Benefits and expenses: Benefits to policyholders 62.5% 61.9% 61.3% Commissions 20.1% 26.0% 29.6% Net policy acquisition costs amortized (deferred) 18.7% -11.0% -15.6% General and administrative expense 14.3% 13.0% 13.3% Interest expense 1.4% 1.3% 1.6% ---- ---- ---- Total benefits and expenses 117.0% 91.2% 90.2% ------ ----- -----
Benefits to Policyholders. Total benefits to policyholders in 2001 decreased 1.8% to $239,115, compared to $243,571 in 2000. Our loss ratio, or policyholder benefits to premiums, was 68.3% in 2001, compared to 68.2% in 2000.
In 2000, excluding the effect of imputed interest, we added approximately $6,600 to our claim reserves for 1999 and prior claim incurrals, and in 2001, we added approximately $8,800 to our claim reserves for 2000 and prior claim incurrals. Our additions to prior year incurrals in 2001 resulted from a continuance study performed by our consulting actuary. In 2001, we also increased claim reserves by an additional $1,600 as a result of utilizing a lower interest rate for the purpose of discounting our future liabilities. We also inreased our claim reserves approximately $5,600 during 2001 by increasing our loss adjustment expense reserve, which is established for the funding of administrative costs associated with the payment of current claims. Over time, it may continue to be necessary for us to increase our reserves.
General and Administrative Expenses. General and administrative expenses in 2001 decreased 1.4% to $49,282, compared to $49,973 in 2000. The amounts for the years ended 2001 and 2000, respectively, include $6,591 and $8,138 related to United Insurance Group. The ratio of total general and administrative expenses, excluding United Insurance Group expense, to premium revenues was 12.2% in 2001, compared to 11.7% in 2000.
General and Administrative Expenses. General and administrative expenses in 2000 increased 22.7% to $49,973, compared to $40,736 in 1999. In 2000 and 1999 general and administrative expenses included $8,138 and $7,748, respectively, related to United Insurance Group. Generally, costs such as premium taxes and salaries related to business processing increase proportionately to premium growth. Management believes that current cost savings initiatives, such as remote office consolidation and outsourcing of certain administrative functions, has helped to contain the level of our expenses. 2000 expenses increased due to the depreciation of capitalized costs for new internal software development, legal expenses and sales promotion expense. General and administrative expenses as a percentage of premiums (excluding United Insurance Group and goodwill amortization related to its purchase) were 11.8% in 2000, compared to 11.3% in 1999.
Provision for Federal Income Taxes. Our provision for federal income taxes for 2000 increased 8.1% to $11,720, compared to $10,837 for 1999. The effective tax rates of 34.0% and 33.7% in 2000 and 1999, respectively, are at or below the normal federal corporate rate as a result of credits from our investments in tax-exempt bonds and corporate owned life insurance and dividends we receive that are partially exempt from taxation and are partially offset by non-deductible goodwill amortization and other non-deductible expenses.
Our new reinsurance agreement meets the requirements necessary to qualify as reinsurance for statutory accounting. Since it does not have an accelerated repayment provision, we do not consider it to be financial reinsurance. The agreement does not create a material probability of loss for the reinsurer, and accordingly does not qualify for reinsurance under generally accepted accounting principles and is not reflected as such in our financial statements.
Our subsidiaries' debt currently consists primarily of a mortgage note in the amount of approximately $1,581 that was issued by a former subsidiary and assumed by us when that subsidiary was sold. The mortgage note is currently amortized over 15 years, and has a balloon payment due on the remaining outstanding balance in December 2003. Although the note carries a variable interest rate, we have entered into an amortizing swap agreement with the same bank with a nominal amount equal to the outstanding debt, which has the effect of converting the note to a fixed rate of interest of 6.85%.
Lease Debt Commitments Total ---- 2002 $ 2,978 $ 547 $ 3,525 2003 76,212 433 76,645 2004 - 344 344 2005 - 252 252 2006 - 18 18 -------- ------- -------- Total $ 79,190 $ 1,594 $ 80,784 ======== ======= ========