NET INVESTMENT INCOME. Net investment income increased $303,000, or 5.2%, to $6.2 million in 1998 from $5.9 million in 1997 while average cash and invested assets increased $3.0 million, or 2.6%. In addition to the increase in average invested assets, investment income increased in 1998 because of $169,000 of distributions from limited partnerships which did not make distributions in 1997. For 1998, the yield on average cash and invested assets was 5.2% compared to 5.3% for 1997.
As a consequence of the programming convention which utilized a two-digit field rather than a four-digit field, certain information technology ("IT") systems and non-IT systems, such as equipment with embedded chips or microprocessors, required reprogramming or replacement to enable them to perform correctly date operations involving year 2000 or later ("Year 2000 Issue").
OGGI is a regional insurance holding company that provides property and casualty insurance throughout Pennsylvania, Maryland and Delaware and title insurance and related services in Virginia, North Carolina, Ohio and Pennsylvania.
Acquisition costs such as commissions, premium taxes and certain other expenses which vary with and are directly related to the production of business, are deferred and amortized over the effective period of the related insurance policies. The method followed in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value, which gives effect to premiums to be earned, related investment income, loss and loss adjustment expenses and certain other maintenance costs expected to be incurred as the premiums are earned. To the extent that deferred policy acquisition costs are not realizable, the deficiency is charged to income in the current period.
Assets and liabilities related to insurance contracts are reported before the effects of reinsurance. Reinsurance receivables and prepaid reinsurance premiums are reported as separate assets.
A reconciliation of OGGI's statutory net income and surplus to OGGI's net income and shareholders' equity, under generally accepted accounting principles (GAAP), is as follows:
The scheduled maturities of long-term debt at December 31, 1999 are $4,909,941 in 2000, $859,833 in 2001, $833,328 in 2002, $833,328 in 2003, and $3,383,328 in 2004. Subsequent to December 31, 1999, OGGI refinanced the $3,700,000 outstanding balance under the acquisition line of credit to include annual principal payments of $370,000 and a final maturity in 2005.
The Board of Directors has also adopted an Employee Stock Ownership Plan (ESOP) for the exclusive benefit of participating and eligible employees. Employees are eligible after having attained the age of 21 and completing one year of service with OGGI or its subsidiaries. In connection with the subscription offering, the ESOP borrowed $4,054,910 in order to purchase 10% of the total shares issued by OGGI. The loan bears interest at 8.45% and requires monthly payments of principal and interest of $50,417 for a term of 10 years. Because OGGI has guaranteed repayment of the ESOP debt, the debt and related unearned compensation are recorded in the accompanying consolidated balance sheets as of December 31, 1999 and 1998. The outstanding balance on the ESOP debt at December 31, 1999 and 1998 was $3,234,293 and $3,547,448, respectively.
Effective January 1, 1999, OGGI established an Employee Stock Purchase Plan (ESPP). The aggregate number of shares that may be issued pursuant to the ESPP is 250,000. Payment for shares purchased under the ESPP are made only by authorized payroll deductions subject to a maximum percentage of employees' compensation established from time to time by the Board of Directors of OGGI. Purchases are made at no less than 85% nor more than 100% of the fair market value of OGGI stock. Under the ESPP, OGGI issued 826 shares of stock in 1999.