felanders/preprocessed huggingface dataset:
Beginning with the first quarter of 2008, we will no longer be presenting supplemental benefits as a separate reportable operating segment because it no longer constitutes a reportable segment under SFAS No. 131, Segment Reporting. Consequently, the PBM segment will be our only reportable operating segment.
and changes in the volume of prescription dispensing at lower cost network pharmacies. None of the foregoing factors have materially changed in 2006 in a manner that would meaningfully affect current or anticipated results. In 2006, composite gross margin percentages were reduced by the addition of several new large contracts including Wellmark Blue Cross Blue Shield of Iowa, which are more competitively priced due to their size. These decreases were somewhat offset by gross margin improvements resulting from an increased level of generic substitution and higher network discount rates.
Selling, General and Administrative. For the year ended December 31, 2006, selling, general and administrative expenses increased by approximately $13.9 million over the prior year to $46.4 million or 3.8% of operating expenses. This increase was primarily associated with PBM segment growth and the associated personnel and vendor costs to serve and implement new clients.
Revised guidance which eliminated the requirement for entities that file or furnish financial statements to the Securities Exchange Commission (“SEC”) to disclose the date through which subsequent events have been evaluated - adopted December 31, 2009.
All RMBS securities of the Company are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are performed quarterly. Model output is generated under base and several stress-case scenarios. Our internal RMBS asset specialists utilize widely recognized industry modeling software to perform a loan-by-loan, bottom-up approach to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments. Each of these key assumptions varies greatly based on the significantly diverse characteristics of the current collateral pool for each security. Loan-to-value, loan size, and borrower credit history are some of the key characteristics used to determine the level of assumption that is utilized. Defaults were estimated by identifying the loans that are in various delinquency buckets and defaulting a certain percentage of them over the near-term and long-term. Assumed defaults on delinquent loans are dependent on the specific security’s collateral attributes and historical performance.
The amortized cost and estimated fair value of fixed maturity AFS securities at December 31, 2010 and 2009 by rating agency equivalent were:
(b) The increase in annuity benefit expense was primarily driven by the change in reserve for the embedded derivatives as compared to the same period in 2008. This was primarily a result of the positive equity markets relative to the same period in 2008.
million over the Retention. A charge of $24 million for premiums and other costs associated with the new insurance coverage was included in the Company’s results of operations for 1999. The policies do not cover taxes, fines or penalties imposed by law or the cost to comply with any injunctive or other non-monetary relief or any agreement to provide any such relief. The coverage under the new policies is in addition to approximately $25 million of coverage remaining under preexisting primary insurance that is not subject to the Retention applicable to the new policies. The Company has fully reserved for anticipated legal expenses for this matter. Of the remaining $25 million in primary insurance coverage, collectibility of some portion of $15 million is in doubt because one of the Company’s Directors and Officers insurance carriers, Reliance Insurance Company (“Reliance”), was placed in liquidation in October 2001 by the Commonwealth Court of Pennsylvania. Accordingly, during the third quarter of 2001, the Company recorded a charge of $10 million related to a provision for estimated insurance recoveries that may not be recoverable from Reliance. The Company, in the opinion of management with the advice of external counsel, has substantial defenses to the plaintiff’s claims and may ultimately prevail. These matters continue toward a trial. At the present time, no amount or range of loss can be reasonably estimated. Accordingly, the Company has not recorded a liability for a potential unfavorable judgment. In the event the Company ultimately suffers a judgment, or settles such actions prior to trial, the Company would be liable to fund such judgment or settlement up to the Retention, less any remaining available primary Directors and Officers insurance. The Company has $200 million in insurance over the Retention (subject to the 10% co-pay referred to above) and would be uninsured for any liability exceeding these amounts. There can be no assurance as to the ultimate result in this litigation.
See Index to Consolidated Financial Statements and Schedule on page 44.
Loss and loss adjustment expenses increased from the $136.6 million reported for 1998 to $150.2 million in 1999. Relative to earned premiums, the loss and loss adjustment expense ratio increased to 75.3 percent in 1999, compared with 72.2 percent in 1998. Weather -related catastrophe losses accounted for over seven percentage points of the ratios in both years, with approximately $14.4 million of such losses in 1999 compared to $14.7 million in 1998. Due in large part to such weather-related losses, property lines of business remained unprofitable, while the casualty lines of business were profitable in both 1999 and 1998. The personal lines loss ratio of 78.6 percent increased from 75.8 percent in 1998. The 1999 commercial lines loss ratio increased to 68.5 percent from 66.3 percent in 1998. The increases in the 1999 ratios were generally due to loss costs and severity and, to an extent in certain lines, to prior years' premium rate actions. Loss frequency was not a major factor, as overall frequency comparisons changed only a small fraction of one percent between 1998 and 1999.
The Company regularly evaluates its investments based on current economic conditions, past credit loss experience and other circumstances. A decline in a security's net market value that is not a temporary fluctuation is recognized as a realized loss, and the cost basis of that security is reduced.
The reconciliations for 1999, 1998, and 1997 show approximately $6.9 million, $8.7 million, and $16.4 million reductions, respectively, in previously established loss reserves. Favorable loss developments resulting from decreases in the frequency and severity of claims in prior accident years for the Company's personal automobile liability, workers' compensation and commercial multi-peril lines of business were the primary factors in the reductions.
Under SFAS No. 109, "Accounting For Income Taxes", the Company recorded a net deferred tax asset in 1999 and deferred tax liabilities in 1998 and 1997. The net deferred tax asset/liability at December 31, 1999, 1998 and 1997, is comprised of the following:
Statutory premiums, which include premiums and deposits for all products, increased $19.3 million or 8.9% in 1996 from 1995. The increase is largely the result of a sale of a funding agreement, a type of investment contract first sold by the Company in 1996, as well as higher sales of variable annuity and life insurance products, partially offset by lower sales of structured settlement annuities. Sales of funding agreements may not continue, as they are entered into based on the Company's assessment of market opportunities. In 1995, statutory premiums increased $63.4 million or 41.4% compared to 1994 levels primarily due to growth in sales of individual annuities. Increased sales of structured settlement annuities in 1995 were partially offset by a decrease in the sales of variable annuities. Individual annuities comprised 55.4% and 77.3% of statutory premiums and deposits in 1996 and 1995, respectively.
Certain costs of acquiring life and annuity business, principally agents' remuneration, premium taxes, certain underwriting costs and direct mail solicitation expenses are deferred and amortized to income. For traditional life, limited payment contracts and accident and disability, these costs are amortized in proportion to the estimated revenues on such business. For interest-sensitive life insurance and investment contracts, the costs are amortized in relation to the present value of estimated gross profits on such business. Changes in the amount or timing of estimated gross profits will result in adjustments in the cumulative amortization of these costs. To the extent that unrealized gains or losses on fixed income securities carried at fair value would result in an adjustment of deferred acquisition costs had those gains or losses actually been realized, the related unamortized deferred acquisition costs are recorded as a reduction of the unrealized gains or losses included in shareholder's equity.
The Company had no impaired loans at December 31, 1996. The net carrying value of impaired loans at December 31, 1995 was $9,647, measured at the fair value of the collateral. The total investment in impaired mortgage loans before valuation allowance at December 31, 1995 was $11,581 and the related allowance on these impaired loans was $1,934.
Consolidated federal income tax returns are filed by the Corporation and its eligible subsidiaries, including the Company. Tax liabilities and benefits realized by the consolidated group are allocated as generated by the respective entities.
The Company also leases 3,317 square feet of office space in Las Vegas, Nevada. The term of the lease is from February 1, 1998 to February 28, 2006.
The underwriting cycles of the property-casualty insurance industry have been characterized by peak periods of adequate rates, underwriting profits and lower combined ratios, while the downward side of the cycle is characterized by inadequate rates, underwriting losses and, as a result, higher combined ratios. The adequacy of premium rates is affected primarily by the severity and frequency of claims which, in turn, are affected by natural disasters, regulatory measures and court decisions which continue to uphold the "deep pocket" theory in awarding against insurance companies. Unfortunately for the insurance industry, the trend of increasing price competition has continued as has the number of significant natural disasters. This combination has resulted in a considerable reduction in underwriting profitability for the industry as a whole.
Combined Ratio 2000 1999 1998 - ------------------------------------------------------------------------------ Company 100.5% 91.9% 95.0% Industry Average * 109.3% 110.2% 105.9% - ------------------------------------------------------------------------------ * The industry number for 2000 is the ratio for commercial carriers at September 30, 2000.
The net unrealized gain of $4,239,902 for 2000 was comprised of a $1,482,391 unrealized gain on fixed maturities and a $2,757,511 unrealized gain on the Company's equity portfolio. Management has begun to gradually increase its tax-free bond holdings and de-emphasize the equity portfolio, but is optimistic that the recent downturn in the value of its equity investments is temporary and that the current market conditions provide an even greater opportunity to invest and build shareholder value over the long term. This appears to be coming to fruition, as evidenced by the current year's increase in unrealized gains.
<F2> Approximately $1.3 million of such securities represent beneficial ownership interests in mortgage-backed securities of FDIC, FHLMC, FNMA, GNMA or the RTC.
The post-tax loss was $132.3 million in 2000 compared to a post-tax loss of $35.0 million in 1999.
(d) Markel Syndicate Management income and expenses: The Company recognizes its share of the premiums, losses and expenses associated with its participation in Lloyd's syndicates consistent with the bases used in its insurance company operations and in accordance with GAAP. Agency income is earned and agency expenses charged as incurred from Markel Syndicate Management's role as managing agent.
- Long term debt: Fair value is based on quoted market price.
The Company has contingent liabilities regarding undrawn letters of credit supporting certain reinsurance business written by the Company in the U.S. of $95,984,794 and $97,420,004 at December 31, 2000 and 1999, respectively. The Company has deposited cash and investments with a carrying value of $105,583,273 and $105,812,403 at December 31, 2000 and 1999, respectively, as collateral against these amounts.
At December 31, 1999, the Company had 75,000,000 "A" ordinary shares (par value $5.80) of which 24,348,192 were issued and outstanding, and 10,000,000 "B" ordinary shares (par value $5.80) of which 1,796,217 were issued and outstanding.
On March 24, 2000, Markel owned 2,069 shares. On the same date the remainder of the existing "A" and "B" shares were cancelled and replaced by a new issue of 40,000,000 "A" shares (par value $5.80) to Markel.
We regularly evaluate our investment portfolio for potential impairment by evaluating each security position that has either of the following: a fair value of less than 95% of its book value or an unrealized loss that equals or exceeds $100,000. Since accurately predicting if or when a specific security will become other-than-temporarily impaired is not possible, total impairment charges could be material to the results of operations in a future period.
The following table presents the credit rating and fair value of our fixed maturity portfolio by major security type at December 31, 2017, ($ in thousands):
Consolidated Statements of Earnings: Years ended December 31, 2017, 2016 and 2015
Losses and loss adjustment expenses were $1,536,022 in 2001, $1,506,908 in 2000 and $1,672,887 in 1999. The increase in losses and loss adjustment expenses for 2001 are attributable to an increase in surety loss ratio offset in part by a decrease in current year earned premiums.
General and administrative expenses were $3,444,936 in 2001, $3,780,797 in 2000 and $3,886,117 in 1999. The decrease in general and administrative expenses in 2000 compared to 1999 is due primarily to the decrease in amortization of intangibles. The decrease in general and administrative expenses in 2001 compared to 2000 is due primarily to a decrease in salary expense in 2001.
Reserves for losses and loss adjustment expenses are established with respect to both reported and incurred but not reported claims for insured risks. The amount of loss reserves for reported claims is primarily based upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the policy provisions relating to the type of claim. As part of the reserving process, historical data is reviewed and consideration is given to the anticipated impact of various factors such as legal developments and economic conditions, including the effects of inflation. Reserves are monitored and evaluated periodically using current information on reported claims. This is a critical accounting policy for the insurance operations.
Consolidated Statements of Stockholders' Equity December 31, 2001, 2000 and 1999
The fair value at December 31, 2001 of the mortgage, the term loan and the senior notes approximate carrying value. It is not practicable to estimate the fair value of convertible note at December 31, 2001 because of the complex and unique terms associated with this debt instrument.
Under applicable insurance regulations, ACMAT's insurance subsidiaries are restricted as to the amount of dividends they may pay, without the prior approval of any insurance department and are limited to approximately $5,930,000 in 2002.
The maturity structure of the Company's fixed income securities, which represent 88.7% of the Company's total investments, is managed to meet the anticipated cash flow requirements of the underlying liabilities. A portion of the Company's diversified product portfolio, primarily fixed deferred annuity and universal life insurance products, is subject to discretionary surrender and withdrawal by contractholders. Management believes its assets are sufficiently liquid to meet future obligations to its life and annuity contractholders under various interest rate scenarios.
The Corporation believes that the first three steps of this plan, assessment, remediation and testing, including clock-forward testing which is being performed on the Corporation's systems and non-IT, are mostly complete for the Corporation's critical systems. In April 1998, the Corporation announced its main premium application system, ALERT, which manages more than 20 million auto and homeowners policies, is Year 2000 compliant. The Corporation is relying on other remediation techniques for its midrange and personal computer environments, and certain mainframe applications.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 replaces existing pronouncements and practices with a single, integrated accounting framework for derivatives and hedging activities. The requirements are effective for fiscal years beginning after June 15, 1999. Earlier application is encouraged but is only permitted as of the beginning of any fiscal quarter after issuance. This statement requires that all derivatives be recognized on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Additionally, the change in fair value of a derivative which is not effective as a hedge will be immediately recognized in earnings. The Company expects to adopt SFAS No. 133 as of January 1, 2000. Based on existing interpretations of the requirements of SFAS No. 133, the impact of adoption is not expected to be material to the results of operations or financial position of the Company.
Reserves for universal and variable life products are equal to cumulative deposits, less withdrawals and charges, plus credited interest thereon. Unearned revenue reserves represent contractual charges deemed to be earned in future periods. Reserves for traditional life insurance contracts represent the present value of future benefits to be paid to or on behalf of policyholders and related expenses less the present value of future net premiums.
If the impairment is other-than-temporary, recognize an impairment loss equal to the difference between the investment’s cost and its fair value.
• Requires that interests in securitized financial assets be analyzed to identify interests that are freestanding derivatives or that are hybrid instruments that contain embedded derivatives requiring bifurcation;
• Allows a qualifying special-purpose entity to hold derivative financial instruments that pertain to beneficial interests, other than another derivative financial instrument.
Reserves for immediate annuities with life contingent payout benefits are computed on the basis of assumed interest discount rate, mortality, and expenses, including a margin for adverse deviations. Such assumptions generally vary by annuity plan type, year of issue, and policy duration. For 2005, 2004, and 2003, reserve interest discount rates ranged from 4.8% to 8.8%.
The Company also maintains a $30.0 uncommitted line-of-credit agreement with PNC Bank (“PNC”), effective December 19, 2005. Borrowings are guaranteed by ING AIH, with maximum aggregate borrowings outstanding at anytime to ING AIH and its affiliates of $75.0. Interest on any of the Company borrowing accrues at an annual rate equal to a rate quoted by PNC to the Company for the borrowing. Under this agreement, the Company incurred no interest expense for the year ended December 31, 2005. As December 31, 2005, the Company had no amounts outstanding under the line-of-credit agreement.
National Security Insurance Company (NSIC) is a life, accident and health insurance company founded in 1947. All references to NSIC in the remainder of this management discussion and analysis will refer to the combined life, accident and health insurance operations and will compose the life segment of the Company. NSIC is licensed to underwrite life and accident and health insurance in Alabama, Florida, Georgia, Mississippi, South Carolina, Tennessee and Texas.
Policy liabilities were $77,043,000 at December 31, 2015 compared to $74,115,000 at December 31, 2014; an increase of $2,928,000 or 4.0%. The primary reasons for the increase in policy liabilities in 2015 compared to the same period last year were a $1,324,000 increase in property and casualty loss reserves as well as a $999,000 increase in unearned premium reserves. Property and casualty loss reserves were up 15.9% in 2015 compared to 2014 primarily due to
an increase in storm claims during the fourth quarter of 2015. Unearned premium was up 3.5% as a result of a moderate increase in P&C segment gross written premium.
Additional details regarding the structure of our 2015 catastrophe reinsurance program can be found in Note 10 to the Consolidated Financial Statements.
Year to date policyholder benefit payments were up in the property and casualty segment due to an increase in frequency of cat event related losses as well as an increase in reported fire losses in 2015 compared to the same period in the prior year. Reported fire losses were up $1,173,000 or 8.8% compared to fire losses reported during 2014. The P&C segment had 549 fire losses reported for the period ended December 31, 2015, totaling $14,472,000 compared to 535 fire claims reported for the same period in 2014 totaling $13,299,000. The average cost per claim was $26,400 for fire losses reported in 2015 compared to $24,900 for fire losses reported in 2014.
At December 31, 2015, the estimated reinsurance recoverable recorded was $1,660,000 compared to $939,000 for the same period last year. The Company does not anticipate any issues with collection of the recorded amount. In 2015, catastrophe reinsurance premiums ceded totaled $5,477,000 compared to $6,166,000 ceded in 2014. Catastrophe reinsurance premiums are based on a premium calculation applying the agreed upon rate to the earned premium of the covered lines of business. The decline in ceded premium in 2015 is attributable to a 14.3% decline in the rate applied. In addition to catastrophe reinsurance, the Company placed reinstatement premium protection (RPP) reinsurance during 2015 and 2014 totaling $789,000 and $1,077,000, respectively.
The use of reinsurance is an important component of our business strategy. See “Business - Reinsurance.” As losses are incurred and recorded, we record amounts recoverable from third party reinsurers for the portion of the paid and unpaid losses ceded to the reinsurers. We have purchased reinsurance for our small commercial business segment, which also reinsures the workers’ compensation portion of the specialty middle-market property and casualty business we recently acquired. We purchased reinsurance to cover the property portion of this business. At present, we do not plan to reinsure the general liability and auto liability portions of this business.
Income from Continuing Operations. Operating income from continuing operations decreased to $114.3 million for the year ended December 31, 2008, from $130.8 million for the year ended December 31, 2007, a decrease of $16.5 million or 12.6%. This decrease is primarily attributable to the net realized loss of $64.5
Acquisition Costs and Other Underwriting Expenses. Acquisition costs and other underwriting expenses increased $60.1 million or 63.1% from $95.3 million to $155.4 million for the year ended December 31, 2006 and 2007, respectively. The increase relates to higher policy acquisition expenses as a result of increased premium writing as well as higher salary and benefits from the acquisition of AIIS and IGI.
Net Premium Written. Net premium written increased $33.0 million or 17.0% from $193.6 million to $226.6 million for the years ended December 31, 2007 and 2008, respectively. Net written premium reflected cessions of $173.2 million and $86.4 million to Maiden Insurance for the years ended 2008 and 2007, respectively, under the terms of the Reinsurance Agreement, which was entered into during the third quarter of 2007. Before cessions to Maiden Insurance, net premium written increased $119.8 million in 2008 compared to 2007 and was the result of an increase in gross premium written.
resulted from the Company’s actual loss experience, which has continued to develop more favorably than the Company’s actuarially projected ultimate losses as well as a reduction in loss reserves of approximately $7 million related to the prior accident years.
During 2008, based on the criteria above, we determined that 12 equity securities and two fixed income securities were other-than-temporarily-impaired and accordingly wrote them down resulting in a $52.8 million realized loss.
(3) At the time of the Company’s acquisition of AIIC, PMA was a reinsurer of AIIC. PMA’s reinsurance business is in orderly runoff. We continue to collect payments from PMA on a timely basis.
Securities sold under arrangements to repurchase, at contract value, increased by 138,089 in 2008 as the Company expanded their use of this type of investment.
(4) The interest related to the debt by period is as follows: $14.9 million - less than 1 year, $26.8 million - 1 - 3 years, $20.1 million - 3 - 5 years and $225.8 million - more than 5 years. In addition included within debt and interest is $168.0 million of debt related to the Maiden collateral loan and $11.5 million of associated interest.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Tangible Assets" was approved by the FASB. SFAS No. 142 changes the accounting for goodwill and certain other intangibles from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. The Company is required to implement SFAS No. 142 on January 1, 2002 and, although it is still reviewing the provisions of this Statement, management's preliminary assessment is that the Statement will not have a material impact on the Company's financial position or results of operations.
Deferred Policy Acquisition Costs - Policy acquisition costs, which primarily consist of sales commissions related to the production of new business, have been deferred to the extent recoverable. These costs are variable in nature and are dependant upon sales volume. Deferred costs associated with the annuity products are being amortized over the life of the contracts in proportion to the emergence of gross profits. Retrospective adjustments of these amounts are made when the Company revises its estimates of current or future gross profits. Deferred costs associated with traditional life insurance are amortized over the premium paying period of the related policies in proportion to premium revenues recognized. Amortization of deferred policy acquisition costs totaled $393, $213, and $112 in 2001, 2000, and 1999, respectively.
Income Taxes - Income taxes are recorded using the asset and liability approach, which requires, among other provisions, the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, all expected future events (other than the enactments or changes in the tax laws or rules) are considered. Although realization is not assured, management believes it is more likely than not that the deferred tax asset will be realized.
The Company and the Parent Corporation have entered into an income tax allocation agreement whereby the Parent Corporation could file a consolidated federal income tax return. Under the agreement the Company is responsible for and will receive the benefits of any income tax liability or benefit computed on a separate basis. In 2001, the Company will file on a consolidated basis with its Parent Corporation.
Other comprehensive income (loss) for the year ended December 31, 2001 is summarized as follows:
critical accounting estimates that require management to exercise significant judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
We believe that our strong capital position and clear terms of coverage convey upon us an advantage in the marketplace. We expect that this advantage will translate to achieving our pro-rata market share on a faster than normal timeline. Our competitors' market share of the private MI industry for the year ended December 31, 2013 varied from a low of approximately 3% to a high of approximately 28%. In general, we expect the total origination market to decline in 2014. However, within the total market of low-down payment loan originations, we expect the overall private MI penetration rate to increase as the FHA continues to scale back. See "- Factors Expected to Affect Results as Our Mortgage Insurance Operations Grow - Competition with FHA," below.
In April 2012, we offered and sold 55.0 million shares of common stock at an issue price of $10.00 per share in our Private Placement. Gross proceeds from the Private Placement were $550.0 million. Net proceeds from the Private Placement, after an approximate 7% underwriting fee and other offering expenses, were approximately $510 million. The fee was escrowed for the benefit of FBR Capital Markets and Co. ("FBR") and was released to FBR upon our receipt of approval from Federal National Home Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac") ("GSE Approval").
Certain items in the financial statements as of December 31, 2012 and for the periods ending December 31, 2012 and December 31, 2011 have been reclassified to conform to the current period's presentation. There was no effect on net income or shareholders' equity previously reported.
In January 2013, our Kansas subsidiary, Sunflower State Health Plan, began operating under a statewide contract to serve members in the state's KanCare program, which includes TANF, ABD (dual and non-dual), foster care, LTC and CHIP beneficiaries.
During the year ended December 31, 2012, 2011 and 2010, we received dividends of $29.0 million, $69.1 million, $67.9 million, respectively, from our regulated subsidiaries.
The following table summarizes future contractual obligations. These obligations contain estimates and are subject to revision under a number of circumstances. Our debt consists of borrowings from our senior notes, credit facility, mortgages and capital leases. The purchase obligations consist primarily of software purchase and maintenance contracts. The contractual obligations and estimated period of payment over the next five years and beyond are as follows (in thousands):
1 Our Consolidated Balance Sheet as of December 31, 2012 includes $55,344 of other long-term liabilities. This consists primarily of long-term deferred income taxes, liabilities under our deferred compensation plan, and reserves for uncertain tax positions. These liabilities have been excluded from the table above as the timing and/or amount of any cash payment is uncertain. As of December 31, 2012 , reserves for uncertain tax positions totaled $7,870. See the "Income Taxes" footnote for additional information regarding our deferred tax positions and accruals for uncertain tax positions. Other long-term liabilities also includes $7,487 separate account liabilities from third party reinsurance that will not be settled in cash.
Investment amortization of $11,151, $10,335, and $10,750 was recorded in the years ended December 31, 2012, 2011 and 2010, respectively.
Incurred losses and LAE were $10.3 million in 1998 compared with $9.8 million in 1997.
The Company's insurance operating expense ratio for 1998 was 48.6% compared to 50.3% in 1997. Policy acquisition costs, totaled $35.0 million and $30.0 million in 1998 and 1997, respectively, representing 34.2% and 35.1% of premiums earned in those respective periods. Other insurance operating expenses increased to $13.7 million in 1998 from $12.2 million in 1997. Non-insurance expenses increased from $25.1 million in 1997 to $39.9 million in 1998 reflecting the continued growth in Singer's operations as well the growth in expenses associated with the Company's diversification activities.
Enhance Financial Services Group Inc. ("Enhance Financial," and together with its consolidated subsidiaries, the "Company") is a holding company which was incorporated in the State of New York in December 1985 and commenced operations in November 1986. The Company principally engages, through its indirect wholly-owned, New York-domiciled insurance subsidiaries Enhance Reinsurance Company ("Enhance Re") and Asset Guaranty Insurance Company ("Asset Guaranty") (together, the "Insurance Subsidiaries"), which are owned by a wholly-owned subsidiary of Enhance Financial, Enhance Investment Corporation ("EIC"), in the reinsurance of financial guaranties of municipal and asset backed debt obligations issued by monoline financial guaranty insurers. EIC was dissolved in March 2000 and its assets, which primarily consist of the capital stock of the Insurance Subsidiaries, were transferred to Enhance Financial. In addition, the Company is engaged in other insurance, reinsurance and non-insurance businesses that utilize the Company's expertise in performing sophisticated analyses of complex, credit-based risks.
Common stocks are carried at fair value. Short-term investments are carried at cost, which approximates market. Unrealized gains and losses, net of taxes, on common stocks are reflected in accumulated other comprehensive income. Realized gains or losses on sales of investments are determined on the basis of specific identification.
FSA's gross premiums written increased 2.7% to $372.3 million for 2000 from $362.7 million for 1999. Net premiums written were $218.1 million during 2000, a decrease of 5.3% when compared with the 1999 result. Gross premiums written grew at a faster pace than net premiums written because the Company utilized more reinsurance. This was largely the result of employment of reinsurance to address single-risk concerns on large transactions and capacity-constrained issues and also reflected increased use of reinsurance products providing first-loss coverage. Reinsurance cessions totaled 41.4% of 2000 gross premiums written, compared with 36.5% in 1999. Net premiums earned in 2000 were $192.1 million, compared with $175.0 million in 1999, an increase of 9.8%. Premiums earned from refundings and prepayments were $11.7 million for 2000 and $13.9 million for 1999, contributing $5.5 million and $6.6 million, respectively, to after-tax earnings. Refundings declined in response to the rising interest rate environment of 2000. Excluding the effects of refundings, net premiums earned grew 12.0% over the comparable 1999 result. No assurance can be given that refundings and prepayments will continue at the level experienced in 2000 or 1999.
Net investment income was $94.7 million for 1999 and $78.8 million for 1998, an increase of 20.2%. This increase was due primarily to higher invested balances as a result of new business writings and proceeds from a debt offering in the fourth quarter of 1998. For further discussion, see Liquidity and Capital Resources below. The Company's effective tax rate on investment income was 15.3% for 1999, compared with 17.6% for 1998. In 1999, the Company realized $13.3 million in net capital losses, compared with $20.9 million of net capital gains in 1998. Capital gains and losses are a by-product of the normal investment management process and will vary substantially from period to period.
Net investment income $ 121,144 $ 94,723 $ 78,823 ========= ========= =========
Rating Percent of Bonds ---------------- ---------------- AAA 69.6% AA 24.9 A 5.2 BBB 0.2 Other 0.1
The Company held open positions in U.S. Treasury bond futures contracts with an aggregate notional amount of $0 and $30,800,000 as of December 31, 2000 and 1999, respectively. The Company held open positions in Eurodollar futures contracts with an aggregate notional amount of $0 and $155,500,000 as of December 31, 2000 and 1999, respectively. The Company also held open positions in municipal bond index futures with an aggregate notional amount of $0 and $3,000,000 as of December 31, 2000 and 1999, respectively. Such positions are marked to market on a daily basis and, for the years ended December 31, 2000, 1999 and 1998, resulted in net realized gains (losses) of $480,000, $(5,490,000) and $883,000, respectively.
Short-term investments -- The carrying amount is fair value, which approximates cost due to the short maturity of these instruments.
Mortgage and other loans were modeled by discounting scheduled cash flows through the scheduled maturities of the loans, starting with interest rates currently being offered for similar loans to borrowers with similar credit ratings. Policy loans were modeled by discounting estimated cash flows using U.S. Treasury Bill interest rates as the base rates at December 31, 2006. The estimated cash flows include assumptions as to whether such loans will be repaid by the policyholders or settled upon payment of death or surrender benefits on the underlying insurance contracts and incorporate both Company experience and mortality assumptions associated with such contracts.
The Company's market risk liabilities, which include policy liabilities for annuity and supplemental contracts, are managed for interest rate risk through cash flow testing as previously described. As part of this cash flow testing, the Company has analyzed the potential impact on net earnings of a 100 basis point decrease and increases in increments of 100 basis points in the U.S. Treasury yield curve as of December 31, 2006. The potential impact on net earnings from these interest rate changes are summarized below.
The Company adopted Statement No. 123(R), Share-Based Payment ("SFAS 123(R)") as of January 1, 2006. However, because the Company began recognizing stock-based employee compensation cost using the fair value based method of accounting in 2003, the adoption did not have a material impact on the consolidated financial statements of the Company.
the effective date of SFAS No. 133 for one year. Management does not anticipate that the adoption of the new statement will have a material effect on our financial condition or results of operations.
In recent years, Congress and some state legislatures have introduced an increasing number of other proposals to make major changes in the healthcare system. Medicare-reimbursed, hospital-outpatient services converted to a prospective payment system on August 1, 2000. This system creates limitations on levels of payment for a substantial portion of hospital outpatient procedures. Future federal and state legislation may further reduce the payments we receive for our services.
Our results of operations and financial condition have been impacted by three recent transactions:
In December 2010, we acquired MICO, which had been a majority-owned subsidiary of West Bend Mutual Insurance Company (“West Bend”) for $42.3 million in cash. MICO writes various lines of property and casualty insurance and had direct written premiums of $108.0 million and $105.4 million in 2011 and 2010, respectively. MICO had net written premiums of $27.1 million in each of 2011 and 2010. Effective on December 1, 2010, MICO entered into a 50% quota-share agreement with third-party reinsurers and a 25% quota-share reinsurance agreement with Donegal Mutual to replace the 75% quota-share reinsurance agreement MICO maintained with West Bend through November 30, 2010.
Our insurance subsidiaries recognize insurance premiums as income over the terms of the policies they issue. Our insurance subsidiaries calculate unearned premiums on a daily pro-rata basis. We recorded an unearned premium liability for the fair value of the net unexpired portion of the insurance contracts we acquired in connection with our acquisition of MICO. We recognized this unearned premium liability as income over the terms of MICO’s policies.
Our insurance subsidiaries seek to enhance their underwriting results by carefully selecting the product lines they underwrite. Our insurance subsidiaries’ personal lines products include standard and preferred risks in private passenger automobile and homeowners lines. Our insurance subsidiaries commercial lines products primarily include mercantile risks, business offices, wholesalers, service providers and artisan risks, avoiding industrial and manufacturing exposures. Our insurance subsidiaries have limited exposure to asbestos and other environmental liabilities. Our insurance subsidiaries write no medical malpractice or other professional liability risks.
During 1996, we adopted an Agency Stock Purchase Plan. During 2001, we adopted a nearly identical plan that made 533,333 shares of Class A common stock available for issuance. During 2011, we adopted a nearly identical plan that made 300,000 shares of Class A common stock available for issuance. The plan provides for agents of our insurance subsidiaries and Donegal Mutual to invest up to $12,000 per subscription period (April 1 to September 30 and October 1 to March 31 of each year) under various methods. We issue stock at the end of each subscription period at a price equal to 90% of the average market price during the last ten trading days of each subscription period. During 2011, 2010 and 2009, we issued 66,260, 56,879 and 48,427 shares, respectively, under this plan. Expense recognized under the plan was not material.
Medicare medical expense for the combined twelve months ended December 31, 2005 increased $214.5 million, or 63.3%, to $553.1 million from $338.6 million for 2004, primarily as a result of increased membership. Commercial medical expense decreased by $17.6 million, or 14.2%, to $107.1 million for the combined twelve months of 2005 as compared to $124.7 million for 2004, primarily as a result of the decrease in commercial membership over the same period.
the healthcare expense impact of present but unknown environmental factors that differ from historical norms.
Consolidated Balance Sheets of HealthSpring, Inc. as of December 31, 2005 and NewQuest, LLC (Predecessor) as of December 31, 2004
All of the Company’s restricted investments were classified as held-to-maturity at December 31, 2005 and 2004.
Health plan premiums are due monthly and are recognized as revenue during the period in which the Company is obligated to provide services to the members. Deferred revenue consists of premium payments received by the Company for covered lives for which the services will be rendered and revenue recognized in future months.
The Company’s HMO subsidiaries also maintain risk-sharing arrangements with its providers, including independent physician associations. See Note 7.
Income tax expense (benefit) attributable to income before income taxes consist of:
lifetime reinsurance indemnification for each member is $5,000. HealthSpring of Tennessee paid reinsurance premiums of approximately $487 for the ten-month period ended December 31, 2005, $80 for the two-month period ended February 28, 2005 and $416 and $459 for the years ended December 31, 2004 and 2003, respectively. Reinsurance recoveries were approximately $133 for the ten-month period ended December 31, 2005 and $1,065 and $781 for the years ended December 31, 2004 and 2003, respectively.
- continued increases in the number of managed care payers which as a percentage of total admissions increased to 20.2% for the year ended December 31, 1999 compared to 18.6% for the year ended December 31, 1998; and
In December 2000, we entered into a corporate integrity agreement with the Office of Inspector General. Under this agreement, we have an affirmative obligation to report violations of applicable laws and regulations. This obligation could result in greater scrutiny of us by regulatory authorities. Complying with our corporate integrity agreement will require additional efforts and costs. Our failure to comply with the terms of the corporate integrity agreement could subject us to significant monetary penalties.
We are required to estimate our income taxes. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include a tax provision or reduce our tax benefit in the statements of income. We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
In fiscal 2011, we believe the life settlements market suffered even further declines. The 2011 Conning report indicated a market drop from approximately $7.6 billion in face amount transacted in 2009 to approximately $3.8 billion in 2010. While our fiscal 2011 results did not reflect the size of drop suggested in the Conning report for calendar 2010, our fiscal 2011 results were generally weaker than in fiscal 2010. Our fiscal 2011 was also adversely affected in the fourth quarter by a series of news articles critical of our operations and by our disclosure of a pending SEC investigation. These latter events especially affected our licensee network and purchaser base and resulted in significant declines in the fourth quarter of fiscal 2011. In the first two quarters of fiscal 2011, our results of operations had held up relatively well despite the industry downturn. Our revenues and net income were relatively stable and the metrics that we use to measure performance, such as average policy face value and revenues per settlement, were also stable. In the third and fourth quarter of fiscal 2011, however, our quarterly revenues fell to $20,159,650 and $17,031,006, respectively. Net income fell to $3,960,688 in the third quarter and to $3,029,818 in the fourth quarter. While the average policy face value in the fourth quarter was up at $3.5 million per policy, our number of settlements fell to 37 in the third quarter and 30 in the fourth quarter from 49 in the second fiscal quarter.
Many states now license life settlement brokerage activity, which may result in the capping of fees or the increased disclosure of fees. Industry analysts have suggested that these regulations could tend to lower the fees, although we have yet to see such result.
Sales of marketable securities were $14,764,648 in fiscal 2011, with purchases resulting in a net source of $2,308,658. Purchases of investment securities were $3,051,996 in 2010 and $502,787 in fiscal 2009. In fiscal 2011, we made purchases of property and equipment of $117,947 versus $382,567 in fiscal 2010 and $413,734 in fiscal 2009. Investments in certificates of deposit were $203 in fiscal 2011, zero in fiscal 2010 and $1,948,651 in fiscal 2009. Maturities of certificates of deposit were zero in fiscal 2011 and 2009 versus $2,933,069 in fiscal 2010.