UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2004 Commission File Number: 2-35669
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SOUTHERN SECURITY LIFE INSURANCE COMPANY
Exact Name of Registrant.
FLORIDA 59-1231733
- --------------------------- --------------------------
(State or other jurisdiction of (IRS Identification Number)
incorporation or organization)
755 Rinehart Road, Lake Mary, Florida 32746
- ------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (407) 321-7113
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock, $1.00 par value 2,105,235
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Title of Class Number of Shares Outstanding
as of September 30, 2004
SOUTHERN SECURITY LIFE INSURANCE COMPANY
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements Page No.
- ------ --------
Statement of Operations - Nine and Three Months
ended September 30, 2004 and 2003 (unaudited)................3
Balance Sheet - September 30, 2004 (unaudited)
and December 31, 2003...................................4-5
Statement of Cash Flows - Nine Months ended
September 30, 2004 and 2003 (unaudited)...................6
Notes to Condensed Financial Statements.................7-8
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 9-11
Item 3
Quantitative and Qualitative Disclosures About
Market Risk..............................................12
Item 4
Controls and Procedures..................................12
PART II - OTHER INFORMATION
Other Information.....................................12-15
Signature Page...........................................16
Certifications........................................17-19
SOUTHERN SECURITY LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
2004 2003 2004 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Net insurance revenues $ 5,693,134 $ 5,432,512 $ 1,893,871 $ 1,851,610
Net investment income 1,827,347 1,808,458 626,477 585,950
Related party interest income 1,034,879 1,156,604 308,421 353,849
------------ ----------- ------------- ------------
8,555,360 8,397,574 2,828,769 2,791,409
------------ ----------- ------------ -----------
Benefits, claims and expenses:
- -----------------------------
Benefits and claims 4,181,931 4,171,203 1,400,200 1,412,193
Amortization of deferred policy
acquisition costs 1,352,809 1,349,764 453,018 558,033
Related party operating expenses 2,317,315 2,317,315 772,685 776,685
Operating expenses 1,025,155 650,550 409,423 214,288
------------ ------------- ------------ ------------
8,877,210 8,488,832 3,035,326 2,961,199
------------ ----------- ----------- -----------
Loss before income taxes (321,850) (91,258) (206,557) (169,790)
Income tax benefit 49,912 17,215 36,293 33,798
-------------- ------------ -------------- -------------
Net loss $ (271,938) $ (74,043) $ (170,264) $ (135,992)
============ ============ ============ ===========
Basic and diluted net income (loss)
per share of common stock $(.13) $(.04) $(.08) $(.06)
===== ===== ===== =====
Weighted average outstanding
common shares - basic and diluted 2,104,418 2,070,198 2,105,235 2,103,600
=========== =========== ============ ===========
See accompanying notes to condensed financial statements.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
BALANCE SHEET
September 30, 2004 December 31,
(Unaudited) 2003
Assets:
Investments:
Fixed maturities held-to-maturity $15,773,966 $3,691,064
Securities available-for-sale,
at fair value:
Fixed maturities 11,156,004 14,213,317
Equity securities 449,163 424,165
Mortgage loans 1,530,385 2,211,183
Policy and student loans 8,204,992 8,131,980
Short-term investments 13,946,918 17,497,249
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Total investments 51,061,428 46,168,958
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Cash and cash equivalents 321,244 7,075,394
Accrued investment income 696,750 462,846
Deferred policy acquisition costs 14,103,235 13,624,107
Policyholders' account balances on
deposit with reinsurer 6,711,325 6,795,983
Reinsurance receivable 329,552 442,574
Receivables:
Agent balances, net 645,514 461,133
Receivable from affiliates 1,350,348 28,091
Other 877,574 292,234
Property and equipment, net, at cost 2,255,210 2,313,119
----------- -----------
Total assets $78,352,180 $77,664,439
=========== ===========
See accompanying notes to condensed financial statements.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
BALANCE SHEET (Continued)
September 30, December 31,
2004 (Unaudited) 2003
Liabilities and Shareholders' Equity:
Liabilities:
Future policy benefits $5,029,416 $4,279,281
Policyholders' account balances 46,790,165 46,887,592
Unearned revenue 4,410,244 4,334,299
Other policy claims and benefits payable 1,606,641 798,050
Other policyholders' funds, dividend
and endowment accumulations 107,306 98,071
Funds held related to reinsurance treaties 1,213,167 1,294,589
Due to related parties 1,148,803 1,490,165
General expenses accrued 113,204 81,942
Unearned investment income 366,619 355,650
Other liabilities 135,951 62,798
Income taxes 823,586 967,516
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Total liabilities 61,745,102 60,649,953
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Commitments and contingencies -- --
Shareholders' equity:
Common stock, $1 par, authorized
3,000,000 shares; issued and out-
standing, 2,105,235 shares in 2004 and
2,103,600 shares in 2003 2,105,235 2,103,600
Capital in excess of par 4,619,747 4,614,925
Accumulated other comprehensive income 700,316 835,784
Retained earnings 9,181,780 9,460,177
----------- -----------
Total shareholders' equity 16,607,078 17,014,486
----------- -----------
Total liabilities and shareholders' equity $78,352,180 $77,664,439
=========== ===========
See accompanying notes to condensed financial statements.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2004 2003
---- ----
Net cash provided by operating activities $ 885,116 $ 2,374,126
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Cash flows used in investing activities:
Purchase of investments held-to-maturity (13,237,665) --
Proceeds from maturity of held-to-maturity securities 1,162,212 180,984
Proceeds from maturity of available for-sale securities 2,655,000 360,000
Mortgage loan repayments 10,522 24,002
Net change in short-term investments 3,550,331 (768,932)
Net change in policy and student loans (73,012) (45,945)
Acquisition of property and equipment (33,434) (5,986)
------------ ------------
Net cash used in investing activities (5,966,046) (255,877)
------------ ------------
Cash flows used in financing activities:
Receipts from universal life and
certain annuity policies credited
to policyholder account balances 3,160,427 3,274,648
Return of policyholder balances
on universal life and certain annuity policies (4,833,647) (4,966,468)
------------ ------------
Net cash used in financing activities (1,673,220) (1,691,820)
------------ ------------
Increase (decrease) in cash and cash equivalents (6,754,150) 426,429
Cash and cash equivalents at beginning of period 7,075,394 3,067,284
------------ ------------
Cash and cash equivalents at end of period $321,244 $3,493,713
============ ============
See accompanying notes to condensed financial statements.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Condensed Financial Statements
September 30, 2004 (Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared by
management in conformity with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include
all of the disclosures required by accounting principles generally accepted in
the United States of America 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 financial
statements and the notes thereto included in the Southern Security Life
Insurance Company 2003 Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 (file number 2-35669).
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
The estimates susceptible to significant change are those used in determining
the liability for future policy benefits and claims, deferred acquisition costs
and unearned revenue. Although variability is inherent in these estimates,
management believes the amounts provided are fairly stated in all material
respects.
2. Comprehensive Income
For the nine months ended September 30, 2004 and 2003, total comprehensive loss
was $(407,408) and $(100,056), respectively. For the three months ended
September 30, 2004 and 2003, total comprehensive loss was $(170,469) and
$(471,103) respectively.
3. Earnings (loss) Per Common Share
The computation of basic earnings (loss) per common share is based on the
weighted average number of shares outstanding during each quarter.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the quarter, plus the common stock
equivalents that would arise from the exercise of stock options outstanding,
using the treasury stock method and the average market price per share during
the quarter. There were no common stock equivalents outstanding during the nine
months ended September 30, 2004 and 2003, and during the quarters ended
September 30, 2004 and 2003. Common stock equivalents are not included in the
diluted earnings (loss) per share calculation when their effect is antidilutive.
4. Stock-based Compensation
The Company measures expense for stock-based employee compensation using the
intrinsic value method and provides pro-forma disclosures of net income (loss)
and net income (loss) per common share as if the fair value method had been
applied in measuring compensation expense. For the nine months ended September
30, 2004 and 2003, and for the quarters ended September 30, 2004 and 2003, there
was no stock-based employee compensation expense or pro-forma expense.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Condensed Financial Statements
September 30, 2004 (Unaudited)
5. Agreement and Plan of Reorganization
On August 25, 2004, the Company entered into an Agreement and Plan of
Reorganization with Security National Life Insurance Company, and its
wholly-owned subsidiary, SSLIC Holding Company. Upon completion of the proposed
Agreement and Plan of Reorganization, SSLIC Holding Company will be merged with
and into the Company which merger, if consummated, would result in (i) the
Company becoming a wholly-owned subsidiary of Security National Life Insurance
Company and (ii) the Company's unaffiliated stockholders of the Company becoming
entitled to receive $3.84 in cash for each issued and outstanding share of the
Company's common stock. The Agreement and Plan of Reorganization was unanimously
approved by all of the directors of the Company.
If the proposed merger is completed, the separate existence of SSLIC Holding
Company will cease as the Company will be the surviving corporation in the
merger and will continue to be governed by the laws of the State of Florida, and
the separate corporate existence of the Company will continue unaffected by the
merger. The shares of common stock owned by the Company's unaffiliated
stockholders immediately prior to the effective time of the merger will be
exchanged for cash.
The total amount of cash to be paid by Security National Life Insurance Company
to the unaffiliated holders of the Company's common stock holding an aggregate
of 490,816 shares of the Company's common stock, pro rata to their respective
share ownership, will be $3.84 per share of common stock, or an aggregate of
$1,884,733. The 490,816 shares of the Company's common stock that Security
National Life Insurance Company has agreed to purchase from the Company's
unaffiliated stockholders represent 23.3% of the Company's outstanding common
shares, or all of the Company's outstanding shares. The unaffiliated
stockholders do not include Security National Life Insurance Company and SSLIC
Holding Company. Security National Life Insurance Company and SSLIC Holding
Company own 76.7% of the Company's outstanding common shares.
If the merger is completed, each share of the Company's common stock held by the
unaffiliated stockholders will, by virtue of the merger and without any action
on the part of the stockholder thereof, automatically be canceled and converted
into the right to receive cash in the amount equal to $3.84 per share. In
addition, each unaffiliated holder of the Company's common shares immediately
prior to the effective time of the merger will, by virtue of the merger and
without any action on the part of such stockholder, cease being a stockholder of
the Company and automatically receive cash in an amount equal to the number of
shares of common stock held of record by such stockholder at such time
multiplied by $3.84 per share.
The obligations of the Company, SSLIC Holding and Security National Life
Insurance Company to complete the proposed merger are subject to certain
conditions, including (i) the approval and adoption of the Agreement and Plan of
Reorganization by the Company's stockholders; (ii) all authorizations, consents,
orders or approvals of the insurance departments of the states of Florida and
Utah shall have been obtained; and (iii) on the closing date the dissenting
shares of the Company's common stock shall not exceed 10% of the Company's
outstanding common shares.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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Overview
This analysis of the results of operations and financial condition of Southern
Security Life Insurance Company should be read in conjunction with the Condensed
Financial Statements and Notes to the Condensed Financial Statements included in
this report.
The Company has primarily issued three types of insurance products: 10-Pay Whole
Life with an Annuity Rider, final expense products and universal life.
The 10-Pay Whole Life with an Annuity Rider product is designed for the higher
education market. The policy is marketed as a tool for parents to help fund
their children's higher education. The product is offered to parents who have
children under the age of 25.
Final expense products are traditional endowment type insurance policies written
for the senior market. Because the products are written to a senior market they
are designed to accommodate adverse health conditions. Because of the size of
the policies, the products are usually issued with only limited underwriting.
The coverage size of the policy is roughly equivalent to the insured's
anticipated funeral costs.
Universal life provides insurance coverage with flexible premiums, within
limits, which allow policyholders to accumulate cash values. The accumulated
cash values are credited with tax-deferred interest, as adjusted by the Company
on a periodic basis. Deducted from the cash accumulations are administrative
charges and mortality costs. Should a policy surrender in its early years, the
Company assesses a surrender fee against the cash value accumulations based on a
graded formula.
In connection with its higher education sales, the Company has a lead-generation
program that has been coupled with a recruiting program for new sales agents to
help generate new business.
An additional source of income to the Company is investment income. The Company
invests those funds deposited by policyholders in debt and equity securities,
mortgage loans, and to warehouse mortgage loans in accordance with the
requirements and laws governing life insurance companies, 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 an important 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.
Results of Operations
Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30,
2003
Total revenues increased by $157,000, or 1.9%, to $8,555,000 for the nine months
ended September 30, 2004, from $8,398,000 for the nine months ended September
30, 2003. Contributing to this increase was a $260,000 increase in net insurance
revenues, which was offset by a $103,000 decrease in net investment income and
related party interest income.
Net insurance revenues increased by $260,000, or 4.8%, to $5,693,000 for the
nine months ended September 30, 2004, from $5,433,000 for the comparable period
in 2003. This increase was primarily the result of an increase in traditional
life sales.
Net investment income and related party interest income decreased by $103,000 or
3.5%, to $2,862,000 for the nine months ended September 30, 2004, from
$2,965,000 for the comparable period in 2003. This decrease was due to a
reduction in investment yield resulting from a reduction in higher yielding
short-term investments.
Benefits and claims increased by $11,000, or 0.3%, to $4,182,000 for the nine
months ended September 30, 2004, from $4,171,000 for the comparable period in
2003. This increase was primarily due to a reduction in death claims of $175,000
and a reduction of accident and health claims of $128,000, offset by an increase
in future policy benefits of $290,000 and an increase of surrenders by $28,000.
Amortization of deferred policy acquisition costs increased by $3,000, or 0.2%,
to $1,353,000 for the nine months ended September 30, 2004, from $1,350,000 for
the comparable period in 2003. This increase in amortized expenses was in line
with actuarial assumptions as changes occurred in deferral of amortization
costs.
Operating expenses increased by $375,000, or 57.7%, to $1,025,000 for the nine
months ended September 30, 2004, from $650,000 for the same period in 2003. This
increase was primarily due to the settlement costs and legal fees of the
litigation with National Group Underwriters, Inc. and increased commission and
marketing expenses, which were in line with increased sales and premiums
collected. In addition, during the nine months ended September 30, 2003,
operating expenses were reduced by $124,000 as the result of the insurance
recovery of legal fees expended in certain litigation.
Third Quarter of 2004 Compared to Third Quarter of 2003
Total revenues increased by $38,000, or 1.4%, to $2,829,000 for the three months
ended September 30, 2004, from $2,791,000 for the three months ended September
30, 2003. Contributing to this increase was a $42,000 increase in net insurance
revenues and a $41,000 increase in net investment income, which was offset by a
$45,000 decrease in related party interest income.
Net insurance revenues increased by $42,000, or 2.3%, to $1,894,000 for the
three months ended September 30, 2004, from $1,852,000 for the comparable period
in 2003. This increase was primarily the result of an increase in traditional
life sales.
Net investment income and related party interest income decreased by $5,000, or
0.5%, to $935,000 for the three months ended September 30, 2004, from $940,000
for the comparable period in 2003. This decrease was due to a reduction in
investment yield resulting from a reduction in higher yielding short-term
investments.
Benefits and claims decreased by $12,000, or 0.8%, to $1,400,000 for the three
months ended September 30, 2004, from $1,412,000 for the comparable period in
2003. This decrease was primarily due to an increase in death claims of $17,000
and an increase in future policy benefits of $69,000, which were offset by a
decrease in surrenders of $18,000 and a decrease in accident and health claims
of $80,000. .
Amortization of deferred policy acquisition costs decreased by $105,000, or
18.8%, to $453,000 for the three months ended September 30, 2004, from $558,000
for the comparable period in 2003. This decrease in amortized expenses was in
line with actuarial assumptions.
Operating expenses increased by $195,000, or 91.1% to $409,000 for the three
months ended September 30, 2004, from $214,000 for the same period in 2003. This
increase was primarily due to the settlement costs and legal fees of the
litigation with National Group Underwriters Inc. and increased commission and
marketing expenses, which were in line with increased sales and premiums
collected.
Liquidity and Capital Resources
The Company attempts to match the duration of invested assets with its
policyholder liabilities. The Company may sell investments other than those
held-to-maturity in the portfolio to help in this timing; however, to date, that
has not been necessary. The Company purchases short-term investments on a
temporary basis to meet the expectations of short-term requirements of the
Company's products. The Company's investment philosophy is intended to provide a
rate of return that will persist during the expected duration of policyholder
liabilities regardless of future interest rate movements.
The Company's investment policy is to invest predominantly in fixed maturity
securities, mortgage loans, and the warehousing of mortgage loans on a
short-term basis before selling the loans to investors in accordance with the
requirements and laws governing life insurance companies. Bonds owned by the
Company amounted to $26,930,000 as of September 30, 2004, as compared to
$17,904,000 at December 31, 2003. The Company has invested more of its
short-term investments in bonds. This represents 53% and 39% of the total
investments as of September 30, 2004 and December 31, 2003, respectively.
Generally all bonds owned by the Company are rated by the National Association
of Insurance Commissioners. Under this rating system, there are six categories
used for rating bonds. At September 30, 2004, and at December 31, 2003, the
Company had investments in bonds in rating categories three through six, which
are considered non-investment grade, of $687,000 and $488,000, respectively.
The Company has classified certain of its fixed income securities as available
for sale, with the remainder classified as held to maturity. However, in
accordance with Company policy, any such securities purchased in the future will
be classified as held to maturity. Business conditions, however, may develop in
the future which may indicate a need for a higher level of liquidity in the
investment portfolio. In that event the Company believes it could sell
short-term investment grade securities before liquidating higher-yielding
longer-term securities.
The Company is subject to risk based capital guidelines established by statutory
regulators requiring minimum capital levels based on the perceived risk of
assets, liabilities, disintermediation, and business risk. At September 30, 2004
and December 31, 2003, the Company exceeded the regulatory criteria.
Lapse rates measure the amount of insurance terminated during a particular
period. The Company's lapse rate for life insurance in 2003 was 10.7% as
compared to a rate of 11.9% for 2002. The 2004 lapse rate has been approximately
the same as 2003.
At September 30, 2004, $11,443,000 of the Company's stockholders' equity
represented the statutory stockholders' equity. The Company cannot pay a
dividend to its parent company without the approval of insurance regulatory
authorities.
The Company has no material commitments for capital expenditures.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes since the annual report Form 10-K filed
for the year ended December 31, 2003.
Item 4. Controls and Procedures
a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we evaluated the effectiveness of the design and operation of
our disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as of
September 30, 2004. Based on this evaluation, our principal executive
officer and our principal financial officer concluded that, as of the
end of the period covered by this report, our disclosure controls and
procedures were effective and adequately designed to ensure that the
information required to be disclosed by us in the reports we file or
submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified
in applicable rules and forms.
(b) Changes in internal controls over financial reporting.
During the quarter ended September 30, 2004, there has been no change
in our internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Part II Other Information:
Item 1. Legal Proceedings
An action was brought against Southern Security Life Insurance Company
by National Group Underwriters, Inc. ("NGU") in state court in the
State of Texas. The case was removed by the Company to the United
States District Court for the Northern District of Texas, Fort Worth
Division, with Civil No. 4:01-CV-403-E. An amended complaint was filed
on or about July 18, 2001. The amended complaint asserted that NGU had
a contract with the Company wherein NGU would submit applications for
certain policies of insurance to be issued by the Company. It was
alleged that disputes had arisen between NGU and the Company with
regard to the calculation and payment of certain commissions as well
as certain production bonuses.
NGU alleged that it had been damaged far in excess of the $75,000
minimum jurisdictional limits of the federal court. NGU also sought
attorney's fees and costs as well as prejudgment and post judgment
interest. A second amended complaint and a third amended complaint,
which included a fraud claim, were filed. A motion was filed by the
Company to dismiss the third amended complaint, including the fraud
claim. The court denied the motion. The Company counterclaimed for
what it claimed to be a debit balance owing to it pursuant to the
relationship between the parties (the amount subject to reduction as
premiums are received). The Company also sought to recover attorney's
fees and costs, as well as punitive damages on three of its causes of
action in the counterclaim.
Following initial discovery, the federal case was dismissed by
stipulation. The matter was refiled in Texas state court, Tarrant
County, Case No. 348 195490 02. The claims of the respective parties
are essentially the same as those in federal court, which claims of
NGU (estimated to be $2,133,625 through September 30, 2004) include
fraudulent inducement relative to entering into a contract, fraud,
breach of contract as to commissions and production bonuses as well as
policy fees, certain dues and debits of other agents, with attorney's
fees and exemplary damages as well as seeking an accounting with the
appointment of an auditor and contesting the interest charges. Certain
discovery has taken place, including depositions, since the filing
again in state court. A trial was set for late October 2004 and the
Company had filed another motion for partial summary judgment.
However, as a result of mediation, a settlement was reached in the
case, which was completed on September 24, 2004. Pursuant to
completion of the settlement, the litigation was dismissed with
prejudice.
The settlement required the Company to pay NGU a $265,000 cash payment
by September 24, 2004, which approximated the interest the Company
charged on NGU's account. In addition, the Company is required to pay
the regular commission and policy fee renewals to NGU. Finally, NGU
has the right to undertake an audit and review of the policy fees the
Company has paid NGU during the period from May 1, 2001 through July
31, 2004, provided the audit is completed within 75 days of the
September 24, 2004 effective date of the Settlement Agreement between
the Company and NGU. If it is determined, as a result of the audit,
that the amount of policy fees was not fully credited during such
period, the Company is required to pay NGU any such policy fees owed
without interest thereon.
The Company is not a party to any other legal proceedings outside the
ordinary course of its business or to any other legal proceedings,
which, if adversely determined, would have a material adverse effect
on the Company or its business.
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
On August 25, 2004, the Company entered into an Agreement and Plan of
Reorganization with Security National Life Insurance Company, and its
wholly owned subsidiary, SSLIC Holding Company. Upon completion of the
proposed Agreement and Plan of Reorganization, SSLIC Holding Company
will be merged with and into the Company which merger, if consummated,
would result in (i) the Company becoming a wholly-owned subsidiary of
Security National Life Insurance Company and (ii) the Company's
unaffiliated stockholders of the Company becoming entitled to receive
$3.84 in cash for each issued and outstanding share of the Company's
common stock. The Agreement and Plan of Reorganization was unanimously
approved by all of the directors of the Company.
If the proposed merger is completed, the separate existence of SSLIC
Holding Company will cease as the Company will be the surviving
corporation in the merger and will continue to be governed by the laws
of the State of Florida, and the separate corporate existence of the
Company will continue unaffected by the merger. The shares of common
stock owned by the Company's unaffiliated stockholders immediately
prior to the effective time of the merger will be exchanged for cash.
The total amount of cash to be paid by Security National Life
Insurance Company to the unaffiliated holders of the Company's common
stock holding an aggregate of 490,816 shares of the Company's common
stock, pro rata to their respective share ownership, will be $3.84 per
share of common stock, or an aggregate of $1,884,733. The 490,816
shares of the Company's common stock that Security National Life
Insurance Company has agreed to purchase from the Company's
unaffiliated stockholders represent 23.3% of the Company's outstanding
common shares, or all of the Company's outstanding shares. The
unaffiliated stockholders do not include Security National Life
Insurance Company and SSLIC Holding Company. Security National Life
Insurance Company and SSLIC Holding Company own 76.7% of the Company's
outstanding common shares.
If the merger is completed, each share of the Company's common stock
held by the unaffiliated stockholders prior to the effective time of
the merger will, by virtue of the merger and without any action on the
part of the stockholder thereof, automatically be canceled and
converted into the right to receive cash in the amount equal to $3.84
per share. In addition, each unaffiliated holder of the Company's
common shares immediately prior to the effective time of the merger
will, by virtue of the merger and without any action on the part of
such stockholder, cease being a stockholder of the Company and
automatically receive cash in an amount equal to the number of shares
of common stock held of record by such stockholder at such time
multiplied by $3.84 per share.
The obligations of the Company, SSLIC Holding and Security National
Life Insurance Company to complete the proposed merger are subject to
certain conditions, including (i) the approval and adoption of the
Agreement and Plan of Reorganization by the Company's stockholders;
(ii) all authorizations, consents, orders or approvals of the
insurance departments of the states of Florida and Utah shall have
been obtained; and (iii) on the closing date the dissenting shares of
the Company's common stock shall not exceed 10% of the Company's
outstanding common shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation, as amended, and Bylaws, as amended, dated
September 1994, incorporated by reference from the Annual Report filed
on Form 10-K for fiscal year ended December 31, 1994.
10.1 Revolving Financing Agreement between the Company and the Student Loan
Marketing Association, dated September 19, 1996, incorporated by
reference from Annual Report on Form 10-K for fiscal year ended
December 31, 1997.
10.2 Reinsurance Agreement between the Company and United Group Insurance
Company, dated as of December 31, 1992, incorporated by reference from
Annual Report on Form 10-K for fiscal year ended December 31, 1992.
10.3 Agency Agreement between the Company and Insuradyne Corporation,
incorporated by reference from Annual Report on Form 10-K for fiscal
year ended December 31, 1993.
10.4 Administrative Services Agreement between the Company and Security
National Financial Corporation effective December 17, 1998,
incorporated by reference from Annual Report on Form 10-K for fiscal
year ended December 31, 1998.
10.5 Agency Agreement between the Company and Security National Mortgage
Company dated December 28, 1998, incorporated by reference from Annual
Report on Form 10-K for fiscal year ended December 31, 1999.
10.6 Loan Funding and Fee Agreement between the Company and Security
National Mortgage Company dated December 28, 1998, incorporated by
reference from Annual Report on Form 10-K for fiscal year ended
December 31, 1999.
10.7 Reinsurance Agreement between the Company and Security National Life
Insurance Company dated December 26, 2003, incorporated by reference
from Annual Report on Form 10-K for fiscal year ended December 31,
2003.
10.8 Agreement and Plan of Reorganization among the Company, Security
National Life Insurance Company and SSLIC Holding Company dated as of
August 25, 2004, incorporated by reference from Preliminary Proxy
Statement for the 2004 Annual Meeting of Stockholders as filed on
August 27, 2004.
31.1 Certification pursuant to 18 U.S.C. Section 1350 as enacted by Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to 18 U.S.C. Section 1350 as enacted by Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
Current Report on Form 8-K, as filed on August 30, 2004 Current Report
on Form 8-K/A, as filed on September 3, 2004 Current Report on Form
8-K, as filed on September 3, 2004
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 thereunto duly authorized.
REGISTRANT
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Registrant
DATED: November 15, 2004 By: George R. Quist,
----------------
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
DATED: November 15, 2004 By: Stephen M. Sill
---------------
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Exhibit 31.1
CERTIFICATIONS
I, George R. Quist, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Southern Security
Life Insurance Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15-d-15(e)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period
covered in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 15, 2004
By: George R. Quist
Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Stephen M. Sill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Southern Security
Life Insurance Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15-d-15(e)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period
covered in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 15, 2004
By: Stephen M. Sill
Vice President, Treasurer and
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Southern Security Life Insurance
Company (the "Company") on Form 10-Q for the period ending September 30, 2004,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, George R. Quist, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
George R. Quist
Chief Executive Officer
November 15, 2004
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Southern Security Life Insurance
Company (the "Company") on Form 10-Q for the period ending September 30, 2004,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Stephen M. Sill, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Stephen M. Sill
Chief Financial Officer
November 15, 2004