We own two buildings and related parking facilities in Cedar Rapids, Iowa, which we use as our home office. We occupy all of a five-story office building and the top seven floors of an eight-story office building in which the first floor is leased to tenants. The two buildings are connected by a skywalk. We also lease additional adjacent space in Cedar Rapids.
The insurance industry is governed by the National Association of Insurance Commissioners and individual state insurance departments. All of the insurance departments of the states in which we are domiciled have adopted the codification of insurance statutory accounting principles, effective January 1, 2001. Previously, these principles were prescribed in a variety of publications, as well as state laws, regulations and general administrative rules. The effect on our statutory financial statements as of January 1, 2001 was an increase to statutory policyholders’ surplus of $10,300,000. This change does not affect our Consolidated Financial Statements, which are based on generally accepted accounting principles. Pursuant to codification rules, we may use permitted statutory accounting practices with approval from the insurance departments in our states of domicile; however we do not use any statutory permitted practices. The National Association of Insurance Commissioners annually calculates a number of financial ratios to assist state insurance regulators in monitoring the financial condition of insurance companies. A “usual range” of results for each ratio is used as a benchmark. Departure from the “usual range” on four or more of the ratios could lead to inquiries from individual state insurance departments as to certain aspects of a company’s business. None of our insurance companies had four or more ratios outside of the “usual range.”
The change in net unrealized appreciation (depreciation) is net of reclassification adjustments and income taxes (see Note 14).
Liabilities for future policy benefits are computed by the net level premium method using interest assumptions ranging from 4.5 percent to 8.0 percent and withdrawal, mortality and morbidity assumptions appropriate at the time the policies were issued. Accident and health reserves are stated at amounts determined by estimates on individual cases and estimates of unreported claims based on past experience. Liabilities for universal life and investment contracts are stated at policyholder account values before surrender charges. Liabilities for traditional immediate annuities are based primarily upon statutory reserves.
Intangibles, including goodwill and agency relationships, are being amortized by the straight-line method over periods of up to 10 years. The carrying value of goodwill and other intangibles is reviewed regularly for impairment in the recoverability of the underlying asset. Any impairment of goodwill would be charged to operations in the period that the impairment was recognized. We did not take an impairment write-down of goodwill or other intangibles in 2001, 2000 or 1999.
A summary of the carrying value and estimated fair value of assets and liabilities meeting the definition of financial instruments at December 31, 2001 and 2000 is as follows.
We have tax NOL carryforwards totaling $26,605,000 as of December 31, 2001. These NOL carryforwards were purchased by us when we acquired American Indemnity Financial Corporation. These NOL carryforwards expire as follows: 2002, $621,000; 2003, $2,509,000; 2004, $1,247,000; 2005, $118,000; 2006, $43,000; 2007, $14,000; 2008, $14,000; 2009, $4,604,000; 2010, $989,000; 2011, $5,491,000; 2017, $6,819,000; 2018, $4,136,000. We are required to establish a valuation allowance for any portion of the deferred tax asset that management believes may not be realized. We established a valuation allowance of $8,934,000 for deferred tax assets relating to American Indemnity Financial Corporation’s NOLs, which can only be used to offset future income of the property and casualty segment. If we determine that the benefit of the American Indemnity Financial Corporation NOLs can be realized in the future, the related reduction in the deferred tax asset valuation allowance will be recorded as a reduction to goodwill, until goodwill has been eliminated. We have AMT credit carryforwards of $2,701,000, which do not expire.
The annual per capita contributions for the benefits provided to retired American Indemnity Financial Corporation employees are capped. As a result, increases in the assumed health care cost trend rate will have no significant effect on the accumulated postretirement benefit obligation or on the net periodic postretirement benefit cost as of December 31, 2001.
Depreciation expense and property and equipment acquisitions for the years ended December 31, 2001, 2000 and 1999, are reflected in the property and casualty insurance segment.