Family Life and Investors Life leased approximately 7,700 square feet of space in an office building in Seattle, Washington, which served as the statutory home office of the insurance companies. In addition, the insurance companies leased 22,100 square feet of warehouse space in Tukwila, Washington. The leases for each of these facilities expired on November 30, 2003, and were extended on a month-to-month basis, pending completion of the regulatory approval of the redomestication of the insurance companies from Washington to Texas. For the year 2003, the combined monthly rental expense for these facilities was $23,167. The monthly rental for the warehouse space was $5,950. That lease was terminated on February 29, 2004. The monthly rental for the Seattle office was $17,217. The lease for the Seattle office was terminated on March 31, 2004.
As explained in the accompanying financial statements (see Note 2 on Restatement of Previously Issued Financial Statements and Item 6, Selected Financial Data), FIC’s financial statements for each of the four years preceding 2003 have been restated. The comments in this discussion and analysis of financial condition and results of operations relate to the restated numbers.
Conning commenced the realignment of the Company’s life insurance subsidiaries’ portfolios in accordance with these new policies in the fourth quarter of 2003. As part of this realignment, Conning identified eight securities purchased earlier in 2003 that it concluded had significant future principal risk. While all of these securities were investment grade when purchased, six of the eight had experienced ratings downgrades since purchase. These securities were written down as other than temporary impaired securities in 2003, resulting in a net realized pre-tax loss of $5.2 million. One additional bond purchased in early 2003 was sold in late 2003 for a net pre-tax gain of $580,000. The other bonds purchased from January to September of 2003 had by December 31, 2003, resulted in an additional net unrealized loss of approximately $12.3 million; however, the Company determined that the decline in market value of this group of bonds was temporary, and retained them in the portfolio.
FIC’s equity securities consist primarily of its investment in the investment funds underlying the separate accounts business of Investors Life Insurance Company (“Investors Life”). As of December 31, 2003, the market value of FIC’s equity securities was $7.9 million, compared to $6.4 million at December 31, 2002. The increase is related to an increase in the value of the funds underlying the separate accounts.
FIC’s real estate investment is primarily related to the development of the River Place Pointe project (“River Place Pointe”) by Investors Life. At December 31, 2003, FIC’s investment totaled $90.6 million in this 600,000 sq. ft., seven-building office complex on 48 acres in Austin, Texas. (For a more detailed description of the River Place Pointe project, see Item Two, Properties.) FIC and its insurance company subsidiaries occupy one of the seven buildings. Three of the other buildings were substantially leased, but three buildings (approximately 34% of the total space in the project) remained unleased as of December 31, 2003. Another of the buildings was leased in 2004, and the project was sold in June 2005, in a cash transaction, for $103 million. The Company estimates the total gain to be approximately $10 million, which includes both the current realized gain on the sale and the deferred gain to be recognized over the period from the sale through March 31, 2008.
Policyholder benefits and expenses totaled $45.1 million, $53.7 million, and $30.7 million for the years ended December 31, 2003, 2002, and 2001, respectively. The decrease of $8.6 million from 2002 to 2003 was primarily attributable to lower death benefit claims and a lower level of surrenders of traditional life insurance policies. The increase from 2001 to 2002 (aside from the portion attributable to the part-year consolidation related to the ILCO merger) was attributable to increases in death benefit claims.
$1.1 million for payments to be made to Jeffrey Demgen, Eugene E. Payne and George Wise pursuant to their employment agreements in connection with the termination of their employment by the Company.
FIC may not be able to compete with larger, more established insurance companies.
Although the federal government generally does not directly regulate the insurance industry, federal initiatives often have a direct impact on the insurance business. Congress and certain federal agencies are investigating the current condition of the insurance industry in the United States in order to decide whether some form of federal regulation of insurance companies would be appropriate. Congress is currently conducting a variety of hearings relating in general to the solvency of insurers. We are unable to predict the outcome of any such congressional activity or the potential effects that federal regulation would have on us or our insurance subsidiaries.
announcements by us or our competitors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;
Sales of a significant number of shares of our common stock in the public market, or the perception of such sales, could reduce our share price and impair our ability to raise funds in new share offerings.