the Company continued to originate those receivables using available cash. Likewise, the Company did not finance the acquisition of life-contingent structured settlements into its dedicated facility for those receivables after becoming aware of the USAO Investigation. As a result, on December 31, 2011, the Company terminated its financing arrangements for life-contingent structured settlements and entered into a forward purchase and sale arrangement for these assets. However, this new arrangement compressed the Company’s margins as it required the Company to sell life-contingent structured settlements at a discount rate that was higher than the rate used in the prior facility as a result of the entry into the Non-Prosecution Agreement. As of the filing of this Annual Report on Form 10-K, the discount rate under this forward purchase and sale arrangement is 50 basis points higher than the rate used in the prior facility.
When a premium finance loan matures, we record the difference between the net carrying value of the loan receivable (which includes the loan principal balance, accrued interest and accreted origination fees, net of any impairment valuation adjustment) and the cash received, or the fair value of the life insurance policy that is obtained if there is a default and the policy is relinquished, as a gain or loss on loan payoffs and settlements, net. This account was significantly impacted by the Acorn settlement, as discussed below, whereby we recorded a loss on loan payoffs and settlements, net, of $4.1 million, $5.5 million and $10.2 million during the years ended December 31, 2011, 2010 and 2009, respectively, under the direct write-off method, as opposed to charging our provision for losses on loan receivables.
On the notes that were cancelled under the Acorn facility, we had debt forgiven totaling $5.0 million and $7.6 million for the years ended December 31, 2011 and 2010, respectively. We recorded these amounts as gain on forgiveness of debt. Partially offsetting these gains, we had loan losses totaling $4.1 million and $5.5 million during the years ended December 31, 2011, and 2010, respectively. We recorded these amounts as loss on loan payoffs and settlements, net. As of December 31, 2011, there were no loans that remained outstanding from the original 119 loans financed in the Acorn facility.
The probability of mortality for an insured is then calculated by applying the life expectancy estimate to a mortality table. The mortality table is created based on the rates of death among groups categorized by gender, age, and smoking status. By measuring how many deaths occur before the start of each year, the table allows for a calculation of the probability of death in a given year for each category of insured people. The probability of mortality for an insured is found by applying their mortality rating from the life expectancy assessment to the probability found in the actuarial table for the insured’s age, sex and smoking status.
In its fair value methodology and in determining the life expectancy of an insured, the Company applies an actuarial table developed by a third party. In contrast, in pricing trades we believe many market participants generally reference a table developed by the U.S. Society of Actuaries known as the 2008 Valuation Basic Table, or the 2008 VBT. The table used by Imperial to value its life settlements is generally more conservative in that it applies the mortality experience of an insured population that is representative of participants in the life settlement market. Because of the relative greater wealth of the participants in the life settlement market, and thus their access to superior healthcare, these individuals tend to live longer than the general population. The Company believes that applying the 2008 VBT table to its portfolio would not result in a material difference.
The discount rate incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life insurance policy and our estimate of the risk premium an investor in the policy would require. The extent to which the fair value could vary in the near term has been quantified by evaluating the effect of changes in the weighted average discount rate used to estimate the fair value. If the weighted average discount rate were increased or decreased by 1/2 of 1% and the other assumptions used to estimate fair value remained the same, the change in fair market value would be as follows:
Future changes in the discount rate which we used to value life insurance policies could have a material effect on our yield on life settlement transactions, which could have a material adverse effect on our business, financial condition and results of our operations.
Note 2 of the Notes to Consolidated and Combined Financial Statements discusses accounting standards adopted in 2011, as well as accounting standards recently issued but not yet required to be adopted and the
Interest Income. Interest income was $7.8 million for the year ended December 31, 2011 compared to $18.3 million for the year ended December 31, 2010, a decrease of $10.5 million, or 57%. During the years ended December 31, 2011 and December 31, 2010, the Company originated 55 and 97 loans respectively. Interest income declined as the balance of loans receivable, net decreased from $90.0 million as of December 31, 2010 to $29.4 million as of December 31, 2011 due to significant loan maturities. There were no significant changes in interest rates. The weighted average per annum interest rate for life finance loans outstanding as of December 31, 2011 and 2010 was 12.3% and 11.4%, respectively. As a result of the voluntary termination of our premium finance business, we will cease earning interest income once our outstanding premium finance loans mature.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $13.2 million for the year ended December 31, 2011 compared to $10.3 million for the year ended December 31, 2010, an increase of $2.9 million or 28%. This increase was due primarily to an increase in personnel expenses of $500,000 due to hiring additional employees throughout 2011, $1.1 million in stock-based compensation and employee bonuses in connection with our IPO in 2011 and expenses related to a work-force reduction at the end of 2011 and an increase in legal fees of $1.1 million.
Gain on Forgiveness of Debt. Gain on forgiveness of debt was $7.6 million for the year ended December 31, 2010 compared to $16.4 million for December 31, 2009, a decrease of $8.8 million, or 54%. These gains arose out of the Acorn settlement as described previously and include $1.9 million related to loans written off in December 2008, but the corresponding gain on forgiveness of debt was not recognized until 2009 at the time the Acorn settlement was finalized. Only 15 loans out of 119 loans financed in this facility remained outstanding as of December 31, 2010. The gains were substantially offset by a loss on loan payoffs of the associated loans of $5.5 million and $10.2 million during the year ended December 31, 2010, and 2009, respectively.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $13.1 million for the year ended December 31, 2010 compared to $9.5 million for the year ended December 31, 2009, an increase of $3.6 million, or 38%. This increase was due primarily to increased legal fees of $1.1 million, which are largely attributable to securing a sale arrangement and an increase in transaction expenses resulting from increased originations during the period, which increased to 565 for the year ended December 31, 2010 from 396 during the year ended December 31, 2009. Additionally, payroll increased by $1.0 million due to hiring additional employees and advertising expenses increased by $574,000.
The following table summarizes the maturities of principal and interest outstanding as of December 31, 2011 for our credit facilities used to fund premium finance loans (dollars in thousands):
The material terms of certain of our funding agreements are described below.
Net cash used in operating activities in 2009 was $12.6 million, an increase of $10.4 million from $2.2 million of cash used in operating activities in 2008. This increase was primarily due to a $21.9 million decrease in agency fee income due to our origination of fewer premium finance loans, and a $12.3 million increase in cash paid for interest during the period due to an increase in loan maturities during the period. These increases were partially offset by a decrease in selling, general and administrative expenses of $10.3 million due primarily to efforts to reduce operating expenses, and certain changes in assets on our balance sheet due to timing of cash receipts including a decrease in the change in agency fees receivable of $9.6 million and a decrease in the change in structured settlement receivables of $5.4 million.
Net cash used in financing activities for the year ended December 31, 2010 was $76.8 million, an increase of $127.0 million from $50.2 million of cash provided by investing activities for the year ended December 31, 2009. The increase was primarily due to an increase of $146.2 million in repayments of borrowings from credit facilities and affiliates, net of additional borrowings, partially offset by an increase of $11.8 million in payment of financing fees and an increase of $10.0 million in proceeds from sale of preferred units.
Our assets and liabilities are, and will be in the future, interest-rate sensitive in nature. As a result, interest rates may influence our performance far more than does inflation. Changes in interest rates do not necessarily correlate with inflation or changes in inflation rates. We do not believe that inflation had any material impact on our results of operations in the periods presented in our financial statements.