The discontinuation of these businesses resulted from the sales of several operations and the implementation of plans to withdraw from the remaining businesses. These transactions do not affect the comparability of the financial data. The assets and liabilities of the discontinued operations have been excluded from the assets and liabilities of continuing operations and separately identified in the balance sheet data. Likewise, our income statement data have been restated for 1998 to exclude from continuing operations the operating results of discontinued operations. Additional information on discontinued operations is included in Note 13 to our consolidated financial statements included elsewhere in this Form 10-K.
Continued poor performance of the equity markets could adversely affect sales of our investment management, variable universal life and variable annuity products. Sales of all of our products could also be adversely affected by a general economic downturn.
placement business, and approximately 61% of our variable annuity assets under management excluding our private placement business, were not subject to any surrender penalties. It is also possible that we could begin to experience increasing surrenders if equity markets continue to perform poorly. The surrender charges applicable to our variable universal life insurance policies and variable annuities typically decline over a period of years and generally expire after 10 years. Moreover, surrenders of life insurance policies and annuities require faster amortization of deferred policy acquisition costs, which would reduce our profitability. Our total expense for amortization of deferred policy acquisition costs was $59.2 million in 2002.
As of December 31, 2002, $7.5 billion, or 48% of the invested assets outside the closed block, consisted of investments in private debt securities, mortgage loans, real estate, policy loans, equity securities and limited partnership interests, including our venture capital investments, all of which have limited liquidity. If we need to sell such investments because we require significant amounts of cash on short notice in excess of our normal cash requirements, as could be the case if we experience unexpectedly sudden and high volumes of non-participating insurance policy and annuity surrenders, we might have difficulty doing so at attractive prices or in a timely manner. This could cause a drain on our cash and, therefore, limit the cash we have available to meet our other obligations.
A.M. Best Company, Inc. A ("Excellent") affirmed March 7, bbb+ ("Adequate") from a 2003 ("Strong") on March 7, 2003
Legislation enacted in the spring of 2001 increased the size of estates exempt from the federal estate tax, phased in reductions in the estate tax rate between 2002 and 2009 and repealed the estate tax entirely in 2010. This legislation, despite its reinstatement of the estate tax in 2011, could have a negative effect on our revenues from the sale of estate planning products including in particular sales of second-to-die life insurance policies. These policies insure the lives of both a husband and wife, with the policy proceeds payable after both spouses have died. A second-to-die policy effectively enables a couple to pre-fund its heirs' estate tax obligations by making
In January 2002, we acquired a 60% interest in Kayne Anderson Rudnick for $102.4 million. In 2001, we acquired a 75% interest in Walnut for $7.5 million in cash. We also paid $5.5 million in cash for a 65% interest in Capital West. See Note 4 to our consolidated financial statements for further information regarding Kayne Anderson Rudnick, Walnut and Capital West.
Premium revenue declined $30.8 million, or 2.8%, in 2002 as compared to 2001 primarily as the result of a shift in sales from traditional life products to variable universal life, universal life and annuity products. Insurance and investment product fees increased $12.4 million, or 4.1% in 2002 as compared to 2001. Variable universal life and universal life fees increased $9.4 million and $8.6 million, respectively, due to higher funds under management driven by strong sales of universal life and variable universal life product, particularly in 2001 and 2002. Annuity fees declined $4.8 million as the result of lower funds under management in variable sub-accounts.
The increase in intangible asset amortization was due to the payment of $50.0 million in 2000 for the Engemann acquisition and our acquisition of an interest in Walnut in 2001.
Retirement Planners Edge GIAs.......................................... $ 1,345.6 $ 369.9 Other variable annuity GIAs............................................ 810.6 585.1 -------------- -------------- Variable annuity GIAs.................................................. 2,156.2 955.0 Fixed annuities........................................................ 509.1 56.6 -------------- -------------- Total variable annuity GIAS and fixed annuities........................ $ 2,665.3 $ 1,011.6 ============== ==============
Our debt securities portfolio consists primarily of investment-grade publicly traded and privately placed corporate bonds, residential mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. As of December 31, 2002, debt securities with a carrying value of $11,841.4 million represented 75% of total investments. Public debt securities represented 76% of total debt securities, with the remaining 24% represented by private debt securities.
U.S. government and agency........................ $ 461.6 $ 431.3 $ -- $ -- State and political subdivision................... 534.7 481.9 -- -- Foreign government................................ 60.8 52.0 123.1 116.4 Corporate......................................... 4,729.2 4,347.9 703.2 733.1 Mortgage-backed................................... 3,013.6 2,826.8 86.3 75.1 Other asset-backed................................ 1,972.5 1,955.6 156.4 166.5 ------------ ----------- ------------ ------------ Total debt securities............................. $10,772.4 $10,095.5 $ 1,069.0 $ 1,091.1 ============ =========== ============ ============
0 - 6 6 - 12 12 - 24 Over 24 Total Months Months Months Months ----------- ----------- ----------- ----------- ----------- Number of positions....................... 17 15 0 1 1 ----------- ----------- ----------- ----------- ----------- Total fair Value.......................... $ 29.0 $ 27.4 $ -- $ 1.6 $ -- Total amortized Cost...................... 61.4 53.4 -- 8.0 -- ----------- ----------- ----------- ----------- ----------- Unrealized loss........................... $ (32.4) $ (26.0) $ -- $ (6.4) $ -- =========== =========== =========== =========== ===========
0 - 6 6 - 12 12 - 24 Over 24 Total Months Months Months Months ----------- ----------- ----------- ----------- ----------- Total debt securities: Number of positions....................... 121 76 7 36 2 ----------- ----------- ----------- ----------- ----------- Total fair value.......................... $ 510.8 $ 289.0 $ 31.6 $ 179.9 $ 10.3 Total amortized cost...................... 584.7 305.9 40.7 226.2 11.9 ----------- ----------- ----------- ----------- ----------- Unrealized loss........................... $ (73.9) $ (16.9) $ (9.1) $ (46.3) $ (1.6) =========== =========== =========== =========== ===========
For below investment grade debt securities in the closed block at December 31, 2002, 17 securities have had gross unrealized losses greater than 20% of cost continuously for the durations that follow (in millions, except number of positions):
In determining that the securities giving rise to the previously mentioned unrealized losses were not other than temporarily impaired, we evaluated the factors cited above, which we consider when assessing whether a security is other than temporarily impaired. In making these evaluations, we must exercise considerable judgment. Accordingly, there can be no assurance that actual results will not differ from our judgments and that such differences may require the future recognition of other than temporary impairment charges that could have a material affect on our financial position and results of operations. In addition, the value of, and the realization of any loss on, a debt security or equity security is subject to numerous risks, including; interest rate risk, market risk, credit risk and liquidity risk. The magnitude of any loss incurred by us may be affected by the relative concentration of our investments in any one issuer or industry. We have established specific policies limiting the concentration of our investments in any single issuer and industry and believe our investment portfolio is prudently diversified. At December 31, 2002, no single non-affiliated issuer constituted more than $7.2 million of our gross unrealized losses.
The Life Companies' liquidity requirements principally relate to: the liabilities associated with various life insurance and annuity products, the payment of dividends by Phoenix Life to PNX, operating expenses, contributions to subsidiaries and payment of principal and interest on outstanding debt obligations. Liabilities arising from life insurance and annuity products include the payment of benefits, as well as cash payments in connection with policy surrenders, withdrawals and loans. The Life Companies also have liabilities arising from the runoff of the remaining group accident and health reinsurance discontinued operations.
Phoenix Life's current sources of liquidity also include a revolving credit facility under which Phoenix Life has direct borrowing rights, subject to our unconditional guarantee (see "Debt Financing"). Since the demutualization, Phoenix Life's access to the cash flows generated by the closed block assets has been restricted to funding the closed block.