The Company's revenues result primarily from premiums and fees from the insurance products sold by its wholly owned subsidiaries National Foundation Life Insurance Company ("NFL"), Freedom Life Insurance Company of America ("FLICA"), National Financial Insurance Company ("NFIC") and American Insurance Company of Texas ("AICT"), and together with NFL, NFIC and FLICA, collectively, the "Insurance Subsidiaries" and marketed by NationalCare(R) Marketing, Inc. ("NCM"), also a wholly owned subsidiary. To a lesser extent the Company derives revenue from (i) tele-survey services, (ii) printing services, and (iii) renewal commissions received by the Company for prior year sales of insurance products for unaffiliated insurance carriers.
*Ratios are calculated as a percent of premium with the exception of the general and administrative expense ratio which is calculated as a percent of total insurance operating revenue.
In July 2000, the Company began marketing a new comprehensive major medical policy in all significant marketing regions. The new major medical policy is designed to produce a substantially lower benefits and claims to premium ratio than the old GPPO product. Management believes that the new major medical policy has been well accepted by NCM's career agency force. Annual premiums for new major medical policies in force at December 31, 2001 were $29.2 million as compared to $8.7 million at December 31, 2000.
The following table provides information on the Company's cash and invested assets, in thousands, as of December 31: 2001 2000 ---------- ----------
The principal component of the Company's net deferred tax asset before valuation allowance is net operating loss carryforwards ("NOLs") which totaled $52.9 million at December 31, 2001 and expire between 2003 and 2016. The establishment of a valuation allowance for GAAP does not impair the availability of NOLs for utilization in the Company's federal income tax return. As previously discussed, pre-tax losses for 2001 and 2000 were principally attributable to the GPPO product. Management believes that future GPPO product losses can be significantly reduced through continued active premium rate increase management and that the Company will utilize substantially all of its tax NOLs within the carry-forward period.
AFI's obligations under the Credit Agreement are secured by liens upon substantially all of AFI's assets. AFI's principal assets at December 31, 2001 are net agent receivables of $7.4 million and a cash collateral account pledged to LaSalle of $2.6 million. In addition, Ascent has guaranteed AFI's obligations under the Credit Agreement, and has pledged all of the issued and outstanding shares of the capital stock of AFI, NFL, FLICA and NFIC as collateral for that guaranty (the "Guaranty Agreement"). As of December 31, 2001, there were no events of default under the Credit or Guaranty Agreements. However, adverse claims experience in excess of management's current expectations could result in events of default under the Guaranty Agreement, Credit Agreement and term loan facility discussed below.
The Credit Agreement expires December 5, 2002, at which time the outstanding principal and interest will be due and payable. Under the terms of the Credit Agreement, agent advances made within six months of the expiration date (after June 5, 2002) are not eligible for financing. Failure of the Company to obtain additional renewals of the Credit Agreement beyond December 2002 could have a material adverse impact on Ascent's liquidity and capital resources. Lack of adequate financing would impair the Company's ability to pay competitive commission advances and reduce new business sales needed to replace the normal lapsing of existing policies. Therefore, failure by Ascent to maintain new business sales at current levels would result in declining premium revenue and could have a material adverse impact on Ascent's results of operations.
Each share of preferred stock is convertible at any time in 204.8897 shares of common stock at an initial conversion price of $4.88 per share, subject to customary anti-dilution adjustments.
New Equity Capital Structure Pursuant to Ascent's Amended and Restated Certificate of Incorporation, the total number of shares of capital stock Ascent has the authority to issue is 30,040,000, consisting of 30,000,000 shares of common stock, par value $.01 per share (the "New Common Stock") and 40,000 shares of preferred stock, par value $.01 per share, all of which are designated Series A Convertible Preferred Stock (the "New Preferred Stock").