Underwriting and other operating expenses declined 21% and increased 5%; and
The comparative components of net income are set forth in the following table.
In the first quarter of 2010, we incurred charges of $0.9 million related to staffing reductions to adjust our insurance operations to reflect activity levels at that time. Subsequently, in the third quarter of 2010, we announced the reorganization of our operations to eliminate duplicative services and better align resources with business activity and growth opportunities at that time. In connection with those efforts and with general cost control efforts, we eliminated approximately 160 positions. In conjunction with that reorganization, we recorded restructuring charges of $5.2 million in 2010, including $3.0 million related to workforce reductions and $2.2 million related to leases for facilities that were vacated during the year.
Our commission expense was $65.6 million, $47.3 million, and $39.3 million for the years ended December 31, 2012, 2011, and 2010, respectively. The increases in commission expense from 2010 through 2012 were primarily due to higher net premiums
Policyholder dividends were $3.2 million, $3.4 million, and $4.3 million for the years ended December 31, 2012, 2011, and 2010, respectively. Policyholder dividends fluctuate from time to time due to changes in premium levels on dividend policies and the eligibility of policyholders to receive dividend payments.
Given the economic uncertainty and continuing market volatility, we believe that our current asset allocation best meets our strategy to preserve capital for policyholders, to provide sufficient income to support insurance operations, and to effectively grow book value over a long-term investment horizon.
Under the LPT Agreement, the Fund initially ceded $1.5 billion in liabilities for the incurred but unpaid losses and LAE related to claims incurred prior to July 1, 1995 for consideration of $775.0 million in cash. The estimated remaining liabilities subject to the LPT Agreement were $672.3 million as of December 31, 2012. Losses and LAE paid with respect to the LPT Agreement totaled $605.1 million at December 31, 2012. We account for the LPT Agreement as retroactive reinsurance. Entry into the LPT Agreement resulted in a deferred reinsurance gain that was recorded on our consolidated balance sheet as a liability. The Deferred Gain is being amortized using the recovery method, whereby the amortization is determined by the proportion of actual reinsurance recoveries to total estimated recoveries through the life of the LPT Agreement, and the amortization is reflected in losses and LAE. Changes in estimates of the reserves ceded under the LPT Agreement may significantly impact the Deferred Gain on our consolidated balance sheet and losses and LAE in our consolidated statement of income and comprehensive income.
During the years ended December 31, 2012, 2011, and 2010, the Company recognized $1.2 million, $1.6 million, and $2.2 million in amortization expenses, respectively. These amortization expenses are included in the accompanying consolidated statements of income and comprehensive income in underwriting and other operating expenses. Amortization expense is expected to be as follows:
The Company adopted this standard on a prospective basis on January 1, 2012. Under the new guidance, the Company capitalized acquisition costs totaling $87.2 million for the year ended December 31, 2012. Under the previous guidance, the amount capitalized would have been $102.5 million for the same period. The total effect of implementing this guidance was a $15.3 million decrease in the amount capitalized and a $8.2 million decrease in the amortization expense for the year ended December 31, 2012. The total amortization expense was $85.9 million for the year ended December 31, 2012. The net effect of implementing this guidance was a $7.1 million increase in underwriting and other operating expense for the year ended December 31, 2012.
The amortized cost and estimated fair value of fixed maturity securities at December 31, 2012, by contractual maturity, are shown below. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Recoverables from reinsurers on unpaid losses and LAE amounted to $0.8 billion and $0.9 billion at December 31, 2012 and 2011, respectively. At each of December 31, 2012 and 2011, $0.7 billion and $0.8 billion, respectively, of those recoverables was related to the LPT Agreement that was entered into in 1999 by the Fund and assumed by EICN. Under the LPT Agreement, substantially all of the Fund's losses and LAE on claims incurred prior to July 1, 1995, have been ceded to three unaffiliated reinsurers on a 100% quota share basis. Investments have been placed in trust by the three reinsurers as security for payment of the reinsured claims. Under the LPT Agreement, initially $1.5 billion in liabilities for the incurred but unpaid losses and LAE related to claims incurred prior to July 1, 1995, were reinsured for consideration of $775.0 million. The LPT Agreement provides coverage up to $2.0 billion. Through December 31, 2012, the Company has paid losses and LAE claims totaling $605.1 million related to the LPT Agreement.
Principal payment obligations on notes payable outstanding at December 31, 2012, were as follows:
Changes in outstanding stock options for the year ended December 31, 2012 were as follows:
The Company has awarded RSUs to non-employee members of the Board of Directors and certain officers of the Company. The RSUs awarded to non-employee members of the Board vest on the first anniversary of the award date. RSU grants allow each non-employee Director to decide whether to defer settlement of the RSUs until six months after termination of Board service or settle the RSUs at vesting. Dividend equivalents are granted to Directors who elected to defer settlement of the RSUs after the grants vested. RSUs awarded to officers of the Company have a service vesting period of four years from the date awarded and vest 25% on each of the subsequent four anniversaries of such date. These RSUs are subject to accelerated vesting in certain limited circumstances, such as: death or disability of the holder, or in connection with a change of control of the Company.