Our operating results are subject to significant fluctuations from period to period depending upon, among other factors, the frequency and severity of property and casualty losses from weather related and other catastrophic events, the effect of competition and regulation on the pricing of products, changes in interest rates which may cause a reduction of investment income or operating cash flow, or an increase in policy lapses for our life insurance segment, significant variations of actual experience from assumptions regarding future morbidity, persistency, lapse rates, expenses, mortality, and interest rates used in calculating reserve and liability amounts for our life insurance segment and in developing pricing and other terms of life insurance products, the ability of our insurance subsidiaries to maintain their current ratings from A.M. Best, and changes in general economic conditions, tax laws and the regulatory environment.
Farm Family Casualty, Farm Family Life and United Farm Family have substantially identical directors and officers, share substantially the same agency force and certain employees and utilize common office facilities. Most administrative and operating expenses are allocated between the companies pursuant to expense sharing and service agreements (see Note 13).
Premiums on property and casualty business are deferred and earned on a pro rata basis over the terms of the respective policies. Amounts paid for ceded reinsurance premiums are reported as prepaid reinsurance premiums and amortized over the remaining contract period in proportion to premium.
Policy benefits and claims that are charged to expense for universal life-type contracts and investment contracts include interest credited to contracts and benefit claims incurred in the period in excess of related policy account balances. Interest crediting rates for universal life type contracts and investment contracts are based on current market conditions and are determined by the Board of Directors.
Policy acquisition costs that vary with and are primarily related to the production of property and casualty insurance business have been deferred. These amounts primarily consist of agents' compensation, premium taxes, and certain other underwriting expenses. Such deferred acquisition costs are amortized as premium revenue is recognized. Deferred acquisition costs are limited to their estimated realizable value, which gives effect to the premium to be earned, related investment income, and losses and loss adjustment expenses expected to be incurred as the premium is earned.
The amortized cost, fair value and gross unrealized gains and losses of available for sale securities and held to maturity securities at December 31, 2000 and 1999 are as follows:
Fair values for the Company's off-balance-sheet instruments (letters of credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties' credit standing. The fair value of the Company's off-balance-sheet instruments at December 31, 2000 is not considered to be material.
The carrying value of the Company's property and equipment at December 31 is as follows:
The Company also purchases reinsurance for its life insurance and accident and health lines of business in part to mitigate the impact of large or unusual claims on its liquidity and operating results. The Company's life insurance reinsurance program provides for coverage for individual life insurance claims greater than $400,000.
(1) The Company's net operating loss carryforward amount is available to offset future taxable income through 2020.
In connection with the acquisition of Farm Family Life, Farm Family Holdings issued 163,214 shares of 6 1/8% Series A preferred stock with a redemption value of $5,830,000, or $35.72 per share. Dividends on the preferred stock are payable on each January 15, April 15, July 15 and October 15 and must be fully paid or declared with funds set aside for payment before any dividend can be declared or paid on any other class of Farm Family Holdings' stock. The preferred stock must be redeemed by Farm Family Holdings on April 7, 2019 (or the next business day) and may be redeemed, at Farm Family Holdings' option, in whole or in part, on and after April 6, 2009. Farm Family Holdings has the option to pay the redemption amount in cash or by delivery of Farm Family Holdings' common stock.
The Company's insurance subsidiaries are required to file statutory financial statements with state insurance regulatory authorities. Accounting principles used to prepare these statutory financial statements differ from those used to prepare financial statements under Generally Accepted Accounting Principles. Significant differences for our insurance subsidiaries in aggregate, as of and for the years ended December 31, are as follows: