The range of maturity dates for securities in an unrealized loss position at December 31, 2003 varies, with 21.6% maturing in less than 5 years, 16.9% maturing between 5 and 10 years, and 61.5% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position at December 31, 2003.
At December 31, 2003, the Company had $57.9 million of annuity account balances with an estimated fair value of $62.2 million (using surrender value).
At December 31, 2002, the Company had $60.1 million of annuity account balances with an estimated fair value of $63.0 million.
Income Tax Expense Current............................................................... 702,883 Deferred.............................................................. 7,408,821 4,622,272 4,165,065 ------------ ------------ ------------ Total Income Tax Expense.................................................. 8,111,704 4,622,272 4,165,065 ------------ ------------ ------------
SHARE-OWNERS' EQUITY Preferred Stock, $1.00 par value, shares authorized, issued and outstanding: 2,000........................................... 2,000 2,000 Common Stock, $10.00 par value Shares authorized: 2003 and 2002 - 500,000 Shares issued and outstanding: 2003 and 2002 - 250,000............................... 2,500,000 2,500,000 Additional paid-in capital............................................................... 171,386,324 171,386,324 Retained earnings........................................................................ 12,410,533 9,343,166 Accumulated other comprehensive income: Net unrealized gains on investments (net of income tax: 2003-$9,019,940; 2002-$5,118,918)............................... 16,751,318 9,506,562 ------------ ------------ Total share-owners' equity.......................................................... 203,050,175 192,738,052 ------------ ------------ $885,150,043 $940,498,772 ============ ============
INCREASE (DECREASE) IN CASH..................................................... 11,383,249 (2,614,725) 3,118,847 CASH AT BEGINNING OF YEAR....................................................... 1,669,532 4,284,257 1,165,410 ------------- ------------- -------------- CASH AT END OF YEAR............................................................. $ 13,052,781 $ 1,669,532 $ 4,284,257 ============= ============= ==============
On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133, as amended by SFAS Nos. 137,138, and 149, requires the Company to record all derivative financial instruments at fair value on the balance sheet. Changes in fair value of a derivative instrument are reported in net income or other comprehensive income, depending on the designated use of the derivative instruments. The adoption of SFAS No. 133 resulted in a cumulative charge to net income, net of income tax, of $0.3 million and a cumulative after-tax increase to other comprehensive income of $0.3 million on January 1, 2001. The charge to net income and increase to other comprehensive income primarily resulted from the recognition of derivative instruments embedded in the Company’s corporate bond portfolio. The adoption of SFAS No. 133 has introduced volatility into the Company’s reported net income and other comprehensive income depending on market conditions and the Company’s hedging activities.
The market values of fixed maturities increase or decrease as interest rates fall or rise. As prescribed by generally accepted accounting principles investments deemed as “available for sale” are recorded at their market values with the resulting unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, reported as a component of share-owners’ equity.
The operating results and charges related to the sale of the Dental division and discontinuance of other related operations at December 31 are as follows:
Each quarter the Company reviews investments with material unrealized losses and tests for other-than-temporary impairments. The Company analyzes various factors to determine if any specific other-than-temporary asset impairments exist. Once a determination has been made that a specific other-than-temporary impairment exists, a realized loss is incurred and the cost basis of the impaired asset is adjusted to its fair value. During 2003, 2002, and 2001, the Company recorded other-than-temporary impairments in its investments of $0.3 million, $4.3 million, and $1.9 million, respectively.
At December 31, 2003 and 2002, the Company had bonds which were rated less than investment grade of $33.4 million and $27.7 million, respectively, having an amortized cost of $31.8 million and $32.9 million, respectively. Approximately $89.5 million of bonds are not publicly traded.
The change in unrealized gains (losses), net of income tax, on fixed maturities for the years ended December 31 is summarized as follows:
At December 31, 2003, 99% of the Company's mortgage loans were commercial loans of which 72% were retail, and 27% were office buildings. The Company specializes in making mortgage loans on either credit-oriented or credit-anchored commercial properties, most of which are strip shopping centers in smaller towns and cities. All of the mortgage loans are on properties located in the following states listed in decreasing order of significance: Tennessee, Florida, Arkansas and Texas.
Dividends on common stock are noncumulative and are paid as determined by the Board of Directors. At December 31, 2003, approximately $84.8 million of share-owners’ equity excluding net unrealized gains and losses represented net assets of the Company that cannot be transferred to Protective. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as ordinary dividends to Protective by the Company in 2004 is estimated to be $23.1 million.
The Company became involved with PLC’s Life Marketing segment beginning in 2002. PLC’s Life Marketing segment markets level premium term and term-like insurance, universal life, and variable universal life products on a national basis primarily through networks of independent insurance agents and brokers, and in the “bank owned life insurance” market.
The Company has reinsured approximately $7.0 billion, $6.6 billion, and $4.9 billion in face amount of life insurance risks with other insurers representing $18.5 million, $18.1 million, and $17.6 million of premium income for 2003, 2002, and 2001, respectively. The Company has also reinsured accident and health risks representing $(2.8) million, $0.8 million, and $0.1 million of premium income for 2003, 2002, and 2001, respectively. In 2003 and 2002, policy and claim reserves relating to insurance ceded of $57.1 million and $89.9 million respectively are included in reinsurance receivables. Should any of the reinsurers be unable to meet its obligation at the time of the claim, obligation to pay such claim would remain with the Company. At December 31, 2003 and 2002, the Company had paid $4.6 million and $2.3 million, respectively, of ceded benefits which are recoverable from reinsurers.
(1) Allocations of Net Investment Income and Other Operating Expenses are based on a number of assumptions and estimates and results would change if different methods were applied. (2) Adjustments represent the inclusion of assets related to discontinued operations.