Our principal offices in Allentown, Pennsylvania occupy two buildings, totaling approximately 33,000 square feet of office space in a 40,000 square foot building and all of an 16,000 square foot building. We own both buildings and a 2.42 acre undeveloped parcel of land located across the street from our home offices. We also lease additional office space in Michigan and New York.
(9) On May 25, 2001, we issued approximately 11,547 new shares of our common stock, for net proceeds of $25,726, through a rights offering. We also issued approximately 570 new shares in 2002 through a direct equity placement.
Our current actuarial modeling and projections indicate that it is likely that we will be able to commute the agreement, as planned, on December 31, 2007. In order to commute the agreement, PTNA's and ANIC's (our Pennsylvania insurance subsidiaries) statutory surplus following commutation must be sufficient to support the reacquired business in accordance with statutory capital requirements. Upon commutation, we will receive cash or other liquid assets equalling the value of the experience account. For statutory reporting purposes, we will also record the statutory-basis policy reserves and policy and contract claim liabilities in our statutory financial statements. Accordingly, the Company's ability to commute the agreement is highly dependent upon the value of the experience account exceeding the level of required statutory-basis policy reserves on December 31, 2007.
During the 2001 period, we classified our convertible bond portfolio as trading account investments. Changes in trading account investment market values were recorded in our statement of operations during the period in which the change occurred, rather than as an unrealized gain or loss recorded directly through equity. As a result, we recorded a trading account loss in the 2001 period of $3,428, which reflected the unrealized and realized loss of our convertible portfolio that arose during that period. No investments were classified as trading during the 2002 period.
The Company regularly assesses the recoverability of deferred acquisition costs through actuarial analysis. To determine recoverability, the present value of future premiums less future costs and claims are added to current reserve balances. If this amount is greater than current unamortized deferred acquisition costs, the unamortized amount is deemed recoverable. In the event recoverability is not demonstrated, the Company reassesses the calculation using justifiable premium rate increases. If rate increases are not received or are deemed unjustified, the Company will expense, as impaired, the attributed portion of the deferred acquisition cost asset in the current period. If the Company concludes that the deferred acquisition costs are impaired, the Company will record an impairment loss and a reduction in the deferred acquisition cost asset. In the event of an impairment, the Company will also evaluate its historical assumptions utilized in establishing the policy reserves and deferred acquisition costs and may update those assumptions to reflect current experience (referred to as "unlocking"). The primary assumptions include persistency, morbidity (claims expectations), investment yields and premium rate increases. Recoverability of deferred acquisition costs is highly dependent upon the Company's ability to obtain future premium rate increases. While the Company has been successful in obtaining premium rate increases on existing policies in the past, the ability to obtain these increases is subject to regulatory approval, and is not guaranteed.
Long-lived assets and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. No impairment losses were recorded in 2002, 2001 or 2000.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", which addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. This interpretation also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations the guarantor has undertaken in issuing that guarantee. The provisions related to the disclosure requirements to be made by a guarantor are effective for financial statements of interim and annual reporting periods ending after December 15, 2002. The provisions related to the recognition of a liability and initial measurement shall be applied prospectively to guarantees issued or modified after December 31, 2002, irrespective of the guarantor s fiscal year-end. Management of the Company anticipates that the adoption of this interpretation will not have a material impact on the Company s financial statements.
The reinsurance agreement with Centre Solutions (Bermuda) Limited ("Centre") includes a provision for the maintenance of an experience account for the Company's benefit in the event of future commutation of the agreement.
o The change in fair value of the embedded derivative represents the percentage change in the underlying indices applied to the notional experience account, similar to that of an unrealized gain/loss on a bond. The change in the fair value of the embedded derivative is reported as market gain on experience account in the statement of income and comprehensive income.
Beginning balance $ - Initial premium transfer 560,887 Premiums, net of claims and ceding allowance 67,668 Investment credit: Investment income 38,375 Market gain 56,555 Expense and risk charges (14,308) Broker and custodian fees (195) ---------- Ending balance $ 708,982 ==========
Long-term debt at December 31, 2002 and 2001 is as follows:
Had compensation cost for the Company's employee stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company's net (loss) income and earnings per share would have been reduced to the pro forma amounts indicated below.
Years Amounts ----- ------- 2003 $ 344 2004 252 2005 18 2006 18 2007 and thereafter 36 ----- $ 668 =====
PTNA is party to a reinsurance agreement to cede 100% of certain whole life and deferred annuity policies issued by PTNA to a third party insurer. These policies are intended for the funeral arrangement or "pre-need" market. Total reinsurance recoverables taken related to this agreement as of December 31, 2002 and 2001 were approximately $3,099 and $4,362, respectively. The third party reinsurer is required to maintain securities at least equal to the statutory reserve credit in escrow with a bank. Effective January 1, 1996, this agreement was modified, and as a result, no new business is reinsured under this facility. Effective December 31, 2002, the Company entered into an assumption agreement with another insurer that desired to acquire this business. Upon approval of certain required state insurance departments and policyholders, the acquiring company will assume all future liability for the business reinsured.
Ceded to Assumed Gross Other from Other Net Amount Companies Companies Amount December 31, 2002 ------ --------- --------- ------ - ----------------- Ordinary life insurance In-force $ 42,767 $ 3,583 $ - $ 39,184 Premiums: Accident and health 331,356 5,394 5,347 331,309 Life 2,480 147 1 2,334 Benefits to policyholders: Accident and health 290,965 3,316 1,526 289,175 Life 2,167 163 - 2,004 Inc in policy reserves: Accident and health 74,277 2,417 8,447 80,307 Life (827) (1,339) - 512 Commissions $ 46,369 $ 1,183 $ 585 $ 45,741
As of December 31, 2001, Palisade Capital Management owned less than 1% of our common stock. Until January, 2002, Palisade Capital Management also managed a portion of our investment portfolio for which it received fees of $0, $224 and $231 for the years ended December 31, 2002, 2001 and 2000, respectively.