The company's investment in bonds at December 31, 1962, comprised 26.92 percent of the total admitted assets. The bonds owned, having an admitted value of $15,847,092.37, are summarized by values and according to the general classification of the annual statement as follows:

In accordance with procedures specified by the Valuation Committee of the National Association of Insurance Commissioners, all bonds with the exception of one issue were eligible for amortization. The one issue was valued at 100, which had been purchased at par; therefore, the book value and admitted value remained the same.

The company used the scientific method for amortizing bonds. Increases and decreases in the amortized values were journalized monthly and included in the calculation of interest collected. Company computations were checked to the extent deemed essential, and a few minor discrepancies were noted. As the errors were of little consequence and, while called to the company's attention, did not warrant changes at this time.

The comparative quality of bonds as reflected by Moody's Investors Service is shown in the following schedule and summaries are based on book values:

It should be noted that of the $1,247,825.11 not rated bonds, all but $43.000 are political subdivisions, special revenue and assessment, and industrial and miscellaneous bonds. Only a relatively small portion of bonds in these categories are rated because the Moody's Investors Services do not rate any bond where the gross debt is less than $600,000 on political subdivisions and $1 million on the remainders. Also, other issues are not rated by the services in which the debt exceeds these limits because the services do not have all the necessary information. Absence of a rating carries no implication as to the quality of the investment.

All bonds with the exception of two issues of direct placements were on deposit with various depositories. The bonds were accounted for as follows:

The bonds on deposit were verified by direct confirmation from the various depositories. Bonds on deposit with the insurance commissioner of the State of Colorado, in compliance with the Colorado statutory legal reserve requirements, were held under a joint custodial agreement for the protection of all policyholders. The bonds in possession of the company were kept in the vault at the home office and were verified by physical count in the presence of authorized company personnel. Transactions prior to the date of the count were reconciled to December 31, 1962.

The following summary reflects the related percentage of each classification of bonds owned to the total admitted value reflected in the preceding and current examinations:

The following schedule reflects the activity in the company's bond portfolio during the period under review:

Purchases and sales of bonds during the period under review were found to be supported by brokers' invoices and advices. Authorization for the transactions by the finance committee was verified by a review of the minutes of that body. The actions of the finance committee were, in turn, approved by the Board of Directors. The transfers reflected in the foregoing reconcilation represent direct placements which had been erroneously carried in the company's mortgage loan portfolio.

The following schedule reflects the interest earned and the ratio to the mean book value of bonds for each year of the period under review:

There were no bonds in default as to interest or principal. Interest received during the 3-year period was tested to the extent deemed essential and was found to be properly based on the contractual rates. Interest accrued on bonds at December 31, 1962, was computed to be $147,870. This amount, which is the same as that reported by the company, has been reflected as a nonledger asset in the financial statement of this report.

Stocks, $970,769.10

The company's investment in stocks at December 31, 1962, comprised 1.65 percent of the total admitted assets. The stocks owned, having an admitted value of $970,769.10, are summarized by values and according to the general classification of the annual statement as follows:

The market values, with the exception of one issue reflected in the foregoing schedule, were those published by the Committee on Valuation of Securities of the National Association of Insurance Commissioners as of December 31, 1962. The excess of the admitted over the book value in the amount of $103,453.15, which is $1,066 less than the amount reported by the company, has been reflected herein as a nonledger asset.

As of December 31, 1962, the company owned the entire outstanding capital stock of the Security Casualty Insurance Co., an affiliated company having a par value of $4 per share. The company valued the stock at the year end at its book value; however, for the purpose of this report, the stock was valued on the basis of the capital and surplus reflected in its 1962 filed annual statement. This represents a decrease in the admitted value in the amount of $1,066. The company held 1 certificate (Life Companies Inc. in dissolution) representing 1,000 shares of common stock which had no admitted value at December 31, 1962. Two liquidating cash distributions were declared in the aggregate of $12.781.36 decreasing the book value to $1,343.64. In addition, the company received 40 shares of Leach Corp. and 90 shares of Insurance Securities, Inc., common stock having an aggregate admitted value of $2.745.20 at the year end. The company did not place a value on the stock distribution; therefore, no credit was given to the book value of the stock in dissolution which is waiting its final liquidating distribution.

All stocks, with the exception of two issues, were on deposit with the Colorado Insurance Department in compliance with the Colorado statutory legal reserve requirements and were held under a joint custodial agreement for the protection

of all policyholders. A confirmation from the insurance department verified the total market value of stocks so held as of December 31, 1962. The one issue in possession of the company was inspected in presence of authorized company personnel. The remaining issue in transit was verified and all subsequent transactions were reconciled to December 31, 1962.

The following schedule reflects the activity in the stock portfolio during the period under review:

The company erroneously reflected its investment in savings and loan associations under the caption "Cash and Bank Deposits." In accordance with annual statement provisions it has been included herein and reflected in the foregoing reconciliation.

Purchases and sales of stocks during the period under review were found to be supported by brokers' invoices and advices. Authorization for the transactions by the finance committee was verified by a review of the minutes of that body. The actions of the finance committee were, in turn, approved by the board of directors.

The following exhibit reflects the related percentage of each classification of stocks owned to the total book value reflected in the preceding and current examinations:

The following schedule reflects the dividends earned and the ratio to the mean book value of stocks for each year of the period under review:

Dividends received during the years 1960 and 1961 were tested to the extent deemed essential. The dividends received during the year 1962 were verified in their entirety and found to be in agreement with published dividend declarations.

The company's investment in seven savings and loan associations at December 31, 1962, having a book and par of $33,664.10 were located as follows:

Certificates evidencing these deposits were inspected and in addition verification certificates were received from each of the depositories. Dividend rates on the savings and loan association certificates varied from 4.50 to 4.60 percent. Accrued dividends were computed to be $438.71 and allowed as a nonledger asset in the financial statement of this report.

Mortage loans on real estate, $32,537,116.82

The company's investment in mortgage loans on real estate at December 31, 1962. consisted of 2,803 loans with an admitted value of $32,537,116.82 which represented 55.26 percent of the total admitted assets. The general classification of these loans is as follows:

The unpaid principal balance, set forth above, contains the sum of $13,782.55, representing the unearned discounts on mortgage loans owned by the company at the close of 1962. Discounts are accrued over a 5-year period, one-tenth for the first and sixth years and one-fifth for each of the intervening years. The sum of the earned portions in any one year is the amount journalized and included in the calculation of interest collected. The company follows the practice of fully amortizing the premium paid on the purchase of a loan at the time of acquisition.

As of December 31, 1962 the company owned six mortgage loans that exceeded 75 percent of the appraised values. The excess in the amount of $6,463, which is the difference between the book and admitted values, has been reflected as an asset not admitted in the financial statements of this report.