Liabilities for future policy benefits under coinsurance and modified coinsurance agreements equal reinsured policy account balances on the underlying variable universal life policies and variable annuity contracts. With regard to the separate account benefits reinsured on a modified coinsurance basis, we record the liabilities as an offset to related assets as intentions and rights under the agreements with the ceding life companies meet the appropriate conditions governing rights of setoff. Liabilities for the fixed portion of the variable annuity contracts and variable universal life policies reinsured on a coinsurance basis are recorded as future policy benefits.
The life insurance and annuity policies that we have reinsured to date are underwritten and issued by Western Reserve, American Skandia, Zurich Kemper and Pacific Life. The following table indicates the percentage of our reinsurance revenues derived from each of our ceding life companies:
Of the total premiums and reinsured policy revenues above, 88% and 89% relates to business issued by Western Reserve for the year ended December 31, 2000 and 2001, respectively. Of the total underwriting profit above, 83% and 86% relates to business issued by Western Reserve for the year ended December 31, 2000 and 2001, respectively.
At December 31, 2001, we had written all of our reinsurance business in U.S. dollars. If, in the future, we write business in currencies other than the U.S. dollar, we intend to invest a portion of the premiums collected on the reinsurance contract in securities denominated in the same foreign currency as the premium received. We also intend to consider and evaluate our foreign currency exchange risk and hedge our exposure.
The agents associated with World Financial Group own a majority of our outstanding capital stock. If agents associated with World Financial Group who are our stockholders sell all or a significant portion of their shares and receive little or no further financial incentives from us, their motivation to act in ways that benefit our business could be reduced.
We are a holding company with no direct operations, and our principal asset is the capital stock of Global Preferred Re. Dividends and other permitted payments from our subsidiary are expected to be our sole source of funds to meet ongoing cash requirements, including debt service payments. Global Preferred Re's declaration and payment of dividends and making of distributions to us is limited under Bermuda law and regulations. Under the Insurance Act 1978 of Bermuda and related regulations, Global Preferred Re must maintain specified minimum solvency levels and is prohibited from declaring or paying dividends that would result in non-compliance. Further as a long-term insurer, Global Preferred Re must maintain long-term assets with a value of at least $250,000 more than its long-term liabilities and is prohibited from declaring or paying dividends that would result in noncompliance or if, among other things, it has reasonable grounds for believing that after making such payment it would not be able to pay its liabilities as they become due. Accordingly, we cannot assure you that Global Preferred Re will declare or pay dividends or make distributions in the future. The inability of Global Preferred Re to pay dividends in an amount sufficient to enable us to meet our cash requirements at the holding company level could have a material adverse effect on our operations.
- Notes to Consolidated Financial Statements for the years ended December 31, 1999, 2000, and 2001