Exclusive agents sell products that the Cotton States Group does not underwrite (both life and property and casualty) but are provided through the Company's brokerage operations, and for which the Company receives override commission. Brokerage commissions for the year were flat due to decreased override commissions on the sale of life products. This was partially offset by a 5% increase in commissions on the sale of non-standard automobile policies. Brokerage commissions increased 10% in 2000 due primarily to increased sales of non-standard automobile policies. Brokerage commissions increased 19% in 1999 due to a new affiliation with an additional non-standard automobile insurance carrier at higher override commission rates.
The Company establishes an insurance related asset for deferred policy acquisition costs, and insurance related liabilities for future policy benefits and claims relating to its insurance policies under contract. Such asset and liabilities are developed using actuarial principles and assumptions which consider a number of factors, including: investment yields, withdrawal rates, mortality and morbidity which are described in the Notes to the Consolidated Financial Statements ("Notes"). As described in the Notes, the Company accounts for its traditional individual life insurance policies using a net level premium method and assumptions as to the factors enumerated above and as disclosed in Note 4. Generally, the Company's earnings in any given calendar year will not be impacted by differences in emerging experience on its traditional individual business unless such differences are severe enough to call into question the profitability of the entire block of traditional life business. The Company does, however, experience fluctuations in its earnings as a result of current mortality experience differing from that expected in any given year. During 2001, 2000, and 1999, the Company experienced emerged mortality of 89%, 84% and 86% of expected, respectively, related to its traditional individual life insurance business. The Company routinely purchases annual aggregate stop loss reinsurance coverage which limits experience to 120% of expected mortality in any one year.
Effective January 1, 2001, the State of Georgia adopted the National Association of Insurance Commissioner's Codification of Statutory Accounting Practices. The impact on the Company's statutory surplus upon adoption of the codification standards was not material.
The estimated fair values and carrying values of the Company's financial instruments at December 31, 2001 and 2000 are the same except for investment securities which are detailed in footnote 2 and mortgage loans as follows:
A 1% annual increase in assumed health care cost would increase the accumulated postretirement benefit obligation at December 31, 2001 by approximately $5,500 and the service and interest cost components of the net periodic postretirement benefit cost for 2001 by $400. A 1% annual decrease in the assumed health care costs would decrease the accumulated postretirement benefit obligation at December 31, 2001 by approximately $5,000 and the service and interest components of the net periodic postretirement benefit cost by $375.
Certain general expenses are allocated to the Company from its affiliates. These expenses, such as salaries, advertising, rents, etc., represent the Company's share of expenses initially paid by Mutual and are allocated based on specific identification or, if undeterminable, generally on the basis of each company's premium. Expenditures allocated to the Company amounted to $3,992,556 in 2001, $3,386,739 in 2000, and $2,957,431 in 1999. At December 31, 2001 and 2000, the Company owed Mutual $186,482 and $393,926, respectively.
The per share weighted-average fair value of stock options and restricted stock granted was estimated using an option pricing model with the following weighted-average assumptions: expected life of five years for options and seven years for restricted stock awarded in 1999, and three years for restricted stock awarded in 2001 and 2000; expected dividend yield of 1.60% for 2001 grants and 2.10% for all other years; risk-free interest rate of 4.5% for 2001, 5.0% for 2000 and 5.50% for 1999; and an expected volatility of 65% for 2001 grants, 58% for 2000 grants, and 52% for 1999 grants.