The Company is exposed to equity price risk on its equity securities. The Company holds common stock with a fair value of $25 million. If the market value of the S & P 500 Index decreased 10% from its December 31, 2000 value, the fair value of the Company's common stock would decrease by approximately $2.5 million.
As disclosed in note K to the consolidated financial statements, in 2000, the amount that The National Security Group's insurance subsidiaries can transfer in the form of dividends to the parent company is limited to $1.2 million in the life insurance subsidiary and $2.4 million in the property/casualty insurance subsidiary. However, that condition poses no short-term or long-term liquidity concerns for the parent company.
Ratio of Total Adjusted Capital to Authorized Control Level RBC Regulatory Event (Less Than or Equal to) ---------------- ----------------------- Company action level 2 Regulatory action level 1.5 Authorized control level 1 Mandatory control level 0.7
National Security Fire & Casualty Company (property/casualty insurer) has regulatory adjusted capital of $24.1 million and $23.4 million at December 31, 2000 and 1999, respectively, and a ratio of regulatory total adjusted capital to authorized control level RBC of 9.7 and 9.2 at December 31, 2000 and 1999 respectively. Accordingly, National Security Fire & Casualty Company meets the minimum RBC requirements.
In the normal course of business, NSFC seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Amounts paid for prospective reinsurance contracts are reported as prepaid reinsurance premiums and amortized over the remaining contract period.
An analysis of investment gains follows: Year ended December 31, 2000 1999 1998 Net realized investment gains (losses): Fixed maturities ........................... $ (419) $ (16) $ 53 Other, principally equity securities ....... 2,142 1,967 4,064 ------ ------ ------ $ 1,723 $ 1,951 $ 4,117 ====== ====== ======
The Companys insurance operations participate in reinsurance in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and effect business-sharing arrangements. Life reinsurance is accomplished through yearly renewable term. Property and casualty reinsurance is placed on both a quota-share and excess of loss basis. Reinsurance ceded arrangements do not discharge the insurance subsidiaries as the primary insurer, except for cases involving a novation. Failure of reinsurers to honor their obligations could result in losses to the insurance subsidiaries. The insurance subsidiaries evaluate the financial conditions of their reinsurers and monitor concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize their exposure to significant losses from reinsurance insolvencies. At December 31, 2000, reinsurance receivables with a carrying value of $912,000 and prepaid reinsurance premiums of $293,000 were associated with a single reinsurer. The amounts of recoveries pertaining to reinsurance contracts that were deducted from losses incurred during 2000, 1999 and 1998 were approximately $605,000, $1,819,000, and $2,203,000, respectively.
In 1989, the Company and its subsidiaries established a retirement savings plan and transferred the assets from the defined contribution profit sharing plan into the new plan. All full-time employees who have completed one year of service at January 1 or July 1 are eligible to participate and all employee contributions are fully vested for employees who have completed 1,000 hours of service in the year of contribution. Contributions for 2000, 1999, and 1998 amounted to $127,000, $161,000, and $61,000, respectively. Contributions are at the Board of Directors discretion subject to governmental limitations.
Under applicable Alabama insurance laws and regulations, LSIC is required to maintain a minimum total surplus (to include both paid-in and contributed and unassigned surplus) of $500,000.
Income (loss) before income taxes: Individual life and accident and health insurance $ 1,667 $2,556 $2,489 Property and casualty insurance 3,917 2,365 (1,000) Other (473) (110) (140) ------ ------ ------ 5,111 4,811 1,349 (267) (295) (243) ------ ------ ------ Interest expense $ 4,844 $4,516 $1,106 ====== ====== ======