All statement, trend analyses and other information contained in this report and elsewhere (such as in filings by us with the Securities and Exchange Commission, press releases, presentations by us or our management or oral statements) relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, among other things: (i) general economic conditions and other factors, including prevailing interest rate levels and stock and credit market performance which may affect (among other things) our ability to sell our products, our ability to access capital resources and the costs associated therewith, the market value of our investments and the lapse rate and profitability of policies; (ii) world conflict, including but not limited to the war in Iraq, which may affect consumers spending trends and priorities (iii) customer response to new products and marketing initiatives: (iv) mortality, morbidity and other factors which may affect the profitability of our products (v) changes in the federal income tax laws and regulations which may affect the relative income tax advantages of our products (vi) regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) bank sales and underwriting of insurance products and regulation of the sale, underwriting and pricing of products (vii) the risk factors or uncertainties listed from time to time in our filings with the Securities and Exchange Commission.
Liabilities for unpaid policy claims are a sensitive accounting estimate unique to the insurance industry. Management uses an independent actuary to formulate this estimate. Differences in the estimates and actual results may result in revised claims expense which is recognized in the period in which the difference is determined. See Note 1, 7 and 11 to our financial statements for the effect on the year 2009.
The discussion in this paragraph relates to the months where the completion factors are deemed to be not fully credible which are typically the months of November and December. The choice of the loss ratio assumption or claims per insured per month assumption for the most recent month of the claim was incurred may also have an impact on the liability estimate. These assumptions are monitored for trends. The Company and its consulting actuary monitor the loss ratio and claims per insured month and override the completion factor approach for the most recent months before the Company’s financial statement date where the completion factors are not fully credible, i.e. November and December. To observe the possible sensitivity of assuming 100% reliance on loss ratio or claims per insured per month factors for claims incurred during the months for which completion are believed to be not fully credible (typically November and December of a fiscal year), if the loss ratio or claims per insured per month had increased by 3% for those months (a multiple of 1.03), the associated claim liabilities for those months and the year end December 31, 2009, claim liability would have been increased by approximately $118,000.
The statutory capital and surplus of the insurance subsidiary increased in 2009 and 2008 primarily due to income from operations.
At December 31, 2009 the Company had liquid assets of $8,090,103 in cash, treasury bills, money market savings accounts, and money market funds. Money market funds maybe subject to withdrawal restrictions. No such restrictions were in place at December 31, 2009. All of the non-cash liquid assets can readily be converted into cash.
The Company’s investments are primarily in U.S. Government and Government Agencies ($14,617,214 amortized book value), other investment grade bonds ($3,161,936 amortized book value) and less than investment grade ($579,478 amortized book value).
On July 14, 2008, the Company and EBI, amended the Debenture whereby the monthly principal payments will start on September 15, 2013 with the maturity date extended to August 15, 2020. For various business reasons management of both companies deemed the amendment to be advantageous. Under the agreement, BNL has the right to convert the Debenture into a 51% ownership in EBI. Such conversion right will continue during the extended maturity of the Debenture.
BNLAC reports to state regulatory authorities on a statutory accounting basis that differs from the basis used herein. Due to an Arkansas regulatory requirement associated with the redomestication in 1994, BNLAC must maintain a minimum of $2,300,000 in capital and surplus. Additionally, each state in which BNLAC is licensed has statutory minimum capital requirements required for maintaining its license to sell. Minimum capital and surplus requirements vary from $300,000 to as much as $5,000,000 in the states in which BNLAC is licensed.
BNLAC markets group vision insurance products that are underwritten by other insurance companies, on which BNLAC does not have any exposure to underwriting (claims) losses. The Company had vision insurance income of $2,386,148, $2,263,529 and $1,979,359 in 2009, 2008 and 2007, respectively. The vision income increased by 5% and 14% in 2009 and 2008, respectively, primarily due to the addition of group voluntary vision plans that require lower participation rates.
The Company had a realized gain on debt extinguishments of $27,176 in 2009, $44,370 in 2008 and $10,803 in 2007 due to the purchase of debentures payable at less than par value. The Company purchased fewer debentures in 2009 and 2007 than it did in 2008, which resulted in less realized gain in debt extinguishments.
Realized capital gains and (losses) on investments were $58,512 in 2009, ($479,717) in 2008 and $11,128 in 2007. In 2009 the Company wrote down CIT Group Inc. bonds by $42,280 which was offset by a $20,000 gain on the maturity of General Motors Acceptance Corporation bonds and $79,905 gain on the sale of U.S. Treasury bonds. In 2008 the Company wrote down Washington Mutual bonds from $126,000 to $0 to reflect their status as worthless. In 2008 management determined Ford Motor Company and General Motors Acceptance Corporation bonds were other than temporarily impaired and wrote down Ford Motor Company from $187,864 to $42,000 and General Motors Corporation from $100,000 to $80,000. The aggregate realized loss on the bonds in 2008 was $291,864.
Decreases in liability for future policy benefits were ($66,596), ($39,268) and ($213,867) in 2009, 2008 and 2007, respectively. The decrease for all three years was primarily due to the amount of insurance in force.
Taxes other than on income were $1,328,062 in 2009, $1,458,629 in 2008 and $1,509,780 for 2007. The decrease for 2009 and 2008 is primarily due to a decrease in premium taxes on fewer premiums collected.
Earnings per share were $.19, $.16, and $.22 in 2009, 2008 and 2007, respectively. The effect of the treasury shares acquired in 2009, 2008 and 2007 (see Market for Stock) increased earnings per share by $.00, $.00 and $.01, respectively.
For the year ended December 31, 2009, other comprehensive income (losses) was $196,976 compared to ($283,566) in 2008 and $54,274 or the same period in 2007. Comprehensive income for 2009 was primarily due to an increase in the market value of available for sale fixed maturities and equity securities. The comprehensive loss in 2008 was due to the decrease in the market value of equity securities. Comprehensive income for 2007 was primarily due to an increase in the market value of equity securities.
In 2010 we continue to focus on recruiting new brokers, marketing in states where we have little or no premium income and expanding our product portfolios.