Each year, the NAIC calculates financial ratio results (commonly referred to as IRIS ratios) for each insurance company. These ratios compare key financial data pertaining to the statutory balance sheet and income statement. The results are then compared to pre-established normal ranges determined by the NAIC. Results outside the range typically require explanation to the domiciliary insurance department. At year-end 2006, UG had two ratios outside the normal range. These ratios are discussed in more detail in the Regulatory Environment discussion included in this Item 7.
UG has a $ 3,300,000 line of credit (LOC) available from the First National Bank of the Cumberlands (FNBC) located in Livingston, Tennessee. The interest rate on the LOC is variable and indexed to be the lowest of the U.S. prime rates as published in the Wall Street Journal, with any interest rate adjustments to be made monthly. At December 31, 2006, the Company had no outstanding borrowings attributable to this LOC. During 2006, the Company had $500,000 in borrowings against this line, which were repaid during the year. During 2005, the Company had $1,500,000 in borrowings against this line, which were repaid during the year. During 2004, the Company had no borrowings against this LOC.
During 2002, UTG and Fiserv formed an alliance between their respective organizations to provide third party administration (TPA) services to insurance companies seeking business process outsourcing solutions. Fiserv will be responsible for the marketing and sales function for the alliance, as well as providing the operations processing service for the Company. The Company will staff the administration effort. To facilitate the alliance, the Company has converted part of its existing business and all TPA clients to “ID3”, a software system owned by Fiserv to administer an array of life, health and annuity products in the insurance industry. Fiserv is a unit of Fiserv, Inc. (NASDAQ: FISV) which is an independent, full-service provider of integrated data processing and information management systems to the financial industry, headquartered in Brookfield, Wisconsin. In addition, the Company entered into a five-year contract with Fiserv for services related to their purchase of the “ID3” software system. Under the contract, the Company is required to pay $ 8,333 per month in software maintenance costs and a monthly fee for offsite data center costs, based on the number and type of policies being administered the ID3 software system through mid-2011.
Ohio domiciled insurance companies require five days prior notification to the insurance commissioner for the payment of an ordinary dividend. Ordinary dividends are defined as the greater of: a) prior year statutory earnings or b) 10% of statutory capital and surplus. For the year ended December 31, 2006, UG had a statutory gain from operations of $ 5,162,322. At December 31, 2006, UG's statutory capital and surplus amounted to $ 31,209,934. Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation. In 2006 and 2005, UG paid $ 5,100,000 and $ 0, of which $ 0 and $ 0 was considered to be an extraordinary dividend, respectively, to UTG.
The amortized cost and estimated market value of debt securities at December 31, 2006, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
At December 31, 1992, AC entered into a reinsurance agreement with Canada Life Assurance Company (“the Canada Life agreement”) that fully reinsured virtually all of its traditional life insurance policies. The reinsurer’s obligations under the Canada Life agreement were secured by assets withheld by AC representing policy loans and deferred and uncollected premiums related to the reinsured policies. AC continues to administer the reinsured policies, for which it receives an expense allowance from the reinsurer. At December 31, 2006, the Canada Life greement has insurance in-force of approximately $ 86,594,000, with reserves being held on that amount of approximately $ 42,409,000.
On July 1, 2005, United Trust Group, Inc., an Illinois corporation, merged with and into its wholly-owned subsidiary, UTG, Inc. (UTG), a Delaware corporation, for the purpose of effecting a change in the Company’s state of incorporation from Illinois to Delaware. The merger was effected pursuant to that certain Agreement and Plan of Merger dated as of April 4, 2005, which was approved by the boards of directors of both UTG and United Trust Group, Inc. The merger was approved by the holders of two-thirds of the outstanding shares of common stock of United Trust Group, Inc. at the annual meeting of shareholders on June 15, 2005, and by the sole stockholder of UTG, Inc. on June 15, 2005.
On April 1, 2002, UTG was extended a $ 5,000,000 line of credit from Southwest Bank of St. Louis. The LOC expired one-year from the date of issue and was renewed for additional terms. As collateral for any draws under the line of credit, UTG pledged 100% of the common stock of its insurance subsidiary, UG. Borrowings under the LOC bear interest at the rate of .25% in excess of Southwest Bank of St. Louis’ prime rate. At December 31, 2005, the Company had no outstanding borrowings attributable to this LOC. During October 2006, the LOC was terminated by the Company and the corresponding collateral was released by Southwest Bank of St. Louis.