Premiums and policy fee revenues, net of reinsurance premiums and policy fees, increased approximately 1% when comparing 2009 to 2008. Premiums and policy fee revenues on a gross basis decreased almost 6% in comparing 2009 to 2008. The Company writes very little new business. Unless the Company acquires a block of in-force business as it did in December 2006, Management expects premium revenue to continue to decline on the existing block of business at a rate consistent with prior experience. The Company’s average persistency rate for all policies in force for 2009 and 2008 was approximately 96.1% and 95.8%, respectively. Persistency is a measure of insurance in force retained in relation to the previous year.
UG is an Ohio domiciled insurance company, which requires five days prior notification to the insurance commissioner for the payment of an ordinary dividend. Ordinary dividends are defined as the greater of: a) prior year statutory earnings or b) 10% of statutory capital and surplus. At December 31, 2009, UG statutory shareholders' equity was $27,349,870. At December 31, 2009, UG statutory net income was $203,629. Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation. UG paid ordinary dividends of $3,000,000 to UTG during 2008 and $0 during 2009.
At year-end 2009, UG had three ratios outside the normal range. AC had two ratios outside the normal range. Each of the ratios outside the normal range was anticipated by Management. UG’s ratio relates to the Company’s affiliated investments, investment income and change in premium. The Company has made investments in real estate projects, which have been consolidated into these financial statements through limited liability companies. The limited liability companies were created to provide additional risk protection to the Company. While this negatively impacts this ratio, the Company believes that this structure is in the best interest of the Company and these investments will have a positive long-term impact on the Company. Additionally, the newly acquired ACAP Corporation is a subsidiary of UG. Due to the tough economy and the Company holding large cash balances and fewer bonds, the adequacy of investment income ratio was expected to fall out of the normal range. However, due to the change in the portfolio at the end of 2009, management expects to see this ratio move back into the normal range. The Company has not actively marketed life products in the past several years. Management currently placed little emphasis on new business production, believing resources could be better utilized in other ways. Current sales primarily represent sales to existing customers through additional insurance needs or conservation efforts. AC’s ratios outside the normal range relate to change in reserves and adequacy of investment income. AC ,like UG, has not actively marketed life products in the past several years. Management currently places little emphasis on new business production, believing resources could be better utilized in other ways. Also like UG, AC held large cash balances and fewer bonds during the year. AC’s investment income should also improve due to portfolio changes.
Realized gains and losses include sales of investments, periodic changes in fair value, and write downs in value. If any due to other-than-temporary declines in fair value are recognized in net income on the specific identification basis.
On December 8, 2006, UTG borrowed funds from First Tennessee Bank National Association through execution of an $18,000,000 promissory note. The note is secured by the pledge of 100% of the common stock of UG. The promissory note carries a variable rate of interest based on the 3 month LIBOR rate plus 180 basis points. Interest is payable quarterly. Principal is payable annually beginning at the end of the second year in five installments of $3,600,000. The loan matures on December 7, 2012. During 2009, no payments were made, as the Company had prepaid the 2009 principal due during 2008. The Company made principal payments of $3,049,995 during 2008. At December 31, 2009 and 2008, the outstanding principal balance on this debt was $10,491,762 and $10,494,454, respectively.
In April 2009, FASB issued amendments to ASC 820-10, Fair Value Measurements and Disclosures, which provides amendments to guidelines for making fair value measurements more consistent and provides additional authoritative guidance in determining whether a market is active or inactive and whether a transaction is distressed. The amendments are applied to all assets and liabilities (i.e., financial and non-financial) and requires enhanced disclosures. The amendments are effective for periods ending after June 15, 2009. The adoption of the ASC 820-10 amendments did not have an impact on the Company's consolidated financial statements.