October 31, 2014 To The Shareholders of Pekin Life Insurance Company: The third quarter of 2014 generated positive operating results and the first nine months of the year reflect net income and surplus growth that exceeds the same period in 2013. The operating results for the first nine months are summarized below. Net income increased to $5.5 million, or $0.32 per share in the first nine months of the year compared to net income of $2.9 million, or $0.17 per share in the first nine months of 2013. The net income before net realized capital gains was $4.4 million, or $0.26 per share in the first nine months, compared to net income before net realized capital gains of $687,000, or $0.04 per share last year. Premium is down in several lines during the first nine months largely attributable to the lingering effects of a low interest rate environment and partially attributable to unusually harsh winter conditions early in the year. Pre-need life premium has been directly impacted by low interest rates resulting in thinning margins and we anticipated the decrease in new sales. The pre-need premium is down in the first nine months of 2014 by $3.1 million to $28.3 million, a change of 9.9 percent from last year. New term rates offered this year have been well received and have spurred sales. Term and whole life premium is up $1.7 million to $29.0 million, an increase of 6.3 percent from the first three quarters of last year. Our exit from the optionally renewable individual health line has now been completed and premium has declined from $6.0 million in the first nine months of 2013 to zero in 2014. Premiums in the guaranteed renewable individual health line increased by $1.9 million, or 11.9 percent, to $17.7 million. Premium rates and underwriting guidelines for the group health line continue to be closely monitored in order to maintain the productivity of this line. Group health premium decreased by $3.5 million, or 9.3%, to $34.0 million through September 30, 2014. Decreases in life and health premiums lower our acquisition and policy expenses thus benefiting the bottom line net income as cited above. We plan for premium growth in several of our non-core states including Kansas, Louisiana, Michigan, Mississippi, Missouri, and Virginia. The fixed income investment markets played a significant role in generating realized capital gains for the first nine months. There were net realized capital gains of $1.1 million or $0.06 per share, compared to net realized capital gains of $2.2 million, or $0.13 per share, in 2013. Investment income excluding capital gains increased to $41.1 million in the first three quarters of 2014, or 3.8 percent from last year. This increase reflects premium dollars that have been invested in the growing bond portfolio at rates that are moderately flat from previous years. Additionally, our bond portfolio is comprised of high quality holdings, all of which are investment grade. As of September 30, 2014, assets were $1.3 billion, an increase of $21.6 million or 1.7 percent over December 31, 2013. Book value increased during the first nine months by $3.2 million, or 2.6 percent from year end 2013. Book value per share was up to $7.38 at September 30, 2014. Further information regarding the results of the first nine months of 2014 can be found on our Internet website at www.pekininsurance.com. The Board of Directors of Pekin Life Insurance Company has declared a quarterly dividend of $0.01 per share payable December 1, 2014, to shareholders of record October 31, 2014. Pekin Life Insurance Company has paid dividends each year since June 1, 1976. We appreciate the continued support of our shareholders, agents, and employees. Gordon M. Walker, CPCU Chairman of the Board Scott A. Martin, FLMI President and Chief Executive Officer CONDENSED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 2013 Premium Income Investment Income Total Income $ Benefits to Policyholders Additions to Policy Reserves Commissions and Service Fees Expenses and Insurance Taxes Total Deductions 155,520,527 41,087,359 196,607,886 $ 171,921,798 39,568,061 211,489,859 104,420,557 42,706,104 16,371,953 26,286,107 189,784,721 115,401,257 52,964,852 17,667,159 24,453,997 210,487,265 Income Before Income Taxes and Realized Capital Gains Income Taxes 6,823,165 2,456,825 1,002,593 315,225 Income Before Realized Capital Gains Realized Capital Gains, Net of Tax 4,366,340 1,102,211 687,368 2,207,898 Net Income $ 5,468,551 $ 2,895,266 Net Income Before Net Realized Capital Gains Per Share Net Realized Capital Gains Per Share Net Income Per Share Book Value Per Share Weighted Average Shares Outstanding $ .26 .06 .32 7.38 17,068,023 $ .04 .13 .17 6.97 17,068,023 $ $ $ $ OTHER FINANCIAL INFORMATION Premium Income by Product Line: Ordinary Life Pre-Need Life & Annuity Annuity Group Annuity Group Life & Health Individual Health Credit Life & Health Total $ $ 46,349,646 29,996,866 10,934,134 1,135,897 35,494,225 17,672,289 13,937,469 155,520,527 $ $ 45,126,522 32,941,279 12,040,536 7,279,405 39,098,538 21,895,366 13,540,152 171,921,798 AS OF September 30, 2014 Assets Capital and Surplus Insurance In Force NOTE: $ $ $ 1,323,193,328 125,918,555 15,030,856,000 December 31, 2013 $ $ $ 1,301,555,080 122,693,292 14,542,828,903 Information for the nine months ended September 30, 2014 and 2013 is unaudited. The above is prepared on the basis of accounting practices prescribed by the Illinois Department of Insurance. Pekin Life Insurance Company, headquartered in Pekin, Illinois, became an integral member of the Pekin Insurance® group of companies in April 1965. Joining together with our property/casualty companies, The Farmers Automobile Insurance Association, Pekin Insurance Company, and PAC, Inc., we are committed to providing quality insurance services to our policyholders spanning a nineteen-state marketing area. Our property/casualty products deliver coverage to protect homes, autos, and businesses and to meet a wide range of other insurance needs. The Company’s life and health products offer a diverse portfolio of coverages to help families and businesses achieve secure financial futures. Whether for property/casualty, life, annuity, or group health insurance, we are committed to going the extra mile to provide the products and services necessary for your peace of mind. Now, more than ever, it is important that policyholders have complete trust in their insurance company. Pekin Insurance ... going Beyond the expected® to meet your insurance needs. Universal Life Preferred Whole Life Term Life Transitional Life Flexible & Single Premium Annuities Medicare Supplement Disability Income Credit Life Debt Protection Group Insurance Qualified Retirement Programs for Individual & Business Needs Funeral Preplanning Self-Funded Employee Benefit Plan Administration
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