The table below sets forth, in summary form, selected data of the Company. This data, which is not covered in the report of our independent auditors, should be read in conjunction with the consolidated financial statements and notes which are included elsewhere herein. The per share amounts have been adjusted retroactively for all periods presented to reflect the 7% common stock dividends paid on December 31, 1999 and December 31, 2000, and a 15% stock dividend paid on June 1, 2002, respectively.
On February 18, 2003, we acquired all the outstanding shares of First Alliance Corporation ("First Alliance"), the parent of First Alliance Insurance Company, a Kentucky life insurer, for approximately 2.6 million shares of our Class A common stock. The aggregate market value of the consideration was approximately $17.2 million. First Alliance will continue to operate from its offices in Lexington, Kentucky.
On March 7, 2003, we entered into a Plan and Agreement of Merger with Mid-American Alliance Corporation ("Mid-American") a Missouri holding company, whereby we will acquire all of the outstanding shares of Mid-American for shares of our Class A common stock. The transaction values Mid-American's shares at $1.35 each and our Class A shares based on the average closing price for the 20 trading days preceding closing. Closing is expected in mid 2003.
Management believes that the acquisitions should enhance premium income and total revenue and augment our domestic marketing program. The marketing operations of these companies continue to write whole life insurance and supplemental accident and health products that have historically been the foundation of their business.
Net income of $4,254,217 or $.14 per share was earned during 2002, compared to net income of $3,963,113 or $.14 per share for 2001 and net income of $2,052,741 or $.07 per share in 2000. The acquisitions of Combined and Lifeline increased net income for 2002 by approximately $576,000. Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets", was adopted by us on January 1, 2002 and changed the accounting for goodwill and intangibles, as discussed below. Had SFAS No. 142 been adopted in 2001 and 2000, pro forma net income would approximate $4,866,000 ($.17 per share) and $3,018,000 ($.10 per share), respectively, for the years ended December 31, 2001 and 2000. Increased production of new business coupled with
Total revenues for 2002 were $83,003,898 compared to $67,646,824 in 2001, an increase of 22.7%. In 2000 revenues were $66,678,116. The acquisitions of Combined and Lifeline increased 2002 revenues by $11,270,166. The 2002 increase in revenues compared to 2001 was due primarily to a 17.7% increase in new life revenues (measured in paid annualized premiums), a 4.5% increase in renewal life premiums, a 166.3% increase in accident and health premiums and a 7.2% increase in net investment income. The increase in new revenues was due to increases of the number of marketing consultants submitting business to us as well as the expansion of countries from which applications have been received, while the increase in accident and health sales relates to Combined and Lifeline. The increase in 2001 over 2000 revenues was due primarily to a 14.9% increase in new life sales, a 3.4% increase in renewal life premiums and a 5.9% increase in net investment income that offset a 30.1% decrease in accident and health premiums. The increase in new life revenues in 2001 was due to broader penetration of existing markets.
Premium income increased by 26.4% from $53,962,937 in 2001 to $68,210,881 in 2002. Premium income increased by 1.0% from $53,451,853 in 2000 to $53,962,937 in 2001. The 2002 increase was comprised of a $5,767,541 increase in life premiums and an $8,414,123 increase in accident and health premiums. The March 2002 acquisitions of Combined and Lifeline increased life premiums by $1,539,015 and accident and health premiums by $9,186,710, offsetting a $772,587 reduction in our existing book of accident and health business as a result of previous terminations and rate increases. Consistent with our practice over the past several years, Management will implement significant rate increases in supplemental non-cancelable accident and health products if loss ratios increase. This course of action will contribute to decreases in accident and health premiums. For example, during 2003, management intends to non-renew virtually all of Combined's major medical business, which accounted for approximately $2.5 million of premium revenue in 2002.
believes that the acquisitions of Combined, Lifeline and First Alliance will enhance premium income and total revenue.
Death benefits increased 17.6% from $5,613,782 in 2001 to $6,599,914 in 2002. Death benefits were $5,277,284 in 2000. The 2002 increase was primarily due to the impact of the above-discussed acquisitions, which increased such expense by $712,052. CICA has historically adhered to an underwriting policy which requires thorough medical examinations on all applicants who are foreign residents, except children, regardless of age or face amount of the policy applied for, including x-rays and electrocardiograms. On all policies of $150,000 or more, inspection reports are required which detail the background resources and lifestyle of the applicant. We have developed numerous contacts throughout Latin America with which our underwriters can validate information contained in applications, medical or inspection reports.
Accident and health benefits increased 161.0% from $3,301,341 in 2001 to $8,615,358 in 2002. Such claims were $5,158,623 in 2000. This increase in accident and health benefits is directly related to the acquisition of Combined and Lifeline discussed above, which generated $5,752,048 in claims, offsetting a $438,031 reduction in claims on our existing book of accident and health business. As a result of the substantial increase in accident and health claims plus an increase in loss ratios, in 1999 management cancelled a large portion of the existing blocks of this business which was acquired in prior acquisitions. This action resulted in decreases in accident and health premiums of $2,175,842 in 2001 and $1,857,282 in 2002. Additionally, significant rate increases were implemented on the accident and health business remaining in force, and management expects to continue to implement increases until such time as claims reach more reasonable levels.
Other claim expenses amounted to $383,993 in 2002, $449,441 in 2001 and $915,083 in 2000. These expenses are comprised of supplemental contract benefits, interest on policy funds and assorted other miscellaneous policy benefits.
Amortization of cost of customer relationships acquired, excess of cost over net assets acquired and other intangibles increased from $1,908,683 in 2001 to $2,527,996 in 2002. In 2000, such amortization was $1,995,660. The increase relates to the amortization of cost of customer relationships acquired with respect to the acquisition of Combined and Lifeline that amounted to $1,888,885 in 2002 that more than offset our adoption of the new Financial Accounting Standards Board's (FASB) accounting statement where amortization of goodwill and other intangibles ceased since management determined that these intangibles have an indefinite life. Our analysis of goodwill and other intangibles indicated that there was no impairment as of December 31, 2002. The amortization of goodwill and other intangibles amounted to $902,610 and $965,590 for the years ended December 31, 2001 and 2000, respectively.
Stockholders' equity increased from $82,721,798 at December 31, 2001 to $101,792,305 at December 31, 2002. The increase was attributable to $11,961,784 of Class A common stock issued for the acquisition of Combined and Lifeline, net income of $4,254,217 earned in 2002 and unrealized gains, net of tax, increased by $2,854,506 as of December 31, 2002 over December 31, 2001. Increases in the market value of our bond portfolio caused by higher bond prices resulted in the increase in unrealized gains.
Policy loans comprised 9.1% of invested assets at December 31, 2002 compared to 9.7% at December 31, 2001. These loans, which are secured by the underlying policy values, have yields ranging from 5% to 10% percent and maturities that are related to the maturity or termination of the applicable policies. Management believes that we maintain adequate liquidity despite the uncertain maturities of these loans.
Our subsidiary, CICA, owned 2,398,031 shares of our Class A common stock at December 31, 2002, and 2,085,244 shares at December 31, 2001. In our consolidated financial statements, the shares owned by CICA are combined with the other treasury shares and the aggregate treasury shares are reported at cost in conformity with U.S. GAAP.
The NAIC has established minimum capital requirements in the form of Risk-Based Capital ("RBC"). Risk-based capital factors the type of business written by an insurance company, the quality of its assets, and various other factors into account to develop a minimum level of capital called "authorized control level risk-based capital" and compares this level to an adjusted statutory capital that includes capital and surplus as reported under Statutory Accounting Principles, plus certain investment reserves. Should the ratio of adjusted statutory capital to control level risk-based capital fall below 200%, a series of actions by the affected company would begin. At December 31, 2002, all of the Company's insurance subsidiaries were above required minimum levels.
did not establish the reserve of approximately $3 million in its statutory financial statements as of and for the year ended December 31, 2002 or December 31, 2001. In Texas, codified rules must be followed unless the Commissioner of Insurance of the State of Texas permits specific practices that differ from codified rules. Combined and Lifeline have not requested explicit permission to deviate from the NAIC codified rules. In Illinois, codified rules must be followed unless the Commissioner of Insurance of the State of Illinois permits specific practices that differ from the codified rules. CILIC and Excalibur have not requested explicit permission to deviate from the NAIC codified rules.
Future policy benefit reserves have been computed by the net level premium method with assumptions as to investment yields, dividends on participating business, mortality and withdrawals based upon our industry experience. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of policy liabilities and the increase in future policy benefit reserves. Management's judgments and estimates for future policy benefit reserves provide for possible unfavorable deviation.
We continue to use the original assumptions (including a provision for the risk of adverse deviation) in subsequent periods to determine the changes in the liability for future policy benefits (the "lock-in concept") unless a premium deficiency exists. Management monitors these assumptions and has determined that a premium deficiency does not exist. Management believes that our policy liabilities and increase in future policy benefit reserves as of and for the years ended December 31, 2002, 2001 and 2000 are based upon assumptions, including a provision for the risk of adverse deviation, that do not warrant revision. The relative stability of these assumptions and management's analysis is discussed below.
In Table II in Item 1, the ratio of lapses and surrenders to mean life insurance in-force has varied between 4.4% to 5.1% for four of the past five years. The 2002 ratio of 7.3% relates to surrenders caused by the current uncertain economic conditions in several Latin American countries. After review of the surrender and lapse detailed information, management does not believe the 2002 increase reflects a negative trend in lapses and surrender activity but rather an aberration in the historical experience and no adjustment to persistency and lapsation assumptions are needed in the computation of future policy benefit reserves. Management believes that our conservation program whereby policyholders that are considering to surrender their policies are informed and counseled about the benefits of their policies, should return surrenders to our historical levels.
Table IV in Item 1 above, illustrates that during the past five years the ratio of commissions, underwriting and operating expenses to insurance premiums has ranged from 39.9% to 46.0% and the ratio of commissions, underwriting and operating expenses, policy reserves increases, policyholder benefits and dividends to policyholders to insurance premiums has ranged from 113.1% to 119.2%. Table VIII also shows that the ratio of net investment income to mean amount of invested assets has varied from 6.6% to 6.8% during the past five years. As set
forth above in Management's Discussion and Analysis of Financial Condition and Results of Operations, death benefits for the years ended December 31, 2002, 2001 and 2000 were $6,599,914, $5,613,782 and $5,277,284, respectively with $712,052 of the 2002 increase in death benefits related to the acquisitions of Combined and Lifeline.
Inherent in the capitalization and amortization of deferred policy acquisition costs are certain management judgments about what acquisition costs are deferred, the ending asset balance and the annual amortization. Over 85% of our capitalized deferred acquisition costs are attributed to first year excess commissions. The remaining 15% are attributed to costs that vary with and are directly related to the acquisition of new and renewal insurance business. Those costs generally included costs related to the production, underwriting and issuance of new business. Use of the factor method, as discussed above, limits the amount of unamortized deferred policy acquisition costs to its estimated realizable value provided actual experience is comparable to that contemplated in the factors and results in amortization amounts such that policies that lapse or surrender during the period are no longer included in the ending deferred policy acquisition cost balance.
Additionally, at December 31, 2002, 91.7% of our fixed maturity securities are invested in U.S. Treasury securities and obligations of U.S. government corporations and agencies, including U.S. government guaranteed mortgage-backed securities. All of these securities are backed by or bear the implied full faith and credit of the U.S. government. We evaluate the carrying value of our fixed maturity and equity securities at least quarterly. A decline in the fair value of any fixed maturity or equity security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. The new cost basis is not changed for subsequent recoveries in the fair value of the fixed maturity or equity security. Based upon our emphasis of investing in fixed maturity securities primarily composed of U.S. Treasury securities and obligations of U.S. government corporations and agencies, including U.S. government guaranteed mortgage-backed securities and callable instruments issued by U.S. government agencies and its analysis whether any declines in fair value below cost are temporary or other than temporary, management believes that our investments in fixed maturity and equity securities at December 31, 2002 are not impaired and no other than temporary losses need to be recorded. See also