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UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENTS:
As of December 31, 2000 and 1999, investments consisted of the following:
December 31, 2000
Face Amortized Fair Carrying
Classification Value Cost Value Value
(In thousands)
U.S. Treasury bonds and notes $ 30,730 $ 29,810 $ 30,345 $ 30,345
Corporate bonds 803,559 716,250 721,393 721,393
Equity Securities 3,819 3,547 3,547
Sub-total 749,879 $ 755,285 755,285
Policy loans 25,077 25,077
Other invested assets 4,318 4,318
Total investments $ 779,274 $ 784,680
December 31, 1999
Face Amortized Fair Carrying
Classification Value Cost Value Value
(In thousands)
U.S. Treasury bonds and notes $ 31,170 $ 31,776 $ 31,549 $ 31,549
Corporate bonds 791,087 702,690 686,011 686,011
Equity Securities 5,120 4,838 4,838
Sub-total 739,586 $ 722,398 722,398
Policy loans 25,640 25,640
Other invested assets 5,506 5,506
Total investments $ 770,732 $ 753,544
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The amortized cost and fair value of fixed maturities as of December 31, 2000 and 1999 are as follows:
December 31, 2000
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
(In thousands)
U.S. Treasury securities and obligations
of U.S. government $ 34,199 $ 589 $ (54) $ 34,734
Corporate debt securities 455,954 7,554 (4,908) 458,600
Mortgage-backed securities 255,907 4,404 (1,907) 258,404
$ 746,060 $ 12,547 $ (6,869) $ 751,738
December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
(In thousands)
U.S. Treasury securities and obligations
of U.S. government $ 63,968 $ 10 $ (587) $ 63,391
Corporate debt securities 446,630 420 (10,693) 436,357
Mortgage-backed securities 223,868 190 (6,246) 217,812
$ 734,466 $ 620 $ (17,526) $ 717,560
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The amortized cost and fair value of fixed maturities at
December 31, 2000 by contractual maturity are shown
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.
Amortized Fair
Cost Value
(In thousands)
Due in 1 year or less . . . . . . . . $ 25,666 $ 25,627
Due after 1 year
through 5 years . . . . . . . . . 147,112 148,470
Due after 5 years
through 10 years . . . . . . . . . 214,263 215,840
Due after 10 years . . . . . . . . . 100,235 100,521
Mortgage-backed securities . . . . . 258,784 261,280
$ 746,060 $ 751,738
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Included in fixed maturities at December 31, 2000 and
1999 were securities with carrying values of $33.1
million and $32.5 million, respectively, held by various
states as security for the policyholders of the Company
within such states.
Gross unrealized gains and gross unrealized losses of
equity securities as of December 31, 2000 and 1999 are
as follows:
2000 1999
(In thousands)
Gross unrealized gains . . . . . . . . $ - $ 83
Gross unrealized losses . . . . . . . . (272) (365)
Net unrealized losses . . . . . . . . . $ (272) $ (282)
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The components of the change in unrealized gains and
losses included in the consolidated statements of stockholders'
equity for the three years ended December 31,
2000 are as follows:
2000 1999 1998
(In thousands)
Change in net
unrealized gains (losses):
Fixed maturities . . . . . . . $ 22,584 $ (19,476) $ 104
Equity securities . . . . . . . 10 (239) (1)
Foreign currency . . . . . . . (1,434) 2,177 -
Adjustment relating
to deferred policy
acquisition costs . . . . . (2,209) 4,509 (79)
Change in
net unrealized
gains (losses)
before income tax . . . . . 18,951 (13,029) 24
Income tax
(expense) benefit . . . . . (7,189) 5,284 (8)
Change in
net unrealized
gains (losses) . . . . . . . $ 11,762 $ (7,745) $ 16
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The details of net investment income for the three years
ended December 31, 2000 are as follows:
2000 1999 1998
(In thousands)
Investment Income:
Fixed maturities . . . . . $ 52,478 $ 25,950 $ 9,198
Cash and
cash equivalents . . . . 1,939 2,454 920
Equity securities . . . . . 330 157 59
Other . . . . . . . . . . . 1,380 52 5
Policy loans . . . . . . . 1,617 1,004 612
Mortgage loans . . . . . . 214 485 363
Gross investment income . . . 57,958 30,102 11,157
Investment expenses . . . . . 1,013 789 436
Net investment income . . . . $ 56,945 $ 29,313 $ 10,721
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Fixed maturities with a carrying value of $0.7 million
were non-income producing for the year ended
December 31, 2000.
Gross realized gains and gross realized losses included
in the consolidated statements of operations for the three
years ended December 31, 2000 are as follows:
2000 1999 1998
(In thousands)
Realized gains:
Fixed maturities............ $ 1,022 $ 534 $ 1,250
Equity securities .......... 192 2,661 26
Total realized gains ....... 1,214 3,195 1,276
Realized losses:
Fixed maturities............ (1,019) (819) (991)
Equity securities .......... (49) (2,617) (29)
Total realized losses....... (1,068) (3,436) (1,020)
Net realized
gains (losses) ................ $ 146 $ (241) $ 256
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During the years ended December 31, 2000 and 1999,
the Company wrote down the value of certain fixed maturity
securities by $0.5 million and $0.6 million, respectively,
which represents management's estimate of other
than temporary declines in value and was included in net
realized gains (losses) on investments.
For the years ended December 31, 2000 and 1999,
the Company held unrated or less-than-investment grade
corporate debt securities with carrying and estimated fair
values as follows:
2000 1999
(In thousands)
Carrying value .......................... $ 21,923 $ 8,040
Estimated fair value..................... $ 21,923 $ 8,040
Percentage of total assets............... 1.8% 0.7%
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The holdings of less-than-investment grade securities are
widely diversified and the investment in any one such
security is currently less than $5.9 million, which is
approximately 0.5% of total assets.
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