Pricing adequacy depends on a number of factors, including the ability to obtain regulatory approval for rate changes, proper evaluation of underwriting risks, the ability to project future losses based on historical loss experience adjusted for known trends, the Company’s response to competitors, and expectations about regulatory and legal developments and expense levels. The Company seeks to price our insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin. For many of our insurance products, the Company is required to obtain approval for the premium rates from state insurance departments. The profitability of fixed annuities, riders and other “spread-based” product features depends largely on the Company’s ability to earn target spreads between earned investment rates on assets and interest credited to policyholders.
Total stockholders' equity decreased from $263.1 million at December 31, 2012, to $245.8 million at December 31, 2013 due primarily to changes in unrealized losses on securities marked to market.
Insurance premiums rose 3.7% and 5.3% in 2013 and 2012, respectively, primarily from sales in our life insurance segment, which increased $6.4 million from amounts reported in 2012.
Net investment income increased 15.4% and 5.4% for 2013 and 2012, respectively, as rates have risen in 2013 compared to the prior two years. The average yield on the consolidated investment portfolio has changed from a yield of 3.92% in 2011 down to 3.81% in 2012 and increasing to a yield of 4.11% in 2013 as rates have risen. The increase in the investment asset balances due to premium revenue growth has also contributed to the increase in net investment income.
During 2013, claims and surrenders expense decreased 0.4% from the comparable period in 2012 as the home service segment was impacted in 2012 by Hurricane Isaac which hit the Louisiana coast on August 29, 2012 and caused increased property claims. In addition, death claims expense in 2012 was higher compared to 2011 due to the release of incurred but unreported death claims liability in 2011 of $0.7 million.
Endowment product sales have been on the rise and represented approximately 73% of new sales. The Company offers a ten, fifteen and twenty year endowment and our top selling endowment is a product that matures at age sixty-five. We also introduced a new product in 2011 that is an endowment at age eighteen with a payout over four or five years.
Through the domestic market of our Life Insurance segment, we provide ordinary whole life, credit life insurance, and final expense policies to middle and lower income families and individuals in certain markets in the mountain west, mid-west and southern U.S. The majority of our domestic revenues are generated by the operations of domestic life insurance companies we have acquired since 1987.
In 2008, the Company acquired Ozark National Life Insurance Company (“ONLIC”), an Arkansas domiciled life company. This entity provided an Arkansas field force of home service agents and funeral homes selling pre-need and final expense policies and was merged into SPLIC as of October 1, 2009, and is included in the Home Service segment. In the first quarter of 2009, the Company completed its acquisition of Integrity Capital Corporation ("ICC"). ICC is the parent of Integrity Capital Insurance Company ("ICIC"), an Indiana life insurance company. Both ICC and ICIC were merged into CICA effective April 1, 2011.
Net Investment Income. Net investment income increased to $36.6 million in 2013 compared to $31.7 million in 2012, due to an increase in yields from new investments primarily in municipal and corporate issues and as we experienced higher average invested assets as a result of investment of new premium revenue.
We have traditionally invested in fixed maturity securities with a large percent held in callable issues. Over the past three years, we have experienced significant call activity related to fixed maturity security holdings due to the historically low interest rate environment. The recent decline in yield rates has been leveling off and is beginning to rise as noted in the table above. If market
interest rates begin to rise, our call risk will diminish and our portfolio yield will rise more slowly over time, as new money investments would be made at higher rates.
Investment income from fixed maturity investments increased for the year of 2013 due to a rise in overall bond yields as noted above relative to the fixed maturity portfolio. In addition, the increase in the policy loans asset balance, which represents policyholders utilizing their accumulated policy cash value, contributed to the increase to investment income.
Claims and Surrenders. As noted in the table below, claims and surrenders decreased from $64.7 million in 2012 to $64.4 million in 2013.
The Company monitors death claims based upon expectations. The claims experience was favorable in 2013, decreasing by 4.4% from 2012 recorded amounts. These values may routinely fluctuate from year to year. Additionally, 2011 results include a $0.8 million incurred but not reported release of liability related to our claim expense calculation.
Property claims decreased 13% to approximately $2.0 million in 2013 compared with the amount reported for 2012 due to Hurricane Issac claims experience in the prior year with $0.5 million uninsured losses. The 2011 reported property claim amounts were lower than historical experience.
Policyholder Dividends. Policyholder dividends have risen at a rate corresponding with the growth rate in new international life insurance premiums. The Company issues long duration participating policies to foreign residents that are expected to pay dividends to policyholders based upon actual experience. Policyholder dividends are factored into the premiums and have no impact on profitability.
Other General Expenses. Total general expenses have decreased over the past several years on a consolidated basis as management has created efficiencies and improved processes. The reduction year to year was primarily related to lower audit, legal and consulting fees, as well as employee benefit cost reductions. In 2013, claims cost increased related to our self insurance health plan for our employees resulting in approximately $0.5 million increase to our overall benefit expenses. We also had an increase in temporary labor staffing costs of $0.2 million related to assistance with operations projects. In 2013, we also settled litigation in the amount of $0.2 million which was filed in the aftermath of Hurricane Katrina by the Louisiana Attorney General against all insurers writing homeowner policies in Louisiana.
Cost of Customer Relationships Acquired and Other Intangibles. The higher amortization in 2011 was related primarily to the ICC acquisition and greater amortization due to the increase in lapses on this new block of business. The amortization level recorded in 2013 and 2012 is indicative of what we expect going forward or until we make additional acquisitions.
Net Investment Income. Net investment income has increased as the annual yield has increased 44 basis points in this segment from 2012, as discussed in the Consolidated Results of Operations above.
Death claims expense decreased 21.1 % in 2013 due to favorable experience in the current year and increased 5.3% in 2012 compared to 2011 due to more reported claims. In addition, 2011 results included a $0.2 million release of incurred but not reported liability related to our claim experience calculation. Mortality experience is closely monitored by the Company as a key performance indicator and these amounts were within expected levels.
In addition, reserves have risen year over year for all periods presented due to the increased sales of endowment products, which build up reserve balances more quickly compared to other life product sales. Endowment sales totaled approximately $14.3 million, $14.3 million and $12.3 million, representing approximately 73.0%, 76.0% and 69.4% of total new first year premium in 2013, 2012, and 2011, respectively.
Other General Expenses. The expenses are allocated by segment, based upon an annual expense study performed by the Company, and were up due to employee health claims, as we are self-insured, and employee costs associated with temporary employees assisting on operations projects.
Premiums. The premiums in this segment were flat for the year. In 2012, there was an increase of approximately $180,000 of single premium revenues related to a system error in recording increasing policy benefits that are used to pay for paid up additions and were reflected as a one time adjustment as noted below under Policyholders' dividends.
Death claims expense was higher in 2013 compared to 2012 due to more reported claims in the current year. In addition, 2011 results include a $0.6 million incurred but not reported release of liability related to our claim experience calculation. Mortality experience is closely monitored by the Company as a key performance indicator and these amounts were within expected levels.
Property claims decreased in 2013 compared to 2012 as prior year results reflected increased activity related to Hurricane Issac. Gross Isaac losses recorded were approximately $740,000 with reinsurance recoverable of $240,000.
The Company made new investments in the A and BBB credit category of taxable municipals and corporate bonds, primarily public utility issuers with an average maturity of seven years. Non-investment grade securities are the result of downgrades of issuers, as the Company does not purchase below investment grade securities.
As of December 31, 2013, the Company held municipal securities that include third party guarantees. Detailed below is a presentation by NRSRO rating of our municipal holdings by funding type.
The tables below represent the Company’s detailed exposure of municipal holdings in Louisiana and Texas, which comprise the most significant state concentrations of the total municipal portfolio as of December 31, 2013.
The Company invests in municipal securities of issuers in the state of Louisiana and receives a credit that reduces its premium tax liability in that state. At December 31, 2013, total holdings of municipal securities in Louisiana represented 7.3% of all municipal holdings based upon fair value. The Company also holds 13.6% of its municipal holdings in Texas issuers.
There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal portfolio as of December 31, 2013.
There were no OTTI impairments recorded during 2013. We recorded an OTTI write-down in 2012 of $1,319,000 related to one coal powered energy issuer debt security holding which has a maturity date in 2017. The operations of this energy provider have been negatively impacted by the challenging environment in the coal-fired generation sector and overall decline in the price of power it can charge to customers.The Company recorded an OTTI of $70,000 in 2011 related to one American Airlines bond holding, as the issuer filed for bankruptcy. Based upon our emphasis on investing in fixed maturity securities primarily composed of obligations of U.S. Government-sponsored corporations and our analysis of whether declines in fair value below cost are temporary or other-than-temporary, management believes that our investments in fixed maturity investments at December 31, 2013 were not impaired, and no additional other-than-temporary losses need to be recorded.
Virtually all of the Company's non-credit accident and health insurance has been reinsured and is administered by Puritan Life Insurance Company of America, an unaffiliated party. The reinsurance recoverables under this agreement are collateralized by assets held in a trust for the benefit of the reinsured policies.
SPFIC has first and second event catastrophe reinsurance coverage of $10.0 million per event and a retention level of $500,000 per event. Thus, the first $500,000 of incurred claims and any claims in excess of $10.0 million are SPFIC's responsibility. The reinsurance premium for first event catastrophe reinsurance was $1,107,000, $1,025,000 and $1,128,000 in 2013, 2012 and 2011, respectively.
We have committed to the following contractual obligations as of December 31, 2013, with the payments due by the period indicated below:
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 did not exist as of December 31, 2013. Management believes that our policy liabilities and increase in future policy benefit reserves as of the years ended December 31, 2013, 2012 and 2011 are based upon assumptions, including a provision for the risk of adverse deviation, that do not warrant revision.
Acquisition costs, consisting of commissions and policy issuance, underwriting and agency expenses that relate to and vary with the successful production of new business, are deferred. These deferred policy acquisition costs are amortized primarily over the
estimated premium paying period of the related policies in proportion to the ratio of the annual premium recognized to the total premium revenue anticipated, using the same assumptions as were used in computing liabilities for future policy benefits.
The goodwill impairment test follows a multi step process as defined under current accounting guidance. An initial review may be performed whereby the assessment is based upon a qualitative factors before performing the first test step. In the first step, the fair value of a reporting unit is compared to its carrying value. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed for purposes of measuring the impairment. In the second step, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit to determine an implied goodwill value. If the carrying amount of the reporting unit goodwill exceeds the implied goodwill value, an impairment loss is recognized in an amount equal to that excess.