<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended March 31, 1998 Commission File No. 2-35669
SOUTHERN SECURITY LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Florida 59-1231733
(State of incorporation) (I.R.S. tax number)
755 Rinehart Road, Lake Mary, FL 32746
Registrant's telephone number, including area code: (407) 321-7113
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all annual,
quarterly and other reports required to be filed with the Commission during the
preceding 12 months and (2) has been subject to the filing requirements for at
least the past 90 days.
Yes X No
The number of Registrant's shares outstanding as of the close of the period
covered by this report is as follows:
Number Outstanding at
Title of class March 31, 1998
Class A Common Shares 1,907,989
$1.00 per share
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Part I
FINANCIAL INFORMATION
INDEX
ITEM 1
Page
FINANCIAL STATEMENTS
Balance sheets - December 31, 1997 and
March 31, 1998 3-4
Statements of Income and Retained Earnings -
Three Months Ended March 31, 1998 and 1997 5
Statement of Cash Flows - March 31, 1998
and 1997 6-7
Notes to Financial Statements 8-9
ITEM 2
Management's Discussion and Analysis of the
Statements of Income March 31, 1998 10-17
Signature Page 18
2
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Balance Sheets (unaudited)
March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1998 1997
------ ---- ----
<S> <C> <C>
Investments:
Fixed maturities held to maturity
(fair value, $8,614,349 and
$10,631,003 at March 31, 1998
and December 31, 1997 respectively) $8,491,038 $10,501,712
Securities available for sale,
at fair value:
Fixed maturities (cost of
$31,717,210 at March 31, 1998 and
$30,880,390 at December 31,
1997) 32,047,495 31,483,324
Equity securities (cost, $202,422
and $800,000 at March 31, 1998 and
December 31, 1997, respectively) 243,332 839,973
Policy and student loans 7,938,798 7,945,381
Short-term investments 100,000 100,000
------- -------
48,820,663 50,870,390
Cash and cash equivalents 5,537,829 2,448,994
Accrued investment income 983,121 637,460
Deferred policy acquisition costs 15,394,365 15,451,689
Policyholders' account balances on
deposit with reinsurer 8,721,976 8,667,241
Reinsurance receivable 324,739 359,688
Receivables:
Agent balances 521,503 590,368
Other 442,448 324,752
Refundable income taxes - 121,680
Property and equipment, net, at cost 2,640,385 2,670,203
--------- ---------
$83,387,029 $82,142,465
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Balance Sheets (continued)
March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
March 31, December 31,
Liabilities and Shareholders' Equity 1998 1997
- ------------------------------------ ---- ----
<S> <C> <C>
Liabilities:
Policy liabilities and accruals: $1,571,113 $1,409,031
Future policy benefits:
Policyholders' account balances 52,905,521 52,335,511
Unearned premiums 7,118 115 7,108,662
Other policy claims and benefits
payable 505,623 427,649
Other policyholders' funds, dividend
and endowment accumulations 61,830 59,686
Funds held by reinsurance treaties
with reinsurers 1,369,784 1,339,927
Note payable to related party 1,000,000 1,000,000
Due to affiliated insurance agency 70,936 68,646
General expenses accrued 1,188,391 897,627
Unearned investment income 304,899 313,018
Other liabilities 135,833 100,990
Deferred income taxes 966,479 949,700
------- -------
67,198,524 66,010,447
---------- ----------
Shareholders' equity:
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 comprehensive income 273,836 266,340
Retained earnings 9,995,161 9,946,170
---------- ---------
16,188,505 16,132,018
Commitments and contingencies - -
-------- ------
$83,387,029 82,142,465
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statements of Income (unaudited)
For The Three Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
---------------------------
<S> <C> <C>
Revenues:
Premium and policy charges $1,880,540 $2,203,356
Less reinsurance ceded (117,113) (102,924)
-------- --------
Net premium income 1,763,427 2,100,432
Net investment income 933,728 861,081
Realized gain (losses) on
investments 332,283 (114,354)
------- -------
$3,029,438 $2,847,159
Benefits, losses & expenses:
Annuity, death, surrender and
other benefits 1,086,402 1,094,880
Increase (decrease) in future
policy benefits 128,855 (8,613)
Amortization of deferred
policy acquisitions costs 927,211 948,033
Operating expenses 786,085 900,393
Interest expense with
related party 22,500 22,500
------ ------
$2,951,053 $2,957,193
--------- ---------
Income (loss) before income
taxes 78,385 (110,034)
Income tax expense
(benefit) 29,394 (31,100)
------ -------
Net income (loss) $48,991 $(78,934)
====== =======
Basic net income (loss) per
share of common stock $.03 (.04)
=== ===
Diluted net income (loss) per
share of common stock $.03 (.04)
=== ===
</TABLE>
See accompanying notes to condensed financial statements
5
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statements of Cash Flows (unaudited)
For Three Months Ended March 31, 1998 And 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (including net realized
gains and losses on investments) $48,991 ($78,934)
Adjustments to reconcile net
cash provided by (used in)
operating activities:
Depreciation 63,955 52,091
Net realized (gains) or
losses on investments (332,283) 114,354
Loss on disposal of property,
plant and equipment 2,956 99
Deferred income taxes 141,497 386,879
Amortization of deferred
policy acquisition costs 927,211 948,033
Acquisition costs deferred (869,887) (807,346)
Change in assets and liabilities
affecting cash provided by
operations:
Accrued investment income (345,661) (301,415)
Due from affiliated insurance agency - -
Accounts receivable (48,831) (19,349)
Reinsurance Receivable 34,949 11,184
Other policy claims and
future benefits payable 240,056 118,172
Policyholders' Account Balances 590,453 581,346
Funds held under reinsurance 29,857 50,809
Unearned premiums 56,681 (305,968)
Dividend and endowment accumulations 2,144 6,154
Payable to affiliated
insurance agent 2,290 (33,411)
Income tax payable - (70,164)
Other liabilities 317,488 180,955
Income tax receivable 121,680 (43,295)
------- -------
Net cash provided by
operating activities 983,546 790,194
</TABLE>
(continued)
See accompanying notes to condensed financial statements
6
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statements of Cash Flows
For Three Months Ended March 31, 1998 And 1997
1998 1997
---- ----
Cash flows from investing activities:
Purchase of investments:
Purchase of investments available
for sale (Equity & Fixed Maturity) (5,771,931) (19,319,503)
Proceeds from sale of held to
maturity securities - 1,472,528
Proceeds from maturity of held to
maturity 2,017,761 -
Proceeds from maturity of
available for sale securities 257,240 -
Proceeds from sale of available for sale
securities (equity and fixed maturity) 5 681,917 14,670,012
Net change in short term investments - 4,439,106
Net change in policy and student loans 6,583 127,268
Acquisition of property & equipment (11,103) (10,825)
------- -------
Net cash provided by investing activities 2,180,467 1,378,586
--------- ---------
Cash flows from financing activities:
Receipts from universal life and
certain annuity policies credited
to policyholder account balances 921,719 949,942
Return of policyholder account
balances on universal life
and certain annuity policies (996,897) (1,360,628)
-------- ----------
Net cash provided by financing
activities (75,178) (410,686)
------- --------
Increase (decrease) in cash and
Cash equivalents) 3,088,835 1,758,094
Cash and cash equivalents at
beginning of year 2,448,994 206,056
--------- -------
Cash and cash equivalents at
end of quarter $5,537,829 $1,964,150
========== ==========
7
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Condensed Financial Statements (unaudited)
For Three Months Ended March 31, 1998
1. Unaudited Financial Statements:
The accompanying financial statements have been prepared by management
in conformity with generally accepted accounting principles for interim
financial statements and with instructions to Form 10-Q and Regulation
S-X. Accordingly, they do not include all the disclosures required by
generally accepted accounting principles for complete financial
statements. All adjustments and accruals considered necessary for fair
presentation of financial information have been included in the opinion
of management, and are of a normal recurring nature. Quarterly results
of operations are not necessarily indicative of annual results. These
statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Southern
Security Life Insurance Company 1997 Annual Report on Form 10- K for
the fiscal year ended December 31, 1997.
2. Comprehensive Income:
In June 1997, The Financial Accounting Standards Board established
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This Statement establishes standards for
reporting and display of comprehensive income and its components in a
full set of financial statements. This statement requires that an
enterprise classify items or other comprehensive income by nature in a
financial statement, and display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a balance sheet.
The company adopted this statement effective January 1, 1998. The
Company's other comprehensive income is the unrealized gain/(loss) on
investment securities available for sale.
3. Subsequent Event
Consolidare Enterprises, Inc., a Florida corporation ("Consolidare")
owns approximately 57.4% of the outstanding shares of common stock of
the Company.
8
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Condensed Financial Statements (unaudited)
For Three Months Ended March 31, 1998
3. Subsequent Event continued:
Security National Financial Corporation, a Utah Corporation ("Security
National") has entered into an Acquisition Agreement dated as of April
24, 1998 (the "Agreement") with Consolidare and certain shareholders
of Consolidare which provides for the merger of Consolidare and
Security National. Security National is a life insurance holding
company which is also engaged in mortgage lending and the ownership
and operation of cemeteries, mortuaaries and office buildings.
Security National's Class A common stock is traded on the NASDAQ
National Market System under the symbol "SNFCA."
As consideration for the acquisition of Consolidare, Security National
will pay to security holders of Consolidare an aggregate of
$11,356,400, together with an amount equal to the current assets of
Consolidare as of the closing date, plus additinal consideration as
provided in the agreement. For purposes of the agreement, current
assets of Consolidare are defined as cash and cash equivalents (with
interest earned through the closing date) and accrued commissions and
interest due to Insuradyne and Consolidare from the Company. In
addition to the purchase consideration, Security National is required
to cause the company to pay, on the closing date, $1,050,000 to George
Pihakis, who is currently President and Chief Executive Officer of the
Company, as a lump sum settlement of the executive compensation
agreement between the Company and Mr. Pihakis.
The closing of the Agreement is contingent upon regulatory approvals,
including the approval of the Florida Department of Insurance,
compliance or waiver of compliance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, approval of the Agreement by the
affirmative vote of a majority of the Consolidare shareholders with no
Consolidare shareholders exercising their rights as dissenting
shareholders Section 607.1320 of the Florida statutes, as well as the
satisfactory performance of certain covenants and the accuracy of the
parties' respective representations and warranties at closing.
9
<PAGE>
Item 2. 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 Condensed
Financial Statements and Notes to the Condensed Financial Statements included in
this report.
In recent years the Company has primarily issued one type of insurance
product, universal life. Universal life provides insurance coverage with
flexible premiums, within limits, which allow policyholders to accumulate cash
values. These accumulated cash values are credited with tax-deferred interest,
as adjusted by the Company on a periodic basis. Deducted from these cash
accumulations are administrative charges and mortality costs. Should a policy
surrender in its early years, the Company assesses a surrender fee against these
same cash accumulations, based on issue age of the insured, smoker verses
non-smoker status, sex of the insured and the duration of the policy at the time
of surrender.
Pursuant to the accounting methods prescribed by Statement of Financial
Accounting Standards No. 97 (SFAS 97), premiums received from policyholders on
universal life products are credited to policyholder account balances, a
liability, rather than income. Revenues on such products result from the
mortality and administrative fees charged to policyholder balances in addition
to surrender charges assessed at the time of surrender as explained above. Such
costs of insurance, expense charges, and surrender fees are recognized as
revenue as earned. In addition, the Company has adopted policy designs with the
characteristic of having higher expense charges during the first policy year
than in renewal years. Under SFAS 97, the excess of these charges are reported
as unearned revenue. The unearned revenue is then amortized into income over the
life of the policy using the same assumptions and factors used to amortize
capitalized acquisition costs. Interest credited to policyholder balances is
shown as a part of benefit expenses.
In accordance with generally accepted accounting principles, certain
costs directly associated with the issuance of new policies are deferred and
amortized over the lives of the policies. These costs are defined as deferred
policy acquisition costs and are shown in the asset section of the balance sheet
of the Company. Capitalized acquisition costs are amortized over the life of the
business at a constant rate, based on the present value of the estimated gross
profits expected to be realized over the life of the business. SFAS 97 requires
that estimates of expected gross profits used as a basis for amortization be
evaluated on a regular basis, and the total amortization to date be adjusted as
a charge or credit to earnings if actual experience or other evidence
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Overview, continued
suggests that earlier estimates be revised. Thus, variations in the amortization
of the deferred policy acquisition costs, from one period to the next, are a
normal aspect of universal life insurance business and are generally attributed
to the recognition of current and emerging experience in accordance with the
principles of SFAS 97.
Annuity products, of which the Company currently has a minor amount,
are recorded in similar fashion to universal life products. Considerations
received by the Company are credited to the annuity account balances which are
shown as a liability in the balance sheet. Interest is credited to these
accounts as well and shown as an expense of the Company. Income is derived
primarily from surrender charges on this type product.
An additional source of income to the Company is investment revenue.
The Company invests those funds deposited by policy- holders of universal life
and annuity products in debt and equity securities 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 a 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.
(The remainder of this page is intentionally left blank)
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Overview, continued
The following table sets forth certain percentages reflecting financial
data and results of operations (a) for 1998, 1997 and 1996 premium and
investment revenues and (b) for period to period increases and (decreases).
<TABLE>
<CAPTION>
Relationships to
Total Revenues Period to Period
Period Ended March 31, (Increase or Decrease)
<S> <C> <C> <C> <C> <C>
1998 1997 1996 98-97 97-96
------ ------ ------ ------- ------
Insurance revenues 58% 74% 69% (16%) 6%
Net investment income 42 26 31 69% (15%)
Other income
Total Revenues 100% 100% 100% 6% 0%
Losses, claims and
loss adjustment
expenses 40% 38% 42% 11% (11%)
Acquisition costs 31 33 28 0% 19%
Other operating
costs and
expenses 26 32 22 (13%) 48%
---- --- ---- --- ---
Total expenses 97% 103% 92% 0% 12%
Income before income
taxes 3% (4%) 8% 171% (149%)
Provision for income
taxes 1 1 2% 195% (148%)
--- -- -- --- ----
Net income 2% (3%) 6% 162% (149%)
= == = === ===
</TABLE>
Results of Operations.
New business written was $82, $122 and $124 million in face value for
1997, 1996 and 1995, respectively. The Company's new market is known as the
final expense market. This product is a traditional endowment policy designed to
help offset the financial burdens associated with the death of a family member
and targets the needs of senior citizens. 57% of the policies written in 1997
represent this new product. Recruiting new field sales representatives is
directed at this new plan. Policies issued in
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Overview, continued
this market are of a lesser face value than those of the Universal Life market.
That being the case, the face amount of insurance appears to have declined,
however the actual number of policies issued increased. In 1996 and 1997, the
Company issued approximately 2,700 new policies.
Premium and policy charges for 1997 was $7.5 million, 1996 was $7.7
million, 1995 at $7.9 million. While policy production was up for 1997 and 1996.
New premium placed inforce for the first quarter of 1998 was equal to
the same period of 1997. Since the product currently being marketed (Basic Life)
has a lower premium than of the universal life product and the reduction of that
product (lapses, surrenders, and claims) the premium income for the period
decreased by 16%.
Premium and policy charges for 1997 were $7.5 million. Several factors
have combined to create this decline. Continued lapsation in the universal life
book of business has resulted in reduced revenues in administrative and
mortality fees. New production has not increased as significantly as would be
needed to be beneficial and the new product currently being marketed has lower
premiums than those of the universal life product. Surrender fee income in 1997
was consistent with the amount of 1996. Surrender fee income is dependent upon
the duration and value of the policies lapsing. Should the policies be in their
early years, the fee is high, however, limited to the value in the policy which
is smaller in the early years. The older policies have lower surrender fees and
greater account values from which to collect those fees.
The balance of the decline in 1997, 1996 and 1995 premium and policy
charges is related to the unlocking, for current and future experience, of
unearned premium. Unearned premium essentially represents the excess first year
charges in the policy. With the advice and assistance of our consulting
actuaries, each year the Company reviews its current experience rates for
mortality, credited interest spreads, lapse rates, surrender fees and the like,
and adjusts its amortization of deferred acquisition costs and unearned premium
to the appropriate levels for both the current experience and anticipated future
experience. This is an ongoing refinement process.
Increased investment in debt securities coupled with reduced expenses
for student loan processing are responsible for the 6.94% net yield in 1997 and
6.54% net yield in 1996. The Company
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
Overview, continued
continues to review its investment strategies to increase its earned interest
rate. As a part of this process of review and refinement, the Company sold its
entire stock portfolio just prior to year end 1996. This created a significant
increase in realized gains for 1996. The resulting funds were invested in a more
aggressive stock market fund which created an increased yield for the Company in
1997. Additional changes in the Company's holdings are being planned for 1998.
Since the company revised its investment strategies to increase its
earned interest rate, net investment income increased 8% the first quarter of
1998 over the first quarter of 1997.
The investment portfolio restructuring during the first quarter of 1997
caused a realized loss on investments. Since the restructuring and with a
favorable market in the stock market mutual funds the Company realized gains on
investments of $332,000 for the first quarter of 1998 as compared to a loss of
$114,000 for the same period of 1997.
Annuity, death and other benefits increased 16% in 1997. This expense
line is a combination of several expenses with death claims, annuity benefits
and surrender benefits comprising the most significant portion of the total
line. In 1997 each of these expenses increased with death claims representing
the largest increase. A significant increase or decrease in death claims in any
given year can have a marked impact on the results of operations in a small
company.
The amortization of deferred acquisition costs increased in 1997 by 5%
as compared to a 10% increase in 1996. The amortization of deferred acquisition
costs is a continuous refinement process which relates to current experience in
connection with revenues, mortality gains and losses, credited interest rate
spreads, expense charges and surrender charges. The change in the rate of
premium liabilities is due to unlocking for current and future experience based
on the results of the changing experience encountered as required under FAS 97.
Operating expenses for the Company were $3.4 million, $3.3 million and
$2.7 million for 1997, 1996 and 1995, respectively. New products and lead
programs are responsible for the increased operating costs of 1997 and 1996. The
lead generation program used to introduce and promote the new product was not
without cost. The Company also attempted some new marketing procedures in these
two
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
Overview, continued
years which added to the costs. The Company has reviewed its promotional
expenses and now that the new product has established a market, has cut back on
these expenses.
Decrease in salaries $55,000, lead development $18,000, travel $32,000
and new product development $9,000 reduced operating expenses 13% for the first
three month of 1998 as compared to the first three months of 1997.
Reinsurance premiums ceded for 1997, 1996 and 1995 were $1,516,422,
$1,767,418 and $2,112,884 respectively. Policy benefits were reduced due to
reinsurance recoveries of $301,068, $709,643, and $405,345 for 1997, 1996 and
1995, respectively. Reinsurance commissions amounted to $281,434 for 1997 and
$308,179 and $397,253 for 1996 and 1995 respectively. In addition, under the
terms of the Company's treaty with Mega Life (formerly United Group Insurance
Company) expenses of $1,111,130 were transferred for 1997 and $956,143 and
$911,452 for 1996 and 1995 respectively.
Income, before income taxes, in 1997 was $249,410, inclusive of gain on
equity securities of $506,795, compared to $1,588,505, in 1996 and $1,274,903 in
1995. The 1997 income declined approximately $1,339,000 from the prior year as a
result of reduced total revenue of $407,000 with realized gain on investments
representing $363,000 of this amount. Total expenses increased $932,000 with
death claims representing $449,000 of this amount and the balance of $493,000
attributed to acquisition costs and operating expense of $324,000 and other
policy benefits of $169,000.
The net income for the first quarter 1998 was $48,991 as compared to a
net loss of $78,934 for the first quarter of 1998. The net gain from operations
was attributed to a 6% gain in total revenue and no increase in operating
expenses for the same period.
Liquidity and Capital Resources.
Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Securities" requires
investments in all debt securities and those equity securities with readily
determinable market values be 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.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
Liquidity and Capital Resources continued
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 are classified as trading securities. Trading
securities are carried at market value, with unrealized holding gains and losses
included in earnings. 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 market value, with unrealized
holding gains and losses reported as a separate component of stockholders'
equity, net of tax and a valuation allowance against deferred acquisition costs.
Adoption of this statement had no effect on the income of the Company.
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.
Student loans are a service the Company makes 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 throughout the seasonal period
for 1997 or 1996. The Company anticipates continued borrowings to be made
through this line of credit with SLMA to the extent that student loan borrowings
are required for 1998. SLMA offers a more competitive rate of interest on such
borrowings than the Company has been able to obtain through banks.
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 1997 and 1996. The Company did not find it necessary to utilize the SLMA
line of credit in the first quarter of 1998 and was not a cost to the company.
Except as otherwise provided herein, management believes that cash flow
levels in future periods will be such that the Company will be able to continue
its prior growth patterns in writing life insurance policies, fund Federally
insured student loans and meet
16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Liquidity and Capital Resources continued
normal operating expenses.
The National Association of Insurance Commissioners, in order to
enhance the regulation of insurer solvency, issued a model law to implement
risk-based capital (RBC) requirements for life insurance companies, which are
designed to assess capital adequacy. Pursuant to the model law, insurers having
less statutory surplus than required by the RBC calculation will be subject to
varying degrees of regulatory action. While Florida, the Company's state of
domicile, had yet to adopt the provisions of the RBC model law, the Company is
monitoring its RBC results in anticipation of future adoption. At December 31,
1997, the Company had statutory surplus well in excess of any RBC action level
requirements.
The Company has no material commitments for capital expenditures
throughout the balance of the year 1998 as all rentable space on the first floor
of its office building is fully leased.
The Company is aware of potential problems all computer systems face with
respect to the year 2000, and has investigated various solutions. Present plans
call for the conversion to be completed by the end of 1998. It is estimated to
cost approximately $200,000, which would not have a material impact on the
Company.
Testing for hardware problems will be done during the second quarter of 1999,
although the Company is not expecting any problems which could not be solved
before December 31, 1999.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
SOUTHERN SECURITY LIFE INSURANCE
COMPANY
BY: /s/ George Pihakis
George Pihakis
President, Chief Executive Officer
and Director
Date:
MAY 20, 1998 BY: /s/ David C. Thompson
David C. Thompson
Executive Vice-President, Secretary
Treasurer, Chief Operating Officer
and Director
18
<PAGE>
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