GROUP AND OTHER INSURANCE. New sales of group life and health insurance increased from $47.3 million in 1991 to $61.9 million in 1992, but declined to $41.2 million in 1993. All sales of new group business in 1993 were made by Philadelphia American Life Insurance Company ("Philadelphia American"), as were substantially all new sales in 1992. Several large group health cases were added at the end of 1992, increasing the volume of new 1992 sales; however, primarily as a result of competitive factors, Philadelphia American purposely did not attempt to achieve the same level of new sales during 1993. In addition to revenues from sales of group insurance products, Philadelphia American derives substantial revenues from administrative services only ("ASO") contracts whereby it process claims for non-affiliated groups without assuming underwriting risks. Bankers Multiple also underwrites a profitable real estate agents errors and omissions product, the results of which are included in the group and other insurance segment.
Operating and capital loss carryforwards have significantly different characteristics as to expiration dates and their usability. For federal income tax purposes, operating losses may be carried forward for a maximum of fifteen years from the year they are incurred; capital losses may be carried forward for a maximum of five years. In addition, ordinary loss carryforwards may be utilized to offset ordinary income or capital gains, whereas capital loss carryforwards can only be utilized to offset capital gains. As a consequence, taxpayers have substantially more flexibility in being able to utilize operating loss carryforwards than capital loss carryforwards. For federal income tax purposes, at December 31, 1993, ICH's subsidiaries had $39.0 million of ordinary loss carryforwards expiring in 2005 and $14.9 million of capital loss carryforwards expiring in 1998.
At December 31, 1993, amounts recoverable from reinsurers, including amounts equal to the assets supporting insurance liabilities ceded to reinsurers and amounts due for the reimbursement of related benefit payments, are reflected as receivables due from reinsurers. Amounts due from reinsurers are evaluated as to their collectibility and, if appropriate, reserves for doubtful collectibility are established through a charge to earnings.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The present value of future profits on business in force of acquired subsidiaries represents the portion of the cost to acquire such subsidiaries that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the dates of acquisitions. Such value is the actuarially determined present value of the future cash flows from the acquired policies, based on projections of future premium collection, mortality, morbidity, surrenders, operating expenses, investment yields, and other factors. The account is amortized with interest over the estimated remaining life of the acquired policies.
At December 31, 1993, the Company held unrated or noninvestment-grade corporate debt securities with a carrying value of $107,012,000 and an aggregate fair value of $106,197,000. These holdings amounted to 6.2% of the Company's fixed maturity investments and 4.0% of total cash and invested assets. The holdings of noninvestment-grade securities are widely diversified and include securities of 42 issuers.
6. INVESTMENTS IN EQUITY INVESTEES AND LIMITED PARTNERSHIPS (CONTINUED) Following is an analysis of the Company's investment in limited partnerships (excluding the Company's investment in CCP at December 31, 1992, which was reflected as an investment in equity investees):
13. FEDERAL INCOME TAXES Effective January 1, 1991, the Company adopted SFAS No. 109, "Accounting for Income Taxes." The cumulative effect to January 1, 1991 of this statement on the Company's consolidated balance sheet was the recognition of a deferred tax asset totaling $43,880,000 and a reduction in excess cost resulting from the recognition of utilization of tax deductions of acquired companies totaling $35,097,000. The adjustment of these accounts resulted in a net cumulative effect totaling $8,783,000 which has been reflected as a separate line item in the consolidated statement of earnings.
13. FEDERAL INCOME TAXES (CONTINUED) A reconciliation of the income tax provisions based on the prevailing corporate tax rate of 35% in 1993 and 34% in 1992 and 1991 to the provision reflected in the consolidated financial statements is as follows:
I.C.H. CORPORATION AND SUBSIDIARIES REINSURANCE FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS)