June 21, 2005
Mr. Jim B. Rosenberg
Securities and Exchange Commission
450 fifth Street, N.W.
Washington, D.C. 20549
RE: United Trust Group, Inc.
Form 10-K for the fiscal year ended December 31, 2004
File No. 000-16867
Dear Mr. Rosenberg:
We have the following responses to your comments dated June 1, 2005 on our Form
10-K filing for the year ended December 31, 2004.
Item 7. Management's Discussion and Analysis of Financial Condition and Results...
Liquidity and Capital Resources
1. Please revise your discussion of cash flows, especially of your
operating cash flows, to specifically address your sources and uses of
cash. Please refer to Section IV.B. of Financial Reporting Release 72.
Response: As with most all insurance enterprises, the primary cash flow
sources for the Company have been from premiums on life insurance products,
income from investments and proceeds from the sales or maturity of
investments. Cash outflows consist primarily of payment of benefits to
policyholders and beneficiaries, current operating expenses and payments in
connection with investments acquired. We believe theses areas to be
apparent to the reader from the face of the financial statements. These
significant items all appear on the face of the income statement or cash
flow statement, and therefore we did not repeat them in the discussion.
Given the staff's comment, we propose to expand the discussion in future
filings to include a table summarizing this information or direct the
reader to the detail provided in the financial statements.
2. Please provide the disclosures required by Item 303(a)(5) of
Regulation S-K. In so doing, please include the expected settlement of
the future policy benefits liability in the contractual obligation
table. In this regard, please note that it would appear that your
future policy benefits represent future legal obligations of the
Company. Due to the significant nature of these liabilities to your
business, we believe the inclusion of these liabilities in the
contractual obligation table will provide investors increased
disclosure of your liquidity. The purpose of Financial Reporting
Release 67 is to obtain enhanced disclosure concerning a registrant's
contractual payment obligations and the exclusion of ordinary course
items would be inconsistent with the objective of the Item 303(a)(5).
Response: UTG has no debt outstanding, no capital lease obligations, no
material operating lease obligations and no purchase obligations. Future
policy benefits reflect liabilities such as expected death claims. In
general, this balance sheet line item represents the Company's expected
obligation on products that have insurance risk. Due to the nature of these
liabilities, maturity is event dependent and therefore, is indeterminate.
As a result, we did not interpret them to fall within the category of
"other long-term liabilities" for purposes of Item 303(a)(5). However,
given the staff's comment, we propose adding in future annual reports a
disclosure about the Company's future policy benefits and their
indeterminate maturity.
3. "Net cash provided by operating activities plus policyholder contract
deposits less policyholder contract withdrawals" appears to be a
non-GAAP measure, as defined by Item 10(e)(2) of Regulation S-K.
Please tell us why this measure is not prohibited by Item
10(e)(1)(ii)(A) or remove the measure from your filing. If it is not
prohibited and not removed, please provide the disclosures required by
Item 10(e)(1)(I)(B).
Response: We do not believe the disclosure represents an impermissible
non-GAAP measure. Financial Reporting Release 72 section IV B 1 states "The
discussion and analysis of operating cash flows should not be limited by
the manner of presentation in the statement of cash flows." The data
presented is derived directly from information contained in the cash flow
statement and is acknowledged in sufficient detail that the reader would be
able to look at the cash flow statement - specifically, components of the
operating activities and financing activities cash flows set out in the
financial statements. It is presented along with disclosures about the cash
flow categories, as set out in the financial statements, together with a
statement about management's use of this information. Given the staff's
comments, we will omit this presentation of information in future filings.
Item 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
4. Under Products in Item 1. Business, we noted that the goal of your
product portfolio is for it to consist of enough offerings to provide
for the needs of the general public and existing policyholders. As
such, please tell us how you have provided the disclosures required by
paragraph 37 of SFAS 131. Otherwise, please tell us the disclosures
you will provide to comply with paragraph 37.
Response: The Company offers various life insurance products to its
customers. We believe these product offerings are similar and represent a
single marketplace. All are to provide protection on the life of the
individual insured. Each product may have slightly varied options such as
face amount of policy available or premium payment options, but all remain
similar in nature overall and target the same groups of clients.
1. Organization and Summary of Significant Accounting Policies
H. Reinsurance
5. Please tell us whether and to what extent liabilities related to
policies assumed are more uncertain and susceptible to future changes
than those you write directly due to the nature of the information
(e.g. not being the direct writer) available to you at the time you
record them, and tell us how you considered these uncertainties in
your MD&A disclosure including critical accounting estimates.
Response: Almost all (99.8%) of the reinsurance assumed represents
Universal Guaranty Life Insurance Company's (UG) percentage participation
in the Servicemembers Group Life Insurance program (SGLI). This program is
administered by Prudential, one of the nations largest insurance entities.
SGLI provides term life insurance coverage to members of the armed forces
of the United States. UG's participation in this pool is very small,
approximately two tenths of one percent (.2%) of the entire pool.
Prudential is a major participant in this pool as are many insurance
companies, including most of the major carriers in the U.S. This
arrangement has been in existence for many years as has been UG's
participation in the arrangement. Management feels confident in the
administration and handling of this pool arrangement by Prudential and does
not believe there to be any significant uncertainties to this arrangement
as compared to other insurance policies currently in force. UG received
approximately $2,000 in 2004 under this arrangement.
6. In Schedule IV, we noted that the proportion of premiums on life
insurance assumed to life insurance in force assumed is considerably
less than the proportion for both your gross and ceded life insurance.
Please clarify for us why the differences in the proportions exist and
describe the types of risks you are assuming, compared with what you
are writing and ceding.
Response: See explanation under question 5.
Item 9A. Controls and Procedures
7. We noted that your CEO and CFO concluded that your disclosure controls
and procedures were effective in alerting them on a timely basis to
material information required to be included in your periodic filings.
Please revise your disclosures to clearly state whether your
disclosure controls and procedures, as defined by Exchange Act Rule
13a-15, were effective, as the definition of disclosure controls and
procedures would appear to encompass more than just the timely
alerting of material information. Otherwise, please tell us how your
disclosures comply with Item 307 of Regulation S-B.
Response: We are filing an amendment to the Form 10-K to include the
following disclosure under Item 9A:
The Company carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation
of its disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective.
There were no changes in the Company's internal control over financial
reporting during the Company's fiscal quarter ended December 31, 2004 that
have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
Item 15. Exhibits and Financial Statement Schedules
Exhibit 31.1 - Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)
8. Please revise this Exhibit and Exhibit 31.2 so that their language is
exactly that same as the language in Item 601(b)(31) of Regulation
S-K.
Response: Both Exhibit 31.1 and 31.2 have been revised to be exactly the
same as the language in Item 601(b)(31) of Regulation S-K (except for
certain references to internal control over financial reporting which are
not yet applicable to the Company).
In addition to the above responses, the undersigned further acknowledges the
following:
• The company is responsible for the adequacy and accuracy of the
disclosure in the filings;
• Staff comments or changes to disclosure in response to staff comments
in the filings reviewed by the staff do not foreclose the Commission
from taking any action with respect to the filing; and
• The company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
As explained above, we propose addressing the staff's comments regarding
disclosures made in the management's discussion and analysis in future filings
of the Company, instead of an amendment to the Company's 2004 annual report. We
believe the Company can appropriately address the staff's comments in this
manner.
Please contact me should you need any additional information or have any further
questions regarding this matter. My telephone number is (217) 241-6300.
Sincerely,
/s/ Theodore C. Miller
Theodore C. Miller
Sr. Vice President
