Comprehensive Income (Loss) Comprehensive Income (Loss) (which combines net income (loss) and net unrealized gains and losses) was $(2,613,000), $(2,510,000), and $(977,000) for 2006, 2005, and 2004, respectively. During 2006, the Company continued to be adversely affected by relatively low yields on its fixed income investment portfolio. The increase of $103,000 in comprehensive loss in 2006 is attributable to the decrease in unrealized losses of $865,000, offset by the decrease in net income of $968,000 described above. Net unrealized losses in 2006 are comprised of net losses in our fixed maturities portfolio of $1,697,000, offset by unrealized gains in our equities portfolio of $589,000. Late in the second quarter of 2005, interest yields on fixed maturity investments began to rise. Although this adversely impacted the market value of the Company’s bond portfolio, management believes the opportunity to invest new money at higher yields will have a long term positive impact on the Company’s operating earnings. The 2006 environment continued to generate a relatively high level of qualitative investment risk, as discussed in the Cash Flow and Liquidity section. The 2005 Comprehensive Loss results from unrealized losses resulting from market interest rates beginning to increase in 2005 (and therefore the decline of $1,774,000, net of taxes, in the values of our fixed income portfolio) and a decline of $868,000, net of taxes, in the value of our equities portfolio, offset by net income of $132,000.
While preparing the current year’s financial statements, the Company discovered an error in the compilation and reporting of certain reinsurance transactions that caused the Net Income (Loss) to be misstated by $192,547, $91,720, $107,058 and $122,566 for 2005 and the first, second and third quarters of 2006, respectively. The previously issued consolidated financial statements have been restated herein to reflect the correction of this error. See Note 2-CORRECTION OF AN ERROR and Note 10 - QUARTERLY FINANCIAL DATA in the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for a presentation of the originally reported amounts, the related changes and the restated amounts.
Home Service Life premium decreased 4.7% and 1.9% in 2006 and 2005, respectively. New sales began to decline in the fourth quarter of 2005 and continued to decline in 2006 as a result of producer response to the Company’s introduction of a variable first year commission program designed to improve persistency in this segment. The Company also lost its regional representative for the Florida and Georgia region, as well as several producers in that region early in 2005. The Company continues its efforts to attract successful, experienced Home Service agents. In the fourth quarter of 2004, the Company began to geographically expand the Home Service market, hiring a new regional representative to recruit new agents in Ohio and Pennsylvania. Company management considers it a challenge to increase new sales even modestly, while providing incentive to keep business in force for longer periods than we have historically experienced (i.e. improve our persistency rate) in this segment.
In addition to the measures described above, the Life Insurance Subsidiaries comply with the NAIC promulgated Standard Valuation Law (“SVL”) which specifies minimum reserve levels and prescribes methods for determining them, with the intent of enhancing solvency. The SVL also requires the Company to perform annual cash flow testing for its Life Insurance Subsidiaries. This testing is designed to ensure that statutory reserve levels will maintain adequate protection in a variety of potential interest rate scenarios. The Actuarial Standards Board of the American Academy of Actuaries also requires cash flow testing as a basis for the actuarial opinion on the adequacy of the reserves which is a required part of the annual statutory reporting process.