-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MJ2CpBdDLQnsggTzRZLhcBzKGCIkuAEEwx5aHWvreFlzEfH8ZlfFQhlOEPWqmPVn 5l2MD1b1Svuot/g5apCWSg== 0000950129-96-000394.txt : 19960613 0000950129-96-000394.hdr.sgml : 19960613 ACCESSION NUMBER: 0000950129-96-000394 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960320 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GENERAL CORP /TX/ CENTRAL INDEX KEY: 0000005103 STANDARD INDUSTRIAL CLASSIFICATION: 6311 IRS NUMBER: 740483432 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07981 FILM NUMBER: 96536450 BUSINESS ADDRESS: STREET 1: 2929 ALLEN PKWY CITY: HOUSTON STATE: TX ZIP: 77019 BUSINESS PHONE: 7135221111 10-K405 1 AMERICAN GENERAL CORPORATION - 12/31/95 1 - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM .................... TO .................... COMMISSION FILE NUMBER 1-7981 AMERICAN GENERAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS ARTICLES OF INCORPORATION) TEXAS 74-0483432 (State of incorporation) (I.R.S. Employer Identification No.) 2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019-2155 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 522-1111 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - - ------------------------------- ----------------------------- Common Stock, Par Value $.50 { New York Stock Exchange { Pacific Stock Exchange Preferred Share Purchase Rights { New York Stock Exchange (One right is attached to { Pacific Stock Exchange each share of Common Stock) { 7% Convertible Preferred Stock, { New York Stock Exchange Par Value $1.50 {
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value based on published prices as of March 1, 1996 of American General's voting stock held by non-affiliates was approximately $7.6 billion. As of March 1, 1996, there were 207,603,245 shares of American General's Common Stock and 2,317,701 shares of American General's 7% Convertible Preferred Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE
PART OF THE FORM 10-K DOCUMENT INTO WHICH INCORPORATED -------- ------------------------ Portions of American General's 1995 Annual Report to Shareholders Parts I and II Portions of American General's definitive Proxy Statement dated March 19, 1996, for the Annual Meeting of Shareholders to be held April 25, 1996 Parts I and III
1995 FORM 10-K 2 - - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL American General Corporation (American General or the company) is the parent company of one of the nation's largest diversified financial services organizations. American General's operating subsidiaries are leading providers of retirement annuities, consumer loans, and life insurance. The company was incorporated as a general business corporation in Texas in 1980 and is the successor to American General Insurance Company, an insurance company incorporated in Texas in 1926. Much of the information provided in response to this Item 1 is incorporated herein by reference to selected portions of American General's 1995 Annual Report to Shareholders (ARS). Appropriate references to such incorporated information are specified throughout the text of this Item 1. Portions of American General's 1995 ARS are provided as Exhibit 13 to this Form 10-K. ACQUISITIONS AND DIVESTITURES. American General continued its corporate development efforts during 1995. On January 31, 1995, the company acquired American Franklin Company (AFC), the holding company of The Franklin Life Insurance Company (Franklin Life), for $1.17 billion. The purchase price consisted of $920 million paid in cash at closing and a $250 million cash dividend paid by AFC to its former parent prior to closing. On October 19, 1995, the company announced a definitive agreement to acquire Independent Insurance Group, Inc. (Independent) for total consideration of $362 million. On February 29, 1996, the company completed the Independent acquisition. Prior to closing, Independent shareholders could elect to exchange each share of Independent stock for $27.50 in cash, .7480 share of American General common stock, or .7480 share of American General 7% mandatorily convertible preferred stock. The exchange ratio was based on $36.7625, the average market price of American General common stock during the ten trading days ending on and including the fifth trading day prior to closing. The consideration at closing was as follows: 1) $139 million of cash (38%), 2) 3.7 million shares of common stock (38%), and 3) 2.3 million shares of preferred stock (24%). Holders of the preferred stock are entitled to receive annual cumulative dividends of 7% and have the right to vote, together with holders of American General common stock, on the basis of four-fifths of one vote for each share of preferred stock. The preferred stock is non-callable for four years, and each share is mandatorily convertible into not more than one share of American General common stock during the fifth year. Additional information regarding acquisition and divestiture activities is incorporated herein by reference to the section "Acquisitions and Divestitures" on page 16 of Management's Discussion and Analysis (MD&A) and Note 2 of Notes to Financial Statements in American General's 1995 ARS. BUSINESS SEGMENTS. American General's operations are classified into the following three business segments: Retirement Annuities, Consumer Finance, and Life Insurance. A description of each business segment, including principal products, methods of distribution, and principal markets, is incorporated herein by reference to Note 1.1 of Notes to Financial Statements in American General's 1995 ARS. Financial information for each business segment is incorporated herein by reference to the section "Business Segments" on pages 16-18 and the sections "Asset/Liability Management," "Capital Requirements," and "Liquidity" on pages 21-24 of MD&A and Note 1.2 of Notes to Financial Statements in American General's 1995 ARS, and to Schedule III of Item 14 of this Form 10-K. EMPLOYEES. As of December 31, 1995, American General and its subsidiaries employed approximately 15,300 full-time salaried employees, compared to 12,900 at year-end 1994. This increase is principally due to growth in the Consumer Finance segment and the acquisition of Franklin Life. AMERICAN GENERAL CORPORATION 2 3 - - -------------------------------------------------------------------------------- [AMERICAN GENERAL LOGO] INSURANCE SALES AND IN FORCE. The following table summarizes the face amounts of life insurance sales and life insurance in force for the company's insurance subsidiaries for the past three years:
In millions 1995(a) 1994(b) 1993 - - ----------------------------------------------------------------------- Individual life insurance sales Permanent (non-participating) Interest-sensitive $ 9,231 $ 8,046 $ 9,941 Guaranteed-cost 3,249 2,739 3,681 Term 10,831 6,200 6,728 Permanent (participating) 1,749 7 9 Group life insurance sales 921 496 1,406 Credit life insurance sales 4,753 3,483 2,941 - - ----------------------------------------------------------------------- Total 30,734 20,971 24,706 Reinsurance assumed (2,876) (394) (2,043) - - ----------------------------------------------------------------------- Total, excluding reinsurance assumed(c) $ 27,858 $ 20,577 $ 22,663 - - ----------------------------------------------------------------------- Individual life insurance in force (at December 31) Permanent (non-participating) Interest-sensitive $ 56,540 $ 48,415 $ 44,660 Guaranteed-cost 24,325 24,207 24,897 Term 40,903 23,405 22,366 Permanent (participating) 17,172 842 851 Group life insurance in force 5,669 4,983 5,073 Credit life insurance in force 4,575 2,899 2,548 - - ----------------------------------------------------------------------- Total(d) $ 149,184 $ 104,751 $ 100,395 - - -----------------------------------------------------------------------
(a) Includes Franklin Life from January 31, 1995. (b) Excludes life insurance company sold in 1994. (c) Before deductions for reinsurance ceded. (d) Includes reinsurance assumed before deductions for reinsurance ceded. INSURANCE DEPOSITS AND PREMIUMS. The following table lists deposits and premiums and other considerations of the company's insurance and annuity subsidiaries for the past three years:
In millions 1995(a) 1994 1993 - - ----------------------------------------------------------------------- Deposits(b) $ 3,978 $ 3,375 $ 3,125 - - ----------------------------------------------------------------------- Direct premiums and other considerations Individual life premiums $ 991 $ 606 $ 652 Insurance charges 409 357 319 Individual health premiums 160 148 148 Other 288 143 143 - - ----------------------------------------------------------------------- Total direct premiums and other considerations 1,848 1,254 1,262 - - ----------------------------------------------------------------------- Reinsurance premiums assumed 104 52 38 Reinsurance premiums ceded (199) (96) (48) - - ----------------------------------------------------------------------- Premiums and other considerations $ 1,753 $ 1,210 $ 1,252 - - -----------------------------------------------------------------------
(a) Includes Franklin Life from January 31, 1995. (b) Represents premiums received for interest-sensitive and certain participating life insurance and annuity products. INVESTMENTS Information regarding investments is incorporated here- in by reference to the sections "Investments" and "Asset/Liability Management" on pages 18-22 of MD&A and Notes 3.2 and 5 of Notes to Financial Statements in American General's 1995 ARS, and to Schedule I of Item 14 of this Form 10-K. INSURANCE AND ANNUITY RESERVING METHODS Individual life insurance reserves are based on assumptions similar to those used to establish premium rates. Further information regarding reserving methods is incorporated herein by reference to Note 3.8 of Notes to Financial Statements in American General's 1995 ARS. REINSURANCE Information regarding reinsurance is incorporated herein by reference to Note 3.11 of Notes to Financial Statements in American General's 1995 ARS, and to Schedule IV of Item 14 of this Form 10-K. FACTORS AFFECTING PRICING OF PRODUCTS INSURANCE AND ANNUITY PRODUCTS. Premium rates are based on assumptions, which the company's insurance subsidiaries believe to be realistic, as to future mortality, investment yields, expenses, and lapses. In addition, the pricing is influenced by competition and the company's objectives for return on capital. Although a profit margin is included in the price of the products, the actual profitability of the products can be significantly affected by the variation between actual and assumed experience. CONSUMER FINANCE PRODUCTS. Pricing of consumer finance products is influenced by such factors as cost of borrowed funds, credit risk, competition, and the expense of operations. In addition, pricing is affected by state regulation of interest rates based on contractual terms and loan amounts, charges for individual loans, and insurance premium rates. COMPETITION The business of the company's subsidiaries is highly competitive with other financial institutions and mutual fund companies with respect to pricing, selection of products, and quality of service. No single competitor nor any small group of competitors dominates any of the markets in which the company's subsidiaries operate. Additional information is incorporated herein by reference to the section "Competition" on page 25 of MD&A in American General's 1995 ARS. 1995 FORM 10-K 3 4 - - -------------------------------------------------------------------------------- PART I (Continued) REGULATION INSURANCE. American General's insurance subsidiaries are subject to state regulation in the jurisdictions in which they do business. Information concerning regulatory compliance is incorporated herein by reference to the sections "Solvency Regulation" and "Market Conduct" on page 25 of MD&A in American General's 1995 ARS. Information regarding statutory accounting practices is incorporated herein by reference to Note 16 of Notes to Financial Statements in American General's 1995 ARS. Most states also regulate affiliated groups such as American General and its subsidiaries under insurance holding company laws. Additional information regarding dividend restrictions is incorporated herein by reference to Note 19.1 of Notes to Financial Statements in American General's 1995 ARS. Discussion of state guaranty associations is incorporated herein by reference to the section "Guaranty Associations" on page 25 of MD&A and Note 9 of Notes to Financial Statements in American General's 1995 ARS. CONSUMER FINANCE. The company's consumer finance subsidiaries are subject to various types of federal regulation including the Federal Consumer Credit Protection Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth In Lending Act, certain Federal Trade Commission rules, and state laws that regulate the consumer loan and retail sales finance businesses. In addition, the company's thrift subsidiary, which engages in the consumer finance business and accepts insured deposits, is subject to regulation by and reporting requirements of the Federal Deposit Insurance Corporation and is subject to regulatory codes in the state of Utah. OTHER. Discussion of certain other regulatory factors is incorporated herein by reference to the sections "Taxation" and "Environmental" on page 25 of MD&A in American General's 1995 ARS. ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT Information as of March 1, 1996 regarding the 15 executive officers of American General is as follows:
Present Principal Position with American General and Name and Age Other Material Positions Held during Last Five Years - - -------------------------------------------------------------------------------------------------------------------------- HAROLD S. HOOK (64) Chairman and Chief Executive Officer (since 1978) and Director (since 1972), American General Corporation. ROBERT M. DEVLIN (55) President (since 1995), Director (since 1993), and Vice Chairman (1993-95), American General Corporation; President and Chief Executive Officer (1986-93), American General Life Insurance Company, Houston, Texas, a subsidiary of American General Corporation. JON P. NEWTON (54) Vice Chairman and General Counsel, and Director (since 1995), and Senior Vice President and General Counsel (1993-95), American General Corporation. Partner (1985-93), Clark, Thomas, Winters & Newton, Austin, Texas. MICHAEL G. ATNIP (47) Senior Vice President (since 1994) and Senior Vice President - Operations Support (since 1995), American General Corporation; with American General during the remainder of last five years in various other capacities including Senior Vice President - Insurance and Administration (1991-93) and Senior Vice President (1989-91), American General Finance, Inc., Evansville, Indiana, a subsidiary of American General Corporation. STEPHEN D. BICKEL (56) Chairman (since 1994) and Chief Executive Officer (since 1988), The Variable Annuity Life Insurance Company, Houston, Texas, a subsidiary of American General Corporation; President (1988-94), The Variable Annuity Life Insurance Company. ROBERT S. CAUTHEN JR. (51) President and Chief Executive Officer (since 1993), American General Life Insurance Company, Houston, Texas, a subsidiary of American General Corporation; Senior Vice President and Chief Marketing Officer (1991-93), American General Life Insurance Company. Chairman and Chief Operating Officer (1990-91), First Financial Resources, Valley Forge, Pennsylvania.
AMERICAN GENERAL CORPORATION 4 5 - - -------------------------------------------------------------------------------- [AMERICAN GENERAL LOGO]
Present Principal Position with American General and Name and Age Other Material Positions Held during Last Five Years - - -------------------------------------------------------------------------------------------------------------------------- JAMES S. D'AGOSTINO JR. (49) Chairman (since 1995) and Chief Executive Officer (since 1993), American General Life and Accident Insurance Company, Nashville, Tennessee, a subsidiary of American General Corporation; President (1993-95), American General Life and Accident Insurance Company; with American General Corporation during the remainder of last five years in various other capacities including Executive Vice President - Administration (1993), Senior Vice President - Administration (1991-93), and Senior Vice President - Investor Relations (1990-91). FREDERICK W. GEISSINGER (50) President and Chief Executive Officer (since 1995), American General Finance, Inc., Evansville, Indiana, a subsidiary of American General Corporation; President and Chief Executive Officer (1994-95), American General Land Development, Inc., Houston, Texas, a subsidiary of American General Corporation. Independent Consultant (1992-94), New York, New York. Executive Vice President (1990-92), Daiwa Securities America, New York, New York. ROBERT J. GIBBONS (53) President and Chief Executive Officer (since 1995), The Franklin Life Insurance Company, Springfield, Illinois, a subsidiary of American General Corporation; President and Chief Executive Officer (1994-95), American General Life Insurance Company of New York, Syracuse, New York, a subsidiary of American General Corporation. Vice President (1993-94), Chemical Insurance Agency, New York, New York. Senior Vice President (1989-93), The Equitable Life Assurance Society of the United States, New York, New York. ALBERT E. HAINES (51) Senior Vice President - Administration (since January 1996), American General Corporation. President (1992-January 1996), Chamber of Commerce, The Greater Houston Partnership, Houston, Texas. Chief Administrative Officer and Director of Finance (1989-92), City of Houston, Texas. JOE KELLEY (48) President (since 1995), American General Life and Accident Insurance Company, Nashville, Tennessee, a subsidiary of American General Corporation; Senior Vice President and Chief Marketing Officer (1994-95), American General Life Insurance Company, Houston, Texas, a subsidiary of American General Corporation. Senior Vice President (1992-94), Prudential Preferred Financial Services, Houston, Texas. Chief Marketing Officer (1990-92), The Prudential Insurance Company, Newark, New Jersey. NICHOLAS R. RASMUSSEN (49) Senior Vice President (since 1983) and Senior Vice President - Corporate Development (since 1993), and Senior Vice President - Group Executive (1990-93), American General Corporation. PETER V. TUTERS (43) Senior Vice President (since 1992) and Chief Investment Officer (since 1993), American General Corporation. Vice President (1986-92), Crown Life Insurance Company, Toronto, Ontario, Canada. THOMAS L. WEST JR. (58) President (since 1994), The Variable Annuity Life Insurance Company, Houston, Texas, a subsidiary of American General Corporation. Senior Vice President, Annuity Operations (1991-94), Aetna Life & Casualty Company, Hartford, Connecticut. AUSTIN P. YOUNG (55) Senior Vice President (since 1987), Chief Financial Officer (since 1988), and Treasurer (1990-91), American General Corporation.
1995 FORM 10-K 5 6 - - -------------------------------------------------------------------------------- PART I (Continued) ITEM 2. PROPERTIES American General's corporate headquarters is located in the American General Center, a complex of office buildings on a 45-acre tract near downtown Houston. American General or its subsidiaries either own or lease pursuant to a sale-leaseback arrangement all of the buildings in the complex. In addition, American General or its subsidiaries own all of the underlying land, except for a five-acre parcel that is leased pursuant to a long-term agreement. American General and its subsidiaries occupy approximately 45% of the total office space available in the American General Center. American General's subsidiaries also own various other properties, including properties held for investment, branch office buildings, and the home office buildings of American General Finance, Inc. in Evansville, Indiana; Franklin Life in Springfield, Illinois; and The Independent Life and Accident Insurance Company in Jacksonville, Florida. Portions of certain of these buildings are rented to unaffiliated third parties. The home office building of American General Life and Accident Insurance Company was sold in 1994, and construction of a new building in Nashville, Tennessee is expected to be completed in late 1996. ITEM 3. LEGAL PROCEEDINGS AVIA V. AMERICAN GENERAL REALTY. Two real estate subsidiaries of the company were defendants in a lawsuit, Avia Development Group et al. v. American General Realty Investment Corp., et al. (filed in the 61st District Court of Harris County, Texas, September 23, 1991), that alleged damages based on lost profits and related claims arising from certain loans and joint venture contracts. On July 16, 1993, a judgment was entered against the subsidiaries jointly for $47.3 million in compensatory damages and against one of the subsidiaries for $189.2 million in punitive damages. On September 17, 1993, a Texas state district court reduced the previously-awarded punitive damages by $60.0 million, resulting in a reduced judgment in the amount of $176.5 million plus post-judgment interest. On January 29, 1996, the Texas First Court of Appeals rendered a two-to-one decision that affirmed the trial court judgment. The company intends to vigorously contest the matter through the appellate process. Although substantial risks and uncertainties remain with respect to the ultimate outcome, legal counsel has advised the company that it is not probable within the meaning of Statement of Financial Accounting Standards (SFAS) 5, "Accounting for Contingencies," that the company will ultimately incur a material liability in connection with this matter. Accordingly, no provision has been made in the consolidated financial statements related to this contingency. GULF LIFE V. IRS. In April 1992, the Internal Revenue Service (IRS) issued Notices of Deficiency for the 1977-1981 tax years of certain insurance subsidiaries. The basis of the dispute was the tax treatment of modified coinsurance agreements. The company elected to pay all related assessments plus associated interest, totaling $59 million. A claim for refund of tax and interest was disallowed by the IRS in January 1993. On June 30, 1993, a suit for refund was filed in the United States Court of Federal Claims (Gulf Life Insurance Co. v. United States, C.A. No. 93-404T). On February 7, 1996, the court ruled in favor of the company on all legal issues related to this contingency. The company does not yet know whether the IRS will appeal this decision; however, the company intends to pursue a full refund of the amounts paid. Accordingly, no provision has been made in the consolidated financial statements related to this contingency. AMERICAN GENERAL CORPORATION 6 7 - - -------------------------------------------------------------------------------- [AMERICAN GENERAL LOGO] CALIFORNIA V. OCHOA. In March 1994, two subsidiaries of the company were named as defendants in a lawsuit, The People of the State of California (California) v. Luis Ochoa, Skeeters Automotive, Morris Plan, Creditway of America, Inc. and American General Finance, filed in the Superior Court of California, County of San Joaquin, Case No. 271130. California is seeking injunctive relief, a civil penalty of not less than $5,000 per day or not less than $250,000 for violation of its Health and Safety Code in connection with the failure to register and remove underground storage tanks on property acquired through a foreclosure proceeding by a subsidiary of the company, and a civil penalty of $2,500 for each act of unfair competition prohibited by its Business and Professions Code, but not less than $250,000, plus costs. PEBBLE CREEK. Various violations of operating permits held by Pebble Creek Service Corporation (Pebble Creek), an indirect wholly-owned subsidiary of the company, are currently being addressed by Pebble Creek with the United States Environmental Protection Agency (EPA), the Florida Department of Environmental Protection, and the Environmental Protection Commission of Hillsborough County, Florida. These violations include inaccurate reporting of test results by a former plant operator and violations of effluent parameters in connection with its wastewater treatment plant. In May 1994, Pebble Creek attended a meeting to show cause why the EPA should not initiate enforcement proceedings against Pebble Creek. Pebble Creek has not yet been made aware of the EPA's decision. The company believes that penalties in excess of $100,000 could be assessed against Pebble Creek. The company believes that the total amounts that would ultimately be paid, if any, arising from the environmental claims discussed in the two preceding paragraphs would have no material effect on the company's consolidated results of operations and financial position. OTHER. American General and certain of its subsidiaries are defendants in various other lawsuits and proceedings arising in the normal course of business. Some of these lawsuits and proceedings arise in jurisdictions such as Alabama that permit punitive damages disproportionate to the actual damages alleged. In light of the uncertainties inherent in any litigation, no assurances can be given as to the ultimate outcome of these lawsuits and proceedings. However, American General and its subsidiaries believe that there are meritorious defenses for all of these claims and are defending them vigorously. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during fourth quarter 1995. 1995 FORM 10-K 7 8 - - -------------------------------------------------------------------------------- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The quarterly high and low market prices of American General's common stock as quoted by the New York Stock Exchange, the number of shareholders of record of common stock, and restrictions on retained earnings for the payment of dividends are incorporated herein by reference to Notes 20, 13.1, and 19.1, respectively, of Notes to Financial Statements in American General's 1995 ARS. The quarterly cash dividends paid on common stock are incorporated herein by reference to Note 20 of Notes to Financial Statements in American General's 1995 ARS. The common stock of American General is traded in the United States on the New York Stock Exchange and the Pacific Stock Exchange. The common stock is also traded on the London Stock Exchange and the Swiss Stock Exchanges of Basel, Geneva, and Zurich. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data is derived from the consolidated financial statements of the company. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included or incorporated by reference herein.
Years Ended December 31, ------------------------------------------------------------ In millions, except per share data 1995(a) 1994 1993 1992 1991 - - --------------------------------------------------------------------------------------------------------------------- Revenues $ 6,495 $ 4,841 $ 4,829 $ 4,602 $ 4,395 Income before cumulative effect of accounting changes 545(b) 513(c) 250(d) 533 480 Income per common share before cumulative effect of accounting changes 2.64(b) 2.45(c) 1.15(d) 2.45 2.13 Assets 61,153(e) 46,295(e) 43,982(e) 39,742 36,105 Debt Corporate 1,723 1,836 1,686 1,987 1,981 Consumer Finance 7,470 7,090 5,843 5,484 5,243 Redeemable equity 729(f) 47 - - - Shareholders' equity 5,801(e) 3,457(e) 5,137(e) 4,616 4,329 Cash dividends declared per common share 1.24 1.16 1.10 1.04 1.00 - - ------------------
(a) Includes Franklin Life from January 31, 1995. (b) Includes aftertax charge of $140 million ($.67 per share) for an increase in the allowance for finance receivable losses in fourth quarter 1995. (c) 1994 includes realized investment losses of $114 million ($.55 per share). Realized investment gains for 1995, 1993, 1992, and 1991 were immaterial. (d) Includes $300 million ($1.39 per share) write-down of goodwill and $30 million ($.14 per share) tax rate related adjustment. Additional information is incorporated herein by reference to the section "Acquisition-Related Goodwill" on page 24 of MD&A and Note 11.2 of Notes to Financial Statements in American General's 1995 ARS. (e) Includes fair value adjustment related to securities. Additional information is incorporated herein by reference to the section "Fair Value of Securities" on pages 18-19 of MD&A in American General's 1995 ARS. (f) Includes $244 million of convertible and $485 million of non-convertible preferred securities of subsidiaries issued in 1995. Additional information is incorporated herein by reference to Note 12.1 of Notes to Financial Statements in American General's 1995 ARS. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference to "Management's Discussion and Analysis" on pages 16-25 in American General's 1995 ARS. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data are incorporated herein by reference to pages 26-44 in American General's 1995 ARS. The ratios of earnings to fixed charges are incorporated herein by reference to Exhibit 12 of Item 14 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. AMERICAN GENERAL CORPORATION 8 9 - - -------------------------------------------------------------------------------- PART III [AMERICAN GENERAL LOGO] ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information appearing in the section "Election of Directors" in American General's definitive Proxy Statement dated March 19, 1996 (1996 Proxy Statement), is incorporated herein by reference. Information regarding the 12 executive officers of American General who are not standing for election to the board of directors of American General is included in Part I, Item 1A of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information appearing in the sections "Governance of the Company" and "Compensation of Executive Officers" in American General's 1996 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information appearing in the sections "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in American General's 1996 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing in the section "Certain Relationships and Transactions" in American General's 1996 Proxy Statement is incorporated herein by reference. 1995 FORM 10-K 9 10 - - -------------------------------------------------------------------------------- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this report.
Page Reference -------------------------------- 1995 Form 10-K Annual Report - - ---------------------------------------------------------------------------------------------------------------- 1. Financial Statements Report of Ernst & Young LLP, Independent Auditors - 45 Consolidated Financial Statements Statement of Income - 26 Balance Sheet - 27 Statements of Shareholders' Equity and Stock Activity - 28 Statement of Cash Flows - 29 Notes to Financial Statements - 30-44 2. Financial Statement Schedules Schedule I - Summary of Investments - Other than Investments in Affiliates 13 - Schedule II - Condensed Financial Information of Registrant 14-16 - Schedule III - Supplementary Insurance Information 17 - Schedule IV - Reinsurance 18 - Schedule V - Valuation and Qualifying Accounts 19 -
All other financial statement schedules have been omitted because they are inapplicable. 3. Exhibits
Filed Herewith(*), Nonapplicable (NA), or Incorporated by Reference to ----------------------------- American General Registration Exhibit No. or Number Exhibit Report - - ------------------------------------------------------------------------------------------------------------- 3.1 Restated Articles of Incorporation of American General 4.1 33-33115 Corporation (including Statement of Resolution Establishing Series of Shares of Series A Junior Participating Preferred Stock) 3.2 Statement of Resolution Establishing Series of Shares 4(o) 33-58317 of Series A Cumulative Convertible Preferred Stock 3.3 Statement of Resolution Establishing Series of Shares 4(d) 333-00513 of 7% Convertible Preferred Stock 3.4 Amended and Restated Bylaws of American General 3.2 Form 10-K Corporation for 1993 4.1 There have not been filed as exhibits to this Form 10-K NA NA certain long-term debt instruments, none of which relates to authorized indebtedness that exceeds 10% of the consolidated assets of the company and its subsidiaries. The company hereby agrees to furnish a copy of any such instrument to the Commission upon request. 4.2 Rights Agreement, dated as of July 27, 1989, between 4 Form 10-Q the company and Texas Commerce Bank, as Rights Agent for Second (Rights Agreement) Quarter 1989 4.3 First Amendment to Rights Agreement, dated as of 19 Form 10-Q October 26, 1992, between the company and First Chicago for Third Trust Company of New York, as Rights Agent Quarter 1992 10.1 1984 Stock and Incentive Plan for key employees of the 10.5 Form 10-K company and its subsidiaries for 1984
(continued on next page) AMERICAN GENERAL CORPORATION 10 11 - - -------------------------------------------------------------------------------- [AMERICAN GENERAL LOGO]
Filed Herewith(*), Nonapplicable (NA), or Incorporated by Reference to ----------------------------- American General Registration Exhibit No. or Number Exhibit Report - - ------------------------------------------------------------------------------------------------------------- 10.2 1984 Stock and Incentive Plan (Amended and Restated 10.2 Form 10-K Effective as of February 8, 1994) for key employees of for 1993 the company and its subsidiaries 10.3 Restoration of Retirement Income Plan for Certain 10.3 Form 10-K Employees Participating in the Restated American for 1993 General Retirement Plan (Restoration of Retirement Income Plan) 10.4 First Amendment to Restoration of Retirement Income 10.4 Form 10-K Plan for 1993 10.5 Second Amendment to Restoration of Retirement Income 10.5 Form 10-K Plan for 1993 10.6 American General Supplemental Thrift Plan 10.6 Form 10-K for 1993 10.7 First Amendment to American General Supplemental Thrift 10.7 Form 10-K Plan for 1993 10.8 Second Amendment to American General Supplemental 10.8 Form 10-K Thrift Plan for 1993 10.9 Third Amendment to American General Supplemental Thrift 10.9 Form 10-K Plan for 1993 10.10 Form of Severance Agreements between the company and 10.10 Form 10-K each of the following: Harold S. Hook, Robert M. Devlin, for 1993 Jon P. Newton, Michael G. Atnip, Stephen D. Bickel, Robert S. Cauthen Jr., James S. D'Agostino Jr., Stephen H. Field, Frederick W. Geissinger, Robert J. Gibbons, Albert E. Haines, Joe Kelley, Rodney O. Martin Jr., Nicholas R. Rasmussen, Gary D. Reddick, Peter V. Tuters, Thomas L. West Jr., and Austin P. Young 10.11 Severance Agreements between Howard C. Humphrey and 10.11 Form 10-K Franklin Life for 1994 10.12 Supplemental Retirement Agreement between the company 10.11 Form 10-K and Harold S. Hook for 1993 10.13 American General Supplemental Retirement Plan Trust 10.12 Form 10-K (relating to Exhibit 10.12 hereto) for 1993 10.14 Amendment to Supplemental Retirement Agreement between 10.13 Form 10-K the company and Harold S. Hook for 1993 10.15 Second Amendment to Supplemental Retirement Agreement 10.14 Form 10-K between the company and Harold S. Hook for 1993 10.16 Deferred Compensation Agreement between the company and 10.16 Form 10-K Harold S. Hook for 1993 10.17 1995 Deferred Compensation Plan 10.17 Form 10-K for 1994 10.18 1996 Deferred Compensation Plan 10.18* NA 10.19 American General Corporation Retirement Plan for 10.17 Form 10-K Directors (as amended and restated) for 1993 10.20 American General Corporation Performance-Based Plan for 10.19 Form 10-K Executive Officers, Amended and Restated Effective for 1994 January 1, 1995
(continued on next page) 1995 FORM 10-K 11 12 - - -------------------------------------------------------------------------------- PART IV (Continued)
Filed Herewith(*), Nonapplicable (NA), or Incorporated by Reference to ----------------------------- American General Registration Exhibit No. or Number Exhibit Report - - ------------------------------------------------------------------------------------------------------------- 10.21 Employment Memorandum of Understanding dated April 12, 10.2 Form 10-Q 1994 between The Variable Annuity Life Insurance for Second Company and Thomas L. West Jr. Quarter 1994 10.22 Employment Agreement dated April 28, 1994 between the 10.3 Form 10-Q company and Harold S. Hook for Second Quarter 1994 10.23 Consulting Agreement dated April 28, 1994 between the 10.4 Form 10-Q company and Harold S. Hook for Second Quarter 1994 10.24 License Agreement dated April 28, 1994 among the 10.5 Form 10-Q company, Harold S. Hook, and Main Event Management for Second Corporation Quarter 1994 10.25 Stock Purchase Agreement between American General 2 Form 8-K Corporation and American Brands, Inc., dated as of dated 2/14/95 November 29, 1994 11 Computation of Earnings Per Share 11* NA 12 Computation of Ratio of Earnings to Fixed Charges and 12* NA Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 13 Portions of American General's 1995 Annual Report to 13* NA Shareholders that are expressly incorporated herein by reference in this Form 10-K. Other sections of the Annual Report furnished for the information of the Commission are not deemed "filed" as part of this Form 10-K. 21 Subsidiaries of American General Corporation 21* NA 23 Consent of Ernst & Young LLP, Independent Auditors 23* NA 24 Powers of attorney for the directors signing this Form 24* NA 10-K 27 Financial Data Schedule 27* NA
Any Exhibit not included with this Form 10-K will be furnished to any shareholder of record on written request and payment of up to $.25 per page plus postage. Such requests should be directed to American General Corporation, Investor Relations, P.O. Box 3247, Houston, Texas 77253-3247. (b) Reports on Form 8-K. The following reports on Form 8-K were filed after September 30, 1995: 1. Current Report on Form 8-K dated October 20, 1995, with respect to the issuance of a news release announcing the signing of a definitive agreement under which the company will acquire Independent for total consideration of $362 million, subject to approval by Independent's shareholders and requisite regulatory authorities. 2. Current Report on Form 8-K dated October 26, 1995, with respect to the issuance of a news release announcing the adoption by the company's board of directors of a plan of succession for the Office of the Chairman. 3. Current Report on Form 8-K dated November 13, 1995, with respect to the pro forma financial statements of the company including the acquisition of AFC and the proposed acquisition of Independent as of and for the nine months ended September 30, 1995, and for the year ended December 31, 1994. AMERICAN GENERAL CORPORATION 12 13 - - -------------------------------------------------------------------------------- [AMERICAN GENERAL LOGO] AMERICAN GENERAL CORPORATION SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES In millions
At December 31, 1995 ------------------------------------------------- Amount Cost Shown in or Consolidated Amortized Fair Balance Type of Investment Cost Value Sheet - - -------------------------------------------------------------------------------------------------------------- Fixed maturity securities Bonds and notes U.S. government obligations $ 537 $ 624 $ 624 States and political subdivisions 271 290 290 Foreign governments 648 730 730 Mortgage-backed securities 11,019 11,663 11,663 Public utilities 3,928 4,285 4,285 All other corporate 18,055 19,484 19,484 Redeemable preferred stocks 132 137 137 - - -------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 34,590 37,213 37,213 - - -------------------------------------------------------------------------------------------------------------- Equity securities Common stocks - industrial, miscellaneous, and all other 86 104 104 Perpetual preferred stocks 52 82 82 - - -------------------------------------------------------------------------------------------------------------- Total equity securities 138 186 186 - - -------------------------------------------------------------------------------------------------------------- Mortgage loans on real estate* 3,041 3,041 Investment real estate* Investment properties 503 503 Acquired in satisfaction of debt 74 74 Policy loans 1,605 1,605 Other long-term investments* 179 179 Short-term investments 103 103 - - -------------------------------------------------------------------------------------------------------------- Total investments $ 40,233 $ 42,904 - - --------------------------------------------------------------------------------------------------------------
* Net of applicable allowance for losses. See Schedule V of this Form 10-K. 1995 FORM 10-K 13 14 - - -------------------------------------------------------------------------------- PART IV (Continued) AMERICAN GENERAL CORPORATION SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF INCOME OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
For the Years Ended December 31, In millions 1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------ Revenues Dividends - affiliated $ 445 $ 459(a) $ 679 Interest income - affiliated 130 33 21 Net realized investment gains (losses) (1) (3) 19 Other income Affiliated 36 36 24 Other 6 3 5 - - ------------------------------------------------------------------------------------------------------------ Total revenues 616 528 748 - - ------------------------------------------------------------------------------------------------------------ Expenses Operating costs and expenses Affiliated 7 8 8 Other 77 66 51 Interest expense Affiliated 46 11 12 Other 156 110 109 - - ------------------------------------------------------------------------------------------------------------ Total expenses 286 195 180 - - ------------------------------------------------------------------------------------------------------------ Income before income tax benefit, equity in undistributed net income (loss) of subsidiaries, and cumulative effect of accounting changes 330 333 568 Income tax benefit 35 43 37 Equity in undistributed net income (loss) of subsidiaries (net of dividends paid to parent) 180 137(a) (355) - - ------------------------------------------------------------------------------------------------------------ Income before cumulative effect of accounting changes 545 513 250 Cumulative effect of accounting changes(b) Parent company - - (12) Subsidiaries - - (34) - - ------------------------------------------------------------------------------------------------------------ Net income $ 545 $ 513 $ 204 - - ------------------------------------------------------------------------------------------------------------
(a) To conform with the 1995 presentation, amount has been restated. (b) Reflects adoption of SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions;" SFAS 109, "Accounting for Income Taxes;" and SFAS 112, "Employers' Accounting for Postemployment Benefits," at January 1, 1993. Additional information is incorporated herein by reference to Note 4.2 of Notes to Financial Statements in American General's 1995 ARS. AMERICAN GENERAL CORPORATION 14 15 - - -------------------------------------------------------------------------------- [AMERICAN GENERAL LOGO] AMERICAN GENERAL CORPORATION SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED) BALANCE SHEET OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
At December 31, In millions 1995 1994 1993 - - -------------------------------------------------------------------------------------------------------------- Assets Investments Subsidiaries, at equity $ 6,710 $ 4,238 $ 5,661 Other 35 64 37 Indebtedness from subsidiaries 1,473 779 780 Cash 1 - - Other 115 52 83 - - -------------------------------------------------------------------------------------------------------------- Total assets $ 8,334 $ 5,133 $ 6,561 - - -------------------------------------------------------------------------------------------------------------- Liabilities Short-term debt $ 240 $ 642 $ 315 Long-term debt(a) Senior(b) 1,180 847 956 Subordinated, held by subsidiaries(c) 993 53 56 Indebtedness to subsidiaries 23 35 27 Federal income taxes 28 (3) (7) Other 69 55 77 - - -------------------------------------------------------------------------------------------------------------- Total liabilities 2,533 1,629 1,424 - - -------------------------------------------------------------------------------------------------------------- Redeemable equity Common stock subject to put contracts - 47 - - - -------------------------------------------------------------------------------------------------------------- Shareholders' equity Common stock 364 364 365 Net unrealized gains (losses) on securities(d) 1,100 (935) 709 Retained earnings(e) 4,787 4,495 4,229 Cost of treasury stock(f) (450) (467) (166) - - -------------------------------------------------------------------------------------------------------------- Total shareholders' equity 5,801 3,457 5,137 - - -------------------------------------------------------------------------------------------------------------- Total liabilities and equity $ 8,334 $ 5,133 $ 6,561 - - --------------------------------------------------------------------------------------------------------------
(a) The five-year schedule of maturities of debt is as follows: 1996, $0; 1997, $136 million; 1998, $71 million; 1999, $103 million; and 2000, $203 million. (b) The principal amount of American General senior notes held by subsidiaries was $10 million at December 31, 1995, $11 million at December 31, 1994, and $11 million at December 31, 1993. (c) Information regarding American General's subordinated debentures issued in 1995 is incorporated herein by reference to Note 12.1 of Notes to Financial Statements in American General's 1995 ARS. (d) Includes fair value adjustment related to securities. Additional information is incorporated herein by reference to the section "Fair Value of Securities" on pages 18-19 of MD&A in American General's 1995 ARS. (e) Amounts include undistributed earnings of subsidiaries of $2.7 billion in 1995, $2.6 billion in 1994, and $2.4 billion in 1993. (f) Amounts for 1995, 1994, and 1993 include 699,614 shares at a cost of $8 million held by a subsidiary. 1995 FORM 10-K 15 16 - - -------------------------------------------------------------------------------- PART IV (Continued) AMERICAN GENERAL CORPORATION SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED) STATEMENT OF CASH FLOWS OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
For the Years Ended December 31, In millions 1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------ Operating activities Income before cumulative effect of accounting changes $ 545 $ 513 $ 250 Reconciling adjustments to net cash provided by operating activities Equity in undistributed net (income) loss of subsidiaries (net of dividends paid to parent) (180) (137)* 355 Other, net 4 27 (19) - - ------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 369 403 586 - - ------------------------------------------------------------------------------------------------------------ Investing activities Net (increase) decrease in indebtedness from subsidiaries (694) 1 (130) Capital contributions to subsidiaries (368) (91) (69) Return of capital from subsidiaries 113 7* - Net (increase) decrease in other investments 31 (34) 34 Net increase (decrease) in indebtedness to subsidiaries (12) 8 (2) Other, net (4) (2) (4) - - ------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (934) (111) (171) - - ------------------------------------------------------------------------------------------------------------ Financing activities Net increase (decrease) in short-term debt (405) 324 (216) Long-term debt issuances 1,376 100 100 Long-term debt redemptions (100) (209) - Dividend payments (254) (243) (238) Common share purchases (35) (264) (72) Other, net (16) - 11 - - ------------------------------------------------------------------------------------------------------------ Net cash provided by (used for) financing activities 566 (292) (415) - - ------------------------------------------------------------------------------------------------------------ Net change in cash 1 - - Cash at beginning of year - - - - - ------------------------------------------------------------------------------------------------------------ Cash at end of year $ 1 $ - $ - - - ------------------------------------------------------------------------------------------------------------
* To conform with the 1995 presentation, amount has been restated. AMERICAN GENERAL CORPORATION 16 17 - - -------------------------------------------------------------------------------- [AMERICAN GENERAL LOGO] AMERICAN GENERAL CORPORATION SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION In millions
At December 31, For the Years Ended December 31, ----------------------- ------------------------------------------------------------- Amorti- Premiums zation of Deferred Insurance and Insurance Deferred Policy and Other Net and Policy Other Acquisition Annuity Consider- Investment Annuity Acquisition Operating Segment Costs(a)(b) Liabilities(c) ations Income(d) Benefits Costs(b)(e) Expenses - - ---------------------------------------------------------------------------------------------------------------------- 1995 Retirement Annuities $ 183 $ 20,147 $ 50 $ 1,597 $ 1,204 $ 17 $ 129 Consumer Finance 12 494 217 63 116 9 12 Life Insurance(f) 1,933 17,403 1,486 1,401 1,722 224 468 Other(g) 1 (61) - 34 5 (1) 1,066 - - --------------------------------------------------------------------------------------------------------------------- Consolidated $ 2,129 $ 37,983 $ 1,753 $ 3,095 $ 3,047 $ 249 $ 1,675 - - --------------------------------------------------------------------------------------------------------------------- 1994 Retirement Annuities $ 910 $ 18,656 $ 37 $ 1,492 $ 1,134 $ 13 $ 108 Consumer Finance 10 480 175 57 98 6 11 Life Insurance 1,809 10,548 999 902 990 193 350 Other(g) 2 (61) (1) 42 2 1 607 - - --------------------------------------------------------------------------------------------------------------------- Consolidated $ 2,731 $ 29,623 $ 1,210 $ 2,493 $ 2,224 $ 213 $ 1,076 - - --------------------------------------------------------------------------------------------------------------------- 1993 Retirement Annuities $ 113 $ 17,029 $ 30 $ 1,434 $ 1,125 $ 10 $ 95 Consumer Finance 8 415 138 56 80 6 10 Life Insurance 1,515 9,857 1,085 942 1,101 187 314 Other(g) 1 (62) (1) 5 5 - 511 - - --------------------------------------------------------------------------------------------------------------------- Consolidated $ 1,637 $ 27,239 $ 1,252 $ 2,437 $ 2,311 $ 203 $ 930 - - ---------------------------------------------------------------------------------------------------------------------
(a) Includes fair value adjustment related to securities. Additional information is incorporated herein by reference to the section "Fair Value of Securities" on pages 18-19 of MD&A in American General's 1995 ARS. (b) Includes cost of insurance purchased. (c) Includes unearned premiums, other policy claims and benefits payable, and other policyholder funds, which are not significant relative to insurance and annuity liabilities. (d) Represents earnings and related expenses on those investments considered necessary to support the segment's business operations. (e) Net of accretion of interest. (f) Includes Franklin Life from January 31, 1995. (g) Represents Consumer Finance non-insurance operations, Corporate operations, and intersegment eliminations. 1995 FORM 10-K 17 18 - - -------------------------------------------------------------------------------- PART IV (Continued) AMERICAN GENERAL CORPORATION SCHEDULE IV - REINSURANCE In millions
Percentage of Assumed Amount Ceded to from Assumed Gross Other Other Net to Description Amount Companies Companies Amount Net - - ----------------------------------------------------------------------------------------------------------------- 1995 Life insurance in force at year end $ 145,263 $ 21,390 $ 3,921 $ 127,794 3.1% Premiums for the year Life insurance and annuities $ 1,107 $ 68 $ 25 $ 1,064 2.3% Accident and health insurance 283 130 42 195 21.7 Property-liability insurance 49 1 37 85 43.6 - - --------------------------------------------------------------------------------------------------------------- Total premiums $ 1,439 $ 199 $ 104 $ 1,344 7.7% - - --------------------------------------------------------------------------------------------------------------- 1994 Life insurance in force at year end $ 103,646 $ 12,075 $ 1,105 $ 92,676 1.2% Premiums for the year Life insurance and annuities $ 652 $ 37 $ 17 $ 632 2.7% Accident and health insurance 193 58 15 150 9.7 Property-liability insurance 52 1 20 71 28.5 - - --------------------------------------------------------------------------------------------------------------- Total premiums $ 897 $ 96 $ 52 $ 853 6.1% - - --------------------------------------------------------------------------------------------------------------- 1993 Life insurance in force at year end* $ 99,434 $ 12,905 $ 961 $ 87,490 1.1% Premiums for the year Life insurance and annuities $ 702 $ 47 $ 13 $ 668 1.9% Accident and health insurance 194 - 13 207 6.4 Property-liability insurance 47 1 12 58 20.4 - - --------------------------------------------------------------------------------------------------------------- Total premiums $ 943 $ 48 $ 38 $ 933 4.1% - - ---------------------------------------------------------------------------------------------------------------
* To conform with the 1995 presentation, amounts have been restated. AMERICAN GENERAL CORPORATION 18 19 - - -------------------------------------------------------------------------------- [AMERICAN GENERAL LOGO] AMERICAN GENERAL CORPORATION SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS In millions
Additions ---------------------------------------------- Charged to Charged to Balance at Provision for Realized Charged to Balance at Beginning Finance Receivable Investment Other Deduc- End of Description of Year Losses Gains (Losses) Accounts tions(a) Year - - ----------------------------------------------------------------------------------------------------------------- 1995 Allowance for losses on: Finance receivables $ 226 $ 574 $ - $ - $ 308 $ 492 Mortgage loans on real estate 89 - 28 - 30 87 Investment real estate 321 - 18 - 304(b) 35 Other long-term investments 6 - 1 - 5 2 Valuation allowance on deferred tax asset 315 - - 26(c) 315 26 - - ----------------------------------------------------------------------------------------------------------------- Total $ 957 $ 574 $ 47 $ 26 $ 962 $ 642 - - ----------------------------------------------------------------------------------------------------------------- 1994 Allowance for losses on: Finance receivables $ 184 $ 214 $ - $ - $ 172 $ 226 Mortgage loans on real estate 98 - 11 - 20 89 Investment real estate 253 - 110 - 42 321 Other long-term investments 43 - 4 - 41 6 Valuation allowance on deferred tax asset - - - 315(d) - 315 - - ----------------------------------------------------------------------------------------------------------------- Total $ 578 $ 214 $ 125 $ 315 $ 275 $ 957 - - ----------------------------------------------------------------------------------------------------------------- 1993 Allowance for losses on: Finance receivables $ 162 $ 163 $ - $ - $ 141 $ 184 Below investment grade bonds 26 - 10 - 36 - Mortgage loans on real estate 53 - 84 - 39 98 Investment real estate 129 - 199 - 75 253 Other long-term investments 22 - 33 - 12 43 - - ----------------------------------------------------------------------------------------------------------------- Total $ 392 $ 163 $ 326 $ - $ 303 $ 578 - - -----------------------------------------------------------------------------------------------------------------
(a) Resulting from write-offs of uncollectible receivables and bonds, sales of bonds and real estate, mortgage loan payoffs, and foreclosures of real estate. (b) Includes $243 million reclassification to reduce cost basis on adoption of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of." (c) Relates to operating loss carryovers not expected to be utilized charged to deferred tax expense. (d) Relates to unrealized losses on securities charged to net unrealized gains (losses) on securities. 1995 FORM 10-K 19 20 - - -------------------------------------------------------------------------------- PART IV (Continued) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 20, 1996. AMERICAN GENERAL CORPORATION By: /s/ Pamela J. Penny ---------------------------------------- Pamela J. Penny (Vice President and Controller) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 20, 1996. /s/ Harold S. Hook - - ----------------------------------------------------------------- Harold S. Hook (Chairman of the Board, Chief Executive Officer, and Director - Principal Executive Officer) /s/ Austin P. Young - - ----------------------------------------------------------------- Austin P. Young (Senior Vice President and Chief Financial Officer - Principal Financial Officer) /s/ Pamela J. Penny - - ----------------------------------------------------------------- Pamela J. Penny (Vice President and Controller - Principal Accounting Officer) J. Evans Attwell* - - ----------------------------------------------------------------- J. Evans Attwell (Director) Brady F. Carruth* - - ----------------------------------------------------------------- Brady F. Carruth (Director) W. Lipscomb Davis Jr.* - - ----------------------------------------------------------------- W. Lipscomb Davis Jr. (Director) Robert M. Devlin* - - ----------------------------------------------------------------- Robert M. Devlin (Director) Larry D. Horner* - - ----------------------------------------------------------------- Larry D. Horner (Director) Richard J.V. Johnson* - - ----------------------------------------------------------------- Richard J.V. Johnson (Director) /s/ Jon P. Newton - - ----------------------------------------------------------------- Jon P. Newton (Director) Robert E. Smittcamp* - - ----------------------------------------------------------------- Robert E. Smittcamp (Director) Anne M. Tatlock* - - ----------------------------------------------------------------- Anne M. Tatlock (Director) *By: /s/ Jon P. Newton - - ----------------------------------------------------------------- Jon P. Newton (Attorney-in-fact) AMERICAN GENERAL CORPORATION 20 21 EXHIBIT INDEX
Filed Herewith(*), Nonapplicable (NA), or Incorporated by Reference to ----------------------------- American General Registration Exhibit No. or Number Exhibit Report - - ------------------------------------------------------------------------------------------------------------- 3.1 Restated Articles of Incorporation of American General 4.1 33-33115 Corporation (including Statement of Resolution Establishing Series of Shares of Series A Junior Participating Preferred Stock) 3.2 Statement of Resolution Establishing Series of Shares 4(o) 33-58317 of Series A Cumulative Convertible Preferred Stock 3.3 Statement of Resolution Establishing Series of Shares 4(d) 333-00513 of 7% Convertible Preferred Stock 3.4 Amended and Restated Bylaws of American General 3.2 Form 10-K Corporation for 1993 4.1 There have not been filed as exhibits to this Form 10-K NA NA certain long-term debt instruments, none of which relates to authorized indebtedness that exceeds 10% of the consolidated assets of the company and its subsidiaries. The company hereby agrees to furnish a copy of any such instrument to the Commission upon request. 4.2 Rights Agreement, dated as of July 27, 1989, between 4 Form 10-Q the company and Texas Commerce Bank, as Rights Agent for Second (Rights Agreement) Quarter 1989 4.3 First Amendment to Rights Agreement, dated as of 19 Form 10-Q October 26, 1992, between the company and First Chicago for Third Trust Company of New York, as Rights Agent Quarter 1992 10.1 1984 Stock and Incentive Plan for key employees of the 10.5 Form 10-K company and its subsidiaries for 1984 10.2 1984 Stock and Incentive Plan (Amended and Restated 10.2 Form 10-K Effective as of February 8, 1994) for key employees of for 1993 the company and its subsidiaries 10.3 Restoration of Retirement Income Plan for Certain 10.3 Form 10-K Employees Participating in the Restated American for 1993 General Retirement Plan (Restoration of Retirement Income Plan) 10.4 First Amendment to Restoration of Retirement Income 10.4 Form 10-K Plan for 1993 10.5 Second Amendment to Restoration of Retirement Income 10.5 Form 10-K Plan for 1993 10.6 American General Supplemental Thrift Plan 10.6 Form 10-K for 1993 10.7 First Amendment to American General Supplemental Thrift 10.7 Form 10-K Plan for 1993 10.8 Second Amendment to American General Supplemental 10.8 Form 10-K Thrift Plan for 1993 10.9 Third Amendment to American General Supplemental Thrift 10.9 Form 10-K Plan for 1993
(continued on next page) 22
Filed Herewith(*), Nonapplicable (NA), or Incorporated by Reference to ----------------------------- American General Registration Exhibit No. or Number Exhibit Report - - ------------------------------------------------------------------------------------------------------------- 10.10 Form of Severance Agreements between the company and 10.10 Form 10-K each of the following: Harold S. Hook, Robert M. Devlin, for 1993 Jon P. Newton, Michael G. Atnip, Stephen D. Bickel, Robert S. Cauthen Jr., James S. D'Agostino Jr., Stephen H. Field, Frederick W. Geissinger, Robert J. Gibbons, Albert E. Haines, Joe Kelley, Rodney O. Martin Jr., Nicholas R. Rasmussen, Gary D. Reddick, Peter V. Tuters, Thomas L. West Jr., and Austin P. Young 10.11 Severance Agreements between Howard C. Humphrey and 10.11 Form 10-K Franklin Life for 1994 10.12 Supplemental Retirement Agreement between the company 10.11 Form 10-K and Harold S. Hook for 1993 10.13 American General Supplemental Retirement Plan Trust 10.12 Form 10-K (relating to Exhibit 10.12 hereto) for 1993 10.14 Amendment to Supplemental Retirement Agreement between 10.13 Form 10-K the company and Harold S. Hook for 1993 10.15 Second Amendment to Supplemental Retirement Agreement 10.14 Form 10-K between the company and Harold S. Hook for 1993 10.16 Deferred Compensation Agreement between the company and 10.16 Form 10-K Harold S. Hook for 1993 10.17 1995 Deferred Compensation Plan 10.17 Form 10-K for 1994 10.18 1996 Deferred Compensation Plan 10.18* NA 10.19 American General Corporation Retirement Plan for 10.17 Form 10-K Directors (as amended and restated) for 1993 10.20 American General Corporation Performance-Based Plan for 10.19 Form 10-K Executive Officers, Amended and Restated Effective for 1994 January 1, 1995 10.21 Employment Memorandum of Understanding dated April 12, 10.2 Form 10-Q 1994 between The Variable Annuity Life Insurance for Second Company and Thomas L. West Jr. Quarter 1994 10.22 Employment Agreement dated April 28, 1994 between the 10.3 Form 10-Q company and Harold S. Hook for Second Quarter 1994 10.23 Consulting Agreement dated April 28, 1994 between the 10.4 Form 10-Q company and Harold S. Hook for Second Quarter 1994 10.24 License Agreement dated April 28, 1994 among the 10.5 Form 10-Q company, Harold S. Hook, and Main Event Management for Second Corporation Quarter 1994 10.25 Stock Purchase Agreement between American General 2 Form 8-K Corporation and American Brands, Inc., dated as of dated 2/14/95 November 29, 1994 11 Computation of Earnings Per Share 11* NA 12 Computation of Ratio of Earnings to Fixed Charges and 12* NA Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
(continued on next page) 23
Filed Herewith(*), Nonapplicable (NA), or Incorporated by Reference to ----------------------------- American General Registration Exhibit No. or Number Exhibit Report - - ------------------------------------------------------------------------------------------------------------- 13 Portions of American General's 1995 Annual Report to 13* NA Shareholders that are expressly incorporated herein by reference in this Form 10-K. Other sections of the Annual Report furnished for the information of the Commission are not deemed "filed" as part of this Form 10-K. 21 Subsidiaries of American General Corporation 21* NA 23 Consent of Ernst & Young LLP, Independent Auditors 23* NA 24 Powers of attorney for the directors signing this Form 24* NA 10-K 27 Financial Data Schedule 27* NA
Any Exhibit not included with this Form 10-K will be furnished to any shareholder of record on written request and payment of up to $.25 per page plus postage. Such requests should be directed to American General Corporation, Investor Relations, P.O. Box 3247, Houston, Texas 77253-3247. EX-10.18 2 1996 DEFERRED COMPENSATION PLAN 1 1996 DEFERRED COMPENSATION PLAN I. INTRODUCTION American General Corporation (hereinafter referred to as "AGC") hereby establishes the 1996 Deferred Compensation Plan (hereinafter referred to as the "Plan") for Harold S. Hook (hereinafter referred to as "Participant"). II. DEFINITIONS 2.01 "Annual Base Salary" means the amount of annual salary, set by the Personnel Committee of the AGC Board of Directors, payable to Participant in biweekly installments. 2.02 "Cash Bonus Award" means the annual cash bonus awarded by a Committee consisting of members of the Personnel Committee of the AGC Board of Directors in their complete discretion to chosen members of the highest-paid group of salaried employees. 2.03 "Deferred Compensation" means the amount of Cash Bonus Award defined in Section 2.02 and the Annual Base Salary defined in Section 2.01 which Participant and AGC mutually agree to defer. 2.04 "Election" means Participant's election to defer all or part of his Annual Base Salary and Cash Bonus Award for a particular calendar year as evidenced by a Notice of Election to Defer Income whose form will be substantially similar to Exhibit I attached to this Plan. Such election shall fix the amount of Deferred Compensation, establish the time when the payment of benefits shall commence, specify the option under which benefits will be paid, and incorporate the terms, conditions, and provisions of this Plan by reference. An executed Election form will continue in force until all Benefits relating to such election have been paid. 2.05 "Separation from Service" means severance of Participant's relationship with AGC as an employee. Participant shall be deemed to have severed his employment or contractual relationship with AGC for purposes of this Plan when, in accordance with the established practices of AGC, the employment or contractual relationship is considered to have terminated. III. ADMINISTRATION This Plan will be administered by a Committee of one or more persons appointed by AGC. The Committee will act as the agent of AGC in all matters concerning the administration of this Plan. IV. DEFERRAL ELECTION 4.01 Participant may elect to defer all or any part of his Cash Bonus Award, as defined in Section 2.02 of this Plan, and Annual Base Salary, as defined in Section 2.01 of this Plan, by completing an Election as provided below. If no Election is made, all compensation will be paid on a regular basis. 4.02 The Election to defer Annual Base Salary must be made within 30 days prior to the beginning of the calendar year in which the compensation is to be deferred and must defer compensation not yet earned. 4.03 Participant may not amend or modify the Plan to change the amount of Deferred Compensation, the payment option selected, or the time when the payment of benefits should commence, except in the case of Participant's becoming disabled as discussed in Section 5.04. However, Participant shall make a separate Election to defer his Cash Bonus Award and Annual Base Salary each calendar year. 4.04 If Participant makes a withdrawal pursuant to Section 5.05, Participant may again defer his Cash Bonus Award and Annual Base Salary by executing a new Election prior to the beginning of the calendar year in which it is effective. The effective date of the new Election will be subject to the provisions of Section 5.05. V. BENEFITS PAYMENT OPTION 5.01 The benefit payable under this Plan shall be payable to Participant in one lump sum payment in an amount equal to the total of the deferred compensation plus interest at the rate in effect from time to time under the Cash Fund of the American General Employees' Thrift and Incentive Plan. Interest on the benefit shall be credited at the end of each calendar quarter on the basis of the time during such quarter the various portions of such amounts were credited as payable under this Plan, and such interest shall be compounded quarterly at the end of each calendar quarter. SEPARATION FROM SERVICE 5.02 Participant will be entitled to his lump sum payment on the first business day of the second calendar year following the date of Participant's Separation from Service.
Page 1 of 4 2 DEATH BENEFITS 5.03 Should Participant die before he has begun to receive the benefits provided in Section 5.01, AGC shall cause to be paid to Participant's spouse within thirty (30) days of receipt of satisfactory proof of death, a lump sum benefit in an amount equal to the then value of Participant's account. If Participant's spouse does not survive Participant for a period of fifteen (15) days, then AGC shall cause such death benefit to be paid to Participant's estate. DISABILITY BENEFITS 5.04 Should Participant become disabled before the commencement date of the benefits, Participant may elect to receive his lump sum payment on the first day of the month following the determination of disability. The Plan shall consider Participant disabled on the date the committee appointed by AGC to administer this Plan determines Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or mental impairment or be of long-continued and indefinite duration. The disability of Participant shall be determined by the committee in accordance with uniform principles consistently applied, upon the basis of such evidence as the committee deems necessary and desirable. An election to receive disability benefits must be made within a reasonable time after the determination of disability. UNFORESEEABLE EMERGENCY WITHDRAWALS 5.05 In the event of an unforeseeable emergency prior to the commencement of the benefits provided in Section 5.01, Participant may apply to the committee to receive that part of his account which is reasonably needed to satisfy the emergency needs. If such application for emergency withdrawal is approved by AGC, AGC shall pay Participant such value as AGC deems necessary to meet the emergency needs. An unforeseeable emergency involves only circumstances of sudden and unexpected emergencies which would cause great hardship to Participant if early withdrawal were not permitted. The emergency must be beyond Participant's control and payment may not be made to the extent that such hardship may be relieved by other financial resources available to Participant, including insurance reimbursement, cessation of deferrals under the Plan, or liquidation of other assets. If Participant is granted an unforeseeable emergency hardship withdrawal, he shall be required to cease deferring compensation under this Plan. The period of cessation shall commence as of the date of the request and shall expire as of the last day of the calendar year next following the calendar year containing the date of the request. Participant can execute a new Election and resume making deferrals of his Cash Bonus Award and Annual Base Salary effective as of the first day of the first calendar year following the end of the period of cessation. VI. RELATIONSHIP TO OTHER PLANS This Plan serves in addition to any other retirement, pension, or benefit plan or system presently in existence of hereinafter established. VII. ANTI-ALIENATION Participant's rights, interests, and benefits hereunder cannot be assigned, transferred, pledged, sold, conveyed or encumbered in any way by Participant or his estate, and are not subject to execution, attachment, or similar process. Any attempted sale, conveyance, transfer, assignment, pledge or encumbrance of the rights, interests, or benefits provided pursuant to the terms of this Plan contrary to the terms of the foregoing sentence, or the levy of any attachment or similar process thereupon, shall be null and void and without effect. VIII. AMENDMENT OR TERMINATION OF PLAN AGC may at any time amend or terminate this Plan, provided that such amendment or termination shall not affect the rights of Participant with respect to any compensation deferred before the date of the termination of this Plan. Participant will thereafter receive his Cash Bonus Award and Annual Base Salary and benefits shall be paid as provided in Article V.
Page 2 of 4 3 IX. APPLICABLE LAW This Agreement shall be construed under the laws of the State of Texas. IN WITNESS WHEREOF, the parties have signed this 1996 Deferred Compensation Agreement, this 18th day of December, 1995.
WITNESS: AMERICAN GENERAL CORPORATION /s/ JOSIANNE ISNARD By: /s/ JO ANN GRIFFITH - - ---------------------------- ------------------------------------ Jo Ann Griffith Vice President -- Human Resources WITNESS: /s/ CARMEL L. OSBORNE /s/ HAROLD S. HOOK - - ---------------------------- ------------------------------------ Harold S. Hook
Page 3 of 4 4 EXHIBIT I 1996 DEFERRED INCOME PLAN NOTICE OF ELECTION TO DEFER INCOME December 18, 1995 American General Corporation 2929 Allen Parkway Houston, Texas 77019 Gentlemen: 1. Deferral of Income. Pursuant to Article 4 of my 1996 Deferred Compensation Plan with American General Corporation, I hereby elect to have 80% of the amount payable to me as Annual Base Salary during the 1996 calendar year and 0% of any amount payable to me as a Cash Bonus Award during the 1996 calendar year deferred and paid to me on my "Deferral Date." 2. Deferral Date. For purposes of the 1996 Deferred Compensation Plan, the Deferral Date, which is the date the payments commence, shall be the first business day of the second calendar year following the date of my Separation from Service. 3. Manner of Deferred Payment. Deferred payments are to be made in a lump sum payment payable on the first business day of the second calendar year following the date of my Separation from Service. 4. Terms of Election. I understand that this election is subject to the terms and conditions of the 1996 Deferred Compensation Plan. I further understand that upon my disability, I may elect to receive the lump sum payment on the first day of the month following the determination of my disability. Dated: December 18, 1995 /s/ HAROLD S. HOOK ------------------------- Harold S. Hook Received this 18th day of December, 1995 /s/ JO ANN GRIFFITH - - ----------------------------- Page 4 of 4 EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 - - -------------------------------------------------------------------------------- [AMERICAN GENERAL LOGO] AMERICAN GENERAL CORPORATION EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
For the Years Ended December 31, In millions, except share data 1995 1994 1993 - - ---------------------------------------------------------------------------------------------------------- Primary: Net income available to common stock Income before cumulative effect of accounting changes $ 545 $ 513 $ 250 Cumulative effect of accounting changes - - (46) - - ---------------------------------------------------------------------------------------------------------- Net income available to common stock $ 545 $ 513 $ 204 - - ---------------------------------------------------------------------------------------------------------- Average shares outstanding Common shares 204,761,037 209,125,350 216,117,181 Assumed exercise of stock options 445,389 274,313 461,655 Assumed exercise of put contracts - 3,394 - - - ---------------------------------------------------------------------------------------------------------- Total 205,206,426 209,403,057 216,578,836 - - ---------------------------------------------------------------------------------------------------------- Earnings per share Income before cumulative effect of accounting changes $ 2.66 $ 2.45 $ 1.15 Cumulative effect of accounting changes - - (.21) - - ---------------------------------------------------------------------------------------------------------- Net income per share $ 2.66 $ 2.45 $ .94 - - ---------------------------------------------------------------------------------------------------------- Fully diluted: Net income available to common stock Income before cumulative effect of accounting changes $ 545 $ 513 $ 250 Plus: Net dividends on convertible preferred securities 6 - - - - ---------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting changes available to common stock 551 513 250 Cumulative effect of accounting changes - - (46) - - ---------------------------------------------------------------------------------------------------------- Net income available to common stock $ 551 $ 513 $ 204 - - ---------------------------------------------------------------------------------------------------------- Average shares outstanding Common shares 204,761,037 209,125,350 216,117,181 Assumed exercise of stock options 508,223 291,742 461,655 Assumed conversion of convertible preferred securities 3,602,245 - - Assumed exercise of put contracts - 3,394 - - - ---------------------------------------------------------------------------------------------------------- Total 208,871,505 209,420,486 216,578,836 - - ---------------------------------------------------------------------------------------------------------- Earnings per share Income before cumulative effect of accounting changes $ 2.64 $ 2.45 $ 1.15 Cumulative effect of accounting changes - - (.21) - - ---------------------------------------------------------------------------------------------------------- Net income per share $ 2.64 $ 2.45 $ .94 - - ----------------------------------------------------------------------------------------------------------
EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 - - -------------------------------------------------------------------------------- PART IV (Continued) AMERICAN GENERAL CORPORATION EXHIBIT 12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
For the Years Ended December 31, In millions, except ratios 1995 1994 1993 - - ----------------------------------------------------------------------------------------------------------- Consolidated operations: Income before income tax expense, net dividends on preferred securities, and cumulative effect of accounting changes $ 850 $ 802 $ 602 Fixed charges deducted from income Interest expense 671 526 488 Implicit interest in rents 18 16 15 - - ----------------------------------------------------------------------------------------------------------- Total fixed charges deducted from income 689 542 503 - - ----------------------------------------------------------------------------------------------------------- Earnings available for fixed charges $ 1,539 $ 1,344 $ 1,105 - - ----------------------------------------------------------------------------------------------------------- Fixed charges per above $ 689 $ 542 $ 503 Capitalized interest 17 18 15 - - ----------------------------------------------------------------------------------------------------------- Total fixed charges 706 560 518 Dividends on preferred securities 30 - - - - ----------------------------------------------------------------------------------------------------------- Total fixed charges and dividends on preferred securities $ 736 $ 560 $ 518 - - ----------------------------------------------------------------------------------------------------------- Ratio of earnings to fixed charges 2.2 2.4 2.1 - - ----------------------------------------------------------------------------------------------------------- Ratio of earnings to combined fixed charges and preferred stock dividends 2.1 2.4 2.1 - - ----------------------------------------------------------------------------------------------------------- Consolidated operations, corporate fixed charges and preferred stock dividends only: Income before income tax expense, net dividends on preferred securities, and cumulative effect of accounting changes $ 850 $ 802 $ 602 Corporate fixed charges deducted from income - corporate interest expense 165 120* 126* - - ----------------------------------------------------------------------------------------------------------- Earnings available for fixed charges $ 1,015 $ 922 $ 728 - - ----------------------------------------------------------------------------------------------------------- Total corporate fixed charges per above $ 165 $ 120 $ 126 Capitalized interest related to real estate operations 16 18 15 - - ----------------------------------------------------------------------------------------------------------- Total fixed charges 181 138 141 Dividends on preferred securities 30 - - - - ----------------------------------------------------------------------------------------------------------- Total fixed charges and dividends on preferred securities $ 211 $ 138 $ 141 - - ----------------------------------------------------------------------------------------------------------- Ratio of earnings to corporate fixed charges 5.6 6.7* 5.2* - - ----------------------------------------------------------------------------------------------------------- Ratio of earnings to combined corporate fixed charges and preferred stock dividends 4.8 6.7 5.2 - - ----------------------------------------------------------------------------------------------------------- American General Finance, Inc.: Income before income tax expense and cumulative effect of accounting changes $ 116 $ 392 $ 337 Fixed charges deducted from income Interest expense 518 416 380 Implicit interest in rents 13 11 10 - - ----------------------------------------------------------------------------------------------------------- Total fixed charges deducted from income 531 427 390 - - ----------------------------------------------------------------------------------------------------------- Earnings available for fixed charges $ 647 $ 819 $ 727 - - ----------------------------------------------------------------------------------------------------------- Ratio of earnings to fixed charges 1.2 1.9 1.9 - - -----------------------------------------------------------------------------------------------------------
* To conform with the 1995 presentation, amount has been restated. EX-13 5 PORTIONS OF 1995 ANNUAL REPORT 1 EXHIBIT 13 - - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS AMERICAN GENERAL CORPORATION For the Three Years Ended December 31, 1995 - - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES BEGINNING ON PAGE 26. American General Corporation (American General or the company) reported net income of $545 million ($2.64 per share) in 1995, compared to $513 million ($2.45 per share) in 1994 and $204 million ($.94 per share) in 1993. Net income for 1995 included earnings of $98 million from The Franklin Life Insurance Company (Franklin Life), acquired on January 31, 1995, and an aftertax charge of $140 million ($.67 per share) for an increase in the allowance for finance receivable losses in the fourth quarter of the year. The 1994 net income was reduced by net realized investment losses of $114 million ($.55 per share) arising from the company's capital gains offset program and increases in real estate reserves. The 1993 net income was decreased by $376 million ($1.74 per share) of non-recurring items for the write-down of goodwill, a tax charge, and accounting changes. ACQUISITIONS AND DIVESTITURES Franklin Life. On January 31, 1995, the company acquired American Franklin Company (AFC), the holding company of Franklin Life, for $1.17 billion. The purchase price consisted of $920 million in cash paid at closing and a $250 million cash dividend paid by AFC to its former parent prior to closing. Franklin Life was acquired to complement American General's existing life insurance distribution systems and further strengthen the company's position in middle-income households, particularly in the Midwest. The acquisition was accounted for using the purchase method, and the results of operations of Franklin Life are included in the consolidated statement of income from the date of acquisition. The addition of Franklin Life increased the Life Insurance segment's assets and life insurance in force at December 31, 1995 by approximately 45% and 33%, respectively. The permanent financing of this acquisition, including related issue costs, consisted of $150 million of short-term debt, $300 million of senior long-term fixed-rate debt, and $502 million of non-convertible preferred securities. Western National Corporation. On December 23, 1994, the company acquired a 40% interest in Western National Corporation (WNC) through the acquisition of 24,947,500 shares of WNC's common stock for $274 million in cash. The WNC shares were acquired for investment purposes. The investment in WNC is reflected in the consolidated financial statements using the equity method of accounting. The company's aftertax equity in earnings of WNC was $29 million in 1995. Independent Insurance Group, Inc. On October 19, 1995, the company announced a definitive agreement to acquire Independent Insurance Group, Inc. (Independent), for total consideration of $362 million. Independent's shareholders may elect to receive from among cash, American General common stock, or a new issue of American General 7% mandatorily convertible preferred stock. The transaction is expected to close during first quarter 1996. Independent distributes individual life insurance in 11 southeastern states and will complement American General's existing distribution systems and further strengthen the company's position in households with modest incomes, particularly in the Southeast. The company plans to consolidate Independent's operations into those of its Nashville-based operations. The consolidation is expected to take 18 to 24 months and, when completed, should result in a reduction in annual operating expenses of $75 million. The acquisition is expected to be non-dilutive to earnings per share in 1996 and accretive thereafter. After closing, Independent will be reported as part of the Life Insurance segment, increasing that segment's assets and life insurance in force by approximately 6% and 5%, respectively. Divestiture. On August 31, 1994, the company completed the sale of American-Amicable Life Insurance Company of Texas (American-Amicable), a special niche subsidiary in the Life Insurance segment. The sales price, which included a $10 million cash dividend paid prior to closing, was $105 million. BUSINESS SEGMENTS American General reports the results of its business operations in three segments: Retirement Annuities, Consumer Finance, and Life Insurance. To facilitate meaningful period-to-period comparisons, earnings of each segment include earnings from its business operations and earnings on that amount of equity considered necessary to support its business, and exclude net realized investment gains (losses), non-recurring items, and the effect of accounting changes. - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 16 2 - - -------------------------------------------------------------------------------- Segment earnings were as follows:
In millions 1995 1994 1993 - - -------------------------------------------------------------------------------- Retirement Annuities $204 $187 $162 Consumer Finance 85 245 206 Life Insurance 348 257 291 - - -------------------------------------------------------------------------------- Segment earnings 637 689 659 Non-recurring items -- -- (329) - - -------------------------------------------------------------------------------- Total $637 $689 $330 - - --------------------------------------------------------------------------------
Segment earnings, presented above on an aftertax basis, differ from those disclosed in Note 1.2 by the amount of income tax expense for each segment. Non-recurring items in 1993 included a $300 million write-down of goodwill in the Life Insurance segment and a $29 million charge due to a tax rate change. RETIREMENT ANNUITIES
In millions 1995 1994 1993 - - -------------------------------------------------------------------------------- Assets $27,084 $22,007 $20,896 Deposits Fixed 1,720 1,657 1,700 Variable 835 573 432 Net investment income 1,597 1,492 1,434 Segment earnings 204 187 162 - - --------------------------------------------------------------------------------
Results. Profitability of the retirement annuity business is a function of three elements: asset growth, net investment spread, and operating expenses. Asset growth, excluding the fair value adjustment on securities, was 17% in 1995 and 11% in 1994, reflecting strong sales and deposits in each of the segment's marketing niches. A key component of asset growth is new deposits from customers, who may elect fixed or variable account options. Variable deposits increased 46% during 1995 as a result of strong growth in Portfolio Director(R), a new variable product. This growth reflects policyholders' increased interest in equity investments due to the strong stock market performance during the year. The attractiveness of equity investments also contributed to the 1994 increase in variable deposits. Assets and liabilities related to variable account options are reflected in Separate Account assets and liabilities because the customer bears the investment risk. Net investment income, which accounts for over 96% of segment revenues, increased in 1995 and 1994 as a result of growth in assets. Investment income increased despite declines of 13 and 57 basis points in investment yields on fixed accounts in 1995 and 1994, respectively. Management's ability to make corresponding reductions in rates credited to policyholders resulted in an increase in net investment spread of 3 basis points in 1995 and 14 basis points in 1994. The ratio of operating expenses to average assets was .61%, .57%, and .59% in 1995, 1994, and 1993, respectively. Operating expenses for 1995 were adversely affected by a pretax charge of $19 million (.08% of average assets) for estimated state guaranty fund assessments resulting from past industry insolvencies. Pretax charges for guaranty fund assessments for 1994 and 1993 were $6 million and $7 million, respectively. The rate of policyholder surrenders of fixed accounts decreased to 4.3% of average reserves in 1995, compared to 4.9% in 1994 and 3.9% in 1993. The 1994 increase was due to the surrender of one large group account and withdrawals by fixed-account policyholders seeking higher returns in equity-based investments. Outlook. While net investment spreads may decline, segment earnings should increase through asset growth and management of the investment spread. This segment should experience additional growth through its programs to strengthen its sales force. New products, such as Portfolio Director, help the segment meet a growing demand for equity-based investments. CONSUMER FINANCE
In millions 1995 1994 1993 - - -------------------------------------------------------------------------------- Finance receivables $8,410 $7,920 $6,574 Finance receivables, net 7,918 7,694 6,390 Revenues 1,790 1,491 1,282 Segment earnings 85 245 206 - - --------------------------------------------------------------------------------
Results. Consumer Finance segment results are influenced by the aggregate amount and mix of finance receivables, credit loss experience, cost of borrowed funds, and operating expenses. The segment's initiatives to increase the size of the finance receivable portfolio and to emphasize retail and higher-yielding non-real estate consumer loans during recent years generated receivables growth of 6% in 1995, 20% in 1994, and 6% in 1993. The increase in finance receivables is primarily due to consumer loans, sourced from increased levels of retail sales finance. Another contributor to growth has been private label products, which offer revolving financing services through large retail merchants. Growth in retail and higher-yielding non-real estate consumer loans contributed to the increase in average yield on finance receivables of 44 and 63 basis points during 1995 and 1994, respectively. As expected, growth in higher-yielding finance receivables adversely influenced credit quality in 1995 and 1994. However, 60-day delinquencies and charge offs sharply increased to unanticipated levels beginning in third quarter 1995. Delinquencies increased to 4.1% of average finance receivables at December 31, 1995, compared to 2.9% and 2.5% at December 31, 1994 and 1993, respectively. Charge offs increased to 3.8% of average finance receivables in 1995 compared to 2.5% and 2.2% in 1994 and 1993, respectively. Due to the unexpected third-quarter rise in delinquencies and charge offs, a comprehensive review of the Consumer Finance segment was initiated in fourth quarter 1995. This review consisted of extensive internal analysis, together with credit loss development projections supplied by outside credit - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 17 3 - - -------------------------------------------------------------------------------- consultants. The results of the analysis indicated a need for an increase in the allowance for losses. In response, the segment increased the allowance for losses on finance receivables $216 million ($140 million aftertax) in the fourth quarter. At year-end 1995, the allowance for losses was $492 million or 5.9% of finance receivables, compared to $226 million or 2.9% of finance receivables at year-end 1994. The increased allowance represents the company's best estimate of the segment's net credit losses on outstanding finance receivables. Cost of borrowings for this segment increased 41 basis points in 1995, compared to a decrease of 7 basis points in 1994. The increase is primarily due to higher short-term borrowing costs, partially offset by lower long-term borrowing costs. Operating expenses increased 26% in 1995 and 12% in 1994. As a percentage of average finance receivables, operating expenses were 5.4% and 5.0% in 1995 and 1994, respectively. The increase in operating expenses reflected increased staffing and costs related to growth in branch offices, including 106 additional branches in 1995 and 100 in 1994, a major branch office automation program, and increased collection costs on delinquent finance receivables in 1995. Segment earnings in 1995 benefited from a non-recurring $15 million reduction in income tax expense, primarily related to the resolution of a state tax audit. Outlook. The Consumer Finance segment's initiatives for growth were analyzed during fourth quarter 1995 and underperforming programs have been restructured or discontinued. In addition, the company has taken a number of corrective actions, including tightening underwriting standards and increasing branch office training, that should improve credit quality and slow receivables growth. Under current economic conditions, these corrective actions should contribute to improvements in segment earnings during 1996. LIFE INSURANCE
In millions 1995 1995* 1994 1993 - - -------------------------------------------------------------------------------- Assets $23,592 $16,261 $14,156 $14,192 Revenues Premiums 1,486 1,019 999 1,085 Net investment income 1,401 941 902 942 Life insurance premium sales 340 267 258 259 Deposits Annuities 661 448 598 472 Life insurance 762 616 547 521 Segment earnings 348 250 257 291 - - --------------------------------------------------------------------------------
* Excluding Franklin Life. Results. Earnings for this segment increased primarily due to the acquisition of Franklin Life on January 31, 1995. Franklin Life contributed $98 million to segment earnings and $359 million to total deposits during the year. To facilitate analysis of the segment's financial information, Franklin Life's activity is excluded in the following discussion. Premiums include mortality, expense, and surrender charges on interest-sensitive products, as well as premiums on traditional life insurance. Premiums for 1995 increased slightly over 1994. The decrease in 1994 was primarily due to the sale of American-Amicable and the ceding of medicare supplement business to another insurance company. The revenues ceded were largely offset by a related decrease in benefit expense. The 1995 increase in net investment income is a result of a 7% growth in invested assets (excluding the fair value adjustment on securities), partially offset by a 7 basis point decline in investment yield. The decrease in 1994 net investment income resulted from a 75 basis point decline in investment yield. This decline reflected lower interest rates during 1994 and significant prepayments of mortgage-backed securities and bond calls in 1993, which increased investment income and yield in that year. Deposits for annuities decreased 25% in 1995, compared to an increase of 27% in 1994. Sales of annuity products through financial institutions, which contributed to the 1994 increase in deposits, slowed in 1995. The 1995 decrease in deposits also reflected increased competition from other equity-based investments. During 1995, the segment introduced structured settlement products, which resulted in annuity deposits of $118 million. Deposits for interest-sensitive life insurance increased 13% in 1995 and 5% in 1994, primarily due to higher sales in both years and higher amounts of unscheduled deposits in 1995. Segment earnings were adversely affected by aftertax charges in fourth quarter 1995 of $3 million for estimated state guaranty fund assessments and $6 million for adverse policy lapse experience in the company's Canadian subsidiary. Outlook. The company expects continued pressure on segment earnings in 1996 due to lower investment yields. However, segment earnings are expected to increase as a result of the acquisition of Independent and anticipated expense reductions. The strong claims-paying ability ratings of the companies in this segment provide an advantage in the highly competitive life insurance industry. INVESTMENTS At year-end 1995, American General's $61 billion of assets included $43 billion of investments, principally supporting insurance and annuity liabilities. Fixed maturity securities and mortgage loans accounted for 94% of total investments. FAIR VALUE OF SECURITIES Declining interest rates in 1995 caused a $4.1 billion increase in the fair value adjustment to fixed maturity securities and a related $2.0 billion increase in shareholders' equity. - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 18 4 - - -------------------------------------------------------------------------------- The components of the adjustment to report fixed maturity and equity securities at fair value at December 31, and the 1995 change, were as follows:
In millions 1995 1994 Change - - -------------------------------------------------------------------------------- Fair value adjustment to fixed maturity securities $ 2,716* $ (1,387) $ 4,103 Increase (decrease) in deferred policy acquisition costs and cost of insurance purchased (1,061) 401 (1,462) Decrease (increase) in deferred income taxes (586) 36 (622) - - -------------------------------------------------------------------------------- Net unrealized gains (losses) Fixed maturity securities 1,069 (950) 2,019 Equity securities 31 15 16 - - -------------------------------------------------------------------------------- Net unrealized gains (losses) on securities $ 1,100 $ (935) $ 2,035 - - --------------------------------------------------------------------------------
* Includes $93 million related to WNC. Accounting rules do not permit adjustment to fair value of the insurance liabilities supported by these securities, thereby creating volatility in shareholders' equity as interest rates change. Care should be exercised in drawing conclusions based on balance sheets that are only partially adjusted to fair value. FIXED MATURITY SECURITIES At year-end 1995, fixed maturity securities included $23.8 billion of corporate bonds, $11.7 billion of mortgage-backed securities (MBSs), $1.6 billion of bonds issued by governmental agencies, and $137 million of preferred stocks with mandatory redemption provisions. The average credit rating of the fixed maturity securities was AA- at year-end 1995, 1994, and 1993. Average ratings by category at December 31, 1995 were as follows:
Average In millions 1995 % Rating - - -------------------------------------------------------------------------------- Investment grade $ 24,111 65% A Mortgage-backed 11,663 31 AAA Below investment grade 1,439 4 BB- - - -------------------------------------------------------------------------------- Total fixed maturity securities $ 37,213 100% AA- - - --------------------------------------------------------------------------------
Investment Grade. Investment grade securities include bonds and preferred stocks with mandatory redemption features and have credit ratings of BBB- or higher. Mortgage-backed Securities. MBSs at December 31 were invested as follows:
In millions 1995 1994 1993 - - --------------------------------------------------------------------- CMOs $ 10,466 $ 9,180 $ 10,167 Pass-through securities 1,061 784 511 Commercial MBSs 136 68 -- - - --------------------------------------------------------------------- Total MBSs $ 11,663 $ 10,032 $ 10,678 - - ---------------------------------------------------------------------
Collateralized mortgage obligations (CMOs) are purchased to diversify the portfolio risk characteristics from primarily corporate credit risk to a mix of credit and cash flow risk. The majority of the CMOs in the company's investment portfolio have relatively low cash flow variability. In addition, virtually all CMOs in the portfolio have minimal credit risk because the underlying collateral is guaranteed by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. These CMOs are highly liquid and offer higher yields than corporate debt securities of similar credit quality and expected average lives. The principal risks inherent in holding CMOs (as well as pass-through securities and other MBSs) are prepayment and extension risks arising from changes in market interest rates. In declining interest rate environments, the mortgages underlying the CMOs are prepaid more rapidly than anticipated, causing early repayment of the CMOs. In rising interest rate environments, the underlying mortgages are prepaid at a slower rate than anticipated, causing CMO principal repayments to be extended. Although early CMO repayments may result in acceleration of income from recognition of any unamortized discount, the proceeds typically are reinvested at lower current yields, resulting in a net reduction of future investment income. Proceeds from repayments of MBSs decreased from $1.8 billion in 1994 to $.7 billion in 1995. At current interest rate levels, repayments in 1996 are expected to increase slightly over 1995 levels. The company manages this prepayment and extension risk by investing in CMO tranches that provide for greater stability of cash flows. The mix of CMO tranches at December 31 was as follows:
In millions 1995 1994 1993 - - ------------------------------------------------------------------- Planned Amortization Class $ 5,579 $ 4,546 $ 4,196 Sequential 3,268 3,144 4,088 Z (Accrual) 973 823 912 Target Amortization Class 638 656 952 Other 8 11 19 - - ------------------------------------------------------------------- Total CMOs $ 10,466 $ 9,180 $ 10,167 - - -------------------------------------------------------------------
The Planned Amortization Class (PAC) tranche is structured to provide more certain cash flows to the investor and therefore is subject to less prepayment and extension risk than other CMO tranches. PACs derive their stability from two factors: (1) early repayments are applied first to other tranches to preserve the PACs' originally scheduled cash flows as much as possible, and (2) cash flows applicable to other tranches are applied first to the PAC if the PACs' actual cash flows are received later than originally anticipated. To take advantage of PACs' lower prepayment and extension risks, the majority of the proceeds received from early repayments in recent years were reinvested in additional PACs, causing PACs to account for 48% of total MBSs at December 31, 1995. Sequentials allocate all principal payments to tranches based on maturity, retiring the shortest maturity tranches first. The prepayment and extension risk associated with a - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 19 5 - - -------------------------------------------------------------------------------- Sequential tranche can vary as interest rates fluctuate, since Sequentials are not supported by other tranches. Sequentials include PACs that effectively function as Sequentials due to excessive early repayment of the underlying mortgages. The Z tranche (also known as the Accrual Class) defers all cash flows to another class until that class is paid down, at which time accumulated interest and principal are paid to the Z tranche. The Target Amortization Class tranche has protection similar to PACs in decreasing interest rate environments, but has minimal protection in increasing rate environments. The majority of the company's CMO portfolio trades in the open market. As such, the company obtains market prices from outside vendors. Any security price not received from a vendor is obtained from the originating broker or, in rare circumstances, is internally calculated. Below Investment Grade. Below investment grade securities include bonds and preferred stocks with mandatory redemption provisions that have a credit rating below BBB-. Below investment grade securities increased to 3.4% of invested assets at year-end 1995, compared to 2.8% for 1994 and 2.3% for 1993, as a result of new investments made to enhance yields while continuing to maintain asset quality at acceptable levels. These percentages compare to the life insurance industry average of 3.9% at December 31, 1994, the latest date for which information is available. Net income from below investment grade bonds, including realized investment gains (losses), was $84 million in 1995, compared to $50 million in 1994 and $49 million in 1993. Bonds are deemed to be non-performing when the payment of interest is sufficiently uncertain as to preclude the accrual of interest. Non-performing bonds were .01% of total fixed maturity securities at year-end 1995 and .2% at year-end 1994 and 1993. MORTGAGE LOANS Mortgage loans on real estate represented 7% of invested assets at December 31, 1995, down from 8% in 1994 and 10% in 1993. Total mortgage loans increased during 1995 as a result of the Franklin Life acquisition. Mortgage loan information at December 31 was as follows:
In millions 1995 1994 1993 - - -------------------------------------------------------------------------------- Commercial $ 3,060 $ 2,656 $ 2,997 Residential 68 84 133 Allowance for losses (87) (89) (98) - - -------------------------------------------------------------------------------- Total mortgage loans $ 3,041 $ 2,651 $ 3,032 - - -------------------------------------------------------------------------------- Foreclosures during the year $ 73 $ 17 $ 45 - - -------------------------------------------------------------------------------- Allowance for losses* 2.8% 3.2% 3.1% - - -------------------------------------------------------------------------------- Non-performing* Delinquent (60+ days) 2.6% 3.0% 2.2% Restructured commercial loans 2.9 2.7 2.2 - - -------------------------------------------------------------------------------- Total non-performing 5.5% 5.7% 4.4% - - --------------------------------------------------------------------------------
* Percentage of total mortgage loans before allowance for losses. Non-performing mortgage loans include loans delinquent 60 days or more and commercial loans that have been restructured. Non-performing mortgage loans totaled $172 million at year-end 1995, compared to $157 million and $137 million at year-end 1994 and 1993, respectively. The company's portfolio continues to outperform the life insurance industry averages for non-performing commercial mortgage loans. These averages were 12.0% at September 30, 1995, and 13.0% and 13.9% at year-end 1994 and 1993, respectively. At year-end 1995, the average yield on restructured commercial mortgage loans was 8.1%. Commercial mortgage loans are placed on the company's watch list if (1) the loan is delinquent 30-59 days, (2) the borrower is in bankruptcy, or (3) the loan is potentially undercollateralized. At year-end 1995, $263 million of commercial mortgage loans were on the company's watch list, compared to $239 million at year-end 1994 and $467 million at year-end 1993. The 1995 increase reflects additions of potentially undercollateralized loans and certain loans acquired in the Franklin Life acquisition. The 1994 decrease in the watch list was primarily due to improving collateral values. While the watch list loans may be predictive of higher non-performing loans in the future, American General does not anticipate a significant effect on operations, liquidity, or capital from these loans. INVESTMENT REAL ESTATE Investment real estate at December 31 was as follows:
In millions 1995 1994 1993 - - -------------------------------------------------------------------------------- Land development projects $ 366 $ 372 $ 491 American General Center, Houston 115 120 125 Income-producing real estate 56 96 189 Foreclosed real estate 75 56 69 Allowance for losses (35) (80) (102) - - -------------------------------------------------------------------------------- Total investment real estate $ 577 $ 564 $ 772 - - --------------------------------------------------------------------------------
During 1995, the company adopted Statement of Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." With the adoption of SFAS 121, the company measures impairment of certain investment real estate based on fair value, rather than net realizable value as previously required. Additionally, on adoption, a portion of the allowance for losses was reclassified to reduce the cost basis of land development projects. To facilitate analysis, the 1994 and 1993 balances are presented on a comparable basis in the above table. The 1994 decrease in land development projects was due to reserve increases now reflected as reductions of cost basis. The 1995 and 1994 decreases in income-producing real estate were due to sales. No new investments in real estate were made, except for commitments on existing land development projects and foreclosures. - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 20 6 - - -------------------------------------------------------------------------------- REALIZED INVESTMENT GAINS (LOSSES) Realized investment gains (losses) may vary significantly from year to year since the decision to sell investments is determined principally by considerations of investment timing and tax consequences. Realized investment gains (losses) can also result from early redemption of securities at the election of the issuer (calls) and changes in write-downs and reserves. Realized gains (losses) were as follows:
In millions 1995 1994 1993 - - -------------------------------------------------------------------------------- Sales of fixed maturity securities $(14) $(150) $ (6) Write-downs/reserve increases (54) (123) (298) Calls of fixed maturity securities 32 29 129 Sales/calls of equity securities 19 9 123 Other 29 63 60 - - -------------------------------------------------------------------------------- Total realized investment gains (losses) $ 12 $(172) $ 8 - - --------------------------------------------------------------------------------
The majority of the 1995 write-down and reserve increases related to mortgage loans. Write-downs and reserve increases in 1994 and 1993 primarily related to investment real estate. During fourth quarter 1994, American General initiated a program to realize capital losses for tax purposes to offset prior period capital gains. During 1995, the company received a tax refund of $46 million, generated by $126 million in net capital losses realized in fourth quarter 1994 primarily through the sale of fixed maturity securities. Due to declining interest rates during 1995, which resulted in increasing values of the company's fixed maturity securities, no additional capital losses were realized under this program. The company realized net capital gains of $256 million in 1993 that can be used for tax loss carryback purposes in 1996. The ability of the company to generate capital losses in 1996 sufficient to offset these capital gains is dependent on future interest rate levels and alternative tax planning strategies. Net capital gains of $162 million realized in 1992 expired for tax loss carryback purposes in 1995. ASSET/LIABILITY MANAGEMENT OBJECTIVES Asset/liability management is performed on an ongoing basis for each operating company as well as on an aggregate basis. The primary objective of the company's asset/liability management program is to maintain a reasonable balance in the durations of assets and liabilities, while achieving profitability objectives. An additional objective of the asset/liability management program is to manage the Consumer Finance segment's spread between the yield on finance receivables and borrowing costs. RETIREMENT ANNUITIES AND LIFE INSURANCE The asset/liability management program of the Retirement Annuities and Life Insurance segments is designed to maximize long-term profitability, subject to pre-established risk constraints. These risk constraints include: (1) minimizing the exposure of the company's surplus to fluctuations in interest rates, (2) ensuring adequate liquidity to meet liability cash flow requirements, and (3) maintaining an adequate level of statutory equity. Interest Rates. The company responds to fluctuations in interest rates through periodic repricing of new products and adjustment of interest crediting rates on existing products where possible. The company's ability to manage interest crediting rates is largely due to the nature of its insurance and annuity products. At December 31, 1995, approximately 82% of the insurance and annuity liabilities were subject to interest crediting adjustments. Insurance and annuity liabilities at December 31 were as follows:
In millions 1995 1994 1993 - - -------------------------------------------------------------------------------- Retirement annuities $20,147 $18,656 $17,029 Traditional and participating life 7,679 4,334 4,199 Interest-sensitive life 3,253 2,933 2,664 Other annuities 5,578 3,029 2,765 Other 1,326 671 582 - - -------------------------------------------------------------------------------- Total insurance and annuity liabilities $37,983 $29,623 $27,239 - - --------------------------------------------------------------------------------
The average investment yield, interest crediting rate, and investment spread for the primary operating companies in the Retirement Annuities and Life Insurance segments for the years ended December 31 were as follows:
1995 1994 1993 - - -------------------------------------------------------------------------------- VALIC Investment yield* 8.24% 8.37% 8.94% Crediting rate 6.41 6.57 7.28 - - -------------------------------------------------------------------------------- Investment spread 1.83% 1.80% 1.66% - - -------------------------------------------------------------------------------- American General Life Investment yield* 7.95% 8.05% 8.72% Crediting rate 5.91 5.91 6.20 - - -------------------------------------------------------------------------------- Investment spread 2.04% 2.14% 2.52% - - -------------------------------------------------------------------------------- American General Life and Accident Investment yield* 8.78% 8.97% 9.69% Crediting rate 6.82 6.78 6.93 - - -------------------------------------------------------------------------------- Investment spread 1.96% 2.19% 2.76% - - -------------------------------------------------------------------------------- Franklin Life Investment yield* 8.61% Crediting rate 6.65 - - ------------------------------------------------ Investment spread 1.96% - - ------------------------------------------------
* Excludes fair value adjustment. Despite declining yields due to lower interest rates, interest spread management programs have maintained overall margins on interest-sensitive products within product pricing assumptions. Total investment spreads have declined in the life insurance companies because some large blocks of traditional in force business have crediting rates that cannot be adjusted when investment yields fluctuate. Overall investment spreads on these products are still within product pricing assumptions. - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 21 7 - - -------------------------------------------------------------------------------- Liquidity. The company targets duration relationships by aligning new cash flows with specific duration objectives and, to a lesser extent, through portfolio restructuring actions. The most recent estimated duration of the company's insurance and annuity liabilities was in the range of 4.7 to 5.7 years, while the estimated duration of the assets supporting these liabilities was 4.9 years. The company's insurance reserves are supported by high-quality, low-risk investments, including investment grade fixed maturity securities, mortgage-backed securities, mortgage loans, and policy loans. The company did not use derivative financial instruments or off-balance-sheet transactions in any material way for asset/liability management purposes during the three years ended December 31, 1995. Cash flow testing of assets and liabilities is performed at least annually under multiple interest rate scenarios to evaluate the appropriateness of the company's investment portfolios relative to its insurance reserves. Cash flow testing performed as of December 31, 1995 indicated that the company's insurance subsidiaries would have future surplus after meeting their insurance obligations. Statutory Equity. The operating companies in the Retirement Annuities and Life Insurance segments have strong statutory equity. See "Solvency Regulation" on page 25 for a discussion of the operating companies' risk-based capital ratios. CONSUMER FINANCE The company funds its finance receivables with equity and a combination of fixed-rate debt, principally long-term, and floating-rate or short-term debt, principally commercial paper. The company's mix of fixed-rate and floating-rate debt is a management decision based in part on the nature of the receivables being supported. The company limits its exposure to market interest rate increases by fixing interest rates it pays for term periods. The primary means by which the company accomplishes this is through the issuance of fixed-rate debt. The company also uses interest rate swap agreements to synthetically create fixed-rate debt by altering the nature of floating-rate debt, thereby limiting its exposure to interest rate movements. Growth in higher-yielding finance receivables, partially offset by higher cost of borrowings in 1995, has resulted in increases in the spread between yield and borrowing costs. The yield on finance receivables, cost of borrowings, and spread for the years ended December 31 were as follows:
1995 1994 1993 - - -------------------------------------------------------------------------------- Yield on finance receivables 18.02% 17.58% 16.95% Cost of borrowings 7.01 6.60 6.67 - - -------------------------------------------------------------------------------- Spread 11.01% 10.98% 10.28% - - --------------------------------------------------------------------------------
CAPITAL REQUIREMENTS The overall financial strength of American General and its subsidiaries is based on consolidated shareholders' equity of $5.8 billion and is confirmed by strong ratings for both debt-paying and claims-paying ability. For analysis of capital requirements, corporate capital and the business segments are discussed separately. CORPORATE CAPITAL Total capital of the parent company is referred to as "corporate capital." Since the parent company is a holding company, the level of corporate capital is determined primarily by the required equity of its business segments, while the mix of corporate capital between debt and equity is influenced by overall corporate strategy and structure. At year-end 1995, corporate capital totaling $8.2 billion was comprised of $1.7 billion of corporate debt, $729 million of redeemable equity, and $5.8 billion of shareholders' equity. During 1995, the parent company issued $450 million of long-term debt. The company's current corporate debt ratings are as follows:
Commercial Paper Long-term Debt - - ---------------------------------------------------------- Standard & Poor's A-1+ (Highest) AA- (Strong) Duff & Phelps Duff 1+ (Highest) AA- (Strong) Moody's P-1 (Highest) A1 (Strong) - - ----------------------------------------------------------
Excluding unrealized gains (losses) on securities, corporate debt was 24% and redeemable equity was 10% of corporate capital at year-end 1995. The ratio of corporate debt to corporate capital increased to 35% at January 31, 1995 with the issuance of short-term debt to initially finance the Franklin Life acquisition, but was subsequently reduced by the issuance of $729 million of redeemable equity, discussed below. Management expects to maintain the ratio of corporate debt to corporate capital at or below 25% and the ratio of redeemable equity to corporate capital at or below 10% in 1996. During 1995, two wholly-owned subsidiaries of the company were incorporated for the purpose of completing public offerings of three issues of Monthly Income Preferred Securities (Preferred Securities) totaling $752 million, with net proceeds of $729 million. Net proceeds of $485 million from the issuance of non-convertible Preferred Securities were used to refinance a portion of the short-term debt related to the Franklin Life acquisition. Net proceeds of $244 million from the issuance of convertible Preferred Securities were used to refinance short-term real estate-related debt. Dividends paid on Preferred Securities are deductible for federal income tax purposes. The anticipated first quarter 1996 acquisition of Independent for total consideration of $362 million calls for Independent's shareholders to elect to receive from among cash, American General common stock, and a new issue - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 22 8 - - -------------------------------------------------------------------------------- of American General 7% mandatorily convertible preferred stock. Cash and preferred stock elections by Independent's shareholders will each be limited to 50% of the aggregate consideration. The cash portion of the purchase price will be financed through short-term borrowings. Common stock will be issued from shares currently held in treasury. The preferred stock will be noncallable for four years, and each share is mandatorily convertible into not more than one share of American General common stock during the fifth year. RETIREMENT ANNUITIES AND LIFE INSURANCE SEGMENTS The amount of statutory equity required to support the business of American General's Retirement Annuities and Life Insurance segments is principally a function of three factors: (1) the quality of the assets invested to support insurance and annuity reserve liabilities, (2) the mortality risk of the life insurance in force, and (3) the interest-rate risk resulting from potential mismatching of asset and liability durations. Each of these items is a key factor in the National Association of Insurance Commissioners' (NAIC) risk-based capital (RBC) formula, used to evaluate the adequacy of a life insurance company's statutory equity (see "Solvency Regulation" on page 25). Rating agencies use the NAIC approach as one of the factors in determining an insurance company's claims-paying ability rating. American General's target statutory equity for each of its life insurance and annuity subsidiaries is 2.5 times the Company Action Level RBC. At December 31, 1995, all of the company's life insurance and annuity subsidiaries had statutory equity equal to or in excess of 2.45 times Company Action Level RBC. The current claims-paying ability ratings of the company's principal insurance and annuity subsidiaries are as follows:
American American General Life Franklin VALIC General Life and Accident Life - - ----------------------------------------------------------- A.M. Best A++ A++ A++ A+ Standard & Poor's AAA AAA AAA AA Duff & Phelps AAA AAA -- AA+ Moody's Aa2 Aa3 -- Aa3 - - -----------------------------------------------------------
CONSUMER FINANCE SEGMENT The capital of American General's Consumer Finance segment varies directly with the amount of finance receivables outstanding. The capital mix of consumer finance debt and equity is based primarily upon maintaining leverage at a level that supports cost-effective funding. The ratio of debt to tangible net worth (equity less goodwill and the fair value adjustment on securities), a key measure of financial risk in the consumer finance industry, was 7.5 to 1 for the Consumer Finance segment at year-end 1995, 1994, and 1993. Management expects to maintain the current level of debt to tangible net worth. At year-end 1995, consumer finance capital increased to $8.8 billion, compared to $8.3 billion a year earlier, primarily due to an increase in debt to support an increase in finance receivables. The 1995 capital included $7.5 billion of consumer finance debt, which is not guaranteed by the parent company, and $1.3 billion of equity. Segment equity was increased during fourth quarter 1995 by an $80 million capital contribution from the parent company to support the increased allowance for finance receivable losses. This capital contribution enabled the segment to maintain leverage at its target ratio of debt to tangible net worth (7.5 to 1). The current consumer finance debt ratings are as follows:
Commercial Paper Long-term Debt - - --------------------------------------------------------- Standard & Poor's A-1+ (Highest) A+ (Strong) Duff & Phelps Duff 1+ (Highest) A+ (Strong) Moody's P-1 (Highest) A1 (Strong) - - ---------------------------------------------------------
LIQUIDITY American General's overall liquidity is based on cash flows from each of its business segments and its ability to borrow in both the long-term and short-term markets at competitive rates. American General believes that its overall sources of liquidity will continue to be sufficient to satisfy its foreseeable financial obligations. PARENT COMPANY Operating cash flow for the parent company includes dividends from the business segments, partially offset by interest and other expenses not allocated to the segments. While the subsidiaries are restricted in the amount of dividends they may pay to the parent company as discussed in Note 19.1, these restrictions are not expected to affect the ability of the parent company to meet its cash obligations in 1996. During 1995, operating cash flow of the parent company of $369 million was used to pay dividends to shareholders, to buy back common stock, and to pay interest on corporate debt. In 1995, the company purchased 1.2 million shares of its common stock at a cost of $40 million, compared to 9.5 million shares ($262 million) and 2.7 million shares ($78 million) in 1994 and 1993, respectively. Since inception of the share buyback program in 1987, 98.3 million American General common shares, or 33% of the total shares then outstanding, have been purchased for an aggregate cost of $1.9 billion. - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 23 9 - - -------------------------------------------------------------------------------- RETIREMENT ANNUITIES AND LIFE INSURANCE SEGMENTS In 1995, the Retirement Annuities and Life Insurance segments generated $2.9 billion of cash, composed of $1.8 billion from operations and $1.1 billion from net policyholder fixed account deposits. This compares to total cash generated of $2.5 billion in 1994 and $3.1 billion in 1993. The 1995 increase resulted from cash flows of Franklin Life's operations, partially offset by a decrease in net policyholder fixed account deposits. The decrease from 1993 to 1994 was the result of policyholders seeking higher returns in equity-based investments, including the company's Separate Accounts. The major uses of cash were the net purchase of investments necessary to support increases in insurance and annuity liabilities, and dividends paid to the parent company. These segments paid dividends to the parent company of $323 million in 1995, compared to $367 million in 1994 and $506 million in 1993. In addition, Franklin Life loaned $116 million to a subsidiary of the parent company in 1995, which was used to pay down short-term debt. CONSUMER FINANCE SEGMENT Operating cash flow for the Consumer Finance segment includes net income adjusted for non-cash items such as the provision for finance receivable losses and the amortization of intangible assets. In 1995, operating cash flow totaled $658 million, an increase from $511 million and $479 million in 1994 and 1993, respectively. The 1995 operating cash flow, coupled with net proceeds from increased debt, generated total cash flow of $1.0 billion, compared to $1.8 billion in 1994 and $833 million in 1993. This cash was used to fund the net increase in receivables and to pay dividends to the parent company. Dividends paid to the parent company totaled $33 million in 1995, net of an $80 million capital contribution, compared to dividends of $140 million in 1994 and $163 million in 1993. Dividend levels are adjusted to maintain the ratio of debt to tangible net worth at 7.5 to 1. Operating cash flow and access to money and capital markets, resulting from strong long-term debt and commercial paper ratings, are expected to satisfy 1996 cash requirements, including long-term debt maturities. CREDIT FACILITIES At December 31, 1995, committed credit facilities totaled $3.2 billion with 51 domestic and foreign banks. While the principal purpose of these facilities is to support the issuance of commercial paper, they also provide an additional source of cash to American General and its subsidiaries. ACQUISITION-RELATED GOODWILL In 1993, the company recorded a $300 million non-cash write-down of acquisition-related goodwill in the Life Insurance segment. This write-down was one of the decisions resulting from a strategic review of the company's four ordinary life insurance subsidiaries, primarily American General Life (AGL), begun in 1993. The strategic review was initiated to assess alternatives for optimizing the use of capital allocated to these subsidiaries in light of increasing public market multiples for life insurance companies in early 1993 and new RBC requirements facing the life insurance industry. While AGL had been profitable in recent years, it operated in increasingly competitive markets and its performance was not meeting management's expectations, particularly in comparison to the company's other businesses. In connection with the strategic review, the company retained an outside advisor to assess AGL's market value, assuming the company chose to sell AGL. The outside advisor's report, received on November 22, 1993, indicated that AGL's fair value was below its book value. This report, together with the marketing and profitability review performed by management, suggested an impairment of AGL's goodwill. The primary source of AGL's goodwill was the $1.2 billion acquisition of the Gulf United insurance operations in 1984. Since that time, there had been a series of consolidations within the company's ordinary life insurance operations. In addition, AGL's marketing focus gradually changed, causing a decline in the acquired agency force and its in force business. In the past several years, AGL's business mix also continued to shift from life insurance to annuities, which have different distribution systems and lower investment spreads. Management concluded, based on the cumulative effect of these trends and the outside advisor's report, that a portion of goodwill was permanently impaired. Following a special board of directors meeting on November 29, 1993, the company announced the board's decision to retain AGL and a related New York subsidiary, seek future growth through acquisitions, sell two special niche life insurance subsidiaries, and write down $300 million of goodwill associated with the four subsidiaries. While the write-down resulted in a $164 million net loss in fourth quarter 1993, it did not affect the company's debt or claims-paying ability ratings and is not expected to have a material impact on future operating results. ECONOMIC FACTORS Interest Rates. The pricing and profit margins of the products and services offered by American General's operating subsidiaries are sensitive to interest rates. See the discussion of the company's asset/liability management program beginning on page 21. - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 24 10 - - -------------------------------------------------------------------------------- Competition. Insurance and annuity providers currently face strong competition from mutual fund companies for consumers' savings and investments. Additionally, the U.S. Supreme Court ruled in January 1995 that national banks also may compete with insurance companies in the sale of annuities. VALIC currently sells variable annuities to specialized markets for qualified retirement plans through NASD-licensed representatives. American General's life insurance companies sell annuities through their own agency distribution systems and through a network of financial institutions. As a result, the impact of the Supreme Court's decision on American General's insurance operations has been minimal. The company's Consumer Finance segment competes with other types of financial institutions which offer similar products and services. Competition in financial services markets is intense due to an increase in the number and sophistication of financial products, technological improvements, and more rapid communication. Taxation. Tax laws affect not only the way American General is taxed but also the design of many of its products. Changes in tax laws or regulations could adversely affect operating results. The Revenue Reconciliation Act of 1993 increased the federal corporate tax rate by 1% and caused an increase in current taxes and a one-time increase in deferred income taxes, which together decreased net income by $30 million in 1993. A proposal is currently pending that would eliminate the deductibility of dividends paid on certain preferred securities. This proposal, however, is not expected to impact the tax status of previously issued preferred securities. Solvency Regulation. Insurance regulators monitor asset quality and capital adequacy of the insurance industry. The NAIC uses the risk-based capital (RBC) formula to evaluate the adequacy of life insurance companies' statutory capital and surplus. The RBC formula specifies weighting factors that are applied to financial balances or levels of activity of each company, based on the perceived degree of risk, to calculate RBC. The formula focuses on: (1) asset impairment risks, (2) insurance risks, (3) interest rate risks, and (4) general business risks. The "Company Action Level" RBC ratio (RBC ratio) is determined by dividing a life insurance company's total adjusted capital by its calculated RBC. The RBC requirements provide for four different levels of regulatory attention depending on an insurance company's RBC ratio. The least severe of these is the "Company Action Level." It is triggered if a company's RBC ratio is less than 100% but greater than or equal to 75%, or if a negative trend (as defined by the regulations) has occurred and the company's RBC ratio is less than 125%. At the "Company Action Level," the company must submit a comprehensive financial plan to the state insurance commissioner that discusses proposed corrective actions to improve its capital position. Calculations at December 31, 1995, using the RBC formula, indicate that each of the company's Life Insurance and Retirement Annuities subsidiaries' total adjusted capital is equal to or greater than 245% of amounts required at the "Company Action Level." The company believes that its statutory capital is more than adequate to satisfy its foreseeable financial obligations. Market Conduct. In addition to monitoring financial solvency, insurance regulators monitor market conduct, such as sales and advertising practices, agent licensing and compensation, policyholder service, complaint handling, underwriting, and claims practices. Regulatory scrutiny in this area has increased as a result of negative publicity in recent years regarding the market misconduct of various insurers, particularly with respect to agent misrepresentation and policy replacement practices. The NAIC and individual state insurance departments have proposed or adopted new policies designed to better regulate life insurance sales illustrations, sales practices in connection with replacing policies, and agent compensation. In addition, the major trade association for the life insurance industry, the American Council of Life Insurance, is developing a code of ethical life insurance market conduct and an accompanying assessment process. American General is not aware of any existing or pending regulatory actions concerning market conduct that would materially affect the company's operations. However, as a result of these various developments, market conduct compliance costs may increase for American General's insurance and annuity subsidiaries. Guaranty Associations. All 50 states have laws requiring life insurance companies to pay assessments to state guaranty associations to protect the interests of policyholders of insolvent life insurance companies. A portion of these assessments can be recovered against the payment of future premium taxes; however, changes in state laws could decrease the amount available for recovery. See Note 9 for amounts assessed and accrued by the company under such laws. Litigation. American General and certain of its subsidiaries are defendants in various lawsuits and proceedings arising in the normal course of business. Some of these lawsuits and proceedings arise in jurisdictions such as Alabama that permit punitive damages disproportionate to the actual damages alleged. In light of the uncertainties inherent in any litigation, no assurances can be given as to the ultimate outcome of these lawsuits and proceedings. However, American General and its subsidiaries believe that there are meritorious defenses for all of these claims and are defending them vigorously. See Note 19.2 for specific legal proceedings involving the company. Environmental. American General's principal exposure to environmental regulation arises from its ownership of investment real estate. Probable costs related to environmental cleanup are immaterial. - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 25 11 - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF INCOME AMERICAN GENERAL CORPORATION For the Years Ended December 31, In millions, except per share data
1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------ REVENUES Premiums and other considerations $ 1,753 $ 1,210 $ 1,252 Net investment income 3,095 2,493 2,437 Finance charges 1,492 1,248 1,083 Realized investment gains (losses) 12 (172) 8 Equity in earnings of Western National Corporation 43 -- -- Other 100 62 49 ---------------------------------------------------------------------------------------------------- Total revenues 6,495 4,841 4,829 - - ------------------------------------------------------------------------------------------------------------------------ BENEFITS AND Insurance and annuity benefits 3,047 2,224 2,311 EXPENSES Operating costs and expenses 1,007 801 749 Commissions 511 400 417 Change in deferred policy acquisition costs and cost of insurance purchased (168) (126) (196) Provision for finance receivable losses 574 214 163 Write-down of acquisition-related goodwill -- -- 300 Interest expense Corporate 156 110 108 Consumer Finance 518 416 375 ---------------------------------------------------------------------------------------------------- Total benefits and expenses 5,645 4,039 4,227 - - ------------------------------------------------------------------------------------------------------------------------ EARNINGS Income before income tax expense 850 802 602 Income tax expense 286 289 352 ---------------------------------------------------------------------------------------------------- Income before net dividends on preferred securities 564 513 250 Net dividends on preferred securities of subsidiaries 19 -- -- ---------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting changes 545 513 250 Cumulative effect of accounting changes -- -- (46) ---------------------------------------------------------------------------------------------------- Net income $ 545 $ 513 $ 204 - - ------------------------------------------------------------------------------------------------------------------------ SHARE DATA Income before cumulative effect of accounting changes $ 2.64 $ 2.45 $ 1.15 Cumulative effect of accounting changes -- -- (.21) ---------------------------------------------------------------------------------------------------- Net income per share $ 2.64 $ 2.45 $ .94 ---------------------------------------------------------------------------------------------------- See Notes to Financial Statements.
- - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 26 12 - - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET AMERICAN GENERAL CORPORATION At December 31, In millions, except share data
1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------ ASSETS Investments Fixed maturity securities (amortized cost: $34,590; $27,087; $24,885) $ 37,213 $ 25,700 $ 26,479 Mortgage loans on real estate 3,041 2,651 3,032 Equity securities (cost: $138; $202; $182) 186 224 233 Policy loans 1,605 1,197 1,156 Investment real estate 577 564 772 Other long-term investments 179 152 137 Short-term investments 103 209 67 ---------------------------------------------------------------------------------------------------- Total investments 42,904 30,697 31,876 ---------------------------------------------------------------------------------------------------- Cash 161 45 6 Finance receivables, net 7,918 7,694 6,390 Investment in Western National Corporation 407 274 -- Deferred policy acquisition costs 1,625 2,563 1,451 Cost of insurance purchased 504 168 186 Acquisition-related goodwill 577 597 618 Other assets 1,887 1,356 1,358 Assets held in Separate Accounts 5,170 2,901 2,097 ---------------------------------------------------------------------------------------------------- Total assets $ 61,153 $ 46,295 $ 43,982 - - ------------------------------------------------------------------------------------------------------------------------ LIABILITIES Insurance and annuity liabilities $ 37,983 $ 29,623 $ 27,239 Debt (short-term) Corporate ($553; $1,000; $726) 1,723 1,836 1,686 Consumer Finance ($2,490; $2,777; $1,824) 7,470 7,090 5,843 Income tax liabilities 1,268 721 1,241 Other liabilities 1,009 620 739 Liabilities related to Separate Accounts 5,170 2,901 2,097 ---------------------------------------------------------------------------------------------------- Total liabilities 54,623 42,791 38,845 - - ------------------------------------------------------------------------------------------------------------------------ REDEEMABLE Company-obligated mandatorily redeemable preferred securities EQUITY of subsidiaries holding solely company subordinated notes Non-convertible 485 -- -- Convertible 244 -- -- Common stock subject to put contracts -- 47 -- ---------------------------------------------------------------------------------------------------- Total redeemable equity 729 47 -- - - ------------------------------------------------------------------------------------------------------------------------ SHAREHOLDERS' Common stock (shares issued: 220,122,120; EQUITY outstanding: 203,948,246; 203,051,907; 214,157,548) 364 364 365 Net unrealized gains (losses) on securities 1,100 (935) 709 Retained earnings 4,787 4,495 4,229 Cost of treasury stock (450) (467) (166) ---------------------------------------------------------------------------------------------------- Total shareholders' equity 5,801 3,457 5,137 ---------------------------------------------------------------------------------------------------- Total liabilities and equity $ 61,153 $ 46,295 $ 43,982 ---------------------------------------------------------------------------------------------------- See Notes to Financial Statements.
- - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 27 13 - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AMERICAN GENERAL CORPORATION For the Years Ended December 31, In millions, except per share data
1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------ COMMON Balance at beginning of year $ 364 $ 365 $ 368 STOCK Treasury shares issued and other -- (1) (3) ---------------------------------------------------------------------------------------------------- Balance at end of year 364 364 365 - - ------------------------------------------------------------------------------------------------------------------------ NET UNREALIZED Balance at beginning of year (935) 709 88 GAINS (LOSSES) Change during year 2,035 (1,644) (55) ON SECURITIES Effect of accounting change -- -- 676 ---------------------------------------------------------------------------------------------------- Balance at end of year 1,100 (935) 709 - - ------------------------------------------------------------------------------------------------------------------------ RETAINED Balance at beginning of year 4,495 4,229 4,263 EARNINGS Net income 545 513 204 Dividends paid (per share: $1.24; $1.16; $1.10) (254) (243) (238) Other 1 (4) -- ---------------------------------------------------------------------------------------------------- Balance at end of year 4,787 4,495 4,229 - - ------------------------------------------------------------------------------------------------------------------------ COST OF Balance at beginning of year (467) (166) (103) TREASURY Purchases on the open market (40) (262) (78) STOCK Expiration (issuance, net of premiums) of put contracts 47 (43) -- Other 10 4 15 ---------------------------------------------------------------------------------------------------- Balance at end of year (450) (467) (166) - - ------------------------------------------------------------------------------------------------------------------------ SHAREHOLDERS' EQUITY Balance at end of year $ 5,801 $ 3,457 $ 5,137 ---------------------------------------------------------------------------------------------------- See Notes to Financial Statements.
CONSOLIDATED STATEMENT OF STOCK ACTIVITY AMERICAN GENERAL CORPORATION For the Years Ended December 31, In thousands of shares
1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------ COMMON SHARES ISSUED Balance at beginning and end of year 220,122 220,122 220,122 - - ------------------------------------------------------------------------------------------------------------------------ TREASURY Balance at beginning of year (17,070) (5,964) (3,865) SHARES Purchases on the open market (1,187) (9,536) (2,655) Expiration (issuance) of put contracts 1,700 (1,700) -- Issuance under employee benefit plans 383 130 556 ---------------------------------------------------------------------------------------------------- Balance at end of year (16,174) (17,070) (5,964) - - ------------------------------------------------------------------------------------------------------------------------ OUTSTANDING SHARES Balance at end of year 203,948 203,052 214,158 ---------------------------------------------------------------------------------------------------- See Notes to Financial Statements.
- - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 28 14 - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS AMERICAN GENERAL CORPORATION For the Years Ended December 31, In millions
1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------ OPERATING Income before cumulative effect of accounting changes $ 545 $ 513 $ 250 ACTIVITIES Reconciling adjustments to net cash provided by operating activities Insurance and annuity liabilities 1,361 1,007 1,012 Deferred policy acquisition costs and cost of insurance purchased (168) (126) (196) Provision for finance receivable losses 574 214 163 Realized investment (gains) losses (66) 49 (306) Investment write-downs and reserves 54 123 298 Write-down of acquisition-related goodwill -- -- 300 Other, net (77) (280) 180 ---------------------------------------------------------------------------------------------------- Net cash provided by operating activities 2,223 1,500 1,701 - - ------------------------------------------------------------------------------------------------------------------------ INVESTING Investment purchases (7,734) (7,239) (9,499) ACTIVITIES Investment calls, maturities, and sales 5,601 5,566 6,984 Finance receivable originations or acquisitions (5,786) (5,827) (4,320) Finance receivable principal payments received 4,927 4,323 3,797 Acquisition of Franklin Life (920) -- -- Investment in Western National Corporation -- (274) -- Proceeds from sale of subsidiary -- 95 -- Other, net 16 (205) (151) ---------------------------------------------------------------------------------------------------- Net cash used for investing activities (3,896) (3,561) (3,189) - - ------------------------------------------------------------------------------------------------------------------------ FINANCING Retirement Annuities and Life Insurance ACTIVITIES Policyholder account deposits 3,045 2,583 2,656 Policyholder account withdrawals (1,965) (1,345) (934) ---------------------------------------------------------------------------------------------------- Total Retirement Annuities and Life Insurance 1,080 1,238 1,722 ---------------------------------------------------------------------------------------------------- Consumer Finance Net increase (decrease) in short-term debt (287) 953 (106) Long-term debt issuances 1,577 1,136 1,005 Long-term debt redemptions (914) (846) (545) ---------------------------------------------------------------------------------------------------- Total Consumer Finance 376 1,243 354 ---------------------------------------------------------------------------------------------------- Corporate Net increase (decrease) in short-term debt (447) 272 (370) Long-term debt issuances 433 100 100 Long-term debt redemptions (100) (247) (31) Issuance of preferred securities of subsidiaries 729 -- -- Common share dividend payments (254) (243) (238) Common share purchases (35) (264) (72) Other, net 7 1 12 ---------------------------------------------------------------------------------------------------- Total Corporate 333 (381) (599) ---------------------------------------------------------------------------------------------------- Net cash provided by financing activities 1,789 2,100 1,477 - - ------------------------------------------------------------------------------------------------------------------------ NET CHANGE Net increase (decrease) in cash 116 39 (11) IN CASH Cash at beginning of year 45 6 17 ---------------------------------------------------------------------------------------------------- Cash at end of year $ 161 $ 45 $ 6 ---------------------------------------------------------------------------------------------------- See Notes to Financial Statements.
- - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 29 15 - - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS 1.1 BUSINESS SEGMENTS American General Corporation (American General or the company) is one of the nation's largest diversified financial services organizations. Headquartered in Houston, it provides retirement annuities, consumer loans, and life insurance products to more than eight million households throughout the United States, Canada, Puerto Rico, and the U.S. Virgin Islands. American General reports the results of its business operations in three segments. Retirement Annuities. The Variable Annuity Life Insurance Company (VALIC) provides tax-deferred retirement annuities and employer-sponsored retirement plans to employees of educational, health care, public sector, and not-for-profit organizations. VALIC markets products nationwide to 900,000 customers through a national network of 850 sales representatives. VALIC holds the strongest claims-paying ability ratings available in the life insurance industry from three rating agencies. Consumer Finance. American General Finance, Inc. and its subsidiaries (AGF) provide consumer and home equity loans, credit cards, and credit-related insurance products to 3.2 million customers through a network of 1,400 branch offices in 41 states, Puerto Rico, and the U.S. Virgin Islands. AGF also operates financing programs through 20,000 retail merchants. AGF holds debt ratings that are among the strongest in the consumer finance industry. Life Insurance. American General's life insurance companies provide life insurance and annuity products to over five million customers throughout the United States through 14,000 sales representatives and general agents. This customer base is served by American General Life Insurance Company (AGL), American General Life and Accident Insurance Company (AGLA), and, since January 1995, The Franklin Life Insurance Company (Franklin Life). AGL serves the estate planning needs of middle- and upper-income households and the insurance needs of small- to medium-size businesses. AGLA concentrates on meeting the basic life insurance needs of families with modest incomes. Franklin Life provides life insurance to middle-income households, primarily in the Midwest. These companies hold claims-paying ability ratings that are among the strongest in the life insurance industry. 1.2 SEGMENT RESULTS Results of each of these segments include earnings from its business operations and earnings on that amount of equity considered necessary to support its business. Business segment information, reconciled to consolidated amounts, was as follows:
Revenues Income before Taxes(a) Assets --------------------------- ---------------------------- ------------------------------ In millions 1995 1994 1993 1995 1994 1993 1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------------- Retirement Annuities $1,655 $1,537 $1,470 $ 305 $ 282 $ 240 $27,084 $22,007 $20,896 Consumer Finance 1,790 1,491 1,282 115(b) 392 330 9,466 8,949 7,641 Life Insurance 2,956 1,932 2,054 542 399 152(c) 23,592 14,156 14,192 - - ------------------------------------------------------------------------------------------------------------------- Total business segments 6,401 4,960 4,806 962 1,073 722 60,142 45,112 42,729 - - ------------------------------------------------------------------------------------------------------------------- Corporate 131 105 65 (127)(d) (99)(d) (129)(d) 1,317 1,391 1,506 Realized investment gains (losses) 12 (172) 8 12 (172) 8 -- -- -- Intersegment eliminations (49) (52) (50) 3 -- 1 (306) (208) (253) - - ------------------------------------------------------------------------------------------------------------------- Consolidated $6,495 $4,841 $4,829 $ 850 $ 802 $ 602 $61,153 $46,295 $43,982 - - -------------------------------------------------------------------------------------------------------------------
(a) Excludes net dividends on preferred securities of subsidiaries and cumulative effect of accounting changes. (b) Decrease in 1995 primarily due to $266 million increase in the allowance for finance receivable losses. (c) Includes $300 million write-down of goodwill. (d) Primarily interest on corporate debt. - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 30 16 - - -------------------------------------------------------------------------------- 2. ACQUISITIONS AND DIVESTITURES 2.1 FRANKLIN LIFE On January 31, 1995, the company acquired American Franklin Company (AFC), the holding company of Franklin Life, for $1.17 billion. The purchase price consisted of $920 million paid in cash at closing and a $250 million cash dividend paid by AFC to its former parent prior to closing. The permanent financing of this acquisition, including related issue costs, consisted of $150 million of short-term debt, $300 million of senior long-term fixed-rate debt, and $502 million of non-convertible preferred securities. The acquisition was accounted for using the purchase method, and the results of operations of Franklin Life are included in the consolidated statement of income from the date of acquisition. 2.2 WESTERN NATIONAL CORPORATION On December 23, 1994, the company acquired a 40% interest in Western National Corporation (WNC), the holding company of Western National Life Insurance Company, through the acquisition of 24,947,500 shares of WNC common stock for $274 million in cash. For accounting purposes, the acquisition was recorded on an equity basis, using the purchase method. The purchase price was approximately $139 million greater than the underlying net assets of WNC. This amount has been allocated to WNC's individual assets and liabilities based on their fair values as of the acquisition date, and will be amortized into income over the lives of the specific assets or liabilities. Approximately $137 million of the difference is attributed to goodwill, which will be amortized on a straight-line basis over 20 years. At December 31, 1995, the fair value of the WNC shares held was $402 million. 2.3 PRO FORMA INFORMATION (UNAUDITED) The following unaudited pro forma information presents the consolidated results of operations of the company and AFC and reflects the company's 40% equity in the earnings of WNC for the years ended December 31, 1995 and 1994. The pro forma information is presented as if the acquisitions had been effective at January 1, 1994, after giving effect to adjustments to reflect the acquisitions and the permanent financing of the AFC acquisition. This information is intended for informational purposes only and may not be indicative of the company's future results of operations.
In millions, except share data 1995 1994 - - ---------------------------------------------------------- Total revenues $ 6,575 $ 5,921 Income before income tax expense 869 952 Income before net dividends on preferred securities 576 607 Net income 543 580 Net income per share 2.63 2.77 - - ---------------------------------------------------------- Average fully diluted shares outstanding (thousands) 208,872 209,420 - - ----------------------------------------------------------
2.4 INDEPENDENT INSURANCE GROUP, INC. During first quarter 1996, the company expects to acquire Independent Insurance Group, Inc. (Independent), for total consideration of $362 million. Independent's shareholders may elect to receive from among cash, American General common stock, or a new issue of American General 7% mandatorily convertible preferred stock. The preferred stock will be non-callable for four years, and each share is mandatorily convertible into not more than one share of American General common stock during the fifth year. This acquisition will be accounted for using the purchase method. 2.5 SALE OF SUBSIDIARY On August 31, 1994, the company sold American-Amicable Life Insurance Company of Texas for $105 million cash, which included a $10 million cash dividend paid prior to closing. 3. SIGNIFICANT ACCOUNTING POLICIES 3.1 PREPARATION OF FINANCIAL STATEMENTS The consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) and include the accounts of American General and its subsidiaries. All material intercompany transactions have been eliminated in consolidation. To conform with the 1995 presentation, certain items in the prior years' financial statements have been reclassified. The preparation of financial statements requires management to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities, (2) disclosures of contingent assets and liabilities, and (3) the reported amounts of revenues and expenses during the reporting periods. Ultimate results could differ from those estimates. 3.2 INVESTMENTS Fixed Maturity and Equity Securities. All fixed maturity and equity securities are currently classified as available-for-sale and recorded at fair value. After adjusting related balance sheet accounts as if unrealized gains (losses) had been realized, the net adjustment is recorded in net unrealized gains (losses) on securities within shareholders' equity. If the fair value of a security classified as available-for-sale declines below its cost and this decline is considered to be other than temporary, the security is reduced to its fair value, and the reduction is recorded as a realized loss. Mortgage Loans. Mortgage loans are reported at amortized cost, net of an allowance for losses. The allowance for losses covers all non-performing loans, consisting of loans restructured or delinquent 60 days or more. The allowance also covers loans for which there is a concern based on management's assessment of risk factors, such as potential non-payment or non-monetary default. The allowance is based on a loan-specific review and a formula that reflects past results and current trends. - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 31 17 - - -------------------------------------------------------------------------------- Impaired loans, those for which the company determines that it is probable that all amounts due under the contractual terms will not be collected, are reported at the lower of amortized cost or fair value of the underlying collateral, less estimated costs to sell. Policy and Other Loans. Policy and other loans are reported at unpaid principal balance and adjusted periodically for any differences between face value and unpaid principal balance, and for possible uncollectible amounts. Investment Real Estate. Investment real estate consists of land development projects, income-producing real estate, foreclosed real estate, and the American General Center, an office complex in Houston. During 1995, the company adopted Statement of Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Under SFAS 121, investment real estate is classified as held for investment or available for sale, depending on management's intent and the stage of completion of the assets. At December 31, 1995, real estate held for investment is carried at cost, less accumulated depreciation and impairment reserves and write-downs, if applicable. Cost includes land acquisition and development costs, indirect costs related to development, and interest and property taxes incurred during the development period. Impairment losses are recorded whenever circumstances indicate that a property might be impaired and the estimated undiscounted cash flows to be generated by the property are less than its carrying amount. In such event, the property is written down to fair value, determined by observable market prices, third party appraisals, or expected future cash flows discounted at market rates. Any write-down is recognized as a realized loss, and a new cost basis is established. Prior to 1995, real estate held for investment was carried at cost less accumulated depreciation or, for land development projects, at the lower of cost or estimated net realizable value. Whenever the net realizable value was less than the carrying amount, the deficiency was recognized as a realized loss through a valuation allowance. Real estate available for sale is carried at the lower of cost (less accumulated depreciation, if applicable) or fair value less cost to sell. Changes in estimates of fair value less cost to sell are recognized as realized gains (losses) through a valuation allowance. Investment Income. Interest on fixed maturity securities and performing mortgage loans is recorded as income when earned and is adjusted for any amortization of premium or discount. Interest on restructured mortgage loans is recorded as income when earned based on the new contractual rate. Interest on delinquent mortgage loans is recorded as income on a cash basis. Dividends are recorded as income on ex-dividend dates. Realized Investment Gains (Losses). Realized investment gains (losses) are recognized using the specific identification method and include declines in fair value of investments below cost that are considered other than temporary. 3.3 FINANCE RECEIVABLES Finance Charges. Finance charges on discounted receivables and interest on interest-bearing receivables are recognized as revenue on the accrual basis using the interest method. The accrual of revenue is suspended when contractual payments are not received for four consecutive months for loans and retail sales contracts, and for six months for private label and credit cards. Extension fees and late charges are recognized as revenue when received. Non- refundable points and fees on loans, net of direct costs incurred to originate loans, are deferred and included in the carrying amount of the related loans. The net deferral is recognized into income using the interest method over the lesser of the contractual term or the expected life based on prepayment experience. If a loan is prepaid before all related deferred amounts are recognized, any remaining deferral is recognized into income at the date of prepayment. Losses on Finance Receivables. The company's policy is to charge off consumer loans (except those secured by real estate), private label, credit cards, and retail sales contracts for which minimal or no collections were made in the prior six-month period. For loans secured by real estate, foreclosure proceedings are instituted when four monthly installments are past due. At foreclosure, the carrying amount of a loan in excess of the fair value of the underlying real estate is charged off. The allowance for finance receivable losses is maintained at a level that is considered adequate to absorb anticipated losses in the existing portfolio. Management considers numerous factors including current economic conditions, portfolio composition, and loss and delinquency experience in its periodic evaluations of the portfolio. 3.4 DEFERRED POLICY ACQUISITION COSTS (DPAC) The costs of writing an insurance policy, including agents' commissions and underwriting and marketing expenses, are deferred and included in the DPAC asset. DPAC associated with interest-sensitive life contracts, insurance investment contracts, and participating life insurance contracts is charged to expense in relation to the estimated gross profits of those contracts. DPAC associated with all other insurance contracts is charged to expense over the premium-paying period or as the premiums are earned over the life of the contract. Gross profits include realized investment gains (losses). In addition, DPAC is adjusted for the impact on estimated future gross profits as if net unrealized gains (losses) on securities had been realized at the balance sheet date. The impact of this adjustment is included in net unrealized gains (losses) on securities within shareholders' equity. The company reviews the carrying amount of DPAC on at least an annual basis. In determining whether the carrying amount is appropriate, the company considers estimated future gross profits or future premiums, as applicable for the type of contract. In all cases, the company considers expected mortality, interest earned and credited rates, persistency, and expenses. - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 32 18 - - -------------------------------------------------------------------------------- 3.5 COST OF INSURANCE PURCHASED (CIP) The cost assigned to certain acquired subsidiaries' insurance contracts in force at the acquisition date is included in the CIP asset. Interest is accreted on the unamortized balance of CIP at rates of 8.2% to 8.5%. CIP is charged to expense and adjusted for the impact of net unrealized gains (losses) on securities in the same manner as DPAC. The company reviews the carrying amount of CIP on at least an annual basis using the same methods used to evaluate DPAC. 3.6 ACQUISITION-RELATED GOODWILL Acquisition-related goodwill is charged to expense in equal amounts, generally over 20 or 40 years. The carrying amount of goodwill is regularly reviewed for indicators of impairment in value, which in the view of management are other than temporary, including unexpected or adverse changes in the following: (1) the economic or competitive environments in which the company operates, (2) profitability analyses, (3) cash flow analyses, and (4) the fair value of the relevant subsidiary. If facts and circumstances suggest that a subsidiary's goodwill is impaired, the company assesses the fair value of the underlying business and reduces goodwill to an amount that results in the book value of the subsidiary approximating fair value. The company determines the subsidiary's fair value based on an independent appraisal. In 1993, the company recorded a non-cash charge of $300 million to reduce acquisition-related goodwill following a strategic review of certain life insurance operations. The reported amount and the remaining life of acquisition-related goodwill are considered appropriate. 3.7 SEPARATE ACCOUNTS Separate Accounts are assets and liabilities associated with certain contracts, principally annuities, for which the investment risk lies solely with the holder of the contract rather than the company. Consequently, the insurer's liability for these accounts equals the value of the account assets. Investment income, realized investment gains (losses), and policyholder account deposits and withdrawals related to Separate Accounts are excluded from the consolidated statements of income and cash flows. Assets held in Separate Accounts are primarily shares in mutual funds, which are carried at fair value, based on the quoted net asset value per share. 3.8 INSURANCE AND ANNUITY LIABILITIES Substantially all of the company's insurance and annuity liabilities relate to long-duration contracts, which generally require performance over a period of more than one year. The contract provisions normally cannot be changed or cancelled by the company during the contract period. For interest-sensitive life and insurance investment contracts, reserves equal the sum of the policy account balance and deferred revenue charges. Reserves for other types of long-duration contracts are based on estimates of the cost of future policy benefits to be paid as a result of present and future claims due to death, disability, surrender of a policy, or payment of an endowment. Reserves are determined using the net level premium method. Interest assumptions used to compute reserves ranged from 2.5% to 13.5% at December 31, 1995. 3.9 PREMIUM RECOGNITION Most receipts for annuities and interest-sensitive life insurance policies are classified as deposits instead of revenues. Revenues for these contracts consist of the mortality, expense, and surrender charges assessed against the account balance. Policy charges that are designed to compensate the company for future services are deferred and recognized in income over the period earned, using the same assumptions used to amortize DPAC. For limited-payment contracts, net premiums are recorded as revenue, and the difference between the gross premium received and the net premium is deferred and recognized in income in a constant relationship to insurance in force. For all other long-duration contracts, premiums are recognized when due. 3.10 PARTICIPATING LIFE INSURANCE Participating life insurance contracts contain dividend payment provisions that entitle the policyholders to participate in the earnings of the contracts. Participating life insurance accounted for 12% of life insurance in force at December 31, 1995 and 17% of premiums and other considerations in 1995. Such business is accounted for in accordance with SFAS 120, "Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration Participating Contracts." Before the January 1995 acquisition of Franklin Life, the company's participating life insurance business was not significant. The portion of earnings allocated to participating policyholders which cannot be expected to inure to shareholders is excluded from net income and shareholders' equity. The amount of dividends to be paid on participating life insurance contracts is determined annually based on estimates of amounts incurred for the contracts in effect during the period. Policyholder dividends for 1995 were $91 million. 3.11 REINSURANCE The company's insurance subsidiaries are routinely involved in reinsurance transactions. Ceded reinsurance becomes a liability of the reinsurer that assumes the risk. The company's insurance subsidiaries diversify their risk of exposure to reinsurance loss by using a number of life reinsurers that have strong claims-paying ability ratings. The maximum retention on one life for individual life insurance is $1.5 million. If the reinsurer could not meet its obligations, American General's insurance subsidiaries would reassume the liability. The likelihood of a material reinsurance liability being reassumed by the company's insurance subsidiaries is considered to be remote. Amounts paid or deemed to have been paid in connection with ceded reinsurance contracts are recorded as reinsurance receivables. The cost of reinsurance related to long-duration contracts is recognized over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 33 19 - - -------------------------------------------------------------------------------- Reinsurance premiums included in premiums and other considerations were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Direct premiums and other considerations $ 1,848 $1,254 $1,262 Reinsurance assumed 104 52 38 Reinsurance ceded (199) (96) (48) - - ---------------------------------------------------------- Premiums and other considerations $ 1,753 $1,210 $1,252 - - ----------------------------------------------------------
Reinsurance recoveries on ceded reinsurance contracts were $113 million, $74 million, and $52 million during 1995, 1994, and 1993, respectively. The amount of reinsurance recoverable on paid and unpaid losses was not material at December 31, 1995, 1994, or 1993. 3.12 INTEREST CAPITALIZED OR PAID Essentially all interest incurred on land development projects under development is capitalized until the property is substantially complete and ready for its intended use. Interest capitalized was $17 million, $18 million, and $15 million in 1995, 1994, and 1993, respectively. Interest paid, excluding interest capitalized, was as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Corporate $ 148 $115 $142 Consumer Finance 502 407 379 - - ----------------------------------------------------------
3.13 STOCK-BASED COMPENSATION The company's stock and incentive plans provide for the award of stock options, restricted stock awards, performance awards, and incentive awards to key employees. Stock options constitute the majority of such awards. Expense related to stock options is measured as the difference between the quoted market price of the stock at the measurement date and the price to be paid by the employee. The measurement date is the first date on which both the number of shares that the employee is entitled to receive and the exercise price are known. Under the company's stock option plans, no expense is recognized since the exercise price equals the market price at the measurement date. 3.14 INCOME TAXES Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities, at the enacted tax rates expected to be in effect when the temporary differences reverse. The effect of a tax rate change is recognized in income in the period of enactment. State income taxes are included in income tax expense. A valuation allowance for deferred tax assets is provided if all or some portion of the deferred tax asset may not be realized. An increase or decrease in a valuation allowance that results from a change in circumstances that causes a change in judgment about the realizability of the related deferred tax asset is included in income. A change related to fluctuations in fair value of available-for-sale securities is included in net unrealized gains (losses) on securities in shareholders' equity. 3.15 EARNINGS PER SHARE Earnings per share is computed by dividing earnings available to common shareholders by average common shares outstanding. Earnings available to common shareholders is computed by increasing net income by the amount of net dividends on convertible preferred securities. Average common shares outstanding include common share equivalents from the assumed exercise or conversion of stock options, shares subject to put contracts, and convertible preferred securities. Average common shares outstanding, including common share equivalents, used in computing earnings per share were 208,871,505 in 1995; 209,420,486 in 1994; and 216,578,836 in 1993. 4. ACCOUNTING CHANGES 4.1 CURRENT YEAR During 1995, the company adopted SFAS 121, which establishes accounting standards for (1) the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used in the business, and (2) long-lived assets and certain identifiable intangibles to be disposed of. With the adoption of SFAS 121, the company measures impairment of certain investment real estate based on fair value, rather than net realizable value as previously required. Adoption of this standard did not have a material impact on the consolidated financial statements. 4.2 PRIOR YEARS Effective January 1, 1993, the company adopted the following accounting standards: (1) SFAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," which resulted in a one-time reduction of net income of $45 million ($68 million pretax) or $.21 per share; (2) SFAS 109, "Accounting for Income Taxes," which resulted in a one-time increase of net income of $8 million or $.04 per share; and (3) SFAS 112, "Employers' Accounting for Postemployment Benefits," which resulted in a one-time reduction of net income of $9 million ($14 million pretax) or $.04 per share. Effective January 1, 1993, the company also adopted SFAS 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," and SFAS 114, "Accounting by Creditors for Impairment of a Loan." Adoption of these standards did not have a material impact on the consolidated financial statements. At December 31, 1993, the company adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." This standard requires that debt and equity securities be carried at fair value unless the company has the positive intent and ability to hold these investments to maturity. Upon adoption, the company reported all debt and equity securities at fair value and recorded net unrealized gains on securities of $676 million in shareholders' equity. - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 34 20 - - -------------------------------------------------------------------------------- 5. INVESTMENTS 5.1 INVESTMENT INCOME Income by type of investment was as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Fixed maturity securities $ 2,660 $2,099 $2,005 Mortgage loans on real estate 314 296 357 Other investments 192 185 195 - - ---------------------------------------------------------- Gross investment income 3,166 2,580 2,557 - - ---------------------------------------------------------- Investment expense -- real estate 46 65 102 Investment expense -- other 25 22 18 - - ---------------------------------------------------------- Total investment expense 71 87 120 - - ---------------------------------------------------------- Net investment income $ 3,095 $2,493 $2,437 - - ----------------------------------------------------------
The carrying amount of investments that produced no investment income during 1995 was less than 1% of total invested assets. The ultimate disposition of these investments is not expected to have a material effect on American General's consolidated results of operations and financial position. 5.2 REALIZED INVESTMENT GAINS (LOSSES) Realized investment gains (losses) were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Fixed maturity securities Gross gains $ 74 $ 46 $ 201 Gross losses (56) (175) (59) - - ---------------------------------------------------------- Total fixed maturity securities 18 (129) 142 - - ---------------------------------------------------------- Equity securities Gross gains 21 14 127 Gross losses (2) (6) (6) - - ---------------------------------------------------------- Total equity securities 19 8 121 - - ---------------------------------------------------------- Mortgage loans on real estate (37) (5) (69) Investment real estate (9) (88) (170) Other 21 42 (16) - - ---------------------------------------------------------- Realized investment gains (losses) $ 12 $(172) $ 8 - - ----------------------------------------------------------
5.3 FIXED MATURITY AND EQUITY SECURITIES Valuation. All fixed maturity and equity securities are classified as available-for-sale and reported at fair value. Amortized cost and fair value at December 31 were as follows:
Gross Amortized Cost Unrealized Gains In millions 1995 1994 1993 1995 1994 1993 - - --------------------------------------------------------------------------------------------------------------- Fixed maturity securities Corporate bonds Investment grade $ 20,634 $13,996 $ 12,207 $ 1,759 $154 $1,021 Below investment grade 1,349 904 707 67 15 42 Mortgage-backed 11,019 10,774 10,217 650 64 536 Foreign governments 648 604 565 83 3 37 U.S. government 537 306 882 87 10 49 States/political subdivisions 271 336 180 19 14 22 Redeemable preferred stocks 132 167 127 6 2 6 - - --------------------------------------------------------------------------------------------------------------- Total fixed maturity securities $ 34,590 $27,087 $ 24,885 $ 2,671 $262 $1,713 - - --------------------------------------------------------------------------------------------------------------- Equity securities $ 138 $ 202 $ 182 $ 50 $ 29 $ 53 - - --------------------------------------------------------------------------------------------------------------- Gross Unrealized Losses Fair Value In millions 1995 1994 1993 1995 1994 1993 - - --------------------------------------------------------------------------------------------------------------- Fixed maturity securities Corporate bonds Investment grade $ (32) $ (718) $ (25) $ 22,361 $13,432 $13,203 Below investment grade (8) (60) (6) 1,408 859 743 Mortgage-backed (6) (806) (75) 11,663 10,032 10,678 Foreign governments (1) (40) (1) 730 567 601 U.S. government -- (4) (12) 624 312 919 States/political subdivisions -- (8) -- 290 342 202 Redeemable preferred stocks (1) (13) -- 137 156 133 - - --------------------------------------------------------------------------------------------------------------- Total fixed maturity securities $ (48) $(1,649) $(119) $ 37,213 $25,700 $26,479 - - --------------------------------------------------------------------------------------------------------------- Equity securities $ (2) $ (7) $ (2) $ 186 $ 224 $ 233 - - ---------------------------------------------------------------------------------------------------------------
Maturities. The contractual maturities of fixed maturity securities at December 31, 1995 were as follows:
Amortized Fair In millions Cost Value - - ---------------------------------------------------------- Fixed maturity securities, excluding mortgage-backed securities Due in one year or less $ 250 $ 252 Due after one year through five years 4,029 4,256 Due after five years through ten years 12,262 13,158 Due after ten years 7,030 7,884 Mortgage-backed securities 11,019 11,663 - - ---------------------------------------------------------- Total fixed maturity securities $34,590 $37,213 - - ----------------------------------------------------------
Actual maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations. Corporate requirements and investment strategies may result in the sale of investments before maturity. 5.4 NET UNREALIZED GAINS (LOSSES) ON SECURITIES Net unrealized gains (losses) on fixed maturity and equity securities included in shareholders' equity at December 31 were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Gross unrealized gains $ 2,721 $ 291 $1,766 Gross unrealized losses (50) (1,656) (121) DPAC and CIP fair value adjustments (1,061) 401 (554) Deferred federal income taxes (603) 29 (382) Equity in WNC's net unrealized gains 93 -- -- - - ---------------------------------------------------------- Net unrealized gains (losses) on securities $ 1,100 $ (935) $ 709 - - ----------------------------------------------------------
- - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 35 21 - - -------------------------------------------------------------------------------- 5.5 MORTGAGE LOANS ON REAL ESTATE Diversification. Diversification of the geographic location and type of property collateralizing mortgage loans reduces the concentration of credit risk. For new loans, the company requires loan-to-value ratios of 75% or less, based on management's credit assessment of the borrower. At December 31, the mortgage loan portfolio was distributed as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Geographic distribution Atlantic $ 1,251 $1,086 $1,181 Central 988 810 1,009 Pacific and Mountain 889 844 940 Allowance for losses (87) (89) (98) - - ---------------------------------------------------------- Total $ 3,041 $2,651 $3,032 - - ---------------------------------------------------------- Property type Retail $ 1,057 $ 890 $1,038 Office 1,008 925 994 Industrial 478 444 531 Apartments 377 298 334 Residential and other 208 183 233 Allowance for losses (87) (89) (98) - - ---------------------------------------------------------- Total $ 3,041 $2,651 $3,032 - - ----------------------------------------------------------
Impaired Loans. Impaired mortgage loans on real estate and related interest income were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Impaired loans With allowance* $ 97 $137 $103 Without allowance 22 4 5 - - ---------------------------------------------------------- Total impaired loans $ 119 $141 $108 - - ---------------------------------------------------------- Average investment $ 130 $119 $128 Interest income earned 10 7 6 Interest income -- cash basis 7 3 3 - - ----------------------------------------------------------
* Represents gross amounts before allowance for mortgage loan losses of $26 million, $36 million, and $22 million, respectively. Allowance. The allowance for mortgage loan losses was as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Balance at January 1 $ 89 $ 98 $ 53 Net additions(a) 28 11 84 Deductions(b) (30) (20) (39) - - ---------------------------------------------------------- Balance at December 31 $ 87 $ 89 $ 98 - - ----------------------------------------------------------
(a) Charged to realized investment gains (losses). (b) Resulting from foreclosures and payoffs. 5.6 INVESTMENT REAL ESTATE The allowance for investment real estate losses was as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Balance at January 1 $ 321 $253 $129 Net additions(a) 18 110 199 Deductions(b) (304) (42) (75) - - ---------------------------------------------------------- Balance at December 31 $ 35 $321 $253 - - ----------------------------------------------------------
(a) Charged to realized investment gains (losses). (b) Primarily resulting from sales and a $243 million reclassification in 1995 to reduce cost basis on adoption of SFAS 121. 5.7 CASH FLOWS FROM INVESTING ACTIVITIES The uses of cash for investment purchases were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Fixed maturity securities $ 7,155 $7,009 $9,378 Equity securities 24 111 33 Other 555 119 88 - - ---------------------------------------------------------- Total $ 7,734 $7,239 $9,499 - - ----------------------------------------------------------
The sources of cash from investment calls, maturities, and sales were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Fixed maturity securities Sales $ 2,466 $1,886 $ 859 Calls 980 794 2,098 Repayments of mortgage- backed securities 686 1,833 2,650 Maturities 481 303 191 Mortgage loans 352 421 610 Equity securities 176 98 283 Other 460 231 293 - - ---------------------------------------------------------- Total $ 5,601 $5,566 $6,984 - - ----------------------------------------------------------
6. FINANCE RECEIVABLES 6.1 DETAIL OF FINANCE RECEIVABLES Finance receivables, which are reported net of unearned finance charges, at December 31 were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Consumer loans Real estate $ 2,904 $2,705 $2,642 Other 2,765 2,661 2,318 - - ---------------------------------------------------------- Total consumer loans 5,669 5,366 4,960 Retail sales finance 2,183 2,075 1,218 Credit cards 558 479 396 - - ---------------------------------------------------------- Total finance receivables 8,410 7,920 6,574 Allowance for losses (492) (226) (184) - - ---------------------------------------------------------- Finance receivables, net $ 7,918 $7,694 $6,390 - - ----------------------------------------------------------
At December 31, 1995, 93% of non-credit card receivables were secured by real estate or other property. 6.2 GEOGRAPHIC CONCENTRATIONS The largest geographic concentrations of finance receivables at December 31 were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- California $ 887 $ 811 $ 751 North Carolina 738 639 582 Florida 627 574 503 Illinois 490 458 409 Indiana 455 410 365 Ohio 440 401 341 Virginia 392 355 353 Georgia 373 347 264 Other 4,008 3,925 3,006 - - ---------------------------------------------------------- Total $ 8,410 $7,920 $6,574 - - ----------------------------------------------------------
- - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 36 22 - - -------------------------------------------------------------------------------- 6.3 CONTRACTUAL MATURITIES AND COLLECTIONS Contractual maturities of finance receivables at December 31, 1995 were as follows:
After In millions 1996 1997 1998 1999 2000 2000 - - ------------------------------------------------------------- Maturities $3,205 $1,547 $947 $504 $300 $1,907 - - -------------------------------------------------------------
Contractual maturities are not a forecast of future cash collections. A substantial portion of finance receivables may be renewed, converted, or paid in full prior to maturity. Cash collections of principal and collections as a percentage of average finance receivable balances were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Consumer loans Cash collections $ 2,588 $2,437 $2,101 Percent of average balances 46% 48% 43% Retail sales finance Cash collections $ 1,885 $1,454 $1,192 Percent of average balances 86% 92% 111% Credit cards Cash collections $ 454 $ 432 $ 504 Percent of average balances 90% 103% 137% - - ----------------------------------------------------------
6.4 ALLOWANCE FOR FINANCE RECEIVABLE LOSSES The allowance for finance receivable losses was as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Balance at January 1 $ 226 $184 $162 Provision for finance receivable losses 574 214 163 Charge offs, net of recoveries (308) (172) (141) - - ---------------------------------------------------------- Balance at December 31 $ 492 $226 $184 - - ----------------------------------------------------------
7. DEFERRED POLICY ACQUISITION COSTS (DPAC) DPAC at December 31, and the components of the change for the years then ended, were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Balance at January 1 $ 2,563 $1,451 $1,876 Capitalization 417 339 399 Accretion of interest 157 149 143 Amortization (360) (344) (326) Effect of net unrealized gains (losses) on securities (1,160) 954 (550) Other 8 14 (91) - - ---------------------------------------------------------- Balance at December 31 $ 1,625 $2,563 $1,451 - - ----------------------------------------------------------
8. COST OF INSURANCE PURCHASED (CIP) CIP at December 31, and the components of the change for the years then ended, were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Balance at January 1 $ 168 $186 $207 Addition from Franklin Life 658 -- -- Accretion of interest 54 16 18 Amortization (100) (34) (38) Effect of net unrealized gains (losses) on securities (270) -- -- Other (6) -- (1) - - ---------------------------------------------------------- Balance at December 31 $ 504 $168 $186 - - ----------------------------------------------------------
CIP amortization, net of accretion, expected to be recorded in each of the next five years is $49 million, $46 million, $42 million, $37 million, and $34 million. 9. STATE GUARANTY ASSOCIATIONS State guaranty fund expense included in operating costs and expenses was $28 million, $14 million, and $11 million for the years ended December 31, 1995, 1994, and 1993, respectively. Amounts assessed American General's life insurance and annuity subsidiaries by state life and health insurance guaranty funds resulting from past industry insolvencies were $21 million, $16 million, and $14 million in 1995, 1994, and 1993, respectively. These assessments are expected to be partially recovered against the payment of future premium taxes. The accrued liability for anticipated assessments was $51 million, $30 million, and $26 million at December 31, 1995, 1994, and 1993, respectively. The company has recorded receivables of $44 million, $24 million, and $18 million at each year-end, respectively, for expected recoveries against the payment of future premium taxes. The 1995 liability was estimated by the company using the latest information available from the National Organization of Life and Health Insurance Guaranty Associations. Although the amount accrued represents the company's best estimate of its liability, this estimate may change in the future. Additionally, changes in state laws could decrease the amount recoverable against future premium taxes. 10. DEBT 10.1 LONG-TERM DEBT Long-term debt at December 31 was as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Corporate Senior, 6.3% -- 10%, through 2025 $1,170 $ 836 $ 960 - - ---------------------------------------------------------- Consumer Finance Senior, 4.4% -- 11%, through 2009 $4,980 $4,163 $3,547 Senior subordinated -- 150 472 - - ---------------------------------------------------------- Total Consumer Finance $4,980 $4,313 $4,019 - - ----------------------------------------------------------
10.2 LONG-TERM DEBT MATURITIES Maturities of long-term debt and sinking fund requirements for each of the next five years are as follows:
In millions 1996 1997 1998 1999 2000 - - ------------------------------------------------------------ Corporate $ -- $ 133 $ 68 $100 $200 Consumer Finance 608 1,219 811 535 937 - - ------------------------------------------------------------
Two debt issues of the Consumer Finance segment that are scheduled to mature after 2000 are redeemable prior to maturity at par, at the option of the holders. If these issues were so redeemed, the amounts above would increase by $150 million in 1996 and 1999. - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 37 23 - - -------------------------------------------------------------------------------- 10.3 SHORT-TERM DEBT The weighted-average interest rates on short-term borrowings at December 31 were as follows:
1995 1994 1993 - - ---------------------------------------------------------- Corporate 5.8% 6.0% 3.3% Consumer Finance 5.8 5.9 3.3 - - ----------------------------------------------------------
10.4 CREDIT AGREEMENTS During 1995, American General and certain subsidiaries used commercial paper to meet short-term funding requirements. Unsecured bank credit facilities are used to support commercial paper borrowings. At December 31, 1995, American General and certain of its subsidiaries maintained unsecured committed credit facilities of $3.2 billion with a total of 51 domestic and foreign banks. Interest rates are based on a money market index, and annual commitment fees range from 6 to 11 basis points. There were no borrowings under these facilities at December 31, 1995. 11. INCOME TAXES 11.1 TAX LIABILITIES Income tax liabilities at December 31 were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Current tax liabilities (assets) $ (53) $(67) $ 76 - - ---------------------------------------------------------- Deferred, applicable to Net income 718 817 783 Net unrealized gains (losses) on securities 603 (29) 382 - - ---------------------------------------------------------- Net deferred tax liabilities 1,321 788 1,165 - - ---------------------------------------------------------- Income tax liabilities $1,268 $721 $1,241 - - ----------------------------------------------------------
Components of deferred tax liabilities and assets at December 31 were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Deferred tax liabilities, applicable to Basis differential of investments $ 911 $ -- $ 589 DPAC and CIP 583 850 480 Other 571 425 380 - - ---------------------------------------------------------- Total deferred tax liabilities 2,065 1,275 1,449 - - ---------------------------------------------------------- Deferred tax assets, applicable to Policy reserves (392) (132) (28) Allowance for finance receivable losses (138) (64) (44) Basis differential of investments -- (464) -- Other (240) (142) (212) - - ---------------------------------------------------------- Gross deferred tax assets (770) (802) (284) Valuation allowance 26 315 -- - - ---------------------------------------------------------- Total deferred tax assets, net (744) (487) (284) - - ---------------------------------------------------------- Net deferred tax liabilities $1,321 $ 788 $1,165 - - ----------------------------------------------------------
The deferred tax asset valuation allowance at December 31, 1995 was related to operating loss carryovers not expected to be utilized. The deferred tax asset valuation allowance at December 31, 1994 was attributable to unrealized losses on securities and had no income statement impact. A portion of life insurance income earned prior to 1984 is not taxable unless it exceeds certain statutory limitations or is distributed as dividends. Such income, accumulated in policyholders' surplus accounts, totaled $569 million at December 31, 1995. At current corporate rates, the maximum amount of tax on such income is approximately $199 million. Deferred income taxes on these accumulations are not required because no distributions are expected. 11.2 TAX EXPENSE Components of income tax expense were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Current Federal $ 304 $261 $354 State 6 19 18 - - ---------------------------------------------------------- Total current 310 280 372 Deferred (24) 9 (20) - - ---------------------------------------------------------- Income tax expense $ 286* $289 $352 - - ----------------------------------------------------------
* Excludes $11 million tax benefit for tax deductible dividends on preferred securities of subsidiaries. In 1993, the federal corporate income tax rate increased from 34% to 35%. As a result, an adjustment of $30 million was included in income tax expense in 1993, $26 million of which reflects an increase in deferred tax liabilities. A reconciliation between the federal income tax rate and the effective tax rate follows:
1995 1994 1993 - - ---------------------------------------------------------- Federal income tax rate 35% 35% 35% Tax-exempt investment income (2) (2) (2) State taxes, net -- 2 2 Acquisition-related goodwill 1 1 1 Tax rate change -- -- 4 Write-down of goodwill -- -- 18 - - ---------------------------------------------------------- Effective tax rate 34% 36% 58%* - - ----------------------------------------------------------
* Excludes tax effect of accounting changes. 11.3 TAXES PAID Federal income taxes paid in 1995, 1994, and 1993 were $269 million, $409 million, and $260 million, respectively. State income taxes paid in 1995, 1994, and 1993 were $13 million, $22 million, and $15 million, respectively. 11.4 TAX RETURN EXAMINATIONS The company and the majority of its subsidiaries file a consolidated federal income tax return. The Internal Revenue Service (IRS) has completed examinations of the company's returns through 1985. All issues, except the one being litigated as described in Note 19.2, have been settled within the amounts previously provided in the consolidated financial statements. The IRS is currently examining the company's tax returns for 1986 through 1992. - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 38 24 - - -------------------------------------------------------------------------------- 12. REDEEMABLE EQUITY 12.1 PREFERRED SECURITIES OF SUBSIDIARIES During 1995, two wholly-owned subsidiaries of the company were incorporated for the purpose of issuing Monthly Income Preferred Securities (Preferred Securities). The sole assets of these subsidiaries are Junior Subordinated Debentures (Subordinated Debentures) issued by the company and U.S. Treasury bonds. These subsidiaries have no independent operations. The Subordinated Debentures are eliminated in the consolidated financial statements. The interest and other payment dates of the company's Subordinated Debentures held by the subsidiaries correspond to the distribution and other payment dates of the subsidiaries' Preferred Securities. The company's obligations under the Subordinated Debentures and related agreements, when taken together, constitute a full and unconditional guarantee of payments due on the Preferred Securities. The Subordinated Debentures are redeemable at the option of the company. Upon such event, the Preferred Securities are redeemable on a proportionate basis. Information about the Preferred Securities and the assets held by the issuing subsidiaries at December 31, 1995 was as follows:
American General American General American General $ in millions, except per security data Capital, L.L.C. Capital, L.L.C. Delaware, L.L.C. - - ----------------------------------------------------------------------------------------------------------------- Preferred securities Date issued June 5, 1995 August 29, 1995 June 1, 1995 Shares issued and outstanding 11,500,000 8,600,000 5,000,000 Par value $287 $215 $250 Carrying amount $277 $208 $244 Dividend rate 8.45% 8.125% 6% Dividends paid $14 $6 $9 Conversion feature Non-convertible Non-convertible Convertible(a) Earliest redemption date June 5, 2000 August 29, 2000 May 31, 2003(b) Mandatory redemption date June 30, 2025(c) September 30, 2025(c) May 31, 2025 - - ----------------------------------------------------------------------------------------------------------------- Assets of issuing subsidiary Subordinated Debentures of American General Interest rate 8.45% 8.125% 6% Mandatory redemption date June 30, 2025(c) September 30, 2025(c) May 31, 2025 Principal $360 $269 $313 U.S. Treasury bonds $4 $3 $3 - - -----------------------------------------------------------------------------------------------------------------
(a) Each security convertible into 1.2288 shares of American General common stock. (b) Under certain circumstances, may be redeemed on May 31, 2000. (c) Subject to possible extension to 2044. 12.2 COMMON STOCK SUBJECT TO PUT CONTRACTS During 1994, the company entered into put option contracts giving the holders the right, but not the obligation, to sell to American General a total of 1,700,000 shares of its common stock at fixed prices ranging from $25.88 to $29.25 per share. All such options expired during 1995, and the related redeemable equity of $47 million was reclassified to shareholders' equity. 13. CAPITAL STOCK 13.1 CLASSES OF CAPITAL STOCK American General has two classes of capital stock. Preferred stock ($1.50 par value, 60 million shares authorized) may be issued in series with rights to be determined by the board of directors. At December 31, 1995, sufficient shares of preferred stock were reserved for the acquisition of Independent. Common stock ($.50 par value, 300 million shares authorized) was owned by 28,336 shareholders of record at February 9, 1996. At December 31, 1995, approximately 2.6 million shares of common stock were reserved for issuance, primarily for the exercise of stock options. 13.2 PREFERRED SHARE PURCHASE RIGHTS One preferred share purchase right is attached to each share of common stock. These rights will become exercisable only upon the occurrence of certain events related to a change in control of the company. Each right will entitle the holder to purchase 1/100 of a share of American General's Series A Junior Participating Preferred Stock. All rights expire August 7, 1999, unless extended or redeemed. - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 39 25 - - -------------------------------------------------------------------------------- 14. STOCK AND INCENTIVE PLANS Shares available for stock and incentive plans and stock option activity are shown below:
Shares Available Shares Issuable under for Issue Outstanding Options ----------- --------------------------------- 1995 1995 1994 1993 - - -------------------------------------------------------------------------- Balance at January 1 4,692,585 2,292,346 1,563,980 1,654,854 Stock options Granted (690,700) 690,700 851,500 516,305 Exercised -- (358,714) (64,634) (531,637) Forfeited* 64,800 (72,300) (58,500) (75,542) Restricted stock issued (42,000) - - -------------------------------------------------------------------------- Balance at December 31 4,024,685 2,552,032 2,292,346 1,563,980 - - --------------------------------------------------------------------------
* 1995 includes 7,500 options forfeited from the 1984 plan, which are no longer available for issue. Options may not be exercised within six months of, nor after 10 years from, the date of grant. The average price of options exercised was $21.58, $19.65, and $17.70 in 1995, 1994, and 1993, respectively. At December 31, 1995, there were 1,802,407 options exercisable, and the exercise price of all options outstanding ranged from $15.38 to $34.88 (average price of $26.72 per share). The options expire between 1996 and 2005. 15. BENEFIT PLANS 15.1 PENSION PLANS American General and its subsidiaries have non-contributory defined benefit pension plans covering most employees. Pension benefits are based on the participant's average monthly compensation and length of credited service. The company's funding policy is to contribute annually no more than the maximum amount deductible for federal income tax purposes. Equity and fixed maturity securities were 63% and 35%, respectively, of the plans' assets at the plans' most recent balance sheet dates. The pension plans have purchased annuity contracts from American General subsidiaries to provide benefits for certain retirees. During 1995, 1994, and 1993, these contracts provided $42 million, $38 million, and $37 million, respectively, for retiree benefits. The components of pension expense and underlying assumptions were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Service cost (benefits earned) $ 11 $ 13 $ 12 Interest cost 28 21 19 Actual return on plan assets (126) (2) (65) Net amortization and deferral 62 (53) 15 - - ---------------------------------------------------------- Pension expense (income) $ (25) $ (21) $ (19) - - ---------------------------------------------------------- Weighted-average discount rate on benefit obligation 7.25% 8.50% 7.25% Rate of increase in compensation levels 4.00 4.00 4.00 Expected long-term rate of return on plan assets 10.00 10.00 10.00 - - ----------------------------------------------------------
The funded status of the plans and the prepaid pension expense included in other assets at December 31 were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Accumulated benefit obligation* $ 379 $245 $253 Effect of increase in compensation levels 36 30 36 - - ---------------------------------------------------------- Projected benefit obligation 415 275 289 Plan assets at fair value 698 532 531 - - ---------------------------------------------------------- Plan assets at fair value in excess of projected benefit obligation 283 257 242 Unrecognized net gain (83) (83) (80) Unrecognized prior service cost 6 8 11 Unrecognized transition asset (5) (16) (27) - - ---------------------------------------------------------- Prepaid pension expense $ 201 $166 $146 - - ----------------------------------------------------------
* Over 85% vested. 15.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS American General and its subsidiaries have life, medical, supplemental major medical, and dental plans for certain retired employees and agents. Most plans are contributory, with retiree contributions adjusted annually to limit employer contributions to predetermined amounts. American General and its subsidiaries have reserved the right to change or eliminate these benefits at any time. The life plans are fully insured. A portion of the retiree medical and dental plans are funded through a voluntary employees' beneficiary association (VEBA) established in 1994; the remainder is unfunded and self-insured. All of the retiree medical and dental plans' assets held in the VEBA were invested in readily marketable securities at its most recent balance sheet date. The plans' combined funded status and the accrued postretirement benefit cost included in other liabilities at December 31 were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Actuarial present value of benefit obligation Retirees $ 40 $ 34 $ 39 Active plan participants Fully eligible 5 4 4 Other 22 18 19 - - ---------------------------------------------------------- Accumulated postretirement benefit obligation (APBO) 67 56 62 Plan assets at fair value 2 3 -- - - ---------------------------------------------------------- APBO in excess of plan assets at fair value 65 53 62 Unrecognized net gain (loss) -- 1 (3) - - ---------------------------------------------------------- Accrued benefit cost $ 65 $ 54 $ 59 - - ---------------------------------------------------------- Weighted-average discount rate on benefit obligation 7.25% 8.50% 7.25% - - ----------------------------------------------------------
- - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 40 26 - - -------------------------------------------------------------------------------- Postretirement benefit expense was as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Service cost (benefits earned) $ 1 $1 $1 Interest cost 5 4 4 Postretirement benefit expense $ 6 $5 $5 - - ----------------------------------------------------------
For measurement purposes, an 11.5% annual rate of increase in the per capita cost of covered health care benefits was assumed in 1996; the rate was assumed to decrease gradually to 6% in 2007 and remain at that level. A 1% increase in this assumed rate results in a $2 million increase in the APBO and an immaterial increase in postretirement benefit expense. 16. STATUTORY ACCOUNTING State insurance laws prescribe accounting practices for calculating statutory net income and equity. In addition, state regulators may allow permitted statutory accounting practices that differ from prescribed practices. The use of such permitted practices by the company's insurance and annuity subsidiaries did not have a material effect on their statutory equity at December 31, 1995. Statutory accounting practices differ from GAAP. Significant differences for the company's life insurance and annuity subsidiaries were as follows:
In millions 1995 1994 1993 - - ---------------------------------------------------------- Statutory net income $ 413 $ 507 $ 417 Change in DPAC and CIP 167 124 191 Investment valuation differences 48 (89) 100 Policy reserve adjustments (123) (122) (198) Non-recurring adjustments -- -- (346)(a) Other, net 80 3 59 - - ---------------------------------------------------------- GAAP net income $ 585 $ 423 $ 223 - - ---------------------------------------------------------- Statutory equity $ 1,966 $1,681 $1,700 Asset valuation reserve 442 296 245 Investment valuation differences(b) 2,305 (1,469) 1,484 DPAC and CIP 2,116 2,720 1,758 Deferred income taxes (1,319) (775) (1,130) Policy reserve adjustments 264 570 673 Acquisition-related goodwill 297 308 319 Other, net 266 45 21 - - ---------------------------------------------------------- GAAP equity $ 6,337 $3,376 $5,070 - - ----------------------------------------------------------
(a) Includes $300 million write-down of goodwill, $26 million tax rate related adjustment, and $20 million of accounting changes. (b) Primarily GAAP unrealized gains (losses) on securities. 17. DERIVATIVE FINANCIAL INSTRUMENTS 17.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS The company's objectives for using interest rate swap agreements on its debt are to effectively convert a portion of its floating-rate borrowings to a fixed rate and to hedge against the risk of rising interest rates on anticipated debt issuances. The company's objectives for using interest rate swap agreements on its investment securities are to effectively convert specific investment securities from a floating to a fixed-rate basis, or vice versa, and to hedge against the risk of rising prices on anticipated investment security purchases. The company's objectives for using currency swap agreements are to effectively convert cash flows from specific investment securities denominated in foreign currencies into U.S. dollars at specified exchange rates, and to hedge against currency rate fluctuations on anticipated investment security purchases. Derivative financial instruments related to debt securities did not have a material effect on the weighted-average borrowing rate or reported interest expense in any of the three years ended December 31, 1995. Derivative financial instruments related to investment securities, which were not used prior to 1994, did not have a material effect on net investment income in 1995 or 1994. The company is neither a dealer nor a trader in derivative financial instruments. 17.2 CREDIT AND MARKET RISK The company is exposed to credit risk in the event of non-performance by counterparties to swap agreements. The company limits this exposure by entering into swap agreements with counterparties having high credit ratings, basing the amount and term of agreements on these credit ratings, and regularly monitoring the ratings. The company's credit exposure on swaps is limited to the fair value of swap agreements that are favorable to the company. The company does not expect any counterparty to fail to meet its obligation; however, non-performance would not have a material impact on the consolidated results of operations and financial position. The company's exposure to market risk is mitigated by the offsetting effects of changes in the value of swap agreements and of the related debt and investment securities. 17.3 ACCOUNTING POLICIES The difference between amounts paid and received on swap agreements is recorded on an accrual basis as an adjustment to interest expense or investment income, as appropriate, over the periods covered by the agreements. The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair values of swap agreements are recognized in the consolidated balance sheet if they hedge investment securities carried at fair value or anticipated investment purchases. In this event, changes in the fair value of a swap agreement are reported in net unrealized gains (losses) on securities included in shareholders' equity, consistent with the treatment of the related investment security. The fair values of swap agreements hedging debt are not recognized in the consolidated balance sheet. For swap agreements hedging anticipated debt issuances or investment security purchases, the net swap settlement amount or unrealized gain or loss is deferred and included in the measurement of the anticipated transaction when it occurs. During 1995, swap agreements hedging anticipated debt issuances were terminated, and settlement costs of approximately $13 million were deferred and are being recognized as an increase to interest expense over the terms of the related debt. At December 31, 1995, there were no outstanding swap agreements related to anticipated debt issuances. - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 41 27 - - -------------------------------------------------------------------------------- Any gain or loss from early termination of a swap agreement is deferred and amortized into income over the remaining term of the related debt or investment security. If the underlying debt or investment security is extinguished or sold, any related gain or loss on swap agreements is recognized in income. 17.4 TERMS OF DERIVATIVE FINANCIAL INSTRUMENTS Swap agreements generally have terms of two to ten years. Average floating rates may change significantly, thereby affecting future cash flows. Derivative financial instruments related to debt at December 31 were as follows:
$ in millions 1995 1994 1993 - - ---------------------------------------------------------- Swap agreements to pay fixed rate Corporate Notional amount -- $ 150 -- Average receive rate -- 6.10% -- Average pay rate -- 7.54 -- Consumer Finance Notional amount $ 590 $ 390 $ 290 Average receive rate 6.10% 4.64% 3.35% Average pay rate 8.28 8.77 8.69 - - ----------------------------------------------------------
Options written on interest rate swap agreements prior to 1993 with total notional amounts of $200 million and $50 million were exercised in 1994 and 1993, respectively. Derivative financial instruments related to investment securities at December 31 were as follows:
$ in millions 1995 1994 - - ---------------------------------------------------------- Interest rate swap agreements to pay fixed rate Notional amount $ 45 -- Average receive rate 5.82% -- Average pay rate 6.41 -- Interest rate swap agreements to receive fixed rate Notional amount $ 24 $ 9 Average receive rate 7.03% 6.92% Average pay rate 6.82 6.96 - - ---------------------------------------------------------- Currency swap agreements (receive U.S.$/pay Canadian$) Notional amount (in U.S.$) $ 72 -- Average exchange rate 1.62 -- - - ----------------------------------------------------------
During 1995, the company exercised a purchase option on investment securities with a notional amount of $7 million, which had been entered into in 1994. In addition, at December 31, 1995, the company had entered into forward interest rate swap agreements with effective dates in 1996. These swaps, with a total notional amount of $25 million, were entered into to hedge anticipated investment purchases expected to occur in 1996 and to synthetically modify the yield on specific fixed-rate securities. 18. FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amounts and fair values for certain of the company's financial instruments at December 31 are presented below. Care should be exercised in drawing conclusions based on fair value, since (1) the fair values presented do not include the value associated with all of the company's assets and liabilities, and (2) the reporting of investments at fair value without a corresponding revaluation of related policyholder liabilities can be misinterpreted.
1995 1994 1993 ----------------------- ----------------------- ----------------------- Fair Carrying Fair Carrying Fair Carrying In millions Value Amount Value Amount Value Amount - - ---------------------------------------------------------------------------------------------------------------------------- Assets Fixed maturity and equity securities $37,399 $37,399 $25,924 $25,924 $26,712 $26,712 Mortgage loans on real estate 3,148 3,041 2,668 2,651 3,145 3,032 Policy loans 1,610 1,605 1,078 1,197 1,209 1,156 Finance receivables, net 7,918 7,918 7,694 7,694 6,390 6,390 Liabilities Insurance investment contracts 24,597 24,978 18,622 21,140 18,880 19,216 Short-term debt 3,043 3,043 3,777 3,777 2,550 2,550 Long-term debt Corporate 1,291 1,170 851 836 1,098 960 Consumer Finance 5,225 4,980 4,208 4,313 4,264 4,019 - - ----------------------------------------------------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair values of financial instruments. Fixed Maturity and Equity Securities. Fair values of fixed maturity and equity securities were based on quoted market prices, where available. For investments not actively traded, fair values were estimated using values obtained from independent pricing services or, in the case of some private placements, by discounting expected future cash flows using a current market rate applicable to yield, credit quality, and average life of the investments. - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 42 28 - - -------------------------------------------------------------------------------- Mortgage Loans on Real Estate. Fair value of mortgage loans was estimated primarily using discounted cash flows, based on contractual maturities and discount rates that were based on U.S. Treasury rates for similar maturity ranges, adjusted for risk, based on property type. Policy Loans. Fair value of policy loans was estimated using discounted cash flows and actuarially-determined assumptions, incorporating market rates. Finance Receivables, Net. Fair value of finance receivables, which approximates carrying amount, was estimated using projected cash flows, discounted at the weighted-average rates currently being offered for similar finance receivables. Cash flows were based on contractual payment terms adjusted for delinquencies and losses. The fair value estimate does not reflect the value of the underlying customer relationships or the related distribution system. Insurance Investment Contracts. Fair value of insurance investment contracts, which do not subject the company to significant risks arising from policyholder mortality or morbidity, was estimated using cash flows discounted at market interest rates. Care should be exercised in drawing conclusions from the estimated fair value, since the estimates are based on assumptions regarding future economic activity. Debt. Fair value of short-term debt approximates the carrying amount. Fair value of long-term debt was estimated using cash flows discounted at current borrowing rates. Off-Balance-Sheet Derivative Financial Instruments. Fair values of off-balance-sheet derivative financial instruments reflect the estimated amounts that the company would receive or pay to terminate the contract at the balance sheet date, incorporating the unrealized gains (losses) on the instruments. Had the company elected to terminate its interest rate swap agreements related to debt at December 31, 1995, 1994, and 1993, it would have paid $50 million, $7 million, and $29 million, respectively. Had the company elected to terminate its written options on interest rate swap agreements at December 31, 1993, it would have paid $33 million. These fair values were based on estimates obtained from the individual counterparties. 19. RESTRICTIONS AND CONTINGENCIES 19.1 SUBSIDIARY DIVIDEND RESTRICTIONS American General's insurance subsidiaries are restricted by state insurance laws as to the amounts they may pay as dividends without prior approval from their respective state insurance departments. Certain non-insurance subsidiaries are similarly restricted in the payment of dividends by long-term debt and credit agreements. At December 31, 1995, the amount of dividends available to the parent company from subsidiaries during 1996 not limited by such restrictions is $1.0 billion. 19.2 LEGAL PROCEEDINGS Two real estate subsidiaries of the company were defendants in a lawsuit that alleged damages based on lost profits and related claims arising from certain loans and joint venture contracts. On July 16, 1993, a judgment was entered against the subsidiaries jointly for $47.3 million in compensatory damages and against one of the subsidiaries for $189.2 million in punitive damages. On September 17, 1993, a Texas state district court reduced the previously-awarded punitive damages by $60.0 million, resulting in a reduced judgment in the amount of $176.5 million plus post-judgment interest. On January 29, 1996, the Texas First Court of Appeals rendered a two-to-one decision that affirmed the trial court judgment. The company intends to vigorously contest the matter through the appellate process. Although substantial risks and uncertainties remain with respect to the ultimate outcome, legal counsel has advised the company that it is not probable within the meaning of SFAS 5, "Accounting for Contingencies," that the company will ultimately incur a material liability in connection with this matter. Accordingly, no provision has been made in the consolidated financial statements related to this contingency. In April 1992, the IRS issued Notices of Deficiency for the 1977-1981 tax years of certain insurance subsidiaries. The basis of the dispute was the tax treatment of modified coinsurance agreements. The company elected to pay all related assessments plus associated interest, totaling $59 million. A claim for refund of tax and interest was disallowed by the IRS in January 1993. On June 30, 1993, a suit for refund was filed in the United States Court of Federal Claims. On February 7, 1996, the court ruled in favor of the company on all legal issues related to this contingency. The company does not yet know whether the IRS will appeal this decision; however, the company intends to pursue a full refund of the amounts paid. Accordingly, no provision has been made in the consolidated financial statements related to this contingency. American General and certain of its subsidiaries are defendants in various other lawsuits and proceedings arising in the normal course of business. Some of these lawsuits and proceedings arise in jurisdictions such as Alabama that permit punitive damages disproportionate to the actual damages alleged. In light of the uncertainties inherent in any litigation, no assurances can be given as to the ultimate outcome of these lawsuits and proceedings. However, American General and its subsidiaries believe that there are meritorious defenses for all of these claims and are defending them vigorously. - - -------------------------------------------------------------------------------- 1 9 9 5 A N N U A L R E P O R T 43 29 - - -------------------------------------------------------------------------------- 20. QUARTERLY DATA (UNAUDITED)
1995 In millions, ---------------------------------------------------------- except per share data 4th 3rd 2nd 1st - - ---------------------------------------------------------------------------------------------- Premiums and other considerations $ 456 $ 455 $ 439 $ 403 Net investment income 804 797 772 722 Total revenues 1,677 1,673 1,627 1,518 Insurance and annuity benefits 808 782 764 693 Operating costs and expenses 281 250 242 234 Provision for finance receivable losses 313 114 75 72 Total benefits and expenses 1,650 1,406 1,343 1,246 Net realized investment gains (losses) 3 3 1 1 Net income (loss) 9(a) 181 180 175 - - ---------------------------------------------------------------------------------------------- Per common share Net income (loss) $ .05(a) $ .86 $ .88 $ .85 Dividends paid .31 .31 .31 .31 Market price High 39.13 38.88 35.50 33.25 Low 31.00 33.63 31.13 27.50 Close 34.88 37.38 33.75 32.25 - - ---------------------------------------------------------------------------------------------- 1994 In millions, ---------------------------------------------------------- except per share data 4th 3rd 2nd 1st - - ---------------------------------------------------------------------------------------------- Premiums and other considerations $ 319 $ 304 $ 298 $ 289 Net investment income 633 622 617 621 Total revenues 1,130 1,265 1,232 1,214 Insurance and annuity benefits 577 555 553 539 Operating costs and expenses 208 206 196 191 Provision for finance receivable losses 67 59 45 43 Total benefits and expenses 1,073 1,020 985 961 Net realized investment gains (losses) (115)(b) (1) 1 1 Net income (loss) 35 159 158 161 - - ---------------------------------------------------------------------------------------------- Per common share Net income (loss) $ .18 $ .77 $ .75 $ .75 Dividends paid .29 .29 .29 .29 Market price High 28.88 30.50 29.38 29.63 Low 25.63 26.88 24.88 25.50 Close 28.25 27.13 27.63 27.88 - - ---------------------------------------------------------------------------------------------- 1993 In millions, ---------------------------------------------------------- except per share data 4th 3rd 2nd 1st - - ---------------------------------------------------------------------------------------------- Premiums and other considerations $ 322 $ 311 $ 308 $ 311 Net investment income 612 619 608 598 Total revenues 1,215 1,222 1,205 1,187 Insurance and annuity benefits 605 588 564 554 Operating costs and expenses 180 188 187 194 Provision for finance receivable losses 50 44 36 33 Total benefits and expenses 1,303 989 971 964 Net realized investment gains (losses) 1 1 3 1 Net income (loss) (164)(c) 119(d) 151 98(e) - - ---------------------------------------------------------------------------------------------- Per common share Net income (loss) $ (.76)(c) $ .55(d) $ .70 $ .45(e) Dividends paid .275 .275 .275 .275 Market price High 34.75 36.50 33.25 32.88 Low 26.25 30.13 27.75 27.31 Close 28.63 32.75 31.63 31.25 - - ----------------------------------------------------------------------------------------------
(a) Includes increase in allowance for finance receivable losses of $140 million or $.67 per share. (b) Results primarily from the capital gains offset program. (c) Includes write-down of goodwill of $300 million or $1.39 per share. (d) Includes tax rate related adjustment of $30 million or $.14 per share. (e) Includes cumulative effect of accounting changes of $46 million or $.21 per share. - - -------------------------------------------------------------------------------- A M E R I C A N G E N E R A L C O R P O R A T I O N 44 30 - - -------------------------------------------------------------------------------- REPORT OF MANAGEMENT MANAGEMENT RESPONSIBILITY Management is responsible for the information in this report. Informed estimates and judgments were used that affect the reported amounts in the financial statements and disclosures regarding contingencies. While the estimates were based on management's best judgment at the time, future facts and circumstances could change, causing the ultimate results to differ from management's estimates. INTERNAL CONTROLS American General's system of internal controls is designed to provide reasonable assurance that assets are safeguarded, that transactions are properly recorded and executed, and that established policies and procedures are followed. The system includes: a documented organizational structure and division of responsibility; established policies and procedures that are communicated throughout the company, including a policy on business conduct to foster a strong ethical climate; and the careful selection, training, and development of employees. INTERNAL AUDITORS Internal auditors monitor the operation of the internal control system and report findings and recommendations to management and the audit committee of the board. The company takes prompt corrective actions to address control deficiencies and other opportunities for improving the system. INDEPENDENT AUDITORS American General engaged Ernst & Young LLP to perform an independent audit of the consolidated financial statements of the company. Ernst & Young LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the board of directors, and committees of the board. Management believes that all representations made to Ernst & Young LLP during their audit were valid and appropriate. AUDIT COMMITTEE OF THE BOARD The audit committee is composed of three non-employee members of the board of directors. The committee meets regularly with members of management, internal auditors, and Ernst & Young LLP to discuss the adequacy of American General's internal control environment, financial reporting, accounting matters, and audit results. Ernst & Young LLP and internal auditors have full and free access to the audit committee. /s/ Austin P. Young Senior Vice President and Chief Financial Officer /s/ Harold S. Hook Chairman and Chief Executive Officer - - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS AMERICAN GENERAL CORPORATION We have audited the accompanying consolidated balance sheets of American General Corporation and subsidiaries as of December 31, 1995, 1994, and 1993, and the related consolidated statements of income, shareholders' equity, stock activity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American General Corporation and subsidiaries as of December 31, 1995, 1994, and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 4 to the financial statements, the company changed certain of its accounting methods as a result of adopting new, required accounting standards. /s/ Ernst & Young LLP Houston, Texas February 12, 1996 - - -------------------------------------------------------------------------------- 45 1 9 9 5 A N N U A L R E P O R T EX-21 6 SUBSIDIARIES OF AMERICAN GENERAL CORPORATION 1 - - -------------------------------------------------------------------------------- [AMERICAN GENERAL LOGO] AMERICAN GENERAL CORPORATION EXHIBIT 21 - SUBSIDIARIES OF AMERICAN GENERAL CORPORATION The following list includes certain, but not all, of American General Corporation's subsidiaries at March 1, 1996. Subsidiaries of subsidiaries are indicated by indentations.
Jurisdiction Name of Incorporation - - ------------------------------------------------------------------------------------------------------------------ AGC Life Insurance Company................................................................ Missouri American Franklin Company............................................................... Delaware The Franklin Life Insurance Company.................................................. Illinois Franklin Financial Services Corporation............................................ Delaware The American Franklin Life Insurance Company....................................... Illinois American General Life and Accident Insurance Company.................................... Tennessee American General Exchange, Inc. ..................................................... Tennessee American General Life Insurance Company................................................. Texas American General Annuity Service Corporation......................................... Texas American General Life Insurance Company of New York.................................. New York American General Securities Incorporated............................................. Texas The Variable Annuity Life Insurance Company.......................................... Texas The Variable Annuity Marketing Company............................................. Texas Independent Property & Casualty Insurance Company....................................... Florida The Independent Life and Accident Insurance Company..................................... Florida Independent Fire Insurance Company................................................... Florida Independent Fire Insurance Company of Florida...................................... Florida Thomas Jefferson Insurance Company................................................... Florida Allen Property Company ................................................................... Delaware American General Capital, L.L.C. ......................................................... Delaware American General Capital Services, Inc. .................................................. Delaware American General Delaware, L.L.C. ........................................................ Delaware American General Delaware Management Corporation.......................................... Delaware American General Finance, Inc. ........................................................... Indiana AGF Investment Corp. ................................................................... Indiana American General Auto Finance, Inc. .................................................... Delaware American General Finance Corporation.................................................... Indiana American General Finance Group, Inc. ................................................ Delaware American General Financial Services, Inc........................................... Delaware The National Life and Accident Insurance Company................................ Texas CommoLoCo, Inc. .............................................................. Puerto Rico Merit Life Insurance Co. ............................................................ Indiana Service Bureau of Indiana, Inc....................................................... Indiana Yosemite Insurance Company........................................................... California American General Financial Center....................................................... Utah American General Finance, Inc. ......................................................... Alabama American General Investment Corporation................................................... Delaware American General Mortgage and Land Development, Inc. ..................................... Delaware American General Land Development, Inc. ................................................ Delaware American General Realty Advisors, Inc. ................................................. Delaware American General Property Insurance Company............................................... Tennessee Bayou Property Company ................................................................... Delaware Financial Life Assurance Company of Canada................................................ Canada Florida GL Corporation.................................................................... Delaware GPC Property Company...................................................................... Delaware Green Hills Corporation................................................................... Delaware Knickerbocker Corporation................................................................. Texas Lincoln American Corporation.............................................................. Delaware Pavilions Corporation..................................................................... Delaware
EX-23 7 CONSENT OF ERNST & YOUNG 1 EXHIBIT 23 -- CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of American General Corporation of our report dated February 12, 1996, included in the 1995 Annual Report to Shareholders of American General Corporation. Our audits also included the financial statement schedules of American General Corporation listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth herein. We also consent to the incorporation by reference in
REGISTRATION STATEMENT NUMBER ON FORM - - ----------------------------------------------------------------------------------------- 33-39200............................................................ S-8 33-39201............................................................ S-8 33-39202............................................................ S-8 2-98021............................................................. S-8 33-51973............................................................ S-8 33-19075............................................................ S-3 33-30693............................................................ S-3 33-51045............................................................ S-3 33-58317............................................................ S-3 33-58317-01......................................................... S-3 33-58317-02......................................................... S-3 333-00513........................................................... S-4 - - -----------------------------------------------------------------------------------------
of our report dated February 12, 1996, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of American General Corporation. /s/ Ernst & Young LLP Houston, Texas March 20, 1996 EX-24 8 POWERS OF ATTORNEY 1 American General Corporation: Board of Directors Date: February 8, 1996 Subject: Form 10-K; Limited Power of Attorney for Purpose. The purpose of this limited power of attorney is to authorize certain officers of the company to execute, on behalf of the undersigned person, the company's 1995 annual report on Form 10-K, with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other related documents, and to file the Form 10-K with the SEC. LIMITED POWER OF ATTORNEY WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company), will file with the Securities and Exchange Commission (Commission) under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form 10-K), with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other documents related thereto; NOW, THEREFORE, the undersigned in his capacity as a director or officer or both, as the case may be, of the company does hereby appoint AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his true and lawful attorney or attorneys-in-fact with or without the others and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director or officer or both, as the case may be, of the company, the Form 10-K and any and all amendments thereto as said attorneys-in-fact or any of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys-in-fact shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable in connection with the Form 10-K, as fully and for all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys-in-fact and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this eighth day of February, 1996. /s/ J. Evans Attwell ------------------------------ J. Evans Attwell 2 American General Corporation: Board of Directors Date: February 8, 1996 Subject: Form 10-K; Limited Power of Attorney for Purpose. The purpose of this limited power of attorney is to authorize certain officers of the company to execute, on behalf of the undersigned person, the company's 1995 annual report on Form 10-K, with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other related documents, and to file the Form 10-K with the SEC. LIMITED POWER OF ATTORNEY WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company), will file with the Securities and Exchange Commission (Commission) under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form 10-K), with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other documents related thereto; NOW, THEREFORE, the undersigned in his capacity as a director or officer or both, as the case may be, of the company does hereby appoint AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his true and lawful attorney or attorneys-in-fact with or without the others and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director or officer or both, as the case may be, of the company, the Form 10-K and any and all amendments thereto as said attorneys-in-fact or any of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys-in-fact shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable in connection with the Form 10-K, as fully and for all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys-in-fact and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this eighth day of February, 1996. /s/ Brady F. Carruth ------------------------------ Brady F. Carruth 3 American General Corporation: Board of Directors Date: February 8, 1996 Subject: Form 10-K; Limited Power of Attorney for Purpose. The purpose of this limited power of attorney is to authorize certain officers of the company to execute, on behalf of the undersigned person, the company's 1995 annual report on Form 10-K, with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other related documents, and to file the Form 10-K with the SEC. LIMITED POWER OF ATTORNEY WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company), will file with the Securities and Exchange Commission (Commission) under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form 10-K), with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other documents related thereto; NOW, THEREFORE, the undersigned in his capacity as a director or officer or both, as the case may be, of the company does hereby appoint AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his true and lawful attorney or attorneys-in-fact with or without the others and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director or officer or both, as the case may be, of the company, the Form 10-K and any and all amendments thereto as said attorneys-in-fact or any of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys-in-fact shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable in connection with the Form 10-K, as fully and for all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys-in-fact and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this eighth day of February, 1996. /s/ W. Lipscomb Davis, Jr. ------------------------------ W. Lipscomb Davis, Jr. 4 American General Corporation: Board of Directors Date: February 8, 1996 Subject: Form 10-K; Limited Power of Attorney for Purpose. The purpose of this limited power of attorney is to authorize certain officers of the company to execute, on behalf of the undersigned person, the company's 1995 annual report on Form 10-K, with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other related documents, and to file the Form 10-K with the SEC. LIMITED POWER OF ATTORNEY WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company), will file with the Securities and Exchange Commission (Commission) under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form 10-K), with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other documents related thereto; NOW, THEREFORE, the undersigned in his capacity as a director or officer or both, as the case may be, of the company does hereby appoint AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his true and lawful attorney or attorneys-in-fact with or without the others and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director or officer or both, as the case may be, of the company, the Form 10-K and any and all amendments thereto as said attorneys-in-fact or any of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys-in-fact shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable in connection with the Form 10-K, as fully and for all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys-in-fact and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this eighth day of February, 1996. /s/ Robert M. Devlin ------------------------------ Robert M. Devlin 5 American General Corporation: Board of Directors Date: February 8, 1996 Subject: Form 10-K; Limited Power of Attorney for Purpose. The purpose of this limited power of attorney is to authorize certain officers of the company to execute, on behalf of the undersigned person, the company's 1995 annual report on Form 10-K, with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other related documents, and to file the Form 10-K with the SEC. LIMITED POWER OF ATTORNEY WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company), will file with the Securities and Exchange Commission (Commission) under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form 10-K), with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other documents related thereto; NOW, THEREFORE, the undersigned in his capacity as a director or officer or both, as the case may be, of the company does hereby appoint AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his true and lawful attorney or attorneys-in-fact with or without the others and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director or officer or both, as the case may be, of the company, the Form 10-K and any and all amendments thereto as said attorneys-in-fact or any of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys-in-fact shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable in connection with the Form 10-K, as fully and for all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys-in-fact and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this eighth day of February, 1996. /s/ Larry D. Horner ------------------------------ Larry D. Horner 6 American General Corporation: Board of Directors Date: February 8, 1996 Subject: Form 10-K; Limited Power of Attorney for Purpose. The purpose of this limited power of attorney is to authorize certain officers of the company to execute, on behalf of the undersigned person, the company's 1995 annual report on Form 10-K, with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other related documents, and to file the Form 10-K with the SEC. LIMITED POWER OF ATTORNEY WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company), will file with the Securities and Exchange Commission (Commission) under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form 10-K), with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other documents related thereto; NOW, THEREFORE, the undersigned in his capacity as a director or officer or both, as the case may be, of the company does hereby appoint AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his true and lawful attorney or attorneys-in-fact with or without the others and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director or officer or both, as the case may be, of the company, the Form 10-K and any and all amendments thereto as said attorneys-in-fact or any of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys-in-fact shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable in connection with the Form 10-K, as fully and for all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys-in-fact and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this eighth day of February, 1996. /s/ Richard J.V. Johnson ------------------------------ Richard J.V. Johnson 7 American General Corporation: Board of Directors Date: February 8, 1996 Subject: Form 10-K; Limited Power of Attorney for Purpose. The purpose of this limited power of attorney is to authorize certain officers of the company to execute, on behalf of the undersigned person, the company's 1995 annual report on Form 10-K, with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other related documents, and to file the Form 10-K with the SEC. LIMITED POWER OF ATTORNEY WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company), will file with the Securities and Exchange Commission (Commission) under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form 10-K), with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other documents related thereto; NOW, THEREFORE, the undersigned in his capacity as a director or officer or both, as the case may be, of the company does hereby appoint AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his true and lawful attorney or attorneys-in-fact with or without the others and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director or officer or both, as the case may be, of the company, the Form 10-K and any and all amendments thereto as said attorneys-in-fact or any of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys-in-fact shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable in connection with the Form 10-K, as fully and for all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys-in-fact and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this eighth day of February, 1996. /s/ Robert E. Smittcamp ------------------------------ Robert E. Smittcamp 8 American General Corporation: Board of Directors Date: February 8, 1996 Subject: Form 10-K; Limited Power of Attorney for Purpose. The purpose of this limited power of attorney is to authorize certain officers of the company to execute, on behalf of the undersigned person, the company's 1995 annual report on Form 10-K, with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other related documents, and to file the Form 10-K with the SEC. LIMITED POWER OF ATTORNEY WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company), will file with the Securities and Exchange Commission (Commission) under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual report on Form 10-K for the fiscal year ended December 31, 1995 (Form 10-K), with such amendments thereto as may be necessary or appropriate, together with any and all exhibits and other documents related thereto; NOW, THEREFORE, the undersigned in his capacity as a director or officer or both, as the case may be, of the company does hereby appoint AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them, severally, his true and lawful attorney or attorneys-in-fact with or without the others and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director or officer or both, as the case may be, of the company, the Form 10-K and any and all amendments thereto as said attorneys-in-fact or any of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys-in-fact shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable in connection with the Form 10-K, as fully and for all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys-in-fact and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this eighth day of February, 1996. /s/ Anne M. Tatlock ------------------------------ Anne M. Tatlock EX-27 9 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 37,213 0 0 186 3,041 577 42,904 161 0 2,129 61,153 35,794 236 164 1,789 9,193 729 0 364 5,437 61,153 1,753 3,095 12 1,635 3,047 249 (417) 850 286 545 0 0 0 545 2.66 2.64 0 0 0 0 0 0 0 ALL FIXED MATURITY SECURITIES ARE CURRENTLY CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED AT FAIR VALUE. INCLUDES COST OF INSURANCE PURCHASED (CIP). THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES. CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARIES. CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES; RETAINED EARNINGS; AND COST OF TREASURY STOCK. INCLUDES TOTAL INSURANCE CHARGES. INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES. CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION OF INTEREST. CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS. EXCLUDES $30 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES, SHOWN SEPARATELY, NET OF TAX, IN CONSOLIDATED INCOME STATEMENT. EXCLUDES $11 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES.
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