- - Commission expense increased to 7.3% of gross premiums earned in 1996 from 5.1% in 1995 and 4.3% in 1994. The Company initiated marketing programs during the fourth quarter of 1995 and the first quarter of 1996, including volume based incentive programs and higher commissions for new business, that increased commission rates to agents resulting in increased average commissions and increased commission expense. Additionally, as the Company entered new markets, it introduced higher commission rates to attract business from established agents. The Company expects commission expense as a percent of gross premiums earned to increase during 1997. - - Premium tax expense increased slightly to 2.1% of gross premiums earned in 1996 from 2.0% of gross premiums earned in 1995 and 1994 due to higher premium tax rates paid in Colorado. The Company expects premium tax expense as a percent of gross premiums earned in 1997 to remain consistent with 1996. - - Other policy acquisition costs increased to 3.5% of gross premiums earned in 1996 from 2.2% in 1995 and 1.1% in 1994, due to increased focus on marketing programs as the Company expands into new states and continues to grow in its more established markets and increased personnel costs necessary for the growth in premiums in force. - - Total ceding commissions increased to a benefit of $1.9 million in 1996 from a benefit of $1.7 million in 1995 and decreased from a benefit of $3.0 million in 1994. Provisional ceding commissions were not recognized in 1996 and 1995 due to terminating the quota-share reinsurance agreement in 1995. The Company recognized favorable adjustments on its ceding commission estimates of $1.9 million in 1996, $1.7 million in 1995 and $318,000 in 1994 due to favorable claims experience for accident years 1992 through 1994. In addition, 1994 included a favorable adjustment of $642,000 to ceding commissions as a result of renegotiating the Company's 1993 quota- share reinsurance agreement.
INVESTMENTS - In 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires a company to classify its securities into categories based upon the company's intent relative to the eventual disposition of the securities. SFAS No. 115 established three categories of securities. The first category, held-to-maturity, is composed of debt securities which a company has the positive intent and ability to hold to maturity. These securities are carried at amortized cost. The second category, available-for- sale securities, may be sold to address the liquidity and other needs of a company. Debt and equity securities classified as available-for-sale are carried at fair value on the balance sheet with unrealized gains and losses excluded from income and reported as a separate component of shareholders' equity. The third category, trading securities, is for debt and equity securities acquired for the purpose of selling them in the near term. The Company has not classified any of its securities as trading securities.
CASH AND CASH EQUIVALENTS - The Company generally considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
1996 1995 1994 --------- -------- --------- Gross balance at January 1 $ 37,138 $ 28,165 $ 13,279 Less reinsurance recoverables 8,312 13,902 9,593 --------- -------- --------- Net balance at January 1 28,826 14,263 3,686 Incurred (benefit) related to: Current year 47,155 29,536 16,505 Prior years (8,075) (1,474) 98 --------- -------- --------- Total incurred 39,080 28,062 16,603 Paid related to: Current year 16,238 8,860 4,590 Prior years 8,595 4,639 1,436 --------- -------- --------- Total paid 24,833 13,499 6,026 --------- -------- --------- Net balance at December 31 43,073 28,826 14,263 Plus reinsurance recoverables 6,183 8,312 13,902 --------- -------- --------- Gross balance at December 31 $ 49,256 $ 37,138 $ 28,165 --------- -------- --------- --------- -------- ---------
Maturity Interest Rate - ----------------- ------------- December 15, 1996 8.75% $ 2,000 December 15, 1997 9.00% $ 2,000 2,000 December 15, 1998 9.25% 2,500 2,500 December 15, 1999 9.50% 2,500 2,500
On April 25, 1996, the Company's Board of Directors approved a 3-for-2 stock split in the form of a 50 percent stock dividend to shareholders of record on the close of business on May 6, 1996. The shares were distributed to shareholders on May 17, 1996. Additionally, on February 2, 1995, the Company declared a 5-for-1 stock split, effective as of that date. All share and per share amounts have been adjusted to reflect the effect of the stock splits.
STOCK WARRANTS - The Series 1991B notes payable, paid in full in December 1996, included attached warrants to purchase Common Stock of the Company at an exercise price of $.53 per share. Investors received a warrant to purchase 17,332 shares of the Company's Common Stock with every $100,000 invested in Series 1991B notes. The total number of shares that could be purchased by exercising the warrants was 19,935 at December 31, 1995. All remaining warrants were exercised in 1996.
1997 $ 934 1998 1,068 1999 958 2000 259 2001 140 Thereafter 70 -------