Income Taxes for the years ended December 31, 2013 and 2012 were $1,039,224 and ($239,142), respectively, for state and federal taxes resulting in an effective tax rate of 34.55% for 2013 and (27.68%) for 2012. The effective tax rates were impacted primarily as a result of changes in the deferred tax asset valuation allowance.
We believe that we maintain sufficient liquidity to pay claims and expense obligations of HAIC as well as to satisfy any unforeseen events including inadequate premium rates and reserve deficiencies. The Company maintains substantial reinsurance through reinsurers with superior financial ratings to provide sufficient liquidity in the case disasters impact the business we underwrite.
Case reserves on reported claims are established on a claim by claim basis. Supported by a property damage estimate software package, more fully described later, our experienced claim personnel estimate the ultimate expected loss amount as soon as possible after the claim event, but in no case greater than 30 days from receipt of the notice of loss. Being primarily a property insurance company, our case loss reserves are “short-tail”, meaning that ultimate loss values are known and settled comparatively quickly. Most often, claims are paid out within 60 to 90 days of their reporting. Factoring into the claim cost is only damage to tangible property, requiring either its repair or replacement. The setting of case reserves for property related short-tail claims is far less complex. Claims rarely include coverage elements which routinely take many years to develop and are often paid out over long periods of time. As such, there is very little impact resulting from the “time value of money” on our reserve values, nor are there estimates of long term medical expenses, educational expenses and or the valuation of the loss of companionship, etc.
See Note 2 within Item 8. Financial Statements and Supplementary Data in our Notes to Consolidated Financial Statements for a discussion of recent accounting standards that may affect us.
Money market mutual funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. As the funds are generally maintained at a net asset value which does not fluctuate, cost approximates fair value. These are included as a Level 1 measurement in the table above.
As of December 31, 2013 there were no shares of Series A or Series B preferred stock outstanding.
HAIC prepares its statutory-based financial statements in conformity with accounting practices prescribed or permitted by the Texas Department of Insurance. Prescribed statutory accounting practices primarily include those published as statements of SAP by the NAIC, as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practice not so prescribed. As of December 31, 2013 and 2012, there were no material permitted statutory accounting practice utilized by HAIC.
These restatements resulted in certain adjustments to our Consolidated Balance Sheets and Consolidated Statements of Cash Flows which are illustrated below.
On January 24, 2014, the Company completed placement of its 2014-2015 quota share reinsurance program with third party reinsurers, effective April 1, 2014. The quota share ratio remains the same (90%) as the current program. Certain participants on the program will change from the 2013 program.