Non-life DAC. Acquisition costs, consisting primarily of commissions incurred on business related to the two new prospective quota share reinsurance treaties, are deferred and amortized over the period in which the related premiums are earned. Anticipated losses and loss adjustment expenses as well as any estimated remaining costs associated with treaties are considered in determining acquisition costs to be deferred. Anticipated investment income is not considered in the deferral of acquisition costs.
- - In November 2002, the FASB issued Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". This Interpretation identifies characteristics of certain guarantee contracts and requires that a liability be recognized at fair value at the inception of such guarantees for the obligations undertaken by the guarantor. The initial recognition and initial measurement provisions of this Interpretation are effective for these guarantees issued or modified after December 31, 2002. The disclosure requirements of this Interpretation are effective for the Company as of December 31, 2002. The Company does not expect the adoption of this Interpretation to have a material impact on its consolidated financial statements.
Operating Revenues. Operating revenues, which primarily consist of AIF fees paid to Farmers Management Services as a percentage of gross premiums earned by the P&C Group Companies and other fees, increased $108.7 million, or 6.4%, from $1,690.3 million for the year ended December 31, 2001 to $1,799.0 million for the year ended December 31, 2002. This growth in operating revenues was primarily attributable to higher gross premiums earned by the P&C Group Companies, which increased $0.8 billion, or 6.5%, from $12.4
Impairment Losses on Investments. Impairment losses on investments were $57.2 million for the year ended December 31, 2001 due primarily to equity impairments related to common stock.
Impairment Losses on Investments. Impairment losses on investments increased from $22.4 million in 2000 to $82.8 million in 2001, an increase of $60.4 million, or 270.0%, due primarily to impairment losses related to common stock.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets".
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedules listed in the table of contents at Item 15 for the year ended December 31, 2000 are presented for the purpose of additional analysis and are not a required part of the basic financial statements. These schedules are the responsibility of the Company's management. Such schedules have been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, are fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The provisions of this Statement are effective for fiscal years beginning after June 15, 2002. The Company does not expect the adoption of this Statement to have a material impact on its consolidated financial statements.
A DAC asset is established as a result of the deferral of certain policy acquisition costs. DAC consist of commissions, underwriting costs and other costs, which vary with, and are primarily related to, the production of new business. For traditional life insurance products, such as whole life and term life contracts, acquisition costs are deferred and amortized in proportion to the premiums received over the contract period, based on the same assumptions used in estimating the liability for future policy benefits. Liabilities for future policy benefits are computed principally by means of a net level premium method reflecting estimated future investment yields, mortality, morbidity and withdrawals. Interest rate assumptions range from 2.25% to 8.50%, depending on the year of policy issue. Mortality is calculated principally on select and ultimate tables in common usage in the industry, modified for actual experience, and withdrawals are estimated based primarily on experience.
A schedule of the Company's operating properties, plant and equipment at cost as of December 31 follows:
Mortgage loans. The estimated fair value of the mortgage loans portfolio is determined by discounting the estimated future cash flows, using a year-end market rate which is applicable to the yield, credit quality and average maturity of the composite portfolio.
Upon B.A.T's purchase of the Company in 1988, the Company allocated part of the purchase price to its portion of the Regular Plan assets in excess of the projected benefit obligation at the date of acquisition. The asset is being amortized for the difference between the Company's net pension cost and amounts contributed to the Plan. The unamortized balance as of December 31, 2002 and 2001 was $5.9 million and $9.6 million, respectively.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2002 and 2001 are presented in the following tables: