The following table indicates by rating the composition of the Company’s fixed maturity securities portfolio, excluding short-term investments at December 31:
Deferred Policy Acquisition Costs. Policy acquisition costs consisting of commissions and other policy issue costs, which vary with and are primarily related to the production of new business, are deferred and amortized over periods not to exceed the estimated premium-paying periods of the related policies. Projected future levels of premium revenue are estimated using assumptions as to interest, mortality, morbidity and withdrawals consistent with those used in calculating liabilities for future policy benefits. Deferred policy acquisition costs totaled $20.7 million and $21.8 million at December 31, 2004 and 2003, respectively.
Agent Receivables. In the ordinary course of business, a subsidiary of USHEALTH advances commissions on policies written by its general agencies and their agents. Net agent receivables were $3.5 million and $4.5 million at December 31, 2004 and 2003, respectively. Such subsidiary is reimbursed for these advances from the commissions earned over the respective policy’s life. In the event that policies lapse prior to the time the subsidiary has been fully reimbursed, the general agency or the individual agents, as the case may be, are responsible for reimbursing the outstanding balance of the commission advances. A reserve for uncollectible agent’s balances is routinely established based upon historical experience and projected commission earnings. As of December 31, 2004 and 2003, the allowance for uncollectible commission advances was $3.6 million and $3.4 million, respectively.
Net unrealized appreciation on investments at December 31, 2004 consists of gross unrealized gains of $3.6 million. Gross unrealized losses consist of sixty-six issues of investment-grade fixed maturities with $37.0 million fair value with unrealized losses of $766,000 and two issues of less than investment-grade fixed maturities with $637,000 fair value with unrealized losses of $13,000. Forty-eight issues of fixed maturities with $23.7 million fair value with unrealized losses of $261,000 have been in loss positions for less than one year. Twenty issues with $13.9 million fair value with unrealized losses of $518,000 have been in loss positions for one year or more. Only one fixed maturity issue with a fair value of approximately $172,000 with an unrealized loss of approximately $2,000 has been is a loss position for more than one year and is less than investment grade.
Unrealized losses on investment grade securities principally relate to changes in market interest rates or changes in credit spreads since the securities were acquired. The Company monitors the financial condition and operations of the securities rated below investment grade and of certain investment grade securities on which there are concerns regarding credit quality.
Included in fixed maturities are high-yield, unrated or less than investment grade corporate debt securities comprising approximately 2.4% and 2.2% of fixed maturities at December 31, 2004 and 2003, respectively.
The Insurance Subsidiaries are precluded from paying dividends during 2005 without prior approval of the Texas Insurance Commissioner as the companies’ earned surplus is negative. Generally, all states require insurance companies to maintain statutory capital and surplus that is reasonable in relation to their existing liabilities and adequate to their financial needs. The Texas Department of Insurance also maintains discretionary powers relative to the declaration and payment of dividends based upon an insurance company’s financial position. Due to recent statutory losses incurred by the Insurance Subsidiaries, the Company does not expect to receive any dividends from the Insurance Subsidiaries for the foreseeable future.
Under Florida Statutes Section 624.4095, Florida licensed insurance companies’ ratio of actual or projected annual written premiums to current or projected surplus as regards to policyholders (“the premium-writing ratio”) may not exceed specified levels for gross and net written premiums as defined by the statute. If a company exceeds the premium-writing ratio, the Florida Department of Insurance shall suspend the company’s certificate of authority in Florida or establish by order maximum gross or net annual premiums to be written by the company consistent with maintaining the ratios specified. At December 31, 2004, the premium-writing ratio for FLICA, which currently underwrites insurance policies in Florida, met the limit mandated by Florida law.
Basic and diluted - as reported $ (0.05 ) $ (0.17 ) $ (0.22 )
Loss from discontinued operations (1) (266 ) (186 ) (305 ) (309 )
Cash and short-term investments. The carrying amount reported in the balance sheets for cash and short-term investments approximates its fair value.