The Company leases 6,769 square feet of office space pursuant to a five-year lease that began October 1, 2010. Under the terms of the home office lease, the monthly rent is $7,897 from October 1, 2010 through September 30, 2015. The Company incurred rent expense of $76,192 and $76,136 for the years ended December 31, 2013 and 2012, respectively, under this lease and other minor leases. The Company received a $120,000 leasehold improvement allowance from the lessor that is being amortized over the non-cancellable lease term that reduced incurred rent expense by $25,263 for each of the years ended December 31, 2013 and 2012. Future minimum lease payments to be paid under non-cancellable lease agreements are $94,764 for 2014 and $71,073 in 2015.
TLIC owns approximately six and one-half acres of land located in Topeka, Kansas. A 20,000 square foot office building has been constructed on approximately one-half of this land. On December 24, 2009, TLIC entered into a five year lease of approximately 7,500 square feet of its building in Topeka, Kansas with an option for the lessee to renew the lease for five additional years. The terms of the lease leave TLIC responsible for paying real estate taxes, building insurance and building and ground maintenance. The monthly lease payments are as follows: $9,130 in 2012 and $9,371 in 2013 and 2014.
Prior to June 30, 2013, we provided financing for casualty insurance premiums through independent property and casualty insurance agents. We are licensed in the states of Alabama, Arkansas, Louisiana, Mississippi and Oklahoma.
The Company’s management decided two years ago to focus on the Company’s core life and annuity insurance business and discontinue offering premium finance contracts. Specifically on May 16, 2012, the Company determined and then announced that FTCC would not accept new premium financing contracts after June 30, 2012. FTCC continued to process payments and service all existing premium financing contracts after June 30, 2012 through the duration that the property and casualty premium financing contracts were in force. The Company virtually completed processing and servicing its premium finance operations on June 30, 2013 subject to minor refunds, minor collections of past due accounts and legal matters. The Company incurred minimal costs related to exiting its premium financing operations since resources were redeployed into its growing life and annuity insurance operations.
Deferred acquisition costs related to the successful production of new and renewal insurance and annuity products that subject us to mortality or morbidity risk over a period that extends beyond the period or periods in which premiums are collected and that have terms that are fixed and guaranteed (i.e., limited-payment long-duration annuity contracts) are deferred to the extent deemed recoverable and amortized in relation to the present value of actual and expected gross profits on the policies. To the extent that realized gains and losses on securities result in adjustments to deferred acquisition costs related to insurance and annuity products, such adjustments are reflected as a component of the amortization of deferred acquisition costs.
The Company is currently required to prepare its financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP), as promulgated by the FASB. During the last several years, the Securities and Exchange Commission (SEC) has been evaluating whether, when and how International Financial Reporting Standards (IFRS) should be incorporated into the U.S. financial reporting system. Before making a decision, the SEC set forth a work plan to evaluate the remaining differences between GAAP and IFRS, determine whether IFRS represent high quality standards, consider how the International Accounting Standards Board (IASB) is funded and its governance structure and examine the variations in the way IFRS was applied by various foreign companies that file financial statements with the SEC. In July 2012, the SEC staff issued a final report on the SEC work plan which concluded that IFRS provided high quality accounting standards, but also indicated concerns with funding, consistency of application and enforcement of IFRS globally. The report did not give a recommendation to the SEC on whether, when and how IFRS should be incorporated into the U.S. financial reporting system. In addition, the SEC has not indicated a timeline for further consideration of incorporating IFRS.
The FASB and the IASB also continue to deliberate the three remaining projects intended to bring convergence between GAAP and IFRS for revenue recognition, accounting for financial instruments and leasing. The revenue recognition project is largely converged and the Boards are expected to issue final guidance in the first half of 2014. The Boards currently have different positions on certain key aspects of the financial instrument project (the classification and measurement and impairment) but both Boards intend to complete their financial instrument project during the first half of 2014. The timing of the leasing project is not known at this time.
The Company is not able to predict whether it will be required to adopt IFRS or how the adoption of IFRS (or the potential convergence of GAAP and IFRS, including the joint project for valuing insurance contract liabilities) may impact the Company's financial statements in the future.
FASB guidance requires a "management approach" in the presentation of business segments based on how management internally evaluates the operating performance of business units. The discussion of segment operating results that follows is being provided based on segment data prepared in accordance with this methodology. Our business segments are as follows:
Life and annuity insurance operations, consisting of the operations of TLIC and Family Benefit Life;
The $1,349,110 increase in gross investment income for the year ended December 31, 2013 is due to the 2013 investment of excess cash primarily in fixed maturity securities, other long-term investments (lottery receivables) and mortgage loans.
The $242,382 increase in investment expenses for the year ended December 31, 2013 is primarily due to $180,000 of increased fees associated with increased purchasing of fixed maturity securities, mortgage loans, investment real estate and lottery receivables. In addition, during 2013, the Company established a $58,000 allowance for possible uncollectible mortgage loans on real estate that are not subject to funds held in escrow. As of December 31, 2013, $201,936 of cash and $203,841 of independent mortgage loan balances are held in escrow by a third party for the benefit of the Company related to its investment in mortgage loans on real estate with one loan originator.
The net realized investment losses from the sales and impairment of equity securities available-for-sale of $46,954 for the year ended December 31, 2013 resulted from proceeds of $97,975 for these securities that had carrying values of $144,929 at the 2013 disposal dates. An equity security with a carrying value of $42,500 was deemed to be fully impaired in fourth quarter 2013 with the decrease in value reported as a realized loss.
The net realized investment gains from mortgage loans on real estate of $264,396 for the year ended December 31, 2013, resulted from the early payoff of mortgage loans that the Company had acquired at a discounted price.
The net realized investment gains from the sales of equity securities available-for-sale of $442,737 for the year ended December 31, 2012 resulted from proceeds of $1,114,426 for these securities that had carrying values of $671,689 at the 2012 disposal dates.
The net realized investment gains from the sale of investment real estate of $75,832 for the year ended December 31, 2012 resulted from proceeds of $512,500 from the sale of two buildings that had a carrying value of $436,668 at the 2012 disposal date.
We recorded no other-than-temporary impairments in 2013 or 2012 other than the $42,500 realized loss recorded on the equity security that was deemed to be fully impaired in fourth quarter 2013.
Our benefits, claims and expenses for the years ended December 31, 2013 and 2012 are summarized as follows:
The increase of $1,089,451 in total benefits, claims and expenses for the year ended December 31, 2013 is discussed below.
$415,400 increase in interest credited to policyholders primarily due to an increase in the amount of policyholders’ account balances in the consolidated statement of financial position (increased deposits in excess of withdrawals).
$184,345 decrease in death benefits is primarily due to the 2013 cancellation of a group life assumption reinsurance contract.
For the year ended December 31, 2013 and 2012, capitalized costs were $1,950,072 and $2,302,070, respectively. Amortization of deferred policy acquisition costs for the years ended December 31, 2013 and 2012 were $831,637 and $512,546, respectively.
Our commissions for the years ended December 31, 2013 and 2012 are summarized as follows:
$35,507 decrease in annuity first year, single and renewal commissions is due to a decrease in commission rates for annuity products that offered a higher interest crediting rate.
For the years ended December 31, 2013 and 2012, current income tax expense was $100,820 and $273,054, respectively. Deferred income tax expense (benefit) was $217,932 and ($417,122), for the years ended December 31, 2013 and 2012, respectively.
Net income per common share basic and diluted is calculated using the weighted average number of common shares outstanding and subscribed during the year. The weighted average outstanding and subscribed common shares basic and diluted for the year ended December 31, 2013 and 2012 were 7,852,014 and 7,883,901, respectively. These weighted average shares reflect the retrospective adjustment for the impact of the 5% stock dividend declared by the Company on January 11, 2012 and issued to holders of shares of the Company as of March 10, 2012.
The $103,654 decreased profitability from Premium Finance Operations for the year ended December 31, 2013 is primarily due to $58,589 of decreased fee income and $45,000 of increased operating expenses primarily for legal fees.
The $194,617 decreased Corporate Operations profitability for 2013 is primarily due to the $205,491 decrease in revenues discussed above that exceeded $11,000 of decreased operating expenses.
As of December 31, 2013, we held 154 available-for-sale fixed maturity securities with an unrealized loss of $1,596,459, fair value of $34,634,408 and amortized cost of $36,230,867. These unrealized losses were primarily due to rising market interest rates in the bond market as of December 31, 2013.
The $126,064 decrease in available-for-sale equity securities for the year ended December 31, 2013 is primarily due to sales of $97,975, purchases of $16,780, net realized investment losses of $46,954 (primarily due to the full impairment in fourth quarter 2013 of an equity security valued at $42,500) and a $2,085 increase in unrealized appreciation of available-for-sale equity securities. This portfolio is also reported at fair value with unrealized gains and losses, net of applicable income taxes, reflected as a separate component in shareholders' equity within “Accumulated Other Comprehensive Income.” The available-for-sale equity securities portfolio is invested in a variety of companies.
As of December 31, 2013, we held three available-for-sale equity securities with an unrealized loss of $32,605, fair value of $185,840 and cost of $218,445.
As of December 31, 2012 there were no available-for-sale equity securities in an unrealized loss position.
The $8,689,093 increase in mortgage loans for the year ended December 31, 2013 is primarily due to the origination of $10,643,970 of mortgage loans, $264,396 of realized gains on prepayment of mortgage loans purchased at a discount, $136,458 of capitalization of loan origination fees and discount accretion of $62,718 less principal payments of $2,323,743, amortization of loan origination fees of $36,511 and $58,195 for the establishment of a mortgage loan allowance account.
The $2,202,854 increase in other long-term investments (comprised of lottery receivables) for the year ended December 31, 2013 is primarily due to the purchases of $4,555,915 and $1,618,184 of accretion of discount less principal payments of $3,971,245.
Our assets other than invested assets as of December 31, 2013 and December 31, 2012 are summarized as follows:
In addition, during second quarter 2013, FTCC foreclosed on a delinquent loan and recovered the former home office building of SIS for $125,464 and correspondingly reduced notes receivable (included in other assets in 2012) and increased investment real estate. This recovery of the note receivable and capitalization of the building was a non-cash investing and financing activity. This building was refurbished in the first half of 2013 at a cost of $10,656 and sold in third quarter 2013 for $140,000 resulting in a gain of $3,880. FTCC also sold a parcel of land in 2013 for $40,000 resulting in a loss of $833. This 2013 net realized gain on the sale of the FTCC building and land is included in other income in the statements of operations.
Our liabilities as of December 31, 2013 and 2012 are summarized as follows:
The $721,756 increase in other liabilities is primarily due to a $1,364,000 increase in deposits on pending applications that exceeded a $600,000 payable for securities purchased with trade dates in 2012 and settlement dates in 2013 and a $36,000 increase in accrued expenses.
The $9,724,412 of decreased cash used for investing activities during the year ended December 31, 2013 was primarily related to decreased purchases of investments in fixed maturity securities and other long-term investments (lottery receivables).
The $3,773,283 increase in cash provided by financing activities for the year ended December 31, 2013 resulted from $4,978,863 of increased policyholder account deposits in excess of withdrawals; $1,809,039 of decreased net proceeds from the public and private placement stock offerings and $603,459 of decreased purchases of treasury shares.
One of our significant risks relates to the fluctuations in interest rates. Regarding interest rates, the value of our available-for-sale fixed maturity securities investment portfolio will increase or decrease in an inverse relationship with fluctuations in interest rates, while net investment income earned on newly acquired available-for-sale fixed maturity securities increases or decreases in direct relationship with interest rate changes. From an income perspective, we are exposed to rising interest rates which could be a significant risk, as TLIC's and Family Benefit Life’s annuity business is impacted by changes in interest rates. Life insurance company policy liabilities bear fixed rates. From a liquidity perspective, our fixed rate policy liabilities are relatively insensitive to interest rate fluctuations.
We believe gradual increases in interest rates do not present a significant liquidity exposure for the life insurance policies. We maintain conservative durations in our fixed maturity portfolio. As of December 31, 2013, cash and the fair value of fixed maturity available-for-sale securities with maturities of less than one year and the fair value of lottery receivables with maturities of less than one year equaled 14.5% of total policy liabilities. If interest rates rise significantly in a short time frame, there can be no assurance that the life insurance industry, including the Company, would not experience increased levels of surrenders and reduced sales, and thereby be materially adversely affected.
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
We have audited the accompanying consolidated statements of financial position of First Trinity Financial Corporation and Subsidiaries (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
In 2012, the Company issued 378,928 shares in connection with a 5% share dividend payable to the holders of shares of the Company as of March 10, 2012. In conjunction with the 2012 stock dividend, the non-cash impact on investing and financing activities is summarized as follows:
First Trinity Financial Corporation (the “Company”) is the parent holding company of Trinity Life Insurance Company, Family Benefit Life Insurance Company, First Trinity Capital Corporation and Southern Insurance Services, LLC. The Company was incorporated in Oklahoma on April 19, 2004, for the primary purpose of organizing a life insurance subsidiary. The Company raised $1,450,000 from two private placement stock offerings during 2004.
TLIC purchased Family Benefit Life Insurance Company (“Family Benefit Life”) on December 28, 2011. Family Benefit Life is primarily engaged in the business of marketing, underwriting and distributing a broad range of individual life and annuity insurance products to individuals in sixteen states. Family Benefit Life’s current product portfolio consists of whole life, term, accidental death and dismemberment, annuity, endowment and group life insurance products. The products are sold through independent agents in the states of Arizona, Colorado, Kansas, Missouri, Nebraska, New Mexico and Oklahoma. In late 2012, Family Benefit Life was initially licensed in Arkansas, Indiana, Kentucky, North Dakota, South Dakota, Texas and West Virginia. In 2013, Family Benefit Life was initially licensed in Illinois and Pennsylvania.
The Company also owns 100% of Southern Insurance Services, LLC, (“SIS”), a limited liability company acquired in 2009, that operated as a property and casualty insurance agency but currently has no operations.
Investment real estate is carried at cost less accumulated depreciation. Depreciation on investment real estate is calculated over an estimated useful life of 19 years.
Investment Income and Realized Gains and Losses on Sales of Investments
To the extent that realized gains and losses on fixed income securities result in adjustments to deferred acquisition costs related to insurance and annuity products, such adjustments are reflected as a component of the amortization of deferred acquisition costs. Deferred acquisition costs related to limited-payment long-duration insurance and annuity contracts are also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from available-for-sale securities had actually been realized. This adjustment is included in the change in net unrealized appreciation (depreciation) on available-for-sale securities, a component of “Accumulated Other Comprehensive Income” in the shareholders’ equity section of the statement of financial position.
Loans from premium financing are carried at their outstanding unpaid principal balances, net of unearned interest, charge-offs and an allowance for loan losses. Interest on loans is earned based on the interest method for computing unearned interest. The rule of 78s is used to calculate the amount of the interest charge to be forgiven in the event that a loan is repaid prior to the agreed upon number of monthly payments. When serious doubt concerning collectability arises, loans are placed on a nonaccrual basis. Generally if no payment is received after one hundred twenty days, all accrued and uncollected interest income is reversed against current period operations. Interest income on nonaccrual loans is recognized only when the loan is paid in full. Loan origination fees and costs are charged to expense as incurred.
The allowance for possible loan losses from financing casualty insurance premiums is a reserve established through a provision for possible loan losses charged to expense which represents, in management’s judgment, the known and inherent credit losses existing in the loan portfolio. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses inherent in the loan portfolio and reduces the carrying value of the loans from premium financing to the estimated net realizable value on the statement of financial position.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis.
As of December 31, 2013 and 2012, there was $1,653,087 and $1,230,982, respectively, of accumulated amortization of the value of insurance business acquired due to the purchases of FLAC and Family Benefit Life. The Company expects to amortize the value of insurance business acquired by the following amounts over the next five years: $444,757 in 2014, $419,319 in 2015, $387,194 in 2016, $359,659 in 2017 and $308,631 in 2018.
Management has evaluated all events subsequent to December 31, 2013 through the date that these financial statements have been issued.
In February 2013, the FASB issued updated guidance to improve the reporting of reclassifications out of accumulated other comprehensive income. The guidance requires an entity to present, either on the face of the statement of operations or in the notes, separately for each component of comprehensive income, the current period reclassifications out of accumulated other comprehensive income by the respective line items of net income affected by the reclassification.
Investments in fixed maturity and equity securities available-for-sale as of December 31, 2013 and 2012 are summarized as follows:
All securities in an unrealized loss position as of the financial statement dates, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position as of December 31, 2013 and 2012 are summarized as follows:
Fixed maturity securities were 96% and 95% investment grade as rated by Standard & Poor’s as of December 31, 2013 and December 31, 2012, respectively.
There were no equity securities in an unrealized loss position as of December 31, 2012.
Based on management’s review, an equity security with a carrying value of $42,500 was deemed to be fully impaired in fourth quarter 2013 with the decrease in value reported as a realized loss. The Company experienced no other-than-temporary impairments during the year ended December 31, 2012.
Net unrealized gains included in other comprehensive income for investments classified as available-for-sale, net of the effect of deferred income taxes and deferred acquisition costs assuming that the appreciation had been realized as of December 31, 2013 and 2012 are summarized as follows:
The amortized cost and fair value of fixed maturity available-for-sale securities as of December 31, 2013, by contractual maturity, are summarized as follows:
The accumulated change in net unrealized investment gains for fixed maturity and equity securities available-for-sale for the years ended December 31, 2013 and 2012 and the amount of realized investment gains (losses) on fixed maturity and equity securities available-for-sale and mortgage loans on real estate and investment real estate for the years ended December 31, 2013 and 2012 are summarized as follows:
The Company’s mortgage loans by property type as of December 31, 2013 and 2012 are summarized as follows:
TLIC owns approximately six and one-half acres of land located in Topeka, Kansas that includes a 20,000 square foot office building on approximately one-half of this land. In addition, through September 30, 2012, Family Benefit Life owned one and one-half acres of land located in Jefferson City, Missouri with two buildings located on one acre of the land. These two buildings were sold in October 2012. In late 2013, the Company purchased one acre of land in Greensburg, Indiana that included a 3,975 square foot retail building on approximately 8% of this land. Also in late 2013, the Company purchased another acre of land in Norman, Oklahoma that included a 9,100 square foot retail building on approximately 18% of this land.
The Company’s investment in lottery prize cash flows was $21,763,648 and $19,560,794 as of December 31, 2013 and 2012, respectively. The lottery prize cash flows are assignments of the future rights from lottery winners purchased at a discounted price. Payments on these investments are made by state run lotteries.
The Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of December 31, 2013 and 2012 is summarized as follows:
The Company analyzes market valuations received to verify reasonableness and to understand the key assumptions used and the sources. Since the fixed maturity securities owned by the Company do not trade on a daily basis, the third party investment service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing. As the fair value estimates of the Company’s fixed maturity securities are based on observable market information rather than market quotes, the estimates of fair value on these fixed maturity securities are included in Level 2 of the hierarchy. The Company’s Level 2 investments include obligations of U.S. government and U.S. government agencies, state and political subdivisions, mortgage-backed securities, corporate bonds and foreign bonds.
The Company’s equity securities are included in Level 1 and Level 2 and the private placement common stocks included in Level 3. Level 1 for those equity securities classified as such is appropriate since they trade on a daily basis, are based on quoted market prices in active markets and are based upon unadjusted prices. Level 2 for those equity securities classified as such is appropriate since they are not actively traded as of December 31, 2013.
The change in the fair value of the Company’s Level 3 equity securities available-for-sale for the years ended December 31, 2013 and 2012 is summarized as follows:
The carrying value of these financial instruments approximates their fair values. Cash and cash equivalents are included in Level 1 of the fair value hierarchy due to their highly liquid nature.
The carrying value of loans from premium financing is net of unearned interest and any estimated loan losses and approximates fair value. Unearned interest was $1,389 as of December 31, 2012. Estimated loan losses were $206,858 and $228,999 as of December 31, 2013 and 2012, respectively.
TLIC and Family Benefit Life are required to hold assets on deposit for the benefit of policyholders and other special deposits in accordance with statutory rules and regulations. As of December 31, 2013 and 2012, these required deposits had amortized costs that totaled $3,220,853 and $3,981,060, respectively. As of December 31, 2013 and 2012, these required deposits had fair values that totaled $3,097,372 and $4,219,334, respectively.
The balances of and changes in the company’s credit losses related to loans from premium financing as of and for the years ended December 31, 2013 and 2012 are summarized as follows:
The components of total income tax expense (benefit) for the years ended December 31, 2013 and 2012 is summarized as follows:
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2013 and 2012 are summarized as follows:
FTFC has net operating loss carry forwards of approximately $5,990,000 expiring in 2019 through 2028. FTFC has capital loss carry forwards of approximately $42,500 expiring in 2018. TLIC has net operating loss carry forwards of approximately $1,232,000, expiring in 2018 through 2026. Net operating loss carry forwards of $521,000 (included in the TLIC amount above), expiring in 2018 through 2023, remain from the acquisition of FLAC. The utilization of those losses is restricted by the tax laws and some or all of the losses may not be available for use.
TLIC participates in reinsurance in order to provide risk diversification, additional capacity for future growth and limit the maximum net loss potential arising from large risk. TLIC reinsures all amounts of risk on any one life in excess of $55,000 for individual life insurance with Investors Heritage Life Insurance Company, Munich American Reassurance Company, Optimum Re Insurance Company and Wilton Reassurance Company.
Family Benefit Life also participates in reinsurance in order to provide risk diversification, additional capacity for future growth and limit the maximum net loss potential arising from large risk. Family Benefit Life reinsures initial amounts of risk on any one life in excess of $50,000 for individual life insurance with Optimum Re Insurance Company. Family Benefit Life also reinsures its accidental death benefit portion of their life policies under a bulk agreement with Optimum Re Insurance Company.
Family Benefit Life participated in the Servicemembers’ Group Life Insurance Pool, administered by Prudential Life Insurance Company, in which it assumed group life insurance on a percentage based on the total inforce amount of participating companies. The group plan permitted conversion to permanent insurance with the initial face amount reinsured with the Office of Servicemembers’ Group Life Insurance. Family Benefit Life cancelled its participation in 2013.
Reinsurance assumed and ceded amounts for TLIC and Family Benefit Life for 2013 and 2012 are summarized as follows:
In December 2013, TLIC also purchased one acre of land in Norman, Oklahoma, and a 9,100 square foot building constructed on approximately 18% of this land at a cost of $1,481,500. The building is leased through August 31, 2028 with future lease extensions on September 1, 2018 and September 1, 2023 through August 31, 2023 and August 31, 2028, respectively. The terms of the lease have the lessee responsible for paying real estate taxes, building insurance and building and ground maintenance. The monthly lease payments are $8,004 through August 31, 2018.
The statutory net income for TLIC amounted to $1,319,748 and $1,327,798 for the years ended December 31, 2013 and 2012, respectively. The statutory capital and surplus of TLIC was $7,484,026 and $5,277,775 as of December 31, 2013 and 2012, respectively. The statutory net income for Family Benefit Life amounted to $1,109,125 and $1,107,135 for the years ended December 31, 2013 and 2012, respectively. The statutory capital and surplus of Family Benefit Life was $11,473,143 and $10,479,574 as of December 31, 2013 and 2012, respectively.
Credit risk is limited by diversifying the Company’s investments. The Company maintains cash and cash equivalents at multiple institutions. The Federal Deposit Insurance Corporation insures accounts up to $250,000. Uninsured balances aggregate $2,576,504 as of December 31, 2013. Other funds are invested in mutual funds that invest in U.S. government securities. The Company monitors the solvency of all financial institutions in which it has funds to minimize the exposure for loss. The Company has not experienced any losses in such accounts. The Company’s lottery prize receivables due from various states and the geographical distribution of the Company’s mortgage loans by state are summarized in Note 2.
The Company and Chairman, President and Chief Executive Officer, Gregg E. Zahn, filed an action in the District Court of Tulsa County, Oklahoma in 2013, Case No. CJ-2013-03385, against former Company Board of Directors member, Wayne Pettigrew and Mr. Pettigrew’s company, Group & Pension Planners, Inc. (the "Defendants"). The petition filed in the case alleges that Mr. Pettigrew, during and after the time he was a member of the Company’s Board of Directors, made defamatory statements regarding the Company and Mr. Zahn. The defendants are alleged to have made defamatory statements to certain shareholders of the Company, to the press and to the Oklahoma Insurance Department and the Oklahoma Department of Securities. Mr. Pettigrew has denied the allegations.
Prior to its acquisition by TLIC, Family Benefit Life developed, marketed, and sold life insurance products known as “Decreasing Term to 95” policies. On January 17, 2013, Family Benefit Life’s Board of Directors voted that, effective March 1, 2013, it was not approving, and therefore was not providing, a dividend for the Decreasing Term to 95 policies. On November 22, 2013, three individuals who owned Decreasing Term to 95 policies filed a Petition in the Circuit Court of Greene County, Missouri asserting claims against Family Benefit Life relating to Family Benefit Life’s decision to not provide a dividend under the Decreasing Term to 95 policies.
The Petition also seeks to certify a class of individuals with similar claims but no class has been certified by the Court. Family Benefit Life denies the allegations in the Petition and will continue to defend against them. It is the Company’s intention to vigorously defend the request for class certification, as well as to defend vigorously against the individual allegations. The Company is unable to determine the potential magnitude of the claims in the event of a final certification and the plaintiffs prevailing on the substantive action.
The pretax and the related income tax components of the amounts reclassified from the Company’s accumulated other comprehensive income to the Company’s consolidated statement of operations for the years ended December 31, 2013 and 2012 are summarized as follows:
(b) These items appear within federal income taxes in the consolidated statement of operations.