During the year, Royal Neighbors’ assets grew to nearly $648 million; which is an increase of approximately 3% over the prior year. The $18.8 million increase in total assets included a net increase in invested assets of $11.2 million primarily from larger fixed income, equity and mortgage loan holdings. All other assets increased $7.6 million which includes additional amounts due to Royal Neighbors under a reinsurance agreement.

While assets grew during the year, liabilities were decreasing. Total liabilities of $436.8 million were reduced by $10.0 million or about 2.2%. In an effort to align employee benefits with market conditions, Royal Neighbors also reduced its liabilities for post-retirement major medical expenses and froze retirement benefits accruing under a defined benefit plan.

Net income for 2006 and 2005 was $23.7 million and $2.8 million, respectively. Realized investment gains included in these totals were $3.1 million and $1.4 million, respectively. The following operating items were included in this year’s net income:

This year’s premium income, before reinsurance, for the second year in a row, doubled to some $92.7 million. Net premiums were $29.0 million and $43.4 million for 2006 and 2005, respectively. The 2006 net premium total includes the cession of Medicare supplement premiums to a reinsurer. It is expected that the premium growth experienced in 2006 and 2005 will moderate as the focus for new premium and total premium will be to balance life and annuity premiums with accident and health income.

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Additional Highlights

 

While insurance in force remained steady at $2.1 billion dollars, the number of insurance certificates at the end of 2006 grew to 246,500 compared to 231,300 at the end of 2005. For the years ended December 31, 2006 and 2005, respectively, Royal Neighbors insured 190,000 and 198,600 life and annuity certificates. These in force insurance contracts generated about $22.7 and $18.0 million of premium income. The Society, under its Medicare supplement coverage, insured nearly 56,500 and 32,700 lives at the end of 2006 and 2005, respectively. Gross premiums from the Medicare supplement certificates amounted to approximately $70.0 and $26.1 million at December 31, 2006 and 2005, respectively. Unlike many fraternal benefit organizations, the Society is growing and engaging both its membership and its premium income.

Three significant initiatives were completed during 2006 that contributed to the growth in net income. First, in an effort to mitigate the risks associated with the rapid expansion of the Medicare supplement product line, a risk sharing agreement for our Medicare supplement business was put in place. Additionally, Royal Neighbors opened a branch office in Austin, TX, so that it could expand distribution efforts into a more viable distribution model using the independent agent sales channel. The Austin office markets single premium life and annuity products as well as a smaller face amount life product offering. The single premium annuity product was brought to market in September, 2006 and more than $12.5 million of applications were submitted. Approximately $6.1 million of the submitted applications were issued and paid for in 2006. With these product offerings, the Austin office is recruiting new sales associates, selling valued products and getting the Royal Neighbors name and fraternal benefits in front of a nation-wide audience. The activity is exciting and we look forward to even more success in 2007. Finally, Royal Neighbors continued to successfully reduce operating expenses. In addition to lowering the cost to the Society of post-retirement and pension employee benefits by some $8.5 million, expense reductions were also realized in nearly all of the Society’s operating business units. While these cost savings were offset by the higher administrative costs associated with having a larger in force book of Medicare supplement certificates, net operating expense savings of $3.9 million were realized. 

During 2006, the Society successfully introduced five additional benefit programs that provided members and their families with the opportunity to realize substantial discounts on prescription drugs, health screenings, diagnostic testing, hearing care, and magazine subscriptions. In addition to these new benefits, it continues to offer “Know Your Worth,” “Making a Difference,” “New Horizon,” and “Life Enrichment” scholarships, fraternal and disaster aid, and the quarterly Royal Neighbor magazine.

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Asset growth, fewer liabilities, more surplus, premium income, expense reductions, risk transfer, and operating income combined with realized investment gains to produce the 2006 financial results reported. The 2006 year was important in terms of stabilizing the financial position of Royal Neighbors and it can best be described as a beginning. The accomplishments of 2006, as measured in these financial results, have created a great deal of excitement about the future of your organization and we look forward to continued success in the years to come. We will continue to find ways to strengthen our financial health and serve our membership. It is an exciting time to be part of Royal Neighbors of America.

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