Companies to receive a provisional ceding commission of 22% of premiums for acquisition expenses and 14.1% of premiums for other expenses with additional experience commissions that depend on loss experience. As a result of this new quota share reinsurance treaty, Farmers Re assumes an underwriting risk.
Goodwill. Through December 31, 2001, the excess of the purchase price over the fair value of the net assets ("Goodwill") of the Company at the date of the Company's acquisition by B.A.T ($2.4 billion) was amortized on a straight-line basis over forty years. The carrying amount of the Goodwill was regularly reviewed for indications of impairment in value which in the view of management were other than temporary, including unexpected or adverse changes in the following: (1) the economic or competitive environments in which the Company operates, (2) profitability analyses and (3) cash flow analyses.
Impairment of Investments. The Company regularly reviews its investment portfolio to determine whether declines in the value of investments are other than temporary as defined by SFAS No. 115. The Company's review for declines in value includes analyzing historical and forecasted financial information as well as reviewing the market performance of similar types of investments. As a result of the Company's review, the Company determined that some of its investments had declines in value that were other than temporary as of December 31, 2002, 2001 and 2000 due to unfavorable market and economic conditions. Accordingly, for the years ended December 31, 2002 and December 31, 2001, the Company recorded $119.9 million and $151.0 million, respectively, of impairment losses on investments primarily in the equity portfolios. For the year ended December 31, 2000, Farmers Life recorded $22.4 million of impairment losses on fixed income securities.
billion in 2001 to $13.2 billion in 2002. This increase in gross premiums earned was driven primarily by continued growth in premium written in the auto, homeowners, commercial, specialty and eastern operations lines of business due primarily to the continuation of significant rate increases.
General and Administrative Expenses. General and administrative expenses increased from $55.1 million in 2001 to $64.2 million in 2002, an increase of $9.1 million, or 16.5%. The increase was primarily due to higher premium taxes and guaranty assessments ($5.7 million), a claims damages settlement ($2.0 million) and increased pension and postretirement benefit expenses ($1.3 million).
Farmers Life Income. As a result of the foregoing, Farmers Life income decreased from $116.2 million in 2001 to $109.0 million in 2002, a decrease of $7.2 million, or 6.2%.
Revenues associated with universal life, variable universal life products and other investment type contracts consist of policy charges for the cost of insurance, policy administration fees, surrender charges, and investment income on assets allocated to support policyholder account balances on deposit. Revenues for deferred fixed and variable annuity products and structured settlement contracts not involving life contingencies (SSNILC) consist of surrender charges, investment income on assets allocated to support policyholder account balances on deposit, and
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers". In addition, this Statement amends SFAS No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback
- A $220.0 million note receivable from ZGA US Limited ("ZGAUS"), a subsidiary of Zurich, formerly known as Orange Stone (Delaware) Holdings Limited. The Company loaned $250.0 million to ZGAUS on December 15, 1999 and, in return, received a medium-term note with a 7.50% fixed interest rate that matures on December 15, 2004. Subsequently, on April 9, 2002, $30.0 million of the note receivable was redeemed. Interest on this note is paid semi-annually. Income earned on this note totaled $17.1 million for the year ended December 31, 2002 and $18.8 million for each of the years ended December 31, 2001 and 2000.
Conditions governing payment of interest and repayment of principal are outlined in the certificates of contribution and the surplus note. Generally, payment of interest and repayment of principal may be made only when the issuer has an appropriate amount of surplus and then only after approval is granted by the issuer's governing Board and the appropriate state insurance regulatory department.
The amortized cost and estimated market value of debt securities, including marketable securities, owned by Farmers Management Services as of December 31, 2002, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The amortized cost and estimated market value of debt securities, including marketable securities, owned by the Insurance Subsidiaries as of December 31, 2002, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The unrecognized net transition obligation of $13.1 million in 2002 and $14.4 million in 2001 represents the remaining transition obligation of the P&C Group Companies.
The Company has long-term operating lease commitments on equipment and buildings, with options to renew at the end of the lease periods. As of December 31, 2002, the remaining commitments payable under these leases were:
(e) Amount includes adjustment related to a reclass between deferred tax asset and deferred tax liability ($211.9 million).