As we near the end of the century, many information technology products will not recognize the year 2000. As a result, businesses are at risk for possible calculation errors or system failures which could cause a disruption in their operations. This is known as the Year 2000 ("Y2K") issue. In 1995, Meridian began the initial planning phase to ensure that all systems were Y2K compliant. As a result of this planning, it was determined that Meridian would utilize internal resources to complete the necessary remediation. This would allow Meridian to contain costs and maintain control as well as provide consistency in system applications. As a result of this decision, a team of programmers was hired under the direction of experienced internal management to address the issue. It was also determined that the Meridian Citizens project team would operate independently utilizing contracted personnel to complete the project. Such personnel, our contracted outside automation services providers, were under contract to complete and test the Y2K programming efforts. This process was supervised by internal Meridian staff to maintain consistency.
The next stage of the process was to identify those systems and programs that contained date sensitive fields throughout the operating systems. The Meridian approach taken to address the issue was field expansion. This expansion would allow the date fields to be expanded and allow programs to distinguish dates based upon an eight digit code as opposed to a six digit code. The Meridian Citizens approach implemented by the outside automation services provider, had to take into account the various operating platforms used to process data. It was decided that a combination of methods would be the best approach to solving the Y2K dilemma. A combination of field expansion and "windowing" was utilized to address the issue. The "windowing" approach utilizes a two digit year currently in the date fields. For example, any result over 50 signifies the 20th century and any under fifty, the 21st century.
In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of Meridian Insurance Group, Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statement schedules based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME for the Years Ended December 31, 1998, 1997 and 1996
Proceeds from sales of investments in fixed maturity securities during 1998, 1997 and 1996, respectively, were $78,138,240, $26,135,592 and $38,131,207. During 1998, 1997 and 1996, respectively, gross gains of $2,672,721, $338,920 and $197,320 and gross losses of $44,464, $324,812 and $653,922 were realized on those sales.
1999 1,625,000 2000 2,000,000 2001 2,125,000 Thereafter 4,375,000 Total payments outstanding $10,125,000
For the year ended December 31, 1998, approximately 86 percent of the Company's total premium volume was derived from its participation in the pooling agreement. In 1997 and 1996, approximately 88 percent was derived from the pooling arrangement.
The assumed rate of future increases in per capita cost of health care benefits was 7.0 percent for the first year and 4.0 percent for all years thereafter in 1998, and 8.0 percent for the first year and 6.0 percent for all years thereafter in 1997. The health care cost trend rate assumption has an effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point would increase the accumulated post-retirement benefit obligation by approximately $184,000 and the aggregate of the service and interest cost components of net periodic post- retirement benefit cost by approximately $48,000. A decrease in the assumed health care cost trend rates by one percentage point would decrease the accumulated post-retirement benefit obligation by approximately $160,000 and the aggregate of the service and interest cost components of net periodic post-retirement benefit cost by approximately $39,000.
Meridian Security's subsidiaries, Meridian Citizens Security and ICO, also pay dividends to their parent. Each company's retained earnings available for distribution as dividends are limited by laws in their states of domicile, Minnesota and Ohio, respectively. Meridian Citizens Security declared and paid dividends to Meridian Security of $600,000 in 1998 and $ 300,000 in 1997. ICO declared and paid dividends to Meridian Security of $ 300,000 in 1998. Dividends were not paid by either company in 1996, nor by ICO in 1997.