The following is a summary of properties leased by us at December 31, 2006:
We continue to market our services aggressively inside and outside the regions in which we currently operate. We expect service revenue will increase as new customers become aware of and purchase these services. The ultimate effect on service revenue is unknown at this time.
underwriting of our book of business has resulted in claims with profiles different than experienced historically; and (iii) our estimate of the liability for unpaid claim and claim settlement expenses is volatile due to our relatively limited fourteen-year historical claim data and our small claim population;
The following gross loss reserve development table sets forth the change, over time, of gross reserves established for claim and claim settlement expenses at the end of the last ten years. The table is cumulative and, therefore, ending balances should not be added since the amount at the end of each calendar year includes activity for both current and prior years (000’s):
Effect of variability of results on estimation process. The frequency and severity of claims will vary by year. Actual emergence will vary by year. Adverse frequency, severity and emergence affect actuarial judgments more rapidly than a corresponding favorable event;
We feel that it is impractical, if not impossible, to separate and quantify the effect of any of the above mentioned factors during any period. Additionally, workers’ compensation insurance, being a long-tailed line of insurance business, is affected by additional, previously enumerated factors, most of which are not subject to strict quantification. We do not believe that a more “sophisticated” analysis would be cost beneficial or provide credible information to management or the reader. Events, such as a significant law change that directly affects reserves, will be identified and quantified as they occur.
Cash used in operating activities was $802,000 for 2006. This is primarily a result of net income of $3.3 million and a decrease of $6.1 million in amounts due from reinsurers offset by a decrease in unpaid claim and claim settlement expenses of $7.8 million and a decrease in accrued expenses and other liabilities of $2.1 million. Net cash used in investing activities was $4.3 million due primarily to $30.9 million in purchases of securities offset by $3.5 million in proceeds from principal paydowns of securities and $23.8 million in maturities of investments. Net cash used in financing activities was $2.9 million due primarily to the repurchase of our common stock in 2006.
Realized Investment Gains and Losses: Realized investment gains and losses are identified separately in our Consolidated Statements of Income. Cost of investments sold is determined by the specific identification method.
Income taxes receivable were approximately $1.2 million and $381,000 at December 31, 2006 and 2005, respectively, and are included in other assets.
Options granted, exercised, cancelled and outstanding under the 2005 Stock Plan are as follows:
Operating Leases - We conduct our operations in leased office facilities under operating lease agreements. The agreements provide for monthly base lease payments plus contingent rentals based on an allocable portion of certain operating expenses incurred by the lessor.
The following tables present unaudited quarterly income for the eight quarters ended December 31, 2006: