Interest expense decreased $1.1 million, or 52.2%, to $1.0 million in 1995 from $2.1 million in 1994 due principally to the decline in long-term debt to $12.6 million at December 31, 1995 from $18.5 million at December 31, 1994 and $30.6 million at January 1, 1994.
Also, interest rate changes may have temporary effects on the sale and profitability of the annuity and universal life products offered by the Company. For example, if interest rates rise, competing investments (such as annuities or life insurance offered by the Company's competitors, certificates of deposit, mutual funds, and similar instruments) may become more attractive to potential purchasers of the Company's products until the Company increases the interest rate credited to holders of its annuity and universal life products. In contrast, as interest rates fall, the Company attempts to adjust its credited rates to compensate for the corresponding decline in investment income. The Company monitors interest rates and sells annuities and universal life contracts that permit flexible responses to interest rate changes as part of the Company's management of interest spreads.
The Company's property-casualty operations assume and cede reinsurance, principally as a participant in a reinsurance pooling agreement with two affiliates. The Company's contracts are generally prospective and the cost of insurance is amortized over the contract periods in proportion to the amount of insurance protection provided. The Company has one reinsurance contract with both retrospective and prospective provisions. The retrospective portion of the contract is accounted for separately and the related net loss relating to that portion of the contract has been deferred and is being amortized over the remaining terms of the underlying policies in proportion to the amount of insurance protection provided.
Net income per common share is based on the weighted average number of common and common equivalent shares outstanding during each year. The weighted average number of shares and amounts reported for net income per common share for the years ended December 31, 1995 and 1994 have been restated to give retroactive effect to a 2,000-for-1 common stock split resulting from a recapitalization (see Note 3), approved by the Company's Board of Directors on March 12, 1996 and effective on March 19, 1996. There is no material difference between primary and fully diluted per share amounts. Income available for common stockholders is net of dividends on preferred stock.
An analysis of sales, maturities and principal repayments of the Company's fixed maturities portfolio for the years ended December 31, 1996, 1995, and 1994 is as follows:
No investment in any person or its affiliates (other than bonds issued by agencies of the United States Government) exceeded 10% of stockholders' equity at December 31, 1996.
Prior to 1984, a portion of current income of the Company's life insurance subsidiaries was not subject to current income taxation, but was accumulated, for tax purposes, in a memorandum account designated as "policyholders' surplus account". The aggregate accumulation in this account at December 31, 1996 was $11.1 million and $0.7 million for Farm Bureau Life and Western Life, respectively. Should the policyholders' surplus account of Farm Bureau Life and Western Life exceed the limitation prescribed by federal income tax law, or should distributions be made by Farm Bureau Life and Western Life to the parent company in excess of $374.8 million and $121.0 million, respectively, such excess would be subject to federal income taxes at rates then effective. Deferred income taxes of $4.2 million have not been provided on amounts included in this memorandum account since the Company contemplates no action and can foresee no events that would create such a tax.
Effective January 1, 1996, the Company entered into marketing agreements with the property-casualty companies operating within its marketing territory, including Farm Bureau Mutual Insurance Company and other affiliates. Under the marketing agreements, the property-casualty companies assumed responsibility for development and management of the Company's agency force for a fee equal to a percentage of commissions on first year life insurance premiums and annuity deposits. The Company paid $3.6 million to the property-casualty companies under these arrangements during the year ended December 31, 1996.