On December 31, 2001, the Company purchased (the "Purchase") the Dental Benefits Division of Protective Life Corporation ("Protective"). The Purchase includes group dental, group life and group disability insurance products ("Insurance Products"). The Company will reinsure these Insurance Products on a 100% coinsurance basis and perform administration of such Insurance Products. The Company paid $2.5 million for the business and recorded $1.6 million of goodwill in the transaction.
The Company's life insurance is principally group life business and the premium decreased from 2000 to 2001. This decrease is a result of lower persistency and sales coupled with additional ceding premium paid to ceding companies in 2001 for higher coverage levels. Accident and health premiums increased during 2001 as compared to 2000 due to strong group dental sales. Accident and health premiums are principally composed of group accident and health coverages. Dental, disability income, and medical premium represented 55%, 45%, and 0%, respectively, of total group accident and health premium in 2001 compared to 52%, 47%, and 1%, respectively, in 2000. The decrease in the group medical premium as a percent of the total group accident and health premium is due to the run-out of a block of business that discontinued sales in 1996.
The Company's general and administrative expense to premium ratio decreased from 20% in 2000 to 19% in 2001. The Company continues to strive for improvements in the expense to gross revenue ratio while maintaining quality and timely services to the policyholders.
The ratio of life benefits to premium decreased in 2000 to 74% from 77% in 1999 due to more favorable mortality experience during 2000 in the group life line. The decrease in accident and health benefits as a percent of premium to 73% in 2000 from 80% in 1999 is primarily due to both the dental and disability income lines. The decrease in the dental benefit to premium ratio is due to higher premium volume in 2000 along with favorable dental experience. The decrease in the disability income benefit to premium ratio is due to a slightly higher premium volume in 2000 as well as improved experience during the year.
The Company continues to monitor its commission rate structures, and, as indicated by market conditions, periodically adjusts rates paid. Rates paid vary by product type, group size and duration.
The Company's general and administrative expense decreased $0.6 million from 1999 to 2000. Decreases in salary related expenses, banking fees and depreciation costs account for this decrease. The Company continues to strive for improvements in the expense to gross revenue ratio while maintaining quality and timely services to the policyholders.
Interest rate risk is monitored and controlled through asset/liability management. As part of the risk management process, different economic scenarios are modeled, including cash flow testing required for insurance regulatory purposes, to determine that existing assets are adequate to meet projected liability cash flows. A major component of the Company's asset/liability management program is structuring the investment portfolio with cash flow characteristics consistent with the cash flow characteristics of the Company's insurance liabilities.
The liquidity requirements of the Company have been met by funds provided from operations, including investment income. Funds are principally used to provide for policy benefits, operating expenses, commissions and investment purchases. The impact of the declining inforce medical business has been considered in evaluating the Company's future liquidity needs. The Company expects its operating activities to continue to generate sufficient funds.