The Company's real estate investments totaled $27.0 million (net of allowances of $2.5 million) at December 31, 1994 compared to $39.1 million (net of allowances of $8.6 million) at December 31, 1993. At December 31, 1994, $4.7 million of the real estate investments were acquired through mortgage loan foreclosure, compared to $14.6 million at December 31, 1993. The decline was primarily due to sales of foreclosed real estate investments. The Company does not anticipate any new acquisition of real estate other than through foreclosure of mortgage loans.
Investments held to maturity are those fixed maturities that the Company has a positive intent and ability to hold to maturity. These securities are carried at amortized cost less write-downs for other-than- temporary impairments. Trading securities consist of those fixed maturity and equity securities held for short periods of time and are carried on the balance sheet at fair value, with any change in value reported as a component of income. Available for sale investments consist of those securities that do not meet the criteria of either investments held to maturity or trading securities and are carried on the balance sheet at fair value. Changes in fair values of available for sale securities, after adjustment of deferred acquisition costs (DAC), are reported as unrealized gains or losses directly in shareholders' equity and, accordingly, have no effect on net income. The DAC offsets represent valuation adjustments or reinstatements of DAC that would have been required as charges or credits to operations had such unrealized amounts been realized. The effect of the adjustment to fair value and the change to DAC is tax effected. If a decrease in the value of fixed maturity investments is other-than- temporary, the loss is recognized as a realized loss. The effect of the adoption of this standard on shareholders' equity is as follows:
Liabilities for policy and contract claims are determined using case-basis evaluations and statistical analyses. These liabilities represent estimates of the ultimate expected cost of incurred claims. Any required revisions in these estimates are included in operations in the period when the revisions are made.
Major sources of net investment income for the years ended December 31 follow:
Federal income taxes paid by WNC were $8,120,000, $4,100,000, and $8,700,000 in 1994, 1993, and 1992, respectively. WNC has a nonlife net operating loss carryforward for tax purposes of $451,000 that will begin to expire in 2008.
The Company's accounting policy with regard to payments to state guaranty funds is to treat as an asset any such payments in those states where current law allows an offset against future premium taxes. At December 31, 1994 and 1993, other assets included $5,464,000 and $5,100,000, respectively, of deferred payments to state guaranty funds. Generally, these amounts will be used to offset future premium tax payments over periods from five to ten years. In the event of a change in the state laws pertaining to prior tax offsets, such amounts might become unrecoverable.
The disclosure of fair value information about certain financial instruments is based primarily on quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in the immediate settlement of the instrument.