- 12 -
Based upon the above assumptions, Coventry projected that
the "pretax earnings effect" of the COLI plan for the first
policy year (1993) would be a loss of $4,605,000,6 before
adjusting for the related reduction in income taxes. This pretax
loss was based on the following projected figures for the end of
the first policy year: Cash surrender value (CSV) of the COLI
policies of $119,586,000 increased by death benefits of
$2,016,000 and reduced by annual premiums of $114 million,7
accrued loan interest of $11,902,000,8 and administration fees of
$304,000.9 Similar projections for the years 1994 through 2052
produced pretax losses in each year.
With respect to the estimated 1993 premiums of $114 million,
the projection indicated that petitioner would, in part, satisfy
the premiums by borrowing $107,684,000 against cash surrender
6See appendix A.
7This amount is arrived at using the assumed premium per
employee of $3,000 times the assumed 38,000 employees for a total
of $114 million.
8This amount is the interest due from petitioner as
calculated by Coventry on a projected first-year policy loan
taken by petitioner in the amount of $107,684,000. Annual
interest of 11.06 percent on $107,684,000 is actually
$11,909,850.
9Using these figures the calculation is: $119,586,000 +
$2,016,000 + ($114,000,000) + ($11,902,000)+ ($304,000) =
($4,604,000). The $1,000 variance between this calculation and
the pretax loss of $4,605,000 in appendix A appears to be
attributable to rounding of the components of the calculation.
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