* The Company adopted Statement of Financial Accounting Standards (SFAS) 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" by recognizing the transition obligation as a cumulative effect adjustment to income. The Company's transition obligation amounted to $2,166,000 ($.21 per share), net of income tax benefits of $1,116,000.
Premium income has declined substantially over the last two years after increasing in 1993. This decline is the result of intense competition for nonstandard auto business from both the standard and the nonstandard markets. The company has not reduced rates in order to retain business and, as a result, has experienced a significant reduction in premium volume. The company was approved for rate increases in the state of Nebraska in late 1995 and is in the process of applying for rate increases in the states of South Dakota and Iowa. The company expects to begin writing business in the state of Missouri in early 1996, which should help to offset the production decreases experienced in existing markets. The number of new applications received by the company has been increasing and management expects premium volume to improve in 1996.
Insurance company operations require capital to support premium writings. The Company believes that its insurance company subsidiaries have sufficient capital to support their expected near-term writings. The Company's insurance agency operation does not require a large amount of capital.
Investments are reported on the basis of SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." Securities classified as held-to-maturity are purchased with the intent and ability to be held to maturity and are carried at amortized cost. Unrealized holding gains and losses on securities held-to-maturity are not reflected in the financial statements. All other securities have been classified as securities available-for-sale and are carried at market value, with unrealized holding gains and losses reported as a separate component of stockholders' equity, net of tax.
Net periodic pension cost relating to the Company's participation in Employers Mutual's Retirement Plan is computed on the basis of SFAS 87, "Employers' Accounting for Pensions." It is Employers Mutual's policy to fund pension costs according to regulations provided under the Internal Revenue Code. Assets held in the plan are a mix of equity, debt and guaranteed interest securities and real estate funds.
As noted above, the reinsurance subsidiary assumes a 95 percent quota share portion of Employers Mutual's assumed reinsurance business, exclusive of certain reinsurance contracts. The reinsurance subsidiary receives 95 percent of all premiums and assumes 95 percent of all related losses and settlement expenses of this business. Since 1993, losses in excess of $1,000,000 per event are retained by Employers Mutual. The reinsurance subsidiary does not reinsure any of Employers Mutual's direct insurance business, nor any "involuntary" facility or pool business that Employers Mutual assumes pursuant to state law. In addition, the reinsurance subsidiary is not liable for credit risk in connection with the insolvency of any reinsurers of Employers Mutual.
Unrecognized net gain (loss) from past experience different from that assumed and effects of changes in assumptions .......... 4,110,579 3,707,110 (447,778) Prior service cost not yet recognized in net periodic postretirement benefit cost ..... (3,962,633) (4,533,871) (5,105,109) ------------ ------------ ------------ Postretirement benefit obligation .................. $ 19,948,897 $ 18,204,682 $ 15,786,354 ============ ============ ============
There is a ten year time limit for granting options under the plans. Options can no longer be granted under the 1982 Plan and the time period for granting options under the 1993 Plan expires on December 31, 2002. Options granted under the plans can be for a term of two, three, four or five years with options becoming exercisable in equal annual cumulative increments. Options have been granted to 57 individuals under the 1982 Plan and 69 individuals under the 1993 Plan. At February 20, 1996, 30 eligible participants remained in the 1982 Plan and 64 eligible participants remained in the 1993 Plan.
The estimated fair market value of the Company's investments are summarized as follows. The estimated fair market value is based on quoted market prices, where available, or on values obtained from independent pricing services (see note 10). Carrying Estimated December 31, 1995 amount market value ------------ ------------ Fixed maturity securities: Held-to-maturity ......................... $191,440,816 $203,312,748 Available-for-sale ....................... 142,360,569 142,360,569 Equity securities available-for-sale ....... 16,010,763 16,010,763 Short-term investments ..................... 17,271,798 17,271,798