Net investment income for 2001 was $147.0 million or 21.2% higher than for the preceding year primarily due to increases in the average amount of invested assets. Invested assets have increased primarily due to acquisitions, receiving stable value and annuity deposits, and the asset growth that results from the sale of various insurance products. The January 2001 coinsurance agreement and the October 2001 acquisitions resulted in an increase in investment income of $66.4 million. The percentage earned on average cash and investments was 7.0% in 2001 and 7.1% in 2000.
Compared to 2000, net income from continuing operations before cumulative effect of change in accounting principle in 2001 increased 34.7%, reflecting improved operating earnings in the Life Marketing, Acquisitions, Stable Value Contracts, Annuities, and Credit Products segments and lower realized investment losses, which were offset by lower operating earnings in the Corporate and Other segment.
On October 1, 2000, PLC transferred its ownership of twenty companies (that market prepaid dental products) to Protective. This transfer was accounted for in a manner similar to that in pooling-of-interests accounting, which resulted in the assets and liabilities of these companies being transferred at amounts equal to PLC’s bases (including approximately $200 million of goodwill). In addition, Protective’s share-owner’s equity was adjusted by an amount equal to the companies’ share-owner’s equity at October 1, 2000.
The results of operations of these companies have been included in the accompanying financial statements since the effective date of the transfer.
Property and equipment are reported at cost. Protective primarily uses the straight-line method of depreciation based upon the estimated useful lives of the assets. Major repairs or improvements are capitalized and depreciated over the estimated useful lives of the assets. Other repairs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or retired are removed from the accounts, and resulting gains or losses are included in income.
Universal Life and Investment Products - Universal life and investment products include universal life insurance, guaranteed investment contracts, deferred annuities, and annuities without life contingencies. Revenues for universal life and investment products consist of policy fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest credit rates for universal life and investment products ranged from 3.0% to 9.4% in 2001.
- $ 30,127 $ 479,397 $ 44,600 - $ 1,175,943 - - (258,931) (8,168) - (686,108) ---------------------------------------------------------------------------------------------------------- - 30,127 220,466 36,432 - 489,835 $ 243,133 132,204 46,464 1,023 - 692,081 (6,556) 410 - - $ (8,453) (14,599) - 2,809 28,352 5,416 - 35,194 ---------------------------------------------------------------------------------------------------------- 236,577 165,550 295,282 42,871 (8,453) 1,202,511 ---------------------------------------------------------------------------------------------------------- 207,143 109,607 135,494 33,953 - 760,778 900 24,156 52,646 2,141 - 145,694 3,882 18,203 72,316 26,194 - 121,417 ---------------------------------------------------------------------------------------------------------- 211,925 151,966 260,456 62,288 - 1,027,889 ---------------------------------------------------------------------------------------------------------- 24,652 13,584 34,826 (19,417) (8,453) 174,622 61,478 61,478 10,891 10,891 - - ---------------------------------------------------------------------------------------------------------- $ 124,035 ----------------------------------------------------------------------------------------------------------
PLC sponsors a defined contribution retirement plan which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code. PLC established an Employee Stock Ownership Plan (ESOP) to match voluntary employee contributions to PLC's 401(k) Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees who are not otherwise under a bonus or sales incentive plan. Expense related to the ESOP consists of the cost of the shares allocated to participating employees plus the interest expense on the ESOP's note payable to Protective less dividends on shares held by the ESOP. At December 31, 2001, PLC had committed approximately 166,861 shares to be released to fund employee benefits. The expense recorded by PLC for these employee benefits was less than $0.1 million in 2001, 2000, and 1999.
Note M-- STOCK BASED COMPENSATION (Continued) In 1999, 99,380 performance shares were awarded, having an estimated fair value on the grant date of $3.4 million. In 2000, 3,330 performance shares and 513,618 stock appreciation rights (SARs) were awarded, having a combined estimated fair value on the grant date of $3.7 million. In 2001, 153,490 performance shares and 40,000 SARs were awarded, having a combined estimated fair value on the grant date of $4.9 million. The SARs, if earned, expire after ten years.
Liabilities (see Notes A and E): Stable value account balances............ 3,716,530 3,821,955 3,177,863 3,250,991 Annuity account balances................. 3,248,218 3,166,052 1,916,894 1,893,749 Notes payable............................ 2,291 2,291 2,315 2,315 Other (see Note A): Derivative Financial Instruments......... (1,634) (1,634) (6,079) (13,011)