BNLE leases approximately 1,400 square feet of office space in Sherwood, Arkansas at a rental of $16,500 per year. BNLAC incurs 100% of the rental expense.
In this section, we review the consolidated financial condition of the Company at December 31, 2003, 2002 and 2001 and the consolidated results of operations for the periods ended December 31, 2003, 2002 and 2001. Please read this discussion in conjunction with the accompanying consolidated financial statements and notes.
differences primarily related to the life insurance subsidiary. The resulting net deferred tax asset is $195,136 and $322,000 at December 31, 2003 and 2002, respectively. Realization of the deferred tax asset is dependent on generating sufficient taxable income prior to expiration of the loss carry forward. Although realization is not assured, management believes it is more likely than not that all of the net deferred tax asset will be realized. However, the amount of the deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.
Other long-term investments also include an operating line of credit agreement with an advance amount of $170,000. On October 15, 2002 BNLAC and EPSI entered into a loan agreement whereby BNLAC will provide EPSI with a $200,000 line of credit maturing October 15, 2004. The line of credit is at prime, 4.50%, with interest payable monthly to BNLAC.
In 2002, BNLAC paid dividends totaling $857,734 to BNLE and BNLF for the purchase of Company stock and bonds and for other general operating funds.
Results of Operations Premium income was $40,809,336 in 2003, $41,237,420 in 2002, and $38,463,464 in 2001. The decrease of 1% in 2003 was due to the loss of three large dental groups at the end of 2002 and the first quarter of 2003. The increase in 2002 was due to an increase in group dental insurance premiums written. In 2003, group dental insurance premium income made up 92.4% of total premium income.
Net investment income was $970,382 in 2003, $1,148,225 in 2002, and $1,029,457 in 2001, a decrease of 15% in 2003, and an increase of 12% in 2002. The decrease in 2003 was primarily due to the general decline in interest rates. The Company transferred some of its short-term investments and used its positive operating cash flow to increase its fixed maturity investment portfolio in 2003. In 2002, several of the Company's investments in fixed maturities decreased due to government agency bonds that were called and reinvested in short term investments.
The Company receives marketing fees from EBI per the marketing agreement mentioned above. The Company received marketing fees of $146,107 in 2003 and $143,619 in 2002.
Policy benefits and other insurance costs increased from $29,570,207 in 2001, to $30,789,481 in 2002 and decreased to $30,108,152 in 2003. The decrease in 2003 was the result of a $900,000 reduction in group dental claims and the increase in 2002 was due to an increase in claims and commissions resulting from the increase in group dental insurance in force. The claims ratio on group dental insurance, which represents the ratio of claims incurred to premium earned, was 62.7% in 2003, 64.1% in 2002 and 65.5% in 2001. The claims ratio has steadily decreased over the last three years due to the Company's constant monitoring of rates and trends in dental costs.
Market risk represents the potential loss resulting from adverse changes in the value of financial instruments, either derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates, commodity prices, and equity security prices. We handle market risks in accordance with our established policies. The Company's conservative investment philosophies minimize market risk and risk of default by investing in high quality debt instruments, with staggered maturity dates. We did not have financial instruments to manage and reduce the impact of changes in interest rates at December 31, 2003 and December 31, 2002. We held various financial instruments at December 31, 2003 and 2002, consisting of financial assets reported in our Consolidated Balance Sheets (refer to Note 4).
Equity Security Price Risk - Fair value of equity securities at December 31, 2003 totaled $373,214, or only 1.7% of total investments and cash on a consolidated basis. We do not hedge our equity price risk. As of December 31, 2003, a 20% adverse change in equity prices would result in an approximate $76,000 decrease in the fair value of our equity securities.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information on pages through attached to this Report is hereby incorporated by reference.