HORACE MANN EDUCATORS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting
principles (GAAP) and with the rules and regulations of the Securities and Exchange Commission (SEC), specifically Regulation S-X and the instructions to Form 10-K. The preparation of consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities, (2) disclosure of contingent assets and liabilities at the date of the consolidated financial
statements, and (3) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of Horace Mann Educators Corporation and its wholly-owned subsidiaries (HMEC; and together with its subsidiaries, the Company or
Horace Mann). HMEC and its subsidiaries have common management, share office facilities and are parties to several intercompany service agreements for management, administrative, data processing, agent commissions, agency services,
utilization of personnel and investment advisory services. Under these agreements, costs have been allocated among the companies in conformity with GAAP consistently applied. In addition, certain of the subsidiaries have entered into intercompany
reinsurance agreements. HMEC and its subsidiaries file a consolidated federal income tax return, and there are related tax sharing agreements. The tax sharing agreements provide that tax on income is charged to the subsidiaries as if they were
filing separate federal income tax returns and the subsidiaries receive the benefits of any losses or tax credits to the extent utilized in the consolidated return. All significant intercompany balances and transactions have been eliminated in
consolidation.
The subsidiaries of HMEC market and underwrite tax-qualified retirement annuities and private passenger automobile,
homeowners, and life insurance products, primarily to K-12 educators and other employees of public schools and their families. The Companys principal operating subsidiaries are Horace Mann Life Insurance Company, Horace Mann Insurance Company,
Teachers Insurance Company, Horace Mann Property & Casualty Insurance Company and Horace Mann Lloyds.
F-41
NOTE 1 - Summary of Significant Accounting Policies-(Continued)
Investments
The Company invests
primarily in fixed maturity securities. This category includes primarily bonds and notes, but also includes redeemable preferred stocks. These securities are classified as available for sale and carried at fair value. The net adjustment for
unrealized gains and losses on all securities available for sale, carried at fair value, is recorded as a separate component of shareholders equity, net of applicable deferred tax asset or liability and the related impact on deferred policy
acquisition costs and value of acquired insurance in force associated with interest-sensitive life and annuity contracts that would have occurred if the securities had been sold at their aggregate fair value and the proceeds reinvested at current
yields.
Equity securities are classified as available for sale and carried at fair value. This category includes primarily nonredeemable
preferred stocks and also common stocks.
Short-term and other investments are comprised of policy loans, carried at unpaid principal
balances; short-term fixed interest securities, carried at cost which approximates fair value; and mortgage loans, carried at unpaid principal less a valuation allowance for estimated uncollectible amounts.
Interest income is recognized as earned. Investment income reflects amortization of premiums and accrual of discounts on an effective-yield basis.
Realized gains and losses arising from the sale (recorded on a trade date basis) or impairment of securities are determined based upon
specific identification of securities. The Company reviews the fair value of all investments in its portfolio on a monthly basis to assess whether an other-than-temporary decline in value has occurred. These reviews, in conjunction with the
Companys investment managers monthly credit reports and relevant factors such as (1) the financial condition and near-term prospects of the issuer, (2) the Companys ability and intent to retain the investment long enough
to allow for the anticipated recovery in fair value, (3) the stock price trend of the issuer, (4) the market leadership position of the issuer, (5) the debt ratings of the issuer and (6) the cash flows of the issuer, are all
considered in the impairment assessment. A write-down of an investment is recorded when a decline in the fair value of that investment is deemed to be other-than-temporary, with a realized investment loss charged to income for the period.
The Companys methodology of assessing other-than-temporary impairments is based on security-specific facts and circumstances as of
the date of the reporting period. Based on these facts, if management believes it is probable that amounts due will not be collected according to the contractual terms of a debt security, or if the Company does not have the ability and intent to
hold a security with an unrealized loss until it matures or recovers in value, an other-than-temporary impairment shall be considered to have occurred. As a general rule, if the fair value of a debt security has fallen below 80% of book value for
more than six months, this security will be reviewed for an other-than-temporary impairment. Additionally, if events become known that call into question whether the security issuer has the ability to honor its contractual commitments, whether or
not such security has been trading above an 80% fair value to book value relationship, such security holding will be evaluated to determine whether or not such security has suffered an other-than-temporary decline in value.
F-42
NOTE 1 - Summary of Significant Accounting Policies-(Continued)
A decline in fair value below amortized cost is not assumed to be other-than-temporary for fixed maturity investments with unrealized losses due to
changes in interest rates, spread widening or market illiquidity where there exists a reasonable expectation that fair value will recover in a reasonable timeframe versus historical cost and the Company has the intent and ability to hold the
investment until maturity or a market recovery is realized. Management believes that its intent and ability to hold a fixed maturity investment with a continuous material unrealized loss due to market conditions or industry-related events for a
period of time sufficient to allow a market recovery or to maturity is a decisive factor when considering an impairment loss. In the event that the Companys intent or ability to hold a fixed maturity investment with a continuous unrealized
loss for a period of time sufficient to allow a market recovery or to maturity were to change, an evaluation for other-than-temporary impairment is performed. An other-than-temporary impairment loss will be recognized based upon all relevant facts
and circumstances for each investment, as appropriate, in accordance with Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 59, Accounting for Non-Current Marketable Equity Securities, and Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS or FAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, and related guidance.
Deferred Policy Acquisition Costs
Policy acquisition costs, consisting of commissions, policy issuance and other costs, which vary with and are primarily related to the production of business, are capitalized and amortized on a basis consistent with
the type of insurance coverage. For all investment (annuity) contracts, acquisition costs are amortized over 20 years in proportion to estimated gross profits. Capitalized acquisition costs for interest-sensitive life contracts are amortized over 20
years in proportion to estimated gross profits. For other individual life contracts, acquisition costs are amortized in proportion to anticipated premiums over the terms of the insurance policies (10, 15, 20 and 30 years). For property and casualty
policies, acquisition costs are amortized over the terms of the insurance policies (six and twelve months). The Company periodically reviews the assumptions and estimates used in capitalizing policy acquisition costs and also periodically reviews
its estimations of gross profits. The most significant assumptions that are involved in the estimation of annuity gross profits include interest rate spreads, future financial market performance, business surrender/lapse rates, expenses and the
impact of realized investment gains and losses. In the event actual experience differs significantly from assumptions or assumptions are significantly revised, the Company may be required to record a material charge or credit to amortization expense
for the period in which the adjustment is made.
Deferred policy acquisition costs for interest-sensitive life and investment contracts are
adjusted for the impact on estimated future gross profits as if net unrealized investment gains and losses had been realized at the balance sheet date. The impact of this adjustment is included in net unrealized gains and losses within
shareholders equity.
Deferred policy acquisition costs are reviewed for recoverability from future income, including investment
income, and costs which are deemed unrecoverable are expensed in the period in which the determination is made. No such costs have been deemed unrecoverable during the periods reported.
F-43
NOTE 1 - Summary of Significant Accounting Policies-(Continued)
Effective January 1, 2007, the Company adopted American Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts and did not utilize the alternative application guidance outlined in
paragraphs 18 and 19 of SOP 05-1. Adoption of SOP 05-1 did not have a material effect on the results of operations or financial position of the Company.
SOP 05-1 provides guidance on accounting for deferred policy acquisition costs (DAC) on internal replacements of insurance and investment contracts other than those specifically described in SFAS
No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. SOP 05-1 defines an internal replacement as a modification in product
benefits, features, rights or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement or rider to a contract, or by the election of a feature or coverage within a contract. Modifications that result in a
replacement contract that is substantially unchanged from the replaced contract are accounted for as a continuation of the replaced contract. When modifications represent a substantial change compared to the replaced contract, the transaction is
accounted for as an extinguishment of the replaced contract, and unamortized DAC and unearned revenue liabilities from the replaced contract are written off. For the year ended December 31, 2007, internal replacements of traditional
non-interest-sensitive life insurance contracts which represented substantial changes compared to the replaced contracts resulted in $207 of additional DAC amortization for the year.
Value of Acquired Insurance In Force and Goodwill
When the Company was acquired in 1989, intangible assets were recorded in the application of purchase accounting to recognize the value of acquired insurance in force and goodwill. In addition, goodwill was recorded
in 1994 related to the purchase of Horace Mann Property & Casualty Insurance Company. The value of acquired insurance in force is being amortized over the following periods, utilizing the indicated methods for life and annuity,
respectively, as follows: 20 years, in proportion to coverage provided; 20 years, in proportion to estimated gross profits.
Effective
January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. The Companys value of acquired insurance in force is an intangible asset with a definite life and will continue to be amortized
under the provisions of SFAS No. 142. Goodwill will remain on the consolidated balance sheet and will not be amortized. SFAS No. 142 established a new method of testing goodwill for impairment. On an annual basis, and when there is reason
to suspect that its value may have been diminished or impaired, the goodwill asset must be tested for impairment. The amount of goodwill determined to be impaired will be expensed to current operations. During each year from 2002 through 2007, the
Company completed the required testing under SFAS No. 142; no impairment charges were necessary as a result of such assessments.
F-44
NOTE 1 - Summary of Significant Accounting Policies-(Continued)
The allocation of goodwill by segment is as follows:
|
|
|
|
Annuity
|
|
$
|
28,025
|
Life
|
|
|
9,911
|
Property and casualty
|
|
|
9,460
|
|
|
|
|
Total
|
|
$
|
47,396
|
|
|
|
|
For the amortization of the value of acquired insurance in force, the Company periodically reviews
its estimates of gross profits. The most significant assumptions that are involved in the estimation of gross profits include interest rate spreads, future financial market performance, business surrender/lapse rates, expenses and the impact of
realized investment gains and losses. In the event actual experience differs significantly from assumptions or assumptions are significantly revised, the Company may be required to record a material charge or credit to amortization expense for the
period in which the adjustment is made.
The value of acquired insurance in force for investment contracts is adjusted for the impact on
estimated future gross profits as if net unrealized investment gains and losses had been realized at the balance sheet date. The impact of this adjustment is included in net unrealized gains and losses within shareholders equity.
The balances of value of acquired insurance in force by segment at December 31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Balance
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Balance
|
|
Life
|
|
$
|
48,746
|
|
$
|
47,231
|
|
$
|
1,515
|
|
|
$
|
48,746
|
|
$
|
45,893
|
|
$
|
2,853
|
|
Annuity
|
|
|
87,553
|
|
|
83,516
|
|
|
4,037
|
|
|
|
87,553
|
|
|
79,475
|
|
|
8,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
136,299
|
|
$
|
130,747
|
|
|
5,552
|
|
|
$
|
136,299
|
|
$
|
125,368
|
|
|
10,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of unrealized investment gains and losses
|
|
|
|
|
|
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
(408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
5,380
|
|
|
|
|
|
|
|
|
$
|
10,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected amortization of the December 31, 2007 balances of value of acquired insurance in
force by segment over the next five years is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
Expected amortization of value of acquired insurance in force
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
$
|
1,292
|
|
$
|
223
|
|
$
|
|
|
$
|
|
|
$
|
|
Annuity
|
|
|
4,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,329
|
|
$
|
223
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
NOTE 1 - Summary of Significant Accounting Policies-(Continued)
By segment, the amount of interest accrued on the unamortized balance of value of acquired insurance in force and the interest accrual rates were as
follows:
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|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Interest accrued on the unamortized balance of value of acquired insurance in force
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
$
|
175
|
|
|
$
|
284
|
|
|
$
|
398
|
|
Annuity
|
|
|
287
|
|
|
|
494
|
|
|
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
462
|
|
|
$
|
778
|
|
|
$
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrual rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
Annuity
|
|
|
5.1
|
%
|
|
|
5.2
|
%
|
|
|
5.1
|
%
|
The accumulated amortization of intangibles as of December 31, 2007 and 2006 was $179,724 and
$174,345, respectively.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and are included in Other Assets in the Consolidated Balance Sheets. Depreciation and amortization are calculated on the straight-line method
based on the estimated useful lives of the assets. The estimated useful lives of property and equipment by asset type are generally as follows: real estate, identified by specific property, 20-45 years; furniture, 10 years; telephones, 5 years;
vehicles, 4 years; and data processing hardware and software and personal computers, 2 to 5 years or 10 years.
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|
|
|
|
|
|
|
|
December 31,
|
|
2007
|
|
2006
|
Property and equipment
|
|
$
|
96,311
|
|
$
|
90,384
|
Less: accumulated depreciation
|
|
|
58,584
|
|
|
57,726
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,727
|
|
$
|
32,658
|
|
|
|
|
|
|
|
Separate Account (Variable Annuity) Assets and Liabilities
Separate account (variable annuity) assets, carried at fair value, and liabilities represent variable annuity funds invested in various mutual funds. The
investment income, gains and losses of these accounts accrue directly to the policyholders and are not included in the operations of the Company. The Companys contract charges earned include fees charged to the separate accounts, including
mortality charges, risk charges, policy administration fees, investment management fees and surrender charges.
F-46
NOTE 1 - Summary of Significant Accounting Policies-(Continued)
Future Policy Benefits, Interest-sensitive Life Contract Liabilities and Annuity Contract Liabilities
Liabilities for future benefits on life and annuity policies are established in amounts adequate to meet the estimated future obligations on policies in
force. Liabilities for future policy benefits on certain life insurance policies are computed using the net level premium method and are based on assumptions as to future investment yield, mortality and withdrawals. As a result of the application of
purchase accounting, future policy benefits for direct individual life insurance policies issued through August 29, 1989 were revalued using interest rates of 9% graded to 8% over 10 years. For policies issued from August 30, 1989 through
December 31, 1992, future policy benefits are computed using an interest rate of 6.5%. An interest rate of 5.5% is used to compute future policy benefits for policies issued after December 31, 1992. The Life by Design product portfolio
introduced in February 2006 uses an interest rate of 5% for future policy benefits. Mortality and withdrawal assumptions for all policies have been based on actuarial tables which are consistent with the Companys own experience. In the event
actual experience is worse than the assumptions, additional reserves may be required. This would result in a charge to income for the period in which the increase in reserves occurred. Liabilities for future benefits on annuity contracts and certain
long-duration life insurance contracts are carried at accumulated policyholder values without reduction for potential surrender or withdrawal charges. The liability also includes provisions for the unearned portion of certain policy charges.
A guaranteed minimum death benefit (GMDB) generally provides a benefit if the annuitant dies and the contract value is less
than a contractually defined amount. The Company has established a GMDB reserve on variable annuity contracts. Contractually defined amounts vary from contract to contract based on the date the contract was entered into as well as the GMDB feature
elected by the contractholder. The Company regularly monitors the GMDB reserve considering fluctuations in the financial markets. At December 31, 2007 and 2006, the GMDB reserve was $14 and $693, respectively, with the decrease primarily the
result of a reserve refinement. The Company has a relatively low exposure to GMDB because approximately 23% of contract values have no guarantee; approximately 71% have only a return of premium guarantee; and only approximately 6% have a guarantee
of premium roll-up at an annual interest rate of 3% or 5%. The aggregate in-the-money death benefits under the GMDB provision totaled $19,272 and $19,165 at December 31, 2007 and 2006, respectively.
F-47
NOTE 1 - Summary of Significant Accounting Policies-(Continued)
Unpaid Claims and Claim Expenses
Liabilities for property and casualty unpaid claims and claim expenses include provisions for payments to be made on reported claims, claims incurred but not yet reported and associated settlement expenses. All of the Companys
reserves for property and casualty unpaid claims and claim expenses are carried at the full value of estimated liabilities and are not discounted for interest expected to be earned on reserves. Estimated amounts of salvage and subrogation on unpaid
property and casualty claims are deducted from the liability for unpaid claims. Due to the nature of the Companys personal lines business, the Company has no exposure to claims for toxic waste cleanup, other environmental remediation or
asbestos-related illnesses other than claims under homeowners insurance policies for environmentally related items such as mold.
Insurance Premiums and Contract Charges Earned
Property and casualty insurance premiums are recognized as revenue ratably
over the related contract periods in proportion to the risks insured. The unexpired portions of these property and casualty premiums are recorded as unearned premiums, using the monthly pro rata method.
Premiums and contract charges for interest-sensitive life and investment (annuity) contracts consist of charges for the cost of insurance, policy
administration and withdrawals. Premiums for long-term traditional life policies are recognized as revenues when due over the premium-paying period. Annuity and interest-sensitive life contract deposits represent funds deposited by policyholders and
are not included in the Companys premiums or contract charges earned.
Stock Based Compensation
The Company grants stock options to executive officers, other employees and directors. The exercise price of the option is equal to the fair market value
of the Companys common stock on the date of grant. Additional information regarding the Companys stock-based compensation plans is contained in Note 5 Shareholders Equity and Stock Options. Prior to January 1, 2006, the
Company accounted for stock option grants using the intrinsic value based method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly, recognized
no compensation expense for the stock option grants which had an exercise price equal to market price on the date of grant resulting in an intrinsic value of $0.
Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which requires companies to recognize compensation cost for share-based compensation plans, determined based
on the fair value at the grant dates. The Company adopted SFAS No. 123(R) using the modified prospective method.
F-48
NOTE 1 - Summary of Significant Accounting Policies-(Continued)
Net income and net income per share recognizing the compensation cost of share-based compensation plans were as follows:
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|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
Net income
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
82,788
|
|
$
|
98,708
|
|
$
|
77,273
|
Add: Share-based compensation expense, after tax, included in reported net income
|
|
|
1,102
|
|
|
656
|
|
|
|
Deduct: Share-based compensation expense, after tax, determined under the fair value based method for all awards (1) (2)
|
|
|
1,102
|
|
|
656
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Adjusted (2)
|
|
$
|
82,788
|
|
$
|
98,708
|
|
$
|
77,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.92
|
|
$
|
2.29
|
|
$
|
1.80
|
Adjusted (2)
|
|
$
|
1.92
|
|
$
|
2.29
|
|
$
|
1.80
|
|
|
|
|
Net income per share diluted
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.86
|
|
$
|
2.19
|
|
$
|
1.67
|
Adjusted (2)
|
|
$
|
1.86
|
|
$
|
2.19
|
|
$
|
1.67
|
(1)
|
There were 276,280 options granted in 2007 having a weighted average grant date fair value of $5.49. The fair value of options granted was estimated on the dates of grant using the
Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 4.7%; expected dividend yield of 2.2%; expected life of 5.4 years; and expected volatility (based on historical volatility) of 27.8%. The
weighted average fair value of nonvested options outstanding on December 31, 2007 was $5.11. Total unrecognized compensation expense relating to the nonvested options outstanding as of December 31, 2007 was approximately $1,900, which will
be recognized over the remainder of the vesting period currently scheduled to be completed in February 2011. Expense is reflected on a straight-line basis over the vesting period for the entire award.
|
(2)
|
For 2005, this represents the pro forma result as if the Company had previously adopted SFAS No. 123, Accounting for Stock-Based Compensation.
|
HMECs Board of Directors approved the acceleration of vesting of all outstanding stock options effective June 30,
2004 in an effort to recognize employees significant contributions to increasing shareholder value and improving underlying Company operating trends. The Board placed certain restrictions on the transfer of shares obtained by this vesting
acceleration for members of the Board of Directors and 10 of HMECs key executive officers. At June 30, 2004, the majority of the options vested were out-of-the-money. The accelerated vesting did not have a material effect on the
Companys operating expenses.
Income Taxes
The Company uses the liability method for calculating deferred federal income taxes. Income tax provisions are generally based on income reported for financial statement purposes. The provisions for federal income
taxes for the years ended December 31, 2007, 2006 and 2005 include amounts currently payable and deferred income taxes resulting from the cumulative differences in the Companys assets and liabilities, determined on a tax return versus
financial statement basis.
Deferred tax assets and liabilities include provisions for unrealized investment gains and losses as well as
the net funded status of pension and other postretirement benefit obligations and minimum pension liability adjustments with the changes for each period included in the respective components of accumulated other comprehensive income (loss) in
shareholders equity.
F-49
NOTE 1 - Summary of Significant Accounting Policies-(Continued)
Earnings Per Share
Basic earnings
per share is computed based on the weighted average number of common shares outstanding. Diluted earnings per share is computed based on the weighted average number of common shares and common stock equivalents outstanding, to the extent dilutive.
The common stock equivalents relate to outstanding common stock options, Director Stock Plan units, Employee Stock Plan units and Incentive Compensation Plan restricted common stock units. In addition, the Companys Senior Convertible Notes
were common stock equivalents under the FASBs Emerging Issues Task Force (EITF) consensus on issue 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings per Share. As further disclosed in
Note 4 Debt, HMEC redeemed its remaining outstanding Senior Convertible Notes on May 14, 2007.
The computations of
net income per share on both basic and diluted bases, including reconciliations of the numerators and denominators, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
Basic - assumes no dilution:
|
|
|
|
|
|
|
|
|
|
Net income for the period
|
|
$
|
82,788
|
|
$
|
98,708
|
|
$
|
77,273
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding during the period (in thousands)
|
|
|
43,145
|
|
|
43,012
|
|
|
42,913
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
1.92
|
|
$
|
2.29
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
|
|
Diluted - assumes full dilution:
|
|
|
|
|
|
|
|
|
|
Net income for the period
|
|
$
|
82,788
|
|
$
|
98,708
|
|
$
|
77,273
|
Interest expense, net of tax, on dilutive Senior Convertible Notes
|
|
|
279
|
|
|
1,336
|
|
|
2,737
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income for the period
|
|
$
|
83,067
|
|
$
|
100,044
|
|
$
|
80,010
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding during the period (in thousands)
|
|
|
43,145
|
|
|
43,012
|
|
|
42,913
|
Weighted average number of common equivalent shares to reflect the dilutive effect of common stock equivalent securities (in
thousands):
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
233
|
|
|
114
|
|
|
136
|
Common stock units related to Deferred Equity Compensation Plan for Directors
|
|
|
228
|
|
|
214
|
|
|
192
|
Common stock units related to Deferred Compensation Plan for Employees
|
|
|
219
|
|
|
150
|
|
|
146
|
Restricted common stock units related to Incentive Compensation Plan
|
|
|
342
|
|
|
253
|
|
|
155
|
Weighted average number of common equivalent shares to reflect the dilutive effect of Senior Convertible Notes (in thousands)
|
|
|
444
|
|
|
2,030
|
|
|
4,343
|
|
|
|
|
|
|
|
|
|
|
Total common and common equivalent shares adjusted to calculate diluted earnings per share (in thousands)
|
|
|
44,611
|
|
|
45,773
|
|
|
47,885
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
1.86
|
|
$
|
2.19
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 1,242,400 shares of common stock at $20.80 to $33.87 per share were granted in
1998 through 2002 but were not included in the computation of 2007 diluted earnings per share because the options exercise price was greater than the average market price of the common shares during 2007. The options, which expire in 2008
through 2012, were still outstanding at December 31, 2007.
F-50
NOTE 1 - Summary of Significant Accounting Policies-(Continued)
Comprehensive Income
Comprehensive
income represents the change in shareholders equity during a reporting period from transactions and other events and circumstances from non-shareholder sources. For the Company, comprehensive income is equal to net income plus or minus the
change in net unrealized gains and losses on fixed maturities and equity securities, the change in net funded status of pension and other postretirement benefit obligations and, in 2006 and prior years, the change in the minimum pension liability
adjustment for the period as shown in the Statement of Changes in Shareholders Equity.
In December 2006, the Company adopted SFAS
No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. SFAS No. 158 requires the recognition in the balance sheet of the funded status of defined benefit pension plans and other
postretirement benefit plans as a component of accumulated other comprehensive income, net of tax.
The components of comprehensive income
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net income
|
|
$
|
82,788
|
|
|
$
|
98,708
|
|
|
$
|
77,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains and losses on fixed maturities and equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains and losses on fixed maturities and equity securities arising during period
|
|
|
(24,516
|
)
|
|
|
(15,856
|
)
|
|
|
(78,497
|
)
|
Less: reclassification adjustment for gains (losses) included in income before income tax
|
|
|
(3,453
|
)
|
|
|
10,876
|
|
|
|
9,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, before tax
|
|
|
(21,063
|
)
|
|
|
(26,732
|
)
|
|
|
(88,348
|
)
|
Income tax benefit
|
|
|
(7,372
|
)
|
|
|
(9,356
|
)
|
|
|
(30,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net of tax
|
|
|
(13,691
|
)
|
|
|
(17,376
|
)
|
|
|
(57,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net funded status of pension and other postretirement benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
Before tax
|
|
|
368
|
|
|
|
(5,317
|
)
|
|
|
|
|
Income tax expense (benefit)
|
|
|
129
|
|
|
|
(1,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net of tax
|
|
|
239
|
|
|
|
(3,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
Before tax
|
|
|
|
|
|
|
22,001
|
|
|
|
1,063
|
|
Income tax expense
|
|
|
|
|
|
|
7,700
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net of tax
|
|
|
|
|
|
|
14,301
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
69,336
|
|
|
$
|
92,177
|
|
|
$
|
20,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, cash constitutes cash on deposit at banks.
Reclassification
The Company has
reclassified the presentation of certain prior period information to conform with the 2007 presentation.
F-51
NOTE 2 - Investments
Net Investment Income
The components of net investment income for the following periods were:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
Fixed maturities
|
|
$
|
213,426
|
|
$
|
202,354
|
|
$
|
191,289
|
Short-term and other investments
|
|
|
14,780
|
|
|
10,673
|
|
|
8,076
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
228,206
|
|
|
213,027
|
|
|
199,365
|
Less investment expenses
|
|
|
4,444
|
|
|
4,018
|
|
|
4,733
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
223,762
|
|
$
|
209,009
|
|
$
|
194,632
|
|
|
|
|
|
|
|
|
|
|
Realized Investment Gains (Losses)
Realized investment gains (losses) for the following periods were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
2005
|
|
Fixed maturities
|
|
$
|
(2,441
|
)
|
|
$
|
10,876
|
|
$
|
9,851
|
|
Short-term and other investments
|
|
|
(977
|
)
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains (losses)
|
|
$
|
(3,418
|
)
|
|
$
|
10,876
|
|
$
|
9,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, the Company recorded investment impairment charges of $8,471. In the three months ended
December 31, 2007, $5,867 of impairment charges were recorded for the fixed maturity securities portfolio as follows: $3,778 from the Companys one sub-prime residential mortgage-backed security, $1,082 from preferred stocks and $1,007
from corporate high-yield bonds. Certain of these securities were subsequently sold in January 2008. In the three months ended September 30, 2007, the Company recorded impairment charges of $285 from the paper sector of its fixed maturity
securities portfolio, and certain of these securities were subsequently sold in October 2007. In the three months ended June 30, 2007, the Company recorded impairment charges of $2,319 from the home builder sector of its fixed maturity
securities portfolio, and these securities were subsequently sold in July 2007. There were no other impairment charges recorded in 2007. In 2006, the Company recorded an impairment of $139 related to fixed income securities from one issuer. In 2005,
the Company recorded a fixed income security impairment of $1,849 related to securities from one automobile industry issuer.
F-52
NOTE 2 - Investments-(Continued)
Fixed Maturity Securities (fixed maturities)
At December 31, 2007 and 2006, the
fair value and gross unrealized losses of fixed maturity securities in an unrealized loss position were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or less
|
|
More than 12 months
|
|
Total
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federally sponsored agency obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
72,311
|
|
$
|
185
|
|
$
|
380,995
|
|
$
|
5,353
|
|
$
|
453,306
|
|
$
|
5,538
|
Other
|
|
|
64,423
|
|
|
40
|
|
|
25,730
|
|
|
85
|
|
|
90,153
|
|
|
125
|
Municipal bonds
|
|
|
87,593
|
|
|
1,379
|
|
|
56,253
|
|
|
741
|
|
|
143,846
|
|
|
2,120
|
Foreign government bonds
|
|
|
|
|
|
|
|
|
3,911
|
|
|
35
|
|
|
3,911
|
|
|
35
|
Corporate bonds
|
|
|
398,575
|
|
|
17,454
|
|
|
520,356
|
|
|
16,218
|
|
|
918,931
|
|
|
33,672
|
Other mortgage-backed securities
|
|
|
147,594
|
|
|
9,019
|
|
|
46,602
|
|
|
1,512
|
|
|
194,196
|
|
|
10,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
770,496
|
|
$
|
28,077
|
|
$
|
1,033,847
|
|
$
|
23,944
|
|
$
|
1,804,343
|
|
$
|
52,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federally sponsored agency obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
40,617
|
|
$
|
281
|
|
$
|
508,887
|
|
$
|
12,208
|
|
$
|
549,504
|
|
$
|
12,489
|
Other
|
|
|
76,575
|
|
|
41
|
|
|
139,848
|
|
|
1,884
|
|
|
216,423
|
|
|
1,925
|
Municipal bonds
|
|
|
41,612
|
|
|
174
|
|
|
102,341
|
|
|
1,709
|
|
|
143,953
|
|
|
1,883
|
Foreign government bonds
|
|
|
|
|
|
|
|
|
9,025
|
|
|
206
|
|
|
9,025
|
|
|
206
|
Corporate bonds
|
|
|
330,826
|
|
|
4,696
|
|
|
697,987
|
|
|
20,732
|
|
|
1,028,813
|
|
|
25,428
|
Other mortgage-backed securities
|
|
|
28,134
|
|
|
93
|
|
|
100,443
|
|
|
1,759
|
|
|
128,577
|
|
|
1,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
517,764
|
|
$
|
5,285
|
|
$
|
1,558,531
|
|
$
|
38,498
|
|
$
|
2,076,295
|
|
$
|
43,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, the gross unrealized loss position in the fixed maturity securities
portfolio was $52,021 (670 positions and 1% of the portfolio). Fixed maturity securities with an investment grade rating represented 88% of the unrealized loss. The largest single unrealized loss was $2,192 on a preferred stock of JPMorgan Chase.
The fixed maturity securities portfolio included 290 securities that have been in an unrealized loss position for greater than 12 months, totaling $23,944 (of which $6,837 was from securities purchased in 2003 when interest rates were at record
lows). The Company views the decrease in value of all of the securities with unrealized losses at December 31, 2007 which was largely driven by changes in interest rates, spread widening and market illiquidity as temporary,
expects recovery in fair value in a reasonable timeframe, anticipates continued payments under the terms of the securities, and has the intent and ability to hold these securities until maturity or a recovery in fair value occurs. Therefore, no
impairment of these securities was recorded at December 31, 2007.
F-53
NOTE 2 - Investments-(Continued)
The amortized cost, unrealized investment gains and losses, and fair values of all fixed maturities in the portfolio as of December 31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federally sponsored agency obligations (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
910,406
|
|
$
|
6,564
|
|
$
|
5,538
|
|
$
|
911,432
|
Other
|
|
|
243,964
|
|
|
2,644
|
|
|
125
|
|
|
246,483
|
Municipal bonds
|
|
|
535,069
|
|
|
8,146
|
|
|
2,120
|
|
|
541,095
|
Foreign government bonds
|
|
|
14,422
|
|
|
1,487
|
|
|
35
|
|
|
15,874
|
Corporate bonds
|
|
|
1,882,871
|
|
|
32,478
|
|
|
33,672
|
|
|
1,881,677
|
Other mortgage-backed securities
|
|
|
283,532
|
|
|
3,439
|
|
|
10,531
|
|
|
276,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,870,264
|
|
$
|
54,758
|
|
$
|
52,021
|
|
$
|
3,873,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federally sponsored agency obligations (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
791,058
|
|
$
|
2,534
|
|
$
|
12,489
|
|
$
|
781,103
|
Other
|
|
|
245,213
|
|
|
473
|
|
|
1,925
|
|
|
243,761
|
Municipal bonds
|
|
|
546,837
|
|
|
8,192
|
|
|
1,883
|
|
|
553,146
|
Foreign government bonds
|
|
|
28,634
|
|
|
2,087
|
|
|
206
|
|
|
30,515
|
Corporate bonds
|
|
|
1,987,136
|
|
|
46,212
|
|
|
25,428
|
|
|
2,007,920
|
Other mortgage-backed securities
|
|
|
203,300
|
|
|
2,289
|
|
|
1,852
|
|
|
203,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,802,178
|
|
$
|
61,787
|
|
$
|
43,783
|
|
$
|
3,820,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $714,720 and $698,006; Federal Home Loan Mortgage Association
(FHLMA) of $332,811 and $204,135; and Government National Mortgage Association (GNMA) of $38,816 and $31,201 as of December 31, 2007 and 2006, respectively.
|
The Companys investment portfolio includes no derivative financial instruments (futures, forwards, swaps, option contracts or other financial
instruments with similar characteristics).
Maturities/Sales Of Investments
The amortized cost and fair value of the Companys fixed maturity securities portfolio at December 31, 2007, by estimated expected maturity, are
shown below. Estimated expected maturities differ from contractual maturities, reflecting assumptions regarding borrowers utilization of the right to call or prepay obligations with or without call or prepayment penalties. Estimated expected
maturities consider broker dealer survey values and are verified for consistency with the interest rate and economic environments.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Percent of
Total Fair
Value
|
|
Due in 1 year or less
|
|
$
|
265,090
|
|
$
|
265,277
|
|
6.8
|
%
|
Due after 1 year through 5 years
|
|
|
1,103,339
|
|
|
1,104,119
|
|
28.5
|
%
|
Due after 5 years through 10 years
|
|
|
1,297,125
|
|
|
1,298,042
|
|
33.6
|
%
|
Due after 10 years through 20 years
|
|
|
437,733
|
|
|
438,043
|
|
11.3
|
%
|
Due after 20 years
|
|
|
766,977
|
|
|
767,520
|
|
19.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,870,264
|
|
$
|
3,873,001
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
The average option-adjusted duration for the Companys fixed maturity securities was 5.5
years at December 31, 2007.
F-54
NOTE 2 - Investments-(Continued)
Proceeds from sales of fixed maturities and gross gains and gross losses realized as a result of those sales for each year were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Proceeds
|
|
$
|
776,421
|
|
|
$
|
525,990
|
|
|
$
|
467,653
|
|
Gross gains realized
|
|
|
12,630
|
|
|
|
10,771
|
|
|
|
18,778
|
|
Gross losses realized
|
|
|
(10,589
|
)
|
|
|
(6,175
|
)
|
|
|
(8,511
|
)
|
Unrealized Gains and Losses on Fixed Maturities
Net unrealized gains and losses are computed as the difference between fair value and amortized cost for fixed maturities. A summary of the net change in
unrealized investment gains and losses on fixed maturities, less applicable income taxes, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net unrealized gains on fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
18,004
|
|
|
$
|
48,018
|
|
|
$
|
142,001
|
|
End of period
|
|
|
2,737
|
|
|
|
18,004
|
|
|
|
48,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease for the period
|
|
|
(15,267
|
)
|
|
|
(30,014
|
)
|
|
|
(93,983
|
)
|
Income tax benefits
|
|
|
(5,343
|
)
|
|
|
(10,505
|
)
|
|
|
(32,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in net unrealized gains on fixed maturities before the valuation impact on deferred policy acquisition costs and value of acquired
insurance in force
|
|
$
|
(9,924
|
)
|
|
$
|
(19,509
|
)
|
|
$
|
(61,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Lending
The Company loans fixed income securities to third parties, primarily major brokerage firms. As of December 31, 2007 and 2006, fixed maturities with
a fair value of $74,658 and $289,524, respectively, were on loan. Loans of securities are required at all times to be secured by collateral from borrowers at least equal to 100% of the fair value of the securities loaned. The Company maintains
effective control over the loaned securities and therefore reports them as Fixed Maturity Securities in the Consolidated Balance Sheets. Securities lending collateral is classified as short-term investments with a corresponding liability in the
Companys Consolidated Balance Sheets.
Investment in Entities Exceeding 10% of Shareholders Equity
At December 31, 2007 and 2006, there were no investments which exceeded 10% of total shareholders equity in entities other than obligations of
the U.S. Government and federally sponsored government agencies and authorities.
Deposits
At December 31, 2007, securities with a carrying value of $18,911 were on deposit with governmental agencies as required by law in various states in
which the insurance subsidiaries of HMEC conduct business.
F-55
NOTE 3 - Property and Casualty Unpaid Claims and Claim Expenses
The following table sets forth an analysis of
property and casualty unpaid claims and claim expenses and provides a reconciliation of beginning and ending reserves for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Gross reserves, beginning of year (1)
|
|
$
|
317,730
|
|
|
$
|
342,661
|
|
|
$
|
335,000
|
|
Less reinsurance recoverables
|
|
|
22,352
|
|
|
|
31,604
|
|
|
|
25,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves, beginning of year (2)
|
|
|
295,378
|
|
|
|
311,057
|
|
|
|
309,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred claims and claim expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims occurring in the current year
|
|
|
380,399
|
|
|
|
359,840
|
|
|
|
411,122
|
|
Decrease in estimated reserves for claims occurring in prior years (3)
|
|
|
(19,968
|
)
|
|
|
(19,210
|
)
|
|
|
(13,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total claims and claim expenses incurred (4)
|
|
|
360,431
|
|
|
|
340,630
|
|
|
|
398,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and claim expense payments for claims occurring during:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
236,176
|
|
|
|
220,962
|
|
|
|
252,311
|
|
Prior years
|
|
|
129,373
|
|
|
|
135,347
|
|
|
|
143,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total claims and claim expense payments
|
|
|
365,549
|
|
|
|
356,309
|
|
|
|
396,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves, end of year (2)
|
|
|
290,260
|
|
|
|
295,378
|
|
|
|
311,057
|
|
Plus reinsurance recoverables
|
|
|
15,930
|
|
|
|
22,352
|
|
|
|
31,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross reserves, end of year (1)
|
|
$
|
306,190
|
|
|
$
|
317,730
|
|
|
$
|
342,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include life, annuity, and group accident and health reserves of $9,192, $8,931, $8,100 and
$7,445 at December 31, 2007, 2006, 2005 and 2004, respectively, in addition to property and casualty reserves.
|
(2)
|
Reserves net of anticipated reinsurance recoverables.
|
(3)
|
Shows the amounts by which the Company decreased its reserves in each of the periods indicated for claims occurring in previous periods to reflect subsequent information on such
claims and changes in their projected final settlement costs. Also refer to the paragraphs below for additional information regarding the reserve development recorded in 2007, 2006 and 2005.
|
(4)
|
Benefits, claims and settlement expenses as reported in the Consolidated Statements of Operations also include life, annuity, and group accident and health amounts of $48,059,
$48,105 and $44,695 for the years ended December 31, 2007, 2006 and 2005, respectively, in addition to the property and casualty amounts.
|
Underwriting results of the property and casualty segment are significantly influenced by estimates of the Companys ultimate liability for insured events. There is a high degree of uncertainty inherent in the
estimates of ultimate losses underlying the liability for unpaid claims and claim settlement expenses. This inherent uncertainty is particularly significant for liability-related exposures due to the extended period, often many years, that
transpires between a loss event, receipt of related claims data from policyholders and ultimate settlement of the claim. Reserves for property and casualty claims include provisions for payments to be made on reported claims (case
reserves), claims incurred but not yet reported (IBNR) and associated settlement expenses (together loss reserves). The process by which these reserves are established requires reliance upon estimates based on known
facts and on interpretations of circumstances, including the Companys experience with similar cases and historical trends involving claim payments and related patterns, pending levels of unpaid claims and product mix, as well as other factors
including court decisions, economic conditions and public attitudes.
F-56
NOTE 3 - Property and Casualty Unpaid Claims and Claim Expenses-(Continued)
The Company believes the property and casualty loss reserves are appropriately established based on available facts, laws, and regulations. The Company
calculates and records a single best reserve estimate as of each balance sheet date, in conformity with generally accepted actuarial standards, for each line of business and its components (coverages and perils) for reported losses and for IBNR
losses and as a result believes no other estimate is better than the recorded amount. Due to uncertainties involved, the ultimate cost of losses may vary materially from recorded amounts.
The Company continually updates loss estimates using both quantitative and qualitative information from its reserving actuaries and information derived
from other sources. Adjustments may be required as information develops which varies from experience, or, in some cases, augments data which previously were not considered sufficient for use in determining liabilities. The effects of these
adjustments may be significant and are charged or credited to income in the period in which the adjustments are made.
Numerous risk
factors will affect more than one product line. One of these factors is changes in claim department practices, including claim closure rates, number of claims closed without payment, the use of outside claims adjusters and the level of needed case
reserve estimated by the adjuster. Other risk factors include changes in claim frequency, changes in claim severity, regulatory and legislative actions, court actions, changes in economic conditions and trends (e.g. medical costs, labor rates and
the cost of materials), the occurrence of unusually large or frequent catastrophic loss events, timeliness of claim reporting, the state in which the claim occurred and degree of claimant fraud. The extent of the impact of a risk factor will also
vary by coverages within a product line. Individual risk factors are also subject to interactions with other risk factors within product line coverages.
While all product lines are exposed to these risks, there are some loss types or product lines for which the financial effect will be more significant. For instance, the use of outside adjusters for large catastrophe
losses adds a level of risk to this loss type not present when employee adjusters handle claims. Also, given the relatively large proportion (approximately 70% at December 31, 2007) of the Companys reserves that are in the longer-tail
automobile liability coverages, regulatory and court actions and changes in economic conditions and trends could be expected to impact this product line more extensively than others.
Reserves are established for claims as they occur for each line of business based on estimates of the ultimate cost to settle the claims. The actual loss
results are compared to prior estimates and differences are recorded as reestimates. The primary actuarial techniques (development of paid loss dollars, development of reported loss dollars, methods based on expected loss ratios and methods
utilizing frequency and severity of claims) used to estimate reserves and provide for losses are applied to actual paid losses and reported losses (paid losses plus individual case reserves set by claim adjusters) for an accident year or a calendar
year to create an estimate of how losses are likely to develop over time. An accident year refers to classifying claims based on the year in which the claim occurred. A calendar year refers to classifying claims based on the year in which the claims
are reported. Both classifications are used to prepare estimates of required reserves for payments to be made in the future. For estimating short-tail coverage reserves (e.g. homeowners and automobile physical damage), which comprise approximately
30% of the Companys total loss reserves at
F-57
NOTE 3 - Property and Casualty Unpaid Claims and Claim Expenses-(Continued)
December 31, 2007, the primary actuarial technique utilized is the development of paid loss dollars due to the relatively quick claim settlement period.
As it relates to estimating long-tail coverage reserves (e.g. automobile liability), which comprise approximately 70% of the Companys total loss reserves at December 31, 2007, the primary actuarial technique utilized is the development of
reported loss dollars due to the relatively long claim settlement period.
In all of the loss estimation techniques referred to above, a
ratio (development factor) is calculated which compares current results to results in the prior period for each accident year. Various development factors, based on historical results, are multiplied by the current experience to estimate the
development of losses of each accident year from the current time period into the next time period. The development factors for the next time period for each accident year are compounded over the remaining calendar years to calculate an estimate of
ultimate losses for each accident year. Occasionally, unusual aberrations in loss patterns are caused by factors such as changes in claim reporting, settlement patterns, unusually large losses, process changes, legal or regulatory environment
changes, and other influences. In these instances, analyses of alternate development factor selections are performed to evaluate the effect of these factors, and actuarial judgment is applied to make appropriate development factor assumptions needed
to develop a best estimate of ultimate losses. Paid losses are then subtracted from estimated ultimate losses to determine the indicated loss reserves. The difference between indicated reserves and recorded reserves is the amount of reserve
reestimate.
Reserves are reestimated quarterly. When new development factors are calculated from actual losses, and they differ from
estimated development factors used in previous reserve estimates, assumptions about losses and required reserves are revised based on the new development factors. Changes to reserves are recorded in the period in which development factor changes
result in reserve reestimates.
Numerous actuarial estimates of the types described above are prepared each quarter to monitor losses for
each line of business (coverages and perils) and for reported losses and IBNR. Often, several different estimates are prepared for each detailed component, incorporating alternative analyses of changing claim settlement patterns and other influences
on losses, from which the Company selects the best estimate for each component, occasionally incorporating additional analyses and actuarial judgment, as described above. These estimates also incorporate the historical impact of inflation into
reserve estimates, the implicit assumption being that a multi-year average development factor represents an adequate provision. Based on the Companys review of these estimates, as well as the review of the independent reserve studies, the best
estimate of required reserves for each line of business and its components (coverages and perils) is determined by management and is recorded for each accident year, and the required reserves for each component are summed to create the reserve
balances carried on the accompanying Consolidated Balance Sheets.
F-58
NOTE 3 - Property and Casualty Unpaid Claims and Claim Expenses-(Continued)
Based on the Companys products and coverages, historical experience and modeling of various actuarial methodologies used to develop reserve
estimates, the Company estimates that the potential variability of the property and casualty loss reserves, excluding the unprecedented hurricane losses experienced in 2005 and 2004, within a reasonable probability of other possible outcomes, may be
approximately plus or minus 6%, which equates to plus or minus approximately $12,000 based on 2007 net income. Although this evaluation reflects the most likely outcomes, it is possible the final outcome may fall below or above these estimates.
Net favorable development of total reserves for property and casualty claims occurring in prior years was $19,968 in 2007 reflecting the
emergence of favorable voluntary automobile severity trends in accident years 2005 and prior and favorable frequency trends in homeowners for accident year 2006. Net favorable development of total reserves for property and casualty claims occurring
in prior years was $19,210 in 2006 reflecting emergence of favorable claim trends, primarily for accident years 2005 and 2004, for the voluntary automobile line of business related primarily to claim frequencies, which were more favorable than
previously estimated. Net favorable development of total reserves for property and casualty claims occurring in prior years was $13,100 in 2005 reflecting favorable loss emergence trends in both the voluntary automobile and property lines of
business. The favorable loss emergence trends included claim frequencies which were more favorable than previously estimated as well as declining claim severities which were the result of improved claims handling processes.
The Company completes a detailed study of property and casualty reserves based on information available at the end of each quarter and year. Trends of
reported losses (paid amounts and case reserves on claims reported to the Company) for each accident year are reviewed and ultimate loss costs for those accident years are estimated. The Company engages an independent property and casualty actuarial
consulting firm to prepare an independent study of the Companys property and casualty reserves at December 31 of each year, supplemented by other analyses throughout the year. The result of the independent actuarial study at
December 31, 2007 was consistent with managements analyses and selected estimates and did not result in any adjustments to the Companys recorded property and casualty reserves.
Based on an assessment of the relative weight given to emerging trends resulting from recent business process changes, pricing, underwriting and claims
handling, at both December 31, 2007 and 2006 the Company recorded property and casualty reserves toward the higher end (upper quartile) of a reasonable range of reserve estimates, due primarily to reserves related to the automobile liability
coverages.
At the time each of the reserve analyses were performed, the Company believed that each estimate was based upon sound and
correct methodology and such methodology was appropriately applied and that there were no trends which indicated the likelihood of future loss reserve development. The financial impact of the net reserve development was therefore accounted for in
the period that the development was determined.
No other unusual adjustments were made in the determination of the liabilities during the
periods covered by these consolidated financial statements. Management believes that, based on data currently available, it has reasonably estimated the Companys ultimate losses.
F-59
NOTE 4 - Debt
Indebtedness and scheduled maturities at December 31, 2007 and 2006 consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
Interest
Rates
|
|
|
Final
Maturity
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
Short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
Bank Credit Facility
|
|
Variable
|
|
|
2011
|
|
$
|
|
|
$
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
6.05% Senior Notes, Face amount of $75,000 less unaccrued discount of $198 and $226
|
|
6.1
|
%
|
|
2015
|
|
|
74,802
|
|
|
74,774
|
6.85% Senior Notes, Face amount of $125,000 less unaccrued discount of $317 and $355
|
|
6.9
|
%
|
|
2016
|
|
|
124,683
|
|
|
124,645
|
1.425% Senior Convertible Notes, Face amount of $68,553 less unaccrued discount of $35,990
|
|
3.0
|
%
|
|
2032
|
|
|
|
|
|
32,563
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
$
|
199,485
|
|
$
|
231,982
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Agreement with Financial Institutions (Bank Credit Facility)
On May 31, 2005, HMEC entered into a new Bank Credit Agreement (the Current Bank Credit Facility). As amended and restated on
December 19, 2006, the Current Bank Credit Facility agreement provides for unsecured borrowings of up to $125,000 and expires on December 19, 2011. Interest accrues at varying spreads relative to corporate or Eurodollar base rates and is
payable monthly or quarterly depending on the applicable base rate. The unused portion of the Current Bank Credit Facility is subject to a variable commitment fee, which was 0.125% on an annual basis at December 31, 2007. In March and April
2006, the Company borrowed a total of $74,000 and subsequently repaid this balance in full on April 21, 2006, utilizing a portion of the proceeds from the issuance of the Senior Notes due 2016, described below. On May 31, 2005, the Company
borrowed $25,000 and subsequently repaid this balance in full on June 13, 2005, utilizing a portion of the proceeds from the issuance of the Senior Notes due 2015, described below.
On May 29, 2002, HMEC entered into a Bank Credit Agreement that was amended effective June 1, 2004, increasing the commitment amount to
$35,000, and May 3, 2005, extending the commitment termination date to June 30, 2005 from the previous termination date of May 31, 2005 (the Previous Bank Credit Agreement). The Previous Bank Credit Agreement was
terminated on May 31, 2005, when the Company entered into the Current Bank Credit Facility. The $25,000 balance outstanding under the Previous Bank Credit Agreement was repaid in full on May 31, 2005, utilizing the borrowing under the
Current Bank Credit Facility, described above.
F-60
NOTE 4 - Debt-(Continued)
6.05% Senior Notes due 2015 (Senior Notes due 2015)
On June 9, 2005, the Company
issued $75,000 aggregate principal amount of senior notes at an effective yield of 6.1%, which will mature on June 15, 2015. Interest on the Senior Notes due 2015 is payable semi-annually at a rate of 6.05%. The Senior Notes due 2015 are
redeemable in whole or in part, at any time, at the Companys option, at a redemption price equal to the greater of (1) 100% of their principal amount or (2) the sum of the present values of the remaining scheduled payments of
principal and interest thereon discounted, on a semi-annual basis, at the Treasury yield (as defined in the indenture) plus 30 basis points, plus, in either of the above cases, accrued interest to the date of redemption.
The net proceeds from the sale of the Senior Notes due 2015 were used to (1) repay the Current Bank Credit Facility, (2) redeem the Senior
Notes due 2006, described below, and (3) make a capital contribution to HMECs primary life insurance subsidiary to substantially offset the early recapture of the Companys life reinsurance agreement with the United States branch of
Sun Life Assurance Company of Canada.
6.85% Senior Notes due 2016 (Senior Notes due 2016)
On April 21, 2006, the Company issued $125,000 aggregate principal amount of 6.85% senior notes, which will mature on April 15, 2016, issued at
a discount of 0.305% resulting in an effective yield of 6.893%. Interest on the Senior Notes due 2016 is payable semi-annually at a rate of 6.85%. The Senior Notes due 2016 are redeemable in whole or in part, at any time, at the Companys
option, at a redemption price equal to the greater of (1) 100% of the principal amount of the notes being redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted, on a
semi-annual basis, at the Treasury yield (as defined in the indenture) plus 30 basis points, plus, in either of the above cases, accrued interest to the date of redemption.
A portion of the net proceeds from the issuance of the Senior Notes due 2016 was used to repay in full the $74,000 balance then outstanding on the Bank
Credit Facility. As described below, an additional $9,419 of the net proceeds was used in July 2006 for repurchases of Senior Convertible Notes. Remaining net proceeds were used to redeem the remaining outstanding Senior Convertible Notes on
May 14, 2007, as described below, and for general corporate purposes.
1.425% Senior Convertible Notes (Senior Convertible
Notes)
In March, April and July 2006, the Company repurchased $175,947 aggregate principal amount, $83,575 carrying value, of the
outstanding Senior Convertible Notes at an aggregate cost of $82,846. The March and April 2006 repurchases were initially funded utilizing the Companys Bank Credit Facility and the July 2006 repurchase was funded with a portion of the cash
proceeds from the issuance of the Senior Notes due 2016.
F-61
NOTE 4 - Debt-(Continued)
On May 14, 2007, pursuant to provisions of the indenture, HMEC redeemed its remaining outstanding Senior Convertible Notes ($68,553 aggregate principal amount; $32,563 carrying value) at $475.00 per $1,000.00
principal amount. The $32,563 aggregate cost was funded with a portion of the remaining cash proceeds from HMECs April 2006 issuance of 6.85% Senior Notes Due 2016. None of the Senior Convertible Notes were converted into shares of HMECs
common stock. No early termination penalties were incurred as a result of this redemption.
The $231,947 aggregate principal amount of
Senior Convertible Notes which HMEC previously held in brokerage accounts and the $68,553 aggregate principal amount of Senior Convertible Notes redeemed on May 14, 2007 have been canceled.
6 5/8% Senior Notes due 2006 (Senior Notes due 2006)
On June 30, 2005, the Company redeemed all of its outstanding Senior Notes due 2006, $28,600 aggregate principal amount, utilizing a portion of the proceeds from the issuance of the Senior Notes due 2015,
described above. The aggregate cost of the repurchase was $29,107.
Universal Shelf Registration
To provide additional capital management flexibility, the Company filed a universal shelf registration on Form S-3 with the SEC in December
2003. The registration statement, which registers the offer and sale by the Company from time to time of up to $300,000 of various securities, which may include debt securities, preferred stock, common stock and/or depositary shares, was declared
effective on December 30, 2003. Unless fully utilized or withdrawn by the Company earlier, this registration statement will remain effective through December 1, 2008. The $75,000 aggregate principal amount of Senior Notes due 2015 and
$125,000 aggregate principal amount of Senior Notes due 2016 were issued utilizing this registration statement, leaving up to $100,000 aggregate principal amount that could be issued. No other securities associated with the registration statement
have been issued as of the date of this Annual Report on Form 10-K.
Debt Retirement Gain/Charges
The redemption of the remaining outstanding Senior Convertible Notes on May 14, 2007 resulted in neither a gain nor a loss.
The repurchases of the Senior Convertible Notes during the year ended December 31, 2006 resulted in a pretax gain for the period of $159, which was
reported as a component of interest expense for this period.
The repurchase of the Senior Notes due 2006 resulted in a pretax charge to
income for the year ended December 31, 2005 of $507, which was reported as a component of interest expense for this period.
F-62
NOTE 4 - Debt-(Continued)
Covenants
The Company is in compliance with all of the financial covenants contained in the Senior
Notes due 2015 indenture and the Senior Notes due 2016 indenture and the Bank Credit Facility Agreement, consisting primarily of relationships of (1) debt to capital, (2) insurance subsidiaries insurance financial strength ratings
issued by A.M. Best Company, Inc. and (3) net worth, as defined in the financial covenants.
NOTE 5 - Shareholders Equity and Stock Options
Share Repurchase Program and Treasury Shares Held
(Common Stock)
As disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2006, $96,343
remained authorized for future repurchases of Horace Mann Educators Corporations Common Stock, par value $0.001, under the May 1999 authorization by the Companys Board of Directors (the Board). At that time, the
Companys last repurchase of its common shares was in July 2000. On September 12, 2007, the Board authorized a new share repurchase program allowing repurchases up to $50,000 and ended the May 1999 authorization. The new share repurchase
program authorizes the repurchase of common shares in open market or privately negotiated transactions, from time to time, depending on market conditions.
From September 12, 2007, through December 31, 2007, the Company repurchased 1,111,600 shares of its common stock, or 2.6% of the outstanding shares on December 31, 2006, at an aggregate cost of $20,748,
or an average cost of $18.66 per share, under its new share repurchase program. The repurchase of shares was financed through use of cash.
At December 31, 2007, the Company held 18,614,971 shares in treasury. As of December 31, 2007, $29,252 remained authorized for future share repurchases.
Authorization of Preferred Stock
In
1996, the shareholders of HMEC approved authorization of 1,000,000 shares of $0.001 par value preferred stock. The Board of Directors is authorized to (1) direct the issuance of the preferred stock in one or more series, (2) fix the
dividend rate, conversion or exchange rights, redemption price and liquidation preference, of any series of the preferred stock, (3) fix the number of shares for any series and (4) increase or decrease the number of shares of any series.
No shares of preferred stock were outstanding at December 31, 2007, 2006 and 2005.
F-63
NOTE 5 - Shareholders Equity and Stock Options-(Continued)
Director Stock Plan
In 1996, the
shareholders of HMEC approved the Deferred Equity Compensation Plan (Director Stock Plan) for directors of the Company and reserved 600,000 shares for issuance pursuant to the Director Stock Plan. Shares of the Companys common
stock issued under the Director Stock Plan may be either authorized and unissued shares or shares that have been reacquired by the Company. As of December 31, 2007, 2006 and 2005, 227,757, 214,238 and 191,521 units, respectively, were
outstanding under this plan representing an equal number of common shares to be issued in the future. The outstanding units of currently serving directors accrue dividends at the same rate as dividends paid to HMECs shareholders; outstanding
units of retired directors do not accrue dividends. These dividends are reinvested into additional common stock units.
Employee Stock
Plan
In 1997, the Board of Directors of HMEC approved the Deferred Compensation Plan for Employees (Employee Stock Plan).
Shares of the Companys common stock issued under the Employee Stock Plan may be either authorized and unissued shares or shares that have been reacquired by the Company. As of December 31, 2007, 2006 and 2005, 219,030, 149,396 and 146,218
units, respectively, were outstanding under this plan representing an equal number of common shares to be issued in the future. The Employee Stock Plan allows distributions to be either in common shares or cash. Through December 31, 2007, all
distributions under the Employee Stock Plan have been in cash. The outstanding units accrue dividends at the same rate as dividends paid to HMECs shareholders. These dividends are reinvested into additional common stock units.
Stock Options and Restricted Common Stock Units
The shareholders of HMEC approved the 1991 Stock Incentive Plan (the 1991 Plan), the 2001 Stock Incentive Plan (the 2001 Plan), and the 2002 Incentive Compensation Plan and the Amended and
Restated 2002 Incentive Compensation Plan (together, the 2002 Plan) and reserved a total of 9,000,000 shares of common stock for issuance under these plans. Under the 1991 Plan, the 2001 Plan and the 2002 Plan, options to purchase shares
of HMEC common stock may be granted to executive officers, other employees and directors. The options become exercisable in installments based on service generally beginning in the first year from the date of grant and generally become fully vested
4 to 5 years from the date of grant. The options generally expire 7 to 10 years from the date of grant. The exercise price of the option is equal to the market price of HMECs common stock on the date of grant resulting in a grant date
intrinsic value of $0. Shares issued upon exercise of options may be either new shares or treasury shares; however, the Company has historically issued new shares.
Beginning in 2005, restricted common stock units also were issued under the 2002 Plan. As of December 31, 2007, 2006 and 2005, 341,801, 252,867 and 190,157 units, respectively, were outstanding representing an
equal number of common shares to be issued in the future. The outstanding units accrue dividends at the same rate as dividends paid to HMECs shareholders. These dividends are reinvested into additional restricted common stock units.
F-64
NOTE 5 - Shareholders Equity and Stock Options-(Continued)
Changes in outstanding options and shares available for grant under the 1991 Plan, the 2001 Plan and the 2002 Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Option Price
per Share
|
|
Range of
Option Prices
per Share
|
|
Options
|
|
|
|
|
Outstanding
|
|
|
Vested and
Exercisable
|
|
|
Available
for Grant
|
|
At December 31, 2004
|
|
$19.01
|
|
$13.88-$33.87
|
|
4,236,154
|
|
|
4,221,154
|
|
|
2,388,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$18.77
|
|
$17.00-$19.04
|
|
555,750
|
|
|
11,000
|
|
|
(555,750
|
)
|
Vested
|
|
$18.58
|
|
$16.96-$18.86
|
|
|
|
|
20,650
|
|
|
|
|
Exercised
|
|
$15.04
|
|
$13.88-$18.86
|
|
(124,624
|
)
|
|
(124,624
|
)
|
|
|
|
Forfeited
|
|
$20.37
|
|
$13.88-$33.87
|
|
(121,230
|
)
|
|
(121,230
|
)
|
|
121,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
$19.05
|
|
$13.88-$33.87
|
|
4,546,050
|
|
|
4,006,950
|
|
|
1,954,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$17.72
|
|
$16.66-$18.17
|
|
17,250
|
|
|
|
|
|
(17,250
|
)
|
Vested
|
|
$18.74
|
|
$16.96-$19.04
|
|
|
|
|
152,541
|
|
|
|
|
Exercised
|
|
$14.61
|
|
$13.88-$17.56
|
|
(114,400
|
)
|
|
(114,400
|
)
|
|
|
|
Forfeited
|
|
$23.13
|
|
$13.88-$33.87
|
|
(144,650
|
)
|
|
(144,650
|
)
|
|
144,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
$19.00
|
|
$13.88-$33.87
|
|
4,304,250
|
|
|
3,900,441
|
|
|
2,081,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$20.13
|
|
$19.16-$20.23
|
|
276,280
|
|
|
|
|
|
(276,280
|
)
|
Vested
|
|
$18.76
|
|
$16.66-$20.23
|
|
|
|
|
149,155
|
|
|
|
|
Exercised
|
|
$17.27
|
|
$13.88-$20.80
|
|
(240,352
|
)
|
|
(240,352
|
)
|
|
|
|
Forfeited
|
|
$24.69
|
|
$15.32-$33.87
|
|
(79,998
|
)
|
|
(79,998
|
)
|
|
79,998
|
|
Expired
|
|
$22.42
|
|
$22.42
|
|
(19,500
|
)
|
|
(19,500
|
)
|
|
19,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
$19.05
|
|
$13.88-$33.87
|
|
4,240,680
|
|
|
3,709,746
|
|
|
1,904,904
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative common stock shares issued for restricted common stock units
|
|
|
|
|
|
|
|
|
|
|
|
(6,181
|
)
|
Restricted common stock units outstanding at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
(341,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
1,556,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
The Companys stock options and restricted common stock units are subject to a common pool of authorized shares. Common stock shares issued and issuable for the restricted
common stock units outstanding at December 31, 2007 would also draw on this available for grant balance.
|
F-65
NOTE 5 - Shareholders Equity and Stock Options-(Continued)
The weighted average grant date fair values were $5.49, $5.16 and $3.75 for options granted in 2007, 2006 and 2005, respectively. The weighted average
prices of vested and exercisable options as of December 31, 2006 and 2005 were $19.04 and $19.09, respectively.
For options
outstanding at December 31, 2007, information segregated by ranges of exercise prices was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Outstanding Options
|
|
Vested and Exercisable Options
|
|
|
Range of
Option Prices
per Share
|
|
Options
|
|
Weighted
Average
Option Price
per Share
|
|
Weighted
Average
Remaining
Term
|
|
Options
|
|
Weighted
Average
Option Price
per Share
|
|
Weighted
Average
Remaining
Term
|
|
|
$
|
13.88-$20.80
|
|
3,966,680
|
|
$
|
18.63
|
|
3.0 years
|
|
3,435,746
|
|
$
|
18.50
|
|
2.6 years
|
|
|
$
|
21.64-$29.21
|
|
211,700
|
|
$
|
22.72
|
|
2.8 years
|
|
211,700
|
|
$
|
22.72
|
|
2.8 years
|
|
|
|
$33.87
|
|
62,300
|
|
$
|
33.87
|
|
0.3 years
|
|
62,300
|
|
$
|
33.87
|
|
0.3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13.88-$33.87
|
|
4,240,680
|
|
$
|
19.05
|
|
3.0 years
|
|
3,709,746
|
|
$
|
19.00
|
|
2.6 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, based on a closing stock price of $18.94 per share, the aggregate
intrinsic (in-the-money) values of vested options and all options outstanding were $3,597 and $3,659, respectively.
NOTE 6 - Income Taxes
The federal income tax assets and liabilities included in Other Assets and Other
Liabilities, respectively, in the Consolidated Balance Sheets as of December 31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
|
2006
|
|
Federal income tax (asset) liability
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(130
|
)
|
|
$
|
(9,217
|
)
|
Deferred
|
|
|
45,542
|
|
|
|
42,931
|
|
F-66
NOTE 6- Income Taxes-(Continued)
Deferred tax assets and liabilities are recognized for all future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. There are no deferred tax liabilities that have not been recognized. The temporary differences that give rise to the deferred tax balances at December 31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
|
2007
|
|
2006
|
Deferred tax assets
|
|
|
|
|
|
|
Discounting of unpaid claims and claim expenses tax reserves
|
|
$
|
6,651
|
|
$
|
5,986
|
Unearned premium reserve reduction
|
|
|
16,756
|
|
|
16,968
|
Postretirement benefits other than pension
|
|
|
6,351
|
|
|
9,117
|
Other comprehensive income unrealized losses on securities
|
|
|
1,727
|
|
|
|
Alternative minimum tax credit carryforward
|
|
|
|
|
|
3,837
|
Impaired securities
|
|
|
2,054
|
|
|
1,625
|
Other comprehensive income net funded status of pension and other postretirement benefit obligations
|
|
|
1,733
|
|
|
1,861
|
Compensation accruals
|
|
|
7,852
|
|
|
7,380
|
Other, net
|
|
|
2,054
|
|
|
1,749
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
45,178
|
|
|
48,523
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
Other comprehensive income unrealized gains on securities
|
|
|
|
|
|
6,655
|
Life insurance future policy benefit reserve revaluation
|
|
|
3,544
|
|
|
1,209
|
Intangible assets
|
|
|
5,436
|
|
|
6,880
|
Deferred policy acquisition costs
|
|
|
81,740
|
|
|
76,710
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
90,720
|
|
|
91,454
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
45,542
|
|
$
|
42,931
|
|
|
|
|
|
|
|
Based on the Companys historical earnings, future expectations of adjusted taxable income,
as well as reversing gross deferred tax liabilities, the Company believes it is more likely than not that gross deferred tax assets will be fully realized and that a valuation allowance with respect to the realization of the total gross deferred tax
assets is not necessary.
At December 31, 2007, the Company did not have any loss carryforwards or credits.
The components of federal income tax expense (benefit) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
Current
|
|
$
|
24,429
|
|
$
|
23,453
|
|
$
|
(16,212
|
)
|
Deferred
|
|
|
9,854
|
|
|
18,132
|
|
|
32,983
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax expense
|
|
$
|
34,283
|
|
$
|
41,585
|
|
$
|
16,771
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense for the following periods differed from the expected tax computed by applying
the federal corporate tax rate of 35% to income before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Expected federal tax on income
|
|
$
|
40,975
|
|
|
$
|
49,102
|
|
|
$
|
32,916
|
|
Add (deduct) tax effects of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt interest
|
|
|
(6,265
|
)
|
|
|
(6,180
|
)
|
|
|
(6,258
|
)
|
Dividend received deduction
|
|
|
(1,265
|
)
|
|
|
(1,728
|
)
|
|
|
(1,275
|
)
|
Resolution of contingent tax liabilities
|
|
|
|
|
|
|
|
|
|
|
(9,176
|
)
|
Other, net
|
|
|
838
|
|
|
|
391
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense provided on income
|
|
$
|
34,283
|
|
|
$
|
41,585
|
|
|
$
|
16,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-67
NOTE 6 - Income Taxes-(Continued)
At December 31, 2007, the Company had federal income tax returns for the 2002 through 2006 tax years still open and subject to examination by all major taxing authorities. The Company is currently under
examination by the Internal Revenue Service (IRS) for tax years 2002, 2004 and 2005.
In 2005, the Company recorded reductions
in federal income tax expense of $9,176 due to favorable resolution of contingent tax liabilities related to reinsurance premiums and separate account dividends received deductions ($5,567 in the corporate and other segment and $3,609 in the annuity
segment) and recorded $1,394 of pretax income representing interest on federal income tax refunds received ($937 in the annuity segment and $457 in the other segments). In April 2005, the Company received refunds for tax years 1996 through 2001 from
the IRS totaling $8,087, an amount consistent with the Companys tax refund accruals related to those years. As a result of the receipt of IRS refunds for tax years 1996 and 1997, which were then deemed to be closed, the contingent tax
liability related to those two years was eliminated, which resulted in a decrease in federal income tax expense of $2,734 in the second quarter of 2005. The remaining refunds received related to tax years 1998 through 2001, which were deemed to be
closed on September 15, 2005 due to the expiration of the statute of limitations, resulting in an additional reduction in the contingent tax liability related to those four years of $6,442 that was recorded in the third quarter of 2005.
Effective January 1, 2007, the Company adopted FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement No 109. Adoption of FIN 48 did not have a material effect on the results of operations or financial position of the Company. FIN 48 provides recognition of tax benefits from tax return
positions only if it is more likely than not the position will be sustainable, upon examination, on its technical merits and any relevant administrative practices or precedents. As a result, the Company now applies a more-likely-than-not recognition
threshold for all tax uncertainties. There were no differences between the amounts previously recognized for uncertain tax positions and the amounts determined under FIN 48, including changes in accrued interest and penalties.
The Company records liabilities for uncertain tax filing positions where it is more-likely-than-not that the position will not be sustainable upon audit
by taxing authorities. These liabilities are reevaluated routinely and are adjusted appropriately, based upon changes in facts or law. The Company has no unrecorded liabilities from uncertain tax filing positions.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
Balance at adoption on January 1, 2007
|
|
$
|
3,914
|
Additions based on tax positions related to the current year
|
|
|
427
|
Additions for tax positions for prior years
|
|
|
26
|
Reductions for tax positions for prior years
|
|
|
|
Settlements
|
|
|
|
Lapses on Statutes of Limitations
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
4,367
|
|
|
|
|
F-68
NOTE 6 - Income Taxes-(Continued)
All of the liability for unrecognized tax benefits would affect the effective tax rate if recognized. There are no positions for which it is reasonably possible that the total amount of unrecognized tax benefits will
significantly increase or decrease within the next 12 months.
The Company classifies all interest and penalties as income tax expense. The
2007 expense for interest and penalties was $306 ($199 net of tax benefits); for 2006 and 2005, this amount was $192 ($125 net of tax) and $275 ($179 net of tax), respectively. The Company has recorded $883 and $577 in liabilities for tax related
interest and penalties on its Consolidated Balance Sheets at December 31, 2007 and 2006, respectively.
NOTE 7 - Fair Value of Financial Instruments
The Company is required under GAAP to disclose estimated fair
values for certain financial instruments. Fair values of the Companys insurance contracts other than annuity contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into
consideration in the Companys overall management of interest rate risk through the matching of investment maturities with amounts due under insurance contracts. The following methods and assumptions were used to estimate the fair value of
financial instruments.
Investments
- Fixed maturity investments include bonds, notes and redeemable preferred stocks. These
securities are classified as available for sale and carried at fair value. Market valuations for the fixed maturity securities portfolio are based on prices provided by the Companys custodian bank and its investment managers. Both the
custodian bank and the investment managers use a variety of pricing sources to determine market valuations. Each designate specific pricing services or indexes for each sector of the market based upon the providers expertise. Broker-dealers
are also used to price certain types of securities. The broker-dealers valuation methodology is sometimes matrix-based, using indicative evaluation measures and adjustments for specific security characteristics and market sentiment. The
Company analyzes market valuations received to verify reasonableness. The Companys fixed maturity securities portfolio is highly liquid, which allows for a high percentage of the portfolio to be priced through pricing services. Approximately
90% of the portfolio was priced through pricing services or index priced as of December 31, 2007. The remainder of the portfolio was priced by broker-dealers. Equity securities include nonredeemable preferred stocks and common stocks. These
securities are classified as available for sale and carried at fair value. The fair value of equity securities is based on quoted market prices. Short-term and other investments are comprised of policy loans, short-term fixed interest securities and
mortgage loans. The fair value of policy loans is based on estimates using discounted cash flow analysis and current interest rates being offered for new loans. Short-term fixed income securities are carried at cost, which approximates fair value.
The fair value of mortgage loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities.
F-69
NOTE 7 - Fair Value of Financial Instruments-(Continued)
Annuity Contract Liabilities and Policyholder Account Balances on Interest-sensitive Life Contracts
- The fair values of annuity contract
liabilities and policyholder account balances on interest-sensitive life contracts are equal to the discounted estimated future cash flows (using the Companys current interest rates for similar products including consideration of minimum
guaranteed interest rates) including an adjustment for risk that the timing or amount of cash flows will vary from managements estimate.
Other Policyholder Funds
- Other policyholder funds are liabilities related to supplementary contracts without life contingencies and dividend accumulations which represent deposits that do not have defined maturities. The carrying
value of these funds is used as a reasonable estimate of fair value.
Long-term Debt
- The fair value of long-term debt is estimated
based on quoted market prices of publicly traded issues.
The carrying amounts and fair values of financial instruments at
December 31, 2007 and 2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2007
|
|
2006
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$
|
3,873,001
|
|
$
|
3,873,001
|
|
$
|
3,820,182
|
|
$
|
3,820,182
|
Equity securities
|
|
|
86,548
|
|
|
86,548
|
|
|
20,029
|
|
|
20,029
|
Short-term and other investments
|
|
|
143,990
|
|
|
147,011
|
|
|
162,283
|
|
|
165,703
|
Short-term investments, loaned securities collateral
|
|
|
76,711
|
|
|
76,711
|
|
|
299,722
|
|
|
299,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
4,180,250
|
|
|
4,183,271
|
|
|
4,302,216
|
|
|
4,305,636
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances on interest-sensitive life contracts
|
|
|
80,751
|
|
|
73,848
|
|
|
82,572
|
|
|
75,773
|
Annuity contract liabilities
|
|
|
2,014,211
|
|
|
1,768,074
|
|
|
1,944,675
|
|
|
1,715,715
|
Other policyholder funds
|
|
|
138,470
|
|
|
138,470
|
|
|
142,832
|
|
|
142,832
|
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
199,485
|
|
|
198,625
|
|
|
231,982
|
|
|
232,429
|
Fair value assumptions are based upon subjective estimates of market conditions and perceived
risks of financial instruments at a certain point in time. The disclosed fair values do not reflect any premium or discount that could result from offering for sale at one time an entire holding of a particular financial instrument. In addition,
potential taxes and other expenses that would be incurred in an actual sale or settlement are not reflected in amounts disclosed.
F-70
NOTE 8 - Statutory Surplus and Subsidiary Dividend Restrictions
The insurance departments of various states
in which the insurance subsidiaries of HMEC are domiciled recognize as net income and surplus those amounts determined in conformity with statutory accounting principles prescribed or permitted by the insurance departments, which differ in certain
respects from GAAP.
Reconciliations of statutory capital and surplus and net income, as determined using statutory accounting principles,
to the amounts included in the accompanying consolidated financial statements are as follows:
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
December 31,
|
|
|
2007
|
|
|
2006
|
|
Statutory capital and surplus of insurance subsidiaries
|
|
$
|
604,635
|
|
|
$
|
572,311
|
|
Increase (decrease) due to:
|
|
|
|
|
|
|
|
|
Deferred policy acquisition costs
|
|
|
261,789
|
|
|
|
249,377
|
|
Difference in policyholder reserves
|
|
|
39,501
|
|
|
|
34,157
|
|
Goodwill
|
|
|
47,396
|
|
|
|
47,396
|
|
Value of acquired insurance in force
|
|
|
5,380
|
|
|
|
10,523
|
|
Liability for postretirement benefits, other than pensions
|
|
|
(10,871
|
)
|
|
|
(24,068
|
)
|
Investment fair value adjustments on fixed maturities
|
|
|
4,464
|
|
|
|
18,004
|
|
Difference in investment reserves
|
|
|
50,457
|
|
|
|
51,252
|
|
Federal income tax liability
|
|
|
(69,317
|
)
|
|
|
(70,173
|
)
|
Net funded status of pension and other postretirement benefit obligations
|
|
|
(4,950
|
)
|
|
|
(5,317
|
)
|
Non-admitted assets and other, net
|
|
|
(912
|
)
|
|
|
1,644
|
|
Shareholders equity (deficit) of parent company and non-insurance subsidiaries
|
|
|
(34,809
|
)
|
|
|
3,957
|
|
Parent company short-term and long-term debt
|
|
|
(199,485
|
)
|
|
|
(231,982
|
)
|
|
|
|
|
|
|
|
|
|
Shareholders equity as reported herein
|
|
$
|
693,278
|
|
|
$
|
657,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Statutory net income of insurance subsidiaries
|
|
$
|
88,839
|
|
|
$
|
110,557
|
|
|
$
|
76,852
|
|
Net loss of non-insurance companies
|
|
|
(284
|
)
|
|
|
(233
|
)
|
|
|
(1,662
|
)
|
Interest expense
|
|
|
(14,060
|
)
|
|
|
(13,143
|
)
|
|
|
(8,881
|
)
|
Tax benefit of interest expense and other parent company current tax adjustments
|
|
|
5,707
|
|
|
|
4,365
|
|
|
|
8,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined net income
|
|
|
80,202
|
|
|
|
101,546
|
|
|
|
74,975
|
|
Increase (decrease) due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred policy acquisition costs
|
|
|
10,791
|
|
|
|
14,483
|
|
|
|
17,873
|
|
Policyholder benefits
|
|
|
12,201
|
|
|
|
9,205
|
|
|
|
(424,864
|
)
|
Reserve adjustment on life reinsurance ceded
|
|
|
|
|
|
|
|
|
|
|
447,384
|
|
Federal income tax expense
|
|
|
(9,854
|
)
|
|
|
(18,132
|
)
|
|
|
(31,460
|
)
|
Amortization of intangible assets
|
|
|
(5,379
|
)
|
|
|
(6,078
|
)
|
|
|
(5,141
|
)
|
Investment reserves
|
|
|
(171
|
)
|
|
|
1,597
|
|
|
|
3,482
|
|
Other adjustments, net
|
|
|
(5,002
|
)
|
|
|
(3,913
|
)
|
|
|
(4,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as reported herein
|
|
$
|
82,788
|
|
|
$
|
98,708
|
|
|
$
|
77,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-71
NOTE 8 - Statutory Surplus and Subsidiary Dividend Restrictions-(Continued)
The Company has principal insurance subsidiaries domiciled in Illinois, California and Texas. The statutory financial statements of these subsidiaries
are prepared in accordance with accounting principles prescribed or permitted by the Illinois Department of Financial and Professional Regulation (Division of Insurance), the California Department of Insurance and the Texas Department of Insurance,
as applicable. Prescribed statutory accounting principles include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative rules.
The Companys insurance subsidiaries are subject to various regulatory restrictions which limit the amount of annual dividends or other
distributions, including loans or cash advances, available to HMEC without prior approval of the insurance regulatory authorities. The aggregate amount of dividends that may be paid by the insurance subsidiaries to HMEC during 2008 without prior
approval is approximately $93,000.
The NAIC has adopted risk-based capital guidelines to evaluate the adequacy of statutory capital and
surplus in relation to risks assumed in investments, reserving policies, and volume and types of insurance business written. State insurance regulations prohibit insurance companies from making any public statements or representations with regard to
their risk-based capital levels. Based on current guidelines, the risk-based capital statutory requirements are not expected to have a negative regulatory impact on the Companys insurance subsidiaries. At December 31, 2007 and 2006,
statutory capital and surplus of each of the Companys insurance subsidiaries was above required levels.
In the third quarter of
2005, a portion of the proceeds from the issuance of the Senior Notes due 2015 was utilized to make a capital contribution to HMECs primary life insurance subsidiary, Horace Mann Life Insurance Company (HMLIC), to substantially
offset the early recapture of the reinsurance agreement with the United States branch of Sun Life Assurance Company of Canada, described below. This agreement was terminated effective July 1, 2005 for a minimal recapture fee. At the time of
this Annual Report on Form 10-K, the Company has no financial reinsurance agreements in effect.
On December 31, 2003, HMLIC entered
into a reinsurance agreement with the United States branch of Sun Life Assurance Company of Canada (SLACC) which replaced the 2002 agreement with Sun Life Reinsurance Company Limited, a member of the Sun Life Financial Group. Under the
terms of the December 31, 2003 agreement, which was written to be in place for a five year period, HMLIC ceded to SLACC, on a combination coinsurance and modified coinsurance basis, a 75% quota share of HMLICs in force interest-sensitive
life block of business issued prior to January 1, 2002. SLACC assumed its proportional share of all risks attendant to the business reinsured such as mortality, persistency and investment risk, reducing HMLICs liabilities under statutory
accounting principles to the extent of the ceded commission. The initial ceded commission received by HMLIC was $50,000 and resulted in a $32,500 after-tax increase in HMLICs statutory surplus. These transactions improved the statutory
operating leverage and risk-based capital ratio of HMLIC in 2004, 2003 and 2002, but did not impact reported GAAP capitalization. The agreement provided that HMLIC could recapture the agreement without penalty after giving 30 days written notice.
F-72
NOTE 9 - Pension Plans and Other Postretirement Benefits
The Company has the following retirement plans: a
defined contribution plan; a 401(k) plan; a defined benefit plan for employees hired on or before December 31, 1998; and certain employees participate in a supplemental defined contribution plan or a supplemental defined benefit plan or both.
After completing the first year of employment, all employees participate in the defined contribution plan. Under this plan, the Company
makes contributions to each participants account based on eligible compensation and years of service. Contribution percentages are currently as follows: (1) employees hired on or after April 1, 1997, 5% of eligible compensation;
(2) employees hired prior to April 1, 1997 with less than 15 years of service, 6% of eligible compensation; and (3) employees hired prior to April 1, 1997 with 15 or more years of service, 7% of eligible compensation. Through
December 31, 2006, participants were 100% vested in this plan after 5 years of service. Effective January 1, 2007, participants are 100% vested in this plan after 3 years of service.
All employees of the Company participate in a 401(k) plan. Beginning January 1, 2002, the Company automatically contributes 3% of eligible
compensation to each employees account, which is 100% vested at the time of the contribution. In addition, employees may voluntarily contribute up to 20% of their eligible compensation into their account.
Effective April 1, 2002, participants stopped accruing benefits under the defined benefit and supplemental defined benefit plans but continue to
retain the benefits they had accrued to date. Amounts earned under the defined benefit and supplemental defined benefit plans are based on years of service and the highest 36 consecutive months of earnings while under the plan (through
March 31, 2002). Participants were 100% vested in these defined benefit plans effective April 1, 2007.
The Companys policy
with respect to funding the defined benefit plan is to contribute to the plan trust amounts which are actuarially determined to provide the plan with sufficient assets to meet future benefit payments consistent with the funding requirements of
federal laws and regulations. For the defined contribution, 401(k) and defined benefit plans, investments have been set aside in separate trust funds. The supplemental retirement plans are unfunded, non-qualified plans.
Employees whose compensation exceeds the limits covered under the qualified plans participate in an unfunded, non-qualified defined contribution plan.
The Company accrues an amount for each participant based on their compensation, years of service and account balance. Participants are 100% vested in this plan after 5 years of service.
Total expense recorded for the qualified and non-qualified defined contribution, 401(k), defined benefit and supplemental retirement plans was $13,089,
$14,823 and $14,647 for the years ended December 31, 2007, 2006 and 2005, respectively.
F-73
NOTE 9 - Pension Plans and Other Postretirement Benefits-(Continued)
Qualified Defined Contribution Plan, 401(k) Plan and Non-qualified Defined Contribution Plan
Pension benefits under the qualified defined contribution plan are fully funded. Contributions to employees accounts under this plan were expensed
in the Companys Consolidated Statements of Operations. Investments for this plan are set aside in a trust fund and none of the trust fund assets for the plan have been invested in shares of HMECs common stock.
The 401(k) plan is fully funded. Contributions to employees accounts under this plan were expensed in the Companys Consolidated Statements of
Operations. Investments for this plan are set aside through an annuity contract underwritten by the Companys principal life insurance subsidiary. The annuity contract includes a fixed return account option and several variable return account
options, with the account options selected by the individual plan participants for both the Company and participant portions contributed. One of the variable return account options invests in shares of HMEC common stock.
The non-qualified defined contribution plan is an unfunded plan. Contributions to employees accounts under the non-qualified defined contribution
plan are equal to cash payments to retirees for the period.
Contributions to employees accounts under the qualified defined
contribution plan, the 401(k) plan and the non-qualified defined contribution plan, as well as total assets of the plans, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
Qualified defined contribution plan:
|
|
|
|
|
|
|
|
|
|
Contributions to employees accounts
|
|
$
|
6,824
|
|
$
|
6,832
|
|
$
|
6,205
|
Total assets at the end of the year
|
|
|
139,570
|
|
|
133,532
|
|
|
126,666
|
401(k) plan:
|
|
|
|
|
|
|
|
|
|
Contributions to employees accounts
|
|
|
3,817
|
|
|
3,752
|
|
|
3,758
|
Total assets at the end of the year
|
|
|
127,099
|
|
|
121,425
|
|
|
110,183
|
Non-qualified defined contribution plan:
|
|
|
|
|
|
|
|
|
|
Contributions to employees accounts
|
|
|
|
|
|
17
|
|
|
260
|
Total assets at the end of the year
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plan and Supplemental Retirement Plans
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans,
effective for years ending after December 15, 2006. As a result of adopting this standard on December 31, 2006, the Companys shareholders equity and book value per share increased by approximately $7,000 and 16 cents,
respectively, related to the defined benefit pension plan and postretirement benefit plan, and also incorporating the previously disclosed changes to its retiree health care benefit plan. The changes to the retiree health care benefit plan decreased
the Companys postretirement benefit obligations, which are included in Other Liabilities in the Consolidated Balance Sheets, by approximately $10,000 at December 31, 2006. SFAS No. 158 requires recognition in the balance sheet of the
funded status of defined benefit pension plans and other postretirement benefit plans, including all previously unrecognized actuarial gains and losses and unamortized prior service cost, as a component of accumulated other comprehensive income, net
of tax. There was no impact on results of operations or cash flow.
F-74
NOTE 9 - Pension Plans and Other Postretirement Benefits-(Continued)
The following tables summarize the funding status of the defined benefit and supplemental retirement pension plans and identify (1) the assumptions
used to determine the projected benefit obligation and (2) the components of net pension cost for the defined benefit plan and supplemental retirement plans for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plan
|
|
|
Supplemental
Retirement Plans
|
|
|
December 31,
|
|
|
December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
After
SFAS 158
|
|
|
After
SFAS 158
|
|
|
|
|
|
After
SFAS 158
|
|
|
After
SFAS 158
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
45,164
|
|
|
$
|
48,559
|
|
|
$
|
49,504
|
|
|
$
|
16,215
|
|
|
$
|
16,454
|
|
|
$
|
16,508
|
|
Service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
(42
|
)
|
|
|
(41
|
)
|
Interest cost
|
|
|
2,364
|
|
|
|
2,476
|
|
|
|
2,642
|
|
|
|
895
|
|
|
|
907
|
|
|
|
917
|
|
Actuarial loss (gain)
|
|
|
(2,461
|
)
|
|
|
(540
|
)
|
|
|
1,592
|
|
|
|
(664
|
)
|
|
|
5
|
|
|
|
363
|
|
Benefits paid
|
|
|
(1,531
|
)
|
|
|
(1,566
|
)
|
|
|
(1,597
|
)
|
|
|
(1,124
|
)
|
|
|
(1,109
|
)
|
|
|
(1,293
|
)
|
Settlements
|
|
|
(2,620
|
)
|
|
|
(3,765
|
)
|
|
|
(3,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
40,916
|
|
|
$
|
45,164
|
|
|
$
|
48,559
|
|
|
$
|
15,279
|
|
|
$
|
16,215
|
|
|
$
|
16,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
41,775
|
|
|
$
|
36,188
|
|
|
$
|
34,884
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
2,444
|
|
|
|
4,468
|
|
|
|
1,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
|
|
|
|
6,450
|
|
|
|
4,514
|
|
|
|
1,124
|
|
|
|
1,109
|
|
|
|
1,293
|
|
Benefits paid
|
|
|
(1,531
|
)
|
|
|
(1,566
|
)
|
|
|
(1,597
|
)
|
|
|
(1,124
|
)
|
|
|
(1,109
|
)
|
|
|
(1,293
|
)
|
Settlements
|
|
|
(2,620
|
)
|
|
|
(3,765
|
)
|
|
|
(3,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
40,068
|
|
|
$
|
41,775
|
|
|
$
|
36,188
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(848
|
)
|
|
$
|
(3,389
|
)
|
|
$
|
(12,371
|
)
|
|
$
|
(15,279
|
)
|
|
$
|
(16,215
|
)
|
|
$
|
(16,454
|
)
|
Unrecognized net actuarial loss
|
|
|
*
|
|
|
|
*
|
|
|
|
17,578
|
|
|
|
*
|
|
|
|
*
|
|
|
|
4,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid (accrued) benefit expense
|
|
|
7,572
|
|
|
|
9,022
|
|
|
|
5,207
|
|
|
|
(12,973
|
)
|
|
|
(12,689
|
)
|
|
|
(12,093
|
)
|
Additional liability to recognize unfunded accumulated benefit obligation
|
|
|
*
|
|
|
|
*
|
|
|
|
(17,578
|
)
|
|
|
*
|
|
|
|
*
|
|
|
|
(4,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefit cost
|
|
|
*
|
|
|
|
*
|
|
|
$
|
(12,371
|
)
|
|
|
*
|
|
|
|
*
|
|
|
$
|
(16,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in balance sheet (2006 represents the initial adoption of SFAS No. 158):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
(848
|
)
|
|
$
|
(3,389
|
)
|
|
|
*
|
|
|
$
|
(15,279
|
)
|
|
$
|
(16,215
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized in balance sheet
|
|
$
|
(848
|
)
|
|
$
|
(3,389
|
)
|
|
|
*
|
|
|
$
|
(15,279
|
)
|
|
$
|
(16,215
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income (AOCI) (2006 represents the initial adoption of SFAS No. 158):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
8,420
|
|
|
$
|
12,411
|
|
|
|
*
|
|
|
$
|
2,306
|
|
|
$
|
3,526
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized in AOCI
|
|
$
|
8,420
|
|
|
$
|
12,411
|
|
|
|
*
|
|
|
$
|
2,306
|
|
|
$
|
3,526
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information for pension plans with an accumulated benefit obligation greater than plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
40,916
|
|
|
$
|
45,164
|
|
|
$
|
48,559
|
|
|
$
|
15,279
|
|
|
$
|
16,215
|
|
|
$
|
16,454
|
|
Accumulated benefit obligation
|
|
|
40,916
|
|
|
|
45,164
|
|
|
|
48,559
|
|
|
|
15,279
|
|
|
|
16,215
|
|
|
|
16,454
|
|
Fair value of plan assets
|
|
|
40,068
|
|
|
|
41,775
|
|
|
|
36,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-75
NOTE 9 - Pension Plans and Other Postretirement Benefits-(Continued)
The decreases in the Companys 2007 and 2006 AOCI for the defined benefit plan of $3,991 and $5,167, respectively, were primarily attributable to
improvements in asset performance and decreases in settlements. In addition, the 2007 AOCI was favorably impacted by the increase in the discount rate used to determine the benefit obligations as of December 31, 2007. These changes were
recorded to a separate component of shareholders equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plan
|
|
|
Supplemental
Retirement Plans
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
After
SFAS 158
|
|
|
After
SFAS 158
|
|
|
|
|
|
After
SFAS 158
|
|
|
After
SFAS 158
|
|
|
|
|
Components of net periodic pension (income) expense:
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(43
|
)
|
|
$
|
(42
|
)
|
|
$
|
(41
|
)
|
Interest cost
|
|
|
2,364
|
|
|
|
2,476
|
|
|
|
2,642
|
|
|
|
895
|
|
|
|
907
|
|
|
|
917
|
|
Expected return on plan assets
|
|
|
(2,742
|
)
|
|
|
(2,586
|
)
|
|
|
(2,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
1,290
|
|
|
|
1,580
|
|
|
|
1,616
|
|
|
|
556
|
|
|
|
841
|
|
|
|
626
|
|
Settlement loss
|
|
|
539
|
|
|
|
1,164
|
|
|
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense
|
|
$
|
1,451
|
|
|
$
|
2,634
|
|
|
$
|
3,051
|
|
|
$
|
1,408
|
|
|
$
|
1,706
|
|
|
$
|
1,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in plan assets and benefit obligations included in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain
|
|
$
|
(2,701
|
)
|
|
|
*
|
|
|
|
*
|
|
|
$
|
(663
|
)
|
|
|
*
|
|
|
|
*
|
|
Amortization of prior actuarial loss
|
|
|
(1,290
|
)
|
|
|
*
|
|
|
|
*
|
|
|
|
(556
|
)
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
$
|
(3,991
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(1,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.65
|
%
|
|
|
5.53
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
Expected return on plan assets
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Annual rate of salary increase
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Weighted-average assumptions used to determine benefit
obligations as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.05
|
%
|
|
|
5.65
|
%
|
|
|
5.50
|
%
|
|
|
6.20
|
%
|
|
|
5.75
|
%
|
|
|
5.50
|
%
|
Expected return on plan assets
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Annual rate of salary increase
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
The assumption for the long-term rate of
return on plan assets was determined by considering actual investment experience during the lifetime of the plan, balanced with reasonable expectations of future growth considering the various classes of assets and percentage allocation for each
asset class.
F-76
NOTE 9 - Pension Plans and Other Postretirement Benefits-(Continued)
The allocation by asset category of the Companys defined benefit pension plan assets at December 31, 2007, 2006 and 2005 (the measurement
dates) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Asset category
|
|
|
|
|
|
|
|
|
|
Equity securities (1)
|
|
69.5
|
%
|
|
60.2
|
%
|
|
69.0
|
%
|
Debt securities
|
|
30.1
|
|
|
25.9
|
|
|
29.8
|
|
Cash and short-term investments
|
|
0.4
|
|
|
13.9
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
None of the trust fund assets for the defined benefit pension plan have been invested in shares of HMECs common stock.
|
The Company has an investment policy for the defined benefit pension plan that aligns the assets within the plans trust to an approximate 70%
equity and 30% stable value funds allocation. Management believes this allocation will produce the targeted long-term rate of return on assets necessary for payment of future benefit obligations, while providing adequate liquidity for payments to
current beneficiaries. Assets are reviewed against the defined benefit pension plans investment policy and the trustee has been directed to adjust invested assets at least quarterly to maintain the target allocation percentages.
The Company does not expect to make a contribution to the defined benefit plan and expects to contribute $1,140 to the supplemental retirement plans in
2008. In addition, the Company expects amortization of net losses of $692 and $287 for the defined benefit plan and the supplemental retirement plans, respectively, to be included in net periodic pension expense in 2008.
Postretirement Benefits Other than Pensions
In addition to providing pension benefits, the Company also provides certain health care and life insurance benefits to retired employees and their eligible dependents. Effective January 1, 2001, the eligibility requirement was age 55
and 20 years of service. Employees hired on or after January 1, 2001 are not eligible for postretirement medical benefits. Effective January 1, 2004, only employees who were at least age 50 with at least 15 years of service by
December 31, 2003 are eligible to participate in this program. Postretirement benefits other than pensions of active and retired employees are accrued as expense over the employees service years.
Effective January 1, 2007, the Company eliminated the previous health care benefits for retirees 65 years of age and over and established a Health
Reimbursement Account (HRA) for each eligible participant. Health care benefits for eligible retirees under 65 years of age will continue to be provided as a bridge to Medicare eligibility. Eligible participants will receive a one-time
credit of $10 to their HRA account to use for covered expenses incurred on or after age 65. As of December 31, 2006, HRA accounts were established for eligible participants and totaled $7,310. As of December 31, 2007, the balance of the
HRA accounts was $6,055. Also, the new plan does not provide life insurance benefits to individuals who retired after December 31, 1993.
F-77
NOTE 9 - Pension Plans and Other Postretirement Benefits-(Continued)
As a result of the changes in the plan for other postretirement benefits, the Company recorded a reduction in its expenses of $4,550 and $2,277 in 2007
and 2006, respectively, and anticipates a reduction in its expenses of approximately $2,390 in 2008.
The following table presents the
funded status of postretirement benefits other than pensions of active and retired employees (including employees on disability more than 2 years) as of December 31, 2007, 2006 and 2005 (the measurement dates) reconciled with amounts recognized
in the Companys Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
After
SFAS 158
|
|
|
After
SFAS 158
|
|
|
|
|
Change in accumulated postretirement benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligations at beginning of year
|
|
$
|
6,138
|
|
|
$
|
23,364
|
|
|
$
|
32,314
|
|
Changes during fiscal year
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
8
|
|
|
|
25
|
|
|
|
81
|
|
Interest cost
|
|
|
291
|
|
|
|
729
|
|
|
|
1,507
|
|
Medicare prescription reimbursements
|
|
|
39
|
|
|
|
142
|
|
|
|
|
|
Plan amendments
|
|
|
|
|
|
|
(6,125
|
)
|
|
|
|
|
Post 65 liability transfer
|
|
|
|
|
|
|
(7,310
|
)
|
|
|
|
|
Benefits paid
|
|
|
(1,376
|
)
|
|
|
(1,811
|
)
|
|
|
(1,773
|
)
|
Actuarial gain
|
|
|
(5
|
)
|
|
|
(2,876
|
)
|
|
|
(8,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligations at end of year
|
|
$
|
5,095
|
|
|
$
|
6,138
|
|
|
$
|
23,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded status
|
|
$
|
(5,095
|
)
|
|
$
|
(6,138
|
)
|
|
$
|
(23,364
|
)
|
Unrecognized prior service cost
|
|
|
*
|
|
|
|
*
|
|
|
|
(2,152
|
)
|
Unrecognized net gain from past experience different from that assumed
|
|
|
*
|
|
|
|
*
|
|
|
|
(2,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued postretirement benefit cost
|
|
|
*
|
|
|
|
*
|
|
|
$
|
(28,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in balance sheet (2006 represents the initial adoption of SFAS No.158):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
(5,095
|
)
|
|
$
|
(6,138
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized in balance sheet
|
|
$
|
(5,095
|
)
|
|
$
|
(6,138
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income (AOCI) (2006 represents the initial adoption of SFAS No. 158):
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
$
|
(1,902
|
)
|
|
$
|
(5,912
|
)
|
|
|
*
|
|
Net actuarial gain
|
|
|
(3,874
|
)
|
|
|
(4,708
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized in AOCI
|
|
$
|
(5,776
|
)
|
|
$
|
(10,620
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
After
SFAS 158
|
|
|
After
SFAS 158
|
|
|
|
|
Components of net periodic benefit cost (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
8
|
|
|
$
|
25
|
|
|
$
|
81
|
|
Interest cost
|
|
|
291
|
|
|
|
729
|
|
|
|
1,507
|
|
Amortization of prior service cost
|
|
|
(4,010
|
)
|
|
|
(2,364
|
)
|
|
|
(718
|
)
|
Amortization of prior losses
|
|
|
(839
|
)
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (benefit)
|
|
$
|
(4,550
|
)
|
|
$
|
(2,277
|
)
|
|
$
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-78
NOTE 9 - Pension Plans and Other Postretirement Benefits-(Continued)
The Company expects to contribute $730 to the postretirement benefit plans other than pensions in 2008. In addition, the Company expects amortization of
net gains and losses and prior service costs of $609 and $1,902, respectively, included in net periodic pension expense in 2008.
Sensitivity Analysis for Postretirement Benefits Other than Pensions
A one percentage point change in the assumed health
care cost trend rate for each year would change the accumulated postretirement benefit obligations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Accumulated postretirement benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of a one percentage point increase
|
|
$
|
98
|
|
|
$
|
149
|
|
|
$
|
231
|
|
Effect of a one percentage point decrease
|
|
|
(92
|
)
|
|
|
(141
|
)
|
|
|
(200
|
)
|
|
|
|
|
Service and interest cost components of the net periodic postretirement benefit expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of a one percentage point increase
|
|
$
|
6
|
|
|
$
|
8
|
|
|
$
|
39
|
|
Effect of a one percentage point decrease
|
|
|
(5
|
)
|
|
|
(7
|
)
|
|
|
(35
|
)
|
|
|
|
|
Weighted-average assumptions used to determine benefit obligations as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.65
|
%
|
|
|
5.50
|
%
|
|
|
5.50
|
%
|
Healthcare cost trend rate
|
|
|
10.00
|
%
|
|
|
11.00
|
%
|
|
|
11.00
|
%
|
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
|
|
|
5.50
|
%
|
|
|
5.50
|
%
|
|
|
5.50
|
%
|
Year the rate is assumed to reach the ultimate trend rate
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2012
|
|
Expected return on plan assets
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.50
|
%
|
|
|
5.74
|
%
|
|
|
5.75
|
%
|
Healthcare cost trend rate
|
|
|
11.00
|
%
|
|
|
11.00
|
%
|
|
|
12.00
|
%
|
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
|
|
|
5.50
|
%
|
|
|
5.50
|
%
|
|
|
5.50
|
%
|
Year the rate is assumed to reach the ultimate trend rate
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2012
|
|
Expected return on plan assets
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
The discount rates at December 31,
2007 were based on the average yield for long-term, high-grade securities available during the benefit payout period. To set its discount rate, the Company looks to leading indicators, including the Citigroup Pension Discount Curve.
In May 2004, the FASB issued FASB Staff Position (FSP) No. FAS 106-2, providing guidance on the accounting for the effects of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the Act) for employers that sponsor postretirement health care plans that provide prescription drug benefits. The Company determined that the retiree prescription drug
benefits provided by its plan were actuarially equivalent to the Medicare Part D benefit under the Act, and was thus eligible for the federal retiree drug subsidy in 2006. As a result of this eligibility, the Companys accumulated
postretirement benefit obligations and net periodic cost for 2005 were reduced by $5,967 and $101, respectively. Due to the Companys changes to its retiree health care benefit plan, as described above, the Company was not eligible for the
federal retiree drug subsidy effective January 1, 2007.
F-79
NOTE 9 - Pension Plans and Other Postretirement Benefits-(Continued)
Estimated Future Benefit Payments
The Companys defined benefit and supplemental defined benefit plans are subject to settlement accounting. Assumptions for both the number of individuals retiring in a calendar year and their elections regarding lump sum distributions
are significant factors impacting the payout patterns for these plans. Therefore, actual results could vary from the estimates below. Estimated future benefit payments at December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013-2017
|
Pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plan
|
|
$
|
6,076
|
|
$
|
4,062
|
|
$
|
4,179
|
|
$
|
3,797
|
|
$
|
3,378
|
|
$
|
16,839
|
Supplemental retirement plans
|
|
|
1,140
|
|
|
1,148
|
|
|
1,149
|
|
|
1,248
|
|
|
1,244
|
|
|
6,069
|
Other postretirement benefits
|
|
|
1,530
|
|
|
1,501
|
|
|
1,505
|
|
|
1,501
|
|
|
1,406
|
|
|
4,211
|
NOTE 10 - Catastrophes and Reinsurance
In the normal course of business, the Companys insurance
subsidiaries assume and cede reinsurance with other insurers. Reinsurance is ceded primarily to limit losses from large exposures and to permit recovery of a portion of direct losses; however, such a transfer does not relieve the originating
insurance company of contingent liability.
The Company is a national underwriter and therefore has exposure to catastrophic losses in
certain coastal states and other regions throughout the U.S. Catastrophes can be caused by various events including hurricanes, windstorms, earthquakes, hail, severe winter weather and wildfires, and the frequency and severity of catastrophes are
inherently unpredictable. The financial impact from catastrophic losses results from both the total amount of insured exposure in the area affected by the catastrophe as well as the severity of the event. The Company seeks to reduce its exposure to
catastrophe losses through the geographic diversification of its insurance coverage, deductibles, maximum coverage limits and the purchase of catastrophe reinsurance.
The Companys net catastrophe losses incurred of approximately $23,538 for the year ended December 31, 2007 reflected losses in October from wildfires in California and wind/hail/tornado events in June and
August as well as other smaller weather events. The Companys net catastrophe losses incurred of approximately $19,223 for the year ended December 31, 2006 reflected wind/hail/tornado events in April and August as well as other smaller
weather events. The Companys net catastrophe losses incurred of approximately $59,293 for the year ended December 31, 2005 primarily reflected losses from Hurricane Katrina, Hurricane Rita, Minnesota storms, Hurricane Dennis and Hurricane
Wilma which totaled $52,025.
The total amounts of reinsurance recoverable on unpaid insurance reserves classified as assets and reported
in Other Assets in the Consolidated Balance Sheets were as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
|
2007
|
|
2006
|
Reinsurance recoverables on reserves and unpaid claims
|
|
|
|
|
|
|
Life and health
|
|
$
|
8,092
|
|
$
|
8,593
|
Property and casualty
|
|
|
|
|
|
|
State insurance facilities
|
|
|
3,749
|
|
|
4,593
|
Other insurance companies
|
|
|
12,181
|
|
|
17,759
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,022
|
|
$
|
30,945
|
|
|
|
|
|
|
|
F-80
NOTE 10 - Catastrophes and Reinsurance-(Continued)
The Company recognizes the cost of reinsurance premiums over the contract periods for such premiums in proportion to the insurance protection provided.
Amounts recoverable from reinsurers for unpaid claims and claim settlement expenses, including estimated amounts for unsettled claims, claims incurred but not yet reported and policy benefits, are estimated in a manner consistent with the insurance
liability associated with the policy. The effects of reinsurance on premiums written and contract deposits; premiums and contract charges earned; and benefits, claims and settlement expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amount
|
|
Ceded to
Other
Companies
|
|
Assumed
from Other
Companies
|
|
Net
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written and contract deposits
|
|
$
|
1,007,566
|
|
$
|
39,993
|
|
$
|
7,172
|
|
$
|
974,745
|
Premiums and contract charges earned
|
|
|
686,414
|
|
|
39,584
|
|
|
7,427
|
|
|
654,257
|
Benefits, claims and settlement expenses
|
|
|
415,653
|
|
|
9,450
|
|
|
2,287
|
|
|
408,490
|
|
|
|
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written and contract deposits
|
|
|
998,823
|
|
|
38,362
|
|
|
8,918
|
|
|
969,379
|
Premiums and contract charges earned
|
|
|
682,791
|
|
|
37,893
|
|
|
9,024
|
|
|
653,922
|
Benefits, claims and settlement expenses
|
|
|
419,271
|
|
|
34,411
|
|
|
3,875
|
|
|
388,735
|
|
|
|
|
|
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written and contract deposits
|
|
|
997,852
|
|
|
35,969
|
|
|
10,759
|
|
|
972,642
|
Premiums and contract charges earned
|
|
|
688,532
|
|
|
36,338
|
|
|
12,745
|
|
|
664,939
|
Benefits, claims and settlement expenses
|
|
|
516,363
|
|
|
85,781
|
|
|
12,135
|
|
|
442,717
|
Gross and ceded benefits, claims and settlement expenses for the year ended December 31, 2005
reflect the impact of property and casualty losses from Hurricane Katrina, Hurricane Rita, Minnesota storms, Hurricane Dennis and Hurricane Wilma. Ceded premiums written and earned for the years ended December 31, 2007, 2006 and 2005 included
approximately $30, $600 and $10,000, respectively, of catastrophe reinsurance reinstatement premium.
There were no losses from
uncollectible reinsurance recoverables in the three years ended December 31, 2007. Past due reinsurance recoverables as of December 31, 2007 were not material.
F-81
NOTE 10 - Catastrophes and Reinsurance-(Continued)
Through 2007, the Company maintained both catastrophe excess of loss and catastrophe aggregate reinsurance coverage. The excess of loss coverage
consisted of two contracts in addition to the Florida Hurricane Catastrophe Fund (FHCF). The primary contract (first event) provided 95% coverage of catastrophe losses above a retention of $25,000 per occurrence up to
$130,000 per occurrence. This contract consisted of three layers, each of which provided for one mandatory reinstatement. The layers were $25,000 excess of $25,000, $40,000 excess of $50,000, and $40,000 excess of $90,000. The other excess of loss
contract (second and third events) provided 95% coverage of catastrophe losses above a retention of $15,000 per occurrence up to $25,000 per occurrence, after the Company retained $25,000 of losses from an initial (first) event. This
contract also provided for one mandatory reinstatement. Coverage for any event under this contract was conditional on the size of the industry loss associated with that event being less than $20,100,000. In addition, the Companys predominant
insurance subsidiary for property and casualty business written in Florida reinsured 90% of hurricane losses in that state above an estimated retention of $14,700 up to $87,200 million with the FHCF, based on the FHCFs financial resources. The
FHCF contract is a one-year contract, effective June 1, 2007. The Companys FHCF coverage reflects the acquisition of additional coverage made available to the industry by the FHCF for the 2007-2008 contract period which resulted in
changes to attachment points under the Companys primary reinsurance contract. Additional coverage made available by the FHCF to the industry in future contract periods could increase the likelihood of assessments in periods following
significant hurricane losses. The catastrophe aggregate contract provided 95% coverage of the Companys 2007 catastrophe losses from events declared as catastrophic events by Property Claim Service (PCS), a subsidiary of Insurance
Services Office, Inc., capped at $10,000 per occurrence, above an annual retention of $21,000, up to an annual limit of $40,000.
For
liability coverages, including the educator excess professional liability policy, in 2007 the Company reinsured each loss above a retention of $700 up to $20,000. For property coverages, in 2007 the Company reinsured each loss above a retention of
$700 up to $2,500, including catastrophe losses that in the aggregate were less than the retention levels above.
The maximum individual
life insurance risk retained by the Company is $200 on any individual life and a maximum of $100 or $125 is retained on each group life policy depending on the type of coverage. Excess amounts are reinsured. The Company also maintains a life
catastrophe reinsurance program. The Company reinsures 100% of the catastrophe risk in excess of $1,000 up to $15,000 per occurrence with one reinstatement effective January 1, 2004. Effective January 1, 2007, the Companys new life
catastrophe risk reinsurance program covers acts of terrorism and includes nuclear, biological and chemical explosions but excludes other acts of war. The 2006 program covered acts of terrorism but excluded nuclear, biological and chemical
explosions as well as other acts of war.
F-82
NOTE 11 - Contingencies and Commitments
Lawsuits and Legal Proceedings
Companies in the insurance industry have been subject to substantial litigation resulting from claims, disputes and other matters. Most recently, they
have faced expensive claims, including class action lawsuits, alleging, among other things, improper sales practices and improper claims settlement procedures. Negotiated settlements of certain such actions have had a material adverse effect on many
insurance companies.
There are various lawsuits and legal proceedings against the Company. Management and legal counsel are of the opinion
that the ultimate disposition of such litigation will have no material adverse effect on the Companys financial position.
Assessments for Insolvencies of Unaffiliated Insurance Companies
The Company is also contingently liable for possible
assessments under regulatory requirements pertaining to potential insolvencies of unaffiliated insurance companies. Liabilities, which are established based upon regulatory guidance, have generally been insignificant.
Leases
The Company has entered into
various operating lease agreements, primarily for real estate (agency and claims offices across the country and portions of the home office complex) and also for computer equipment. Rental expenses were $4,766, $7,901 and $10,766 for the years ended
December 31, 2007, 2006 and 2005, respectively. Future minimum lease payments under leases expiring subsequent to December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013-2017
|
Minimum operating lease payments
|
|
$
|
2,797
|
|
$
|
1,946
|
|
$
|
834
|
|
$
|
80
|
|
|
|
|
F-83
NOTE 12 - Supplementary Data on Cash Flows
A reconciliation of net income to net cash provided by operating
activities as presented in the Consolidated Statements of Cash Flows is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
82,788
|
|
|
$
|
98,708
|
|
|
$
|
77,273
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment (gains) losses
|
|
|
3,418
|
|
|
|
(10,876
|
)
|
|
|
(9,841
|
)
|
Depreciation and amortization
|
|
|
12,778
|
|
|
|
11,927
|
|
|
|
10,243
|
|
Increase in insurance liabilities
|
|
|
92,046
|
|
|
|
84,304
|
|
|
|
92,426
|
|
(Increase) decrease in premium receivables
|
|
|
4,048
|
|
|
|
(3,796
|
)
|
|
|
3,648
|
|
Increase in deferred policy acquisition costs
|
|
|
(9,761
|
)
|
|
|
(15,747
|
)
|
|
|
(24,054
|
)
|
(Increase) decrease in reinsurance recoverable
|
|
|
1,806
|
|
|
|
5,600
|
|
|
|
(7,098
|
)
|
Increase in federal income tax liabilities
|
|
|
19,070
|
|
|
|
31,813
|
|
|
|
18,058
|
|
Other
|
|
|
(4,548
|
)
|
|
|
(16,127
|
)
|
|
|
4,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
118,857
|
|
|
|
87,098
|
|
|
|
87,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
201,645
|
|
|
$
|
185,806
|
|
|
$
|
165,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys repurchases of debt in 2006 and 2005 resulted in non-cash financing (gains)
charges of $(339) and $30, respectively.
NOTE 13 - Segment Information
The Company conducts and manages its business through four segments. The three
operating segments, representing the major lines of insurance business, are: property and casualty insurance, principally personal lines automobile and homeowners products; annuity products, principally individual, tax-qualified fixed and variable
deposits; and life insurance. The Company does not allocate the impact of corporate level transactions to the insurance segments, consistent with the basis for managements evaluation of the results of those segments, but classifies those items
in the fourth segment, corporate and other. In addition to ongoing transactions such as debt service, realized investment gains and losses and certain public company expenses, within the past five years such items have included debt retirement
costs/gains and restructuring charges.
The accounting policies of the segments are the same as those described in Note 1
Summary of Significant Accounting Policies. The Company accounts for intersegment transactions, primarily the allocation of agent and overhead costs from the corporate and other segment to the property and casualty, annuity and life segments,
on a direct cost basis.
F-84
NOTE 13 - Segment Information-(Continued)
Summarized financial information for these segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Insurance premiums and contract charges earned
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty
|
|
$
|
535,109
|
|
|
$
|
537,726
|
|
|
$
|
549,587
|
|
Annuity
|
|
|
21,760
|
|
|
|
19,683
|
|
|
|
17,904
|
|
Life
|
|
|
97,388
|
|
|
|
96,513
|
|
|
|
97,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
654,257
|
|
|
$
|
653,922
|
|
|
$
|
664,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty
|
|
$
|
38,002
|
|
|
$
|
35,266
|
|
|
$
|
33,236
|
|
Annuity
|
|
|
128,904
|
|
|
|
119,936
|
|
|
|
112,908
|
|
Life
|
|
|
57,029
|
|
|
|
53,364
|
|
|
|
49,334
|
|
Corporate and other
|
|
|
926
|
|
|
|
1,559
|
|
|
|
287
|
|
Intersegment eliminations
|
|
|
(1,099
|
)
|
|
|
(1,116
|
)
|
|
|
(1,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
223,762
|
|
|
$
|
209,009
|
|
|
$
|
194,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty
|
|
$
|
61,234
|
|
|
$
|
74,307
|
|
|
$
|
45,026
|
|
Annuity
|
|
|
17,560
|
|
|
|
13,186
|
|
|
|
15,081
|
|
Life
|
|
|
17,275
|
|
|
|
14,518
|
|
|
|
13,403
|
|
Corporate and other
|
|
|
(13,281
|
)
|
|
|
(3,303
|
)
|
|
|
3,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
82,788
|
|
|
$
|
98,708
|
|
|
$
|
77,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty
|
|
$
|
908,209
|
|
|
$
|
903,015
|
|
|
$
|
895,467
|
|
Annuity
|
|
|
4,086,619
|
|
|
|
4,094,491
|
|
|
|
3,809,648
|
|
Life
|
|
|
1,199,147
|
|
|
|
1,232,722
|
|
|
|
1,080,451
|
|
Corporate and other
|
|
|
102,250
|
|
|
|
126,166
|
|
|
|
79,813
|
|
Intersegment eliminations
|
|
|
(36,912
|
)
|
|
|
(26,707
|
)
|
|
|
(24,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,259,313
|
|
|
$
|
6,329,687
|
|
|
$
|
5,840,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional significant financial information for these segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Amortization of deferred policy acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty
|
|
$
|
58,583
|
|
|
$
|
58,487
|
|
|
$
|
57,202
|
|
Annuity
|
|
|
7,310
|
|
|
|
5,795
|
|
|
|
6,340
|
|
Life
|
|
|
9,766
|
|
|
|
9,716
|
|
|
|
7,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75,659
|
|
|
$
|
73,998
|
|
|
$
|
71,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of acquired insurance in force
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuity
|
|
$
|
4,041
|
|
|
$
|
4,684
|
|
|
$
|
3,681
|
|
Life
|
|
|
1,338
|
|
|
|
1,394
|
|
|
|
1,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,379
|
|
|
$
|
6,078
|
|
|
$
|
5,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty
|
|
$
|
23,437
|
|
|
$
|
30,526
|
|
|
$
|
12,996
|
|
Annuity
|
|
|
8,366
|
|
|
|
4,705
|
|
|
|
1,201
|
|
Life
|
|
|
9,321
|
|
|
|
7,779
|
|
|
|
8,926
|
|
Corporate and other
|
|
|
(6,841
|
)
|
|
|
(1,425
|
)
|
|
|
(6,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,283
|
|
|
$
|
41,585
|
|
|
$
|
16,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-85
NOTE 14 - Unaudited Selected Quarterly Financial Data
Selected quarterly financial data is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums written and contract deposits
|
|
$
|
239,246
|
|
$
|
254,422
|
|
$
|
250,799
|
|
$
|
230,278
|
Total revenues
|
|
|
221,545
|
|
|
221,874
|
|
|
221,531
|
|
|
222,055
|
Net income
|
|
|
18,032
|
|
|
18,322
|
|
|
23,166
|
|
|
23,268
|
Per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.42
|
|
$
|
0.42
|
|
$
|
0.54
|
|
$
|
0.54
|
Shares of common stock - weighted average (a)
|
|
|
42,953
|
|
|
43,288
|
|
|
43,223
|
|
|
43,118
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.41
|
|
$
|
0.41
|
|
$
|
0.52
|
|
$
|
0.52
|
Shares of common stock and equivalent shares - weighted average (a)
|
|
|
43,924
|
|
|
44,268
|
|
|
44,924
|
|
|
45,396
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums written and contract deposits
|
|
$
|
245,510
|
|
$
|
252,238
|
|
$
|
244,603
|
|
$
|
227,029
|
Total revenues
|
|
|
229,970
|
|
|
218,882
|
|
|
219,064
|
|
|
217,926
|
Net income
|
|
|
28,655
|
|
|
19,307
|
|
|
27,500
|
|
|
23,246
|
Per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.67
|
|
$
|
0.45
|
|
$
|
0.64
|
|
$
|
0.54
|
Shares of common stock - weighted average (a)
|
|
|
43,055
|
|
|
43,006
|
|
|
42,999
|
|
|
42,987
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.64
|
|
$
|
0.43
|
|
$
|
0.61
|
|
$
|
0.50
|
Shares of common stock and equivalent shares - weighted average (a)
|
|
|
45,118
|
|
|
45,002
|
|
|
45,250
|
|
|
47,814
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums written and contract deposits
|
|
$
|
242,717
|
|
$
|
248,873
|
|
$
|
247,302
|
|
$
|
233,750
|
Total revenues
|
|
|
223,276
|
|
|
209,171
|
|
|
225,555
|
|
|
222,309
|
Net income
|
|
|
16,097
|
|
|
1,021
|
|
|
33,507
|
|
|
26,648
|
Per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.37
|
|
$
|
0.02
|
|
$
|
0.78
|
|
$
|
0.62
|
Shares of common stock - weighted average (a)
|
|
|
42,965
|
|
|
42,933
|
|
|
42,886
|
|
|
42,865
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.35
|
|
$
|
0.02
|
|
$
|
0.72
|
|
$
|
0.57
|
Shares of common stock and equivalent shares - weighted average (a)
|
|
|
47,988
|
|
|
43,686
|
|
|
47,832
|
|
|
47,643
|
(a)
|
Rounded to thousands.
|
For 2005, the Companys third
quarter net income was significantly affected by after tax net catastrophe costs incurred (primarily attributable to hurricanes) of $28,900. In addition, revenues for the third quarter were lower than all other quarters in 2005 due to property and
casualty catastrophe reinsurance reinstatement premiums ceded in the third quarter of $8,900 compared to $500, $500 and $0, for the fourth, second and first quarters, respectively.
F-86
SCHEDULE I
HORACE MANN EDUCATORS CORPORATION
SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Type of Investments
|
|
Cost(1)
|
|
Fair
Value
|
|
Amount
shown in
Balance
Sheet
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
U.S. Government and federally sponsored agency obligations
|
|
$
|
1,154,370
|
|
$
|
1,157,915
|
|
$
|
1,157,915
|
States, municipalities and political subdivisions
|
|
|
535,069
|
|
|
541,095
|
|
|
541,095
|
Foreign government bonds
|
|
|
14,422
|
|
|
15,874
|
|
|
15,874
|
Public utilities
|
|
|
194,612
|
|
|
194,247
|
|
|
194,247
|
Other corporate bonds
|
|
|
1,971,791
|
|
|
1,963,870
|
|
|
1,963,870
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
3,870,264
|
|
|
3,873,001
|
|
|
3,873,001
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stocks
|
|
|
90,362
|
|
|
83,327
|
|
|
83,327
|
Common stocks
|
|
|
3,721
|
|
|
3,221
|
|
|
3,221
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
94,083
|
|
|
86,548
|
|
|
86,548
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
3,072
|
|
|
XXX
|
|
|
3,072
|
Short-term investments
|
|
|
41,206
|
|
|
XXX
|
|
|
41,206
|
Short-term investments, loaned securities collateral
|
|
|
76,848
|
|
|
XXX
|
|
|
76,711
|
Policy loans
|
|
|
99,712
|
|
|
XXX
|
|
|
99,712
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
4,185,185
|
|
|
XXX
|
|
$
|
4,180,250
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Bonds at original cost reduced by repayments and adjusted for amortization of premiums or accrual of discounts and impairment in value of specifically identified investments.
|
See accompanying Report of Independent Registered Public Accounting Firm.
F-87
SCHEDULE II
HORACE MANN EDUCATORS CORPORATION
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
As of
December 31, 2007 and 2006
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Investments and cash
|
|
$
|
247
|
|
|
$
|
32,311
|
|
Investment in subsidiaries
|
|
|
849,242
|
|
|
|
812,557
|
|
Other assets
|
|
|
49,273
|
|
|
|
49,596
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
898,762
|
|
|
$
|
894,464
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
|
|
|
$
|
|
|
Long-term debt
|
|
|
199,485
|
|
|
|
231,982
|
|
Other liabilities
|
|
|
5,999
|
|
|
|
5,401
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
205,484
|
|
|
|
237,383
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, authorized 1,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, authorized 75,000,000 shares; issued, 2007, 60,855,455; 2006, 60,594,626
|
|
|
61
|
|
|
|
61
|
|
Additional paid-in capital
|
|
|
353,841
|
|
|
|
347,873
|
|
Retained earnings
|
|
|
698,539
|
|
|
|
634,110
|
|
Accumulated other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
Net unrealized gains and losses on fixed maturities and equity securities
|
|
|
(2,621
|
)
|
|
|
11,070
|
|
Net funded status of pension and other postretirement benefit obligations
|
|
|
(3,217
|
)
|
|
|
(3,456
|
)
|
Treasury stock, at cost, 2007, 18,614,971 shares; 2006, 17,503,371 shares
|
|
|
(353,325
|
)
|
|
|
(332,577
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
693,278
|
|
|
|
657,081
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
898,762
|
|
|
$
|
894,464
|
|
|
|
|
|
|
|
|
|
|
See accompanying note to condensed financial statements.
See accompanying Report of Independent Registered Public Accounting Firm.
F-88
SCHEDULE II
HORACE MANN EDUCATORS CORPORATION
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
925
|
|
|
$
|
1,557
|
|
|
$
|
288
|
|
Realized investment gains
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
958
|
|
|
|
1,557
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
14,060
|
|
|
|
13,143
|
|
|
|
8,881
|
|
Other
|
|
|
2,542
|
|
|
|
2,935
|
|
|
|
2,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
16,602
|
|
|
|
16,078
|
|
|
|
11,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and equity in net earnings of subsidiaries
|
|
|
(15,644
|
)
|
|
|
(14,521
|
)
|
|
|
(11,465
|
)
|
Income tax benefit
|
|
|
(5,090
|
)
|
|
|
(5,284
|
)
|
|
|
(3,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in net earnings of subsidiaries
|
|
|
(10,554
|
)
|
|
|
(9,237
|
)
|
|
|
(7,575
|
)
|
Equity in net earnings of subsidiaries
|
|
|
93,342
|
|
|
|
107,945
|
|
|
|
84,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
82,788
|
|
|
$
|
98,708
|
|
|
$
|
77,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying note to condensed financial statements.
See accompanying Report of Independent Registered Public Accounting Firm.
F-89
SCHEDULE II
HORACE MANN EDUCATORS CORPORATION
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash flows operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense paid
|
|
$
|
(13,772
|
)
|
|
$
|
(11,150
|
)
|
|
$
|
(8,275
|
)
|
Federal income taxes recovered
|
|
|
5,551
|
|
|
|
5,080
|
|
|
|
4,095
|
|
Cash dividends received from subsidiaries
|
|
|
40,500
|
|
|
|
31,700
|
|
|
|
23,000
|
|
Contribution to defined benefit pension plan trust fund
|
|
|
|
|
|
|
(6,450
|
)
|
|
|
(4,514
|
)
|
Other, net
|
|
|
2,850
|
|
|
|
(11,059
|
)
|
|
|
21,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
35,129
|
|
|
|
8,121
|
|
|
|
35,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flowsinvesting activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (increase) decrease in investments
|
|
|
32,089
|
|
|
|
(31,986
|
)
|
|
|
7
|
|
Capital contributions to subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(21,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
32,089
|
|
|
|
(31,986
|
)
|
|
|
(20,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flowsfinancing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to shareholders
|
|
|
(18,359
|
)
|
|
|
(18,310
|
)
|
|
|
(18,226
|
)
|
Purchase of treasury stock
|
|
|
(20,748
|
)
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
4,477
|
|
|
|
1,874
|
|
|
|
2,055
|
|
Principal payments on Bank Credit Facility
|
|
|
|
|
|
|
|
|
|
|
(25,000
|
)
|
Proceeds from issuance of Senior Notes due 2016
|
|
|
|
|
|
|
123,485
|
|
|
|
|
|
Proceeds from issuance of Senior Notes due 2015
|
|
|
|
|
|
|
|
|
|
|
74,245
|
|
Repurchase of Senior Convertible Notes
|
|
|
(32,563
|
)
|
|
|
(82,846
|
)
|
|
|
|
|
Repurchase of Senior Notes due 2006
|
|
|
|
|
|
|
|
|
|
|
(29,077
|
)
|
Change in bank overdrafts
|
|
|
|
|
|
|
(190
|
)
|
|
|
(18,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(67,193
|
)
|
|
|
24,013
|
|
|
|
(14,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
25
|
|
|
|
148
|
|
|
|
|
|
Cash at beginning of period
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
173
|
|
|
$
|
148
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying note to condensed financial statements.
See accompanying Report of Independent Registered Public Accounting Firm.
F-90
SCHEDULE II
HORACE MANN EDUCATORS CORPORATION
(Parent Company Only)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in conjunction with
the Consolidated Financial Statements and the accompanying notes thereto.
F-91
SCHEDULE III & VI (COMBINED)
HORACE MANN EDUCATORS CORPORATION
SCHEDULE III: SUPPLEMENTARY INSURANCE INFORMATION
SCHEDULE VI: SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column identification for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule III: A
|
|
|
B
|
|
|
C
|
|
|
|
|
|
D
|
|
|
E
|
|
|
F
|
|
|
G
|
|
|
|
H
|
|
|
|
I
|
|
|
J
|
|
|
|
|
|
K
|
Schedule VI: A
|
|
|
B
|
|
|
C
|
|
|
D
|
|
|
E
|
|
|
|
|
|
F
|
|
|
G
|
|
|
|
|
|
|
|
I
|
|
|
|
|
|
J
|
|
|
K
|
Segment
|
|
Deferred
policy
acquisition
costs
|
|
Future
policy
benefits,
claims
and
claims
expenses
|
|
Discount,
if any,
deducted
in
previous
column
|
|
Unearned
premiums
|
|
Other
policy
claims
and
benefits
payable
|
|
Premium
revenue/
premium
earned
|
|
Net
investment
income
|
|
|
Benefits,
claims
and
settlement
expenses
|
|
Claims and
claims
adjustment
expense incurred
related to
|
|
|
Amortization
of deferred
policy
acquisition
costs
|
|
Other
operating
expenses
|
|
Paid
claims and
claims
adjustment
expense
|
|
Premiums
written
|
|
|
|
|
|
|
|
|
|
Current
year
|
|
Prior
years
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty
|
|
$
|
20,624
|
|
$
|
306,191
|
|
$
|
0
|
|
$
|
195,635
|
|
$
|
|
|
$
|
535,109
|
|
$
|
38,002
|
|
|
$
|
360,431
|
|
$
|
380,399
|
|
$
|
(19,968
|
)
|
|
$
|
58,583
|
|
$
|
72,343
|
|
$
|
365,549
|
|
$
|
535,217
|
Annuity
|
|
|
146,177
|
|
|
2,018,024
|
|
|
xxx
|
|
|
|
|
|
133,863
|
|
|
21,760
|
|
|
128,904
|
|
|
|
90,172
|
|
|
xxx
|
|
|
xxx
|
|
|
|
7,310
|
|
|
32,974
|
|
|
xxx
|
|
|
xxx
|
Life
|
|
|
94,988
|
|
|
856,582
|
|
|
xxx
|
|
|
6,892
|
|
|
4,607
|
|
|
97,388
|
|
|
57,029
|
|
|
|
85,134
|
|
|
xxx
|
|
|
xxx
|
|
|
|
9,766
|
|
|
36,601
|
|
|
xxx
|
|
|
xxx
|
Other, including consolidating eliminations
|
|
|
N/A
|
|
|
|
|
|
xxx
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
(173
|
)
|
|
|
|
|
|
xxx
|
|
|
xxx
|
|
|
|
|
|
|
16,620
|
|
|
xxx
|
|
|
xxx
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
261,789
|
|
$
|
3,180,797
|
|
|
xxx
|
|
$
|
202,527
|
|
$
|
138,470
|
|
$
|
654,257
|
|
$
|
223,762
|
|
|
$
|
535,737
|
|
|
xxx
|
|
|
xxx
|
|
|
$
|
75,659
|
|
$
|
158,538
|
|
|
xxx
|
|
|
xxx
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty
|
|
$
|
21,407
|
|
$
|
317,729
|
|
$
|
0
|
|
$
|
195,527
|
|
$
|
|
|
$
|
537,726
|
|
$
|
35,266
|
|
|
$
|
340,630
|
|
$
|
359,840
|
|
$
|
(19,210
|
)
|
|
$
|
58,487
|
|
$
|
72,254
|
|
$
|
356,309
|
|
$
|
539,747
|
Annuity
|
|
|
131,850
|
|
|
1,948,075
|
|
|
xxx
|
|
|
|
|
|
137,434
|
|
|
19,683
|
|
|
119,936
|
|
|
|
87,512
|
|
|
xxx
|
|
|
xxx
|
|
|
|
5,795
|
|
|
33,808
|
|
|
xxx
|
|
|
xxx
|
Life
|
|
|
96,120
|
|
|
832,531
|
|
|
xxx
|
|
|
7,490
|
|
|
5,398
|
|
|
96,513
|
|
|
53,364
|
|
|
|
83,071
|
|
|
xxx
|
|
|
xxx
|
|
|
|
9,716
|
|
|
38,153
|
|
|
xxx
|
|
|
xxx
|
Other, including consolidating eliminations
|
|
|
N/A
|
|
|
|
|
|
xxx
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
443
|
|
|
|
|
|
|
xxx
|
|
|
xxx
|
|
|
|
|
|
|
16,123
|
|
|
xxx
|
|
|
xxx
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
249,377
|
|
$
|
3,098,335
|
|
|
xxx
|
|
$
|
203,017
|
|
$
|
142,832
|
|
$
|
653,922
|
|
$
|
209,009
|
|
|
$
|
511,213
|
|
|
xxx
|
|
|
xxx
|
|
|
$
|
73,998
|
|
$
|
160,338
|
|
|
xxx
|
|
|
xxx
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty
|
|
$
|
20,962
|
|
$
|
342,662
|
|
$
|
0
|
|
$
|
193,506
|
|
$
|
|
|
$
|
549,587
|
|
$
|
33,236
|
|
|
$
|
398,022
|
|
$
|
411,122
|
|
$
|
(13,100
|
)
|
|
$
|
57,202
|
|
$
|
70,541
|
|
$
|
396,243
|
|
$
|
546,949
|
Annuity
|
|
|
116,311
|
|
|
1,821,828
|
|
|
xxx
|
|
|
|
|
|
139,880
|
|
|
17,904
|
|
|
112,908
|
|
|
|
82,292
|
|
|
xxx
|
|
|
xxx
|
|
|
|
6,340
|
|
|
32,467
|
|
|
xxx
|
|
|
xxx
|
Life
|
|
|
96,357
|
|
|
805,973
|
|
|
xxx
|
|
|
8,088
|
|
|
6,198
|
|
|
97,448
|
|
|
49,334
|
|
|
|
78,264
|
|
|
xxx
|
|
|
xxx
|
|
|
|
7,921
|
|
|
41,487
|
|
|
xxx
|
|
|
xxx
|
Other, including consolidating eliminations
|
|
|
N/A
|
|
|
|
|
|
xxx
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
(846
|
)
|
|
|
|
|
|
xxx
|
|
|
xxx
|
|
|
|
|
|
|
11,731
|
|
|
xxx
|
|
|
xxx
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
233,630
|
|
$
|
2,970,463
|
|
|
xxx
|
|
$
|
201,594
|
|
$
|
146,078
|
|
$
|
664,939
|
|
$
|
194,632
|
|
|
$
|
558,578
|
|
|
xxx
|
|
|
xxx
|
|
|
$
|
71,463
|
|
$
|
156,226
|
|
|
xxx
|
|
|
xxx
|
|
|
|
|
|
|
|
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N/A Not applicable.
See accompanying Report of Independent Registered Public Accounting Firm.
F-92
SCHEDULE IV
HORACE MANN EDUCATORS CORPORATION
REINSURANCE
(Dollars in thousands)
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Column A
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Column B
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Column C
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Column D
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Column E
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Column F
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Gross
Amount
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Ceded to
Other
Companies
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Assumed
from Other
Companies
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Net
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Percentage
of Amount
Assumed to Net
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Year ended December 31, 2007
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Life insurance in force
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$
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13,576,538
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$
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1,800,836
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$
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11,775,702
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Premiums
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Property and casualty
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$
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562,061
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$
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34,379
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$
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7,427
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$
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535,109
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1.4
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%
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Annuity
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21,760
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21,760
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Life
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102,593
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5,205
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97,388
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Total premiums
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$
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686,414
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$
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39,584
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$
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7,427
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$
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654,257
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1.1
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%
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Year ended December 31, 2006
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Life insurance in force
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$
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13,400,292
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$
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1,710,141
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$
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11,690,151
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Premiums
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Property and casualty
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$
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561,228
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$
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32,526
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$
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9,024
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$
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537,726
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1.7
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%
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Annuity
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19,683
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19,683
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Life
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101,880
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5,367
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96,513
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Total premiums
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$
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682,791
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$
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37,893
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$
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9,024
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$
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653,922
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1.4
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%
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Year ended December 31, 2005
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Life insurance in force
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$
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13,142,164
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$
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1,553,610
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$
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11,588,554
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Premiums
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Property and casualty
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$
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568,274
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$
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31,432
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$
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12,745
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$
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549,587
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2.3
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%
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Annuity
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17,904
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17,904
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Life
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102,354
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4,906
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97,448
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Total premiums
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$
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688,532
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$
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36,338
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$
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12,745
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$
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664,939
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1.9
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%
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NOTE:
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Premiums above include insurance premiums earned and contract charges earned.
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See accompanying Report of Independent Registered Public Accounting Firm.
F-93
HORACE MANN EDUCATORS CORPORATION
EXHIBITS
To
FORM 10-K
For the Year Ended December 31, 2007
VOLUME 1 OF 1
The following items are filed as Exhibits to Horace Mann Educators Corporations (HMEC)
Annual Report on Form 10-K for the year ended December 31, 2007. Management contracts and compensatory plans are indicated by an asterisk (*).