (73,520 | ) | |||||
Accumulated other comprehensive income (loss) | $ | (550 | ) | $ | 136,535 | |||
Predecessor | ||||||||||||||||
Period from | Period from | |||||||||||||||
August 2, | January 1, | |||||||||||||||
2004 | 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August 1, | |||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
Increase (decrease) in unrealized appreciation/depreciation of: | ||||||||||||||||
Available-for-sale securities | $ | (215,586 | ) | $ | (272,579 | ) | $ | 482,128 | $ | (330,148 | ) | |||||
Derivative financial instruments | 4,577 | — | — | (6,829 | ) | |||||||||||
Adjustment for deferred policy acquisition costs | 108 | 1,201 | (695 | ) | 39,095 | |||||||||||
Deferred income taxes | 73,816 | 94,982 | (168,502 | ) | 104,259 | |||||||||||
Net change in accumulated OCI | $ | (137,085 | ) | $ | (176,396 | ) | $ | 312,931 | $ | (193,623 | ) | |||||
14. | Commitments and Contingencies |
F-33
Table of Contents
2007 | $ | 9,262 | ||
2008 | 7,867 | |||
2009 | 21,439 | |||
2010 | 15,146 | |||
Total capital contributions payable | $ | 53,714 | ||
Operating | ||||
Leases | ||||
2007 | $ | 6,853 | ||
2008 | 6,692 | |||
2009 | 6,747 | |||
2010 | 6,550 | |||
2011 | 6,192 | |||
Thereafter | 23,072 | |||
Total | $ | 56,106 | ||
F-34
Table of Contents
15. | Discontinued Operations |
Predecessor | ||||||||||||||||
Period from | Period from | |||||||||||||||
August 2, | January 1, | |||||||||||||||
2004 | 2004 | |||||||||||||||
Year Ended | Year Ended | through | through | |||||||||||||
December 31, | December 31, | December 31, | August 1, | |||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
Revenues | $ | — | $ | 2,426 | $ | 932 | $ | 14,608 | ||||||||
Benefits and expenses: | ||||||||||||||||
Other underwriting and operating expenses | — | 845 | 4,678 | 11,077 | ||||||||||||
Income (loss) before income taxes: | — | 1,581 | (3,746 | ) | 3,531 | |||||||||||
Provision (benefit) for income taxes: | ||||||||||||||||
Current | — | 262 | 8,764 | 1,166 | ||||||||||||
Deferred | — | 274 | (10,099 | ) | 69 | |||||||||||
Total | — | 536 | (1,335 | ) | 1,235 | |||||||||||
Net income (loss) | $ | — | $ | 1,045 | $ | (2,411 | ) | $ | 2,296 | |||||||
F-35
Table of Contents
16. | Employee Benefit Plans |
17. | Dividend Restrictions |
F-36
Table of Contents
18. | Statutory-Basis Information |
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Statutory net income (loss): | ||||||||||||
Symetra Life Insurance Company | $ | 145,020 | $ | 162,210 | $ | 222,104 | ||||||
Symetra National Life Insurance Company | 1,107 | (936 | ) | 119 | ||||||||
First Symetra National Life Insurance Company of New York | 35 | (3,016 | ) | 857 | ||||||||
American States Life Insurance Company | — | — | 23,237 | |||||||||
Total | $ | 146,162 | $ | 158,258 | $ | 246,317 | ||||||
December 31 | ||||||||
2006 | 2005 | |||||||
Statutory capital and surplus: | ||||||||
Symetra Life Insurance Company | $ | 1,266,222 | $ | 1,260,136 | ||||
19. | Related Parties |
F-37
Table of Contents
20. | Segment Information |
• | Group’s principal product is stop-loss medical insurance sold to employers with self-insured medical plans. Also included in this segment are group life, accidental death and dismemberment insurance, and disability products. | |
• | Retirement Services’ products are primarily fixed and variable deferred annuities (both qualified and non-qualified), tax-sheltered annuities (marketed to teachers and not-for-profit organizations), and corporate retirement funds. | |
• | Income Annuities’ principal products are the structured settlement annuities that are sold to fund third-party personal injury settlements, providing a reliable income stream to the injured party and immediate annuities purchased to fund income after retirement. | |
• | Individual’s products include term, universal and variable universal life, and bank-owned life insurance. | |
• | Other includes Symetra Financial Corporation (the holding company), inter-segment elimination entries, and various non-insurance companies. | |
• | Discontinued operations are comprised of the discontinued mutual fund businesses (see Notes 1 and 15). |
F-38
Table of Contents
Year Ended December 31, 2006 | ||||||||||||||||||||||||
Retirement | Income | |||||||||||||||||||||||
Group | Services | Annuities | Individual | Other | Total | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Premiums | $ | 387,231 | $ | 130 | $ | — | $ | 138,296 | $ | — | $ | 525,657 | ||||||||||||
Net investment income | 18,030 | 269,821 | 439,001 | 232,759 | 25,316 | 984,927 | ||||||||||||||||||
Other revenue | 10,195 | 22,831 | 797 | 12,939 | 9,410 | 56,172 | ||||||||||||||||||
Net realized investment gains (losses) | (66 | ) | (17,061 | ) | 16,798 | (3,807 | ) | 5,816 | 1,680 | |||||||||||||||
Total revenues | 415,390 | 275,721 | 456,596 | 380,187 | 40,542 | 1,568,436 | ||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||
Policyholder benefits and claims | 230,753 | (16,501 | ) | — | 50,000 | — | 264,252 | |||||||||||||||||
Interest credited | — | 186,232 | 371,786 | 208,180 | (327 | ) | 765,871 | |||||||||||||||||
Other underwriting and operating expenses | 105,742 | 61,738 | 21,591 | 57,370 | 14,100 | 260,541 | ||||||||||||||||||
Interest expense | — | — | — | — | 19,155 | 19,155 | ||||||||||||||||||
Amortization of deferred policy acquisition costs | 10,882 | 1,081 | 580 | 2,046 | — | 14,589 | ||||||||||||||||||
Total benefits and expenses | 347,377 | 232,550 | 393,957 | 317,596 | 32,928 | 1,324,408 | ||||||||||||||||||
Segment pre-tax income | 68,013 | 43,171 | 62,639 | 62,591 | 7,614 | 244,028 | ||||||||||||||||||
Less: Net realized investment gains (losses) | (66 | ) | (17,061 | ) | 16,798 | (3,807 | ) | 5,816 | 1,680 | |||||||||||||||
Segment pre-tax operating income | $ | 68,079 | $ | 60,232 | $ | 45,841 | $ | 66,398 | $ | 1,798 | $ | 242,348 | ||||||||||||
Assets: | ||||||||||||||||||||||||
Total investments | $ | 168,743 | $ | 4,443,302 | $ | 6,967,906 | $ | 4,074,927 | $ | 1,650,468 | $ | 17,305,346 | ||||||||||||
Separate account assets | — | 1,115,519 | — | 118,410 | — | 1,233,929 | ||||||||||||||||||
Total assets | 300,084 | 5,904,981 | 7,273,385 | 4,601,697 | 2,034,470 | 20,114,617 |
F-39
Table of Contents
Year Ended December 31, 2005 | ||||||||||||||||||||||||||||||||
Retirement | Continuing | Discontinued | ||||||||||||||||||||||||||||||
Group | Services | Income Annuities | Individual | Other | Operations | Operations | Total | |||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Premiums | $ | 438,276 | $ | 121 | $ | — | $ | 137,062 | $ | — | $ | 575,459 | $ | — | $ | 575,459 | ||||||||||||||||
Net investment income | 19,270 | 292,801 | 441,438 | 222,613 | 17,926 | 994,048 | 172 | 994,220 | ||||||||||||||||||||||||
Other revenue | 11,801 | 23,223 | 515 | 13,968 | 9,052 | 58,559 | — | 58,559 | ||||||||||||||||||||||||
Net realized investment gains (losses) | (74 | ) | (17,122 | ) | 17,382 | 1,344 | 12,610 | 14,140 | 2,254 | 16,394 | ||||||||||||||||||||||
Total revenues | 469,273 | 299,023 | 459,335 | 374,987 | 39,588 | 1,642,206 | 2,426 | 1,644,632 | ||||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||
Policyholder benefits and claims | 296,036 | (25,697 | ) | — | 57,088 | — | 327,427 | — | 327,427 | |||||||||||||||||||||||
Interest credited | — | 211,538 | 392,534 | 206,856 | — | 810,928 | — | 810,928 | ||||||||||||||||||||||||
Other underwriting and operating expenses | 115,342 | 62,636 | 19,383 | 61,374 | 14,512 | 273,247 | 845 | 274,092 | ||||||||||||||||||||||||
Interest expense | — | — | — | — | 12,388 | 12,388 | — | 12,388 | ||||||||||||||||||||||||
Amortization of deferred policy acquisition costs | 10,478 | 94 | 272 | 1,017 | — | 11,861 | — | 11,861 | ||||||||||||||||||||||||
Total benefits and expenses | 421,856 | 248,571 | 412,189 | 326,335 | 26,900 | 1,435,851 | 845 | 1,436,696 | ||||||||||||||||||||||||
Segment pre-tax income | 47,417 | 50,452 | 47,146 | 48,652 | 12,688 | 206,355 | 1,581 | 207,936 | ||||||||||||||||||||||||
Less: Net realized investment gains (losses) | (74 | ) | (17,122 | ) | 17,382 | 1,344 | 12,610 | 14,140 | 2,254 | 16,394 | ||||||||||||||||||||||
Segment pre-tax operating income (loss) | $ | 47,491 | $ | 67,574 | $ | 29,764 | $ | 47,308 | $ | 78 | $ | 192,215 | $ | (673 | ) | $ | 191,542 | |||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Total investments | $ | 137,826 | $ | 5,096,016 | $ | 7,276,295 | $ | 4,130,472 | $ | 1,692,164 | $ | 18,332,773 | $ | — | $ | 18,332,773 | ||||||||||||||||
Separate account assets | — | 1,074,463 | — | 114,357 | — | 1,188,820 | — | 1,188,820 | ||||||||||||||||||||||||
Total assets | 242,751 | 6,526,179 | $ | 7,451,961 | 4,638,575 | 2,120,595 | 20,980,061 | — | 20,980,061 |
F-40
Table of Contents
Period from August 2, 2004 through December 31, 2004 | ||||||||||||||||||||||||||||||||
Retirement | Income | Continuing | Discontinued | |||||||||||||||||||||||||||||
Group | Services | Annuities | Individual | Other | Operations | Operations | Total | |||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Premiums | $ | 207,396 | $ | 105 | $ | — | $ | 55,694 | $ | — | $ | 263,195 | $ | — | $ | 263,195 | ||||||||||||||||
Net investment income | 8,764 | 124,188 | 184,074 | 89,229 | 4,865 | 411,120 | 393 | 411,513 | ||||||||||||||||||||||||
Other revenue | 5,621 | 11,480 | 207 | 6,224 | 3,518 | 27,050 | 413 | 27,463 | ||||||||||||||||||||||||
Net realized investment gains (losses) | (1 | ) | 4,166 | (3,277 | ) | 2,809 | 3,306 | 7,003 | 126 | 7,129 | ||||||||||||||||||||||
Total revenues | 221,780 | 139,939 | 181,004 | 153,956 | 11,689 | 708,368 | 932 | 709,300 | ||||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||
Policyholder benefits and claims | 124,008 | (15,849 | ) | — | 19,340 | — | 127,499 | — | 127,499 | |||||||||||||||||||||||
Interest credited | — | 109,211 | 164,100 | 86,885 | — | 360,196 | — | 360,196 | ||||||||||||||||||||||||
Other underwriting and operating expenses | 54,410 | 26,682 | 7,226 | 28,566 | 6,358 | 123,242 | 4,678 | 127,920 | ||||||||||||||||||||||||
Fair Value of warrants issued to investors | — | — | — | — | 101,531 | 101,531 | — | 101,531 | ||||||||||||||||||||||||
Interest expense | — | — | — | — | 3,466 | 3,466 | — | 3,466 | ||||||||||||||||||||||||
Amortization of deferred policy acquisition costs | 1,352 | 236 | — | 38 | — | 1,626 | — | 1,626 | ||||||||||||||||||||||||
Total benefits and expenses | 179,770 | 120,280 | 171,326 | 134,829 | 111,355 | 717,560 | 4,678 | 722,238 | ||||||||||||||||||||||||
Segment pre-tax income | 42,010 | 19,659 | 9,678 | 19,127 | (99,666 | ) | (9,192 | ) | (3,746 | ) | (12,938 | ) | ||||||||||||||||||||
Less: Net realized investment gains (losses) | (1 | ) | 4,166 | (3,277 | ) | 2,809 | 3,306 | 7,003 | 126 | 7,129 | ||||||||||||||||||||||
Segment pre-tax operating income (loss) | $ | 42,011 | $ | 15,493 | $ | 12,955 | $ | 16,318 | $ | (102,972 | ) | $ | (16,195 | ) | $ | (3,872 | ) | $ | (20,067 | ) | ||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Total investments | $ | 534,402 | $ | 6,724,045 | $ | 7,752,785 | $ | 4,271,000 | $ | (37,471 | ) | $ | 19,244,761 | $ | 32,290 | $ | 19,277,051 | |||||||||||||||
Separate account assets | — | 1,114,843 | — | 113,517 | — | 1,228,360 | — | 1,228,360 | ||||||||||||||||||||||||
Total assets | 639,582 | 8,247,675 | 7,885,813 | 4,737,864 | 606,492 | 22,117,426 | 64,556 | 22,181,982 |
F-41
Table of Contents
Period from January 1, 2004 through August 1, 2004 — Predecessor | ||||||||||||||||||||||||||||||||
Retirement | Income | Continuing | Discontinued | |||||||||||||||||||||||||||||
Group | Services | Annuities | Individual | Other | Operations | Operations | Total | |||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Premiums | $ | 293,213 | $ | 92 | $ | — | $ | 64,620 | $ | — | $ | 357,925 | $ | — | $ | 357,925 | ||||||||||||||||
Net investment income | 13,632 | 225,008 | 290,328 | 139,063 | 25,671 | 693,702 | 754 | 694,456 | ||||||||||||||||||||||||
Other revenue | 8,323 | 15,755 | 276 | 14,774 | 4,815 | 43,943 | 13,729 | 57,672 | ||||||||||||||||||||||||
Net realized investment gains | 143 | 2,372 | 12,751 | 5,225 | 14,401 | 34,892 | 125 | 35,017 | ||||||||||||||||||||||||
Total revenues | 315,311 | 243,227 | 303,355 | 223,682 | 44,887 | 1,130,462 | 14,608 | 1,145,070 | ||||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||
Policyholder benefits and claims | 196,468 | 172 | — | 26,938 | — | 223,578 | — | 223,578 | ||||||||||||||||||||||||
Interest credited | — | 155,403 | 274,800 | 126,230 | — | 556,433 | — | 556,433 | ||||||||||||||||||||||||
Other underwriting and operating expenses | 78,727 | 36,789 | 9,522 | 36,059 | 21,237 | 182,334 | 11,077 | 193,411 | ||||||||||||||||||||||||
Amortization of deferred policy acquisition costs | 10,537 | 16,313 | — | 7,314 | — | 34,164 | — | 34,164 | ||||||||||||||||||||||||
Intangibles and goodwill amortization | 794 | 801 | — | 1,746 | 1,588 | 4,929 | — | 4,929 | ||||||||||||||||||||||||
Total benefits and expenses | 286,526 | 209,478 | 284,322 | 198,287 | 22,825 | 1,001,438 | 11,077 | 1,012,515 | ||||||||||||||||||||||||
Segment pre-tax income | 28,785 | 33,749 | 19,033 | 25,395 | 22,062 | 129,024 | 3,531 | 132,555 | ||||||||||||||||||||||||
Less: Net realized investment gains | 143 | 2,372 | 12,751 | 5,225 | 14,401 | 34,892 | 125 | 35,017 | ||||||||||||||||||||||||
Segment pre-tax operating income | $ | 28,642 | $ | 31,377 | $ | 6,282 | $ | 20,170 | $ | 7,661 | $ | 94,132 | $ | 3,406 | $ | 97,538 | ||||||||||||||||
�� |
21. | Earnings Per Share |
F-42
Table of Contents
December 31, 2006 | December 31, 2005 | |||||||||||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||||||||||
Amount | EPS | EPS | Amount | EPS | EPS | |||||||||||||||||||
(In thousands, except for per share data) | ||||||||||||||||||||||||
Income from continuing operations | $ | 159,530 | $ | 12.43 | $ | 12.43 | $ | 144,442 | $ | 11.26 | $ | 11.26 | ||||||||||||
Discontinued operations, net of taxes | — | — | — | 1,045 | 0.08 | 0.08 | ||||||||||||||||||
Net income | $ | 159,530 | $ | 12.43 | $ | 12.43 | $ | 145,487 | $ | 11.34 | $ | 11.34 | ||||||||||||
Common stock: | ||||||||||||||||||||||||
Distributed | $ | 83,000 | $ | 7.79 | $ | 7.79 | $ | — | $ | — | $ | — | ||||||||||||
Undistributed | 49,410 | 4.64 | 4.64 | 120,754 | 11.34 | 11.34 | ||||||||||||||||||
Total | $ | 132,410 | $ | 12.43 | $ | 12.43 | $ | 120,754 | $ | 11.34 | $ | 11.34 | ||||||||||||
Warrants: | ||||||||||||||||||||||||
Distributed | $ | 17,000 | $ | 7.79 | $ | 7.79 | $ | — | $ | — | $ | — | ||||||||||||
Undistributed | 10,120 | 4.64 | 4.64 | 24,733 | 11.34 | 11.34 | ||||||||||||||||||
Total | $ | 27,120 | $ | 12.43 | $ | 12.43 | $ | 24,733 | $ | 11.34 | $ | 11.34 |
Basic | Diluted | Basic | Diluted | |||||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
Common stock | 10,649.0 | 10,649.0 | 10,649.0 | 10,649.0 | ||||||||||||||||
Warrants | 2,181.0 | 2,181.0 | 2,181.0 | 2,181.0 | ||||||||||||||||
Total shares | 12,830.0 | 12,830.0 | 12,830.0 | 12,830.0 |
F-43
Table of Contents
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
(Unaudited) | ||||||||
(In millions) | ||||||||
ASSETS | ||||||||
Investments: | ||||||||
Available-for-sale securities: | ||||||||
Fixed maturities, at fair value | $ | 15,440.8 | $ | 16,049.9 | ||||
Marketable equity securities, at fair value | 209.9 | 201.7 | ||||||
Mortgage loans | 789.6 | 794.3 | ||||||
Policy loans | 77.8 | 79.2 | ||||||
Short-term investments | 5.3 | 48.9 | ||||||
Investments in limited partnerships | 159.8 | 112.6 | ||||||
Other invested assets | 11.8 | 18.7 | ||||||
Total investments | 16,695.0 | 17,305.3 | ||||||
Cash and cash equivalents | 362.4 | 253.2 | ||||||
Restricted funds | 10.4 | — | ||||||
Accrued investment income | 196.7 | 206.7 | ||||||
Accounts receivable and other receivables | 147.9 | 82.0 | ||||||
Reinsurance recoverables | 249.1 | 238.8 | ||||||
Deferred policy acquisition costs | 107.1 | 88.2 | ||||||
Goodwill | 20.9 | 3.7 | ||||||
Deferred income tax assets, net | 313.7 | 219.1 | ||||||
Property, equipment, and leasehold improvements, net | 26.2 | 28.1 | ||||||
Other assets | 28.1 | 16.3 | ||||||
Securities lending collateral | 419.8 | 439.3 | ||||||
Separate account assets | 1,268.5 | 1,233.9 | ||||||
Total assets | $ | 19,845.8 | $ | 20,114.6 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Funds held under deposit contracts | $ | 15,655.3 | $ | 15,986.2 | ||||
Future policy benefits | 381.8 | 376.4 | ||||||
Policy and contract claims | 123.1 | 119.5 | ||||||
Unearned premiums | 12.0 | 11.7 | ||||||
Other policyholders’ funds | 79.6 | 46.4 | ||||||
Notes payable | 298.8 | 298.7 | ||||||
Current income taxes payable | 8.5 | 2.6 | ||||||
Other liabilities | 350.8 | 272.6 | ||||||
Securities lending payable | 419.8 | 439.3 | ||||||
Separate account liabilities | 1,268.5 | 1,233.9 | ||||||
Total liabilities | 18,598.2 | 18,787.3 | ||||||
Commitments and Contingencies | ||||||||
Capital stock | 0.1 | 0.1 | ||||||
Additional paid-in capital | 1,166.3 | 1,166.3 | ||||||
Retained earnings | 260.1 | 161.4 | ||||||
Accumulated other comprehensive income (loss), net of taxes | (178.9 | ) | (0.5 | ) | ||||
Total stockholders’ equity | 1,247.6 | 1,327.3 | ||||||
Total liabilities and stockholders’ equity | $ | 19,845.8 | $ | 20,114.6 | ||||
F-44
Table of Contents
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
(In millions, except for per share data) | ||||||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 131.3 | $ | 132.6 | $ | 265.0 | $ | 269.2 | ||||||||
Net investment income | 246.5 | 244.0 | 490.9 | 490.5 | ||||||||||||
Other revenues | 17.4 | 14.0 | 32.7 | 29.7 | ||||||||||||
Net realized investment gains (losses) | 10.6 | (5.2 | ) | 24.5 | (0.5 | ) | ||||||||||
Total revenues | 405.8 | 385.4 | 813.1 | 788.9 | ||||||||||||
Benefits and expenses: | ||||||||||||||||
Policyholder benefits and claims | 69.4 | 63.4 | 136.1 | 147.6 | ||||||||||||
Interest credited | 189.1 | 190.1 | 374.1 | 382.2 | ||||||||||||
Other underwriting and operating expenses | 70.5 | 65.7 | 141.2 | 129.8 | ||||||||||||
Interest expense | 4.6 | 4.6 | 9.3 | 9.8 | ||||||||||||
Amortization of deferred policy acquisition costs | 5.0 | 4.0 | 9.4 | 7.6 | ||||||||||||
Total benefits and expenses | 338.6 | 327.8 | 670.1 | 677.0 | ||||||||||||
Income before taxes | 67.2 | 57.6 | 143.0 | 111.9 | ||||||||||||
Provision for income taxes: | ||||||||||||||||
Current | 29.8 | 68.0 | 49.0 | 59.4 | ||||||||||||
Deferred | (8.1 | ) | (46.7 | ) | (2.2 | ) | (20.2 | ) | ||||||||
Total provision for income taxes | 21.7 | 21.3 | 46.8 | 39.2 | ||||||||||||
Net income | $ | 45.5 | $ | 36.3 | $ | 96.2 | $ | 72.7 | ||||||||
Net income per common share: | ||||||||||||||||
Basic | $ | 3.54 | $ | 2.83 | $ | 7.50 | $ | 5.66 | ||||||||
Diluted | $ | 3.54 | $ | 2.83 | $ | 7.50 | $ | 5.66 | ||||||||
Weighted average number of common shares | ||||||||||||||||
outstanding (in millions): | ||||||||||||||||
Basic | 12.8 | 12.8 | 12.8 | 12.8 | ||||||||||||
Diluted | 12.8 | 12.8 | 12.8 | 12.8 |
F-45
Table of Contents
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Additional | Comprehensive | Total | ||||||||||||||||||
Capital | Paid-in | Retained | Income (loss), | Stockholders’ | ||||||||||||||||
Stock | Capital | Earnings | Net of Taxes | Equity | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Balances at January 1, 2006 | $ | 0.1 | $ | 1,166.3 | $ | 101.9 | $ | 136.6 | $ | 1,404.9 | ||||||||||
Net income | — | — | 72.7 | — | 72.7 | |||||||||||||||
Other comprehensive income (loss), after tax | — | — | — | (485.8 | ) | (485.8 | ) | |||||||||||||
Balances at June 30, 2006 | $ | 0.1 | $ | 1,166.3 | $ | 174.6 | $ | (349.2 | ) | $ | 991.8 | |||||||||
Balances at January 1, 2007 | $ | 0.1 | $ | 1,166.3 | $ | 161.4 | $ | (0.5 | ) | $ | 1,327.3 | |||||||||
Net income | — | — | 96.2 | — | 96.2 | |||||||||||||||
Other comprehensive income (loss), after tax | — | — | — | (175.9 | ) | (175.9 | ) | |||||||||||||
Cumulative effect adjustment upon adoption of SFAS No. 155 | — | — | 2.5 | (2.5 | ) | — | ||||||||||||||
Balances at June 30, 2007 | $ | 0.1 | $ | 1,166.3 | $ | 260.1 | $ | (178.9 | ) | $ | 1,247.6 | |||||||||
F-46
Table of Contents
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
(In millions) | ||||||||||||||||
Net income | $ | 45.5 | $ | 36.3 | $ | 96.2 | $ | 72.7 | ||||||||
Other comprehensive income (loss), net of taxes: | ||||||||||||||||
Changes in unrealized gains and losses on available-for-sales securities | (208.0 | ) | (194.6 | ) | (164.3 | ) | (488.9 | ) | ||||||||
Reclassification adjustment for net realized investment gains included in net income | (6.6 | ) | 1.5 | (16.2 | ) | (0.4 | ) | |||||||||
Derivatives qualifying as cash flow hedges | — | — | (0.1 | ) | 3.1 | |||||||||||
Adjustment for deferred policy acquisition costs valuation allowance | 1.0 | 0.1 | 2.2 | 0.4 | ||||||||||||
Other comprehensive income (loss) | (213.6 | ) | (193.0 | ) | (178.4 | ) | (485.8 | ) | ||||||||
Comprehensive income (loss) | $ | (168.1 | ) | $ | (156.7 | ) | $ | (82.2 | ) | $ | (413.1 | ) | ||||
F-47
Table of Contents
Six Months Ended June 30, | ||||||||
2007 | 2006 | |||||||
(Unaudited) | (Unaudited) | |||||||
(In millions) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 96.2 | $ | 72.7 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Net realized investment (gains) losses | (24.5 | ) | 0.5 | |||||
Accretion of fixed maturity investments and mortgage loans | 32.3 | 36.2 | ||||||
Accrued interest on accrual bonds | (20.2 | ) | (21.9 | ) | ||||
Amortization and depreciation | 6.2 | 4.9 | ||||||
Deferred income tax provision | (2.2 | ) | (20.2 | ) | ||||
Interest credited on deposit contracts | 374.1 | 382.2 | ||||||
Mortality and expense charges and administrative fees | (46.7 | ) | (45.4 | ) | ||||
Other | 0.4 | (0.2 | ) | |||||
Changes in: | ||||||||
Accrued investment income | 10.0 | 4.2 | ||||||
Deferred policy acquisition costs | (15.4 | ) | (17.6 | ) | ||||
Other receivables | 7.4 | 7.4 | ||||||
Policy and contract claims | 3.6 | (7.6 | ) | |||||
Future policy benefits | 5.4 | 2.9 | ||||||
Unearned premiums | 0.3 | (0.6 | ) | |||||
Accrued income taxes | 5.9 | 47.6 | ||||||
Other assets and liabilities | (95.1 | ) | (13.7 | ) | ||||
Other policyholder funds | 3.8 | (8.4 | ) | |||||
Total adjustments | 245.3 | 350.3 | ||||||
Net cash provided by operating activities | 341.5 | 423.0 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of: | ||||||||
Fixed maturities | (1,244.7 | ) | (959.6 | ) | ||||
Equity securities | (30.0 | ) | (39.1 | ) | ||||
Other invested assets and investments in limited partnerships | (30.6 | ) | (0.7 | ) | ||||
Issuance of mortgage loans | (40.6 | ) | (75.2 | ) | ||||
Issuance of policy loans | (8.4 | ) | (10.6 | ) | ||||
Maturities, calls, paydowns, other | 541.5 | 400.9 | ||||||
Purchase of subsidiary, net of cash received | (21.9 | ) | — | |||||
Other assets | (0.2 | ) | (0.3 | ) | ||||
Sales of: | ||||||||
Fixed maturities | 1,094.2 | 995.1 | ||||||
Equity securities | 36.1 | 23.8 | ||||||
Other invested assets and investments in limited partnerships | — | 0.9 | ||||||
Repayment of mortgage loans | 43.6 | 50.5 | ||||||
Repayment of policy loans | 9.2 | 10.0 | ||||||
Purchase of property, equipment and leasehold improvements | (1.6 | ) | (2.2 | ) | ||||
Net decrease in short-term investments | 43.6 | (1.3 | ) | |||||
Net cash provided by investing activities | 390.2 | 392.2 | ||||||
Cash flows from financing activities: | ||||||||
Policyholder account balances: | ||||||||
Deposits | 318.7 | 294.2 | ||||||
Withdrawals | (941.2 | ) | (1,003.9 | ) | ||||
Repayments of notes payable | — | 298.7 | ||||||
Proceeds from notes payable | — | (300.0 | ) | |||||
Other, net | — | 3.1 | ||||||
Net cash used in financing activities | (622.5 | ) | (707.9 | ) | ||||
Net decrease in cash and cash equivalents | 109.2 | 107.3 | ||||||
Cash and cash equivalents at the beginning of the period | 253.2 | 111.0 | ||||||
Cash and cash equivalents at the end of the period | $ | 362.4 | $ | 218.3 | ||||
F-48
Table of Contents
1. | Nature of Operations and Summary of Significant Accounting Policies |
F-49
Table of Contents
F-50
Table of Contents
2. | Investments |
As of June 30, 2007 | ||||||||||||||||
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(Amounts in millions) | ||||||||||||||||
Fixed maturities: | ||||||||||||||||
U.S. government and agencies | $ | 263.6 | $ | 0.2 | $ | (4.7 | ) | $ | 259.1 | |||||||
State and political subdivisions | 501.4 | 1.3 | (8.1 | ) | 494.6 | |||||||||||
Foreign government | 158.0 | 0.2 | (2.2 | ) | 156.0 | |||||||||||
Corporate securities | 10,485.4 | 70.0 | (279.2 | ) | 10,276.2 | |||||||||||
Mortgage-backed securities | 4,351.4 | 6.5 | (103.0 | ) | 4,254.9 | |||||||||||
Total fixed maturities | 15,759.8 | 78.2 | (397.2 | ) | 15,440.8 | |||||||||||
Marketable equity securities | 172.2 | 39.1 | (1.4 | ) | 209.9 | |||||||||||
Total | $ | 15,932.0 | $ | 117.3 | $ | (398.6 | ) | $ | 15,650.7 | |||||||
F-51
Table of Contents
As of December 31, 2006 | ||||||||||||||||
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Amounts in millions) | ||||||||||||||||
Fixed maturities: | ||||||||||||||||
U.S. government and agencies | $ | 157.0 | $ | 1.8 | $ | (0.9 | ) | $ | 157.9 | |||||||
State and political subdivisions | 666.1 | 9.3 | (4.5 | ) | 670.9 | |||||||||||
Foreign government | 205.2 | 4.2 | (0.5 | ) | 208.9 | |||||||||||
Corporate securities | 10,670.7 | 164.3 | (168.5 | ) | 10,666.5 | |||||||||||
Mortgage-backed securities | 4,387.6 | 26.7 | (68.6 | ) | 4,345.7 | |||||||||||
Total fixed maturities | 16,086.6 | 206.3 | (243.0 | ) | 16,049.9 | |||||||||||
Marketable equity securities | 171.0 | 32.0 | (1.3 | ) | 201.7 | |||||||||||
Total | $ | 16,257.6 | $ | 238.3 | $ | (244.3 | ) | $ | 16,251.6 | |||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(Amounts in millions) | ||||||||||||||||||||||||
June 30, 2007 | ||||||||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||||||
U.S. government and agencies | $ | 79.3 | $ | (1.7 | ) | $ | 101.2 | $ | (3.0 | ) | $ | 180.5 | $ | (4.7 | ) | |||||||||
State and political subdivisions | 223.7 | (3.9 | ) | 140.6 | (4.2 | ) | 364.3 | (8.1 | ) | |||||||||||||||
Foreign government | 104.5 | (1.6 | ) | 21.5 | (0.6 | ) | 126.0 | (2.2 | ) | |||||||||||||||
Corporate securities | 3,900.1 | (108.5 | ) | 4,150.6 | (170.7 | ) | 8,050.7 | (279.2 | ) | |||||||||||||||
Mortgage-backed securities | 1,708.0 | (32.5 | ) | 2,083.2 | (70.5 | ) | 3,791.2 | (103.0 | ) | |||||||||||||||
Total fixed maturities | 6,015.6 | (148.2 | ) | 6,497.1 | (249.0 | ) | 12,512.7 | (397.2 | ) | |||||||||||||||
Marketable equity securities | 31.4 | (0.3 | ) | 6.6 | (1.1 | ) | 38.0 | (1.4 | ) | |||||||||||||||
Total | $ | 6,047.0 | $ | (148.5 | ) | $ | 6,503.7 | $ | (250.1 | ) | $ | 12,550.7 | $ | (398.6 | ) | |||||||||
F-52
Table of Contents
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
(Amounts in millions) | ||||||||||||||||||||||||
December 31, 2006 | ||||||||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||||||
U.S. government and agencies | $ | 52.7 | (0.7 | ) | $ | 24.7 | $ | (0.2 | ) | $ | 77.4 | $ | (0.9 | ) | ||||||||||
State and political subdivisions | 219.6 | (2.9 | ) | 65.7 | (1.6 | ) | 285.3 | (4.5 | ) | |||||||||||||||
Foreign government | 14.4 | (0.2 | ) | 11.1 | (0.3 | ) | 25.5 | (0.5 | ) | |||||||||||||||
Corporate securities | 2,732.6 | (55.8 | ) | 3,686.9 | (112.7 | ) | 6,419.5 | (168.5 | ) | |||||||||||||||
Mortgage-backed securities | 1,501.5 | (22.8 | ) | 1,888.3 | (45.8 | ) | 3,389.8 | (68.6 | ) | |||||||||||||||
Total fixed maturities | 4,520.8 | (82.4 | ) | 5,676.7 | (160.6 | ) | 10,197.5 | (243.0 | ) | |||||||||||||||
Marketable equity securities | 9.8 | (0.2 | ) | 2.9 | (1.1 | ) | 12.7 | (1.3 | ) | |||||||||||||||
Total | $ | 4,530.6 | $ | (82.6 | ) | $ | 5,679.6 | $ | (161.7 | ) | $ | 10,210.2 | $ | (244.3 | ) | |||||||||
F-53
Table of Contents
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Amounts in millions) | ||||||||||||||||
Gross realized gains on sales: | ||||||||||||||||
Fixed maturities | $ | 12.0 | $ | 5.7 | $ | 27.1 | $ | 16.5 | ||||||||
Marketable equity securities | 5.9 | 5.7 | 10.4 | 7.3 | ||||||||||||
Total gross realized gains on sales | 17.9 | 11.4 | 37.5 | 23.8 | ||||||||||||
Gross realized losses on sales: | ||||||||||||||||
Fixed maturities | (4.3 | ) | (5.2 | ) | (7.9 | ) | (9.4 | ) | ||||||||
Marketable equity securities | (1.9 | ) | — | (2.0 | ) | — | ||||||||||
Total gross realized losses on sales | (6.2 | ) | (5.2 | ) | (9.9 | ) | (9.4 | ) | ||||||||
Impairments: | ||||||||||||||||
Fixed maturities | (3.0 | ) | (9.2 | ) | (4.5 | ) | (12.6 | ) | ||||||||
Marketable equity securities | — | — | (0.4 | ) | (1.1 | ) | ||||||||||
Total impairments | (3.0 | ) | (9.2 | ) | (4.9 | ) | (13.7 | ) | ||||||||
Other, including gains (losses) on calls and redemptions: | ||||||||||||||||
Fixed maturities | 1.4 | 0.6 | 2.2 | (0.2 | ) | |||||||||||
Marketable equity securities | 0.1 | (1.0 | ) | 0.1 | (1.0 | ) | ||||||||||
Other | 0.4 | (1.8 | ) | (0.5 | ) | — | ||||||||||
Total other | 1.9 | (2.2 | ) | 1.8 | (1.2 | ) | ||||||||||
Net investment gains (losses) | $ | 10.6 | $ | (5.2 | ) | $ | 24.5 | $ | (0.5 | ) | ||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Amounts in millions) | ||||||||||||||||
Net investment income | ||||||||||||||||
Fixed maturities | $ | 226.7 | $ | 231.4 | $ | 455.6 | $ | 464.9 | ||||||||
Marketable equity securities | 2.2 | 3.0 | 3.8 | 5.2 | ||||||||||||
Mortgage loans | 12.5 | 12.5 | 24.5 | 23.8 | ||||||||||||
Policy loans | 1.1 | 1.3 | 2.3 | 2.5 | ||||||||||||
Investments in limited partnerships | 3.2 | (1.2 | ) | 3.8 | 0.7 | |||||||||||
Other(1) | 5.7 | 2.9 | 10.6 | 5.3 | ||||||||||||
Total investment income | 251.4 | 249.9 | 500.6 | 502.4 | ||||||||||||
Less investment expense | (4.9 | ) | (5.9 | ) | (9.7 | ) | (11.9 | ) | ||||||||
Net investment income, pre-tax | $ | 246.5 | $ | 244.0 | $ | 490.9 | $ | 490.5 | ||||||||
(1) | Includes income from investments such as short-term, embedded derivatives, a note receivable and options, and from cash and cash equivalents. |
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3. | Deferred Policy Acquisitions Costs |
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
(Amounts in millions) | ||||||||
Unamortized balance at beginning of period | $ | 87.6 | $ | 48.5 | ||||
Deferral of acquisition costs | 24.3 | 52.5 | ||||||
Amortization related to investment gains | (9.4 | ) | 1.2 | |||||
Amortization related to other expenses | 0.5 | (14.6 | ) | |||||
103.0 | 87.6 | |||||||
Accumulated effect of net unrealized gains | 4.1 | 0.6 | ||||||
Balance at end of period | $ | 107.1 | $ | 88.2 | ||||
�� |
4. | Segment Information |
• | Group’s principal product is stop-loss medical insurance sold to employers with self-insured medical plans. Also included in this segment are group life, accidental death and dismemberment insurance, and disability products. | |
• | Retirement Services’ products are primarily fixed and variable deferred annuities (both qualified and non-qualified), tax-sheltered annuities (marketed to teachers and not-for-profit organizations), and section 457 plans, and group variable annuities for qualified structured retirement plans. We also provide record keeping services for qualified retirement plans invested in mutual funds. | |
• | Income Annuities’ principal products are the structured settlement annuities that are sold to fund third-party personal injury settlements and single premium immediate annuities purchased to fund income after retirement. | |
• | Individual’s products include a wide array of term, universal and variable universal life, and bank-owned life insurance. | |
• | Other includes Symetra Financial Corporation (the holding company), inter-segment elimination entries, various non-insurance businesses managed outside of our operating segments and unallocated income and expenses. |
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Three Months Ended June 30, 2007 | ||||||||||||||||||||||||
Retirement | Income | |||||||||||||||||||||||
Group | Services | Annuities | Individual | Other | Total | |||||||||||||||||||
(Amounts in millions) | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Premiums | $ | 96.4 | $ | — | $ | — | $ | 34.9 | $ | — | $ | 131.3 | ||||||||||||
Net investment income | 4.4 | 61.5 | 113.2 | 60.7 | 6.7 | 246.5 | ||||||||||||||||||
Other revenues | 3.8 | 6.2 | 0.3 | 4.0 | 3.1 | 17.4 | ||||||||||||||||||
Net realized investment gains (losses) | — | (0.8 | ) | 9.4 | (0.3 | ) | 2.3 | 10.6 | ||||||||||||||||
Total revenues | 104.6 | 66.9 | 122.9 | 99.3 | 12.1 | 405.8 | ||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||
Policyholder benefits and claims | 52.8 | (1.9 | ) | — | 18.5 | — | 69.4 | |||||||||||||||||
Interest credited | — | 42.9 | 92.2 | 54.3 | (0.3 | ) | 189.1 | |||||||||||||||||
Other underwriting and operating expenses | 27.0 | 18.0 | 5.7 | 14.4 | 5.4 | 70.5 | ||||||||||||||||||
Interest expense | — | — | — | — | 4.6 | 4.6 | ||||||||||||||||||
Amortization of deferred policy acquisition costs | 2.0 | 1.7 | 0.3 | 1.0 | — | 5.0 | ||||||||||||||||||
Total benefits and expenses | 81.8 | 60.7 | 98.2 | 88.2 | 9.7 | 338.6 | ||||||||||||||||||
Segment income before income taxes | 22.8 | 6.2 | 24.7 | 11.1 | 2.4 | 67.2 | ||||||||||||||||||
Less: Net realized investment gains (losses) | — | (0.8 | ) | 9.4 | (0.3 | ) | 2.3 | 10.6 | ||||||||||||||||
Segment operating income before income taxes | $ | 22.8 | $ | 7.0 | $ | 15.3 | $ | 11.4 | $ | 0.1 | $ | 56.6 | ||||||||||||
As of June 30, 2007 | ||||||||||||||||||||||||
Total investments | $ | 210.2 | $ | 4,048.4 | $ | 6,718.4 | $ | 4,110.0 | $ | 1,608.0 | $ | 16,695.0 | ||||||||||||
Separate account assets | — | 1,142.8 | — | 125.7 | — | 1,268.5 | ||||||||||||||||||
Total assets | 342.3 | 5,528.9 | 7,269.1 | 4,725.6 | 1,979.9 | 19,845.8 |
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Three Months Ended June 30, 2006 | ||||||||||||||||||||||||
Retirement | Income | |||||||||||||||||||||||
Group | Services | Annuities | Individual | Other | Total | |||||||||||||||||||
(Amounts in millions) | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Premiums | $ | 97.8 | $ | 0.1 | $ | — | $ | 34.7 | $ | — | $ | 132.6 | ||||||||||||
Net investment income | 4.4 | 67.9 | 108.5 | 57.5 | 5.7 | 244.0 | ||||||||||||||||||
Other revenues | 2.4 | 5.1 | 0.2 | 3.5 | 2.8 | 14.0 | ||||||||||||||||||
Net realized investment gains (losses) | (0.1 | ) | (11.7 | ) | 6.1 | (1.6 | ) | 2.1 | (5.2 | ) | ||||||||||||||
Total revenues | 104.5 | 61.4 | 114.8 | 94.1 | 10.6 | 385.4 | ||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||
Policyholder benefits and claims | 59.7 | (5.1 | ) | — | 8.8 | — | 63.4 | |||||||||||||||||
Interest credited | — | 44.2 | 91.7 | 54.3 | (0.1 | ) | 190.1 | |||||||||||||||||
Other underwriting and operating expenses | 25.4 | 16.4 | 5.5 | 14.6 | 3.8 | 65.7 | ||||||||||||||||||
Interest expense | — | — | — | — | 4.6 | 4.6 | ||||||||||||||||||
Amortization of deferred policy acquisition costs | 2.8 | 0.3 | 0.2 | 0.6 | 0.1 | 4.0 | ||||||||||||||||||
Total benefits and expenses | 87.9 | 55.8 | 97.4 | 78.3 | 8.4 | 327.8 | ||||||||||||||||||
Segment income before income taxes | 16.6 | 5.6 | 17.4 | 15.8 | 2.2 | 57.6 | ||||||||||||||||||
Less: Net realized investment gains (losses) | (0.1 | ) | (11.7 | ) | 6.1 | (1.6 | ) | 2.1 | (5.2 | ) | ||||||||||||||
Segment operating income before income taxes | $ | 16.7 | $ | 17.3 | $ | 11.3 | $ | 17.4 | $ | 0.1 | $ | 62.8 | ||||||||||||
As of June 30, 2006 | ||||||||||||||||||||||||
Total investments | $ | 108.1 | $ | 4,656.2 | $ | 6,783.0 | $ | 4,010.8 | $ | 1,611.2 | $ | 17,169.3 | ||||||||||||
Separate account assets | — | 1,057.9 | — | 112.6 | — | 1,170.5 | ||||||||||||||||||
Total assets | 238.4 | 6,034.5 | 7,170.0 | 4,575.0 | 2,064.2 | 20,082.1 |
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Six Months Ended June 30, 2007 | ||||||||||||||||||||||||
Retirement | Income | |||||||||||||||||||||||
Group | Services | Annuities | Individual | Other | Total | |||||||||||||||||||
(Amounts in millions) | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Premiums | $ | 195.0 | $ | — | $ | — | $ | 70.0 | $ | — | $ | 265.0 | ||||||||||||
Net investment income | 8.8 | 124.5 | 223.8 | 120.3 | 13.5 | 490.9 | ||||||||||||||||||
Other revenues | 6.3 | 12.4 | 0.5 | 7.1 | 6.4 | 32.7 | ||||||||||||||||||
Net realized investment gains (losses) | (0.1 | ) | (3.7 | ) | 24.2 | 0.1 | 4.0 | 24.5 | ||||||||||||||||
Total revenues | 210.0 | 133.2 | 248.5 | 197.5 | 23.9 | 813.1 | ||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||
Policyholder benefits and claims | 107.7 | (4.0 | ) | — | 32.4 | — | 136.1 | |||||||||||||||||
Interest credited | — | 84.3 | 183.8 | 106.4 | (0.4 | ) | 374.1 | |||||||||||||||||
Other underwriting and operating expenses | 55.1 | 35.8 | 11.7 | 29.3 | 9.3 | 141.2 | ||||||||||||||||||
Interest expense | — | — | — | — | 9.3 | 9.3 | ||||||||||||||||||
Amortization of deferred policy acquisition costs | 4.5 | 3.7 | 0.5 | 0.8 | (0.1 | ) | 9.4 | |||||||||||||||||
Total benefits and expenses | 167.3 | 119.8 | 196.0 | 168.9 | 18.1 | 670.1 | ||||||||||||||||||
Segment income before income taxes | 42.7 | 13.4 | 52.5 | 28.6 | 5.8 | 143.0 | ||||||||||||||||||
Less: Net realized investment gains (losses) | (0.1 | ) | (3.7 | ) | 24.2 | 0.1 | 4.0 | 24.5 | ||||||||||||||||
Segment operating income before income taxes | $ | 42.8 | $ | 17.1 | $ | 28.3 | $ | 28.5 | $ | 1.8 | $ | 118.5 | ||||||||||||
As of June 30, 2007 | ||||||||||||||||||||||||
Total investments | $ | 210.2 | $ | 4,048.4 | $ | 6,718.4 | $ | 4,110.0 | $ | 1,608.0 | $ | 16,695.0 | ||||||||||||
Separate account assets | — | 1,142.8 | — | 125.7 | — | 1,268.5 | ||||||||||||||||||
Total assets | 342.3 | 5,528.9 | 7,269.1 | 4,725.6 | 1,979.9 | 19,845.8 |
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Six Months Ended June 30, 2006 | ||||||||||||||||||||||||
Retirement | Income | |||||||||||||||||||||||
Group | Services | Annuities | Individual | Other | Total | |||||||||||||||||||
(Amounts in millions) | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Premiums | $ | 199.5 | $ | 0.1 | $ | — | $ | 69.6 | $ | — | $ | 269.2 | ||||||||||||
Net investment income | 9.0 | 137.7 | 217.7 | 114.7 | 11.4 | 490.5 | ||||||||||||||||||
Other revenues | 5.5 | 11.6 | 0.4 | 6.8 | 5.4 | 29.7 | ||||||||||||||||||
Net realized investment gains (losses) | (0.1 | ) | (16.4 | ) | 15.4 | (1.9 | ) | 2.5 | (0.5 | ) | ||||||||||||||
Total revenues | 213.9 | 133.0 | 233.5 | 189.2 | 19.3 | 788.9 | ||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||
Policyholder benefits and claims | 132.2 | (9.7 | ) | — | 25.1 | — | 147.6 | |||||||||||||||||
Interest credited | — | 91.4 | 187.0 | 103.9 | (0.1 | ) | 382.2 | |||||||||||||||||
Other underwriting and operating expenses | 53.4 | 30.4 | 10.6 | 28.6 | 6.8 | 129.8 | ||||||||||||||||||
Interest expense | — | — | — | — | 9.8 | 9.8 | ||||||||||||||||||
Amortization of deferred policy acquisition costs | 5.7 | 0.5 | 0.3 | 1.0 | 0.1 | 7.6 | ||||||||||||||||||
Total benefits and expenses | 191.3 | 112.6 | 197.9 | 158.6 | 16.6 | 677.0 | ||||||||||||||||||
Segment income before income taxes | 22.6 | 20.4 | 35.6 | 30.6 | 2.7 | 111.9 | ||||||||||||||||||
Less: Net realized investment gains (losses) | (0.1 | ) | (16.4 | ) | 15.4 | (1.9 | ) | 2.5 | (0.5 | ) | ||||||||||||||
Segment operating income before income taxes | $ | 22.7 | $ | 36.8 | $ | 20.2 | $ | 32.5 | $ | 0.2 | $ | 112.4 | ||||||||||||
As of June 30, 2006 | ||||||||||||||||||||||||
Total investments | $ | 108.1 | $ | 4,656.2 | $ | 6,783.0 | $ | 4,010.8 | $ | 1,611.2 | $ | 17,169.3 | ||||||||||||
Separate account assets | — | 1,057.9 | — | 112.6 | — | 1,170.5 | ||||||||||||||||||
Total assets | 238.4 | 6,034.5 | 7,170.0 | 4,575.0 | 2,064.2 | 20,082.1 |
5. | Acquisitions |
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7. | Earnings Per Share |
Three Months Ended | Three Months Ended | |||||||||||||||||||||||
June 30, 2007 | June 30, 2006 | |||||||||||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||||||||||
Amount | EPS | EPS | Amount | EPS | EPS | |||||||||||||||||||
(In millions, except for per share data) | ||||||||||||||||||||||||
Net income | $ | 45.5 | $ | 3.54 | $ | 3.54 | $ | 36.3 | $ | 2.83 | $ | 2.83 | ||||||||||||
Common stock: | ||||||||||||||||||||||||
Distributed | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Undistributed | 37.8 | 3.54 | 3.54 | 30.1 | 2.83 | 2.83 | ||||||||||||||||||
Total | $ | 37.8 | $ | 3.54 | $ | 3.54 | $ | 30.1 | $ | 2.83 | $ | 2.83 | ||||||||||||
Warrants: | ||||||||||||||||||||||||
Distributed | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Undistributed | 7.7 | 3.54 | 3.54 | 6.2 | 2.83 | 2.83 | ||||||||||||||||||
Total | $ | 7.7 | $ | 3.54 | $ | 3.54 | $ | 6.2 | $ | 2.83 | $ | 2.83 |
Basic | Diluted | Basic | Diluted | |||||||||||||||||
Weighted average common and warrant shares outstanding | ||||||||||||||||||||
Common stock | 10.6 | 10.6 | 10.6 | 10.6 | ||||||||||||||||
Warrants | 2.2 | 2.2 | 2.2 | 2.2 | ||||||||||||||||
Total shares | 12.8 | 12.8 | 12.8 | 12.8 |
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Six Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, 2007 | June 30, 2006 | |||||||||||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||||||||||
Amount | EPS | EPS | Amount | EPS | EPS | |||||||||||||||||||
(In millions, except for per share data) | ||||||||||||||||||||||||
Net income | $ | 96.2 | $ | 7.50 | $ | 7.50 | $ | 72.7 | $ | 5.66 | $ | 5.66 | ||||||||||||
Common stock: | ||||||||||||||||||||||||
Distributed | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Undistributed | 79.8 | 7.50 | 7.50 | 60.3 | 5.66 | 5.66 | ||||||||||||||||||
Total | $ | 79.8 | $ | 7.50 | $ | 7.50 | $ | 60.3 | $ | 5.66 | $ | 5.66 | ||||||||||||
Warrants: | ||||||||||||||||||||||||
Distributed | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Undistributed | 16.4 | 7.50 | 7.50 | 12.4 | 5.66 | 5.66 | ||||||||||||||||||
Total | $ | 16.4 | $ | 7.50 | $ | 7.50 | $ | 12.4 | $ | 5.66 | $ | 5.66 |
Basic | Diluted | Basic | Diluted | |||||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
Common stock | 10.6 | 10.6 | 10.6 | 10.6 | ||||||||||||||||
Warrants | 2.2 | 2.2 | 2.2 | 2.2 | ||||||||||||||||
Total shares | 12.8 | 12.8 | 12.8 | 12.8 |
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Contract values | The amounts held for the benefit of policyholders or contract holders within investment products. For variable products, account value is equal to fair value. | |
Accumulation period | The period during which deferred annuity accumulate interest or investment gains (losses). The period ends when the income payments begin. | |
Annualized first-year premiums (AFYP) | This term applies to our Group and Individual segments. For recurring premium products it represents the total expected premium payments over the first 12 months on new sales. The entire 12 months of expected premium is reported AFYP in the period during which the policy is issued. For single-premium products, the AFYP is 10% of the single premium. | |
Annuity | A contract sold by insurance companies that offers tax-deferred savings and a choice of payout options to meet the owner’s income needs in retirement. | |
Bank-owned life insurance (BOLI) | A life insurance policy purchased to insure the life of certain bank employees, usually officers and other highly compensated employees. The policies are commonly used to fund employee pension and benefit plans. | |
Brokerage general agent | An independent contractor of the insurance company who has the authority to appoint brokers on behalf of the insurance company. | |
Cash value | The amount of cash available to a policyholder on the surrender of or withdrawal from a life insurance policy or annuity contract. | |
Cede | Reinsuring with another insurance company all or a portion of the risk we insure. | |
Deferred annuities | Annuity contracts that delay income payments until the holder chooses to receive them. These contracts might also be surrendered for cash, exchanged for another contract, or rolled over to another contract. | |
Defined benefit plan | A pension plan that promises to pay a specified amount to each eligible plan member who retires. | |
Defined contribution plan | A plan established under Section 401(a), 401(k), 403(b) or 457(b) of the Internal Revenue Code, under which the benefits to a participant depend on contributions made to, and the investment return on, the participant’s account. | |
Earned premiums | The portion of a premium, net of any amount ceded, that represents coverage already provided or that belongs to the insurer based on the part of the policy period that has passed. | |
Expense risk | The measure of the sensitivity of the insurance company’s liability for the resultant higher expense rates than charged for in the premium, expense charge or margin. | |
Experience rating | The statistical procedure used to calculate a premium rate based on the loss experience of an insured group. |
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Fixed annuity | An annuity that guarantees that a specific sum of money will be paid in the future, usually as monthly income, to an annuitant. The dollar amount will not fluctuate regardless of adverse changes in the insurance company’s mortality experience, investment return, and expenses. | |
Fixed indexed annuity (FIA) | Modifications of the single premium deferred annuity, which usually guarantees at a minimum a return of the premium. Additional interest can be earned that is linked to a specified stock index. Thus, this insurance product usually guarantees the principal of the investment, while at the same time providing the opportunity for increasing values tied to the equities market. | |
General account | All of the assets of our insurance companies recognized for statutory accounting purposes other than those specifically allocated to separate accounts. We bear the risk of our investments held in our general account. | |
Group insurance | A single contract or policy under which individuals in a natural group (such as employees of a business firm) and potentially their dependants are covered. | |
Group medical stop-loss insurance | Coverage purchased by employers in order to limit their exposure under self-insured medical plans. | |
Guaranteed investment contract | A contract, usually purchased by ERISA qualified plans, that guarantees a minimum rate of return on the amount invested. | |
Guaranteed minimum income benefit (GMIB) | A benefit that guarantees a specified minimum appreciation rate for a defined period of time, after which annuity payments commence. | |
Guaranteed minimum withdrawal benefit (GMWB) | A benefit that guarantees a customer’s minimum stream of income, equal to the return of the contract’s principal provided it is withdrawn within specified limits over time. | |
Immediate annuities | Annuity contracts under which the benefits payable to the annuitant begin to be paid within one year of contract issuance. | |
In-force | Policies and contracts reflected on our applicable records that have not expired or been terminated as of a given date. | |
Interest spread | Yield on investments less the interest rate credited on liabilities. | |
Managing general underwriter (MGU) | An MGU is a business that acts as a sales intermediary between an insurance company and medical stop-loss policyholder. MGU’s can provide marketing, premium administration, claims administration, claims adjudication and pricing. The MGU is generally paid a percentage of premium and does not share in any of the risk. | |
Market value adjustment (MVA) | A market value adjustment is a feature that adjusts the surrender value of a contract in the event of surrender prior to the end of the contract period to protect an insurer against losses due to higher interest rates at the time of the surrender. | |
Morbidity | The incidence of disease or disability in a specific population over a specific period of time. |
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Mortality | The number of deaths in a specific population over a specific period of time. | |
Mortality gains | Mortality gains may arise if mortality rates are higher or lower than expected. For structured settlements and SPIAs mortality gains occur if policyholders die sooner than expected. For life insurance, mortality gains occur if policyholders die later than expected. | |
Non-admitted assets | Certain assets or portions thereof that are not permitted to be reported as admitted assets in an insurer’s annual statement prepared in accordance with statutory accounting principles. As a result, certain assets that normally would be accorded value in the financial statements of non-insurance corporations are accorded no value and thus reduce the reported statutory surplus of the insurer. | |
Non-qualified plan | An employee benefits plan that does not have the federal tax advantages of a qualified pension plan, in which employers receive a federal tax deduction for contributions paid into the plan on behalf of their employees. For an employer, not having a tax deduction can be a serious disadvantage, but a nonqualified plan has these advantages. | |
1) otherwise discriminatory coverage for some employees is allowed, | ||
2) benefits can be allocated to certain employees whom the employer wishes to reward. The result could be that the total cost of the benefits for a particular group of employees may be less under a non-qualified plan than for all employees under a qualified plan. | ||
Persistency | Measurement by premiums of the percentage of insurance policies or annuity contracts remaining in force between specified measurement dates. | |
Premiums | Payments and other consideration received on insurance policies issued or reinsurance assumed by an insurance company. Under generally accepted accounting principles, premiums on variable life and other investment-type contracts are not accounted for as revenues. | |
Regulatory capital | Regulatory capital is the sum of statutory capital and surplus and asset valuation reserve (AVR). | |
Reinsurance | A form of insurance that insurance companies buy for their own protection, “a sharing of insurance.” An insurer (the reinsured) reduces its possible maximum loss on either an individual risk or a large number of risks by giving a portion of its liability to another insurance company (the reinsurer). Reinsurance enables an insurance company to (1) expand its capacity; (2) stabilize its underwriting results; (3) finance its expanding volume; (4) secure catastrophe protection against shock losses; (5) withdraw from a class or line of business, or a geographical area, within a relatively short time period and (6) share large risks with other companies. | |
Reserves | Liabilities established by insurers and reinsurers to reflect the estimated costs of claim payments and benefits and the related |
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expenses that the insurer or reinsurer will ultimately be required to pay in respect of insurance or reinsurance it has written. | ||
Section 403(b) plan | A retirement plan which is available primarily to public school employees and non-profit organizations that allows individuals to defer compensation on a pre-tax basis through payroll deductions and to defer federal and sometimes state taxes until the assets are withdrawn. | |
Section 457 plan | A retirement plan available to government employees that allows an individual to defer compensation on a pre-tax basis through payroll deductions and to defer federal and sometimes state taxes until the assets are withdrawn. | |
Single Premium Immediate Annuities (SPIAs) | An annuity that is purchased for a single premium at the time of issue and guarantees a series of payments beginning within one year of the issue date and continuing over a fixed number of years or for the life of the annuitant. | |
Statutory reserves | Liabilities established by state insurance law that an insurer must have available to provide for future obligations with respect to all policies. Statutory reserves are liabilities on the balance sheet of financial statements prepared in conformity with statutory accounting principles. | |
Statutory surplus | The excess of admitted assets over statutory liabilities as shown on an insurer’s statutory financial statements. | |
Structured settlement | A customized annuity used to provide a claimant ongoing periodic payments instead of a lump sum payment. A structured settlement provides an alternative to a lump sum settlement generally in a personal injury lawsuit and typically is purchased by a property and casualty insurance company for the benefit of an injured claimant with benefits scheduled to be paid throughout a fixed period or for the life of the claimant. | |
Surrender charge | An amount specified in an insurance policy or annuity contract that is charged to a policyholder or contractholder for early cancellation of, or withdrawal under, that policy or contract. | |
Surrenders and withdrawals | Amounts taken from life insurance policies and annuity contracts representing the full or partial values of these policies or contracts. | |
Tax sheltered annuity | An annuity issued as part of a Section 403(b) plan. Tax-sheltered annuities are also referred to as “Section 403(b) annuities.” | |
Term life insurance | Life insurance that stays in effect for only a specified, limited period. If an insured dies within that period, the beneficiary receives the death payments. If the insured survives, the policy ends and the beneficiary receives nothing. | |
Third party administrator (TPA) | A person or entity that, pursuant to a service contract, processes claims or provides administrative services for an employee benefits plan. | |
Underwriting | The insurer’s process of reviewing applications submitted for insurance coverage, deciding whether to accept all or part of the coverage requested and determining the applicable premiums. |
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Table of Contents
Universal life (UL) insurance | Adjustable life insurance under which (1) premiums are flexible, not fixed; (2) protection is adjustable, not fixed and (3) insurance company expenses and other charges are specifically disclosed to a purchaser. This policy is referred to as unbundled life insurance because its three basic elements (investment earnings, pure cost of protection, and company expenses) are separately identified both in the policy and in an annual report to the policyowner. After the first premium, additional premiums can be paid at any time. A specified percentage expense charge is deducted from each premium before the balance is credited to the cash value, along with interest. The pure cost of protection is subtracted from the cash value monthly. As selected by the insured, the death benefit can be a specified amount plus the cash value or the specified amount that includes the cash value. After payment of the minimal initial premium required, there are no contractually scheduled premium payments (provided the cash value account balance is sufficient to pay the pure cost of protection each month and any other expenses and charges.) Expenses and charges may take the form of a flat dollar amount for the first policy year, a sales charge for each premium received, and a monthly expense charge for each policy year. An annual report is provided the policy owner that shows the status of the policy. | |
Variable annuity | An annuity in which premium payments are used to purchase accumulation units, their number depending on the value of each unit. The value of a unit is determined by the value of the portfolio of stocks in which the insurance company invests the premiums. | |
Variable life (VL) insurance | An investment-oriented life insurance policy that provides a return linked to an underlying portfolio of securities. The investment offered through the policy is typically established as a separate account, which is divided into subaccounts that invest in underlying mutual funds. The policyholder has discretion in choosing among the available subaccounts, such as a common stock fund, bond fund, or money market fund. The life insurance policy benefits payable to the beneficiary upon the death of the insured or the surrender of the policy will vary to reflect the investment performance of the subaccounts chosen by the policy owner. | |
Waiver of premium | A provision of a life insurance policy pursuant to which an insured with total disability that lasts for a specified period no longer has to pay premiums for the duration of the disability or for a stated period, during which time the life insurance policy provides continued coverage. | |
Wealth transfer life insurance | A life insurance policy purchased with the primary intent to transfer wealth to chosen beneficiaries. | |
Whole life insurance | Level premium life insurance that covers the lifetime of the individual instead of a fixed term. |
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Table of Contents
Table of Contents
Item 13. | Other Expenses of Issuance and Distribution. |
SEC registration fee | $ | 23,025 | ||
Listing fee | 200,000 | |||
NASD filing fee | $ | 75,500 | ||
Blue Sky fees and expenses | * | |||
Printing and engraving costs | * | |||
Legal fees and expenses | * | |||
Accounting fees and expenses | * | |||
Transfer Agent and Registrar fees and expenses | * | |||
Miscellaneous expenses | * | |||
Total | * |
* | To be provided by amendment |
Item 14. | Indemnification of Directors and Officers. |
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Table of Contents
Item 15. | Recent Sales of Unregistered Securities. |
Item 16. | Exhibits and Financial Statement Schedules. |
Exhibit | ||||
Number | Description | |||
1 | .1 | Underwriting Agreement* | ||
2 | .1 | Stock Purchase Agreement by and among Safeco Corporation, General America Corporation, White Mountains Insurance Group, Ltd. and Occum Acquisition Corp. dated as of March 15, 2004** | ||
3 | .1 | Amended and Restated Certificate of Incorporation of Symetra Financial Corporation | ||
3 | .2 | Bylaws of Symetra Financial Corporation |
II-2
Table of Contents
Exhibit | ||||
Number | Description | |||
4 | .1 | Specimen Common Stock Certificate | ||
4 | .2 | Fiscal Agency Agreement between Symetra Financial Corporation and U.S. Bank dated March 30, 2006** | ||
4 | .3 | Master Promissory Note between The Bank of New York and Symetra Financial Corporation dated October 17, 2005** | ||
4 | .4 | Security Agreement between The Bank of New York and Symetra Financial Corporation dated October 17, 2005** | ||
4 | .5 | Master Promissory Note between The Bank of New York and Symetra Life Insurance Company dated October 17, 2005** | ||
4 | .6 | Security Agreement between The Bank of New York and Symetra Life Insurance Company dated October 17, 2005** | ||
4 | .7 | Warrant Certificate — Berkshire Hathaway, Inc. dated July 29, 2004** | ||
4 | .8 | Warrant Certificate — White Mountains Re Group, Ltd. dated July 29, 2004** | ||
4 | .9 | Credit Agreement among Occum Acquisition Corp. and the seven lenders and Bank of America, N.A. as Administrative Agent dated June 14, 2004** | ||
4 | .10 | Credit Agreement among Symetra Financial Corporation, the lenders and Bank of America, N.A., as administrative agent, dated August 16, 2007** | ||
4 | .11 | Purchase Agreement between Symetra Financial Corporation and the purchasers listed therein, dated October 4, 2007** | ||
4 | .12 | Indenture between Symetra Financial Corporation and U.S. Bank National Association, as trustee, dated October 10, 2007 | ||
5 | .1 | Opinion of Cravath, Swaine & Moore LLP** | ||
9 | .1 | Shareholders’ Agreement among Occum Acquisition Corp. and the persons listed on the signature page thereto dated as of March 8, 2004** | ||
9 | .2 | Shareholders’ Agreement among Occum Acquisition Corp. and the persons listed on the signature page thereto dated as of March 19, 2004** | ||
9 | .3 | Shareholders’ Agreement among Occum Acquisition Corp. and the persons listed on the signature page thereto dated as of April 16, 2004** | ||
10 | .1 | Service Agreement between ACS Commercial Solutions, Inc. and Symetra Financial Corporation dated October 28, 2004† | ||
10 | .2 | Reinsurance Agreement dated as of January 1, 1998 between Safeco Life Insurance Company and Reinsurance Group of America**† | ||
10 | .3 | Group Short Term Disability Reinsurance Agreement dated January 1, 1999 between Safeco Life Insurance Company and Duncanson & Holt Services, Inc.** | ||
10 | .4 | Group Long Term Disability Reinsurance Agreement dated January 1, 1999 between Safeco Life Insurance Company and Duncanson & Holt Services, Inc.** | ||
10 | .5 | Reinsurance Agreement dated as of August 24, 2001 between Safeco Life Insurance Company and Lincoln National Life Insurance Company**† | ||
10 | .6 | Reinsurance Agreement dated as of December 1, 2001 between Safeco Life Insurance Company and Transamerica Life Insurance Company**† | ||
10 | .7 | White Mountains Advisors LLC Investment Management Agreement* | ||
10 | .8 | Prospector Partners Investment LLC Investment Management Agreement* | ||
10 | .9 | Agency Agreement dated as of March 10, 2006 among Symetra Life Insurance Company, WM Financial Services, Inc. and WMFS Insurance Services, Inc.**† | ||
10 | .10 | Agency Agreement dated as of June 1, 2005 between Symetra Life Insurance Company and US Bancorp Investments Inc.**† | ||
10 | .11 | Symetra Financial Corporation Performance Share Plan2007-2009** | ||
10 | .12 | Annual Incentive Bonus Plan** |
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Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .13 | Symetra Financial Corporation Material Terms and Conditions of the Executive Severance Pay Plan** | ||
10 | .14 | 2006 Sales Incentive Plan for Patrick B. McCormick**† | ||
10 | .15 | IPO Grant Program | ||
10 | .16 | Symetra Financial Corporation Equity Plan | ||
10 | .17 | Symetra Financial Corporation Employee Stock Purchase Plan | ||
21 | .1 | Subsidiaries of Symetra Financial Corporation** | ||
23 | .1 | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm | ||
23 | .2 | Consent of Cravath, Swaine & Moore LLP (included in the opinion filed as Exhibit 5.1)** | ||
24 | .1 | Power of Attorney (included in signature page to the Registration Statement filed June 29, 2007)** |
Schedule I | Summary of Investments — Other than Investments in Related Parties | |
Schedule II | Condensed Statements of Financial Position, Operations and Cash Flows | |
Schedule III | Supplemental Insurance Information |
Item 17. | Undertakings. |
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By: | /s/ George C. Pagos |
Title: | Senior Vice President, General Counsel and Secretary |
Signature | Title | |||
* | Randall H. Talbot President, Chief Executive Officer and Director (Principal Executive Officer) | |||
* | Margaret A. Meister Chief Financial Officer (Principal Financial and Accounting Officer) | |||
* | David T. Foy (Director) | |||
* | Lois W. Grady (Director) | |||
* | Sander M. Levy (Director) | |||
* | Robert R. Lusardi (Director) | |||
* | David I. Schamis (Director) | |||
* | Lowndes A. Smith (Director) | |||
*By: | /s/ George C. Pagos | George C. Pagos (Attorney-in-Fact) |
Table of Contents
Exhibit | ||||
Number | Description | |||
1 | .1 | Underwriting Agreement* | ||
2 | .1 | Stock Purchase Agreement by and among Safeco Corporation, General America Corporation, White Mountains Insurance Group, Ltd. and Occum Acquisition Corp. dated as of March 15, 2004** | ||
3 | .1 | Amended and Restated Certificate of Incorporation of Symetra Financial Corporation | ||
3 | .2 | Bylaws of Symetra Financial Corporation | ||
4 | .1 | Specimen Common Stock Certificate | ||
4 | .2 | Fiscal Agency Agreement between Symetra Financial Corporation and U.S. Bank dated March 30, 2006** | ||
4 | .3 | Master Promissory Note between The Bank of New York and Symetra Financial Corporation dated October 17, 2005** | ||
4 | .4 | Security Agreement between The Bank of New York and Symetra Financial Corporation dated October 17, 2005** | ||
4 | .5 | Master Promissory Note between The Bank of New York and Symetra Life Insurance Company dated October 17, 2005** | ||
4 | .6 | Security Agreement between The Bank of New York and Symetra Life Insurance Corporation dated October 17, 2005** | ||
4 | .7 | Warrant Certificate — Berkshire Hathaway, Inc. dated July 29, 2004** | ||
4 | .8 | Warrant Certificate — White Mountains Re Group, Ltd. dated July 29, 2004** | ||
4 | .9 | Credit Agreement among Occum Acquisition Corp. and the seven lenders and Bank of America, N.A. as Administrative Agent dated June 14, 2004** | ||
4 | .10 | Credit Agreement among Symetra Financial Corporation, the lenders and Bank of America, N.A., as administrative agent, dated August 16, 2007** | ||
4 | .11 | Purchase Agreement between Symetra Financial Corporation and the purchasers listed therein, dated October 4, 2007** | ||
4 | .12 | Indenture between Symetra Financial Corporation and U.S. Bank National Association, as trustee | ||
5 | .1 | Opinion of Cravath, Swaine & Moore LLP** | ||
9 | .1 | Shareholders’ Agreement among Occum Acquisition Corp. and the persons listed on the signature page thereto dated as of March 8, 2004** | ||
9 | .2 | Shareholders’ Agreement among Occum Acquisition Corp. and the persons listed on the signature page thereto dated as of March 19, 2004** | ||
9 | .3 | Shareholders’ Agreement among Occum Acquisition Corp. and the persons listed on the signature page thereto dated as of April 16, 2004** | ||
10 | .1 | Service Agreement between ACS Commercial Solutions, Inc. and Symetra Financial Corporation dated October 28, 2004† | ||
10 | .2 | Reinsurance Agreement dated as of January 1, 1998 between Safeco Life Insurance Company and Reinsurance Group of America**† | ||
10 | .3 | Group Short Term Disability Reinsurance Agreement dated January 1, 1999 between Safeco Life Insurance Company and Duncanson & Holt Services, Inc.** | ||
10 | .4 | Group Long Term Disability Reinsurance Agreement dated January 1, 1999 between Safeco Life Insurance Company and Duncanson & Holt Services, Inc.** | ||
10 | .5 | Reinsurance Agreement dated as of August 24, 2001 between Safeco Life Insurance Company and Lincoln National Life Insurance Company**† | ||
10 | .6 | Reinsurance Agreement dated as of December 1, 2001 between Safeco Life Insurance Company and Transamerica Life Insurance Company**† | ||
10 | .7 | White Mountains Advisors LLC Investment Management Agreement* | ||
10 | .8 | Prospector Partners Investment LLC Investment Management Agreement* | ||
10 | .9 | Agency Agreement dated as of March 10, 2006 among Symetra Life Insurance Company, WM Financial Services, Inc. and WMFS Insurance Services, Inc.**† |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .10 | Agency Agreement dated as of June 1, 2005 between Symetra Life Insurance Company and US Bancorp Investment Inc.**† | ||
10 | .11 | Symetra Financial Corporation Performance Share Plan2007-2009** | ||
10 | .12 | Annual Incentive Bonus Plan** | ||
10 | .13 | Symetra Financial Corporation Material Terms and Conditions of the Executive Severance Pay Plan** | ||
10 | .14 | 2006 Sales Incentive Plan for Patrick B. McCormick**† | ||
10 | .15 | IPO Grant Program | ||
10 | .16 | Symetra Financial Corporation Equity Plan | ||
10 | .17 | Symetra Financial Corporation Employee Stock Purchase Plan | ||
21 | .1 | Subsidiaries of Symetra Financial Corporation** | ||
23 | .1 | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm | ||
23 | .2 | Consent of Cravath, Swaine & Moore LLP (included in the opinion filed as Exhibit 5.1)** | ||
24 | .1 | Power of Attorney (included in signature page to the Registration Statement filed June 29, 2007)** |
* | To be filed by amendment. |
† | An application for confidential treatment of selected portions of this agreement has been filed with the Commission. |
Table of Contents
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Amount as | ||||||||||||
Cost or | Fair | Shown on the | ||||||||||
Type of Investment | Amortized Cost | Value | Balance Sheet | |||||||||
(In thousands) | ||||||||||||
Fixed maturities: | ||||||||||||
Bonds: | ||||||||||||
United States government and government agencies and authorities | $ | 157,000 | $ | 157,896 | $ | 157,896 | ||||||
States, municipalities, and political subdivisions | 666,101 | 670,898 | 670,898 | |||||||||
Foreign governments | 205,186 | 208,875 | 208,875 | |||||||||
Public utilities | 2,032,006 | 2,037,298 | 2,037,298 | |||||||||
Convertibles and bonds with warrants attached | 64,556 | 68,315 | 68,315 | |||||||||
All other corporate bonds | 12,901,309 | 12,846,824 | 12,846,824 | |||||||||
Redeemable preferred stock | 60,438 | 59,772 | 59,772 | |||||||||
Total fixed maturities | 16,086,596 | 16,049,878 | 16,049,878 | |||||||||
Marketable Equity securities: | ||||||||||||
Common stocks: | ||||||||||||
Public utilities | 8,617 | 11,665 | 11,665 | |||||||||
Banks, trusts, and insurance companies | 16,312 | 19,372 | 19,372 | |||||||||
Industrial, miscellaneous, and all other | 93,483 | 115,811 | 115,811 | |||||||||
Nonredeemable preferred stocks | 52,591 | 54,858 | 54,858 | |||||||||
Total equity securities | 171,003 | 201,706 | 201,706 | |||||||||
Mortgage loans on real estate(1) | 798,295 | 796,078 | 794,283 | |||||||||
Policy loans | 79,244 | 79,244 | 79,244 | |||||||||
Other long-term investments | 124,229 | 131,353 | 131,353 | |||||||||
Short-term investments | 48,893 | 48,882 | 48,882 | |||||||||
Total investments | $ | 17,308,260 | $ | 17,307,141 | $ | 17,305,346 | ||||||
(1) | The amount shown in the consolidated balance sheets for mortgage loans on real estate differs from cost as these investments are presented net of a $4,012 allowance. |
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December 31, | ||||||||
2006 | 2005 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Cash and investments: | ||||||||
Investments | $ | 100,899 | $ | 83,938 | ||||
Investment in subsidiaries | 1,516,626 | 1,617,147 | ||||||
Cash and cash equivalents | 12,800 | 1,893 | ||||||
Total cash and investments | 1,630,325 | 1,702,978 | ||||||
Current and deferred tax receivables | 4,213 | 2,695 | ||||||
Receivables due from affiliates | 22,665 | 8,560 | ||||||
Other assets | 15,627 | 14,730 | ||||||
Total assets | $ | 1,672,830 | $ | 1,728,963 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Notes payable | $ | 298,737 | $ | 300,000 | ||||
Current and deferred taxes payable | — | 419 | ||||||
Other liabilities | 47,258 | 23,795 | ||||||
Total liabilities | 345,995 | 324,214 | ||||||
Capital stock, par value $0.1 per share, 15,000 shares authorized and 10,649 shares issued and outstanding | 106 | 106 | ||||||
Additionalpaid-in-capital | 1,166,325 | 1,166,325 | ||||||
Retained earnings | 161,815 | 102,485 | ||||||
Accumulated other comprehensive income (loss) | (1,411 | ) | 135,833 | |||||
Total stockholders’ equity | 1,326,835 | 1,404,749 | ||||||
Total liabilities and stockholders’ equity | $ | 1,672,830 | $ | 1,728,963 | ||||
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Period from | ||||||||||||
August 2, | ||||||||||||
2004 | ||||||||||||
Year Ended | Year Ended | through | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2006 | 2005 | 2004 | ||||||||||
(In thousands) | ||||||||||||
Revenues: | ||||||||||||
Dividends from subsidiaries: | ||||||||||||
Symetra Life Insurance Company | $ | 122,500 | $ | — | $ | — | ||||||
Other subsidiaries | — | 6,000 | — | |||||||||
Net investment income | 2,160 | 2,374 | 523 | |||||||||
Net realized investment gains | 7,365 | 1,976 | — | |||||||||
Total revenues | 132,025 | 10,350 | 523 | |||||||||
Expenses: | ||||||||||||
Fair value of warrants issued to investors | — | — | 101,531 | |||||||||
Interest expense on debt | 19,155 | 12,388 | 3,466 | |||||||||
Operating expenses | 610 | 276 | 1,888 | |||||||||
Total expenses | 19,765 | 12,664 | 106,885 | |||||||||
Income (loss) from continuing operations before income taxes | 112,260 | (2,314 | ) | (106,362 | ) | |||||||
Income tax benefits | (3,884 | ) | (2,856 | ) | (2,146 | ) | ||||||
Income before equity in undistributed net income (loss) of subsidiaries | 116,144 | 542 | (104,216 | ) | ||||||||
Equity in undistributed net income (loss) of subsidiaries: | ||||||||||||
Symetra Life Insurance Company | 38,556 | 150,486 | 62,416 | |||||||||
Other subsidiaries | 4,629 | (5,870 | ) | 493 | ||||||||
43,185 | 144,616 | 62,909 | ||||||||||
Net income (loss) from continuing operations | 159,329 | 145,158 | (41,307 | ) | ||||||||
Income (loss) from equity in discontinued operations (net of taxes of $(0), $536, and $(1,335), respectively) | — | 1,045 | (2,411 | ) | ||||||||
Net income (loss) | $ | 159,329 | $ | 146,203 | $ | (43,718 | ) | |||||
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Period from | ||||||||||||
August 2, | ||||||||||||
2004 | ||||||||||||
Year Ended | Year Ended | through | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2006 | 2005 | 2004 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities | ||||||||||||
Net income (loss) | $ | 159,329 | $ | 146,203 | $ | (43,718 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Income (loss) from equity in discontinued operations, net of taxes | — | (1,045 | ) | 2,411 | ||||||||
Equity in undistributed net income of subsidiaries | (43,185 | ) | (144,616 | ) | (62,909 | ) | ||||||
Net realized investment gains | (7,365 | ) | (1,976 | ) | — | |||||||
Fair value of warrants issued to investors | — | — | 101,531 | |||||||||
Changes in accrued items and other adjustments, net | 7,180 | 2,495 | 10,642 | |||||||||
Total adjustments | (43,370 | ) | (145,142 | ) | 51,675 | |||||||
Net cash provided by operating activities | 115,959 | 1,061 | 7,957 | |||||||||
Cash flows from investing activities | ||||||||||||
Purchases of investments | (46,686 | ) | (94,490 | ) | (40,773 | ) | ||||||
Sales of investments | 52,965 | 51,920 | 5,539 | |||||||||
Purchases of Safeco Life & Investments | — | — | (1,349,911 | ) | ||||||||
Cash received from discontinued operations | — | — | 30,000 | |||||||||
Dividends from discontinued operations | — | 29,236 | 20,001 | |||||||||
Other, net | (11,062 | ) | (21,286 | ) | — | |||||||
Net cash provided by (used in) investing activities | (4,783 | ) | (34,620 | ) | (1,335,144 | ) | ||||||
Cash flows from financing activities | ||||||||||||
Capital contributions/loans to subsidiaries | (715 | ) | (202 | ) | — | |||||||
Proceeds from sale of capital stock | — | — | 1,064,900 | |||||||||
Cash dividend to investors | (100,000 | ) | — | — | ||||||||
Proceeds from note payable | 298,671 | — | 315,000 | |||||||||
Repayments of note payable | (300,000 | ) | — | (15,000 | ) | |||||||
Other, net | 1,775 | — | (2,059 | ) | ||||||||
Net cash provided by (used in) financing activities | (100,269 | ) | (202 | ) | 1,362,841 | |||||||
Net increase (decrease) in cash and cash equivalents from continuing operations | 10,907 | (33,761 | ) | 35,654 | ||||||||
Cash and cash equivalents at beginning of period | 1,893 | 35,654 | — | |||||||||
Cash and cash equivalents at end of period | $ | 12,800 | $ | 1,893 | $ | 35,654 | ||||||
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(PARENT COMPANY ONLY)
(In Thousands)
1. | Organization and Presentation |
2. | Related Parties |
S-6
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Year Ended December 31, 2006
Future | ||||||||||||||||||||||||||||||||||||
Policy | ||||||||||||||||||||||||||||||||||||
Benefits, | Benefits, | Amortization | ||||||||||||||||||||||||||||||||||
Deferred | Losses, | Claims, | of Deferred | |||||||||||||||||||||||||||||||||
Policy | Claims, | Other | Net | Losses, and | Policy | Other | ||||||||||||||||||||||||||||||
Acquisition | and Loss | Unearned | Policyholder | Premium | Investment | Settlement | Acquisition | Operating | ||||||||||||||||||||||||||||
Segment | Costs | Expenses(1) | Premiums | Funds | Revenue | Income | Expenses | Costs | Expenses | |||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||
December 31, 2006 | ||||||||||||||||||||||||||||||||||||
Group | $ | 3,998 | $ | 185,215 | $ | 2,522 | $ | 8,376 | $ | 387,231 | $ | 18,030 | $ | 230,753 | $ | 10,882 | $ | 105,742 | ||||||||||||||||||
Retirement Services | 54,472 | 4,916,869 | — | 5,677 | 130 | 269,821 | 169,731 | 1,081 | 61,738 | |||||||||||||||||||||||||||
Income Annuities | 6,813 | 7,010,585 | — | 1,989 | — | 439,001 | 371,786 | 580 | 21,591 | |||||||||||||||||||||||||||
Individual | 22,954 | 4,370,104 | 9,199 | 22,016 | 138,296 | 232,759 | 258,180 | 2,046 | 57,370 | |||||||||||||||||||||||||||
Other | — | (698 | ) | — | 8,311 | — | 25,316 | (327 | ) | — | 14,100 | |||||||||||||||||||||||||
Total | $ | 88,237 | $ | 16,482,075 | $ | 11,721 | $ | 46,369 | $ | 525,657 | $ | 984,927 | $ | 1,030,123 | $ | 14,589 | $ | 260,541 | ||||||||||||||||||
December 31, 2005 | ||||||||||||||||||||||||||||||||||||
Group | $ | 5,288 | $ | 208,122 | $ | 2,795 | $ | 8,423 | $ | 438,276 | $ | 19,270 | $ | 296,036 | $ | 10,478 | $ | 115,342 | ||||||||||||||||||
Retirement Services | 25,537 | 5,576,531 | — | 5,313 | 121 | 292,801 | 185,841 | 94 | 62,636 | |||||||||||||||||||||||||||
Income Annuities | 4,291 | 7,173,678 | — | 2,363 | — | 441,438 | 392,534 | 272 | 19,383 | |||||||||||||||||||||||||||
Individual | 13,901 | 4,246,684 | 8,765 | 24,058 | 137,062 | 222,613 | 263,944 | 1,017 | 61,374 | |||||||||||||||||||||||||||
Other | — | — | — | 7,375 | — | 17,926 | — | — | 14,512 | |||||||||||||||||||||||||||
Discontinued Operations | — | — | — | — | — | 172 | — | — | 845 | |||||||||||||||||||||||||||
Total | $ | 49,017 | $ | 17,205,015 | $ | 11,560 | $ | 47,532 | $ | 575,459 | $ | 994,220 | $ | 1,138,355 | $ | 11,861 | $ | 274,092 | ||||||||||||||||||
August 2, 2004 Through December 31, 2004 | ||||||||||||||||||||||||||||||||||||
Group | $ | 3,946 | $ | 231,193 | $ | 1,315 | $ | 7,018 | $ | 207,396 | $ | 8,764 | $ | 124,008 | $ | 1,352 | $ | 54,410 | ||||||||||||||||||
Retirement Services | 5,914 | 6,413,824 | — | 3,741 | 105 | 124,188 | 93,362 | 236 | 26,682 | |||||||||||||||||||||||||||
Income Annuities | 1,257 | 7,282,235 | — | 3,996 | — | 184,074 | 164,100 | — | 7,226 | |||||||||||||||||||||||||||
Individual | 3,260 | 4,123,410 | 8,088 | 24,189 | 55,694 | 89,229 | 106,225 | 38 | 28,566 | |||||||||||||||||||||||||||
Other | — | — | — | 4,344 | — | 4,865 | — | — | 6,358 | |||||||||||||||||||||||||||
Discontinued Operations | — | — | — | — | — | 393 | — | — | 4,678 | |||||||||||||||||||||||||||
Total | $ | 14,377 | $ | 18,050,662 | $ | 9,403 | $ | 43,288 | $ | 263,195 | $ | 411,513 | $ | 487,695 | $ | 1,626 | $ | 127,920 | ||||||||||||||||||
January 1, 2004 Through August 1, 2004 (Predecessor) | ||||||||||||||||||||||||||||||||||||
Group | $ | 14,261 | $ | 244,684 | $ | 1,658 | $ | 8,333 | $ | 293,213 | $ | 13,632 | $ | 196,468 | $ | 10,537 | $ | 78,727 | ||||||||||||||||||
Retirement Services | 146,432 | 6,540,337 | — | 2,999 | 92 | 225,008 | 155,575 | 16,313 | 36,789 | |||||||||||||||||||||||||||
Income Annuities | — | 6,339,003 | — | 4,725 | — | 290,328 | 274,800 | — | 9,522 | |||||||||||||||||||||||||||
Individual | 192,156 | 3,910,168 | 8,456 | 24,231 | 64,620 | 139,063 | 153,168 | 7,314 | 36,059 | |||||||||||||||||||||||||||
Other | — | — | — | 3,184 | — | 25,671 | — | — | 21,237 | |||||||||||||||||||||||||||
Discontinued Operations | — | — | — | — | — | 754 | — | — | 11,077 | |||||||||||||||||||||||||||
Total | $ | 352,849 | $ | 17,034,192 | $ | 10,114 | $ | 43,472 | $ | 357,925 | $ | 694,456 | $ | 780,011 | $ | 34,164 | $ | 193,411 | ||||||||||||||||||
(1) | Funds held under deposit contracts, future policy benefits, and policy and contract claims are included in this column. |
S-7