The Company has a deferred policy acquisition costs asset of approximately $1 million related to its variable annuity product lines with an account balance of $13.2 million at December 31, 2002. The Company monitors the rate of amortization of the deferred policy acquisition costs associated with its variable annuity product line. The methodologies employ varying assumptions about how much and how quickly the stock markets will recover from their current depressed levels. The primary assumptions used to project future profits as part of the recoverability analysis include: a long-term equity market growth rate of 8%, reversion to the mean methodology with a reversion to the mean cap rate of 13%, reversion to the mean period of 5 years, and an amortization period of 20 years. A recovery in equity markets, or methodologies and assumptions that anticipate a recovery, result in lower amounts of amortization, and a worsening of equity markets result in higher amounts of amortization.
The Annuities segment’s 2002 pretax loss decreased $0.1 million primarily due to an increase in net investment income on capital. The Annuities segment’s future results may be negatively affected by a slow economy. Volatile equity markets could negatively affect sales of variable annuities and the fees the segment assesses on variable annuity contracts. Lower interest rates could negatively affect sales of fixed annuities. In this segment, equity market volatility may create uncertainty regarding the level of future profitability in the variable annuity business and the related rate of amortization of deferred policy acquisition cost. Also, beginning in January 2003, the Company is no longer marketing variable annuity products.
Change in funds held-coinsurance........................................ 86,607,188 (239,299) (381,634) Change in other liabilities............................................. (231,372) (3,579,771) 3,253,106 Other (net)............................................................. (2,266) (1,013,986) 432,557 ------------ ------------- ------------ Net cash provided by operating activities....................................... 108,172,507 14,862,735 25,359,466 ------------ ------------- ------------
CASH Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. The Company has deposits with certain financial institutions which exceed federally insured limits. The Company has reviewed the creditworthiness of these financial institutions and believes there is minimal risk of a material loss.
At December 31, 2002, 99% of the Company’s mortgage loans were commercial loans of which 74% were retail, and 25% 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, Alabama, Arkansas and Texas.
The Company became involved with PLC's Life Marketing segment beginning in 2002. The 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 following table sets forth total operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses), the recognition of income tax expense and income from discontinued operations and cumulative effect of change in accounting. Asset adjustments represent the inclusion of assets related to discontinued operations.
Premiums and policy fees, net.... $142,454 $23,808,052 $3,454,960 $153,530 $27,558,996 Net investment income............ 8,123 30,989,460 571,275 3,729,514 $947,465 36,245,837 Realized investment gains(losses) 79,719 $(775,928) (696,209) Other income (loss).............. 5,072 6,015 11,087 ---------- ----------- ---------- --------- --------- ---------- ------------ Total revenues............. 150,577 54,802,584 4,026,235 3,968,778 947,465 (775,928) 63,119,711 ---------- ----------- ---------- --------- --------- ---------- ------------ Benefits and settlement expenses. 186,800 27,513,318 2,087,070 3,511,858 33,299,046 Amortization of deferred policy acquisition costs.......... 76,132 7,225,750 669,620 667,681 8,639,183 Other operating expenses......... (254,425) 8,330,634 (324,360) 246,104 (63,392) 7,934,561 ---------- ----------- ---------- --------- --------- ---------- ------------ Total benefits and expenses 8,507 43,069,702 2,432,330 4,425,643 (63,392) 49,872,790 ---------- ----------- ---------- --------- --------- ---------- ------------ Income (loss) from continuing operations before income tax. 142,070 11,732,882 1,593,905 (456,865) 1,010,857 (775,928) 13,246,921 Income tax expense............... 4,622,272 4,622,272 ------------ Net Income....................... $8,624,649 ============
Premiums and policy fees: Life insurance................................ $6,379,102 $22,962,666 $42,221,864 $25,638,300 164.7% Accident and health insurance................. 3,131,323 771,735 (438,892) 1,920,696 - ---------- ----------- ------------ ----------- TOTAL...................................... $9,510,425 $23,734,401 $41,782,972 $27,558,996 =========== =========== ============ ===========
Year Ended December 31, 2001: Life insurance in force(1) ..................... $ 337,079 $ 4,865,367 $ 6,087,816 $ 1,559,528 390.4% =========== ========== =========== ========== ==========