The 2001 loss before income tax and the cumulative effect of a change in accounting principle was $7,984,000 compared to income of $448,000 and $8,664,000 in 2000 and 1999, respectively. Pretax profit (loss) is shown below for the Company's five business segments, along with total realized investment gains and interest expense.
Information regarding Dental profitability is included below. The "contribution margin" shown below is a direct margin without allocable investment income and general expense.
Statutory capital and surplus, specifically the component called surplus, is used to fund the expansion of an insurance company's first year individual life and accident and health sales. The first year commission and underwriting expenses on such sales will normally consume a very high percentage of, if not exceed, first year premiums. Accordingly, a statutory loss (surplus strain) often occurs on these sales during the first policy year. Historically, the Company's level of life insurance sales has not significantly impacted statutory surplus. However, as Preneed Life sales increase, the Company anticipates that surplus strain will dampen statutory earnings.
There can be no assurance that other factors not currently anticipated by management will not also materially and adversely affect the Company's results of operations.
We have audited the accompanying consolidated balance sheets of Citizens Financial Corporation and subsidiaries at December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedules listed in the index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
Gross gains of $1,378,585, $16,764,844, and $16,414,949 and gross losses of $8,245,943, $16,740,314, and $6,350,927, were realized on the sale of available-for-sale equity securities during 2001, 2000 and 1999. Included in gross realized losses during 2001, 2000, and 1999 are adjustments to the carrying value of available-for-sale equity securities of $1,533,000, $5,733,000, and $1,017,000 respectively, relating to declines in value which were considered by management to be other than temporary. Net realized gains from the sale of equity securities have been increased (decreased) by $252,534, $302,629, and $(229,861) in 2001, 2000, and 1999 respectively, due to amortization of deferred policy acquisition costs. In addition, net realized gains from the sale of available-for-sale equity securities have been reduced by $36,913, $207,369, and $702,771 in 2001, 2000, and 1999, respectively, for incentive and management fees earned by the portfolio manager and costs associated with operating a brokerage margin account. Under terms of this brokerage margin account, Morgan Stanley & Company, Inc. permits 50% of the
Statutory-basis net income and capital and surplus for the Company's combined insurance operations, for the three years ended December 31, 2001 are shown below. These amounts are combined totals for Citizens Security, United Liberty, and Citizens Insurance, with adjustments to eliminate intercompany holdings and activity.
Short-Term Investments: The carrying amount of short-term investments approximates their fair value. At December 31, 2001 and 2000, the fair value of short-term investments was $652,192 and $610,379, respectively.