Old American sells final expense insurance products nationwide through its general agency system, with exclusive territories, using direct response marketing to supply agents with leads. Old American operates and maintains a separate and independent field force. To support the unique needs of this field force, Old American maintains a separate and distinct sales and marketing function, while other operational activities have been integrated with Kansas City Life’s to improve efficiency and effectiveness. Old American operates in 46 states and the District of Columbia.
At least annually, a review is performed of the models and the assumptions used to develop expected future profits, based upon management’s current view of future events. DAC is reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. Management’s view primarily reflects Company experience but can also reflect emerging trends within the industry. Short-term deviations in experience affect the amortization of DAC and VOBA in the period, but do not necessarily indicate that a change to the long-term assumptions of future experience is warranted. If it is determined that it is appropriate to change the long-term assumptions of future experience, then an unlocking adjustment is recognized for the block of business being evaluated. Certain assumptions, such as interest spreads and surrender rates, may be interrelated. As such, unlocking adjustments often reflect revisions to multiple assumptions. The balances of DAC and VOBA are immediately impacted by any assumption changes, with the change reflected through the income statement as an unlocking adjustment in the amount of DAC or VOBA amortized. These adjustments can be positive or negative. The impact of unlocking adjustments from the changes in estimates for the periods reported are included in the sections Consolidated Results of Operations and Operating Results by Segment.
years, a 1% increase in total premiums and a 6% increase in total new premiums would result. Total premiums were flat in 2007, following a 2% decline in 2006.
Insurance revenues consist of premiums and contract charges, less reinsurance ceded. Insurance revenues decreased $3.4 million or 1% to $231.9 million in 2007 compared to a similar decrease of $3.2 million or 1% in 2006. The decline in 2007 was primarily the result of a $3.1 million decrease in contract charges. A $1.0 million increase in immediate annuity premiums was offset by a $0.9 million decrease in individual life premiums and a $0.6 million decrease in accident and health premiums. The decline in 2006 was largely the result of a $5.0 million decrease in immediate annuity premiums and a $1.4 million decrease in individual life premiums. These changes were partially offset by a $2.8 million increase in accident and health premiums, which was largely the result of increased group dental sales.
The following table provides a reconciliation of activity within separate account liabilities at December 31.
Comprehensive income is comprised of net income and other comprehensive income (loss). Other comprehensive income (loss) includes the unrealized investment gains or losses on securities available for sale (net of reclassification adjustments for realized investment gains or losses) net of adjustments to DAC, VOBA and policyholder account balances. In addition, other comprehensive income (loss) includes the change in the additional minimum pension liability, and the adjustment to adopt SFAS 158 - described below under New Accounting Pronouncements. The adjustment to adopt SFAS 158 consisted of pension and postretirement net losses and prior service costs. Other comprehensive income (loss) also includes deferred income taxes on these items.
The unaudited quarterly results of operations for the years ended December 31, 2007 and 2006 are summarized in the table below.