The following table sets forth selected financial data and other operating information. The selected financial data have been derived from our consolidated financial statements and should be read in conjunction with our consolidated financial statements and accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
These forward-looking statements are subject to change and uncertainty that are beyond our control and have been made based upon our expectations and beliefs concerning future developments and their potential effect on our business. We cannot assure you that future developments will be in accordance with our expectations or that the effect of future developments will be those we anticipate. Actual results could differ materially from those we expect, depending upon the outcome of certain factors, including those described in the forward-looking statements. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. We have described some important factors that could cause our actual results to differ materially from our expectations in this report, including in the section below titled "Factors That May Affect Future Results." Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Financial Reporting Release No. 60, which was recently released by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Additional information is shown in Note 2 to the consolidated financial statements which includes a summary of the methods used in the preparation of our consolidated financial statements.
Reinsurance Expenses. Regardless of the type of reinsurance, our related expenses may include: (1) benefits, claims and settlement expenses, which represent our share of the payments made to insured individuals during the period, (2) expense allowances paid to the ceding life company for expenses associated with the reinsured policies, including commissions and costs associated with underwriting, marketing, policy issue and maintenance, and (3) amortization of deferred acquisition costs, which are discussed in more detail below.
Deferred Acquisition Costs. We capitalize and defer costs that vary with, and are directly associated with, the acquisition of the reinsured policies. These expenses are deferred to the extent that such costs are deemed recoverable from future policy revenues and are recorded as deferred acquisition costs on the balance sheet. Such costs include reinsurance commission and expense allowances paid to ceding life companies, and may include other underwriting costs such as actuarial, legal and accounting fees.
Under the coinsurance and modified coinsurance agreements, the amortization of the deferred acquisition costs is in proportion to the ratio of gross profits recognized during the then current period to total anticipated future gross profits. During each accounting period, assumptions used in calculating the amortization of the deferred acquisition expense reflect actual experience for the then current accounting period. We also review, on a periodic basis, our evolving experience with regard to our assumptions concerning future experience as to mortality, persistency, investment yields and expenses in determining our estimate of anticipated future gross profits. This periodic review is commonly referred to as "unlocking." Our period of observation is from October 1 of the previous calendar year through September 30 of the current calendar year. If we believe variances from expected assumptions are permanent, we will change the assumptions we use with regard to future experience. Upon adoption of any change in assumptions used with regard to future experience, the amortization of the deferred acquisition cost will be recalculated and reflected during the then current accounting period.
Liabilities for future policy benefits under the renewable term agreements include provisions for claims in the course of settlement, claims incurred but not reported and expected future claims. The liability is estimated using assumptions such as estimates of expected investment yields, mortality, persistency and expenses applicable at the time the reinsurance contracts are executed.
Investments. We classify all fixed maturities and equity securities as "available for sale." Such securities are reported at fair value. Fixed maturities available are so classified based upon the possibility that such securities could be sold prior to maturity if that action enables us to execute our investment philosophy and appropriately match investment results to operating and liquidity needs. Unrealized gains and losses on marketable equity securities available for sale, less applicable income taxes, are reported as a separate component of "accumulated other comprehensive income (loss)" within stockholders' equity.
The following table indicates, by ceding life company: (1) the names and types of insurance products we currently reinsure; (2) the type of reinsurance agreement applicable to each; (3) policy issue date reinsured under each agreement; and (4) the commencement date of the reinsurance.
(1) "VUL" means variable universal life product. "VA" means variable annuity product.
(2) "MRT" means monthly renewable term. "YRT" means yearly renewable term. "Co/Modco" means coinsurance and modified coinsurance.
Under our reinsurance agreements with the ceding life companies, we currently reinsure variable life insurance and variable annuity policies on either a renewable term basis or a coinsurance and modified coinsurance basis. For the year ended December 31, 2001, the policies we reinsured on a renewable term basis represented 63% of our reinsurance revenues and the policies we reinsured on a coinsurance and modified coinsurance basis represented 37% of our reinsurance revenues.
declining number of policies reinsured in that block, due to normal policy lapses and surrenders. New variable universal life policies that we reinsured in 2000 and 2001 were reinsured on a monthly renewable term basis. The capital requirements for reinsuring on a coinsurance or modified coinsurance basis limited our ability to reinsure any new variable universal life policies on that basis.
The sale of fixed maturity securities for the year ended December 31, 2000 resulted in a net realized gain on investments of $3,000 compared to a net realized gain on investments of $45,000 for the same period in 2001. This shift was caused by a decline in market yields, which resulted in an increase in the fair value of invested securities.
Reinsurance Expense Allowances, Net. Net reinsurance expense allowances increased $962,000, or 13%, from $7.5 million for the year ended December 31, 2000 to $8.5 million for the same period in 2001. Consistent with the increase in premium revenues, the increase in net reinsurance expense allowances was due primarily to an increase in the business placed under the Financial Freedom Builder Monthly Renewable Term Agreement.
Income Taxes. Due to higher levels of income before income taxes, income taxes increased $571,000, or 31%, from $1.8 million for the year ended December 31, 2000 to $2.4 million for the same period in 2001. Income before income taxes is comprised of income subject to taxes which are both recognized and due in the current period and income subject to taxes which are recognized during the current period but are due in future periods. The amount of income taxes which was recognized and due in the respective periods was only $516,000 and $437,000 in 2000 and 2001, respectively, due to the "small life insurance company deduction" which permanently reduces the current income taxes due. The amount of income taxes that was due in future periods in 2001 was $2.0 million, an increase of $650,000 as compared to the amount in 2000, due to an increase in timing differences with respect to reserves.
As a result of the "small life insurance company deduction," the combined effective tax rate will fluctuate between 20% and 34%. During 2000 our effective tax rate was 26%, as compared to 30% in 2001.
Premiums. Premiums increased $6.9 million, or 71%, from $9.7 million the year ended December 31, 1999 to $16.6 million for the comparable period in 2000. A majority of this increase was caused by a $6.6 million increase in premiums relating to the full-year impact of the Financial Freedom Builder Monthly Renewable Term Agreement that we entered into with Western Reserve in October 1999. The remaining increase in premiums was attributable to the increasing duration of the policies reinsured, since reinsurance premiums increase with the advancing age of the insureds.
Net Investment Income and Net Realized Gain (Loss) on Investments. Net investment income increased $178,000, or 51%, from $350,000 for the year ended December 31, 1999 to $528,000 for the same period in 2000, primarily due to the increased size of our portfolio from new purchases of fixed maturity securities.
Loss on Recapture of Business. The recapture of business by Western Reserve, discussed above, during the fourth quarter of 1999 resulted in a loss of $823,000 for the year ended December 31, 1999. This loss related to the recapture of the Financial Freedom Builder variable universal life policies and riders and 75% of the Freedom Wealth Creator variable annuity policies, issued from January 1, 1999 through September 30, 1999, which were reinsured on a coinsurance and modified coinsurance basis for Western Reserve. Of the $823,000 loss on recapture of business, $556,000 related to the variable universal life coinsurance and modified coinsurance business. The balance of $267,000 related to the variable annuity coinsurance and modified coinsurance business. No recapture occurred during 2000.
Reinsurance Expense Allowances, Net. Net reinsurance expense allowances increased $2.2 million, or 41%, from $5.3 million for the year ended December 31, 1999 to $7.5 million for the same period in 2000. Consistent with the increase in premium revenues, the increase in net reinsurance expense allowances was due to increased business placed under the Financial Freedom Builder Monthly Renewable Term Agreement, placement of the variable annuity business reinsured on a coinsurance and modified coinsurance basis and premiums on existing policies reinsured on renewable term basis.
34% and 26% for 1999 and 2000, respectively. Current tax expense of $411,000 was payable as of December 31, 2000. The remaining income tax expense for the year ended December 31, 2000, as well as the entire income tax expense for 1999, was deferred.
Historically, our operations and related revenues and operating results have varied substantially from quarter to quarter, and we expect variations to continue. Our quarterly operating results will continue to vary significantly depending on a number of factors, including fluctuations in demand for reinsurance products and variable life insurance and annuity products, as well as the sales price and resulting gross margin for specific reinsurance contracts. A high percentage of our operating expenses, particularly personnel, marketing and rent are relatively fixed in advance of any particular quarter.
We generally receive premiums in advance of our making related benefits and claims payments. Under the renewable term reinsurance agreements, premiums typically vary in proportion to the expected mortality claims reinsured. Our cash inflows under the renewable term agreements are premiums for the mortality risk reinsured. Our cash outflows are reinsurance expense allowances, policy benefits and death benefit claims. The reinsurance expense allowances represent our share of acquisition and maintenance expenses incurred by the ceding life company that are attributable to the risks reinsured by us.
The general terms of our reinsurance agreements, including our agreements with Western Reserve, include only limited rights to recapture such as: after the passage of stated periods (ten years of more) from the policy issue date, upon determination, relative to some products, that the total volume of policies reinsured for the product is below a minimum threshold, upon default by Global Preferred and upon the insolvency of Global Preferred. Oftentimes, if a reinsurance agreement provides for early recapture based on criteria such as low product sales volume, then there may be a recapture allowance paid to the reinsurer to compensate for lost future revenues and profits associated with the recaptured policies. Receipt of the recapture allowance would result in an increase in revenues for the period. Similarly, any associated unamortized deferred acquisition cost would be written off in the same reporting period. The net effect of these amounts would then result in either a gain or a loss associated with the recaptured policies.
Our primary source of liquidity was $8.1 million in cash and cash equivalents at December 31, 2001. The effective duration of our fixed maturity portfolio is 2.7 years with 100% of the fixed maturity securities having an effective maturity of less than 10 years. Our fixed maturity portfolio represents all of our total invested assets, and has an average Moody's quality rating of Aa2.
Net cash flows provided by (used in) investing activities were $7.3 million, $(3.7) million and $(6.1) million for the years ended December 31, 1999, 2000 and 2001, respectively. Changes in cash used in investing activities are generally a result of our investment of excess capital generated by operating activities to purchase of fixed maturity securities. The $7.3 million cash provided by investing activities in
1999 primarily relates to the sale of our fixed maturity securities to reimburse Western Reserve and American Skandia for allowances associated with our reinsurance agreements.
Under our reinsurance agreements, we are required to provide security through a letter of credit for the benefit of the ceding life companies. We have three letters of credit issued by Comerica Bank, our custodian, for the benefit of Western Reserve, Pacific Life and Zurich Kemper, in the amounts of $8.5 million, $50,000 and $300,000, respectively. We assess our letter of credit needs in support of each new reinsurance agreement. If determined to be necessary, we will undertake to develop facilities for future letters of credit and trust arrangements in support of additional reinsurance agreements.
The effects of inflation have not had a material impact on our operations or the conduct of our business. Inflationary trends are typically countered by a tightening monetary policy by the U.S. Federal Reserve, resulting in increases in interest rates. Rapid and severe interest rate increases could have a significant and negative impact on the value of our fixed income portfolio.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative will be included in either earnings or other comprehensive income depending on the intended use of the derivative instrument. The provisions of SFAS No. 133 did not have an impact on Global Preferred's financial statements.
- The ability of World Financial Group to retain agents who have the incentive to support us;
- The degree of market acceptance of the products offered by those agents;
- The relationship between the agents and the life insurance companies that use us for reinsurance;
- Regulatory actions that restrict or prohibit the sales activities by the agents; and
production. The loss of a substantial number of key agents could have a material adverse effect upon the future sales of World Financial Group and the production of new business to be reinsured by us.
In recent years, the Securities and Exchange Commission, the National Association of Securities Dealers and various state regulatory authorities have commenced various regulatory inquiries of WMA Agency and its affiliated registered broker-dealer, WMA Securities relating to their respective compliance with applicable regulatory standards and appropriate supervision of their associated agents. WMA Agency and WMA Securities informed us that, in response to such inquiries, they implemented corrective action plans with respect to such alleged compliance issues. Additionally, upon completion of the pending transfer of securities licenses to World Group Securities, World Financial Group and World Group Securities will have responsibility for ongoing compliance activities relating to the agents. If the regulatory authorities do not consider such corrective actions and the ongoing compliance measures implemented by World Financial Group and World Group Securities to be sufficient, then there could be an adverse impact on the ability of those agents to generate additional life insurance and annuity business for us to reinsure.
We do not participate in the selection of the ceding life companies' pricing assumptions or methodologies used in pricing the insurance products we reinsure. We do, however, evaluate the following elements in pricing our reinsurance agreements:
- Investment. Investment income is based on the rate of return on invested assets. We are subject to (1) asset value risk, which is the risk that invested assets will decrease in value, (2) reinvestment risk, which is the risk that interest rates will decline and funds reinvested will earn lower rates, and (3) disintermediation risk, which is the risk that we may have to sell assets at a loss to fund cash outflows resulting from policyholder withdrawals. Additionally, our revenues on modified coinsurance may decline if policyholders' separate account values decline.
- Expenses. Expenses principally consist of our reinsurance expense allowances and internal operating expenses. Reinsurance expense allowances typically consist of reimbursements to the life insurance companies that sell the policies for commissions, issuance expenses and administrative expenses associated with the reinsured policies. In general, we are not at risk for variances in the life insurance companies' actual expenses from reinsurance expense allowances. However, we face the risk that our internal operating expenses may exceed the expenses assumed in pricing our reinsurance.
OUR BUSINESS IS DEPENDENT UPON A SMALL NUMBER OF REINSURANCE AGREEMENTS WITH A LIMITED NUMBER OF UNAFFILIATED INSURANCE COMPANIES AND THE LOSS OF NEW BUSINESS PROVIDED BY THEM COULD ADVERSELY AFFECT US.
We have an agreement with Western Reserve that provides us with the first rights to reinsure new products offered by Western Reserve or its U.S. affiliates that are sold by agents associated with World Financial Group. These rights have an initial term expiring on December 31, 2002 for variable annuity products reinsured on a coinsurance and modified coinsurance basis, March 31, 2003 for variable universal life products reinsured on a coinsurance and modified coinsurance basis and March 31, 2006 for variable universal life products reinsured on a monthly renewable term basis. This agreement provides for automatic renewal for successive one year periods following its initial term, unless notice of non-renewal is given at least 180 days prior to the end of the current term.
Our reinsurance agreements provide for the reinsurance of new policies as they are issued. These agreements provide for automatic renewals following their initial terms, subject to termination or non-renewal upon notice of at least 180 days.
IF FOR ANY REASON WE ARE UNABLE TO EXERCISE OUR CONTRACTUAL RIGHTS TO EXPAND THE SCOPE OF OUR EXISTING REINSURANCE ARRANGEMENTS, OUR GROWTH STRATEGY AND BUSINESS COULD BE ADVERSELY AFFECTED.
Due to our historical capital constraints, we have been unable to reinsure the maximum available percentage under the Western Reserve variable universal life reinsurance agreements and the Western Reserve variable annuity reinsurance agreement. We intend to use a significant portion of the proceeds from our proposed public offering to exercise the rights we have under these agreements to accept additional reinsurance percentages on business that has already been written by Western Reserve as well as to increase our commitment to reinsure new business written by Western Reserve. Based on our current estimates, the offering will provide us sufficient capital to exercise the rights in full. If, for any reason, whether for contractual reasons, an inability to complete the initial public offering or otherwise, we are unable to fully exercise the rights under these agreements to expand our reinsurance business, our growth could be adversely affected. We cannot assure you that we will exercise our rights under these agreements.
IF AGENTS ASSOCIATED WITH WORLD FINANCIAL GROUP WHO ARE OUR STOCKHOLDERS SELL ALL OR A SIGNIFICANT PORTION OF THEIR SHARES, THEIR MOTIVATION TO ACT IN WAYS THAT BENEFIT OUR BUSINESS COULD BE REDUCED.
WE ANTICIPATE EXPERIENCING A PERIOD OF SIGNIFICANT GROWTH THAT MAY PLACE A STRAIN ON OUR RESOURCES.
We utilize an independent investment manager to invest our assets in accordance with our investment guidelines. Conning Asset Management Inc., a subsidiary of Swiss Reinsurance Company, has been our investment manager since June 1998. Conning has discretionary authority to manage our non-cash investment portfolio. As a result, the performance of our aggregate investment portfolio depends largely on the ability of Conning to select and manage appropriate investments. We cannot assure you that Conning will be successful in meeting our investment objectives. We also cannot assure you that Conning will not terminate its agreement with us. The inability of Conning to perform adequately and consistently with our expectations could significantly and negatively affect our ability to conduct our business.
Global Preferred Re has an insurance management agreement with CFM Insurance Managers Ltd., a member company of the Mutual Risk Management Ltd. group of companies, which provides professional insurance management services to companies operating in Bermuda. C. Simon Scupham, a director of our company and of Global Preferred Re, is the chairman of CFM. Pursuant to this agreement, CFM acts as the managing agent and Principal Representative under the Insurance Act 1978 for Global Preferred Re in Bermuda. This agreement is for an unlimited duration, but may be terminated by either party upon three months prior written notice or upon 30 days prior written notice under specified circumstances.
We currently reinsure variable universal life insurance and variable annuity policies. No assurance can be given that variable universal life insurance and variable annuity policies will continue to be accepted in the marketplace or that we will be able to reinsure other insurance products in the future. The acceptance of variable products could be adversely affected by a substantial, prolonged decline or unusual volatility in the stock market.
We believe that recent developments in the economy and financial markets have had an adverse affect on the demand for financial products, including variable universal life insurance and variable annuity products, which could reduce our opportunity to reinsure those products. We cannot predict how long these conditions will persist or the magnitude of their effect on our business. Continued unfavorable economic conditions may have an adverse effect on our financial operations or the growth of our business.
Under the Internal Revenue Code of 1986, income tax payable by policyholders on investment earnings is deferred during the accumulation period of some life insurance and annuity products. To the extent that the Internal Revenue Code is revised to reduce the tax-deferred status of life insurance and annuity products or to increase the tax-deferred status of competing products, all life insurance companies would be adversely affected with respect to their ability to sell such products, and, depending on grandfathering provisions, the surrenders of existing annuity contracts and life insurance policies. In addition, life insurance products are often used to fund estate tax obligations. Congress has adopted legislation to reduce, and ultimately eliminate, the estate tax. Under this legislation, the life insurance companies that issue the policies we reinsure may face reduced demand for some of their life insurance products, which in turn could negatively affect our future reinsurance opportunities. We cannot predict what future tax initiatives may be proposed and enacted which could affect us.
WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT, WHICH COULD MAKE IT MORE DIFFICULT FOR US TO ATTRACT AND RETAIN BUSINESS.
establishing our current IMO relationship, we have not yet attempted to develop new IMO relationships because of our historical capital constraints. As a result, we cannot assure you that we will be able to successfully develop such relationships. Furthermore, our inability to do so could have a material adverse effect upon our ability to implement our strategies.
Many insurance industry participants are consolidating to enhance their market power. These entities, particularly life insurance companies, may try to use their market power to negotiate price reductions for our products and services. If competitive pressures compel us to reduce our prices, our operating margins will decrease. As the insurance industry consolidates, competition for customers will become more intense and the importance of acquiring and properly servicing each customer will become greater. We could incur greater expenses relating to customer acquisition and retention, further reducing our operating margins. In addition, insurance companies that merge may be able to spread their risks across a consolidated, larger capital base so that they require less reinsurance.
WE MAY REQUIRE ADDITIONAL WORKING CAPITAL OR FINANCING TO FULLY IMPLEMENT OUR STRATEGIES TO GROW OUR BUSINESS.
- Agreements among us, World Financial Group, Western Reserve, Money Services, AEGON USA and their affiliates;
A CHANGE IN DEMAND FOR REINSURANCE COULD LEAD TO REDUCED PREMIUM RATES, WHICH COULD REDUCE OUR NET INCOME.
The successful underwriting of primary insurers and prevailing general economic conditions significantly influence demand for reinsurance. In addition, as primary insurers consolidate and grow, they may require less reinsurance. The supply of reinsurance is related to prevailing prices and levels of surplus capacity that, in turn, may fluctuate in response to changes in rates of return being realized in the reinsurance industry. It is possible that premium rates or other terms and conditions could vary in the future, that the present level of demand will not continue or that the present level of supply of reinsurance could increase as a result of recent or future market entrants or the growth of existing reinsurers.
Our operating results depend in part on the performance of our investment portfolio. Our investments are selected with the objective of maximizing investment returns consistent with appropriate credit, diversification, tax and regulatory consideration, while providing sufficient liquidity to enable us to meet our obligations as a reinsurance company on a timely basis. Our ability to achieve our investment objectives is affected by general economic conditions that are beyond our control.
CHANGES IN INVESTMENT MARKETS COULD CAUSE A DECLINE IN THE REVENUES WE EARN UNDER OUR COINSURANCE AND MODIFIED COINSURANCE AGREEMENTS.
Due to the nature of the variable universal life and variable annuity products we reinsure, we are generally insulated from the direct impact of changes in the investment yields of these products. However, on an overall basis, a decline in investment yields is expected to cause a decrease in our revenues under
our coinsurance and modified coinsurance agreements because the funds upon which some of our revenues are calculated would presumably be lower, resulting in a corresponding decrease in our income. Conversely, an increase in investment yields is expected to have the opposite effect. Policies reinsured under the coinsurance and modified coinsurance agreements during 1998, 1999 and early 2000 experienced favorable investment yields, which resulted in increased earnings during these periods. Moreover, the greater than otherwise expected asset base resulted in increased anticipated future gross profits as used in amortizing the associated deferred acquisition costs. Conversely, a reduction in investment yields, as experienced in the latter half of 2000 and 2001, may result in a decrease in future revenues and anticipated future gross profits from that otherwise assumed, thereby resulting in lower earnings during future periods.
OUR INABILITY TO PROVIDE SATISFACTORY FINANCIAL SECURITY TO LIFE INSURANCE COMPANIES THAT REINSURE THROUGH US COULD SIGNIFICANTLY AND NEGATIVELY AFFECT OUR ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY.
OUR RESULTS OF OPERATIONS MAY FLUCTUATE FROM QUARTER TO QUARTER AND MAY NOT BE INDICATIVE OF OUR LONG-TERM PROSPECTS.
THE NATURE OF OUR BUSINESS REQUIRES OUR MANAGEMENT TO MAKE ESTIMATES AND ASSUMPTIONS THAT AFFECT OUR PRICING, RISK ASSESSMENT AND FINANCIAL STATEMENTS.
deferred policy acquisition costs and future policy benefits. In addition, management is required to make estimates and assumptions that affect our pricing and risk assessments. In all instances, actual results could differ from management's estimates and have an adverse impact on our financial condition and business operations.
As of December 31, 2000, Global Preferred Re had total statutory capital and surplus, under the Insurance Act 1978 of Bermuda, of $9.0 million. The amount available for distribution of dividends was $8.7 million. As approved by the directors of Global Preferred Re, during fiscal year 2000 Global Preferred Re paid dividends of $3.4 million to Global Preferred. Global Preferred Re paid no dividends to Global Preferred during fiscal year 2001.
Historically, a substantial portion of the policies we have reinsured were sold in a few states. Much of our reinsurance premiums and reinsured policy revenues were derived from Western Reserve (89% for the year ended December 31, 2001). According to information provided to us by Western Reserve for the year ended December 31, 2001, over 63% of the variable universal life premiums from policies sold by agents associated with World Financial Group and its predecessor, on behalf of Western Reserve came from the states of California, Texas, Utah, Illinois and Maryland, with 43% coming from California alone. Similarly, in 2001, over 63% of all variable annuity premiums from policies sold by the agents associated with World Financial Group and its predecessor, on behalf of Western Reserve came from California, Texas, Utah, Illinois and Maryland, with nearly 22% coming from California. We believe that the geographic distribution of the policies we reinsure bears a similar geographic concentration. As a result of such concentration, our operations may be significantly affected by regulatory, economic, demographic and other conditions specific to California and a small number of other states.
OUR RELIANCE ON PAYMENTS FROM LIFE INSURANCE COMPANIES UNDER OUR REINSURANCE AGREEMENTS EXPOSES US TO CREDIT RISK.
IF WE BECOME SUBJECT TO INSURANCE STATUTES AND REGULATIONS IN JURISDICTIONS OTHER THAN BERMUDA OR THERE IS A CHANGE TO A BERMUDA LAW OR APPLICATION OF BERMUDA LAW, THERE COULD BE A SIGNIFICANT AND NEGATIVE IMPACT ON OUR BUSINESS.
- Provide for the performance of certain periodic examinations of Global Preferred Re and its financial condition.
In general, reinsurers domiciled outside the United States are not subject to substantial direct regulation in the United States. However, most, if not all, states within the United States do not permit life insurance companies to take credit on their statutory financial statements for reinsurance obtained from unlicensed or unadmitted reinsurers, such as Global Preferred Re, unless appropriate security measures exist. In order for life insurance companies to receive credit for reinsurance written, Global Preferred Re has had to post letters of credit with those life insurance companies whose policies we reinsure. If Global Preferred Re should encounter difficulty in obtaining such letters of credit or alternative security in the future, our ability to operate and expand our business would be severely limited.
GLOBAL PREFERRED RE MAY BECOME SUBJECT TO TAXES IN BERMUDA AFTER 2016, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION.
- Consolidated Statements of Income for the years ended December 31, 1999, 2000, and 2001
- Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 31, 1999, 2000, and 2001