The Company is closely monitoring developments concerning health care reform and is preparing strategic responses to different possible outcomes. In anticipation of health care reform, the Company's health businesses have begun to diversify into product areas that the Company believes are consistent with its targeted market focus and may be less affected, or unaffected, by health care reform. The Company's strategy regarding health care reform is discussed in more detail under the caption "Health Care Reform."
Insurance Premiums and Policy Charges. Insurance premiums and policy charges decreased $5.8 million, or 1.5%, from $386.8 million in 1991 to $381.0 million in 1992. The decrease was primarily attributable to a $36.5 million decline in the group products segment's premiums which was primarily due to the termination and restructuring of certain group health contracts resulting from rate increases in 1991 and a decrease of $3.4 million of premiums and policy charges resulting from the 1991 sale of discontinued lines. These declines were offset in part by increases in individual health premiums and policy charges of $24.2 million due to an increase in the block of in force business from higher sales of and premium rate increases on individual health policies and by increased policy charges on life and annuity contracts of $9.8 million.
In some instances, the Company invests in non-agency mortgage-backed securities. At December 31, 1993, 89.1% of the Company's non-agency CMOs were rated AAA. The credit risk associated with non-agency mortgage-backed securities is generally greater than that of agency mortgage-backed securities.
The following summarizes the additions and deductions to the Company's mortgage loan allowance:
The Company's real estate investments totaled $39.1 million (net of allowances of $8.6 million) at December 31, 1993 compared to $60.0 million (net of allowances of $14.2 million) at December 31, 1992. The change was primarily due to sales of real estate investments. At December 31, 1993, $14.6 million of real estate investments were acquired through mortgage loan foreclosure, compared to $20.2 million at year-end 1992.
The fair values of liabilities under all insurance contracts are taken into consideration in WNC's overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.
The following summarizes the changes in the unamortized cost of purchased insurance in force for the years ended December 31:
Amounts paid or deemed to have been paid for ceded reinsurance contracts are recorded as reinsurance recoverables. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies.
The health care cost trend rate used in 1993 and 1992 was 15% grading to 6% evenly over thirty years. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the trend rate by 1% per year would increase the accumulated postretirement benefit obligation by $2,825,000 at December 31, 1993 and the aggregate of the service and interest cost components of the net periodic postretirement benefit expense for 1993 by $200,000.
The Company's accounting policy with regard to payments to state guaranty funds is to treat as a deferred asset any such payments in those states where current law allows an offset against future premium taxes. At December 31, 1993 and 1992, other assets included $5,100,000 and $4,000,000 of deferred payments to state guaranty funds. Generally, this amount will be used to offset future premium tax payments over periods from five to ten years. In the event of a change in the law pertaining to prior tax offsets, such amounts might become unrecoverable.