Gross earned premiums: Gross earned premiums are the earned portion of gross written premiums. We earn insurance premiums on a pro rata basis over the term of the policy. Our insurance policies generally have a term of one year.
Consolidated Results of Operations for the Year Ended December 31, 2020 Compared to December 31, 2019
As of December 31, 2020, we had $153,149 in cash and cash equivalents, compared to $74,268 as of December 31, 2019.
The Company regularly reviews its investment portfolio to determine if other-than-temporary impairment exists for any fixed maturity securities. An investment is impaired when the fair value of the investment declines to an amount less than the cost or amortized cost of that investment. If a security is impaired, the Company bifurcates the impairment into (a) the amount of impairment related to credit loss and (b) the amount of impairment related to other factors. The amount of impairment related to credit loss is recorded as an impairment loss and is included in net income. The impairment related to all other factors is recorded as a reduction in the fair value of the security and is included in accumulated other comprehensive income.
The Income Approach measures the value of an ownership interest in a company or asset as the present value of the future economic benefits of ownership. The future ownership benefits may be represented by the expected earnings or cash flow of a company or asset over an investment period. The expected earnings or cash flow are then converted to their net present value using a rate of return suitable for the risks associated with realizing those future benefits.
In November 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-18, Restricted Cash, which amended Statement of Cash Flows (Topic 230) of the Accounting Standards Codification. ASC Topic 230 requires amounts generally described as restricted cash and restricted cash equivalents to be included within cash and cash equivalents in the consolidated statement of cash flows. During 2018, the Company elected to adopt this standard effective January 1, 2018. The adoption did not have a material effect on the consolidated financial statements.
A large portion of the Company’s investment portfolio consists of fixed maturities which may be adversely affected by changes in interest rates as a result of governmental monetary policies, domestic and international economic and political conditions and other factors beyond the Company’s control.
Revenue from contracts with customers: Other revenue recorded by the Company includes brokerage, third-party administrative (TPA), management and consulting fees. The Company incurs certain costs associated with obtaining contracts with customers. Such contracts are one-year contracts and the amortization periods are one year or less. The Company has elected, as a practical expedient, to expense these contract costs as incurred.
During the years ended December 31, 2020, 2019 and 2018, the Company wrote off $26, $1,817 and $338 to bad debt, respectively. Bad debt expense is included within general and administrative expenses in the consolidated statements of operations.
The reinsurance agreements are short-term, prospective contracts, typically 12-months in duration. The Company records an asset, prepaid reinsurance premiums, and a liability, reinsurance premiums payable, for the contract amount when premium is written under the reinsurance agreements. Prepaid reinsurance premiums are amortized in the same manner in which unearned premium is recognized.
Segment reporting: Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker reviews financial information of the Company as a whole for purposes of assessing financial performance and making operating decisions. Accordingly, the Company considers itself to be operating as a single operating and reportable segment.
The terms of the credit facility require the Company to maintain certain financial covenants and ratios. The Company was in compliance with all covenants and ratios as of December 31, 2020, 2019 and 2018.