In order to ascertain the recoverability of the goodwill balance, the Company performed an analysis of the relevant cash flows based upon estimated production, net of policy acquisition costs, policyholder benefits and other general expenses. As a result of this analysis, it was determined that the production of future business did not support goodwill of $9.5 million which was charged to earnings during third quarter 1998. Management's estimate of future production was re-evaluated based upon sales activity, the size of the active agency force, and the anticipated future production to be achieved in subsequent years. Management has continued to monitor production associated with these products. During 1998, management was successful in reviving production from some of the largest producers of American Liberty. During 1999, the assumed production levels were met. Should production fall below such estimates, additional write-offs could be necessary. Approximately $3 million of goodwill related to ALFC remains.
Total revenues for the year ended December 31, 1999 were $71,877,058 compared to $72,684,915 in 1998, a decrease of 1.1%. In 1997 revenues were $65,027,298. The decrease in 1999 revenues was related to a 80.7% decrease in realized gains on investments which were $310,890 for 1999 compared to $1,614,388 in 1998. The inclusion of the revenues from USLIC and NSLIC for the entire year was the primary reason for the increase during 1998. Decreased writing of new business by CICA in the international market and by ALLIC domestically was offset by the premium revenues of USLIC and NSLIC, which
contributed to the increase in revenue in 1998. Additionally, only six months of revenues of USLIC and only one month of NSLIC's revenues are included in the 1997 results.
Net investment income increased 3.2% during 1999 to $11,636,940 from $11,279,125 during 1998. The 1998 results were up 12.4% compared to the $10,038,736 earned in 1997. The 1999 and 1998 results reflect the continuing expansion of the Company's asset base as well as the actions taken in previous years to change the mix and duration of the Company's invested assets. Overall, the duration decreased slightly from approximately 5.19 years in 1998 to 5.05 years in 1999.
The yields available in the bond market during the past few years are not of a level to increase the return on the Company's invested assets without exposing the portfolio to undue risk. Management hired the investment advisory firm of Asset Allocation and Management, Inc. of Chicago ("AAM"), Illinois in late 1995 to manage the Company's fixed maturity portfolio. During 1996, a nominal reconfiguration was begun. In lieu of purchasing U.S. Treasury instruments, the Company began to purchase U.S. Government guaranteed mortgage pass-through securities. This program continued throughout 1999. Management expects to continue this strategy throughout 2000 as opportunities present themselves.
Claims and surrenders increased to $34,747,480 in 1999, an increase of 10.0% over 1998 when such benefits were $31,592,740. In 1997 claims and surrenders were $27,852,907. The increase in benefits in 1998 can be attributed to the inclusion of NSLIC and USLIC for an entire year. Increases in accident and
health benefits attributable to the respective blocks of business of these companies created most of the 1999 increase.
Accident and Health benefits grew to $8,468,124 in 1999 from $5,912,411 in 1998. Such claims were $2,948,257 in 1997. The increase reflects the growing block of accident and health premium on the Company's books, and more specifically the inclusion of NSLIC and USLIC. Claims on USLIC's A&H benefits in 1999 were $3,681,264, while NSLIC's were $2,270,718. In 1998, claims on USLIC's A&H benefits were $2,513,680, while NSLIC's were $1,653,367. In 1997, the addition of USLIC and NSLIC contributed approximately $740,000 to the benefit amounts. During the second half of 1998, the Company began to experience a significant increase in the volume of claims. The increase was created by the high early utilization by holders of the USLIC dental certificates. As a result of the substantial increase in the volume of claims plus an increase in the accident and health loss ratio, management has moved to cancel a large portion of these existing blocks of group dental and major medical business in order to curtail both claims and operating expenses. Most of the terminations were effective prior to January 1, 2000. This action will result in a decrease of approximately $3.8 million of annual premium income in 2000 and $5.3 million of annual premium income in 2001; however, due to the claims experience as well as the overhead necessary to administer such, management believes this action will enhance near and long-term profitability.
Endowment benefits decreased from $5,258,881 in 1997 to $5,027,937 in 1998. In 1999, such expenses increased slightly to $5,048,973. Beginning in late 1990,
Other claim expenses amounted to $1,173,590 in 1999, $1,020,410 in 1998 and $848,093 in 1997. These expenses are comprised of supplemental contract benefits, interest on policy funds and assorted other miscellaneous policy benefits.
In order to convert a majority of CICA's marketing overhead from fixed to variable, management contracted in early 1997 with an independent international marketing company to serve as managing agent for the Company's international marketing activities. This firm receives an overriding commission on all new business sold internationally in exchange for the absorption of all marketing, management and promotion activities. By taking such actions, management believes a significant amount of fixed overhead has been converted to a variable expense. Management has utilized firms such as this in previous periods with great success at obtaining increases in sales and expense reductions.
Invested assets decreased to $174,338,561 in 1999 from $176,272,123 in 1998, a decrease of 1.1%. A 1.7% decrease in fixed maturities available-for-sale more than offset the 2.7% increase in policy loans. At December 31, 1999 and 1998, fixed maturities have been categorized into two classifications: fixed maturities held-to-maturity, which are valued at amortized cost, and fixed maturities available-for-sale which are valued at fair market. The Company did not plan to make material dispositions of fixed maturities during 1999; however, because of continued uncertainty regarding long-term interest rates, management cannot rule out sales during 2000. Fixed maturities held to maturity, amounting to $5,594,745 at December 31, 1999 consist of U.S. Treasury securities. Management has the intent and believes the Company has the ability to hold the securities to maturity.
performed with existing staff and the associated costs were expensed as incurred until completion.
All critical suppliers or customers (external relationships) resolved their own third party Year 2000 issues and were able to interact with the Company. The Company encountered no loss of data or functionality related to the Year 2000.