The Company owns an office complex in Springfield, Illinois, which houses the primary insurance operations. The office buildings in this complex contain 57,000 square feet of office and warehouse space, and are carried at $ 1,640,445. The facilities occupied by the Company are adequate relative to the Company's present operations.
Commercial property mainly consists of North Plaza and Hampshire Plaza Garage. See Item 1, “Business” for additional information regarding descriptions and operating results of these properties.
Any forward-looking statement contained herein or in any other oral or written statement by the Company or any of its officers, directors or employees is qualified by the fact that actual results of the Company may differ materially from any such statement due to the following important factors, among other risks and uncertainties inherent in the Company's business:
Valuing our investment portfolio involves a variety of assumptions and estimates, particularly for investments that are not actively traded. We rely on external pricing sources for highly liquid publicly traded securities. Many judgments are involved in timely identifying and valuing securities, including potentially impaired securities. Inherently, there are risks and uncertainties involved in making these judgments. Changes in circumstances and critical assumptions such as a continued weak economy, a more pronounced economic downturn or unforeseen events which affect one or more companies, industry sectors or countries could result in write downs in future periods for impairments that are deemed other than temporary.
Premiums and policy fee revenues, net of reinsurance premiums and policy fees, decreased 6% when comparing 2006 to and 3% from 2005 to 2004. The Company writes very little new business. Unless the Company acquires a block of in-force business as it did in December 2006, management expects premium revenue to continue to decline on the existing block of business at a rate consistent with prior experience. The Company’s average persistency rate for all policies in force for 2006, 2005 and 2004 was approximately 95.9%, 95.8%, and 94.6%, respectively. Persistency is a measure of insurance in force retained in relation to the previous year. The acquisition of Acap Corporation and its subsidiaries at the end of 2006 will result in an increase in premium revenues in 2007 compared to current levels. The premium revenues of UG, which comprise the historic premium revenues, are expected to continue to decline at levels consistent with recent prior years experience.
The Company’s primary source of new business production comes from internal conservation efforts. Several of the customer service representatives of the Company are also licensed insurance agents, allowing them to offer other products within the Company’s portfolio to existing customers. Additionally, efforts continue to be made in policy retention through more personal contact with the customer including telephone calls to discuss alternatives and reasons for a customer’s request to surrender their policy. Management has no current plans to increase marketing efforts. New product development is anticipated to be utilized in conservation efforts and sales to existing customers. Such sales are not expected to be material.
The 2006 investment income results reflected a slight decrease over 2005 results. This is primarily related to the increased investment earnings from the additional mortgage loan investments made during 2005 combined with an increase in overall bond yields. The overall bond yields have shown slight improvements as the interest rates on acquired securities during the year exceed the interest rates that were received on the bonds that matured during the year. If interest rates available in the marketplace going forward remain stable with current market interest rates, the Company will continue to benefit from a higher reinvestment yield than current yield of expected maturities in the bond portfolio over the next couple of years.
The Company's investments are generally managed to match related insurance and policyholder liabilities. The comparison of investment return with insurance or investment product crediting rates establishes an interest spread. The Company monitors investment yields, and when necessary adjusts credited interest rates on its insurance products to preserve targeted interest spreads, ranging from 1% to 2%. Interest crediting rates on adjustable rate policies have been reduced to their guaranteed minimum rates, and as such, cannot lower them any further. Policy interest crediting rate changes and expense load changes become effective on an individual policy basis on the next policy anniversary. Therefore, it takes a full year from the time the change was determined for the full impact of such change to be realized. If interest rates decline in the future, the Company won’t be able to lower rates and both net investment income and net income will be impacted negatively.
The net realized gains in 2005 were primarily the result of the sale of 2,216,776 shares of common stock owned of BNL Financial Corporation (“BNL”). These shares represented approximately 10.57% of the then current outstanding shares of BNL and represent all shares owned by UG. The shares were reacquired by the issuing entity for an agreed upon sales price of $ 2,300,000. During 2004, the Company sold several of its collateralized mortgage obligation bonds and realized a nominal net loss on these securities. The sale followed and analysis of bond holdings and was done to reduce exposure to interest rate and extension risk within the portfolio.
In summary, the Company’s basis for future revenue growth is expected to come from the following primary sources, expansion of the TPA revenues, conservation of business currently in force, the maximization of investment earnings and the acquisition of other companies or policy blocks in the life insurance business. Management has placed a significant emphasis on the development of these revenue sources and products offered to enhance these opportunities.
Commissions and amortization of deferred policy acquisition costs were comparable in 2006 to 2005 and decreased significantly in 2005 compared to 2004. The most significant factor in the continuing decrease is attributable to the Company paying fewer commissions, since the Company writes very little new business and renewal premiums on existing business continue to decline. Most of the Company’s agent agreements contained vesting provisions, which provide for continued compensation payments to agents upon their termination subject to certain minimums and often limited to a specific period of time. Another factor of the decrease is attributable to normal amortization of the deferred policy acquisition costs asset. The Company reviews the recoverability of the asset based on current trends and known events compared to the assumptions used in the establishment of the original asset. No impairments were recorded in any of the three periods reported.
Operating expenses increased 17% in 2006 compared to 2005 and increased 4% in 2005 compared to 2004. The increases in expenses during 2006 relate primarily to costs associated with the acquisition of Acap Corporation. The Company incurred approximately $310,000 in costs relating to due diligence work on the acquisition. Additionally, costs such as hiring new staff and training in preparation for the transition of work to Springfield were incurred during the fourth quarter of 2006. The Company also saw an increase in expenses in the current year of approximately $150,000 relating to the completion of a SAS 70 audit. The SAS 70 audit report is a very valuable item relating to the continued pursuit of TPA work. A SAS 70 audit is an independent verification the Company has good internal controls and procedures in place for the key areas of operations. The Company anticipates continuing to annually update the SAS 70 audit report, with expected ongoing costs of approximately one-third of the original audit cost. The increase in expenses during 2005 is due primarily to an increase in information technology costs and additional personnel costs associated with the increase in TPA work. Excluding these expense items, expenses declined due to reductions made in the normal course of business, as the Company continually monitors expenditures looking for savings opportunities. Management places significant emphasis on expense monitoring and cost containment. Maintaining administrative efficiencies directly impacts net income.
The Company had a net income (loss) of $ 3,869,720, $ 1,260,223 and $ (275,617) in 2006, 2005 and 2004 respectively. The increase in net income in 2006 is primarily related to the significant increase in realized investment gains from the sale of certain common stock holdings and the sale of real estate holdings. The net income in 2005 was mainly attributable to the gain from the sale of the common stock of BNL during the second quarter of 2005.
At December 31, 2006, the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets or shareholders' equity. The Company has identified securities it may sell and classified them as "investments held for sale". Investments held for sale are carried at market, with changes in market value charged directly to shareholders' equity. To provide additional flexibility and liquidity, the Company has categorized almost all fixed maturity investments acquired in recent periods as available for sale.
The following table summarizes the Company's fixed maturities distribution at December 31, 2006 and 2005 by ratings category as issued by Standard and Poor's, a leading ratings analyst.
Deferred policy acquisition costs decreased 16% in 2006 compared to 2005. Deferred policy acquisition costs, which vary with, and are primarily related to producing new business, are referred to as DAC. DAC consists primarily of commissions and certain costs of policy issuance and underwriting, net of fees charged to the policy in excess of ultimate fees charged. To the extent these costs are recoverable from future profits, the Company defers these costs and amortizes them with interest in relation to the present value of expected gross profits from the contracts, discounted using the interest rate credited by the policy. The Company had $ 0 in policy acquisition costs deferred, $ 7,000 in interest accretion and $ 232,476 in amortization in 2006, and had $ 5,000 in policy acquisition costs deferred, $ 8,000 in interest accretion and $ 283,899 in amortization in 2005.
Total liabilities increased significantly in 2006 compared to 2005. Policy liabilities and accruals, which represented 88% and 95% of total liabilities at year end 2006 and 2005, respectively, increased approximately $ 120,000,000 from the Acap Corporation acquisition. Excluding the increase from the acquisition, policy liabilities and accruals decreased approximately $535,000 during the current year. This decrease is attributable primarily to a decrease in the total future policy benefits held. As policies in force terminate, the corresponding reserve liability held for those policies is released.
Sources of operating cash flows of the Company, as with most insurance entities, is comprised primarily of premiums received on life insurance products and income earned on investments. Uses of operating cash flows consist primarily of payments of benefits to policyholders and beneficiaries and operating expenses.
Cash provided by (used in) investing activities was $ (8,061,870), $ (1,265,715) and $ 3,776,714 for 2006, 2005 and 2004, respectively. The most significant aspect of cash provided by (used in) investing activities is the fixed maturity transactions. Fixed maturities account for 51%, 14% and 82% of the total cost of investments acquired in 2006, 2005 and 2004, respectively. The decrease in fixed maturity investments in 2005 reflects the Company’s emphasis in the mortgage loan and real estate markets as opportunities presented themselves. These investments accounted for 76% of the total cost of investments acquired in 2005.
Policyholder contract deposits decreased 6% in 2006 compared to 2005 and 6% in 2005 compared to 2004. The decrease in policyholder contract deposits relates to the declining in force business of the Company. Management anticipates continued moderate declines in contract deposits. Policyholder contract withdrawals have increased 3% in 2006 compared to 2005 and decreased 14% in 2005 compared to 2004. The change in policyholder contract withdrawals is not attributable to any one significant event. Factors that influence policyholder contract withdrawals are fluctuation of interest rates, competition and other economic factors.
AC and TI each have a line of credit in place through Frost National Bank for $210,000 and $160,000, respectively. These lines have been in place since 2004 and have been left in place following the acquisition. The lines are for one year terms, interest payable quarterly at a floating interest rate which is the Lender’s prime rate. Principal is due upon maturity. The lines are to provide additional short term operating liquidity to the two companies. At December 31, 2006, there are no outstanding balances on either of these lines of credit.
UTG is a holding company that has no day-to-day operations of its own. Funds required to meet its expenses, generally costs associated with maintaining the Company in good standing with states in which it does business, are primarily provided by its subsidiaries. On a parent only basis, UTG's cash flow is dependent on management fees received from its insurance subsidiary, stockholder dividends from its subsidiary and earnings received on cash balances. On December 31, 2006, substantially all of the consolidated shareholders equity represents net assets of its subsidiaries. The Company's insurance subsidiaries have maintained adequate statutory capital and surplus. The payment of cash dividends to shareholders by UTG is not legally restricted. However, the state insurance department regulates insurance company dividend payments where the company is domiciled.
UG is an Ohio domiciled insurance company, which requires five days prior notification to the insurance commissioner for the payment of an ordinary dividend. Ordinary dividends are defined as the greater of: a) prior year statutory earnings or b) 10% of statutory capital and surplus. At December 31, 2006 UG statutory shareholders' equity was $ 31,209,934. At December 31, 2006, UG statutory net income was $ 5,162,322. Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation. UG paid ordinary dividends of $5,100,000 to UTG during 2006. There were no dividends paid during 2005. UG paid a dividend of $ 2,275,000 to UTG in 2004, of which $ 974,180 was considered to be an extraordinary dividend.
AC and TI are Texas domiciled insurance companies, which requires five days prior notification to the insurance commissioner for the payment of an ordinary dividend. Ordinary dividends are defined as the greater of: a) prior year statutory earnings or b) 10% of statutory capital and surplus. At December 31, 2006 AC and TI statutory shareholders' equity was $ 8,942,786 and $ 2,762,381, respectively. At December 31, 2006, AC and TI statutory net income was $ 2,154,233 and $ 414,245, respectively. Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation. AC paid ordinary dividends of $ 605,000 in 2006. TI did not pay any stockholder dividend during 2006.
At year-end 2006, UG had two ratios outside the normal range. AC and TI each had one ratio outside the normal range. Each of the ratios outside the normal range was anticipated by Management, based upon the operating results of the Company. UG’s first ratio was change in premium. UG does not write any new products currently, therefore it is anticipated premium receipts will continue to decline from year to year. The other UG ratio outside the normal range relates to the Company’s affiliated investments. The Company has made investments in real estate projects, which have been consolidated into these financial statements through limited liability companies. The limited liability companies were created to provide additional risk protection to the Company. While this negatively impacts this ratio, the Company believes that this structure is in the best interest of the Company and these investments will have a positive long-term impact on the Company. Additionally, the newly acquired Acap Corporation is a subsidiary of UG. AC’s ratio outside the normal range relates to change in premium. AC, like UG, issues very little new business, therefore it is anticipated that the premium revenues will decline each year as policies terminate or take a paid up option. TI’s ratio is also change in premium. However, this ratio outside the range is from an increase in premium revenues. TI has seen an increase in premium collections in 2006 over previous years as a result of increased marketing efforts of its existing products. The Company anticipates continuing these efforts in the short term and plans to re-evaluate the effectiveness of the marketing efforts during 2007.
Registered Public Accounting Firm for the year ended December 31, 2004............................ 36
We have audited the accompanying consolidated balance sheets of UTG, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of UTG, Inc. and subsidiaries as of December 31, 2006, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
We have audited the accompanying consolidated statements of operations, shareholders’ equity and cash flows of UTG, Inc. (a Delaware corporation) and subsidiaries for the year ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
D. BASIS OF PRESENTATION - The financial statements of UTG, Inc., and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the States of America which differ from statutory accounting practices permitted by insurance regulatory authorities.
Policy loans - at unpaid balances including accumulated interest but not in excess of the cash surrender value.
I. FUTURE POLICY BENEFITS AND EXPENSES - The liabilities for traditional life insurance and accident and health insurance policy benefits are computed using a net level method. These liabilities include assumptions as to investment yields, mortality, withdrawals, and other assumptions based on the life insurance subsidiary’s experience adjusted to reflect anticipated trends and to include provisions for possible unfavorable deviations. The Company makes these assumptions at the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date. Future policy benefits for individual life insurance and annuity policies are computed using interest rates ranging from 2% to 6% for life insurance and 3.0% to 9.25% for annuities. Benefit reserves for traditional life insurance policies include certain deferred profits on limited-payment policies that are being recognized in income over the policy term. Policy benefit claims are charged to expense in the period that the claims are incurred. Current mortality rate assumptions are based on 1975-80 select and ultimate tables. Withdrawal rate assumptions are based upon Linton B or Linton C, which are industry standard actuarial tables for forecasting assumed policy lapse rates.
Benefit reserves for universal life insurance and interest sensitive life insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims in excess of related policy account balances. Interest crediting rates for universal life and interest sensitive products range from 4.0% to 5.5% for the years ended December 31, 2006, 2005 and 2004, respectively.
J. POLICY AND CONTRACT CLAIMS - Policy and contract claims include provisions for reported claims in process of settlement, valued in accordance with the terms of the policies and contracts, as well as provisions for claims incurred and unreported based on prior experience of the Company. Incurred but not reported claims were $ 1,242,950 and $ 913,896 as of December 31, 2006 and 2005, respectively.
M. PROPERTY AND EQUIPMENT - Company-occupied property, data processing equipment and furniture and office equipment are stated at cost less accumulated depreciation of $ 2,542,750 and $ 6,587,036 at December 31, 2006 and 2005, respectively. Depreciation is computed on a straight-line basis for financial reporting purposes using estimated useful lives of three to thirty years. Depreciation expense was $ 261,148, $ 250,795, and $ 298,021 for the years ended December 31, 2006, 2005, and 2004, respectively.
P. TREASURY SHARES - The Company holds 360,888 and 303,442 shares of common stock as treasury shares with a cost basis of $ 2,632,910 and $ 2,196,987 at December 31, 2006 and 2005, respectively.
Q. RECOGNITION OF REVENUES AND RELATED EXPENSES - Premiums for traditional life insurance products, which include those products with fixed and guaranteed premiums and benefits, consist principally of whole life insurance policies, and certain annuities with life contingencies are recognized as revenues when due. Limited payment life insurance policies defer gross premiums received in excess of net premiums, which is then recognized in income in a constant relationship with insurance in force. Accident and health insurance premiums are recognized as revenue pro rata over the terms of the policies. Benefits and related expenses associated with the premiums earned are charged to expense proportionately over the lives of the policies through a provision for future policy benefit liabilities and through deferral and amortization of deferred policy acquisition costs. For universal life and investment products, generally there is no requirement for payment of premium other than to maintain account values at a level sufficient to pay mortality and expense charges. Consequently, premiums for universal life policies and investment products are not reported as revenue, but as deposits. Policy fee revenue for universal life policies and investment products consists of charges for the cost of insurance and policy administration fees assessed during the period. Expenses include interest credited to policy account balances and benefit claims incurred in excess of policy account balances.
S. RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform to the 2006 presentation. Such reclassifications had no effect on previously reported net income or shareholders' equity.
Until 1984, insurance companies were taxed under the provisions of the Life Insurance Company Income Tax Act of 1959 as amended by the Tax Equity and Fiscal Responsibility Act of 1982. These laws were superseded by the Deficit Reduction Act of 1984. All of these laws are based primarily upon statutory results with certain special deductions and other items available only to life insurance companies. Under the provision of the pre-1984 life insurance company income tax regulations, a portion of “gain from operations” of a life insurance company was not subject to current taxation but was accumulated, for tax purposes, in a special tax memorandum account designated as “policyholders’ surplus account”. Federal income taxes will become payable on this account at the then current tax rate when and if distributions to shareholders, other than stock dividends and other limited exceptions, are made in excess of the accumulated previously taxed income maintained in the “shareholders surplus account”. As part of the American Jobs Creation Act of 2004, Congress has authorized a limited opportunity for life insurance companies to recognize the balance in the “policyholders’ surplus account” and not pay any federal income tax. This window of opportunity expired December 31, 2006. During 2006, each of the insurance subsidiaries took advantage of this opportunity. At December 31, 2006, none of the insurance subsidiaries had a balance remaining in the “policyholders’ surplus account”.
The net operating loss carryforwards for federal income tax purposes of UG were fully utilized in 2006.
The estimated fair values of the Company's financial instruments required to be valued by SFAS 107 are as follows as of December 31:
Currently, UG is utilizing reinsurance agreements with Optimum Re Insurance Company, (Optimum) and Swiss Re Life and Health America Incorporated (SWISS RE). Optimum and SWISS RE currently hold an “A-” (Excellent), and "A+" (Superior) rating, respectively, from A.M. Best, an industry rating company. The reinsurance agreements were effective December 1, 1993, and covered most new business of UG. The agreements are a yearly renewable term (YRT) treaty where the Company cedes amounts above its retention limit of $ 100,000 with a minimum cession of $ 25,000.
On September 30, 1998, UG entered into a coinsurance agreement with The Independent Order of Vikings, an Illinois fraternal benefit society (IOV). Under the terms of the agreement, UG agreed to assume, on a coinsurance basis, 25% of the reserves and liabilities arising from all in-force insurance contracts issued by the IOV to its members. At December 31, 2006, the IOV insurance in-force assumed by UG was approximately $ 1,670,000, with reserves being held on that amount of approximately $ 391,000.
On June 1, 2000, UG assumed an already existing coinsurance agreement, dated January 1, 1992, between Lancaster Life Reinsurance Company (LLRC), an Arizona corporation and Investors Heritage Life Insurance Company (IHL), a corporation organized under the laws of the Commonwealth of Kentucky. Under the terms of the agreement, LLRC agreed to assume from IHL a 90% quota share of new issues of credit life and accident and health policies that have been written on or after January 1, 1992 through various branches of the First Southern National Bank. The maximum amount of credit life insurance that can be assumed on any one individual’s life is $ 15,000. UG assumed all the rights and obligations formerly held by LLRC as the reinsurer in the agreement. LLRC liquidated its charter immediately following the transfer. At December 31, 2006, the IHL agreement has insurance in-force of approximately $ 2,308,000, with reserves being held on that amount of approximately $ 32,000.
On December 31, 2006, the AC and TI entered into 100% coinsurance agreements whereby each company ceded all of its A&H business to an unaffiliated reinsurer, Reserve National Insurance Company (Reserve National). As part of the agreement, the Company remains contingently liable for claims incurred prior to the effective date of the agreement, for a period of one year. At the end of the one year period, an accounting of these claims shall be produced. Any difference in the actual claims to the claim reserve liability transferred shall be refunded to / paid by the Company. Reserve National currently holds an “A-“ (Excellent) rating by A.M. Best.
In the normal course of business the Company is involved from time to time in various legal actions and other state and federal proceedings. There were no proceedings pending or threatened as of December 31, 2006.
On September 1, 2004, UTG contributed the common stock of its wholly-owned subsidiary, North Plaza, to its life insurance subsidiary, UG. The contribution, which received prior approval by the regulatory authorities, increased the capital of UG by $ 7,857,794.
On February 20, 2003, UG purchased $ 4,000,000 of a trust preferred security offering issued by FSBI. The security has a mandatory redemption after 30 years with a call provision after 5 years. The security pays a quarterly dividend at a fixed rate of 6.515%. The Company received $ 264,219, $ 264,219 and $ 264,842 of dividends in 2006, 2005 and 2004, respectively.
During December 2006, UTG entered into administrative services and cost sharing agreements with its new subsidiaries, AC and TI. These agreements will be effective for the year beginning January 1, 2007.
On June 5, 2001, the Board of Directors of UTG authorized the repurchase in the open market or in privately negotiated transactions of up to $ 1 million of UTG's common stock. On June 16, 2004, an additional $ 1 million was authorized for repurchasing shares. Repurchased shares are available for future issuance for general corporate purposes. This program can be terminated at any time. Open market purchases are generally limited to a maximum per share price of $8.00. Through March 1, 2007, UTG has spent $ 2,485,778 in the acquisition of 365,445 shares under this program.
On December 8, 2006, UTG borrowed funds from First Tennessee Bank National Association through execution of an $ 18,000,000 promissory note. The note is secured by the pledge of 100% of the common stock of UG. The promissory note carries a variable rate of interest based on the 3 month LIBOR rate plus 180 basis points. The initial rate was 7.15%. Interest is payable quarterly. Principal is payable annually beginning at the end of the second year in five installments of $ 3,600,000. The loan matures on December 7, 2012. The Company borrowed $15,700,278 and repayments of $ 700,000 in 2006. The remaining available balance can be drawn any time over the next twelve months and is anticipated to be utilized in the purchase of the stock put option shares as they may be presented to UTG, Inc. for purchase.
On June 1, 2005, UG was extended a $ 3,300,000 line of credit from the FNBT. The LOC is for a one-year term from the date of issue. The interest rate on the LOC is variable and indexed to be the lowest of the U.S. prime rates as published in the Wall Street Journal, with any interest rate adjustments to be made monthly. During 2006 and 2005, UG had borrowings from the LOC of $ 500,000 and $ 1,500,000 and repayments of $ 500,000 and $ 1,500,000, respectively. At December 31, 2006, and 2005 the Company had no outstanding borrowings attributable to this LOC.
On October 1, 2005, a partnership investment of HVP was extended a $ 2,000,000 promissory note from First Southern National Bank. The note is due three-years from the date of issue. Borrowings under the note bear interest at the rate of one percent in excess of the prime rate as published in the Wall Street Journal. At December 31, 2006, the Company had $ 2,000,000 outstanding borrowings attributable to this note.
The Company maintains cash balances in financial institutions that at times may exceed federally insured limits. The Company maintains its primary operating cash accounts with First Southern National Bank, an affiliate of the largest shareholder of UTG, Mr. Jesse T. Correll, the Company’s CEO and Chairman. In aggregate at December 31, 2006, these accounts hold approximately $ 10,985 for which there are no pledges or guarantees outside FDIC insurance limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Because UTG serves primarily individuals located in three states, the ability of our customers to pay their insurance premiums is impacted by the economic conditions in these areas. As of December 31, 2006, approximately 55% of our total direct premium was collected from Ohio, Illinois and West Virginia. Thus, results of operations are heavily dependent upon the strength of these economies.
Pursuant to the terms of a stock purchase agreement, on December 8, 2006, the Company completed an agreement to purchase a majority of the issued and outstanding common stock of Acap Corporation (“Acap”). Acap is a Delaware corporation which owns 100% of the issued and outstanding stock of American Capitol Insurance Company (AC), a Texas life insurance company, which in turn owns 100% of the issued and outstanding stock of Texas Imperial Life Insurance Company (TI) and Imperial Plan, Inc (IP).
At the closing of the Agreement, the Company purchased a total of 1,843 shares of common stock of Acap for an aggregate purchase price of $17,593,278.
The following table summarizes certain unaudited operating results of UTG as though the acquisition of Acap had taken place on January 1, 2006 and 2005 respectively.