We own our principal office in Austin, Texas, consisting of an 80,000 square foot office building. Approximately 55,000 square feet is occupied or reserved for our operations with the remainder of the building being leased to a single tenant under a multi-year lease.
We also own a 6,324 square foot funeral home in Baker, Louisiana with a total cost of $527,000. This facility, acquired as a result of a 1995 acquisition, is owned and operated by FHA.
On March 19, 2002, we acquired all the outstanding shares of Combined Underwriters Life Insurance Company ("Combined") and Lifeline Underwriters Life Insurance Company ("Lifeline"), two Texas life and health insurance companies, for approximately 1.1 million shares of our Class A common stock. The aggregate market value of the consideration was approximately $12.0 million.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
a 7.2% increase in net investment income and the change in amortization of goodwill and intangibles contributed to the increased earnings in 2002.
The 2001 revenue increase was comprised of a $2,698,500 increase in life premiums offset by a $2,175,842 decrease in accident and health premiums. Because of increases in accident and health loss ratios, management implemented significant rate increases in 1999 through 2001 on accident and health products, which caused policy cancellations and a corresponding decrease in accident and health premiums.
Combined had a significant amount of accident and health premiums when we acquired it. Although it continues to write specified benefit accident and health policies, management has discontinued the sale of major medical products and moved to terminate all in-force major medical business. This action will likely result in a decrease of approximately $2.5 million of annual premium revenue but management believes this course of action will enhance future profitability.
Net investment income increased 7.2% during 2002 to $14,251,907 from $13,296,481 during 2001. The 2001 results increased 5.9% compared to the $12,550,754 earned in 2000. The 2002 increase reflected continued expansion of our asset base. In addition, the acquisitions of Combined and Lifeline increased invested assets by $15.2 million and 2002 investment income by $528,021. The 2001 and 2000 results reflected the expansion of our asset base, and the actions taken in previous years to change the mix and duration of our invested assets to place less emphasis on government guaranteed mortgage pass-through instruments and more emphasis on investments in callable instruments issued by U.S. government agencies. During 2001 and 2002, significant decreases in interest rates occurred which slowed the growth in net investment income. As a result, we expect returns on newly invested funds to decline in the short-term. We do not believe such declines will have a materially adverse effect on our future operating results.
Policyholder dividends increased to $3,477,381 in 2002, up 5.5% over 2001 dividends of $3,294,899. The 2001 amounts increased 8.5% compared to $3,037,343 in 2000. Virtually all of CICA's policies that were sold between 1989 and 1997 were participating. Participating policies represented a majority (55.0%) of our business in-force at December 31, 2002, although the percentage of participating business has declined from approximately 91% in 1995 due to acquisitions in recent years and a shift in product mix away from participating policies to policies with endowments.
Claims and surrenders increased 30.6% from $29,189,132 in 2001 to $38,107,119 in 2002. In 2000 claims and surrenders were $30,370,996. The increased surrender activity relating to the current uncertain economic climate in several Latin American countries was the primary reason for the increase in claims and surrenders during 2002. The decline in claims as a result of the cancellation of a large block of accident and health business in 1999 and 2000, contributed to the 2001 improvement.
Policy surrenders increased 16.2% from $14,435,486 in 2001 to $16,777,391 in 2002. Surrenders were $14,124,514 in 2000. The current uncertain economic climate in several Latin American countries was the primary reason for the increased surrender activity. The economies in Argentina, and Venezuela in particular were in near-depressions during 2002. As such, continued increases in surrenders relating to insured's residing in these countries are expected. However, we are optimistic about the long-term prospects for these countries.
commissions were $2,160,226. The remainder of the 2002 increase was due to the 17.7% increase in production of new life insurance premiums. The increases in 2001 occurred because of the 14.9% increased production and related increased issuance of new life policies.
Underwriting, acquisition and insurance expenses increased 41.6% to $15,064,065 in 2002 compared to $10,635,639 in 2001 and $10,139,539 in 2000. The 2002 increase was due in part to the acquisition of Combined and Lifeline which added $1,954,738 of these expenses in 2002. Additional 2002 expenses related to acquisition activities, costs associated with the listing of our Class A common stock on the New York Stock Exchange and other listing fees related to the acquisitions of Combined and Lifeline and the 15% stock dividend paid in June, 2002. Additionally, in May 2002, in an attempt to more efficiently manage and communicate with our independent marketing consultants, we canceled our contract with an independent international company that had served as the managing general agent for our international marketing activities since early 1997. We no longer pay an overriding commission to this former managing firm on all new business issued internationally but we now directly bear the related costs of all marketing, management and promotional activities. During 2001, we incurred overhead expenses related to acquisition activities combined with expenses incurred to continue to develop the domestic ordinary life sales program.
Capitalized deferred policy acquisition costs increased 30.0% from $11,112,096 in 2001 to $14,442,757 in 2002. These costs were $10,056,287 in 2000. The 2002 increase included $1,518,389 of deferred policy acquisition costs that have been capitalized by Combined and Lifeline since their acquisition. The remainder of the increase related to the 17.7% increase in new life production. The increase in 2001 reflected the 14.9% increase in sales throughout the year of whole life policies internationally. Amortization of these costs was $10,039,403, $8,568,445 and $8,521,972, respectively in 2002, 2001 and 2000. Most of the 2002 increase related to the increased surrender activity caused by the current uncertain economic climate in several Latin American countries.
Invested assets increased to $226,008,600 at December 31, 2002 from $206,695,811 at year end 2001, an increase of 9.3%. The acquisition of Combined and Lifeline discussed above were the primary reasons for the increase adding $15.2 million to invested assets. Increases in fixed maturities available-for-sale (7.5%), fixed maturities held-to-maturity (104.4%) and policy loans (3.1%) were the primary categories of invested assets that increased. Fixed maturities are 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 value. Fixed maturities available-for-sale and fixed maturities held-to-maturity were 84.9% and 5.0%, respectively, of invested assets at December 31, 2002. Fixed maturities held to maturity, amounting to $11,384,137 at December 31, 2002, consist of U.S. Treasury and U.S. government agency securities. Management has the intent and believes we have the ability to hold the securities to maturity.
Our cash balances at our primary depositories were significantly in excess of Federal Deposit Insurance Corporation coverage at December 31, 2002 and 2001. Management monitors the solvency of all financial institutions in which we have funds to minimize the exposure for loss. Management does not believe we are at significant risk for such a loss. During 2003, we intend to continue to utilize callable securities issued by Federal agencies as cash management tools to minimize excess cash balances and enhance returns.
In the wake of recent bankruptcy filings by large corporations, concern has been raised regarding the use of certain off-balance sheet special purpose entities such
as partnerships to hedge or conceal losses related to investment activity. We do not utilize special purpose entities as investment vehicles. Nor are there any such entities which we have an investment that engages in speculative activities of any description, and we do not use such investments to hedge our investment positions. Furthermore, there are no commitments or guarantees that provide for the potential issuance of our stock.
Effective January 1, 2001, the NAIC implemented codified rules for statutory accounting. These rules were approved and implemented by each state in which all of our insurance subsidiaries operations are domiciled. CICA is domiciled in Colorado, Combined and Lifeline are domiciled in Texas and CILIC and Excalibur are domiciled in Illinois. CICA follows certain Colorado state laws that differ from NAIC's codified rules. The primary difference between the Colorado statutes and the codified rules involve the establishment of a liability for future policy dividends payable. Under codification such reserve is mandated; however, Colorado has an exception if the difference between the premium charged and the mortality factor included in the premium on participating policies exceeds the reserve that would be established. Such is the case for CICA. As a result, CICA
A recoverability test which considers among other things, actual experience and projected future experience, is performed at least annually by third party actuarial consultants. These annual recoverability tests initially calculate the available premium (gross premium less benefit net premium less percent of premium expense) for the next 30 years. The available premium per policy and the deferred policy acquisition costs per policy are then calculated. The deferred policy acquisition costs are then amortized over two methods utilizing reasonable assumptions and two other methods using pessimistic
assumptions. The two methods using reasonable assumptions illustrate an early deferred policy acquisition recoverability period. The two methods utilizing pessimistic assumptions still support early recoverability of the aggregate deferred policy acquisition costs. Based upon the extensive analysis done to only capitalize expenses that vary with and are directly related to the acquisition of new and renewal insurance business, utilization of the factor method and extensive, annual recoverability testing, management believes that our deferred policy acquisition costs and related amortization as of and for the years ended December 31, 2002, 2001 and 2000 limits the amount of deferred costs to its estimated realizable value.
At December 31, 2002, investments in fixed maturity and equity securities were 89.9% and .3%, respectively, of total investments. Approximately 94.4% of our fixed maturities were classified as available-for-sale securities at December 31, 2002 with the remaining 5.6% classified as held-to-maturity securities based upon our intent and ability to hold these securities to maturity. All equity securities at December 31, 2002 are classified as available-for-sale securities. We have no fixed maturity or equity securities that are classified as trading securities at December 31, 2002.