Profitability of our insurance operations depends heavily upon the Company’s underwriting discipline, as we seek to manage exposure to loss through:
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. The Company has the ability to adjust dividend scales and interest crediting rates at its discretion based on economic and other factors. 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.
The investment return, or yield, on invested assets is an important element of the Company’s earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits are paid. The majority of the Company’s invested assets have been held in fixed maturities available-for-sale securities, primarily in asset classes of corporate bonds, municipal bonds, and government obligation bonds. The interest rate environment has a significant impact on the determination of insurance contract liabilities, our investment rates and yields and our asset/liability management.
generated US source income over time. We have incurred significant costs in the evaluation process of this issue as we have engaged legal, tax and actuarial consultants to assist us in this review and remediation. We have established a best estimate reserve of $10.0 million, net of tax as of December 31, 2018 for probable liabilities and expenses and the probability weighted range of financial estimates relative to this issue is $6.0 million to $52.5 million, net of tax. The amount of our liabilities and expenses depends on a number of uncertainties, including the number of prior tax years for which we may be liable to the IRS, the number of domestic life insurance policies we will be required to remediate, the methodology applicable to the calculation of taxable benefits under non-compliant policies and the amount of time and resources we will require from external advisors who are assisting us with resolving these issues. Given the range of potential outcomes and the significant variables assumed in establishing our estimates, actual amounts incurred may exceed our reserve and also could exceed the high end of our estimated range of liabilities and expenses.
On May 17, 2017, we submitted an offer to enter into Closing Agreements with the IRS covering the CICA and CNLIC domestic life insurance business. The toll charges calculated and enumerated in the Closing Agreements totaled $124,000 and $4,000 for the CICA and CNLIC domestic life insurance businesses, respectively. We have not yet received any correspondence from the IRS related to our submissions.
Our on-going strategic initiatives as defined by our executive team and Board of Directors (the "Board") require that we commit resources as necessary. See a discussion of our strategic initiatives in Part 1, Item 1. Business.
Our 2018 financial results are driven by our historical business management model and traditional life insurance product sales. Although interest rates have risen recently, the historically low interest rate environment continues to impact our results and our industry as investment yields are an integral component of our business operations.
Net investment income increased 2.0% and 9.4% for 2018 and 2017, respectively, primarily due to an increase in the investment asset balances in 2018 compared to the prior year. The average yield on the consolidated investment portfolio has changed from a yield of 4.31% in 2017 down to 4.17% in 2018, as investment rates available have remained low in the sustained low interest rate environment.
Other-than-temporary impairments ("OTTI") items recorded totaled $0.8 million and $0.2 million in 2018 and 2017, respectively, and are reported as realized losses. Realized net investment gains in 2017 resulted from a gain on the sale of a real estate holding totaling $1.1 million offset by OTTI on investment securities.
The change in future policy benefit reserves decreased 36.9% in 2018 compared to 2017 primarily due to changes in actuarial valuation estimates associated with the conversion to the new actuarial valuation system, AXIS, in 2018 that resulted in a decrease in reserves of $11.9 million when compared to 2017.
Policyholders' dividends increased 1.5% in 2018 compared to 2017, primarily due to the aging of the participating policies in our Life segment.
General expenses increased 2.7% in 2018, due primarily to additional audit fees related to the 2017 audit, higher legal and consulting fees and higher permanent executive salaries and temporary salaries, offset by a decrease in our tax compliance best estimate liability. In 2017, we recognized a $4.6 million impairment of our Home Service goodwill, reducing it down to zero.
Amortization of deferred policy acquisition expenses increased from $29.7 million at December 31, 2017 to $34.2 million at December 31, 2018 primarily due to the AXIS actuarial system conversion impacting amortization by $3.7 million in 2018 and higher surrender activity.
Premiums in this segment decreased slightly in 2018 compared to 2017, as renewal premiums and first year premiums decreased. We noted slight increases in 2017 compared to 2016 which were driven by renewal premiums.
Significant economic issues impacting our business and industry currently and into the future are discussed below.
Many of the events and trends affecting the life insurance industry have had an impact on the life reinsurance industry. These events have led to a decline in the availability of reinsurance. While we currently cede a limited amount
of our primary insurance business to reinsurers, we may find it difficult to obtain reinsurance in the future, forcing us to seek reinsurers who are more expensive to us. If we cannot obtain affordable reinsurance coverage, either our net exposures will increase or we will have to reduce our underwriting commitments.
While our management has extensive experience in writing life insurance policies for foreign residents, changes to foreign laws and regulations and their related application and enforcement, along with currency controls affecting our foreign resident insureds could adversely impact our revenues, results of operations and financial condition.
policyholder to use cash value within a policy to pay premiums. The policy loan asset balance increased 9.6% and 10.6% in 2018 and 2017, year over year, and remains in line with historical levels when compared to policy benefit liabilities.
We have traditionally invested in fixed maturity securities with a large percentage held in callable issues. In the later part of 2018, we began a process of repositioning our portfolio into more diversified holdings and maturities as part of our investment management strategy. The sustained low interest rate environment of the past several years has required us to manage a challenging balance of continuing to invest in quality issuers, with durations that consider the lower yielding environment and our investment guidelines and liability maturities. While U.S. Treasury interest rates have risen recently they are still considered to be historically low. The interest rate direction is uncertain but as market interest rates begin to rise, our call risk will diminish, resulting in our fixed securities maturing at the stated maturity dates and our portfolio yield will rise more slowly over time, as new money investments would be made at higher rates.
The annualized yield also decreased during 2018 compared to 2017 due to the decrease in investment income as make-whole calls elected by issuers of the bond instruments held by us declined compared to prior years. These calls resulted in $655,000 of additional net income in 2017 compared to $141,000 in 2018. A make-whole call provision in the bond instruments allows the borrower to pay off the debt early and, in doing so, incur make-whole premiums. This option was elected by borrowers on some of our bond issues as noted.
Investment income from fixed maturity securities accounted for approximately 87.0% of total investment income for the year ended December 31, 2018. We have increased our investment purchases of AA rated mortgage backed securities in the later part of 2018 as we reposition our distribution in various investment sectors and decrease our municipal holdings. In addition, we currently have $14.7 million invested in equity securities related to bond and stock mutual funds.
Investment income from fixed maturity investments increased in 2018 due to an increase in the portfolio size from new money investment purchases that we made in the later part of 2018 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 to pay for premiums, contributed to the increase to investment income for 2018. Investment income from equity securities has declined as we have reduced our holdings as discussed above.
Claims and Surrenders. As noted in the table below, claims and surrenders increased from $82.9 million in 2017 to $91.1 million in 2018.
Policy surrenders increased 10.7% in 2018 and 10.4% in 2017, or 0.9% and 0.7% of direct ordinary whole life insurance in force for 2018 and 2017, respectively. The increase in surrender expense is primarily related to our international business. A significant portion of surrenders relates to policies that have been in force over fifteen years and no longer have a surrender charge associated with them. Total direct insurance in force reported in 2018 was $4.8 billion, which was consistent with 2017 and 2016.
Matured endowments increased 215.3% in the 2018 after decreasing in 2017. This increase has been anticipated based upon the date of when our policy endowment contracts were sold and the expected endowment maturities as set forth in the contracts.
Property claims decreased 5.5% to approximately $1.6 million in 2018 compared with the amount reported for 2017 due to a decrease in weather-related claims.
Commissions. Commission expense fluctuates in a direct relationship to new and renewal insurance premiums and has decreased 15.4% in 2018 compared to 2017 as first year premium revenues, on which higher commission rates are paid, declined in the Life segment and renewal premiums were also down 2.7%.
Our business is comprised of two operating business segments and Other Non-Insurance Operations as detailed below.
Premiums. Premium revenues decreased in 2018 compared to 2017 as first year premiums decreased 34.2% and 18.8% in 2018 and 2017, respectively. Our renewal premiums for 2018 were comparable to 2016 levels but down from 2017 by 2.7%.
insurance applications from Brazilian citizens or residents. Brazil had been one of our top premium-producing countries in our international life insurance business for the past several years. In addition, Venezuela, which has historically been one of our top markets, has experienced prolonged economic and social turmoil, which has negatively impacted our sales in the country, decreasing approximately 10% from each of 2016 to 2017 and 2017 to 2018.
Sales from Colombia, Venezuela and Ecuador represented the majority of the new business premiums in 2018, 2017 and 2016. Overall our top five countries listed above reflected a decrease in premium levels from 2017 to 2018 with Venezuela leading the decline. Our international business is dependent on our clients having access to U.S. dollars. Our international business and premium collections could be impacted by our inability to comply with current or future foreign laws or regulations applicable to the Company or our independent consultants in the countries from which we accept applications as well as by marketing or operational changes made by the Company to comply with those laws or regulations. Our international business may also be affected by our ongoing strategic review of our business model and by economic or other events in foreign countries in which our
policies are marketed. Venezuela, for example, is continuing to experience civil unrest due to local demonstrations against crime, corruption and soaring inflation. See "Item 1A. Risk Factors" for additional information.
We discontinued new sales of our non-Home Service domestic products in 2017 while we reevaluate our domestic life strategy; therefore, the majority of the premium recorded in 2017 and all of the premium in 2018 are related to renewal business.
Policyholder Dividends. Policyholders' dividends increased 1.4% and decreased 8.1%, respectively in 2018 and 2017, due to the dividend rate actions taken by us at the end of 2016 to improve our product profitability which lowered our expense 36.7% from $10.7 million in 2015 to $6.8 million, $6.2 million and $6.3 million for the years ended 2016, 2017 and 2018, respectively. The Company issues long duration participating policies to foreign residents that are expected to pay dividends to policyholders based upon actual experience. The life company boards approve any dividends on an annual basis and may change the dividend rates as needed for business purposes. Policyholder dividends are factored into the premiums at the time the product is developed and therefore have no impact on expected profitability.
Commissions. Commission expenses decreased 22.1% from 2017 to 2018 in line with the reduction in premiums. Commission expense increases or decreases are directly related to increases or decreases in premiums. First year policy premiums pay a higher commission rate than renewal policy premiums.
Other General Expenses. Expenses increased 0.7% to $18.7 million in 2018 compared to 2017 and 30.2% to $18.6 million in 2017 compared to 2016. The increase expense levels in both 2018 and 2017 were due primarily to increased consulting and audit fees, as well as higher salaries, bonuses and related employee benefits paid to top executives. The expenses are allocated by segment, based upon an annual expense study performed by the Company.
Capitalization and Amortization of Deferred Policy Acquisition Costs. Capitalized costs fluctuate in direct relation to commissions. Capitalized costs decreased as commission-related costs decreased in 2018 compared to 2017 and 2016 based upon lower first year and renewal sales levels. Amortization of DAC increased in 2018 by 18.3% from 2017, which primarily resulted from the AXIS actuarial system conversion changes in estimates due to refinements impacting amortization by $3.7 million in 2018, and as we experienced increased surrender activity in 2018, including early duration elections to convert to reduced paid-up policies or extended term insurance as compared to 2017 and 2016. There are higher deferred acquisition costs associated with early duration conversions to reduced paid-up policies or extended term insurance, which, when converted, increases amortization expense.
Increase in Future Policy Benefit Reserves. The change in reserves decrease is related to the decrease in current year sales.
Commissions. Commission expense decreased in 2018, which was in line with the premium levels and was comparable for all three periods presented based upon fluctuations in premiums collected.
Other General Expenses. Expenses decreased 12.7% in 2018 and increased 53.4% in 2017 compared to prior periods. The increase in 2017 was related to the write-off of our Home Service goodwill value of $4.6 million. Expenses are higher for both 2018 and 2017 due primarily to increased consulting and audit fees, as well as higher salaries, bonuses and related employee benefits paid to top executives. Expenses are allocated by segment based upon an annual expense study performed by the Company.
This operating unit represents the administrative support entities to the insurance operations whose revenues are primarily intercompany and have been eliminated in consolidation under U.S. GAAP, which typically results in a segment loss. The 2018 increase in expenses is related to executive compensation, equity compensation costs and increased audit fees as discussed in the segment analysis.
(2) Includes $108.5 million and $1.8 million of U.S. Government agencies and government-sponsored enterprise for the years ended December 31, 2018 and 2017, respectively.
The Company has significantly increased investments in mortgage backed securities in the later part of 2018, which now represent 7.8% of the investment portfolio. We began a process of repositioning our portfolio into more diversified holdings and maturities as part of our investment management strategy in the latter part of 2018. The Company is also decreasing our exposure to the municipal bond market, which now represents 52.0% of the investment portfolio in 2018 compared to 57.7% in 2017.
Yields on investment assets vary between segment operations due to different portfolio mixes and durations in the segments. Our yield on average invested assets on the consolidated level decreased fourteen basis points from 2017 to 2018, primarily driven by the Life segment due to higher coupon investments sales, maturities and calls being replaced with lower current market coupon rate investments.
The annualized yield also decreased in 2018 compared to 2017 due to the decrease in investment income as make-whole calls declined compared to prior years. These calls resulted in $655,000 of additional net income in 2017, all of which related to the Life segment, providing additional net income in 2017 compared to $141,000 of additional net income in 2018, of which $125,000 related to the Home Service segment. A make-whole call provision in the bond instruments allows the borrower to pay off the debt early and, in doing so, incur make-whole premiums. This option was elected by borrowers on some of our bond issues as noted.
Credit ratings reported for the periods indicated are assigned by a Nationally Recognized Statistical Rating Organization ("NRSRO") such as Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. A credit rating assigned by a NRSRO is a quality based rating, with AAA representing the highest quality and D the lowest, with BBB and above being considered investment grade. In addition, the Company may use credit ratings of the NAIC Securities Valuation Office ("SVO") as assigned, if there is no NRSRO rating. Securities rated by the SVO are grouped in the equivalent NRSRO category as stated by the SVO, and securities that are not rated by a NRSRO are included in the "other" category.
The Company made new investments in AA rated bonds during 2018. Non-investment grade securities are the result of downgrades of issuers or securities acquired during acquisitions of companies, as the Company does not purchase below investment grade securities.
As of December 31, 2018, the Company held municipal fixed maturity securities that include third-party guarantees. Detailed below is a presentation by NRSRO rating of our municipal holdings by funding type.
The table below shows the categories in which the Company held investments in special revenue bonds that were greater than 10% of fair value based upon the Company's portfolio of fixed maturity securities at December 31, 2018.
There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal portfolio as of December 31, 2018.
In 2018, the Company recorded losses on securities that we do not intend to hold until recovery in value due to credit concerns totaling $0.8 million and the Company recognized losses on other-than-temporary impairments of $0.2 million in 2017 related to fixed maturity bond and equity securities holdings. In 2016, impairments of $4.3 million were recorded as a result of our OTTI analysis. Based upon 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, 2018 were not impaired, and no additional other-than-temporary losses were recorded.
Gross unrealized losses on fixed maturities available-for-sale amounted to $11.3 million as of December 31, 2018 and $3.1 million as of December 31, 2017. This increase in gross unrealized losses during 2018 was a result of an increase in the interest rate environment. Gross unrealized losses on equity securities were $6,000 as of December 31, 2017.
The effect of reinsurance on life insurance in force is as follows.
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 $790,000, $781,000 and $828,000 in 2018, 2017 and 2016, respectively.
Our whole life and endowment products provide the policyholder with alternatives once the policy matures. The policyholder can choose to take a lump sum payout or leave the money on deposit at interest with the Company. The Company has a significant amount of endowment products representing approximately 46.0% of total insurance in force, with older contracts sold historically that will begin reaching their maturities over the next several years and policyholder election behavior is not known. If policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities. Meeting these distributions could require the Company to sell securities at inopportune times to pay policyholder withdrawals. Alternatively, if the policyholder were to leave the money on deposit with the Company at interest, our profitability could be impacted if the product guaranteed rate is higher than the current market rate we can earn on our investments. We currently anticipate that available liquidity sources and future cash flows will be adequate to meet our needs for funds, but we will monitor closely our policyholder behavior patterns.
Cash flows from our insurance operations historically have been sufficient to meet current needs. Cash flows from operating activities were $84.6 million, $93.0 million and $102.3 million for the years ended December 31, 2018, 2017 and 2016, respectively. Operating cash flow declined in 2018, due primarily to the decrease in premium revenues and additional audit fees related to the 2017 audit, internal audit support, higher consulting fees, higher permanent executive salaries and policyholder benefits paid in 2018. We have traditionally also had significant cash flows from both scheduled and unscheduled fixed maturity security calls, maturities, redemptions, and prepayments, which totaled $86.6 million, $84.0 million and $70.4 million in 2018, 2017 and 2016, respectively. These cash flows, for the most part, are reinvested in fixed income securities. Net cash outflows from investment activity totaled $85.1 million, $85.0 million and $152.1 million for the years ended December 31, 2018, 2017 and 2016, respectively. The outflows from investing activities for the year ended December 31, 2018, primarily related to the investment of excess cash and cash equivalents generated from operations during 2018 and 2017, in addition to the investment of
The Bermuda Monetary Authority ("BMA") established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers that mandate that a Bermuda domiciled subsidiary’s Enhanced Capital Requirement ("ECR") be calculated by either (a) Bermuda Solvency Capital Requirement ("BSCR"), or (b) an internal capital model that the BMA has approved for use for this purpose. CICA Ltd., Citizens, Inc.'s wholly-owned subsidiary domiciled in Bermuda, uses the BSCR in calculating its solvency requirements. The Economic Balance Sheet (“EBS”) framework is embedded as part of the BSCR and forms the basis of its ECR.
In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation and in moving towards the implementation of a risk based capital approach, the BMA has established a threshold capital level (termed the Target Capital Level ("TCL")), set at 120 percent of ECR, that serves as an early warning tool for the BMA. Failure to maintain statutory capital at least equal to the TCL would likely result in increased BMA regulatory oversight.
In 2018, CICA contributed $450,000 in capital to CNLIC and SPLIC contributed $450,000 in capital to MGLIC. In 2017, Citizens made a $5.0 million capital contribution to CICA. In the third quarter of 2017, Citizens contributed $250,000 to CICA Ltd. to capitalize the newly formed Bermuda entity, SPLIC contributed $250,000 in capital to MGLIC, and SPLIC declared a dividend payable to CICA of $395,000 which was paid in 2018.
We have committed to the following contractual obligations as of December 31, 2018, with the payments due by the period indicated below:
The Company’s principal executive office is currently located at 2900 Esperanza Crossing, 2nd Floor, Austin, Texas. In August 2017, the Company entered into a two-year lease agreement with an unrelated party for our principal executive office. The lease started in August 2017 and will expire in August 2019. In January 2019, the Company entered into a long-term lease agreement with an unrelated party for our new principal executive office. The building in which we have leased office space is under construction and is expected to be completed in 2020. The long-term lease will commence after construction of the building is complete and has a 121-month term. Payments under the new long-term lease agreement will average approximately $112,340 per month. To bridge the gap between the expiration date of the current lease and the lease commencement date of the new long-term lease, the Company is in the process of locating a short-term lease for our principal executive office.
Citizens is a holding company and has had minimal operations of its own. Our assets consist of the capital stock of our subsidiaries, cash, fixed income securities, mutual funds and investment real estate. Our cash flows depend primarily upon the availability of statutorily permissible payments, primarily payments under management agreements from our life insurance subsidiaries. The ability to make payments is limited by applicable laws and regulations of Bermuda and U.S. states of domicile, which subject insurance operations to significant regulatory restrictions. These laws and regulations require, among other things, that these insurance subsidiaries maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay to the holding company. We historically have not relied upon dividends from subsidiaries for our cash flow needs. However, our subsidiaries have made dividend payments of available funds from time to time in relation to business strategies.
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 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 did not exist as of December 31, 2018. Management believes that our policy liabilities and increase in future policy benefit reserves as of the years ended December 31, 2018, 2017 and 2016 are based upon assumptions, including a provision for the risk of adverse deviation, that do not warrant revision. Annually, the Company completes experience studies with respect to mortality, lapse, interest and expenses The results of these studies are used for current year reserve adequacy testing, which includes loss recognition, goodwill, and establishing benefit liabilities and DAC for new issues.
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 DAC are amortized primarily over the premium-paying period of the policies, using the same assumptions as were used in computing liabilities for future policy benefits.
We utilize the factor method to determine the amount of costs to be capitalized and the ending asset balance. The factor method is based on the ratio of premium revenue recognized for the policies in force at the end of each reporting period compared to the premium revenue recognized for policies in force at the beginning of the reporting period. The factor method ensures that policies which lapsed or surrendered during the reporting period are no longer included in the deferred policy acquisition costs
calculation. The factor method limits the amount of deferred costs to its estimated realizable value, provided actual experience is comparable to that contemplated in the factors.
Inherent in the capitalization and amortization of DAC are certain management judgments about what acquisition costs are deferred, the ending asset balance and the annual amortization. Approximately 93.0% of our capitalized DAC are attributed to first year and renewal excess commissions. The remaining 7.0% are attributed to other costs that vary with and are directly related to the successful acquisition of new insurance business. Those costs generally include costs related to the production, underwriting and issuance of new business.
A recoverability test that considers, among other things, actual experience and projected future experience is performed at least annually. These annual recoverability tests initially calculate the available premium (gross premium less benefit and expense portion of premium) for the next 50 years. CCRA is then evaluated for recoverability utilizing best estimate assumptions. Management believes our CCRA and related amortization is recoverable for the years ended December 31, 2018, 2017 and 2016. This belief is based upon the analysis performed on estimated future results of the block and our annual recoverability testing.
Current accounting guidance requires that goodwill balances be reviewed for impairment at least annually or more frequently if events occur or circumstances change that would indicate a triggering event has occurred. A reporting unit is defined as an operating segment or one level below an operating segment. Most of the Company's reporting units, for which goodwill has been allocated, are equivalent to the Company's operating segment, as there is no discrete financial information reviewed and analyzed by management for the separate components of the segment or all of the components of the segment have similar economic characteristics.
We elected to early adopt the FASB's issued Accounting Standards Update ("ASU") No. 2017-04, Simplifying the Test for Goodwill Impairment as discussed in Note 1 - "Summary of Significant Accounting Policies" in the notes to our consolidated financial statements. This ASU eliminates the step two test as noted above.
The Company evaluates all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if an OTTI exists pursuant to the accounting guidelines. In evaluating the possible impairment of securities, consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial conditions and near-term prospects of the issuer, and the ability and intent of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer's financial condition, the Company may consider whether the securities are issued by the Federal government or its agencies, by government-sponsored agencies, or whether downgrades by bond rating agencies have occurred, and reviews of the issuer's financial condition.
See Item 8. "Financial Statements and Supplementary Data," and Note 1 - "Accounting Pronouncements" to the notes to our consolidated financial statements.