Approximately 90% of GAFRI's MBSs are rated "AAA" with substantially all being investment grade quality. The market in which these securities trade is highly liquid. Aside from interest rate risk, GAFRI does not believe a material risk (relative to earnings or liquidity) is inherent in holding such investments.
The $75.3 million in gross unrealized losses on fixed maturities at December 31, 2001, represents unrealized losses on nearly 300 positions. None of the individual losses exceeds $4 million and only five have unrealized losses exceeding $2 million. All of the securities with unrealized losses are current in payment of principal and interest.
Based on its analysis of the factors enumerated above, management believes (i) the issuers of these securities will continue to meet their obligations and (ii) that GAFRI has the ability and intent to hold the securities until they mature or recover in value. Should either of these beliefs change with regard to a particular security, a charge for impairment would likely be required.
The fair value of GAFRI's fixed maturity portfolio is directly impacted by changes in market interest rates. GAFRI's fixed maturity portfolio is comprised of substantially all fixed rate investments with primarily short-term and intermediate-term maturities. This practice allows flexibility in reacting to fluctuations of interest rates. GAFRI's portfolio is managed with an attempt to achieve an adequate risk-adjusted return while maintaining sufficient liquidity to meet policyholder obligations. GAFRI attempts to align the duration of invested assets to the projected cash flows of policyholder liabilities.
In 2001 GAFRI suspended accounting for Chiquita Brands International under the equity method due to Chiquita's pending restructuring.
The following accounting standards have been, or will be implemented by GAFRI. The implementation of these standards is discussed under various subheadings of Note B to the Financial Statements. Effects of each are shown in the relevant Notes.
Great American Financial Resources, Inc. ("GAFRI" or "the Company") markets retirement products, primarily fixed and variable annuities, and various forms of life and supplemental health insurance through independent agents, payroll deduction plans, financial institutions and in-home sales.
Chiquita reported net losses attributable to common shares of $112 million in 2000 and $75 million in 1999.
A progression of GAFRI's present value of future profits acquired ("PVFP") is as follows (in millions):
2001 amount primarily reflects reinsurance ceding of 80% of Loyal's life business; 2000 amount relates to purchase accounting adjustment for subsidiary acquired.
Wholly-owned subsidiary trusts of GAFRI issued preferred securities and, in turn, purchased a like amount of subordinated debt which provides interest and principal payments to fund the Trusts' obligations. The preferred securities are mandatorily redeemable upon maturity or redemption of the subordinated debt. GAFRI effectively provides an unconditional guarantee of the Trusts' obligations. The three preferred securities issues are summarized as follows:
In order to take advantage of operational efficiencies, GAFRI shares certain IT services with AFG. GAFRI made approximately $7 million and $8 million in payments to AFG for such services in 2001 and 2000, respectively.
$6 million related to the abandonment and accelerated write-off of computer operating systems, (ii) $3 million associated with the elimination of redundant positions and (iii) $1 million representing a liability for future years' rent expense for non-cancelable leased office space that would not be occupied by GAFRI employees during the remaining lease term.
(a) Included in the GAFRI column is a ($27.2) million gain on the redemption of minority ownership by