Consolidated insurance expenses increased approximately $1,492,000 in 2012. Total insurance expenses as a percentage of total premium revenue, or the insurance expense ratio, was 18.2% for 2012, increasing 1.0% from the 2011 ratio of 17.2%. Salaries and wages increased by approximately $488,000 as a result of salary and wage increases in 2012, the addition of some incremental full-time positions and management bonuses in 2012 due to our improved profitability. Commissions expense increased approximately $157,000, or 4.8%, due to the increase in total premium revenue in 2012 compared to 2011. Advertising expense in 2012 increased by approximately $144,000, or 86.3%, as advertising programs were initiated in the Columbus, Ohio market in addition to the ongoing advertising programs in our other established markets. Professional consulting expense increased by approximately $61,000, or 16.9%, as a result of proceeding with discretionary projects in 2012 that were delayed in 2011. Board of Directors expense increased by approximately $199,000, or 33.1%, primarily due to a 16.2% increase in the book value of directors deferred compensation restricted share awards. In addition, bad debt expense increased by approximately $42,000 as the result of certain employer group receivable balances that were determined to be uncollectable. Also, miscellaneous expenses increased by approximately $32,000 due to the one-time costs incurred relative to the refinancing of our office building.
Total self-insured revenue increased approximately $628,000 in 2011 compared to 2010. Self-insured dental revenue increased by approximately $1,079,000 due to new self-insured sales. This self-insured revenue increase was offset by a decrease of approximately $451,000 due to a decrease in the self-insured claims revenue on a per member per month basis as a result of lower dental service utilization. Approximately $147,000 of this decrease was the result of run-out claims in 2010 for a larger employer group that was self-insured in 2009 and converted to fully-insured effective January 1, 2010 that did not recur in 2011. The self-insured dental segment represented approximately 31.0% of our total dental business. The self-insured segment revenue has two components:
In 2012, we paid approximately $120,000 of our outstanding mortgage balance and repaid approximately $108,000 related to the capital lease that we executed in December 2010. In December 2012, we entered into a new mortgage loan in the amount of $1,340,000 in order to refinance both the remaining balance on our first mortgage of approximately $660,000 and to repay the balance on our revolving note of approximately $650,000. During 2012, we sold $1 million of institutional preferred shares and approximately $44,000 of Class A and Class B common. Also during 2012, we repurchased redeemable common shares of $138,000 from provider shareholders.
minimum levels of required capital and surplus and signals regulatory measures should actual surplus fall below these recommended levels. RBC has been adopted by Ohio, Kentucky and Indiana, the three states in which we currently do business. We file our annual statement and RBC reporting with the Ohio Department of Insurance and the NAIC. Dental Care Plus’s statutory annual statements for the year ended December 31, 2012 filed with the Ohio Department of Insurance reflected total adjusted capital in excess of Company Action Level RBC.
The differences between our net income and comprehensive income include the changes in the unrealized gains or losses on marketable securities and changes in the fair value of our interest rate swap agreement. For the years ended December 31, 2012, 2011, and 2010, respectively, such changes increased or (decreased), net of related income tax effects, by the following amounts:
Since our liability for claims payable is based on actuarial estimates, the amount of claims eventually paid for services provided prior to the balance sheet date could differ from the estimated liability. Any such differences are recognized in the consolidated statement of comprehensive income (loss) for the period in which the differences are identified.
Fully-Insured premium revenue is recognized in the period during which dental or vision coverage is provided to the covered individuals. Payments received from customers in advance of the related period of coverage, as well as unbilled accounts receivable, are reflected on the accompanying consolidated balance sheets as unearned premium revenue. The Company’s unearned premium revenue was approximately $19,792,000 and $22,457,000 at December 31, 2012 and 2011, respectively, for the estimated premium revenue associated with the remaining contract periods and related amounts recorded in unbilled accounts receivable. Enrollment changes not yet reflected on employer group invoices, also known as retroactive membership adjustments, are estimated based on available data and are reflected in revenue in the current period. These retroactive membership adjustments are generally immaterial to the consolidated financial statements. Self-insured premium revenue is recognized upon the payment of claims for self-insured members in accordance with contracts with self-insured employers. We provide administrative and claims processing services, benefit plan design, and access to provider networks for an administrative fee to self-insured groups. The Company has no underwriting risk arising from the provision or cost of any services provided to the self-insured groups.
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2012
The following table illustrates the effect of the guidance change in the consolidated balance sheets:
Redeemable Institutional Preferred Shares-In 2010, the Board of Directors approved the issuance of Redeemable Institutional Preferred Shares (“the Shares”) consisting of 300 preferred shares of the 100,000 authorized. On July 21, 2010, the Company entered into a Preferred Stock Purchase Agreement (the “2010-Stock
Redeemable Institutional Preferred Shares are participating securities that share in total comprehensive income (loss) as a change to the redemption value of the redeemable Institutional Preferred Shares to accrete (dilute) the carrying value to the redemption value at the end of each reporting period. Under this method, the end of the reporting period is treated as if it were also the redemption date for the securities. Redeemable Institutional Preferred Shares are considered to be redeemable shares due to the fact that the shareholders have the option to require the Company to repurchase these shares upon the shareholders discretion.
Each year the Board evaluates the performance of the Company’s dental plans, capital and surplus requirements prescribed by the Ohio Department of Insurance, factors affecting the Company’s financial strength rating, funding needed to support strategic objectives for the coming years and any other factors deemed relevant by the Board and, based on that evaluation, determines whether or not to authorize the payment to the providers of any portion of the provider withhold. Once authorized by the Board, such amounts are recorded as additional healthcare services expense in the period authorized and shown as additional claims payable liability until paid. There was no withhold return authorized by the Board for 2012, 2011 or 2010.
Seven of our Board members are also participating providers and as a group received approximately $159,000, $159,000 and $141,000 in directors’ fees for the years ended December 31, 2012, 2011, and 2010, respectively.
As December 31, 2012 and 2011, there were no assets or liabilities that were required to be measured at fair value on a non-recurring basis.