5) Adverse levels of mortality, morbidity, and utilization of healthcare services relative to Torchmark's assumptions;
Life insurance premium rose 6% in 1999 to $1.02 billion from $957 million in 1998. Life premium increased 6% in 1998. Sales of life insurance, in terms of annualized premium, were $257 million in 1999, increasing 5% over 1998 sales of $244 million. This compares with 6% growth in 1998 sales over 1997. Annualized life premium in force was $1.13 billion at December 31, 1999, compared with $1.06 billion at 1998 year end, an increase of 6%. Annualized premium in force grew 6% in 1998 from $1.00 billion at year-end 1997. Annualized premium in force and issued data includes amounts collected on certain interest-sensitive life products which are not recorded as premium income but excludes single-premium income and policy account charges.
In the third quarter of 1999, Reader's Digest Association and Torchmark entered into an agreement to market Torchmark life insurance products to certain Reader's Digest customers. These products were marketed through Torchmark's Direct Response operation, and required Torchmark to guarantee specified compensation to Reader's Digest, regardless of marketing success. Test marketing began in the fourth quarter of 1999. The less than favorable results from these tests indicated that it would be unlikely that Torchmark would recover the full amount of compensation guaranteed to Reader's Digest under the terms of the agreement. As a result, Torchmark recorded a nonrecurring operating charge of $21 million in the fourth quarter of 1999. This charge represented $13 million after tax or $.10 per diluted share. Torchmark intends to maintain its relationship with Reader's Digest and to use its subscriber lists in selective marketing of Torchmark insurance products. Because of the nonrecurring charge, Torchmark will only incur its normal solicitation costs on future business and will have no further costs related to the guaranteed compensation.
Health Insurance. Torchmark markets its supplemental health insurance products through a number of distribution channels. The following table indicates health insurance premium income during each of the three years ended December 31, 1999 by distribution method.
The following table presents the annuity account balance at each year end and the annuity collections for each year for both fixed and variable annuities, excluding Family Service.
Because of its intention to dispose of Vesta, Torchmark wrote its carrying value of Vesta down to net realizable amount effective September 30, 1998. The adjustment produced an after-tax realized loss of $24 million, or $.17 per diluted Torchmark share. Net realizable value was $32 million at December 31, 1998. During 1998, Torchmark recorded a pretax loss of $27 million ($18 million after tax or $.13 per diluted share) on Vesta operations, including its pro rata share of Vesta's cumulative accounting corrections.
Birmingham, Alabama January 29, 1999 except for Note 18 which is as of February 10, 1999
A summary of fixed maturities available for sale and equity securities by amortized cost and estimated market value at December 31, 1999 and 1998 is as follows:
Options outstanding considered to be anti-dilutive totaled 5,013,990, 0, and 0 as of December 31, 1999, 1998 and 1997, respectively, and are excluded from the calculation of diluted earnings per share. Income available to common shareholders for basic earnings per share is equivalent to income available to common shareholders for diluted earnings per share.
Reinsurance: Insurance affiliates of Torchmark reinsure that portion of insurance risk which is in excess of their retention limits. Retention limits for ordinary life insurance range up to $2.5 million per life. Life insurance ceded represents less than 1.0% of total life insurance in force at December 31, 1999. Insurance ceded on life and accident and health products represents .7% of premium income for 1999. Torchmark would be liable for the reinsured risks ceded to other companies to the extent that such reinsuring companies are unable to meet their obligations.
On October 29, 1999, the District Court dismissed all of the plaintiffs' claims in Greco in their entirety and entered a final judgment dismissing Greco with prejudice. This October 29, 1999 order in Greco has been appealed by plaintiffs to the Fifth Circuit Court of Appeals.
On October 28, 1999, Liberty was served with a subpoena from the Florida Department of Insurance in connection with that Department's investigation into Liberty's sales practices and disclosures in the State of Florida regarding industrial life insurance and low value life insurance policies. Subsequently, on December 8, 1999, purported class action litigation was filed against Liberty in the United States District Court for the Northern District of Alabama (Moore v. Liberty National Life Insurance Company, Case No. CV-99- BU-3262-S), on behalf of all African-Americans who have or have had at the time of policy termination an ownership interest in certain life insurance policies ($25,000 face amount or less) marketed by Liberty and certain of its former subsidiaries. Plaintiffs allege racial discrimination in Liberty's premium rates in violation of 42 U.S.C (S)1981, breach of fiduciary duty in sales and administrative practices, receipt of excessive and unreasonable premium payments by Liberty, improper hiring, supervision, retention and failure to monitor actions of officers, agents and employees, breach of contract in dismantling the debit premium collection system, fraudulent inducement and negligent misrepresentation. Unspecified compensatory and punitive damages are sought together with a declaratory judgment and equitable and/or injunctive relief, including establishment of a constructive trust for the benefit of class members. Defendants filed a motion for judgment on the pleadings or in the alternative for summary judgment on January 27, 2000.