Prior to the closing, Integrity entered into a coinsurance and assumption reinsurance agreement with Union Bankers Insurance Company ("Union Bankers"), another affiliate of ICH, covering Integrity's 14,500 individual long-term care and Medicare Supplement insurance policies with annualized premiums of approximately $14,800,000, leaving the remaining life and accident and health insurance business with Integrity. In conjunction with this reinsurance transaction, Integrity transferred approximately $9,200,000 of reserves to Union Bankers. Completion of these transactions was a condition to the Company's obligations in the Acquisition because the reinsured business did not fit into the Company's business plans. Union Bankers directly assumed the liability for these policies.
Citizens Security owns the building in which the Company and Citizens Security maintain their home offices. Approximately 79% of the building is leased to third-party tenants. An appraisal obtained during 1996 indicates that the current market value of the property is approximately $1,600,000 higher than its carrying value.
Year Ended December 31, 1996 1995 1994 - ------------------------- ------------ -------------- --------------- Traditional life $ 8,256,967 $ 4,420,143 $1,210,920 Universal life 571,831 518,710 515,208 Group life 636,689 758,578 837,844 Annuity 24,864 29,339 32,497 - ------------------------- ------------ -------------- --------------- Total life and annuity 9,490,351 5,726,770 2,596,469 Accident and health 8,457,272 6,345,199 5,365,109 - ------------------------- ------------ -------------- --------------- Total accident and health $17,947,623 $12,071,969 $7,961,578 - -------------------- -------------- -------------- ---------------
Shown below are the investment income and total return yields based on average cash and invested assets for 1996, 1995 and 1994. The numerator for the total return yield computation includes investment income and net realized gains and losses.
Investment management services are provided by a firm affiliated with certain board members and shareholders of the Company. Fees for these services were $30,000, $275,578 and $30,000 in 1996, 1995 and 1994, respectively.
The value of insurance acquired is an asset which represents the present value of future profits on business acquired, using interest rates of 6.6% to 9%. An analysis of the value of insurance acquired for the years ended December 31, 1996, 1995 and 1994 is as follows:
During the first twelve months after the September 22, 1995 acquisition of Integrity, the assumptions used to establish the value of insurance acquired were reconfirmed. Based on this review, the value of net assets acquired was increased by $586,542. This revision relates primarily to a reduction in the amount of assumed future policy benefits associated with certain individual life insurance policies that cover multiple family members, partially offset by an increase in direct costs required to complete the acquisition.
The KDI imposes minimum risk-based capital ("RBC") requirements on insurance enterprises that were developed by the NAIC. The formulas for determining the amount of RBC specify various weighting factors that are applied to financial balances and various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio (the "Ratio") of the enterprise's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level RBC, as defined by the NAIC. Enterprises below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. Citizens Security has a Ratio that is at least 400% of the minimum RBC requirements; accordingly, Citizens Security meets the RBC requirements.
The Company currently follows the general practice of reinsuring that portion of risk on the life of any individual which is in excess of $40,000 for individual policies (under yearly renewable term and coinsurance agreements) and $15,000 for group policies (under a group yearly renewable term agreement). To the extent that reinsuring companies are unable to meet obligations under reinsurance agreements, the Company would remain liable.
Equity Securities: The fair values for equity securities are based on quoted market prices. Equity securities are carried at fair value in the accompanying statements of financial condition. At December 31, 1996 and 1995, the fair value of equity securities was $7,963,550 and $5,742,914, respectively.