July 7, 2005
Ibolya Ignat, Staff Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Ms. Ignat:
As a follow-up to our recent telephone conversation, as requested, please find
below our proposed expanded discussion we plan to use in future filings
regarding question 1 of your letter dated June 1, 2005. We have prepared these
additional disclosures based on the Company's year-end financial statements.
This disclosure would be modified as appropriate to reflect future changes in
the facts on which they are based. If the SEC staff has no further comment, the
Company will utilize this information in its upcoming Form 10Q. Also at your
request, please find additional supplemental information relative to questions
4, 5 & 6.
Question 1 response - proposed expanded discussion.
Sources of operating cashflows of the Company, as with most insurance entities,
is comprised primarily for premiums received on life insurance products and
income earned on investments. Uses of operating cashflows consist primarily of
payments of benefits to policyholders and beneficiaries and operating expenses.
Premiums received have shown a steady decline historically, as the Company has
not actively marketed new products in several years. Sources of operating
cashflows declined approximately $1,000,000 in 2004 compared to 2003, with
premium decline representing almost all of the decrease. 2003 compared to 2002
reflected a decline of approximately $3,600,000 with premiums representing
approximately 22% of the decline and investment income representing the
remaining decline. See discussion under results of operations - revenues for a
more detailed discussion of the declines in premiums and investment income.
The decline in operating cash sources has historically been offset by declines
in policy benefits payments. Cash payments for death claims represent the
largest component of uses of cash within policy benefits. Uses of operating
cashflows declined approximately $2,000,000 in 2004 compared to 2003. This
decline is the result of a decrease in operating expenses as a result of a legal
matter settled in 2003. 2003 compared to 2002 resulted in a decline of
approximately $1,600,000, with operating expenses increasing approximately
$1,700,000 from the legal matter settlement in 2003 and a decrease of
approximately $3,300,000 in policy benefit payments. See discussion under
results of operations - expenses for a more detailed discussion of changes in
operating expenses and policy benefits.
Question 4 response - expanded explanation
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.
A more detailed breakdown of revenues from each product is impracticable.
Question 5 & 6 response - additional information
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.
The Company's direct written life insurance and ceded life insurance
represents individual permanent life insurance products. Policies in force
under the SGLI program represent group term life insurance. Term life
insurance is not permanent in nature, rather it provides life insurance
coverage over a period of time. Additionally, in order to maintain the
insurance, the insured must remain a member of the defined group, in this
case a member of the armed forces of the United States. Once membership of
the group terminates, the insurance coverage also terminates. The Company
maintains no additional liabilities in its financial statements relative to
the SGLI program. The program administrator (Prudential) withholds funds
from the annual distribution to participants as a contingent reserve for
future potential adverse experience. Annually, the administrator
distributes the previous years results to the participants less the
withheld contingency reserve. As previously noted, this amounted to $2,000
in 2004 to the Company. No other line items of the financial statements are
impacted under this arrangement other than the recording of the annual
distribution. Management views this annual distribution to be immaterial to
the financial statements of the Company.
Please contact me should you have any additional questions regarding this
response or our original response.
Sincerely,
/s/ Theodore C. Miller
Theodore C. Miller
Sr. Vice President
