Beginning in July 1998, the Company anticipates underwriting variable universal life insurance and variable annuity products to non-Farm Bureau members through a marketing arrangement with a regional broker-dealer that operates in the Midwest. Also, in December 1997, the Company entered into an agreement to assist an unaffiliated life insurance company in the development, marketing and administration of variable universal life insurance and variable annuity products. The Company will share in the risks, costs and operating results of these products, which are expected to be available for sale by July 1998, through a reinsurance arrangement. These new alliances are not expected to have a significant impact on operating results for 1998 since the marketing of the related products are not expected to begin until the middle of the year.
Income taxes increased $5.7 million, or 17.8%, to $37.8 million for 1996 compared to $32.1 million for 1995. The effective tax rate for 1996 was 32.3% compared to 35.5% for 1995. The effective tax rate during 1996 was lower than the federal statutory rate of 35% due primarily to tax exempt interest and dividend income and other permanent differences between book and taxable income arising from investment transactions. During 1995, the effect of tax exempt interest and dividend income was more than offset by state income taxes primarily on realized gains attributable to noninsurance subsidiaries.
The Company has and will utilize both internal and external resources to reprogram, or replace, and test the software for Year 2000 modifications. The Company anticipates completing the Year 2000 project no later than December 31, 1998, and prior to any anticipated impact on its operating systems. The total incremental cost of the Year 2000 project (those costs which the Company would not have incurred had the Year 2000 issue not existed) is estimated to be $2.5 million and is being funded through operating cash flows. Year 2000 modification costs incurred and charged to expense during 1997 totaled $1.0 million. It is anticipated the project costs to be charged to expense during 1998 will total approximately $1.5 million and that these expenses will primarily be incurred during the first three quarters of the year.
Property-casualty insurance unearned premiums are calculated on a daily or monthly pro rata basis based upon the unexpired terms of the underlying policies.
from affiliates totaled $1.2 million, $0.9 million and $0.7 million for the years ended December 31, 1997, 1996 and 1995, respectively.
During the years ended December 31, 1997 and 1996, the Company paid cash dividends totaling $0.40 and $0.07 per common share, respectively. No dividends were paid during the year ended December 31, 1995.
Holders of the Class A common stock and Series preferred stock, together as a group, and Class B common stock vote as separate classes on all issues. Only holders of the Class A common stock and Series preferred stock vote for the election of Class A Directors (three to five) and only holders of the Class B common stock vote for the election of Class B Directors (ten to twenty). Voting for the Directors is noncumulative. In addition, various ownership aspects of the Company's Class B common stock are governed by a Class B Shareholder Agreement which results in the Iowa Farm Bureau Federation, which owns 66.4% of the Company's voting stock as of December 31, 1997, maintaining control of the Company. Holders of Class A common stock and Class B common stock are entitled to share ratably on a share-for-share basis with respect to common stock dividends.
Also in December 1997, the Company acquired all of the common stock of EquiTrust Life Insurance Company for $9.7 million. EquiTrust Life Insurance Company is a shell life insurance company licensed in 38 states. Goodwill totaling $1.5 million was recorded in connection with the acquisition and is being amortized over 20 years.