IndependenceCare leases 4,200 square feet of office space in Minneapolis, Minnesota, which expires on May 31, 2011. RAS leases 4,200 square feet of office space in South Windsor, Connecticut, which expires on January 31, 2012. Marlton leases 4,000 square feet of office space in Voorhees, New Jersey, which expires on January 31, 2010. ECA leases 2,000 square feet of office space in Voorhees, New Jersey, which expires on January 31, 2010.
We are an insurance holding company engaged in the insurance and reinsurance business through our wholly owned insurance company, Independence American Insurance Company ("Independence American"), our marketing organizations, including our three medical stop-loss managing general underwriter subsidiaries (“our MGUs"), our two insurance and marketing agencies IPA and HIO, and our claims administration company, ECA. Since November 2002, AMIC has been affiliated with Independence Holding Company ("IHC"), which currently owns 49.7% of AMIC's stock, and IHC's senior management has provided direction to us through service agreements between us and IHC. In 2008, Independence American’s primary source of revenue was reinsurance premiums. The majority of these premiums are ceded to Independence American from IHC under long-term reinsurance treaties to cede its gross medical stop-loss premiums written to Independence American. In addition, Independence American assumes fully insured health and short-term statutory disability benefit product in New York State ("DBL") premiums from IHC, and assumes medical stop-loss premiums from unaffiliated carriers. Independence American began writing group major medical, medical stop-loss, major medical plans for individuals and families, and short-term medical in 2007. Given its A- (Excellent) rating from A.M. Best, Independence American expects to expand the distribution of its medical stop-loss products, and increase the business written on its paper, especially major medical plans for individuals and families.
The return on investments of the Company was 5.3% and 5.4% for the year ended December 31, 2008 and 2007, respectively.
Underwriting experience, as indicated by its GAAP Combined Ratios on our three lines of business for the year ended December 31, 2008 and 2007 are as follows:
Selling, General and Administrative. Selling, general and administrative expenses increased $2,800,000 to $40,263,000 for 2008, compared to $37,463,000 for 2007. This increase is primarily due to the additional expense of IPA of $5,540,000, which includes commissions and other general expenses of the agency, and higher underwriting expenses inclusive of administration fees of $702,000, offset by lower commissions expense
Net cash provided by operating activities of continuing operations for the year ended December 31, 2008 was $2,603,000. Net cash flows were the result of insurance revenues and fees from our MGUs, partially offset by claims and losses.
Life are not contractually obligated to continue to cede this business to Independence American after termination of the current treaty years. The Company does not expect the percentage ceded to it from IHC will change significantly in the next twelve months.
Acquisition of IPA, LLC, net of cash acquired (see Note 3)
Prior to November 14, 2002, the Company (then known as SoftNet Systems, Inc.) was a holding company principally engaged in providing Internet services. All previously reported business segments have ceased operations or have been sold, and accordingly are reported as discontinued operations (see Note 9 of Notes to Consolidated Financial Statements).
Certain amounts in prior years' Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2008 presentation, primarily relating to the EDH Derivative (see Note 19 of Notes to Consolidated Financial Statements).
Predicting ultimate claims and estimating reserves in Medical Stop-Loss is more complex than first dollar medical and disability business due to the “excess of loss” nature of these products with very high deductibles applying to specific claims on any individual claimant and in the aggregate for a given group. The level of these deductibles makes it more difficult to predict the amount and payment pattern of such claims. Fluctuations in results for specific coverage are primarily due to the severity and frequency of individual claims, whereas fluctuations in aggregate coverage are largely attributable to frequency of underlying claims rather than severity.
Basic income per common share is computed using the weighted average number of common stock shares outstanding during the period. Diluted income per common share is computed using the weighted average number of common stock shares and common stock equivalent shares outstanding during the period. Common stock equivalents consist of stock options (using the "treasury stock" method). Common stock equivalent shares are excluded from the computation if the effect is anti-dilutive. As a result of the anti-dilutive effect, common stock equivalent shares have been excluded from the computation of diluted earnings per share for periods presented with a net loss. Included in the diluted earnings per share calculations are 51,000 shares for the year ended December 31, 2007, from the assumed exercise of options using the treasury stock method. For the year ended December 31, 2008, such shares were deemed anti-dilutive. Net income does not change as a result of the assumed dilution.
The following tables summarizes, for all securities in an unrealized loss position at December 31, 2008 and December 31, 2007, the aggregate fair value and gross unrealized loss by length of time, those securities that have continuously been in an unrealized loss position (in thousands):
The Company believes the net liabilities for discontinued operations at December 31, 2008 adequately estimate the remaining costs associated with Intellicom discontinued operations.
The Company issued 12,000 restricted stock awards during the twelve months ended December 31, 2008, with a weighted average grant-date fair value of $6.92 per share. No restricted stock awards were issued in 2007. Restricted stock expense was $15,000 and $0 for the twelve months ended December 31, 2008 and 2007, respectively.
Dividends from Independence American to its parent, a subsidiary of AMIC, are subject to the prior notification to the Delaware Insurance Commissioner, if such dividends, together with the fair market value of other dividends or distributions made within the preceding twelve months, exceed the greater of (i) 10% of surplus as regards policyholders as of the preceding December 31 or (ii) net income, not including realized capital gains, for the twelve-month period ending the December 31 next preceding. Such dividends may be paid as long as they have not been disapproved by the Delaware Insurance Commissioner within 30 days of its receipt of notice thereof. Independence American did not pay any dividends in 2008 and 2007.