The expense reimbursement level for the 1998 and 1999 crop years for Buy-Up coverage is limited under the Reform Act to levels not to exceed 28% and 27.5%, respectively. See the following paragraph for a discussion of proposed changes to the expense reimbursement level for the 1998 crop year. Because the Company's MPCI service fees are directly related to the expense reimbursement established by the FCIC, the Company's future MPCI service fees will be affected by reductions in the level of expense reimbursement. Prior to the 1996 crop year, the impact of FCIC expense reimbursement level reductions on the Company's net earnings had been minimized because the Company had reduced its agents' commissions in order to minimize the impact on its margin on MPCI business. MPCI agent commissions vary by agent depending on such factors as the volume of premium produced by the agent, whether or not the agent is responsible for any direct costs and other competitive factors. The Company believes, based on competitive factors within the industry, that it will have to absorb a significant portion of the expense reimbursement reduction in the 1997 crop year.
FCIC. Under the proposed draft, private companies would receive the expense reimbursement in one installment at the time acreage reports are reported to and validated by the FCIC. The draft SRA also proposes certain other changes to the administration of the MPCI program, including certain compliance and program integrity issues. Earlier in 1997 and as a part of the Clinton Administration's budget proposal for the government's 1998 fiscal year, funding for the expense reimbursement was proposed at 24.5% for the 1998 crop year.
The Company also earns investment income on interest and dividends on investment securities and excess cash invested at certain times of the year, which typically occurs after MPCI and crop hail premiums are collected. Realized gains and losses on the sale of investments are included in investment income. Also included in investment income are income and losses on investments in companies which are 50% or less owned by the Company, which are accounted for under the equity method.
The Company paid $239,000 in dividends during 1996 relating to its preferred stock issued to Fireman's Fund in July 1996. The Company has not paid dividends on its common stock. The Company currently intends to retain earnings to finance the growth and development of its business and does not currently anticipate paying cash dividends on its common stock in the foreseeable future.
Reinsurance recoverable on paid and unpaid losses are reported as assets, instead of being netted with the related liabilities, since the Company is not relieved of its legal liability to its policyholders.
The Company has classified its investments in fixed maturities as "held to maturity" and "available for sale," and its marketable equity securities as "available for sale." Investments classified as "held to maturity" are reported at amortized cost. Investments classified as "available for sale" are reported at estimated market value. Unrealized appreciation and depreciation on the investments classified as "available for sale" are recorded in stockholders' equity, net of deferred income taxes.
Software development costs. . . . . . . 3 years Contract rights . . . . . . . . . . . . 3 to 15 years Non-compete agreements. . . . . . . . . 3 to 5 years Management and services agreements. . . 15 to 20 years Insurance licenses. . . . . . . . . . . 20 years Other . . . . . . . . . . . . . . . . . 5 to 15 years
The Company paid interest of $1.5 million, $852,000, and $398,000 in 1996, 1995, and 1994, respectively. The Company received income tax refunds of $4.3 million and paid income taxes of $3.5 million during 1996, and paid taxes of $8.8 million and $1.8 million in 1995 and 1994, respectively.
A total of 1,500,000 shares of common stock have been reserved for the granting of awards under the Incentive Plan. The Incentive Plan is administered by a Committee of the Board of Directors.
Plains and Dawson are each a party to a Quota Share Standard Reinsurance Agreement with Fireman's Fund pursuant to which they cede all multi-peril crop insurance premiums they underwrite to Fireman's Fund. In 1996, Plains and Dawson entered into reinsurance agreements with non-affiliated insurance companies under which Plains ceded 100% and Dawson ceded 85% of the crop hail premiums.
The Company continuously reviews and monitors the financial condition of its reinsurers. To the extent that a reinsurer does not meet the obligations under its reinsurance agreement, Plains and Dawson remain liable.
Relocation Costs $1,994,853 Write down on assets to be disposed of 1,306,517 Loss on discontinuation of non-core operations 2,037,830 Contract termination costs 1,076,427 Other 94,001 ---------- $6,509,628 ---------- ----------
Profit sharing revenue $ 4,214,000 Excess loss adjusting reimbursement 1,283,000 Reductions for late acreage reporting (753,000) Change in MPCI revenue estimate (427,000)