New sales: New sales represent annualized premiums on new policies issued.
Amortization of DAC and VOBA. First year commissions and general insurance expenses associated with the acquisition of new business are deferred and amortized over the premium-paying period of the related policies. The total deferrals of policy acquisition costs were $15.0 million and $13.1 million for the years ended December 31, 2005 and 2004, respectively. The increase in deferrals was primarily due to the increase in net new premiums in the worksite segment somewhat offset by the decrease in net new long-term care premiums in the senior market.
Other policyholder liabilities, which are comprised primarily of dividend accumulations and advance premiums, decreased by $0.1 million, or 1.2%, to $10.6 million as of December 31, 2006, from $10.7 million as of December 31, 2005.
Accounts payable and accrued expenses increased by $4.4 million in 2006, primarily due to increases in our reinsurance settlements related to the acquired business.
See “Note 2 - Significant Accounting Policies - Recently Issued Accounting Standards” of Item 8 of this report, which is incorporated herein by reference, for a discussion of Recently Issued Accounting Standards.
As discussed in Note 2 to the consolidated financial statements, in 2006 the Company changed its method of accounting for share based payments and defined benefit pension plan and has adopted Financial Accounting Standards Board Statement No. 123(R), Share Based Payments and Financial Accounting Standards Board Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans.
This transaction is expected to enhance KMG America’s presence in the voluntary term life market, create access to additional distribution and is expected to favorably impact the financial results.
relating to the Company’s financial position as of December 31, 2004, has been adjusted for GAAP purchase accounting adjustments reflecting the Predecessor’s acquisition.
Insurance reserves for individual life insurance, individual accident and health insurance, group life insurance and group accident and health insurance are associated with earned premiums so as to recognize profits over the premium-paying period. This association is accomplished by recognizing the liabilities for insurance reserves on a net level premium method based on assumptions deemed appropriate at the date of issue as to future investment yield, mortality, morbidity, withdrawals and maintenance expenses, and including margins for adverse deviations. Interest assumptions are based on the Company’s experience. Mortality, morbidity and withdrawal assumptions are based on recognized actuarial tables or the Company’s experience, as appropriate. Life reserves are calculated using mean reserve factors. Accident and health reserves are calculated using mid-terminal reserve factors. Benefit reserves for investment products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances.
losses of $0.0 million were realized from those sales in 2006. These gains were due to the sale of Kanawha Healthcare Solutions, Inc.'s investment in the limited liability company, Risk Based Solutions, Inc. in 2006.
The corporate and other segment includes investment income earned on the investment portfolio allocated to capital and surplus, as well as all realized capital gains and losses, which are not allocated by line of business.