-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MJqHAVpqP6tu2m7rwjCb+B/tLAFIH000WOxQckAGtbHF3/TjcQPyPuCFCELwydSN zSLumwyA69+ecsw/VKnCBw== 0000109747-99-000004.txt : 19990407 0000109747-99-000004.hdr.sgml : 19990407 ACCESSION NUMBER: 0000109747-99-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990406 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN SECURITY LIFE INSURANCE CO CENTRAL INDEX KEY: 0000109747 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 591231733 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 002-35669 FILM NUMBER: 99588062 BUSINESS ADDRESS: STREET 1: 755 RINEHART RD STREET 2: P O BOX 958402 CITY: LAKE MARY STATE: FL ZIP: 32746 BUSINESS PHONE: 4073217113 MAIL ADDRESS: STREET 1: P O BOX 958402 STREET 2: 755 RINEHART ROAD CITY: LAKE MARY STATE: FL ZIP: 32746 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA LIFE INSURANCE CO OF FLORIDA DATE OF NAME CHANGE: 19790501 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Conformed) (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File No. 2-35669 SOUTHERN SECURITY LIFE INSURANCE COMPANY (Exact name of registrant as specified in its charter) Florida 59-1231733 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 755 Rinehart Road, Lake Mary, Florida 32746 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(407) 321-7113 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None None Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. X Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10-K. X The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of March 31, 1999 was approximately $3,047,000. As of March 31, 1999, registrant had issued and outstanding 1,907,989 shares of common stock. 1 PART I Item 1. Business. Southern Security Life Insurance Company ("the Company") is a legal reserve life insurance company authorized to transact business in the states of Alabama, Florida, Georgia, Hawaii, Indiana, Illinois, Kentucky, Louisiana, Michigan, Missouri, Oklahoma, South Carolina, Tennessee and Texas. It was incorporated under Florida law in 1966 and was licensed and commenced business in 1969. The Company obtained authorization in the states of Indiana and Oklahoma in 1996 and will continue the process of seeking authorization, directly or through acquisition, to transact business in additional states during 1999. During 1998 approximately 44% of the premium income of the Company was from business in force in its state of domicile. The Company's only industry segment is the ordinary life, accident and health and annuity business. Effective December 17, 1998, Security National Financial Corporation (SNFC), an SEC registrant, acquired 100 percent of the assets of Consolidare Enterprises, Inc. which owned 57.4 percent of the outstanding shares of the Company. During March 1999 SNFC changed Consolidare's name to SSLIC Holding Company, Inc. The Company at present writes universal life policies with various companion riders as well as a traditional life product. In the past it has written various forms of ordinary life insurance policies and annuity contracts. The Company's accident and health insurance business has never been a significant portion of the Company's business. It does not presently write industrial life or group life insurance other than through its participation as a reinsurer in the Servicemen's Group Life Insurance Program ("SGLI"). In 1996, the Company introduced a new whole life product designed to appeal to the final expense market. The Company introduced its first universal life product in 1986 and currently has two principal universal life products in force. These universal life products offer flexibility to the client as well as tax advantages, both currently and upon the death of the insured. These products allow the Company to better compete in the current market environment. In excess of 23% and 43% of the life policies written by the Company in 1998 and 1997 respectively, were universal life products. During 1996, the Company introduced a new series of products designed for the seniors market. This new series targets the needs of senior citizens especially as they plan for their final expenses. These new policies are traditional endowment type policies. Because they are written to a senior market they are designed to accommodate adverse health conditions. Because of the size of the policies they are usually issued with only limited underwriting. The coverage size of the policy is roughly 2 equivalent to the insured's anticipated funeral costs. This new series represented 77% of the life policies written in 1998. New field sales representatives are being actively recruited to market the product. The Company is continuing to support its traditional universal life marketing as well. The Company established a lead generation program which has been coupled with a recruiting program for new sales agents to help rebuild the market. This has helped to increase opportunities to expand sales of its universal life products which are designed to provide an insurance program as well as a savings vehicle through the cash values of the policy. The following table provides information (on a statutory basis) concerning the amount and percentage of premium income resulting from the principal lines of insurance written by the Company during the periods indicated:
1998 1997 1996 ==== ==== ==== Per- Per- Per- Amount centage Amount centage Amount centage Life Insurance- Ordinary (1)(2) $7,602,811 91% $8,386,972 94% $9,225,755 92% Individual Annuities (1) 90,289 1% 70,809 1% 307,618 3% Life Insurance- Group (SGLI) 460,029 6% 476,455 5% 529,554 5% Other - Accident & Health 158,882 2% 11,323 0% 1,274 0% ---------- ---- ---------- ---- ----------- ---- $8,312,011 100% $8,945,559 100% $10,064,201 100% ========== ==== ========== ==== =========== ====
(1) A portion of each of the deposit term policies previously sold by the Company represents ordinary life insurance and the balance represents an individual annuity. (2) The 1998, 1997, and 1996 premium income for life insurance-ordinary are net of reductions of $1,329,814, $1,517,988, and $1,773,148, respectively, in ceded premium paid to all reinsurers, including Mega Life. 3 The following table gives information on a generally accepted accounting principles basis concerning operating ratios of the Company for the periods indicated:
1998 1997 1996 ----- ---- ---- Total Net Insurance Revenues $7,228,227 $7,643,650 $7,915,027 Benefit Costs Paid or Provided: Amount $4,346,820 $4,431,474 $3,813,301 Ratio to Net Insurance Revenue 60.1% 58.0% 48.2% Amortization of Deferred Policy Acquisition Expenses: Amount $3,484,689 $3,542,617 $3,364,738 Ratio to Net Insurance Revenue 48.2% 46.3% 42.5% General Insurance Expenses: Amount $4,044,686 $3,382,255 $3,246,552 Ratio to Net Insurance Revenue 55.9% 44.3% 41% Income (Loss) Before Income Taxes: Amount $(625,640) $249,410 $1,588,505 Ratio to Net Insurance Revenue (8.7%) 3.3% 20.1% Ratio to Total Revenue and Investment Income (5.5%) 2.1% 13.1% Ratio to Equity (4.0%) 1.5% 10.1%
4 The following table provides information about the Company concerning changes in life insurance in force during the periods indicated (exclusive of accidental death benefits):
1998 1997 1996 ---- ---- ---- (In thousands except lapse ratios) Total life insurance in force at beginning of period: Ordinary Whole Life & Endowment-Participating $381 $441 $584 Ordinary Whole Life & Endowment-Non-Participating 1,019,179 1,157,624 1,289,250 Term 6,478 7,884 8,371 Reinsurance Assumed 532,772 537,701 507,552 ------- ------- ------- Total $1,558,810 $1,703,650 $1,805,757 Additions (including re-insurance assumed): Ordinary Whole Life & Endowment-Participating $ - $ - $ - Ordinary Whole Life & Endowment-Non-Participating 68,935 82,390 122,578 Term - - - Reinsurance Assumed 21,617 19,021 64,071 ------- ------- ------- Total $90,552 $101,411 $186,649 Terminations: Death $1,605 $2,010 $1,756 Lapse and Expiry 48,034 57,435 73,919 Surrender 132,184 186,654 212,801 Other 10 152 280 ------- ------- ----- Total $181,833 $246,251 $288,756 Life Insurance in force at end of period: Ordinary Whole Life & Endowment-Participating $532 $381 $441 Ordinary Whole Life & Endowment-Non-Participating 913,683 1,019,179 1,157,624 Term 4,799 6,478 7,884 Reinsurance Assumed 548,515 532,772 537,701 ------- ------- ------- Total $1,467,529 $1,558,810 $1,703,650 --------- ---------- ---------- Reinsurance Ceded (297,913) (337,901) (386,084) -------- -------- -------- Total after Reinsurance Ceded $1,169,616 $1,220,909 $1,317,566 ========= ========== ========== Lapse Ratio (Reflecting termina- tion by surrender and lapse; ordinary life insurance only): 17.4% 20.0% 20.5%
5 The Company invests and reinvests portions of its funds in securities which are permitted investments under the laws of the State of Florida, and part of its revenue is derived from this source. Generally, securities comprising permitted investments include obligations of Federal, state and local governments; corporate bonds and preferred and common stocks; real estate mortgages and certain leases. The following table summarizes certain information regarding the Company's investment activities:
Average Gross Net Fiscal Investment Investment Investment Net Year Assets (1) Income(2) Income (3) Yield (4) - ----- ---------- ---------- ---------- --------- 1998 $52,227,057 $3,599,547 $3,587,147 6.87% 1997 $51,094,803 $3,565,206 $3,545,311 6.94% 1996 $50,752,712 $3,508,161 $3,318,627 6.54%
(1) Computed by summing the beginning and ending investment balances and dividing by 2. (2) Excludes investment gains and losses. (3) Net of investment expense and before income taxes. (4) Computed on an annualized basis. Represents ratio of net investment income to average invested assets. The Company continues its activities as a qualified lender under the Federal Family Educational Loan Program. Through this program the Company makes various types of student and parent loans available. All student loans made by the Company are guaranteed by the Federal Government. As it has in the past, the Company sells these student loans on a periodic basis to the Student Loan Marketing Association ("SLMA") thereby keeping these funds liquid. The Company presently sells its policies on a general agency basis through a field force consisting of approximately 676 agents. All such agents are licensed as agents of, and sell for, the Company and are independent contractors who are paid exclusively on a commission basis for sales of the Company's policies. Some of the Company's agents are part-time insurance agents. Most of the Company's agents are associated with Insuradyne Corporation, a wholly-owned subsidiary of the Company's parent, SSLIC Holding Company, formerly Consolidare Enterprises, Inc. See "Certain Relationships and Related Transactions" in item 13, Part III of this Report. The Company presently employs 32 persons, none of whom are covered under any collective bargaining agreements. The Company 6 feels it has good relations with its employees. Section 624.408 of the Florida Statutes requires a stock life insurance company to maintain minimum surplus on a statutory basis at the greater of $1,500,000 or four percent (4%) of total liabilities. The Company's required statutory minimum surplus calculated in accordance with this section is approximately $1,930,000. If the capital and surplus of the Company computed on such basis should fall below that amount, then the Company's license to transact insurance business in the State of Florida, the Company's most significant market, could be revoked unless the deficiency is promptly corrected. As of December 31, 1998 the Company had statutory capital and surplus of $8,627,251, well in excess of the required minimum. The Risk-Based Capital for Life and/or Health Insurers Model Act (the "Model Act") was adopted by the National Association of Insurance Commissioners (NAIC) in 1992. The main purpose of the Model Act is to provide a tool for insurance regulators to evaluate the capital resources of insurers as related to the specific risks which they have incurred and is used to determine whether there is a need for possible corrective action. The Model Act or similar regulations may have been or may be enacted by the various states. The Model Act provides for four different levels of regulatory action, each of which may be triggered if an insurer's Total Adjusted Capital is less than a corresponding "level" of Risk-Based Capital ("RBC"). The "Company Action Level" is triggered if an insurer's Total Adjusted Capital is less than 200% of its "Authorized Control Level RBC" (as defined in the Model Act), or less than 250% of its Authorized Control Level RBC and the insurer has a negative trend ("the Company Action Level"). At the Company Action Level, the insurer must submit a comprehensive plan to the regulatory authority of its state of domicile which discusses proposed corrective actions to improve its capital position. The "Regulatory Action Level" is triggered if an insurer's Total Adjusted Capital is less than 150% of its Authorized Control Level RBC. At the Regulatory Action Level, the regulatory authority will perform a special examination of the insurer and issue an order specifying corrective actions that must be followed. The "Authorized Control Level" is triggered if an insurer's Total Adjusted Capital is less than 100% of its Authorized Control Level RBC, and at that level the regulatory authority is authorized (although not mandated) to take regulatory control of the insurer. 7 The "Mandatory Control Level" is triggered if an insurer's Total Adjusted Capital is less than 70% of its Authorized Control level RBC, and at that level the regulatory authority must take regulatory control of the insurer. Regulatory control may lead to rehabilitation or liquidation of an insurer. Based on calculations using the NAIC formula as of December 31, 1998, the Company was well in excess of all four of the control levels listed. The industry in which the Company is engaged is highly competitive. There are in excess of 850 life insurance companies licensed in Florida, where a substantial amount of the Company's premium income is produced, and there are comparable numbers of insurance companies licensed in Alabama, Georgia, Hawaii, Illinois, Kentucky, Louisiana, Michigan, Missouri, South Carolina, Tennessee and Texas. Many of the Company's competitors have been in business for longer periods of time, have substantially greater financial resources, larger sales organizations, and have broader diver sification of risks. A large number of the Company's competitors engage in business in many states and advertise nationally while the Company conducts its business on a regional basis. The Company is not a significant factor in the life insurance business in any state where the Company does business. The states of Alabama, Florida, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Michigan, Missouri, Oklahoma, South Carolina, Tennessee and Texas require that insurers secure and retain a license or a certificate of authority based on compliance with established standards of solvency and demonstration of managerial competence. The Company, like other life insurers, is subject to extensive regulation and supervision by state insurance regulatory authorities. Such regulation relates generally to such matters as minimum capitalization, the nature of and limitations on investments, the licensing of insurers and their agents, deposits of securities for the benefit and protection of policyholders, the approval of policy forms and premium rates, periodic examination of the affairs of insurance companies, the requirement of filing annual reports on a specified form and the provision for various reserves and accounting standards. The Company reinsures or places a portion of its insured risks with other insurers. Reinsurance reduces the amount of risk retained on any particular policy and, correspondingly, reduces the risk of loss to the Company, thus giving it greater financial stability. Reinsurance also enables the Company to write more policies and policies in larger amounts than it would otherwise consider prudent. On the other hand, reinsurance potentially reduces earnings, since a portion of the premiums received must be paid to the insurers assuming the reinsured portion of the risk. 8 The Company currently cedes its new reinsurance to Businessmen's Assurance Company ("BMA") and the Reinsurance Company of Hannover, both of which are unaffiliated reinsurers. Under the terms of the reinsurance agreements, the Company cedes all risks in excess of the Company's current retention limits. The Company currently retains a maximum of $75,000 on any one life and lesser amounts on substandard risks. Reinsurance for policy amounts in excess of the Company's retention limits is ceded on a renewable term basis, under which the amount reinsured normally decreases annually by the amount of increase in the policy reserve. In addition, the Company has coinsurance agreements with several insurers, under which premiums are shared based upon the share of the risk assumed. The Company remains directly liable to policyholders for the full amount of all insurance directly written by it, even though all or a portion of the risk is reinsured. Reinsurers, however, are obligated to reimburse the Company for the reinsured portion of any claims paid. Consequently, if any reinsurer becomes insolvent or is otherwise unable to make such reimbursement, the Company would suffer an unexpected loss. The Company has no reason to believe that any of its reinsurers will be unable to perform their obligations under existing reinsurance agreements. On December 31, 1992, the Company entered into a Coinsurance Reinsurance Agreement with United Group Insurance Company ("UGIC"), now Mega Life. In this agreement, UGIC agreed to indemnify and the Company agreed to transfer risk to UGIC in the amount of 18% of all universal life premium paying polices which were in force on December 31, 1992. Mega Life is an A rated company with A.M. Best and is an authorized reinsurer in the State of Florida. As a result of the 1992 agreement, the Company will continue to pay reinsurance premiums to Mega Life while receiving ceding commissions. As a part of the coinsurance agreement, Mega Life agreed to share in the expenses of death claims, surrenders, commissions, taxes and the funding of policy loans. The Company does not assume any reinsurance at the present time other than its minor participation in Servicemembers' Group Life Insurance and other small blocks of business. For reporting to state regulatory authorities the Company is required to establish policy benefit and other reserves which are calculated in accordance with statutory requirements and standards of actuarial practice and established at amounts which, with additions from premiums to be received and assumed interest on policy reserves compounded annually, are believed to be sufficient to meet policy obligations as they mature. Life reserves for the Company are based upon the Commissioner's 1958 and 1980 Standard 9 Ordinary Table of Mortality, with interest on policies computed at 3, 3-1/2, 4 or 4-1/2%. Annuity reserves are based on the 1937 Standard Annuity Table, with interest on policies computed at 3-1/2 or 4%. Reserves on the annuity portion of the Company's deposit term policies are computed on the accumulation method. Reserves for universal life policies, which comprise most of the Company's insurance in force, have been valued by the California Method which was approved by the Florida Department of Insurance. Reserves under this method are the linear average of the policy account value and the policy cash surrender value (account value less the surrender charge). In 1994, the Florida Department of Insurance issued a new regulation that required all companies who are not already using the CRVM method to phase into that method over a period of five years. As required, the Company has filed with the Department its plan to comply with the new regulation and implemented the plan beginning January 1, 1995. This has resolved then pending discussions with the Florida Insurance Department on the Company's reserving methods. The CRVM reserving method applies only to the Company's statutory financial statements. The 1998, 1997 and 1996 (decrease)/increase in the statutory reserve due to the implementation of this regulation was approximately $(66,820), $52,400 and $158,000 respectively. In preparing financial statements in accordance with generally accepted accounting principles, the cost of insurance, expense charges and surrender charges on universal life products are recognized as revenue. For "Annuity Contracts" with flexible terms, amounts received from policyholders are not recognized as revenue but are recorded as deposits in a manner similar to interest-bearing instruments. Accumulations on these universal life and annuity contracts are held as "Policyholders' Account Balances." For all other policies (primarily whole-life) premiums are recorded as revenue and reserves are calculated using the net level premium method. Accumulation values for these types of policies are held as benefit reserves. See "Future Policy Benefits" in Note 1 of the Notes to Financial Statements included in this report. The Company maintains its own policy files, prepares its own policy forms (with the assistance of its consulting actuaries), selects risks, calculates premiums, prepares premium notices, pre authorized checks and commission statements, and maintains all of its accounting records. The Company is not affected by Federal, state or local provisions relating to discharge of materials into the environment. The Company has not spent a material amount of money during the last three fiscal years on research and development activities. The business of the Company is not seasonal in nature and is not dependent on the sources and availability of raw materials. 10 The business of the Company is not dependent upon a single customer or a few customers, and no material portion of the Company's business is subject to renegotiation of profits or termination at the election of the Government. Item 2. Properties. The Company's corporate headquarters is located in a two story office building in Lake Mary, Florida, which is owned by the Company. The Company occupies the entire second floor of the building. The remaining rentable space is fully leased as of December 31, 1998. Item 3. Legal Proceedings. The Company has been named as a party in connection with two actions pending in the Circuit Court of Loundes County, Alabama by Willie May Oliver and Eugene Oliver, Jr. in the first action and Eva Mae Howard in the second action. The complaints filed in these actions against the Company and certain insurance agents assert claims for fraud, misrepresentation, and negligent hiring, training and supervision by the Company and seek compensatory and punitive damages, interest and costs. The Company believes that there is no basis to the claims in the complaints and intends to vigorously defend against these actions. The Company is also a party in an action being filed against PFL Life Insurance Company, AEGON USA and William Thomas in the Circuit Court for the Second Judicial Circuit in Leon County, Florida. This action has been settled with respect to PFL Life Insurance Company, and AEGON USA, and the Company has dismissed the action with respect to William Thomas. The court entered an order in this action finding that the Company and others participated in a violation of the discovery rules and imposing a fine. The court reserved judgment on the amount of the fine until after a verdict. The court held a hearing on February 23, 1999 to determine the amount of the fine, if any, which would be awarded. The attorneys for William Thomas have requested that the court impose a fine of $150,000 on the Company and $50,000 on Ross M. Godmen, the attorney who was representing the Company at the time of the alleged discovery violations. The court has taken the matter under advisement and has promised a prompt decision. The Company believes that there is no basis for the court to impose a fine against the Company in the amount requested by the attorneys for Mr. Thomas and has strongly opposed the imposition of this fine. The Company is not a party to any other legal proceedings outside the ordinary course the Company's business or to any other legal proceedings which, if adversely determined, would have a 11 material adverse effect on the Company or its business. Item 4. Submission of Matters to a Vote of Security Holders. During the fourth quarter of the Company's fiscal year, no matter was submitted to a vote of security holders. 12 PART II Item 5. Market for the Company's Common Stock and Related Stockholder Matters. (a) Principal Market and Stock Price. The principal market on which the Company's common stock is traded is the over-the-counter market. Trading information with respect to the Company's shares is available through the National Association of Securities Dealers Automated Quotation (NASDAQ) System under the symbol SSLI. The table below presents the high and low market prices for the Company's common stock during the calendar quarters indicated, as quoted in the NASDAQ system. The quotations represent prices between dealers in securities and do not include retail markups, markdowns or commissions and do not necessarily represent actual transactions.
QUARTER ENDED - ---------------------------------------------------------------------------- 1998 1997 - ---------------------------------------------------------------------------- Mar.31 Jun.30 Sep.30 Dec.31 Mar.31 Jun.30 Sep.30 Dec.31 Common Shares: High 7 1/4 7 5/8 4 1/8 4 1/4 7 3/4 9 1/4 8 1/4 8 Low 6 7/8 6 5/8 3 1/2 3 3/4 7 1/8 7 3/8 7 3/4 6 1/2
(b) Approximate Number of Holders of Common Stock. There were 1,377 holders of record of the Company's Common Stock at December 31, 1998. (c) Dividends. The Company has paid no cash dividends to stockholders during the past two years, and it is not anticipated that any cash dividends will be paid at any time in the foreseeable future. The payment of dividends by the Company is subject to the regulation of the State of Florida Department of Insurance. Under such regulation an insurance company may pay dividends, without prior approval of the State of Florida Department of Insurance, equal to or less than the greater of (a) 10% of its accumulated capital gains (losses) and accumulated operating income (losses) (i.e. unassigned surplus) or (b) certain net operating profits (losses) and realized capital gains (losses) of the Company, as defined in the applicable insurance statutes. In no case can such dividends be paid if the Company will have less than 115% of the minimum required statutory surplus as to policyholders after the dividend is paid. The maximum amount which the Company could pay as a dividend during 1999 pursuant to such regulation is approximately $114,000. 13 Item 6. Selected Financial Data. The following table presents selected financial data (on a GAAP basis) concerning the Company and its financial results during the periods indicated. 14
YEARS ENDED DECEMBER 31, 1998 1997 1996 1995 1994 ---------- --------- ----------- ----------- -------- Revenues: Life insurance premiums and policy charges $7,228,227 $7,643,650 $7,915,027 $8,158,938 $9,299,789 Net investment income 3,587,147 3,545,311 3,318,627 2,998,875 2,750,771 Realized Gain (Loss)on investments 525,181 506,795 869,502 60,237 60,732 ------- ------- ------ ------ ------ Total Revenue 11,340,555 11,695,756 12,103,156 11,218,050 12,111,292 Benefits, Losses & Expenses: Insurance living benefits 2,483,197 2,459,638 2,420,021 2,636,851 2,815,194 Insurance death benefits 1,529,294 1,847,375 1,398,541 1,424,245 1,300,063 Increase (decrease) in policy reserves 334,329 124,461 (5,201) (12,971) (67,036) Amortization of deferred policy acquisition costs 3,484,689 3,542,617 3,364,738 3,069,742 3,242,706 Commissions and general expenses 4,044,686 3,382,255 3,246,552 2,735,280 3,186,386 Interest expense with related party 90,000 90,000 90,000 90,000 90,000 ------ ------ ------ ------ ------ Total expenses 11,966,195 11,446,346 10,514,651 9,943,147 10,567,313 ---------- ---------- ---------- --------- ---------- Income (loss) before income taxes (625,640) 249,410 1,588,505 1,274,903 1,543,979 ------- ------- --------- --------- --------- Income tax expense (benefit) (241 907) 54,200 196,000 160,000 530,000 ------- ------ ------- ------- ------- NET INCOME (LOSS) $(383,733) $195,210 $1,392,505 $1,114,903 $1,013,979 ========== ======== ========== ========== ========== Weighted average number of shares outstanding 1,907,989 1,907,989 1,907,989 1,907,989 1,907,989 --------- --------- --------- --------- --------- Basic income (loss) per common share $(.20) $.10 $.73 $.58 $.53 ----- ---- ---- ---- ---- Diluted income (loss) per common share $(.20) $.10 $.73 $.58 $.53 ----- ---- ---- ---- ---- Shareholders' Equity $15,912,106 $16,132,018 $15,661,588 $14,826,610 $12,644,525 =========== =========== =========== =========== =========== Shareholders' equity per common share $8.34 $8.45 $8.20 $7.77 $6.63 ===== ===== ===== ===== =====
15
1998 1997 1996 1995 1994 ---------- -------------- -------------- ------------- -------- Assets $81,205,193 $82,142,465 $81,809,360 $81,872,350 $77,185,070 ----------- ----------- ----------- ----------- ----------- Life Insurance: Insurance in force $1,467,529,000 $1,558,810,000 $1,703,650,000 $1,805,756,000 $2,000,656,000 -------------- -------------- -------------- -------------- -------------- Individual insurance issued during current year $68,935,000 $82,390,000 $121,646,000 $124,222,000 $184,364,000 ----------- ----------- ------------ ------------ ------------ Long term obligation $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 ---------- ---------- ---------- ---------- ---------- Dividends declared per common share $0.00 $0.00 $0.00 $0.00 $0.00 ----- ----- ----- ----- -----
16 Item 7. Management's discussion and analysis of financial condition and results of operation. Overview. This analysis of the results of operations and financial condition of Southern Security Life should be read in conjunction with the Selected Financial Data and Financial Statements and Notes to the Financial Statements included in this report. In recent years the Company has primarily issued two types of insurance products, universal life and final expense products. Universal life provides insurance coverage with flexible premiums, within limits, which allow policyholders to accumulate cash values. The accumulated cash values are credited with tax-deferred interest, as adjusted by the Company on a periodic basis. Deducted from the cash accumulations are administrative charges and mortality costs. Should a policy surrender in its early years, the Company assesses a surrender fee against the cash value accumulations based on a graded formula. Final expense products are traditional endowment type insurance policies written for the senior market. Because they are written to a senior market they are designed to accommodate adverse health conditions. Because of the size of the policies they are usually issued with only limited underwriting. The coverage size of the policy is roughly equivalent to the insured's anticipated funeral costs. Pursuant to the accounting methods prescribed by Statement of Financial Accounting Standards No. 97 (SFAS 97), premiums received from policyholders on universal life products are credited to policyholder account balances and treated as a liability rather than income. Revenues on such products result from the mortality and administrative fees charged to policyholder balances in addition to surrender charges assessed at the time of surrender as explained above. Such costs of insurance, expense charges, and surrender charges are recognized as revenue is earned. In addition, the Company has adopted policy designs with the characteristic of having higher expense charges during the first policy year than in renewal years. Under SFAS 97, the excess of these charges are reported as unearned revenue. The unearned revenue is then amortized into income over the life of the policy using the same assumptions and factors used to amortize capitalized acquisition costs. Interest credited to policyholder balances is shown as a part of benefit expenses. Premiums received from final expense products are treated as revenue when received. In accordance with generally accepted accounting principles, certain costs directly associated with the issuance of new policies are deferred and amortized over the lives of the policies. These costs are defined as deferred policy acquisition costs and are shown in the asset section of the balance sheet of the Company. 17 Capitalized acquisition costs for universal life and annuity policies are amortized over the life of the business at a constant rate, based on the present value of the estimated gross profits expected to be realized over the life of the business. SFAS 97 requires that estimates of expected gross profits used as a basis for amortization be evaluated on a regular basis, and the total amortization to date be adjusted as a charge or credit to earnings if actual experience or other evidence suggests that earlier estimates be revised. Thus, variations in the amortization of the deferred policy acquisition costs, from one period to the next, are a normal aspect of the universal life insurance business and are generally attributed to the recognition of current and emerging experience in accordance with the principles of SFAS 97. Annuity products, of which the Company currently has a minor amount, are recorded in similar fashion to universal life products. Considerations received by the Company are credited to the annuity account balances which are shown as a liability in the balance sheet. Interest is credited to these accounts as well and shown as an expense of the Company. Income is derived primarily from surrender charges on this type product. An additional source of income to the Company is investment revenue. The Company invests those funds deposited by policy-holders of universal life and annuity products in debt and equity securities in order to earn interest and dividend income, a portion of which is credited back to the policyholders. Interest rates and maturities of the Company's investment portfolio play a part in determining the interest rates credited to policyholders. Product profitability is affected by several different factors, such as mortality experience ( actual versus expected), interest rate spreads (excess interest earned over interest credited to policyholders) and controlling policy acquisition costs and other costs of operation. The results of any one reporting period may be significantly affected by the level of death claims or other policyholder benefits incurred due to the Company's relatively small size. 18 The following table sets forth certain percentages reflecting financial data and results of operations (a) for 1998, 1997 and 1996 premium and investment revenues and (b) for period to period increases and (decreases).
Relationships to Total Revenues Period to Period Years Ended December 31, (Increase or Decrease) 1998 1997 1996 98-97 97-96 ------ ------ ------ ------- ------ Insurance Revenues 64% 65% 65% (5%) (3%) Net Investment Income 32 30 27 2% 7% Realized Investment Gains 4 5 8 ---- ---- --- Total Revenues 100% 100% 100% (3%) (3%) Benefits and claims 38% 38% 31% 2% 16% Amortization of Acquisition costs 31 30 28 2% 5% Other operating costs and expenses 36 30 27 19% 4% ---- ---- ---- Total Expenses 106% 98% 86% 5% 9% Income (loss) before income taxes (6%) 2% 14% (351%) (84%) Provision for income taxes (2) 0 2 (546%) (72%) ---- --- ---- Net Income (Loss) (4%) 2% 12% (297%) (86%) ==== === ====
Results of Operations. New business written was $69 million, $82 million and $122 million in face value for 1998, 1997 and 1996, respectively. The Company's new market is known as the final expense market. This product is a traditional endowment policy designed to help offset the financial burdens associated with the death of a family member and targets the needs of senior citizens. The product represented 77% of the life policies written in 1998. Recruiting new field sales representatives is directed at this new plan. Policies issued in this market are of a lesser face value than those of the Universal Life market. That being the case, the face amount of insurance appears to have declined; however, the actual number of policies issued increased. The Company issued approximately 2,700 new policies in 1997 and approximately 3,100 new policies in 1998. 19 Net insurance revenue was $7.2 million in 1998, $7.6 million in 1997, and $7.9 million in 1996. While policy production was up for 1998 and 1997, premium and policy charges were down due to the type and size of plans written in the respective years. Several factors have combined to create the decline in net insurance revenue in 1998 as compared to 1997 and 1996. Continued lapsation in the universal life book of business has resulted in reduced revenues in administrative and mortality fees. New production has not increased as significantly as would be needed to offset policy lapses and the new product currently being marketed has lower premiums due to the size of policies currently issued as compared to the universal life product. Surrender fee income in 1998 decreased by approximately $300,000 compared to 1997 due to the decrease in surrender charges applicable to the Company's older universal life products. The balance of the decline in 1998, 1997 and 1996 premium and policy charges is related to the unlocking, for current and future experience, of unearned revenue. Unearned revenue essentially represents the excess first year charges in the policy. With the advice and assistance of consulting actuaries, each year the Company reviews its current experience for mortality, credited interest spreads, lapses, surrender fees and adjusts its amortization of deferred acquisition costs and unearned revenue to the appropriate levels for both the current experience and anticipated future experience. This is an ongoing refinement process. Increased investment in debt securities coupled with reduced expenses for student loan processing are responsible for the 6.9% net yield in 1998, 6.9% in 1997 and 6.5% in 1996. No substantive changes occurred in 1998 compared to previous years. The Company continues to review its investment strategies to increase its earned interest rate. As a part of this process of review and refinement, the Company sold its entire stock portfolio just prior to year end 1996. This created a significant increase in realized gains for 1996. The resulting funds were reinvested in common stocks and fixed maturities which created an increased yield for the Company in 1998 and 1997. Annuity, death and other benefits decreased $85,000 or 2% in 1998 as compared to an increase of 16% in 1997. The decrease in death claims in 1998 represent the majority of this reduction. This expense line is a combination of several benefit types with death claims, annuity benefits and surrender benefits comprising the most significant portion of the total line. In 1997 each of these expenses increased with death claims representing the largest increase. A significant increase or decrease in death claims in any given year can have a marked impact on the results of operations in a small company. 20 The amortization of deferred acquisition costs increased in 1997 by 5% as compared to a 10% increase in 1996. No substantive change occurred in 1998 as compared to the previous years. The amortization of deferred acquisition costs is a continuous refinement process which relates to current experience in connection with revenues, mortality gains and losses, credited interest rate spreads, expense charges and surrender charges. The change in the unearned revenue liabilities is also due to unlocking for current and future experience based on the results of the changing experience encountered as required under FAS 97. Operating expenses for the Company were $4 million, $3.4 million and $3.3 million for 1998, 1997 and 1996, respectively. New products and lead programs are responsible for the increased operating costs of 1997 and 1996. The increase in 1998 of $660,000 or 20% was primarily attributed to a lump sum settlement to the Company's former President to fulfil the obligations of his employment agreement. Effective December 17, 1998, the Company entered into an Administrative Services Agreement with Security National Financial Corporation ("SNFC"). Under the terms of the agreement, SNFC has agreed to provide the Company with certain defined administrative and financial services, including accounting services, financial reports and statements, actuarial, policyholder services, underwriting, data processing, legal, building management, marketing advisory services and investment services. In consideration for the services to be provided by SNFC, the Company shall pay SNFC and administrative services fee of $250,000 per month, provided, however, that such fee shall be reduced to zero for so long as the capital and surplus of the Company is less than or equal to $6,000,000, unless the Company and SNFC otherwise agree in writing and such agreement is approved by the Florida Department of Insurance. The administrative services fee may be increased, beginning on January 1, 2001, to reflect increases in the Consumer Price Index, over the index amount as of January 1, 2000. The Administrative Services Agreement shall remain in effect for an initial term expiring on December 16, 2003. The term of the agreement may be automatically extended for additional one-year terms unless either the Company or SNFC shall deliver a written notice on or before September 30, of any year stating to the other its desire not to extend the term of the agreement. However, in no event can the agreement be terminated prior to December 16, 2003. It is anticipated that the Company will realize a reduced level of general and administrative costs in the future as a result of the Administrative Services Agreement. Reinsurance premiums ceded for 1998, 1997 and 1996 were (on a GAAP basis) $863,436, $914,071 and $1,030,673 respectively. Policy benefits were reduced due to reinsurance recoveries of $169,892, 21 $336,068, and $206,428 for 1998, 1997 and 1996, respectively. Reinsurance commissions amounted to $252,154, $281,434, and $308,179 for 1998, 1997 and 1996 respectively. In addition, under the terms of the Company's treaty with Mega Life (formerly United Group Insurance Company) expenses of $984,356, $1,111,130 and $956,143 for 1998, 1997 and 1996, respectively. Loss, before income taxes, in 1998 was $625,640 compared to a gain of $249,410 and $1,588,505 in 1997 and 1996 respectively. The 1998 loss resulted principally from a decrease in net insurance revenue of $415,000 and an increase in operating expenses related to payment to the Company's former president under his employment agreement. Increased production of new policies also increased future policy benefits by $210,000, these were offset by a decrease in annuity, death and other benefits of approximately $294,000 and amortization of deferred policy acquisition costs of $58,000. Liquidity and Capital Resources. Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities" requires investments in all debt securities and those equity securities with readily determinable market values to be classified into one of three categories: held-to-maturity, trading or available-for-sale. Classification of investments is based upon management's current intent. Debt securities which management has a positive intent and ability to hold until maturity are classified as securities held-to-maturity and are carried at amortized cost. Unrealized holding gains and losses on securities held-to-maturity, are not reflected in the financial statements. Debt and equity securities that are purchased for short-term resale are classified as trading securities. Trading securities are carried at market value, with unrealized holding gains and losses included in earnings. The Company has no trading securities. All other debt and equity securities not included in the above two categories are classified as securities available-for-sale. Securities available-for-sale are carried at market value, with unrealized holding gains and losses reported in other comprehensive income and included in stockholders' equity, net of tax and adjustments to deferred acquisition costs. Adoption of this statement had no effect on the income of the Company. The Company maintains invested assets for purposes of fulfilling policyholder obligations which are often susceptible to market risk. These assets and other financial instruments are maintained in accordance with the Company's investment policy which is designed to match corresponding policyholder obligations to relative maturities of the invested assets. 22 During 1998, economic and financial market conditions had the effect of depressing yields on the company's portfolio through lowering the yield to maturity on corporate and other fixed securities. If market conditions were to cause interest rates to change, the market value of the available-for-sale fixed security portfolio (approximately $28.479 million) could change by the following amounts based on the respective basis point swing (the change in market values were calculated using a modeling technique):
(in millions of dollars) -200bps -100bps +100bps +200bps Change in Market Value $3.140 $1.511 $(1.405) $(2.712)
The Company has no other financial instruments which would be materially susceptible to market risk. The Company's insurance operations have historically provided adequate positive cash flow enabling the Company to continue to meet operational needs as well as increase its investment-grade securities to provide ample protection for policyholders. Student loans are a service the Company has historically made available to the public as well as an investment. While the Company anticipates the seasonal demand for student loan funds and the subsequent sale of such loans to the Student Loan Marketing Association (SLMA), there are times when additional funds are required to meet demand for student loans until such time as the sale thereof to SLMA can be completed. In 1997 the Company renewed its $5,000,000 line of credit with SLMA until 2007 in order to meet these seasonal borrowing requirements. The Company made no draws against this line of credit throughout the seasonal period for 1998 or 1997. The Company anticipates borrowings to be made through this line of credit with SLMA if student loan borrowings are required for the 1999 seasonal period. SLMA offers a more competitive rate of interest on such borrowings than the Company has been able to obtain through banks. The Company began a new association with USA Group, CAP Program in 1996, for the purpose of making more student loan funds available without increased costs to the Company. This association aided in eliminating borrowings for 1998 and 1997. The National Association of Insurance Commissioners, in order to enhance the regulation of insurer solvency, issued a model law to implement risk-based capital (RBC) requirements for life insurance companies, which are designed to assess capital adequacy. Pursuant to the model law, insurers having less statutory surplus than required by the RBC calculation will be subject to varying 23 degrees of regulatory action. At December 31, 1998, the Company had statutory surplus well in excess of any RBC action level requirements. The Company has fully leased all available rental space in its principal office building and does not anticipate further capital expenditures to the rental space. Year 2000 The Company is currently completing its efforts to resolve the potential impact of the year 2000 on the processing of information by the Company's insurance systems. The year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the company's systems that have time-sensitive software may recognize a date using "00" as the year 1900 rather than year 2000, which could result in miscalculations or system failures. The Company has substantially completed necessary system upgrades and compliance testing and expects to be entirely complete by September 30, 1999. The Company's most significant operational system is currently being replaced through conversion pursuant to an Administrative Services Agreement. Under the Administrative Services Agreement entered into by the Company effective December 17, 1998, Security National made available a new LifePro Administration system. Life-Pro is a subsidiary of IBM. Since May of 1998, Security National has invested in excess of $1 million to implement a system conversion for the Company. For further discussion on the Administrative Services Agreement, see the "Results of Operations" section discussion on operating expenses. Anticipated future costs of addressing potential problems are not currently expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods. However, if the Company, its customers or vendors are unable to resolve such processing issues in a timely manner, it could result in a material financial risk. Management believes that manual policy and claims administration could be performed in the unlikely event that one or more of its systems did not function. The Company plans to devote the necessary resources to test and remediate all remaining Year 2000 issues in a timely manner. The cost that has been incurred and paid in achieving Year 2000 compliance is approximately $1 million as discussed above. As of December 31, 1998, management does not anticipate any other significant costs to be incurred associated with its year 2000 initiatives. 24 The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their businesses without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. The company desires to take advantage of the "safe harbor" provisions of the Act. This Annual Report of Form 10-K contains forward-looking statements, together with related data and projections, about the Company's projected financial results and its future plans and strategies. However, actual results and needs of the Company may vary materially from forward-looking statements and projections made from time to time by the Company on the basis of management's then-current expectations. The business in which the Company is engaged involves changing and competitive markets, which may involve a high degree of risk, and there can be no assurance that forward-looking statements and projections will prove accurate. Factors that may cause the Company's actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward looking statements include among others, the following possibilities: (i) heightened competition, including the intensification of price competition, the entry of new competitors, and the introduction of new products by new and existing competitors; (ii) adverse state and federal legislation or regulation, including decreases in rates, limitations on premium levels, increases in minimum capital and reserve requirements, benefit mandates and tax treatment of insurance products; (iii) fluctuations in interest rates causing a reduction of investment income or increase in interest expense and in the market value of interest rate sensitive investment; (iv) failure to obtain new customer, retain existing customers or reductions in policies in force by existing customers; (v) higher service, administrative, or general expense due to the need for additional advertising, marketing, administrative or management information systems expenditures; (vi) loss or retirement of key executives or employees; (vii) increases in medical costs; (viii) changes in the Company's liquidity due to changes in asset and liability matching; (ix) restrictions on insurance underwriting based on genetic testing and other criteria; (x) adverse changes in the ratings obtained by independent rating agencies; (xi) failure to maintain adequate reinsurance; (xii) possible claims relating to sales practices for insurance products and claim denials and (xiii) adverse trends in morality and morbidity. 25 Item 8. Financial Statements and Supplementary Data. The following financial statements of Southern Security Life Insurance Company are included in Part II, Item 8:
Page Number Independent Auditors' Report............ 27 Balance Sheets-December 31, 1998 & 1997. 29 Statements of Operations - years ended December 31, 1998, 1997 and 1996........ 31 Statements of Shareholders' Equity-years ended December 31, 1998, 1997 and 1996.. 32 Statements of Cash Flows - years ended December 31, 1998, 1997 and 1996........ 33 Notes to Financial Statements........... 36
26 Report of Independent Auditors Board of Directors & Shareholders Southern Security Life Insurance Company: We have audited the accompanying balance sheet of Southern Security Life Insurance Company as of December 31, 1998 and the related statements of operations, shareholders' equity, and cash flow for the year then ended. In connection with our audit of the financial statements, we have also audited the amounts included in the financial statement schedules as listed in the accompanying index under Item 14(a). These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1998 financial statements referred to above present fairly, in all material respects, the financial position of Southern Security Life Insurance Company as of December 31, 1998, and the results of its operations and its cash flows for the year ended in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. Ernst & Young LLP Jacksonville, Florida March 12, 1999 27 Independent Auditors' Report Board of Directors & Shareholders Southern Security Life Insurance Company: We have audited the accompanying balance sheet of Southern Security Life Insurance Company as of December 31, 1997 and related statements of income, shareholders' equity and cash flows for each of the years in the two year period ended December 31, 1997. In connection with our audit of the financial statements, we have also audited the amounts included in the financial statement schedules as listed in the accompanying index under Item 14(a)2 as of and for each of the years in the two year period ended December 31, 1997. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southern Security Life Insurance Company as of December 31, 1997 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG LLP Orlando, Florida April 3, 1998 28 SOUTHERN SECURITY LIFE INSURANCE COMPANY Balance Sheets December 31, 1998 and 1997
Assets 1998 1997 ------ ---- ---- Investments (note 3): Fixed maturities held-to-maturity (fair value, $ 5,064,541 and $10,631,003 at December 31, 1998 and 1997, respectively) $4,956,910 $10,501,712 Securities available-for-sale, at fair value: Fixed maturities (cost of $27,671,425 at December 31, 1998 and $30,880,390 at December 31, 1997) 28,479,161 31,483,324 Equity securities (cost, $210,370 and $800,000 at December 31, 1998 and 1997, respectively) 250,232 839,973 Policy and student loans 8,462,438 7,945,381 Short-term investments 11,434,983 100,000 ---------- ---------- 53,583,724 50,870,390 Cash and cash equivalents 682,389 2,448,994 Accrued investment income 564,118 637,460 Deferred policy acquisition costs (note 4) 13,583,956 15,451,689 Policyholders' account balances on deposit with reinsurer (note 7) 8,518,571 8,667,241 Reinsurance receivable (note 7) 306,258 359,688 Receivables: Agent balances 994,493 590,368 Other 351,478 324,752 Refundable income taxes 34,951 121,680 Property and equipment, net, at cost (note 5) 2,585,255 2,670,203 ----------- ----------- $81,205,193 $82,142,465 =========== ===========
See accompanying notes to financial statements 29 SOUTHERN SECURITY LIFE INSURANCE COMPANY Balance Sheets (continued) December 31, 1998 and 1997
Liabilities and Shareholders' Equity 1998 1997 ------------------------------------ ---- ---- Liabilities: Policy liabilities and accruals (notes 6 and 7): $1,727,300 $1,409,031 Future policy benefits: Policyholders' account balances 52,520,300 52,335,511 Unearned revenue 6,023,399 7,108,662 Other policy claims and benefits payable 540,789 427,649 Other policyholders' funds, dividend and endowment accumulations 64,738 59,686 Funds held related to reinsurance treaties (note 7) 1,419,357 1,339,927 Note payable to related party (note 9) 1,000,000 1,000,000 Due to affiliated insurance agency (note 11) 22,871 68,646 General expenses accrued 747,148 897,627 Unearned investment income 340,622 313,018 Other liabilities 90,489 100,990 Deferred income taxes (note 10) 796,074 949,700 --------- ------- 65,293,087 66,010,447 ---------- ---------- Shareholders' equity (notes 2,3 and 12): Common stock, $1 par, authorized 3,000,000 shares; issued and out- standing, 1,907,989 shares 1,907,989 1,907,989 Capital in excess of par 4,011,519 4,011,519 Accumulated other comprehensive income 430,161 266,340 Retained earnings 9,562,437 9,946,170 ---------- --------- 15,912,106 16,132,018 Commitments and contingencies (notes 7 and 14) - - -------- ------ $81,205,193 $82,142,465 =========== ===========
30 SOUTHERN SECURITY LIFE INSURANCE COMPANY Statements of Operations Years ended December 31, 1998, 1997, and 1996
1998 1997 1996 ---- ---- ---- Revenues: Net insurance revenues $7,228,227 $7,643,650 $7,915,027 Net investment income (notes 3 and 8) 3,587,147 3,545,311 3,318,627 Realized gain on investments (note 3) 525,181 506,795 869,502 -------- ------- ------- 11,340,555 11,695,756 12,103,156 ---------- ---------- ---------- Benefits, claims and expenses: Benefits and claims 4,346,820 4,431,474 3,813,361 Amortization of deferred policy acquisition costs (note 4) 3,484,689 3,542,617 3,364,738 Operating expenses (note 11) 4,044,686 3,382,255 3,246,552 Interest expense with related party (note 9) 90,000 90,000 90,000 ------ ------ ------ 11,966,195 11,446,346 10,514,651 ---------- ---------- ---------- Income(Loss) before income taxes (625,640) 249,410 1,588,505 Income tax expense (benefit) (note 10) ( 241,907) 54,200 196,000 -------- ------- ------- Net income(loss) $(383,733) $195,210 $1,392,505 ========= ======== ========== Basic net income(loss) per share of common stock $(.20) $.10 $.73 ===== ==== ==== Diluted net income per share of common stock $(.20) $.10 $.73 ===== ==== ====
See accompanying notes to financialn statements. 31 SOUTHERN SECURITY LIFE INSURANCE COMPANY Statements of Shareholders' Equity Years ended December 31, 1998, 1997 and 1996
Accumulated Capital other Common stock in excess comprehensive Retained Shares Amount of par income earnings Balances, December 31, 1995 1,907,989 $1,907,989 $4,011,519 $548,647 $8,358,455 --------- ---------- ---------- ------- ---------- Net income for the year - - - - 1,392,505 Unrealized depre- ciation of securities avail- able for sale - - - (557,527) - ------- ------- ------- -------- ---- Balances, December 31, 1996 1,907,989 $1,907,989 $4,011,519 $(8,880) $9,750,960 --------- ---------- ---------- ------- ---------- Net income for the year - - - - 195,210 Unrealized apprecia- tion of securities available for sale - - - 275,220 - ------- ------- ------- ------- ---- Balances, December 31, 1997 1,907,989 $1,907,989 $4,011,519 $266,340 $9,946,170 ========= ========== ========== ======== ========== Net loss for the year - - - - (383,733) Unrealized appre- ciation of securities avail- able for sale - - - 163,821 - ------- ------- ------- -------- ----- Balances, December 31, 1998 1,907,989 $1,907,989 $4,011,519 $430,161 $9,562,437 -======== ---------- ---------- -------- ----------
See accompanying notes to financial statements. 32 SOUTHERN SECURITY LIFE INSURANCE COMPANY Statements of Cash Flows Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 ---- ---- ---- Cash flows provided by (used in) operating activities: Net income (loss) $(383,733) $195,210 $1,392,505 Adjustments to reconcile net cash provided by (used in) operating activities: Depreciation and amortization 301,970 232,471 169,681 Net realized (gains) on investments (525,182) (506,795) (869,502) Loss on disposal of property, plant & equipment 2,956 100 124 Deferred income taxes 175,274 198,100 16,900 Amortization of deferred policy acquisition costs 3,484,689 3,542,617 3,364,738 Acquisition costs deferred (1,911,282) (2,069,778) (2,018,043) Change in assets and liabilities affecting cash provided by operations: Accrued investment income 73,342 50,239 (48,890) Other invested assets - 13,100 - Due from affiliated insurance agency - (2,078) - Accounts receivable (344,122) (105,752) (265,682) Reinsurance receivable 53,430 20,004 134,649 Other policy claims and future benefits payable 431,409 557,739 36,488 Policyholders' account balances 2,356,804 2,065,521 2,332,863 Funds held under reinsurance 79,430 146,561 215,950 Unearned premiums (1,160,706) (1,114,188) (962,941) Dividend and endowment accumulations 5,052 90 2,152 Payable to affiliated insurance agent (45,775) 35,235 (209,957) Income taxes payable - (70,164) 53,814 Other liabilities (133,376) ( 15,373) (134,983) -------- -------- -------- Net cash provided by operating activities $2,460,180 $3,172,859 $3,209,866 ---------- ---------- ----------
(continued) 33 SOUTHERN SECURITY LIFE INSURANCE COMPANY Statements of Cash Flows (continued) Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 ---- ---- ---- Cash flowsfrom (used in) investing activities: Purchase of investments: Purchase of investments held-to-maturity $- $- $(1,965,240) Purchase of investments available- for-sale (6,180,178) (32,704,906) (8,085,785) Purchase of equity securities (610,370) (3,316,249) - Proceeds from maturity of held-to- maturity securities 5,536,006 4,488,354 2,165,750 Proceeds from maturity of available- for-sale securities 299,281 - 635,533 Proceeds from sale of available-for- sale securities (equity and fixed maturity) 10,675,217 29,049,745 6,367,780 Net change in short-term investments (11,334,983) 4,439,106 (3,040,006) Net change in policy and student loans (517,057) (629,572) 2,655,845 Net change in other investments - 2,178 7,605 Acquisition of property and equipment (71,356) (35,779) ( 60,559) ------- ------- -------- Net cash provided by (used in) investing activities $(2,203,440) $1,292,877 $(1,319,077) ----------- ----------- ----------- Cash flows from financing activities: Receipts from universal life and certain annuity policies credited to policyholder account balances 7,524,375 4,042,137 5,213,760 Return of policyholder account balances on universal life and certain annuity policies (9,547,720) (6,264,935) (5,904,692) Proceeds from short-term borrowings - 2,500,000 Repayment of short-term borrowings - (3,900,553) ---------- ---------- ---------- Net cash provided by (used in) financing activities $(2,023,345) $(2,222,798) $(2,091,485) ------------ ----------- ----------- Increase (decrease) in cash and cash equivalents (1,766,605) 2,242,938 (200,696) Cash and cash equivalents at beginning of year $2,448,994 $206,056 $406,752 ---------- -------- -------- Cash and cash equivalents at end of year $682,389 $2,448,994 $206,056 ======== ========== ========
34 SOUTHERN SECURITY LIFE INSURANCE COMPANY Statements of Cash Flows (continued) Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 ---- ---- ---- Supplemental schedule of cash flow information: Interest paid during the year $90,000 $90,000 $102,094 ====== ======= ======= Income taxes paid during the year $45,500 $115,000 $130,500 ====== ======== ======== Change in market value adjustments-investments available-for-sale: Fixed maturities $204,802 $425,313 $(557,065) Equity securities (111) 39,973 (418,345) Change in deferred acquisition costs (294,326) (55,084) 181,196 Change in premium deposit funds 79,440 26,340 (95,241) Deferred income tax asset (liability) (153,626) (163,500) 333,800 Other - 2,178 (1,872) ------- ------ ------ Accumulated comprehensive income Net change in unrealized appreciation (depreciation) $(163,821) $275,220 $(557,527) ======= ======== =========
See accompanying notes to financial statements. 35 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements December 31, 1998, 1997 and 1996 1. Nature of business and summary of significant accounting policies: (a) Nature of business The primary business of Southern Security Life Insurance Company (the "Company") is the issuance of long duration universal life insurance contracts. The majority of the Company's business is conducted in the states of Florida (44%), Georgia (10%) and Texas (15%). None of the remaining eleven states in which the Company is licensed to conduct business account for over 10% of the Company's total business. Prior to December 17, 1998, certain executive officers and directors of the Company were shareholders of approximately 60 percent of the shares of SSLIC Holding Company, Inc., (formerly Consolidare Enterprises, Inc.). SSLIC Holding Company, Inc. owns 57.4 percent of the Company's voting securities at December 31, 1998. Effective December 17, 1998, 100 percent of the common stock of SSLIC Holding Company, Inc. was acquired by Security National Financial Corporation ("SNFC"). Accordingly, from December 17, 1998, the Company is a 57.4 percent owned, indirect subsidiary of SNFC. The following is a description of the most significant risks facing life and health insurers and how the Company mitigates those risks: Legal/regulatory risk is the risk that changes in the legal or regulatory environment in which an insurer operates will create additional expenses not anticipated by the insurer in pricing its products. That is, regulatory initiatives designed to reduce insurer profits, new legal theories or insurance company insolvencies through guaranty fund assessments may create costs for the insurer beyond those recorded in the consolidated financial statements. The Company seeks to mitigate this risk through geographic marketing of their insurance products. Credit risk is the risk that issuers of securities owned by the Company will default or that other parties, including reinsurers, which owe the Company money, will not pay. The Company attempts to mitigate this risk by adhering to a conservative investment strategy, by maintaining sound 36 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 1. Nature of business and summary of significant accounting policies, continued (a) Nature of business reinsurance and by providing for any amounts deemed uncollectible. Interest rate risk is the risk that interest rates will change and cause a decrease in the value of an insurer's investments. This change in rates may cause certain interest-sensitive products to become uncompetitive, may cause disintermediation, or may cause the Company to not achieve its target interest margins between interest earned on invested assets and interest required to be credited to policyholder account balances. The Company mitigates this risk by charging fees for nonconformance with certain policy provisions, by offering products that transfer this risk to the purchaser, and/or by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, an insurer would have to sell assets prior to maturity and potentially recognize a gain or loss. (b) Basis of financial statements The financial statements have been prepared on the basis of generally accepted accounting principles ("GAAP"), which vary from reporting practices prescribed or permitted by regulatory authorities. The accompanying financial statements have been prepared using the historic cost basis of accounting and do not reflect any adjustments related to allocation of the purchase price of the Company's parent, SSLIC Holding (Formerly Consolidare) by Security National Financial Corporation at December 17, 1998. (c) Use of estimates In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ significantly from those estimates. The estimates susceptible to significant change are those 37 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 1. Nature of business and summary of significant accounting policies, continued used in determining the liability for future policy benefits and claims, deferred income taxes and deferred policy acquisition costs. Although some variability is inherent in these estimates, management believes that the amounts provided are adequate. (d) Investments Investments in all debt securities and those equity securities with readily determinable market values are classified into one of three categories: held-to-maturity, trading or available-for-sale. Classification of investments is based upon management's current intent. Debt securities which management has a positive intent and ability to hold until maturity are classified as securities held-to-maturity and are carried at amortized cost. Unrealized holding gains and losses on securities held-to-maturity are not reflected in the financial statements. Debt and equity securities that are purchased for short-term resale would be classified as trading securities. Trading securities would be carried at fair value, with unrealized holding gains and losses included in earnings; the Company has no securities classified as trading securities. All other debt and equity securities not included in the above two categories are classified as securities available-for-sale. Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in accumulated other comprehensive income which is included in stockholders' equity after adjustment for deferred income taxes and deferred acquisition costs related to universal life products. The Company's carrying value for investments in the held-to-maturity and available-for-sale categories is reduced to its estimated realizable value if a decline in the market value is deemed other than temporary. Such reductions in carrying values are recognized as realized losses and charged to income. Interest on fixed maturities and short-term investments is recognized to income as it accrues on the principal amounts outstanding adjusted for amortization of premiums and discounts computed by the scientific method which approx- 38 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 1. Nature of business and summary of significant accounting policies, continued (d) Investments imates the effective yield method. Realized gains and losses on disposition of investments are included in net income. The cost of investments sold is determined on the specific identification method. Dividends are recorded as income on the ex-dividend dates. Policy loans and student loans are carried at the unpaid principal balance, less any amounts deemed to be uncol-lectible. The Company's policy is that policy loans are not made for amounts in excess of the cash surrender value of the related policy. Accordingly, policy loans are fully collateralized by the related liability for future policy benefits for traditional insurance policies and by the policyholders' account balance for interest sensitive policies. (e) Cash and cash equivalents For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of one month or less to be cash equivalents. (f) Deferred policy acquisition costs The costs of acquiring new business, net of the effects of reinsurance, principally commissions and those home office expenses that tend to vary with and are primarily related to the production of new business, have been deferred to the extent recoverable from future profit margins. Deferred policy acquisition costs applicable to traditional life policies are being amortized over the premium-paying period of the related policies in a manner that will charge each year's operations in direct proportion to the estimated premium revenue over the life of the policies. Premium revenue estimates are made using the same interest, mortality and withdrawal assumptions as are used for computing liabilities for future policy benefits. Acquisition costs relating to universal life policies are being amortized in relation to the incidence of expected gross profits over the life of the policies. Gross profits for universal life contracts consist of revenue representing policy charges for the cost of insurance, 39 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes To Financial Statements (continued) 1. Nature of business and summary of significant accounting policies, continued administration of the contracts and surrender charges plus investment income less expenses for interest credited to policyholder account balances, policy administrative expenses and expected benefit payments in excess of policy account balances. Deferred policy acquisition costs are adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available for sale. The Company has performed tests concerning the recoverability of deferred acquisition costs. These methods include those typically used by many companies in the life insurance industry. Further, the Company conducts a sensitivity analysis of its assumptions that are used to estimate the future expected gross profits, which management has used to determine the future recoverability of the deferred acquisition costs. (g) Depreciation Depreciation is being provided on the straight-line method over the estimated useful lives of the assets. (h) Future policy benefits The liability for future policy benefits for traditional life policies has been provided on a net level premium basis based upon estimated investment yields, withdrawals, mortality and other assumptions that were appropriate at the time the policies were issued. Such estimates are based upon industry data and the Company's past experience as adjusted to provide for possible adverse deviation from the estimates. (i) Policyholder account balance Insurance reserves for universal life policies are determined following the retrospective deposit method and consist of policy values that accrue to the benefit of the policyholder, unreduced by surrender charges. (j) Recognition of premium revenue and related costs Premiums are recognized as revenue as follows: Universal life policies - premiums received from policy- 40 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 1. Nature of business and summary of significant accounting policies, continued holders are reported as deposits. Cost of insurance, policy administration and surrender charges which are charged against the policyholder account balance during the period, are recognized as revenue as earned. Amounts assessed against the policyholder account balance that represent compensation to the Company for services to be provided in future periods are reported as unearned revenue and recognized in income using the same assumptions and factors used to amortize acquisition costs capitalized. Annuity contracts with flexible terms - premiums received from policyholders are reported as deposits. All other policies - recognized as revenue over the premium paying period. (k) Income taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (l) Earnings per share In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share. Statement No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods presented are restated to conform to Statement No. 128 requirements. 41 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 1. Nature of business and summary of significant accounting policies, continued (m) Reclassification Certain amounts presented in the 1996 financial statements have been restated to conform to the 1997 and 1998 presentation. 2. Basis of financial statements The more significant generally accepted accounting principles applied in the preparation of financial statements that differ from life insurance statutory accounting practices prescribed or permitted by regulatory authorities (which are primarily designed to demonstrate solvency) are as follows: a. Costs of acquiring new business are deferred and amortized, rather than being charged to operations as incurred. b. The liability for future policy benefits and expenses is based on conservative estimates of expected mortality, morbidity, interest, withdrawals and future maintenance and settlement expenses, rather than on statutory rates for mortality and interest. c. The liability for policyholder funds associated with universal life and certain annuity contracts are based on the provisions of Statement of Financial Accounting Standards Statement No. 97, rather than on the statutory rates for mortality and interest. d. Investments in securities are reported as described in Note 1.(d), rather than in accordance with valuations established by the National Association of Insurance Commissioners ("NAIC"). Pursuant to NAIC valuations, bonds eligible for amortization are reported at amortized value; other securities are carried at values prescribed by or deemed acceptable by NAIC. e. Deferred income taxes, if applicable, are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 42 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 2. Basis of financial statements, continued f. The statutory liabilities for the asset valuation reserve and interest maintenance reserve have not been provided in the financial statements. g. Certain assets, principally receivables from agents and equipment, are reported as assets rather than being charged directly to surplus. h. Costs attributable to the public offering of the common shares have been reclassified from accumulated surplus to capital in excess of par. i. Realized gains or losses on the sale or maturity of investments are included in the statement of income and not recorded net of taxes and amounts transferred to the interest maintenance reserve as required by statutory accounting practices. j. Certain proceeds from a note payable (note 9) that are treated as shareholders' equity for statutory purposes are treated as a liability under generally accepted accounting principles. k. Reinsurance assets and liabilities are reported on a gross basis rather than shown on a net basis as permitted by statutory accounting practices. A reconciliation of net income (loss) for the years ended December 31, 1998, 1997 and 1996 and shareholders' equity as of December 31, 1998 and 1997 between the amounts reported on a statutory basis and the related amounts presented on the basis of generally accepted accounting principles is as follows: 43 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 2. Basis of financial statements, continued
Shareholders' Net income (loss) equity Years ended December 31, December 31, 1998 ------------------------ ------------------- 1998 1997 1996 1998 1997 ---- ---- ---- ---- ---- As reported on a statutory basis $(486,823) $45,398 $1,022,183 $8,627,254 $9,316,923 -------- -------- ---------- ---------- --------- Adjustments: Deferred policy acquisition costs, net (1,867,733) (1,472,839) (1,346,695) 13,583,956 15,451,689 Future policy benefits, un- earned premiums and policy- holders' funds 1,719,926 1,644,330 1,626,090 (7,600,310) (8,915,443) Deferred income taxes 153,626 (198,100) (16,900) (796,074) (949,700) Asset valuation reserve - - - 332,448 465,452 Interest main- tenance reserve 231,507 129,109 (18,221) 570,352 338,845 Non-admitted assets - - - 1,077,595 698,024 Unrealized gains -SFAS 115 - - - 847,555 602,934 Capital and surplus note - - - (1,000,000) (1,000,000) Other adjustments, net (134,236) 47,312 126,048 269,330 123,294 -------- ------- ------- ------- ------- Net difference (103,090) 149,812 370,322 7,284,852 6,815,095 -------- ------- ------- --------- --------- As reported on a GAAP basis $(383,733) $195,210 $1,392,505 $15,912,106 $16,132,018 ======== ======== ========== =========== ===========
Under applicable laws and regulations, the Company is required to maintain minimum surplus as to policyholders, determined in accordance with regulatory accounting practices, in the 44 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 2. Basis of financial statements, continued aggregate amount of approximately $1,900,000. The payment of dividends by the Company is subject to the regulation of the State of Florida Department of Insurance. The Insurance Commissioner's approval is not required if the dividend is equal to or less than the greater of: (a) 10% of the Company's surplus as to policyholders' derived from realized net operating profits on its business and net realized capital gains; or (b) the Company's entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, if the Company will have surplus as to policyholders equal to or exceeding 115% of the minimum required statutory surplus as to policyholders after the dividend is declared and paid. As a result of such restrictions, the maximum dividend which may be paid by the Company during 1999 without prior approval is approximately $114,000. Accordingly, GAAP excess earnings over a statutory basis are not available for dividends. The Risk-Based Capital ("RBC") for Life and/or Health Insurers Model Act (the "Model Act") was adopted by the National Association of Insurance Commissioners (NAIC) in 1992. The main purpose of the Model Act is to provide a tool for insurance regulators to evaluate the capital of insurers. Based on calculations using the appropriate NAIC formula, the Company exceeded the RBC requirements at December 31, 1998. 3. Investments (a) Equity securities and fixed maturities Equity securities consist of $250,232 and $839,973 of common stock at fair value at December 31, 1998 and 1997 respectively. Unrealized (depreciation) appreciation in investments in equity securities for the years ended December 31, 1998, 1997, and 1996 is $(111), $39,973, and $0, respectively. The amortized cost and estimated fair values of investments in debt securities are as follows: 45 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 3. Investments, continued (a) Equity securities and fixed maturities
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value December 31, 1998: Held-to-maturity: U.S. Treasury securities and obligations of U.S. government corpora- tions and agencies (guaranteed) $1,011,702 $58,298 $ - $1,070,000 Corporate securities 2,758,387 49,333 - 2,807,720 Mortgage-backed securities 1,186,821 - - 1,186,821 --------- ------- ------ --------- 4,956,910 107,631 - 5,064,541 --------- ------- ------ --------- Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies (guaranteed) 5,124,079 185,044 - 5,309,123 Corporate securities 22,547,346 622,692 - 23,170,038 27,671,425 807,736 - 28,479,161 ---------- ------- ------ ---------- $32,628,335 $915,367 $ - $33,543,702 =========== ======== ====== ===========
46 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 3. Investments, continued (a) Equity securities and fixed maturities
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value December 31, 1997: Held-to-maturity: U.S. Treasury securities and obligations of U.S. government corpora- tions and agencies (guaranteed) $2,516,052 $53,948 $ - $2,570,000 Corporate securities 6,715,402 79,620 4,277 6,790,745 Mortgage-backed securities 1,270,258 - - 1,270,258 --------- ------- ------ --------- 10,501,712 133,568 4,277 10,631,003 ---------- ------- ----- ---------- Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies (guaranteed) 9,301,191 173,517 - 9,474,708 Corporate securities 21,481,892 429,907 - 21,911,799 Mortgage-backed securities 97,307 - 490 96,817 ------- ------- ----- ------- 30,880,390 603,424 490 31,483,324 ---------- ------- ---- ---------- $41,382,102 $736,992 $4,767 $42,114,327 =========== ======== ====== ===========
47 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 3. Investments, continued (a) Equity securities and fixed maturities Fair values reflected in available-for-sale and held-to-maturity categories are based on NAIC values, versus values associated with normal market pricing services. The estimated difference for both categories was immaterial for all years presented. Unrealized appreciation (depreciation) of fixed maturities for years ending December 31, 1998, 1997 and 1996 is $183,141, $388,847 and $($720,253) respectively. The amortized cost and estimated fair value of fixed maturities at December 31, 1998 by contractual maturity, are summarized below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Fixed maturity securities held-to-maturity: Amortized Estimated Cost Fair value Due in one year or less $1,252,720 $1,252,720 Due after one year through five years 2,517,369 2,625,000 Due after five years through ten years - - Due after ten years - - --------- --------- 3,770,088 3,877,720 Mortgage-backed securities 1,186,821 1,186,821 --------- --------- $4,956,910 $5,064,541 ========== ========== Fixed maturity securities available-for-sale: Due in one year or less $ 2,336,683 $2,353,300 Due after one year through five years $11,386,693 11,719,256 Due after five years through ten years 12,625,234 13,069,440 Due after ten years 1,322,815 1,337,165 --------- --------- 27,671,425 28,479,161 Mortgage-backed securities - - ---------- ---------- $27,671,425 $28,479,161 =========== ===========
48 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 3. Investments, continued (a) Equity securities and fixed maturities Proceeds from the sale of equity securities and fixed maturities available for sale and the related realized gains and losses are summarized as follows:
1998 1997 1996 ---------- ---------- ------- Proceeds from sale of equity securities $1,405,248 $2,873,980 $2,885,010 ---------- ---------- ---------- Proceeds from sale of fixed maturities available-for-sale $9,569,250 $26,175,765 $3,482,770 ---------- ----------- ---------- Realized gains (losses) Fixed maturities: Gross realized gains $319,934 278,904 15,013 Gross realized (losses) - (150,045) ( 18,881) Equity securities: Gross realized gains 205,247 357,731 930,919 Gross realized (losses) - - (57,620) -------- ------- ------- $525,181 $486,590 $869,431 ======= ======== ========
Certain of the fixed maturity securities classified as available-for-sale and held-to-maturity were called during the year ended December 31, 1998, 1997 and 1996 resulting in the following realized gains and losses:
1998 1997 1996 ---- ---- ---- Held-to-maturity: Gross realized gains $ 0 $20,205 $71 Available-for-sale: Gross realized gains 1,740 21,997 - ------ ------- --- $1,740 $42,202 $71 ====== ======= ===
49 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 3. Investments, continued (a) Equity securities and fixed maturities Investments, aggregated by issuer, in excess of 10% of shareholders' equity (before net unrealized gains and losses on available-for-sale securities) at December 31, 1998 and 1997, other than investments issued or guaranteed by the United States government are as follows:
1998 Carrying Amount Federal Express $2,180,000 Dean Witter Discover 4,160,217 Philip Morris, Inc. 5,815,000 1997 Dean Witter Discover $2,114,643 Federal Express 2,260,000 Lehman Brothers Inc. 2,080,000 Philip Morris Inc. 3,535,000
(b) Concentrations of credit risk At December 31, 1998 and 1997, the Company did not hold any unrated or less-than-investment grade corporate debt securities. The Company also invests in subsidized and unsubsidized student loans totaling $207,006 and $244,361 at December 31, 1998 and 1997, respectively, which are guaranteed by the U.S. government. Subsequent to December 31, 1998, all of these loans were sold at their unpaid principal balance. 50 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 3. Investments, continued (c) Investment income Net investment income for the years ended December 31, 1998, 1997, and 1996 consists of the following:
1998 1997 1996 ---- ---- ---- Interest: Fixed maturities $2,633,888 $2,918,006 $2,581,198 Policy and student loans 489,991 401,621 526,820 Short-term investments 474,949 232,342 280,158 Dividends on equity securities common stock, including mutual fund 719 16,189 31,245 ------ ------ ------ 3,599,547 3,568,158 3,419,421 Less investment expenses 12,400 22,847 100,794 ------ ------- ------- $3,587,147 $3,545,311 $3,318,627 ========= ========== ==========
(d) Investments on deposit In order to comply with statutory regulations, investments were on deposit with the Insurance Departments of certain states as follows:
1998 1997 1996 ---- ---- ---- Florida $1,718,097 $1,727,034 $1,718,751 Alabama 101,170 100,000 100,000 South Carolina 303,511 304,816 306,028 Georgia 252,926 254,013 255,024 Indiana 199,578 199,317 199,752 ------- ------- ------- $2,575,282 $2,585,180 $2,579,555 ========= ========== ==========
Certain of these assets, totaling approximately $850,000 for each of the years ended December 31, 1998 and 1997, are restricted for the future benefit of policyholders in a particular state. 51 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 4. Deferred policy acquisition costs Deferred policy acquisition costs at December 31, 1998, 1997 and 1996 consist of the following:
1998 1997 1996 ---- ---- ---- Deferred policy acquisition costs at beginning of year $15,451,689 $16,979,612 $18,145,111 Policy acquisition costs deferred: Commissions 1,053,953 1,204,604 1,030,875 Underwriting & issue costs 429,600 450,800 652,868 Other 427,729 414,374 334,300 Change in unrealized appreciation (depreciation) (294,326) (55,084) 181,196 -------- ------- ---------- 1,616,956 2,014,694 2,199,239 Amortization of deferred policy acquisition costs (3,484,689) (3,542,617) (3,364,738) ---------- ---------- ---------- Deferred policy acquisition costs at end of year $13,583,956 $15,451,689 $16,979,612 =========== =========== ===========
5. Property and equipment Property and equipment consists of the following:
December 31, December 31, 1998 1997 Land $982,027 $982,027 Building and improvements 2,198,468 2,169,975 Furniture and equipment 1,068,995 1,057,586 --------- --------- 4,249,490 4,209,588 Less accumulated depreciation 1,664,235 1,539,385 --------- --------- $2,585,255 $2,670,203 ========= =========
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 totaled $153,348, $145,912, and $151,950, respectively. 6. Future policy benefits At December 31, 1998 and 1997, future policy benefits, exclusive of universal life and flexible term annuities 52 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 6. Future policy benefits, continued consist of the following:
December 31, December 31, 1998 1997 Life insurance $1,370,360 $1,103,462 Annuities 298,456 295,525 Accident & health insurance 58,484 10,044 ------ ----- Total life & health future policy benefits $1,727,300 $1,409,031 ========= =======
Life insurance in-force aggregated approximately $1.2 billion and $1.2 billion at December 31, 1998, and 1997, respectively. Mortality and withdrawal assumptions are based upon the Company's experience and actuarial judgment with an allowance for possible unfavorable deviations from the expected experience. The mortality tables used in calculating benefit reserves for non universal life contracts are the 1965-1970 Basic Select and Ultimate for males and the 1980 U.S. Population mortality table modified for company expected experience. For non-universal life policies written during 1983 through 1988, interest rates used are 8.0 percent for policy years one through five, decreasing by .1 percent per year for policy years six through twenty, to 6.5 percent for policy years twenty-one and thereafter. For certain non universal life contracts written in 1996-1998, interest rates of 6.75% level have been assumed. For non-universal life policies written in 1982 and prior, interest rates vary, depending on policy type, from 7 percent for all policy years to 6 percent for policy years one through five and 5 percent for years six and thereafter. For universal life policies written since 1988, the interest rate used is a credited rate generally based upon the Company's investment yield less 1 percent. 7. Reinsurance The Company routinely cedes and, to a limited extent, assumes reinsurance to limit its exposure to loss on any single insured. Ceded insurance is treated as a risk and liability 53 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 7. Reinsurance, continued of the assuming companies. As of December 31, 1998, ordinary insurance coverage in excess of $75,000 is reinsured; however for some policies previously issued, the first $30,000, $40,000 or $50,000 was retained and the excess ceded. The retention limit for some substandard risks is less than $75,000. Reinsured risks would give rise to liability to the Company in the event that the reinsuring company were unable to meet its obligations under the reinsurance agreement in force, as the Company remains primarily liable for such obligations. Under reinsurance agreements exclusive of the MEGA agreement discussed below, the Company has ceded premium of $415,080, $432,486, and $448,327 included in reinsurance premiums ceded, and received recoveries of $88,457, $131,449 and $608,355 included in annuity, death and other benefits for the years ended December 31, 1998, 1997 and 1996, respectively. On December 31, 1992, the Company entered into a reinsurance agreement with The MEGA Life and Health Insurance Company ("MEGA"), ceding an 18% share of all universal life policies in force at December 31, 1992 as a measure to manage the future needs of the Company. The reinsurance agreement is a co-insurance treaty entitling the assuming company to 18% of all future premiums, while making them responsible for 18% of all future claims and policyholder loans relating to the ceded policies. In addition, the Company receives certain commission and expense reimbursements. For the years ended December 31, 1998, 1997 and 1996, the Company ceded premiums to MEGA of $448,355, $481,585 and $582,346, included in reinsurance ceded, and received recoveries of $469,307, $503,159 and $367,295, included in annuity, death and other benefits, respectively. The funds held related to reinsurance treaties of $1,419,357 and $1,339,927 represent the 18% share of policy loans ceded to the reinsurer at December 31, 1998 and 1997, respectively. 8. Notes payable As of December 31, 1998, the Company had an unused line of credit of $5,000,000 which is secured by student loans equaling 115% of the unpaid principal balance. The facility 54 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 8. Notes payable, continued bears interest at a variable rate per annum payable monthly and expires on September 18, 2007. Interest expense relating to these notes payable during the years ended December 31, 1998, 1997 and 1996 totaled $0, $0, and $12,094, respectively and is included in net investment income. 9. Note payable to related party A note payable to a related party consists of amounts due on demand to Security National Financial Corporation. The note's proceeds were obtained in December 1988 and the note qualifies as shareholders' equity for statutory accounting purposes in accordance with Section 628.401 of the Florida Statutes. At December 31, 1998, the note bears interest at 9.0% percent (payable monthly); principal repayment is contingent upon the Company maintaining statutory surplus in excess of $1,900,000 and obtaining approval in advance by the Florida Department of Insurance. Interest expense relating to the balance of the note payable to the related party during 1998, 1997 and 1996 aggregated $90,000, $90,000, and $90,000 respectively. 55 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 10. Income taxes Total income taxes including taxes on the change in the value of investments for the years ended December 31, 1998, 1997, and 1996 were as follows:
1998 1997 1996 ---- ---- ---- Tax expense (benefit) in operations $(241,907) $54,200 $196,000 Tax on unrealized appreciation (depreciation) of investments 98,316 160,700 (675) ------ ------- ---- $(143 591) $214,900 $195,325 ========= ======== ========
Income tax expense (benefit) for the years ended December 31, 1998, 1997 and 1996 is summarized as follows:
1998 1997 1996 ---- ------- ------ Current: Federal $ 9,329 $(142,870) $167,700 State 1,207 (1,030) 11,400 ----- ------ ------ 10,536 (143,900) 179,100 ------ ------- -------- Deferred: Federal (215,838) 169,100 14,450 State (36,605) 29,000 2,450 ------ ------ ----- (252,443) 198,100 16,900 ------- ------- ------ $(241,907) $54,200 $196,000 ======= ======= ========
56 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 10. Income taxes, continued Income tax expense (benefit) for the years ended December 31, 1998, 1997 and 1996 differs from "expected" tax (computed by applying the U.S. federal income tax rate to pretax income as a result of the following:
1998 1997 1996 -------- -------- ------ Computed "expected" tax expense (benefit) $(212,718) $84,800 $540,100 Increase (reduction) in income taxes resulting from: Small life insurance company deduction (12,390) ( 76,000) (346,000) Changes in the valuation allowance for deferred tax assets, allocated to income tax expense (17,950) 11,100 64,900 (Over) under accrual of prior year expense - 6,100 (82,000) State taxes, net of federal income tax benefit 1,207 18,200 9,000 Other, net (56) 10,000 10,000 ------ ------ ----- $(241 907) $54,200 $196,000 ======= ====== =======
Under tax laws in effect prior to 1984, a portion of a life insurance company's gain from operations was not currently taxed but was accumulated in a memorandum "Policyholders' Surplus Account." As a result of the Tax Reform Act of 1984, the balance of the Policyholders' Surplus Account has been frozen as of December 31, 1983 and no additional amounts will be accumulated in this account. However, distributions from the account will continue to be taxed, as under previous law, if any of the following conditions occur: a. The Policyholders' Surplus exceeds a prescribed maximum, or; b. Distributions, other than stock dividends, are made to shareholders in excess of Shareholders' Surplus, as defined by prior law, or; c. The entity ceases to qualify for taxation as a life insurance company, or; 57 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 10. Income taxes, continued d. the tax deferred status of the Policyholder's Surplus Account is modified by future tax legislation. At December 31, 1998, the balance of the Policyholders' Surplus account aggregated approximately $236,000. The Company has not recorded deferred income taxes totaling approximately $80,000 relating to this amount as it has no plan to distribute the amounts in Policyholders' Surplus in the foreseeable future. The Tax Reform Act of 1986 enacted a new separate parallel tax system referred to as the Alternative Minimum Tax (AMT) system. AMT is based on a flat rate applied to a broader tax base. It is calculated separately from the regular federal income tax and the higher of the two taxes is paid. The excess of the AMT over regular tax is a tax credit, which can be carried forward indefinitely to reduce regular tax liabilities of future years. In 1998, 1997 and 1996, AMT exceeded regular tax by $156,820, $11,100, and $64,900, respectively. At December 31, 1998, the AMT tax credit available to reduce future regular tax totaled $252,780. The principal elements of deferred income taxes consist of the following:
1998 1997 1996 -------- --------- ------- Deferred policy acquisition costs $(603,225) $(467,000) $(431,500) Future policy benefits 408,384 694,000 532,000 Other (57,602) (28,900) (83,600) ------- -------- ------ $(252,443) $198,100 $16,900 ======= ======== =======
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998 and 1997 are presented below: 58 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 10. Income taxes, continued
1998 1997 ---------- ------- Deferred tax assets: Unearned revenue, due to deferral of "front-end" fee $2,266,605 $2,760,000 Policy liabilities and accruals, principally due to adjustments to reserves for tax purposes 2,090,315 1,540,000 Deferred policy acquisition costs related to unrealized appreciation (depreciation) 59,420 81,200 Other - 120,000 Alternative minimum tax credit carry forwards 252,780 409,600 ------- ------- Total gross deferred tax assets 4,669,120 4,910,800 Less valuation allowance (252,780) (409,600) -------- -------- Net deferred tax assets 4,416,340 4,501,200 --------- --------- Deferred tax liabilities: Deferred policy acquisition costs (4,263,587) (5,178,000) Other (629,892) (31,000) Unrealized appreciation of securities (318,935) (241,900) -------- -------- Total gross deferred tax liabilities (5,212,414) (5,450,900) ---------- --------- Net deferred tax (liability) $(796,074) $(949,700) ======== =========
The net change in the total valuation allowance for the year ended December 31, 1998 was a decrease of $156,820. The net change in the total valuation allowance for the years ended December 31, 1997, and 1996 was an increase of $11,100 and $64,900, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon 59 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 10. Income taxes, continued the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 1998. 11. Related party transactions The Company's general agent, Insuradyne Corporation, is a wholly-owned subsidiary of SSLIC Holding Company, Inc., which owns approximately fifty-seven percent (57%) of the Company's outstanding stock. The balances due to/from an affiliated insurance agency reflected in the accompanying balance sheets principally represent unearned commission advances paid to Insuradyne. The Company incurred commission expense to Insuradyne aggregating $252,955, $323,303 and $344,904, in 1998, 1997, and 1996, respectively. These amounts are included as components of acquisition costs deferred and related amortization. Insuradyne incurred insurance-related expenses aggregating $33,374, $25,604, and $31,703 in 1998, 1997 and 1996, respectively. Effective December 31, 1998, the Company entered into an Administrative Services Agreement with its ultimate parent Security National Financial Corporation (Security National). Under the terms of the Administrative Services Agreement, all of the Company's employees became employees of Security National. Administrative functions previously performed by the Company will now be furnished to the Company under the Agreement. The Company will pay to Security National $250,000 per month or $3 million per year for the administrative services. 60 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 12. Earnings per share The following table sets forth the computation of basic and diluted earnings per share:
1998 1997 1996 ---- ---- ---- Numerator for basic and diluted Earnings per share: Net income (loss) $(383,733) $195,210 $1,392,505 Denominator: Denominator for basic earnings per share weighted average shares 1,907,989 1,907,989 1,907,989 Effective dilutive securities: Agent stock options - 1,214 - Dilutive potential common shares - 1,214 - Denominator for diluted earnings per share weighted average shares and assumed conversions 1,907,989 1,908,203 1,907,989 Basic earnings per share $(0.20) $0.10 $0.73 Diluted earnings per share $(0.20) $0.10 $0.73
13. Agents' incentive stock bonus plan The Company has an incentive bonus plan for agents that was adopted January 1, 1995 by the Company's Board of Directors and effective through December 31, 2001. Agents that qualify under the plan have the option to purchase shares of common stock. The number of shares of common stock is determined on the date of the award as the number of whole shares equal to the award based on the applicable stock price on December 31 of the year the agent has qualified for the bonus. For each share of common stock purchased by the agent, the Company will concurrently award an equivalent number of shares to the agent. Awards were granted in 1998 under this plan. The Company incurred expenses of approximately $6,500 relating to the Company's matching number of shares. If the agent, does not purchase the shares within the designated period, then the agent forfeits their rights to purchase the shares of common stock as well as the matching number of shares to be contributed by the Company. 61 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 14. Disclosures about fair value of financial instruments Statement of Financial Accounting Standards No. 107 Disclosures About Fair Value of Financial Instruments (SFAS 107) requires the Company to disclose estimated fair value information. The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein: Cash and cash equivalents, short-term investments and policy and student loans: The carrying amount reported in the balance sheet for these instruments approximate their fair value. Investment securities available-for-sale and held-to-maturity: Fair value for fixed maturity and equity securities is based on quoted market prices at the reporting date for those or similar investments. Policyholders' account balances: The fair values for policyholder account balances are based on their approximate surrender values. The following table presents the carrying amounts and estimated fair values of financial instruments held at December 31, 1998 and 1997. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. 62 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 14. Disclosures about fair value of financial instruments, continued
1998 1997 ---------------------- ------------ Carrying Estimated Carrying Estimated amount fair value amount fair value Financial assets: Fixed maturities held-to-maturity (see note 3) $4,956,910 $5,064,541 $10,501,712 $10,631,003 Fixed maturities available-for- sale (see note 3) 28,479,161 28,479,161 31,483,324 31,483,324 Equity securities available-for-sale 250,232 250,232 839,973 839,973 Policy and student loans 8,462,438 8,462,438 7,945,381 7,945,381 Short-term invest- ments 11,434,983 11,434,983 100,000 100,000 Cash and cash equivalents 682,389 682,389 2,448,994 2,448,994 Financial liabilities: Policy liabilities- policyholders' account balances $52,520,300 $46,755,788 $52,335,511 $46,514,475
15. Comprehensive income Other comprehensive income, as reflected in the Statement of Shareholders' Equity, for the year ended December 31, 1998 was as follows:
Before Tax Tax Expense/ Net of Tax Amount (Benefit) Amount Net unrealized investment gains on available-for-sale securities $525,448 $197,726 $327,722 Less: reclassification adjustment for gains realized in net earnings 262,788 98,887 163,901 ------- ------ ------- Other comprehensive income $262,660 $98,839 $163,821
Including the above other comprehensive income, total comprehensive loss for 1998 was $212,912. 63 SOUTHERN SECURITY LIFE INSURANCE COMPANY Notes to Financial Statements (continued) 16. Legal proceedings: Lawsuits against the Company have arisen in the normal course of the Company's business. However, contingent liabilities arising from litigation and other matters are not considered material in relation to the financial position of the Company. To the best of the Company's knowledge, it has no potential or pending contingent liabilities that might be material to the Company's financial condition, results of operations or liquidity pursuant to product and environmental liabilities. 64
Schedule I SOUTHERN SECURITY LIFE INSURANCE COMPANY Summary of Investments Other Than Investments in Related Parties December 31, 1998 Number of shares or Amount at units-principal which shown amounts of Fair in the Type of investment bonds or notes Cost value balance sheet Fixed maturities held-for-investment: U.S. Government and government agencies and authorities 1,000,000 $1,035,937 1,070,000 1,011,702 Public utilities 500,000 521,230 515,000 503,391 Industrial and miscellaneous 2,448,168 2,457,567 2,471,776 2,434,052 Special revenue and special assessment of agencies and authorities of governments and political subdivisions 1,000,000 1,014,063 1,007,765 1,007,765 --------- --------- --------- --------- Total fixed maturities 4,948,168 5,028,797 5,064,541 4,956,910 ---------- ---------- ---------- ---------- Fixed maturities available-for-sale: U.S. Government and government agencies and authorities 5,050,000 5,154,256 5,309,123 5,309,123 Public utilities 655,000 705,047 733,600 733,600 Industrial and miscellaneous 21,190,000 22,022,017 22,436,438 22,436,438 Special revenue and special assessment of agencies and authorities of governments and political subdivisions - - - - ------- ------- ------- ---- Total fixed maturities 26,895,000 27,881,320 28,479,161 28,479,161 ---------- ---------- ---------- ---------- 31,843,168 32,910,117 33,543,702 33,436,071 ========== ---------- ========== ---------- Equity securities: Common, including investments in mutual fund 11,046 210,370 250,232 250,232 ====== ------- ======= ------- Policy loans 8,255,432 8,255,432 --------- --------- Student loans 207,006 207,006 ------- ------- Short-term investments 11,434,983 11,434,983 ---------- ---------- Other invested assets - - ------ --- Total investments $53,017,908 $53,583,724 ========== ==========
See accompanying auditors' report. 65 SOUTHERN SECURITY LIFE INSURANCE COMPANY Financial Data Schedule For the periods ending December 31, 1998, 1997 and 1996
December 31, December 31, December 31, 1998 1997 1996 Fixed maturities held for sale $28,479,161 $31,843,324 $24,276,239 Fixed maturities held to maturity (carrying value) 4,956,910 10,501,712 14,974,962 Fixed maturities held to maturity (market value) 5,064,541 10,631,003 15,140,919 Investment in equity securities 250,232 839,973 - Mortgage loans on real estate - - - Investment in real estate - - - Total investments 53,583,724 50,870,390 51,319,216 Cash and cash equivalents 682,389 2,448,994 206,056 Reinsurance recoverable on paid losses 306,258 359,688 379,692 Deferred policy acquisition costs 13,583,956 15,451,689 16,979,612 Total assets 81,319,288 82,142,465 81,809,360 Policy liabilities-future benefits, losses, claims 1,727,300 1,409,031 985,720 Policy liabilities-unearned premiums 6,023,399 7,108,662 8,249,190 Policy liabilities-other claims and benefits 540,789 427,649 293,221 Other policyholder funds 64,738 59,686 59,596 Notes payable, bonds, mortgages, and similar debt 1,000,000 1,000,000 1,000,000 Preferred stocks mandatory Redemption - - - Preferred stocks non- mandatory redemption - - - Common stock 1,907,989 1,907,989 1,907,989 Other stockholders equity 4,011,519 4,011,519 4,011,519 Total liabilities and stockholders equity 81,319,288 82,142,465 81,809,360 Premiums 7,228,227 7,643,650 7,915,019 Net investment income 3,587,147 3,545,311 3,318,627 Realized investment gains and losses 525,181 506,795 869,502 Other income - - - Benefits, claims, losses and settlement expenses 4,012,491 4,307,013 3,812,463 Underwriting acquisition and insurance expenses- amortization of deferred policy acquisition costs 3,484,689 3,542,617 3,364,738
66 SOUTHERN SECURITY LIFE INSURANCE COMPANY Financial Data Schedule, continued
December 31, December 31, December 31, 1998 1997 1996 Underwriting acquisitions and insurance expense other $4,044,686 $3,382,255 $3,246,552 Income or (loss) before taxes (625,640) 249,410 1,588,505 Income tax expense (241,907) 54,200 196,000 Income (Loss) continuing operations (383,733) 195,210 1,392,505 Discontinued operations - - - Extraordinary items - - - Cumulative effect-changes in accounting principals - - - Net income (loss) $(383,733) $195,210 $1,392,505 Earnings per share - basic $(.20) $.10 $.73 Earnings per share - diluted $(.20) $.10 $.73
67
Schedule III SOUTHERN SECURITY LIFE INSURANCE COMPANY Supplementary Insurance Information December 31, 1998, 1997 and 1996 Future policy Other Benefits Amortization Deferred benefits, Policy- policy claims of deferred policy losses claims holders' claims & Net losses & policy Other acquisition and loss account Unearned benefits Premium investment settlement acquisition operating cost expenses balances premiums payable revenue income expenses costs expenses ----------- ------------- -------- -------- -------- ------- ------ -------- ----- -------- 1998 Life and annuities $13,583,956 1,727,300 52,520,300 6,023,399 540,789 7,228,227 3,587,147 4,346,820 3,484,689 4,044,686 =========== ========= ========== ========= ======= ========= ========= ========= ========= ========= 1997 Life and annuities $15,451,689 1,409,031 52,335,511 7,108,662 427,649 7,643,650 3,545,311 4,431,474 3,542,617 3,382,255 =========== ========= ========== ========= ======= ========= ========= ========= ========= ========= 1996 Life and annuities $16,979,612 985,720 52,347,996 8,249,190 293,221 7,915,019 3,318,627 3,813,361 3,364,738 3,246,552 =========== ======= ========== ========= ======= ========= ========= ========= ========= =========
See accompanying auditors' report. 68
Schedule IV SOUTHERN SECURITY LIFE INSURANCE COMPANY Reinsurance December 31, 1998, 1997 and 1996 Percentage Ceded to Assumed of amount other from other assumed Direct amount companies companies Net amount to net December 31, 1998: Life insurance in force $919,014,000 297,913,000 548,515,000 1,169,616,000 47% ============ =========== =========== ============= === Premiums: Life insurance 7,366,153 863,436 566,628 7,069,345 8% Accident & health insurance 158,882 - - 158,882 - ------- ----- ----- ------- - Total Premiums $7,525,035 863,436 566,628 7,228,227 8% ========== ======= ======= ========= == December 31, 1997: Life insurance in force $1,026,038,000 337,901,000 532,772,000 1,220,909,000 44% ============== =========== =========== ============= === Premiums: Life insurance 8,055,672 914,071 490,726 7,632,327 6.4% Accident & health insurance 11,323 - - 11,323 - ------ ----- ----- ------ - Total Premiums $8,066,995 914,071 490,726 7,643,650 6.4% ========== ======= ======= ========= ==== December 31, 1996: Life insurance in force $1,165,948,000 386,084,000 537,743,000 1,317,607,000 41% ============== =========== =========== ============= === Premiums: Life insurance 8,415,790 1,030,673 528,636 7,913,753 6.7% Accident & health insurance 1,274 - - 1,274 - ----- ------- ------- ----- - Total Premiums $8,417,064 1,030,673 528,636 7,915,027 6.7% ========== ========= ======= ========= ====
69 Item 9. Change in and disagreements on accounting and financial disclosure. Southern Security Life (the "Company") retained Ernst & Young LLP as its independent auditors and replaced KPMG Peat Marwick LLP effective February 21, 1999. No report of KPMG Peat Marwick LLP on the financial statements of the Company for either of the past two years contained an adverse opinion, or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles. Since the engagement of KPMG Peat Marwick LLP for the Company's two most recent fiscal years and through the date of replacement, there were no disagreements between the Company and KPMG Peat Marwick LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. The change in independent accountants was approved by the Company's Board of Directors and disclosed in a Form 8K, which was filed with the Securities and Exchange Commission on February 26, 1999. Reference is made to current reports on Forms 8-K dated February 26, 1999. 70 PART III Item 10. Directors and executive officers of the Company. The Company's Board of Directors consists of nine persons, six of whom are not employees of the Company. There is no family relationship between or among any of the directors, except that Scott M. Quist is the son of George R. Quist. The following table sets forth certain information with respect to the directors and executive officers of the Company.
Director Name Age Since Position(s) with the Company George R. Quist 78 December 1998 Chairman of the Board, President and Chief Executive Officer William C. Sargent 70 December 1998 Senior Vice President, Secretary and Director Scott M. Quist 45 December 1998 First Vice President, General Counsel, Treasurer and Director Charles L. Crittenden 79 December 1998 Director Sherman B. Lowe 84 December 1998 Director R.A.F. McCormick 85 December 1998 Director H. Craig Moody 45 December 1998 Director Norman G. Wilbur 60 December 1998 Director Robert G. Hunter 39 December 1998 Director
Committees of the Board of Directors include an executive committee, on which George Quist, Scott Quist, Sargent and Moody serve; an audit committee, on which Crittenden, Lowe, Moody, and Wilbur serve; and a compensation committee, on which Crittenden, Lowe and George Quist serve. 71 The following is a description of the business experience of each of the directors. George R. Quist, age 78, has been Chairman of the Board, President and Chief Executive Officer of the Company since December 1998. Mr. Quist is also Chairman of the Board, President and Chief Executive Officer of Security National Financial Corporation and has served in this position since October 1979. From 1960 to 1964, he was Executive Vice President and Treasurer of Pacific Guardian Life Insurance Company. From 1946 to 1960, he was an agent, District Manager and Associate General Agent for various insurance companies. Mr. Quist also served from 1981 to 1982 as the President of The National Association of Life Companies, a trade association of 642 life insurance companies, and from 1982 to 1983 as its Chairman of the Board. William C. Sargent, age 70, has been Senior Vice President, Secretary and a director since December 1998. Mr. Sargent is also Senior Vice President, Secretary and a director of Security National Financial Corporation and has served in this position since February 1980. Prior to 1980, he was employed by Security National as a salesman and agency superintendent. Scott M. Quist, age 45, has been General Counsel, First Vice President, Treasurer and a director since December 1998. Mr. Quist is also First Vice President, General Counsel, Treasurer and a director of Security National Financial Corporation and has served in this position since May 1986. From 1980 to 1982, Mr. Quist was a tax specialist with Peat, Marwick, Mitchell, & Co., in Dallas, Texas. From 1986 to 1991, he was a treasure and director of The National Association of Life Companies, a trade association of 642 insurance companies until its merger with the American Council of Life Companies. Mr. Quist has been a member of the Board of Governors of the Forum 500 Section (representing small insurance companies) of the American Council of Life Insurance. Mr. Quist has also served as regional director of Key Bank of Utah since November 1993. Mr. Quist is currently a director and Vice President of the National Alliance of Life Companies, a trade association of over 200 life companies. Charles L. Crittenden, age 79, has been a director of the Company since December 1998. Mr. Crittenden is also a director of Security National Financial Corporation and has served in this position since October 1979. Mr. Crittenden has been sole stockholder of Crittenden Paint & Glass Company since 1958. He is also an owner of Crittenden Enterprises, a real estate development company and Chairman of the Board of Linco, Inc. Sherman B. Lowe, age 84, has been a director of the Company since December 1998. Mr. Lowe is also a director of Security National Financial Corporation and has served in this position since October 1979. Mr. Lowe was formerly President and Manager of Lowe's Pharmacy for over 30 years. He is now retired. He is an owner of Burton-Lowe 72 Ranches, a general partnership. R.A.F. McCormick, age 85, has been a director of the Company since December 1998. Mr. McCormick is also a director of Security National Financial Corporation and has served in this position since October 1979. He is a past Vice President of Sales for Cloverclub Foods. He is now retired. H. Craig Moody, age 45, has been a director of the Company since December 1998. Mr. Moody is also a director of Security National Financial Corporation and has served in this position since September 1995. Mr. Moody is owner of Moody & Associates, a political consulting and real estate company. He is a former Speaker and House Majority Leader of the House of Representatives of the State of Utah. Norman G. Wilbur, age 60, has been a director of the Company since December 1998. Mr. Wilbur is also a director of Security National Financial Corporation and has served in this position since October 1998. Mr Wilbur worked for J.C. Penny's regional offices in budget and analysis. His final position was Manager of Planning and Reporting for J.C. Penney's stores. After 36 years with J.C. Penny's, he took an option of an early retirement in 1997. Mr. Wilbur is a past board member of a homeless organization in Plano, Texas. Robert G. Hunter, M.D., age 39, has been a director of the Company since December 1998. Dr. Hunter is also a director of Security National Financial Corporation and has served in this position since October 1998. Dr. Hunter is currently a practicing physician in private practice. Dr. Hunter created the State Wide E.N.T. Organization (Rocky Mountain E.N.T., Inc.) where he is currently a member of the Executive Committee. He is Chairman of Surgery at Cottonwood Hospital, a delegate to the Utah Medical Association and a delegate representing Utah to the American Medical Association, and a member of several medical advisory boards. Executive Officers The following table sets forth certain information with respect to the executive officers of the Company (the business biographies set forth above):
Name Age Title George R. Quist (1) 78 Chairman of the Board, President and Chief Executive Officer William C. Sargent 70 Senior vice President and Secretary Scott M. Quist (1) 45 First Vice President, General Counsel and Treasurer
73 (1) George R. Quist is the father of Scott M. Quist. The Board of Directors of the Company has a written procedure which requires disclosure to the Board of any material interest or any affiliation on the part of any of its officers, directors or employees which is in conflict or may be in conflict with the interests of the Company. No director, officer or 5% stockholder of the Company or its subsidiaries, or any affiliate thereof has had any transactions with the Company or its subsidiaries during 1998 or 1997. Each of the directors are board members of Security National Financial Corporation (the ultimate parent of the Company) which has a class of equity securities registered under the Securities Exchange Act of 1934, as amended. In addition, Scott M. Quist is a regional director of Key Bank of Utah. All directors of the Company hold office until the next annual meeting of stockholders, until their successors have been elected and qualified, or until their earlier resignation or removal. 74 Item 11. Executive compensation. (a) Summary compensation. The following summary compensation table is provided with respect to the Company's Chief Executive Officer and its Executive Vice President, who constitute all of the executive officers of the Company whose total annual salary and bonus exceed $100,000: SUMMARY COMPENSATION TABLE
Long Term Compensation Annual Compensation Awards Awards |Payouts | | | | (a) (b) (c) (d) (e) | (f) (g) | (h) | (i) | | | Other | Restricted Securities | |All other Name and Annual | Stock Underlying | LTIP | Compen- Principal Compensation | Awards Options/ | Payouts | sation Position Year Salary ($) Bonus ($) ($) | ($) SARs(#) | ($) | ($) | | | President | | | and Chief | | | Executive | | | Officer | | | | | | George R. Quist(1) 1998 $0 $0 $0 | $0 N/A | N/A | N/A | | | George Pihakis 1998 $244,800 $0 $13,625(2) | $0 N/A | N/A | $1,050,000 (3) | | | George Pihakis 1997 $244,800 $0 $11,674(2) | $0 N/A | N/A | N/A | | | George Pihakis 1996 $244,800 $0 $11,374(2) | $0 N/A | N/A | N/A | | | | | | | | | | | | Executive Vice | | | President | | | | | | David C. Thompson 1998 $121,275 $0 $13,313(4) | $0 N/A | N/A | N/A | | | David C. Thompson 1997 $121,275 $0 $14,043(4) | $0 N/A | N/A | N/A | | | David C. Thompson 1996 $121,275 $0 $13,685(4) | $0 N/A | N/A | N/A | | | | | |
(1) New officers appointd in December 1998 did not receive any compensation in 1998. (2) During 1998 this amount included $6,350 paid in the form of a director's fee, and $7,275 paid in the form of a car allowance. During 1997 this amount included $6,600 paid in the form of a director's fee, $550 paid in the form of an executive committee fee, and $4,524 paid in the form of a car allowance. During 1996 this amount included $6,300 paid in the form of a director's fee, $550 paid in the form of an executive committee fee, $4,524 paid in the form of a car allowance. 75 (3) Payment of lump sum settlement under Executive Compensation Agreement. See "Item 11 Executive compensation (e) Employee contracts." (4) During 1998 this amount included $6,350 paid in the form of a director's fee,$6,000 paid in the form of a car allowance, and $963 paid in the form of dues at a social club used exclusively for business purposes. During 1997 this amount included $6,600 paid in the form of a director's fee, $550 paid in the form of an executive committee fee, $6,000 paid in the form of a car allowance, and $893 paid in the form of dues at a social club used exclusively for business purposes. During 1996 this amount included $6,300 paid in the form of a director's fee, $550 paid in the form of an executive committee fee, $6,000 paid in the form of a car allowance, and $835 paid in the form of dues at a social club used exclusively for business purposes. (b)Prerequisites. Executive officers of the Company who are employees of the Company are covered under a group life, group dis-ability, and hospitalization plan that does not discriminate in favor of officers and that is generally available to all salaried employees. The Company does not have a pension, retirement or other deferred compensation plan, or any other similar arrangement. (c)Director's fees and other fees. Directors of the Company prior to December 17, 1998 received a director's fee of $6,600 per year for serving as director of the Company. Each director of the Company also received the sum of $275 for each committee meeting attended, if such committee meeting is not in conjunction with a meeting of the Company's Board of Directors held at the same time and place. New directors elected in December 1998 did not receive any compensation in 1998. (d)Compensation committee interlocks and insider participation. The Executive Committee of the Company's Board of Directors makes recommendation to the Board of Directors concerning the compensation of the Company's executive officers. Subsequently, the Board of Directors makes all final decisions concerning such compensation. (e)Employee contracts. As part of the acquisition by Security National Financial Corporation (SNFC) on December 17, 1998 of SSLIC Holding Company (formerly Consolidare Enterprises, Inc.), SNFC caused the Company to pay $1,050,000 to George Pihakis, President and Chief Executive Officer of the Company prior to closing, as a lump sum settlement of the executive compensation agreement between the Company and Mr. Pihakis. 76 Item 12. Security ownership of certain beneficial owners and management. (a) The following table sets forth, as of December 31, 1998, information with respect to the only persons known by the Company to be the beneficial owner of more than 5% of the Company's outstanding voting securities:
Number of Shares Title and Nature of of Name and Address of Beneficial Percent Class Beneficial Owner Ownership of Class Common SSLIC Holding Company Inc., formerly Shares Consolidare Enterprises, Inc. 1,095,496 57.4% c/o Security National Life Ins. Co. Direct 5300 S 360 W, Suite 200 Salt Lake City, UT 84123 Common Capital Indemnity Corp., 151,871 8.0% Shares George A. Fait Direct 4610 University Ave, Madison, WI
Item 13. Certain relationships and related transactions. Insuradyne Corporation, a wholly-owned subsidiary of Security National Financial Corporation, serves as general agent for the Company, pursuant to a general agency agreement, which is terminable by either party with 30 days notice. In such capacity, Insuradyne receives a commission on the first year commissionable premium on certain of the Company's policies as well as a small renewal commission on certain other policies. In accordance with the Florida Insurance Code, a copy of the Company's General Agency Agreement with Insuradyne Corporation was filed with and approved by the Florida Department of Insurance. Management of the Company believes that the terms of its General Agency Agreement with Insuradyne are as favorable to the Company as terms which could be obtained from independent third parties. During 1998, gross com missions in the amount of $252,955 were earned by Insuradyne Corporation. At December 31, 1998, the Company owes $22,871 to Insuradyne as a result of commissions earned by Insuradyne but for which Insuradyne has not yet requested payment. No director or officer of the Company or any associates of any director or officer of the Company was indebted to the Company at December 31, 1998. The Company continues to be indebted to its parent, SNFC, in the amount of $1,000,000, pursuant to a promissory note dated 77 December 1988, which bears interest at the annual rate of interest equal to the prime rate (as hereinafter defined) plus 2%, with such interest rate not to be less than 9% nor in excess of 11%. For purposes of this promissory note, prime rate is defined to mean the prime rate as announced by Compass Bank, Birmingham, Alabama, from time to time, as its prime rate (which interest rate is only a bench mark, is purely discretionary and is not necessarily the best or lowest rate charged borrowing customers). This promissory note is due on demand and is payable out of capital surplus in excess of $1,900,000, pursuant to Florida Statutes ss.628.401 (1990). Interest and principal can only be repaid upon the express written approval of the Florida Department of Insurance. The Company entered into an Administrative Services Agreement dated December 17 1998 with SNFC. Under the terms of the agreement, SNFC has agreed to provide the Company with certain defined administrative and financial services, underwriting, data processing, legal, building management, marketing advisory services and investment services. In consideration for the services to be provided by SNFC, the Company shall pay SNFC an administrative service fee of $250,000 per month, which may be increased, beginning on January 1, 2001, to reflect increases in Consumer Price Index, over the index amount as of January 1, 2000. The Administrative Services Agreement shall remain in effect for an initial term expiring on December 16, 2003. However, the term of the agreement may be automatically extended for additional on-year term unless either the Company of SNFC shall deliver a written notice on or before September 30 of any year stating to the other its desire not to extend the term of the agreement. SSLIC Holding Company, a wholly owned subsidiary of Security National Life Insurance Company, owns 57.4% of the outstanding shares of common stock of the Company. Security National Life Insurance Company is a wholly owned subsidiary of SNFC. In addition, George R. Quist, the Company's President and Chef Executive Officer is the President and Chief Executive Officer of SNFC; Scott M. Quist, the Company's First Vice President, General Counsel and Treasurer is the First Vice President, General Counsel and Treasurer of SNFC; and William C. Sargent, the Company's Senior Vice President and Secretary is the Senior Vice President and Secretary of SNFC. Finally, the directors of the Company also serve as the directors of SNFC. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. 78 PART IV Item 14. Financial statements, exhibits filed and reports on Form 10-K.
Page Number (a) 1. See item 8 26 2. Supplemental Schedules. Required Financial Data - for the years ended December 31, 1998, 1997 and 1996 included in Part II, Item 8: Schedule I - Summary of Investments - Other than Investments in Related Parties................................. 65 Financial Data Schedule................. 66 Schedule III - Supplementary Insurance Information............................. 68 Schedule IV - Reinsurance............... 69
Schedules other than those listed above have been omitted because they are not applicable or because the required information is included in the financial statements and notes thereto or in Item 7 -Management's Discussion and Analysis of Financial Condition and Results of Operations. 79 3. Exhibits
Exhibit No. Document Page Number 3. Articles of Incorporation, as amended, and By-Laws, as amended (without exhibits) dated September 1994, incorporated by reference herein from From Exhibit 3(1) of the Annual Report of the Company filed on Form 10-K for the fiscal year ended December 31, 1994..... 10.A Executive Compensation Agree- ment between the Company and George Pihakis (without exhibits) incorporated by reference herein from Exhibit 10(B) of the Annual Report of the Company filed on Form 10-K for the fiscal year ended December 31, 1984................. 10.B Revolving Financing Agreement between the Company and the Student Loan Marketing Association, dated as of September 19, 1996...................... 10.C Reinsurance Agreement between the Company and United Group Insurance Company, dated as of December 31, 1992 incorporated by reference herein from Exhibit 10(B) of the Annual Report of the Company filed on Form 10-K for the fiscal year ended December 31, 1992............ 10.D Agency Agreement between the Company and Insuradyne Corporation incorporated by reference herein from Exhibit 10(C)of the Annual Report of the Company filed on Form 10-K for the fiscal year ended December 31, 1993....................... 10.E Administrative Services Agreement between the Company and Security National Financial Corporation dated December 17, 1998..... 83 11. Statement Re Computation of Net Income per common share............................ 84 21. Definitive proxy materials for the Annual Meeting of Shareholders held July 18, 1998........................... 85
80 3. Exhibits Exhibit No. Document Page Number (b) Reports on Form 8-K Change in principal auditor filed effective February 26, 1999............. 81 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SOUTHERN SECURITY LIFE INSURANCE COMPANY Dated: April 6, 1999 By:___________________________ Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934 as amended, this report has been signed by the following persons in counterpart on behalf of the Company on the dates indicated:
Signature Title Date - --------- ----- ---- George R. Quist Chairman of the April 6, 1999 Board, President and Chief Executive Officer and (Principal Executive Officer) Scott M. Quist First Vice President, April 6, 1999 General Counsel, and Treasurer and Director (Principal Financial and Accounting Officer) William C. Sargent Senior Vice President, April 6, 1999 Secretary and Director Charles L. Crittenden Director April 6, 1999 Sherman B. Lowe Director April 6, 1999 R.A.F. McCormick Director April 6, 1999 H. Craig Moody Director April 6, 1999 Norman G. Wilbur Director April 6, 1999 Robert G. Hunter Director April 6, 1999
82 SOUTHERN SECURITY LIFE INSURANCE COMPANY EXHIBIT 10.E ADMINISTRATIVE SERVICES AGREEMENT BETWEEN THE COMPANY AND SECURITY NATIONAL FINANCIAL CORPORATION DATED DECEMBER 17, 1998 83 SOUTHERN SECURITY LIFE INSURANCE COMPANY EXHIBIT 11 COMPUTATION OF NET INCOME PER COMMON SHARE
1998 1997 1996 ---------- --------- -------- Weighted Average Shares Outstanding 1,907,989 1,907,989 1,907,989 Net Income (Loss) $(383,733) $195,210 $1,392,505 Per Share Amount $(.20) $.10 $.73
84 SOUTHERN SECURITY LIFE INSURANCE COMPANY EXHIBIT 21 DEFINITIVE PROXY MATERIALS FOR THE ANNUAL MEETING July 18, 1998 85 EX-27 2 ARTICLE 7 FOR 10K PERIOD END DECEMBER 31, 1998
7 YEAR YEAR DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997 28,479,161 31,483,324 4,956,910 10,501,712 5,064,541 10,631,003 250,232 839,973 0 0 0 0 53,583,724 50,870,390 682,389 2,448,994 306,258 359,688 13,583,956 15,451,689 81,205,193 82,142,465 1,727,300 1,409,031 6,023,399 7,108,662 540,789 427,649 64,738 59,686 1,000,000 1,000,000 0 0 0 0 1,907,989 1,907,989 4,011,519 4,011,519 81,205,193 82,142,465 7,228,227 7,643,650 3,587,147 3,545,311 525,181 506,795 0 0 4,346,820 4,431,474 3,484,689 3,542,617 4,044,686 3,382,255 (625,640) 249,410 (241,907) 54,200 (383,733) 195,210 0 0 0 0 0 0 (383,733) 195,210 (.20) .10 (.20) .10 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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