Residential development property is primarily located in Springfield, Illinois, and entails several developments, each targeted for a different segment of the population. These targets include a development primarily for the first time home buyer, an upscale development for existing homeowners looking for a larger home, and duplex condominiums for those who desire maintenance free exteriors and surroundings. The Company's primary focus in the past has been on the development and sale of lots, with an occasional home construction to help stimulate interest. During 2000, management determined it would be in the long term best interests of the Company to discontinue development and attempt to liquidate the remaining properties.
New business production decreased steadily and significantly over the last several years. New business production in 2001 was only 8.5% of the production levels in 1996. The Company has not placed a strong emphasis on new business production in recent years. Costs associated with supporting new business can be significant. In recent years, the insurance industry as a whole has experienced a decline in the total number of agents who sell insurance products, therefore competition has intensified for top producing sales agents. The relatively small size of the Companies, and the resulting limitations, has made it challenging to compete in this area. In early 1999, management determined it could no longer continue to support the costs of new business in light of the declining trend and no indication it would reverse itself. As such, at that time, existing agents were allowed to continue marketing Company products, but the Company significantly reduced home office support and discontinued sales leads to agents using existing inforce policies.
Operating expenses decreased 24% in 2001 compared to 2000 and increased 30% in 2000 compared to 1999. During the fourth quarter of 2000, Mr. Jesse T. Correll as Board Chairman requested the resignation of James E. Melville as President of UTG and its subsidiaries. A special joint meeting of the Boards of Directors of United Trust Group, Inc. and its subsidiaries was held January 8, 2001, at which the termination of the employment agreement between First Commonwealth Corporation and James E. Melville, and the termination of James E. Melville as an officer or agent of United Trust Group, Inc. and all of its subsidiaries were approved by the Boards of Directors of each of the companies. An accrual of $562,000 was established through a charge to general expenses at year-end 2000 for the remaining payments required pursuant to the terms of Mr. Melville's employment contract and other settlement costs. A $500,000 accrual was also established at year-end 2000 for estimated legal costs associated with the defense of a legal matter. See Item 3 legal proceedings for a more complete analysis of this matter. During the third quarter 2000, the Company settled a legal matter for $550,000 and incurred an additional $150,000 in legal fees. At the March 27, 2000 Board of Directors meeting, United Trust Group, Inc. and each of its affiliates accepted the resignation of Larry E. Ryherd as Chairman of the Board of Directors and Chief Executive Officer. Mr. Ryherd had 28 months remaining on an employment contract with the Company at the end of March 2000. As such, a charge of $933,000 was incurred in first quarter 2000 for the remainder of this contract. Exclusive of the above accruals, operating expenses declined 2% in 2001 compared to 2000 and declined 12% in 2000 compared to 1999, primarily as the result of lower salary and related employee costs.
Currently, the Company's insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with all aspects of the insurance business, including the power to: (i) grant and revoke licenses to transact business; (ii) regulate and supervise trade practices and market conduct; (iii) establish guaranty associations; (iv) license agents; (v) approve policy forms; (vi) approve premium rates for some lines of business; (vii) establish reserve requirements; (viii) prescribe the form and content of required financial statements and reports; (ix) determine the reasonableness and adequacy of statutory capital and surplus; and (x) regulate the type and amount of permitted investments. Insurance regulation is concerned primarily with the protection of policyholders. The Company cannot predict the impact of any future proposals, regulations or market conduct investigations. The Company's insurance subsidiaries, UG, APPL and ABE are domiciled in the states of Ohio, West Virginia and Illinois, respectively.
Premiums and policy fees $ 20,444,514 $ 23,045,858 $ 25,559,708 Reinsurance premiums and policy fees (3,172,098) (3,556,172) (3,978,565) Net investment income 14,942,902 15,869,597 14,498,500 Realized investment gains(losses), net 436,280 (260,078) (530,894) Other income 950,858 132,843 210,422 -------------- --------------- -------------- 33,602,456 35,232,048 35,759,171
2001 2000 1999 ---------------- ----------------- ---------------- Cost of insurance acquired, Beginning of year $ 15,370,289 $ 16,555,596 $ 17,628,369 Interest accretion 1,333,668 1,423,266 1,495,074 Amortization (2,484,952) (2,608,573) (2,567,847) ---------------- ----------------- ---------------- Net amortization (1,151,284) (1,185,307) (1,072,773) ---------------- ----------------- ----------------
Fixed maturities held to maturity: U.S. Government and govt. Agencies and authorities $ 31,350,799 $ 148,229 $ (282,088) $ 31,216,940 States, municipalities and Political subdivisions 15,318,605 299,028 (45,335) 15,572,298 Collateralized mortgage Obligations 3,178,210 35,628 (3,323) 3,210,515 Public utilities 27,287,454 460,241 (220,316) 27,527,379 All other corporate bonds 44,787,895 505,860 (197,324) 45,096,431 -------------- -------------- -------------- --------------- Total $ 121,922,963 $ 1,448,986 $ (748,386) $ 122,623,563 ============== ============== ============== ===============
Unrealized holding gains during Period $ 1,419,407 $ (496,792) $ 922,615 Less: reclassification adjustment For gains realized in net income (340,341) (221,222) 119,119 ----------------- ------------------ ---------------- Net unrealized gains 1,079,066 (377,673) 701,393 ----------------- ------------------ ---------------- Other comprehensive income $ 1,079,066 $ (377,673) $ 701,393 ================= ================== ================