The Insurance Subsidiaries are required to maintain minimum
amounts of capital and surplus as determined by statutory
accounting. Each of the Insurance Subsidiaries' statutory
capital and surplus exceeds its respective minimum
requirement. However, substantially more than such minimum
amounts are needed to meet statutory and administrative
requirements of adequate capital and surplus to support
the current level of the Insurance Subsidiaries' operations. At
December 31, 2000 and 1999 the statutory capital and
surplus, including asset valuation reserve, of the U.S. insurance
subsidiaries totaled $86.5 million and $89.2 million,
respectively. Total statutory net income for the three years
ended December 31, 2000, 1999 and 1998 was $12.2
million ($14.7 million of which related to the Acquired
Companies), $24.2 million ($25.4 million of which related
to the Acquired Companies) and $0.6 million, respectively.
The National Association of Insurance Commissioners
("NAIC") imposes regulatory risk-based capital ("RBC")
requirements on life insurance enterprises. At December
31, 2000 all of the Insurance Subsidiaries maintained
ratios of total adjusted capital to RBC in excess of the
Authorized Control Level.
PennCorp Life of Canada and Pennsylvania Life's
Canadian Branch report to Canadian regulatory authorities
based upon Canadian statutory accounting principles
that vary in some respects from U.S. statutory accounting
principles. Canadian net assets based upon Canadian
statutory accounting principles were $56.4 million and
$63.9 million as of December 31, 2000 and 1999,
respectively. PennCorp Life of Canada maintained a
Minimum Continuing Capital and Surplus Requirement
Ratio ("MCCSR") in excess of the minimum requirement
and Pennsylvania Life's Canadian branch maintained a
Test of Adequacy of Assets in Canada and Margin Ratio
("TAAM") in excess of the minimum requirement at
December 31, 2000.
Dividend payments from American Progressive to the
Company would require regulatory approval, which, in
all likelihood, would not be obtained until American
Progressive generated enough statutory profits to offset
its entire negative unassigned surplus, which was
approximately $8.2 million at December 31, 2000.
American Progressive made no dividends or distributions
during the three years ended 2000.
American Pioneer may pay a dividend or make a
distribution without the prior written approval of the
Florida Insurance Department when (a) the dividend is
equal to or less than the greater of (1) 10% of the insurer's
surplus as to policyholders derived from net operating
profits on its business and net realized capital gains
("policyholder surplus from operations"); or (2) the
insurer's entire net operating profits and realized net
capital gains derived during the immediately preceding
calendar year but not more than its policyholder
surplus from operations; (b) the insurer will have surplus
as to policyholders equal to or exceeding 115% of
the minimum required statutory surplus as to policyholders
after the dividend or distribution is made; and (c) the
insurer has filed notice with the department at least
10 business days prior to the dividend payment or
distribution. American Pioneer did not pay any dividends
during the three years ended December 31, 2000.
Under current Pennsylvania and Texas insurance law, a
life insurer may pay dividends or make distributions out
of unassigned surplus without the prior approval of the
Insurance Department as long as the dividend distributions
do not exceed the greater of (i) 10% of the insurer's
surplus as to policyholders as of the preceding December
31st; or (ii) the insurer's net gain from operations for the
immediately preceding calendar year. American
Exchange made no dividends or distributions during the
three years ended December 31, 2000. During the year
ended December 31, 2000, Pennsylvania Life and Union
Bankers paid ordinary dividends to American Exchange
of $2.9 million and $2.0 million, respectively.
Additionally, Peninsular Life paid an extraordinary
dividend of $1.5 million to Universal American in 2000.
Under current Canadian law, a life insurer may pay a
dividend after such dividend declaration has been
approved by its board of directors and upon at least 10
days prior notification to the Superintendent of Financial
Institutions. In considering approval of a dividend, the
board of directors must consider whether the payment of
such dividend would be in contravention of the Insurance
Companies Act of Canada. PennCorp Life of Canada did
not pay any dividends in 2000.
The Insurance Subsidiaries' statutory basis financial
statements are prepared in accordance with accounting
practices prescribed or permitted by their respective
domiciliary states. "Prescribed" statutory accounting
practices include state laws, regulations and general
administrative rules, as well as publications of the NAIC.
"Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed but are
authorized by the relevant insurance departments; such
practices may differ from state to state, may differ from
company to company within a state and may change in
the future.
In 1998, the NAIC approved a codification of statutory
accounting principles, effective January 1, 2001, which
will serve as a comprehensive and standardized guide to
statutory accounting principles. The adoption of the
codification will change, to some extent, the accounting
practices that the Company's Insurance Subsidiaries use
to prepare their statutory financial statements. The
Company does not believe that such changes will have a
material adverse impact on the reported statutory financial
condition of any such subsidiaries.