The following narrative analysis of the results of operations and financial condition presents a review of the Company for the twelve month periods ended December 31, 2002 versus 2001. This review should be read in conjunction with the financial statements and other data presented herein.
As required under FAS No. 142, the Company completed the first of the required impairment tests as of January 1, 2002. Step one of the impairment test was a screen for potential impairment, while step two measured the amount of the impairment. All of the Company's operations fall under one reporting unit, USFS, due to the consolidated nature of the Company's operations. Step one of the
Premiums for the year ended December 31, 2002, increased by $6.0 million compared to the same period in 2001. The growth of premiums is attributed to growth in the Company's life insurance products.
Fee income and other income for the year ended December 31, 2002, increased by $8.0 million compared to the same period in 2001. The increase is due to growth in life insurance products, partially offset by decreases in fee income on variable annuity assets which decreased as a result of market declines.
Net investment income for the year ended December 31, 2002, decreased by $11.5 million compared to the same period in 2001. The decrease in net investment income was due to the decrease in yield and declining interest rates, partially offset by a slight increase in assets.
Net realized capital gains (losses) for the year ended December 31, 2002, decreased by $13.3 million compared to the same period in 2001. The increase in capital losses are due to higher impairments of certain fixed maturities compared to 2001(refer to Note 2 of Notes to Financial Statements).
Interest credited and other benefits to policyholders for the year ended December 31, 2002, increased by $22.5 million compared to the same period in 2001. This increase is the result of higher future policy benefits and claim reserves.
amortization of deferred policy acquisition costs and value of insurance acquired reflects the impact of these variables on the overall book of business.
The percentage of total fixed maturities by market sector is as follows: December 31, 2002 December 31, 2001 - ------------------------------------------------------------------------------- U.S. Corporate 54.0% 59.2% Residential Mortgage-backed 23.4 20.2 Commercial/Multifamily Mortgage-backed 7.0 7.7 Foreign (1) 0.2 - U.S. Treasuries/Agencies 6.1 0.4 Asset-backed 9.3 12.5 - ------------------------------------------------------------------------------- Total 100.0% 100.0% ===============================================================================
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related footnotes. These estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information that is reasonable under the circumstances. There can be no assurance that actual results will conform to estimates and assumptions, and that reported results of operations will not be affected in a materially adverse manner by the need to make future accounting adjustments to reflect changes in these estimates and assumptions from time to time.
The Company reviews the general account investments for impairments by analyzing the amount and length of time amortized cost has exceeded fair value, and by making certain estimates and assumptions regarding the issuing companies' business prospects, future economic conditions and market forecasts. Based on the facts and circumstances of each case, management uses judgement in deciding whether any calculated impairments are temporary or other than temporary. For those impairments judged to be other than temporary, we reduce the carrying value of those investments to the current fair value and record impairment losses for the difference (refer to Note 2 of the Financial Statements).
projected interest margins, asset-based fees, policy administration and surrender charges less policy maintenance fees.
In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions readers regarding certain forward-looking statements contained in this report and in any other statements made by, or on behalf of, the Company, whether or not in future filings with the SEC. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Statements using verbs such as "expect," "anticipate," "believe" or words of similar import generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements include statements which represent the Company's beliefs concerning future levels of sales and redemptions of the Company's products, investment spreads and yields, or the earnings and profitability of the Company's activities.
Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive