Net investment income for 2000 was $3.0 million or 10.4% higher than for the preceding year primarily due to increases in the average amount of invested assets. The percentage earned on average cash and investments was 6.5% in 2000 and 6.4% in 1999.
• Fixed maturities (bonds and redeemable preferred stocks) - at current market value. Where market values are unavailable, the Company obtains estimates from independent pricing services or estimates market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics.
• Mortgage loans - at unpaid balances, adjusted for loan origination costs, net of fees, and amortization of premium or discount.
• Investment real estate - at cost, less allowances for depreciation computed on the straight-line method. With respect to real estate acquired through foreclosure, cost is the lesser of the loan balance plus foreclosure costs or appraised value.
Financial statements prepared in conformity with accounting principles generally accepted in the United States of America differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. The most significant differences are as follows: (a) acquisition costs of obtaining new business are deferred and amortized over the approximate life of the policies rather than charged to operations as incurred; (b) benefit liabilities are computed using a net level method and are based on realistic estimates of expected mortality, interest, and withdrawals as adjusted to provide for possible unfavorable deviation from such assumptions; (c) deferred income taxes are provided for temporary differences between financial and taxable earnings; (d) the Asset Valuation Reserve and Interest Maintenance Reserve are restored to share-owners’ equity; (e) agents’ debit balances and prepaid expenses are reported as assets rather than being charged directly to surplus (referred to as nonadmitted items); (f) certain items of interest income, such as mortgage and bond discounts, are amortized differently; and (g) bonds are recorded at their market values instead of amortized cost.
2000 1999 1998 2000 1999 1998 -------------- ------------ ---------- ------------ ----------- -----------
Fixed maturities: Bonds: Mortgage-backed securities.................. $ 4,979,867 $ 125,349 $ 0 $ 5,105,216 United States Government and authorities................................. 8,108,623 229,091 2,534 8,335,180 States, municipalities, and political subdivisions...................... 3,035,053 26,882 0 3,061,935 Public utilities............................ 68,417,417 811,070 1,404,149 67,824,338 Convertibles and bonds with warrants.................................... 689,811 0 152,561 537,250 All other corporate bonds................... 343,161,828 3,187,729 12,456,797 333,892,760 --------------- ------------ ----------- ----------- 428,392,599 4,380,121 14,016,041 418,756,679 Short-term investments.............................. 4,000,000 0 0 4,000,000 --------------- ------------ ----------- ------------ $ 432,392,599 $ 4,380,121 $ 14,016,041 $ 422,756,679 =============== ============ =========== ============
The Company's income tax returns are included in the consolidated income tax returns of PLC. The allocation of income tax liabilities among affiliates is based upon separate income tax return calculations. At December 31, 2000 and 1999 no amounts were payable to PLC for income tax liabilities.
The Company has no employees; therefore, the Company purchases data processing, legal, investment, and other management services from PLC and other affiliates. The cost of such services was $7.8 million in 2000, $6.3 million in 1999, and $1.2 million in 1998.
Protective and the Company entered into a guaranty agreement on October 27, 1993, whereby Protective guaranteed the payment of all insurance policy claims made by the holders or beneficiaries of any of the Company’s policies which were issued after the date of the guaranty agreement in accordance with the terms of said policies. Total liabilities for policies covered by this agreement were $43.9 million and $10.2 million at December 31, 2000 and 1999, respectively.
Note L-- ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amount and estimated fair values of the Company’s financial instruments at December 31 are as follows: