From September 1989 to July 2000, the Company maintained its executive and business offices in a building located at 1200 Camp Hill By-Pass, Camp Hill, Pennsylvania. The office building contained approximately 44,000 square feet of office space (approximately 39,000 square feet of leasable space). Prior to 1994, the Company leased the entire facility at an annual rental of $421,000, plus insurance, taxes and utilities. In March of 1994, the Company exercised its option to acquire a 50% interest in its home office building for $1.75 million, which reduced the Company s annual rent on the portion of the building it did not own to $204,000. The Company s lease terminated in July 1999.
Since the sale of the credit insurance business and the adoption of the Plan of Liquidation, the Company's revenues, benefits and expenses have consisted principally of (i) fee revenues from the sale of the Company's customer accounts, (ii) investment income on the remaining invested assets and (iii) corporate expenses, primarily salaries, professional fees and, pension expense and home office rent and related costs. A discussion of the material factors which affected the Company's changes in net assets in liquidation (for the years ended December 31, 2000 and 1999 and for the period from March 25, 1998 to December 31, 1998) and its results of operations (for the period from January 1, 1998 to March 24, 1998) is presented below.
The consolidated financial statements for the years ended December 31, 2000 and 1999 have been audited by Stambaugh-Ness, P.C., independent auditors. The consolidated financial statements for the year ended December 31, 1998 have been audited by Arthur Andersen LLP, independent auditors. Such audits were conducted in accordance with generally accepted auditing standards, and included a review and evaluation of our internal accounting control structure, tests of the accounting records and other auditing procedures which the auditors considered necessary to express their informed professional opinions on the consolidated financial statements.
On March 24, 1998, the Company s shareholders approved a Plan of Liquidation and Dissolution (the Plan of Liquidation) pursuant to which the Company is liquidating its remaining assets and paying or providing for all of its liabilities. The Company intends to eventually distribute all of its remaining cash to its preferred shareholders (see Note 4).
Interest on fixed maturities and short-term investments is credited to income as it accrues on the principal amounts outstanding, adjusted for amortization of premiums and discounts computed by the interest method. The accrual of interest on mortgage loans is generally discontinued when the full collection of principal is in doubt, or when the payment of principal or interest has become contractually 90 days past due.
In addition to approving the sale of the in force credit insurance business, at the Special Meeting of Shareholders held on March 24, 1998, the Company s shareholders also approved the Plan of Liquidation referred to in Note 1, pursuant to which the Company is now liquidating its remaining assets and paying or providing for all of its liabilities. The Company eventually intends to distribute its remaining cash to its preferred shareholders. The Company does not expect to be able to make any payment to its common shareholders.
At December 31, 2000, the Company held only one mortgage loan, a first mortgage lien secured by income-producing real estate located in central Pennsylvania. This loan, which had a principal balance at the end of 2000 of $50,212, exceeded 10% of the Company s net assets in liquidation at December 31, 2000.
The composition of future policy benefits and unearned premiums at December 31, 2000 and the assumptions pertinent thereto are as follows:
(a) There are no interest rate assumptions in the credit reserve factors.
Historically, the insurance companies also entered into various financing-type reinsurance agreements with unaffiliated reinsurers. Such agreements, which primarily involved credit insurance, were designed to minimize the reduction of statutory capital and surplus arising at the time premiums were written. These financing-type agreements were terminated as of January 1, 1998 when the American Republic agreements became effective. During 1998, Consumers Life entered into another financing-type reinsurance agreement in which it assumed approximately $2 million in individual life insurance premiums and an equal amount of policy liabilities. This agreement terminated in January 2000. During 2000, the Company entered into a similar agreement with another insurer in which it assumed approximately $2.5 million of annuity premiums and policy liabilities. The effects of all financing-type agreements have been removed from the financial statements except for the cost of the financing, which amounted to $10,000 in 2000 and $25,000 in both 1999 and 1998. These costs are presented with Miscellaneous Expenses on the Consolidated Statements of Changes in Net Assets in Liquidation for the years ended December 31, 2000 and 1999 and for the period from March 25, 1998 to December 31, 1998 and are included with Operating Expenses on the Consolidated Statement of Operations for the period from January 1, 1998 to March 24, 1998.
Incurred benefits and losses reinsured in 2000 were $9.0 million compared to $12.6 million in 1999 and $16.4 million in 1998. These amounts have been deducted in arriving at Policyholder Benefits in the Consolidated Statements of Changes in Net Assets in Liquidation and in computing Death and Other Benefits in the Consolidated Statement of Operations. However, Future Policy Benefits and Unearned Premiums at December 31, 2000 and 1999 do not include any deduction for reinsurance ceded. Instead, the amounts related to such reinsurance are classified as Reinsurance Recoverable and Prepaid Reinsurance Premiums (see Note 9).
A reconciliation of beginning and ending balances of the pension plan's projected benefit obligation is presented below.