We regularly assess the recoverability of deferred acquisition costs through actuarial analysis. To determine recoverability, the present value of anticipated future premiums less future costs and claims are added to current reserve balances. If this amount is greater than the current unamortized DAC then the DAC is deemed recoverable.
The Company amortized $607, $399 and $166 of its cost related to software in 2002, 2001 and 2000, respectively. Depreciation expense on other property and equipment was $1,024, $1,010 and $1,109 for the years ended December 31, 2002, 2001 and 2000, respectively.
o an estimate of future administrative expenses, which would be incurred to adjudicate existing claims.
Annuities and other Primarily funds on deposit inclusive of accrued interest. Ordinary life, individual: Mortality based on 1975-80 SOA Mortality Table (Age Last Birthday).
2002 2001 2000 ---- ---- ---- Balance at January 1 $ 214,466 $ 164,565 $ 137,534 less reinsurance recoverable (8,888) (5,454) (3,917) --------- --------- --------- Net balance at January 1 205,578 159,111 133,617 --------- --------- --------- Incurred related to: Current year claims 200,006 193,552 135,084 Prior years claims 80,948 8,845 6,564 Imputed prior year interest 10,225 8,632 6,863 --------- --------- --------- Total incurred 291,179 211,029 148,511 --------- --------- --------- Paid related to: Current year claims 48,627 73,726 37,864 Prior years claims 127,245 90,836 85,153 --------- --------- --------- Total paid 175,872 164,562 123,017 --------- --------- --------- Net balance at December 31 320,885 205,578 159,111 plus reinsurance recoverable 9,059 8,888 5,454 --------- --------- --------- Balance at December 31 $ 329,944 $ 214,466 $ 164,565 ========== ========== =========
Failure to comply with the Corrective Action Plan could result in the Department taking control of the Company's insurance subsidiaries.
The Pennsylvania and New York Insurance Departments have adopted the Codification guidance, effective January 1, 2001. The Codification guidance serves to reduce the insurance subsidiaries' surplus, primarily due to certain limitations on the recognition of goodwill and EDP equipment and the recognition of other than temporary declines in investments. These reductions are partially offset by certain other items, including the recognition of deferred tax assets subject to certain limitations. In 2001, the Company's statutory surplus was reduced by approximately $2,000 as a result of the Codification guidance.
The Company and its subsidiary, PTNA, are defendants in an action in the United States District Court, Middle District of Florida, Ocala Division. Plaintiffs filed this matter on January 10, 2003 in the Fifth Judicial Circuit of the State of Florida in and for Marion County, Civil Division, on behalf of themselves and a class of similarly situated Florida long term care policyholders. The Company removed this case from the Florida state court to Federal Court on February 6, 2003. Plaintiffs claim wrongdoing in connection with the sale of long term care insurance policies to the Plaintiffs and the Class. Plaintiffs allege claims for reformation, breach of fiduciary duty, breach of the implied duty of good faith and fair dealing, negligent misrepresentation, fraudulent misrepresentation, and restitution. The Company has filed motions to dismiss for failure to state a claim, lack of personal jurisdiction against the Company, and a motion to strike certain allegations of the Complaint as irrelevant and improper. Plaintiffs filed a motion to remand on March 7, 2003. Briefing is continuing on all of these motions. While the Company cannot predict the outcome of this case, the results could have a material adverse impact upon its financial condition and results of operations. However, the Company believes that the Complaint is without merit and intends to continue to defend the matter vigorously.
The initial premium of the treaties was approximately $619,000, comprised of $563,000 of cash and qualified securities transferred in February 2002, and $56,000 as funds held due to the reinsurer. The initial premium and future cash flows from the reinsured policies, less claims payments, ceding commissions and risk charges, is credited to a notional experience account, which is held for our benefit in the event of commutation and recapture on or after December 31, 2007. The notional experience account balance receives an investment credit based upon the total return from a series of benchmark indices and derivative hedges that are intended to match the duration of our reserve liability (See Note 5).