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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 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
of incorporation or organization) Identification Number)
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
Title of each Class on which registered
____________________ ______________________
None None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each Class on which registered
___________________ _______________________
None None
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 28, 2001 was approximately $5,962,000.
As of March 28, 2001, registrant had issued and outstanding 1,907,989 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Registrant's 2001 Annual
Meeting of Stockholders' are incorporated by reference into Part III hereof.
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 will continue the process of seeking authorization to transact business
in additional states during 2001. During 2000 approximately 41% of the premium
income of the Company was from business in force in Florida, 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% of the assets of Consolidare Enterprises, Inc.
("Consolidare") which owned 57.4% 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 15% of the first
year premiums collected by the Company in 2000 and 1999, 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 equivalent to the insured's anticipated funeral
costs. This new series represented 85% of the first year premiums collected in
2000 and 1999. 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:
2000 1999 1998
____ ____ ____
Per- Per- Per-
Amount centage Amount centage Amount centage
_______ _______ ______ _______ ______ _______
Life
Insurance-
Ordinary (1)(2) $7,568,550 91% $8,103,864 92% $7,602,811 91%
Individual
Annuities (1) 89,623 1% 46,348 1% 90,289 1%
Life
Insurance-
Group (SGLI) 497,070 6% 438,124 5% 460,029 6%
Other -
Accident & Health 169,203 2% 205,872 2% 158,882 2%
$8,324,446 100% $8,794,208 100% $8,312,011 100%
(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 2000, 1999, and 1998 premium income for life insurance-ordinary are net
of reductions of $923,648, $1,236,735, and $1,329,814, respectively, in
ceded premium paid to all reinsurers, including Mega Life.
The following table gives information on a generally accepted accounting
principles basis concerning operating ratios of the Company for the periods
indicated:
2000 1999 1998
------ ---- ----
Total Net Insurance
Revenues $6,698,869 $6,901,546 $7,228,227
Benefit Costs Paid or
Provided:
Amount $5,109,411 $4,453,564 $4,346,820
Ratio to Net Insurance
Revenue 76.3% 64.5% 60.1%
Amortization of Deferred Policy
Acquisition Expenses:
Amount $1,797,320 $3,029,223 $3,484,689
Ratio to Net Insurance
Revenue 26.8% 43.9% 48.2%
General Insurance Expenses:
Amount $3,529,381 $3,261,134 $4,134,686
Ratio to Net Insurance
Revenue 52.7% 47.3% 57.2%
Income (Loss) Before Income
Taxes:
Amount $ 198,365 $ 782,126 $ (625,640)
Ratio to Net Insurance
Revenue 3.0% 11.3% (8.7%)
Ratio to Total Revenue and
Investment Income 1.9% 6.8% (5.5%)
Ratio to Equity 1.2% 5.0% (4.0%)
The following table provides information about the Company concerning changes in
life insurance in force during the periods indicated (exclusive of acciden- tal
death benefits):
2000 1999 1998
(In thousands except lapse ratios)
Total life insurance in force
at beginning of period:
Ordinary Whole Life &
Endowment-Participating $ 238 $ 532 $ 381
Ordinary Whole Life &
Endowment-Non-Participating 892,962 913,683 1,019,179
Term 3,646 4,799 6,478
Reinsurance Assumed 558,571 548,515 532,772
---------- ---------- ----------
Total $1,455,417 $1,467,529 $1,558,810
Additions (including re-
insurance assumed):
Ordinary Whole Life &
Endowment-Participating $ -- $ -- $ --
Ordinary Whole Life &
Endowment-Non-Participating 60,589 66,591 68,935
Term -- -- --
Reinsurance Assumed 4,121 22,402 21,617
---------- ---------- ----------
Total $ 64,710 $ 88,993 $ 90,552
Terminations:
Death 2,313 2,172 $ 1,605
Lapse and Expiry 22,398 31,418 48,034
Surrender 125,086 67,515 132,184
Other 522 -- 10
---------- ---------- ----------
Total $ 150,319 $ 101,105 $ 181,833
Life Insurance in force at
end of period:
Ordinary Whole Life &
Endowment-Participating $ 30 $ 238 $ 532
Ordinary Whole Life &
Endowment-Non-Participating 732,433 892,962 913,683
Term 78,770 3,646 4,799
Reinsurance Assumed 558,575 558,571 548,515
---------- ---------- ----------
Total $1,369,808 $1,455,417 $1,467,529
Reinsurance Ceded (210,365) (250,691) (297,913)
---------- ---------- ----------
Total after Reinsurance Ceded $1,159,443 $1,204,726 $1,169,616
========== ========== ==========
Lapse Ratio (Reflecting termina-
tion by surrender and lapse;
ordinary life insurance only): 16.1% 9.1% 17.4%
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)
- ------ ---------- ---------- ----------- ---------
2000 $50,444,329 $3,959,061 $3,935,607 7.80%
1999 $50,221,950 $3,924,271 $3,909,373 7.78%
1998 $52,227,057 $3,599,547 $3,587,147 6.87%
(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 937 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
Security National Financial Corporation. See "Certain Relationships and Related
Transactions" in item 13, Part III of this Report.
Effective January 1, 1999, 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 are now being
furnished to the Company under this Agreement. The Company will pay to Security
National $250,000 per month or $3 million per year for the Administrative
services.
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 $1,858,000.
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, 2000, the
Company had statutory capital and surplus of $8,405,211, 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.
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, 2000, 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, Indiana,
Illinois, Kentucky, Louisiana, Michigan, Missouri, Oklahoma, 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 diversification 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.
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 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 using the CRVM method.
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, preauthorized 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. 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
approximately one-half of the second floor of the building. Approximately 38% of
the remaining rentable space is leased as of December 31, 2000.
Item 3. Legal Proceedings. --------------------------- An action was brought
against the Company in July 1999 by Dorothy Ruth Campbell in the Circuit Court
of Escambia County, Alabama. The action arises out of a denial of coverage under
a $10,000 insurance policy. The claims are for breach of contract, bad faith and
fraudulent misrepresentation. In the action, Campbell seeks compensatory and
punitive damages plus interest. The Company has filed its response to the
complaint and intends to vigorously defend the matter.
An action was brought against the Company in late 1999 by Larry Boyd in the
Circuit Court of Jefferson County, Alabama. The action involves the alleged
purchase by Boyd and his deceased wife of two college funds with respective
death benefits of $58,454 and $58,556 for Boyd's two sons. The allegations in
the complaint include an alleged representation by the Company through its sales
agent that when Boyd's sons, the insureds, reached college age they would
receive monthly payments for college. Boyd further contends that he does not
have the college funds promised to him, and suffered mental anguish and
emotional distress.
The claims are based on fraud, misrepresentation and negligence by the Company
in hiring, training and supervising the sales agent. Boyd seeks compensatory and
punitive damages, plus costs. The complaint was responded to and discovery is in
progress. The Company intents to vigorously defend the action.
An action was brought against the Company in February 2001 by Willow Newberry in
the County Court at Law No. 1, Grayson County, Texas. The action involves the
denial of coverage under a $10,000 insurance policy. The complaint seeks
recovery of the policy amount, statutory penalties, exemplary damages,
attorney's fees and prejudgment and post judgment interest. The Company is in
the process of evaluating the case and preparing an answer to the complaint. The
Company intends to vigorously defend the case.
The Company is not a party to any other legal proceedings outside the ordinary
course of the Company's business or to any other legal proceedings which, if
adversely determined, would have a 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.
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
- -------------------------------------------------------------------------------
2000 1999
- -------------------------------------------------------------------------------
Mar.31 Jun.30 Sep.30 Dec.31 Mar.31 Jun.30 Sep.30 Dec.31
------ ------ ------ ------ ------ ------ ------ ------
Common
Shares:
High 5.00 5.00 4.69 4.38 3.81 4.22 4.75 4.94
Low 4.66 4.00 4.00 3.50 3.75 4.22 4.75 4.94
(b) Approximate Number of Holders of Common Stock. There were 1,299 holders of
record of the Company's Common Stock at December 31, 2000.
(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 2001 pursuant to such regulation is
approximately $92,200.
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.
YEARS ENDED DECEMBER 31,
------------------------
2000 1999 1998 1997 1996
--------- ------- ------- -------- -------
Revenues:
Life insurance
premiums and
policy charge $ 6,698,869 $ 6,901,546 $7,228,227 $7,643,650 $7,915,027
Net investment
income 3,935,607 3,909,373 3,587,147 3,545,311 3,318,627
Realized Gain
(loss) on
investments -- -- 525,181 506,795 869,502
Other revenue, net -- 715,128 -- -- --
----------- ----------- ----------- ------------ ------------
Total Revenue 10,634,476 11,526,047 11,340,555 11,695,756 12,103,156
Benefits, Losses
& Expenses:
Insurance living
benefits 2,243,331 2,614,754 2,483,197 2,459,638 2,420,021
Insurance death
benefits 1,549,116 1,917,134 1,529,294 1,847,375 1,398,541
Increase (decrease)
in policy
reserves 1,316,964 (78,324) 334,329 124,461 (5,201)
Amortization of
deferred policy
acquisition
costs 1,797,320 3,029,223 3,484,689 3,542,617 3,364,738
Commissions and
general
expenses 3,529,381 3,261,134 4,134,686 3,472,255 3,336,552
----------- ----------- ----------- ----------- ------------
Total expenses 10,436,112 10,743,921 11,966,195 11,446,346 10,514,651
Income (loss)
before income
taxes 198,365 782,126 (625,640) 249,410 1,588,505
Income tax expense
(benefit) 38,105 150,168 (241 907) 54,200 196,000
------------ ------------ ------------- ------------- ------------
NET INCOME (LOSS) $ 160,260 $ 631,958 $ (383,733) $ 195,210 $ 1,392,505
-=========== ============ ============= ============= ============
Weighted average
number of
shares
outstanding
(basic and
diluted) 1,907,989 1,907,989 1,907,989 1,907,989 1,907,989
----------- ----------- ------------- ------------- ------------
Basic income (loss)
per common share $0.08 $.33 $(.20) $.10 $.73
----- ---- ----- ---- ----
Diluted income (loss)
per common share $0.08 $.33 $(.20) $.10 $.73
----- ---- ----- ---- ----
Shareholders'
Equity $ 16,198,535 $ 15,637,320 $ 15,912,106 $ 16,132,018 $ 15,661,588
============= ============ ============= ============== ============
Shareholders'
equity per
common
share $8.49 $8.20 $8.34 $8.45 $8.20
===== ===== ===== ===== =====
Assets $ 77,125,931 $ 77,208,941 $ 81,205,193 $ 82,142,465 $ 81,809,360
------------- ------------ -------------- -------------- -----------
Life Insurance:
Insurance in
force $1,369,808,000 $1,455,417,000 $1,467,529,000 $1,558,810,000 $1,703,650,000
-------------- -------------- -------------- -------------- --------------
Individual
insurance
issued during
current
year $ 64,710,000 $ 66,591,000 $ 68,935,000 $ 82,390,000 $ 121,646,000
------------ -------------- -------------- -------------- --------------
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
===== ===== ===== ===== =====
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 the products are written to a senior market they
are designed to accommodate adverse health conditions. Because of the size of
the policies, the products are usually issued with only limited underwriting.
The coverage size of the policy is roughly equivalent to the insured's
anticipated funeral costs.
An additional source of income to the Company is investment income. The Company
invests those funds deposited by policyholders of universal life and annuity
products in debt and equity securities, mortgage loans, and warehouse mortgage
loans on a short-term basis before selling the loans to investors in accordance
with the requirements and laws governing life insurance companies, 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 an important 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.
Results of Operations
2000 Compared to 1999
Total revenues decreased by $892,000, or 7.7%, to $10,634,000 for fiscal year
2000 from $11,526,000 for fiscal year 1999. Contributing to this decrease in
total revenues was a $203,000 decrease in net insurance revenues and a $715,000
increase in other revenue.
Net insurance revenues decreased by $203,000, or 2.9%, to $6,699,000 for fiscal
year 2000, from $6,902,000 for fiscal year 1999. This decrease was primarily the
result of a change in the sales mix of the Company's insurance products. Since
March 1998, the sales of the Company's funeral plan products have been greater
than the universal life products. The universal life products were for greater
face amounts than the funeral plan products. Consequently, the insurance
revenues from final expense products were less than those from universal life
products.
Net investment income increased by $26,000, or .7%, to $3,936,000 for fiscal
year 2000 from $3,909,000 for fiscal year 1999. Investment yield slightly
increased for the fiscal year 2000 from 7.78% in 1999 to 7.8% in 2000.
There was no other revenue for fiscal year 2000, as compared to $715,000 in
other revenue in 1999. The amount of other revenue was the result of a
settlement from insurance claims filed for the recovery of the costs to litigate
a case against a former officer of the Company.
Benefits and claims increased by $655,000, or 14.7%, to $5,109,000 for fiscal
year 2000, from $4,454,000 for the comparable period in 1999. The increase was
primarily due to an increase in traditional life reserves as a result of
additional policies in force of traditional life products.
The amortization of deferred policy acquisition costs decreased by $1,232,000 or
40.7%, to $1,797,000, for fiscal year 2000, from $3,029,000 for the comparable
period in 1999. The decrease in amortization expense was primarily due to
adjusting the amortization rate to the Company's current assumptions.
Operating expenses increased by $269,000, or 8.3% to $3,530,000 for fiscal year
2000 from $3,261,000 for the same period in 1999. The increase was primarily due
to increased marketing and home office building expenses.
1999 Compared to 1998
Total revenues increased by $186,000, or 1.6%, to $11,526,000 for fiscal year
1999 from $11,340,000 for fiscal year 1998. Contributing to this increase in
total revenues was a $322,000 increase in net investment income and a $715,000
increase in other revenue.
Net insurance revenues decreased by $326,000, or 4.5%, to $6,902,000 for fiscal
year 1999, from $7,228,000 for fiscal year 1998. This decrease was primarily the
result of a change in the sales mix of the Company's insurance products. Since
March 1998, the sales of the Company's funeral plan products have been greater
than the universal life products. The universal life products were for greater
face amounts than the funeral plan products. Consequently, the insurance
revenues from final expense products were less than those from universal life
products.
Net investment income increased by $322,000, or 9.0%, to $3,909,000 for fiscal
year 1999 from $3,587,000 for fiscal year 1998. The increase was primarily due
to a rental income being paid to the Company from Security National Financial
Corporation, the Company's ultimate parent under the terms of the Administrative
Services Agreement entered into by the Company on January 1, 1999. See Note 11
to the Notes to Financial Statements included in this report. In addition the
Company was able to increase its yield by investing in mortgage loans.
Realized gains on investments decreased from $525,000 in fiscal year 1998 to no
gains in fiscal year 1999. The gains in 1998 were the result of the Company
trading its available-for-sale securities. The Company did not engage in the
trading of any of its available-for-sale securities in 1999.
Other revenue totaled $715,000 for fiscal year 1999, as compared to no other
revenue for the same period in 1998. This amount was the result of a settlement
from insurance claims filed for the recovery of the costs to litigate a case
against a former officer of the Company.
Benefits and claims increased by $107,000, or 2.5%, to $4,454,000 for fiscal
year 1999, from $4,347,000 for the comparable period in 1998. The increase was
primarily due to additional death claims.
The amortization of deferred policy acquisition costs decreased by $456,000, or
13.1%, to $3,029,000, for fiscal year 1999, from $3,485,000 for the comparable
period in 1998. The decrease in amortization expenses was primarily due to the
reduction in net insurance revenues.
Operating expenses decreased by $874,000, or 21.1% to $3,261,000 for fiscal year
1999 from $4,135,000 for the same period in 1998. This reduction was primarily
due to the lump sum payment to the Company's former President in December 1998
in connection with the acquisition of Company's parent company.
Liquidity and Capital Resources.
The Company attempts to match the duration of invested assets with its
policyholder liabilities. The Company may sell investments other than those
held- to-maturity in the portfolio to help in this timing; however, to date,
that has not been necessary. The Company purchases short-term investments on a
temporary basis to meet the expectations of short-term requirements of the
Company's products. The Company's investment philosophy is intended to provide a
rate of return which will persist during the expected duration of policyholder
liabilities regardless of future interest rate movements.
The Company's investment policy is to invest predominantly in fixed maturity
securities, mortgage loans, and warehouse mortgage loans on a short-term basis
before selling the loans to investors in accordance with the requirements and
laws governing life insurance companies. Bonds owned by the Company amounted to
$28,742,000 as of December 31, 2000 as compared to $27,930,000 as of December
31, 1999. This represents 60.6% and 59.8% of the total investments as of
December 31, 2000 and December 31, 1999, respectively. Generally, all bonds
owned by the Company are rated by the National Association of Insurance
Commissioners. Under this rating system, there are nine categories used for
rating bonds. At December 31, 2000, and at December 31, 1999, the Company did
not have investments in bonds in rating categories three through nine, which are
considered non-investment grade.
If market conditions were to cause interest rates to change, the market value of
the fixed income portfolio (approximately $30.939 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 $2.023 $.974 $(.905) $(1.748)
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.
The Company has classified certain of its fixed income securities as available
for sale, with the remainder classified as held to maturity. However, in
accordance with Company policy, any such securities purchased in the future will
be classified as held to maturity. Business conditions, however, may develop in
the future which may indicate a need for a higher level of liquidity in the
investment portfolio. In that event the Company believes it could sell short-
term investment grade securities before liquidating higher-yielding longer term
securities.
The Company is subject to risk based capital guidelines established by statutory
regulators requiring minimum capital levels based on the perceived risk of
assets, liabilities, disintermediation, and business risk. At December 31, 2000
and December 31, 1999, the Company exceeded the regulatory criteria.
Lapse rates measure the amount of insurance terminated during a particular
period. The Company's lapse rate for life insurance in 2000 was 16.1% as
compared to a rate of 9.1% for 1999.
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 an 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.
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 through
December 31, 2000.
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 2000 and 1999.
The Company has leased approximately 38% of the available space in its principal
office building and does not anticipate significant capital expenditures to the
rental space.
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.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was
issued in June 1998 and amended by SFAS No. 138, issued in June 2000. The
requirements of SFAS No. 133, as amended, will be effective for the Company in
the first quarter of the fiscal year beginning January 1, 2001. The standard
establishes accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging activities. Under the standard,
certain contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company has determined SFAS 133 to have no
impact on the Company's financial position and results of operations because the
Company has no derivative activity.
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued in September 2000. SFAS No. 140 is a
replacement of SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. Most of the provisions of SFAS No.
125 were carried forward to SFAS No. 140 without reconsideration by the
Financial Accounting Standards Board (FASB), and some were changed only in minor
ways. In issuing SFAS No. 140, the FASB included issues and decisions that had
been addressed and determined since the original publication of SFAS No. 125.
SFAS No. 140 is effective for transfers after March 31, 2001. Management does
not expect the adoption of SFAS No. 140 to have a significant impact on the
financial position or results of operations of the Company.
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............. . . . . . . . . . . . . . . . 16
Balance Sheet-December 31, 2000 and 1999. . . . . . . . . . . . . . . . 17
Statement of Operations - years ended
December 31, 2000, 1999 and 1998......... . . . . . . . . . . . . . . . 19
Statement of Shareholders' Equity-years
ended December 31, 2000, 1999 and 1998... . . . . . . . . . . . . . . . 20
Statement of Cash Flows - years ended
December 31, 2000, 1999 and 1998......... . . . . . . . . . . . . . . . 21
Notes to Financial Statements............ . . . . . . . . . . . . . . . 23
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, 2000 and 1999 and the related statements of
operations, shareholders' equity, and cash flows for the years 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 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 at December 31, 2000 and 1999, and the results of its
operations and its cash flows for the two years then 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.
Tanner + Co.
Salt Lake City, Utah
March 23, 2001
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Balance Sheet
December 31, 2000 and 1999
Assets 2000 1999
Investments (note 3):
Fixed maturities held-to-maturity
(fair value, $5,273,032 and
$3,985,336 at December 31,
2000 and 1999, respectively) $5,374,204 $3,978,871
Securities available-for-sale,
at fair value:
Fixed maturities (cost of
$23,419,358 at December 31,
2000 and $24,789,267 at
December 31, 1999) 23,367,483 23,951,111
Equity securities
(cost, $327,674 and
$225,980 at December 31,
2000 and 1999, respectively) 358,932 378,440
Mortgage loans 2,298,163 1,497,688
Policy and student loans 8,220,736 8,458,972
Short-term investments (note 11) 7,814,813 8,595,093
----------- -----------
47,434,331 46,860,175
Cash and cash equivalents 2,513,668 4,080,484
Accrued investment income 610,474 582,908
Deferred policy acquisition costs
(note 4) 13,211,413 12,874,219
Policyholders' account balances on
deposit with reinsurer (note 7) 7,434,750 7,806,866
Reinsurance receivable (note 7) 324,793 373,459
Receivables:
Agent balances 1,208,378 1,215,756
Other 279,567 193,506
Refundable income taxes -- 34,951
Property and equipment, net,
at cost (note 5) 2,542,384 2,435,565
Investment in affiliate at cost 1,566,173 751,052
----------- -----------
$77,125,931 $77,208,941
=========== ===========
See accompanying notes to financial statements.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Balance Sheet (continued)
December 31, 2000 and 1999
Liabilities and Shareholders' Equity 2000 1999
- -------------------------------------
Liabilities:
Policy liabilities and accruals
(notes 6 and 7): $ 2,965,940 $ 1,648,976
Future policy benefits:
Policyholders' account balances 48,722,138 50,377,101
Unearned revenue 4,948,989 5,323,954
Other policy claims and benefits
payable 580,196 540,407
Other policyholders' funds, dividend
and endowment accumulations 72,890 69,789
Funds held related to reinsurance
treaties (note 7) 1,417,216 1,475,512
Note payable to related party
(note 9) 1,000,000 1,000,000
Due to affiliated insurance
agency (note 11) 151,689 195,785
General expenses accrued 157,944 137,884
Unearned investment income 323,830 324,750
Other liabilities 28,488 63,753
Income taxes (note 10) 558,076 413,710
----------- -----------
60,927,396 61,571,621
----------- -----------
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 (loss) (75,628) (476,583)
Retained earnings 10,354,655 10,194,395
----------- -----------
16,198,535 15,637,320
Commitments and contingencies
(notes 7 and 15) -- --
----------- -----------
$77,125,931 $77,208,941
=========== ===========
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statement of Operations
Years ended December 31, 2000, 1999, and 1998
2000 1999 1998
Revenues:
Net insurance revenues $ 6,698,869 $ 6,901,546 $ 7,228,227
Net investment income
(notes 3 and 11) 3,935,607 3,909,373 3,587,147
Realized gain on
investments (note 3) -- -- 525,181
Other revenue, net -- 715,128 --
----------- ------------ -----------
10,634,476 11,526,047 11,340,555
----------- ------------ -----------
Benefits, claims and expenses:
Benefits and claims 5,109,411 4,453,564 4,346,820
Amortization of deferred
policy acquisition
costs (note 4) 1,797,320 3,029,223 3,484,689
Operating expenses
(notes 9 and 11) 3,529,381 3,261,134 4,134,686
----------- ----------- -----------
10,436,112 10,743,921 11,966,195
----------- ----------- -----------
Income(Loss) before
income taxes 198,365 782,126 (625,640)
Income tax expense (benefit)
(note 10) 38,105 150,168 (241,907)
----------- ----------- -----------
Net income(loss) $ 160,260 $ 631,958 $ (383,733)
=========== =========== ===========
Basic and diluted net
income (loss) per share
of common stock (note 12) $0.08 $.33 $(.20)
===== ==== =====
See accompanying notes to financial statements.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statement of Shareholders' Equity
Years ended December 31, 2000, 1999, 1998
Accumulated
Capital other
Common Stock in excess comprehensive Retained
Shares Amount of par income earnings Total
--------- -------- ---------- -------------- --------- -------------
Balances,
December 31, 1997 1,907,989 $1,907,989 $4,011,519 $ 266,340 $ 9,946,170 $16,132,018
----------
Comprehensive Income
(Loss):
Net loss for
the year -- -- -- -- (383,733) (383,733)
Unrealized appreciation of
securities available
for sale -- -- -- 163,821 -- 163,821
Total comprehensive loss (219,912)
Balances,
December 31, 1998 1,907,989 1,907,989 4,011,519 430,161 9,562,437 15,912,106
Comprehensive Income (loss):
Net gain for the year -- -- -- -- 631,958 631,958
Unrealized depreciation of
securities available
for sale -- -- -- (906,744) -- (906,744)
Total comprehensive loss (274,786)
Balances,
December 31, 1999 1,907,989 1,907,989 4,011,519 (476,583) 10,194,395 15,637,320
Comprehensive Income (loss):
Net gain for the year -- -- -- -- 160,260 160,260
Unrealized depreciation of
securities available
for sale -- -- -- 400,955 -- 400,955
Total comprehensive gain 561,215
Balances,
December 31, 2000 1,907,989 $1,907,989 $4,011,519 $(75,628) $10,354,655 $16,198,535
See accompanying notes to financial statements.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statement of Cash Flows
Years ended December 31, 2000, 1999, 1998
2000 1999 1998
------ ------ ------
Cash flows provided by (used in)
operating activities:
Net income (loss) $ 160,260 $ 631,958 $ (383,733)
Adjustments to reconcile net
cash provided by (used in)
operating activities:
Depreciation and amortization 260,956 286,514 301,970
Net realized (gains) on investments -- -- (525,182)
Loss on disposal of property,
plant & equipment 1,886 15,180 2,956
Deferred income taxes (9,426) 11,009 175,274
Amortization of deferred
policy acquisition costs 1,797,320 3,029,223 3,484,689
Acquisition costs deferred (2,206,125) (2,084,438) (1,911,282)
Change in assets and liabilities
affecting cash provided by
operations:
Accrued investment income (27,566) (18,790) 73,342
Accounts receivable (78,683) (63,291) (344,122)
Reinsurance receivable 48,666 (67,201) 53,430
Other policy claims and
future benefits payable 1,356,753 (78,706) 431,409
Policyholders' account
balances 2,080,769 2,585,204 2,356,804
Funds held under reinsurance (58,296) 56,155 79,430
Unearned premiums (331,998) (840,474) (1,160,706)
Dividend and endowment
accumulations 3,101 5,051 5,052
Payable to affiliated
insurance agent (44,096) 172,914 (45,775)
Income taxes payable (46,738) 139,159 --
Other liabilities (16,125) (651,872) (133,376)
----------- ----------- -----------
Net cash provided by operating
activities $ 2,890,658 $ 3,127,595 $ 2,460,180
----------- ----------- -----------
Cash flows from (used in) investing activities:
Purchase of investments:
Purchase of investments
held-to-maturity $ (2,606,749) $ (477,150) $ --
Purchase of investments
available-for-sale -- -- (6,180,178)
Purchase of equity securities (916,815) (766,662) (610,370)
Proceeds from maturity of
held-to maturity securities 1,210,272 1,446,315 5,536,006
Proceeds from maturity of
available-for-sale securities 1,225,522 2,739,662 299,281
Proceeds from sale of available-
for-sale securities (equity and
fixed maturity) -- -- 10,675,217
Purchase of mortgage loan (825,000) (1,500,000) --
Repayment of mortgage loans 24,525 2,312 --
Net change in short-term
investments 780,280 2,839,890 (11,334,983)
Net change in policy and
student loans 238,236 3,466 (517,057)
Acquisition of property and
equipment (224,129) (635) (71,356)
----------- ----------- -----------
Net cash provided by (used in)
investing activities $(1,093,858) $ 4,287,198 $(2,203,440)
=========== =========== ===========
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statement of Cash Flows
Years ended December 31, 2000, 1999, 1998
2000 1999 1998
------- ------
Cash flows from financing activities:
Receipts from universal life and
certain annuity policies
credited to policyholder
account balances 5,765,790 6,662,558 7,524,375
Return of policyholder account
balances on universal life
and certain annuity policies (9,129,406) (10,679,256) (9,547,720)
Net cash used in financing
activities $(3,363,616) $ (4,016,698)$(2,023,345)
Increase (decrease) in cash and
cash equivalents (1,566,816) 3,398,095 (1,766,605)
Cash and cash equivalents at
beginning of year 4,080,484 682,389 2,448,994
----------- ------------ ----------
Cash and cash equivalents at
end of year $ 2,513,668 $ 4,080,484 $ 682,389
=========== ============ ===========
Supplemental schedule of cash flow
information:
Interest paid during the
year $ 105,000 $ 90,000 $ 90,000
=========== ============ ===========
Income taxes paid during the
year $ 94,365 $ -- $ 45,500
=========== =========== ===========
Change in market value adjustments-
investments available-for-sale:
Fixed maturities $ 786,282 $(1,645,893) $ 204,802
Equity securities (121,202) 112,598 (111)
Change in deferred acquisition
costs (71,611) 235,048 (294,326)
Change in premium deposit funds 42,967 (141,029) 79,440
Deferred income tax asset
(liability) (235,481) 532,532 174,016
----------- ----------- ----------
Accumulated comprehensive income
Net change in unrealized
appreciation (depreciation) $ 400,955 $ (906,744) $ 163,821
=========== =========== ===========
See accompanying notes to financial statements.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 2000, 1999, 1998
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 Alabama (11%), Florida (41%), Georgia (11%), and Texas
(11%). None of the remaining ten 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 71.5% of the
Company's voting securities at December 31, 2000.
Effective December 17, 1998, 100% 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 71.5%
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 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.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)
1. Nature of business and summary of significant accounting policies, continued
----------------------------------------------------------------------------
(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 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 approximates 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.
Mortgage loans on real estate and mortgage loans held as short term
investments are reported at the unpaid principal balances, adjusted
for amortization of premium or accretion of discount, less allowance
for possible losses.
Policy loans and student loans are carried at the unpaid principal
balance, less any amounts deemed to be uncollectible. 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.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)
1. Nature of business and summary of significant accounting policies, continued:
----------------------------------------------------------------------------
(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 three months 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, 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) Property and Equipment
Property and equipment are recorded at cost, less accumulated
depreciation. Depreciation and amortization on capital leases and
property and equipment are determined using the straight-line method
over the estimated useful lives of the assets or terms of the lease.
Expenditures for maintenance and repairs are expensed when incurred
and betterments are capitalized. Gains and losses on sale of property
and equipment are reflected in operations.
(h) Investment in affiliate
The Company holds investments in its parent company's common stock.
This reciprocal stockholding is accounted for based on the treasury
stock approach. The value of the investment is recorded at cost and
will be classified as treasury stock upon consolidation with its
parent company.
(i) 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.
(j) 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.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)
1. Nature of business and summary of significant accounting policies, continued:
----------------------------------------------------------------------------
(k) Recognition of premium revenue and related costs
Premiums are recognized as revenue as follows:
Universal life policies - premiums received from policyholders 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.
(l) 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.
(m) Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable through undiscounted future cash
flows. If it is determined that an impairment loss has occurred based
on expected cash flows, such loss is recognized in the statement of
operations.
(n) Earnings (Loss) Per Common Share
The computation of basic earnings (loss) per common share is based on
the weighted average number of shares outstanding during each year.
The computation of diluted earnings per common share is based on the
weighted average number of shares outstanding during the year, plus
the common stock equivalents that would arise from the exercise of
stock options outstanding, using the treasury stock method and the
average market price per share during the year. There were no common
stock equivalents outstanding during the years ended December 31, 2000
and 1999. Common stock equivalents are not included in the diluted
earnings (loss) per share calculation when their effect is
antidilutive.
(o) Reclassification
Certain amounts presented in the 1999 and 1998 financial statements
have been reclassified to conform to the 2000 presentation.
(p) Pending accounting change
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998 and amended by SFAS No. 138,
issued in June 2000. The requirements of SFAS No. 133, as amended,
will be effective for the Company in the first quarter of the fiscal
year beginning January 1, 2001. The standard establishes accounting
and reporting standards for derivative
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)
1. Nature of business and summary of significant accounting policies, continued:
----------------------------------------------------------------------------
(p) Pending accounting change (continued)
instruments embedded in other contracts and for hedging activities.
Under the standard, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative.
The Company has determined SFAS 133 to have no impact on the Company's
financial position and results of operations because the Company has
no derivative activity.
SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, was issued in September
2000. SFAS No. 140 is a replacement of SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. Most of the provisions of SFAS No. 125 were carried
forward to SFAS No. 140 without reconsideration by the Financial
Accounting Standards Board (FASB), and some were changed only in minor
ways. In issuing SFAS No. 140, the FASB included issues and decisions
that had been addressed and determined since the original publication
of SFAS No. 125. SFAS No. 140 is effective for transfers after March
31, 2001. Management does not expect the adoption of SFAS No. 140 to
have a significant impact on the financial position or results of
operations of the Company.
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 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
reasonable 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 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.
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.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)
2. Basis of financial statements, continued
----------------------------------------
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,
2000, 1999, 1998 and shareholders' equity as of December 31, 2000 and 1999
between the amounts reported on a statutory basis and the related amounts
presented on the basis of generally accepted accounting principles is as
follows:
Net Income (loss) Shareholders'
Years ended Equity
December 31, December 31,
----------------- ---------------
2000 1999 1998 2000 1999
--------- ------- ------- -------- -------
As reported
on a statutory
basis $ 80,477 $ 533,233 $ (486,823) $ 8,405,211 $ 8,976,516
Adjustments:
Deferred policy
acquisition
costs, net 408,805 (709,737) (1,867,733) 13,211,413 12,874,219
Future policy
benefits, un-
earned premiums
and policy-
holders' funds (203,129) 1,097,132 1,719,926 (6,355,753) (6,195,591)
Deferred
income taxes 15,008 382,364 153,626 (500,605) (413,710)
Asset valuation
reserve -- -- -- 347,134 542,585
Interest main-
tenance reserve (36,063) (35,191) 231,507 499,099 535,161
Non-admitted
assets -- -- -- 1,412,229 1,078,348
Unrealized gains
-SFAS 115 -- -- -- 666,899 (899,956)
Capital and
surplus note -- -- -- (1,000,000) (1,000,000)
Other adjustments,
net (104,838) (635,843) (134,236) (487,092) 139,748
--------- ---------- ---------- ------------ -----------
Net difference 79,783 98,725 103,090 7,793,324 6,660,804
--------- ---------- ---------- ----------- -----------
As reported on a
GAAP basis $ 160,260 $ 631,958 $ (383,733) $16,198,535 $15,637,320
========= ========== ========== =========== ===========
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 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 2000 without prior approval is
approximately $92,000. Accordingly, GAAP excess earnings over a statutory basis
are not available for dividends.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)
2. Basis of financial statements, continued
----------------------------------------
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, 2000.
The National Association of Insurance Commissioners has adopted the
Codification of Statutory Accounting Principles ("Codification").
Codification changes current statutory accountintg rules in several areas
and is effective January 1, 2001. Although the Company has not estimated
the potential effect, it does not believe Codificaiton will have a material
effect on the financial position, results of operation, or liquidity of the
Company.
3. Investments
-----------
(a) Equity securities and fixed maturities
Equity securities consist of $358,932 and $378,440 of common stock at fair
value at December 31, 2000 and 1999 respectively.
Unrealized (depreciation) appreciation in investments in equity securities
for the years ended December 31, 2000, 1999, and 1998 is $(121,203),
$112,598 and $(111), respectively.
The amortized cost and estimated fair values of investments in debt
securities are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
December 31, 2000:
Held-to-maturity:
U.S. Treasury
securities and obligations
of U.S. government
corporations and
agencies (guaranteed) $ 2,001,985 $ 13,327 $ -- $ 2,015,312
Corporate securities 2,587,861 64,419 188,876 2,463,404
Mortgage-backed
securities 784,358 9,958 -- 794,316
----------- -------- --------- -----------
5,374,204 87,704 188,876 5,273,032
----------- -------- --------- -----------
Available-for-sale:
U.S. Treasury
securities and obligations
of U.S. government
corporations and
agencies (guaranteed) 3,367,086 45,003 648 3,411,441
Corporate securities 19,987,436 91,913 188,214 19,891,135
Mortgage-backed
securities 64,836 71 -- 64,907
----------- -------- -------- -----------
23,419,358 136,987 188,862 23,367,483
----------- -------- -------- -----------
$28,793,562 $224,691 $377,738 $28,640,515
=========== ======== ========= ===========
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)
3. Investments, continued
----------------------
(a) Equity securities and fixed maturities, continued
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
December 31, 1999:
Held-to-maturity:
U.S. Treasury
securities and obligations
of U.S. government
corporations and
agencies (guaranteed) $ 1,007,021 $ 15,789 $ -- $ 1,022,810
Corporate securities 1,977,976 2,151 8,952 1,971,175
Mortgage-backed securities 993,874 11,355 13,878 991,351
----------- --------- -------- -----------
3,978,871 29,295 22,830 3,985,336
----------- --------- -------- -----------
Available-for-sale:
U.S. Treasury
securities and obligations
of U.S. government
corporations and
agencies (guaranteed) 4,596,187 4,599 21,561 4,579,225
Corporate securities 20,102,739 -- 820,966 19,281,773
Mortgage-backed securities 90,341 -- 228 90,113
----------- -------- --------- -----------
24,789,267 4,599 842,755 23,951,111
----------- -------- --------- -----------
$28,768,138 $ 33,894 $ 865,585 $27,936,447
=========== ======== ========= ===========
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, 2000, 1999, 1998 is $678,644, $(1,747,058) and $183,142
respectively.
The amortized cost and estimated fair value of fixed maturities at December
31, 2000, 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 2001 $ 1,502,062 $1,504,375
Due in 2002 through 2005 -- --
Due in 2006 through 2010 1,331,825 1,176,383
Due after 2010 1,755,960 1,797,958
----------- ------------
4,589,847 4,478,716
Mortgage-backed securities 784,357 794,316
----------- -----------
$ 5,374,204 $ 5,273,032
=========== ===========
Fixed maturity securities available-for-sale:
Due in 2001 $ 2,771,882 $ 2,772,970
Due in 2002 through 2005 14,075,954 14,014,590
Due in 2006 through 2010 6,408,951 6,406,860
Due after 2010 97,735 108,156
----------- -----------
23,354,522 23,302,576
Mortgage-backed securities 64,836 64,907
----------- -----------
$23,419,358 $23,367,483
=========== ===========
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)
3. Investments, continued
----------------------
(a) Equity securities and fixed maturities, continued
Proceeds from the sale of equity securities and fixed maturities
available for sale and the related realized gains and losses are
summarized as follows:
2000 1999 1998
--------- ------- --------
Proceeds from sale of
equity securities $ -- $ -- $ 1,405,248
---------- ---------- ------------
Proceeds from sale of
fixed maturities
available-for-sale $1,200,000 $2,739,662 $9,569,250
---------- ---------- ----------
Realized gains (losses)
Fixed maturities:
Gross realized gains -- -- $ 319,934
Gross realized (losses) -- -- --
Equity securities:
Gross realized gains -- -- 205,247
Gross realized (losses) -- -- --
----------- --------- ------------
$ -- $ -- $ 525,181
=========== ========== =============
Certain of the fixed maturity securities classified as available-for-sale
and held-to-maturity were called during the year ended December 31, 2000,
1999, 1998 resulting in the following realized gains and losses:
2000 1999 1998
------ ------ ------
Held-to-maturity:
Gross realized gains $ -- $ -- $ --
Available-for-sale:
Gross realized gains -- -- 1,740
-------- ------- ------
$ -- $ -- $1,740
======== ======== =======
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, 2000 and 1999, other than investments issued or guaranteed
by the United States government are as follows:
2000 Carrying Amount
Federal Express $2,072,820
Dean Witter Discover 4,105,788
Philip Morris Inc. 5,469,305
1999
Federal Express $2,100,000
Dean Witter Discover 3,964,767
Philip Morris, Inc. 5,260,000
(b) Concentrations of credit risk
At December 31, 2000 and 1999, 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
$61,576 and $149,198 at December 31, 2000 and 1999, respectively,
which are guaranteed by the U.S. government. Subsequent to December
31, 2000, all of these loans were sold at their unpaid principal
balance.
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, 2000, 1999, and
1998 consists of the following:
2000 1999 1998
Interest:
Fixed maturities $2,014,883 $2,123,671 $2,633,888
Policy and student
loans 505,319 579,774 489,991
Short-term
investments 937,077 859,699 474,949
Mortgage loans 190,068 25,759 --
Rental income 278,302 319,758 --
Dividends on equity
securities common
stock, including
mutual fund 33,412 15,610 719
---------- ----------- -----------
3,959,061 3,924,271 3,599,547
Less investment
expenses 23,454 14,898 12,400
---------- ---------- ----------
$3,935,607 $3,909,373 $3,587,147
========== ========== ==========
(d) Investments on deposit
In order to comply with statutory regulations, investments were on
deposit with the Insurance Departments of certain states as follows:
2000 1999 1998
Florida $1,708,735 $1,708,530 $1,718,097
Alabama 100,199 100,702 101,170
South Carolina 300,596 302,106 303,511
Georgia 250,496 251,755 252,926
Indiana 200,000 199,855 199,578
---------- ---------- ----------
$2,560,025 $2,562,948 $2,575,282
========== ========== ==========
Certain of these assets, totaling approximately $850,000 for each of the
years ended December 31, 2000 and 1999, are restricted for the future
benefit of policyholders in a particular state.
4. Deferred policy acquisition costs
---------------------------------
Deferred policy acquisition costs at December 31, 2000, 1999, 1998 consist
of the following:
2000 1999 1998
------ ------ ------
Deferred policy acquisition
costs at beginning
of year $12,874,219 $13,583,956 $15,451,689
Policy acquisition
costs deferred:
Commissions 1,384,782 1,223,187 1,053,953
Underwriting &
issue costs 398,622 440,200 429,600
Other 422,721 421,051 427,729
Change in unrealized
appreciation
(depreciation) (71,611) 235,048 (294,326)
----------- ----------- -----------
2,134,514 2,319,486 1,616,956
Amortization of
deferred policy
acquisition costs (1,797,320) (3,029,223) (3,484,689)
----------- ----------- -----------
Deferred policy
acquisition costs
at end of year $13,211,413 $12,874,219 $13,583,956
=========== =========== ===========
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)
5. Property and equipment
----------------------
Property and equipment consists of the following:
December 31, December 31,
2000 1999
Land $ 982,027 $ 982,027
Building and improvements 2,348,973 2,205,795
Furniture and equipment 945,345 993,198
------------ -----------
4,276,345 4,181,020
Less accumulated depreciation (1,733,961) (1,745,455)
------------ -----------
$ 2,542,384 $ 2,435,565
============ ===========
Depreciation expense for the years ended December 31, 2000, 1999, 1998
totaled $115,425, $135,145, and $153,348, respectively.
6. Future policy benefits
----------------------
At December 31, 2000 and 1999, future policy benefits, exclusive of
universal life and flexible term annuities consist of the following:
December 31, December 31,