The insurance segment had revenues of $856,085 for the year ended December 31, 2012 and $388,717 for the year ended December 31, 2011. Operating and management expenses were $2,535,193 for the year ended December 31, 2012 and $2,680,058 for the year ended December 31, 2011. This resulted in segment losses of $1,679,108 and $2,291,341 for the years ended December 31, 2012 and 2011, respectively.
Our net premiums earned were $1,267,470 for the year ended December 31, 2012 compared to $412,840 for the year ended December 31, 2011, an increase of $854,630 or 207%. The net premiums earned during 2012 and 2011 were attributable to net premium cessions from C&F under the Reinsurance Agreement in the amounts of $1,231,436 and $423,364 and to revisions to CAMICO premium estimates for prior years in the amounts of $36,034 and $(10,524), respectively. The increase in net premiums earned under the Reinsurance Agreement resulted from increased cessions from C&F in 2012, arising from a higher level of underwriting activity under the Agency Agreement due to the marketing of the program by APSL.
The Company expensed operating and management expenses of $3,795,409 for the year ended December 31, 2012 compared to $4,056,243 for the year ended December 31, 2011, a decrease of $260,834 or 6.4%. The decrease is largely attributable to (1) a reduction in overall marketing expenses incurred by APSL during the year ended December 31, 2012 compared to 2011, (2) a decrease in salary expense incurred by APSL during the year ended December 31, 2012 compared to 2011 as a result of a reduction in the number of full-time salaried employees and employees who are paid hourly wages and (3) a reduction in legal expenses associated with the Arbitration during the year ended December 31, 2012 compared to 2011.
date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the input that is significant to determining such measurement. The three levels are defined as follows:
The consolidated financial statements include our estimated liability for unpaid losses and loss adjustment expenses (“LAE”) for our insurance operations. LAE is determined utilizing both case-basis evaluations and actuarial projections, which together represent an estimate of the ultimate net cost of all unpaid losses and LAE incurred through December 31 of each year. These estimates are subject to the effect of trends in future claim severity and frequency. The estimates are continually reviewed and, as experience develops and new information becomes known, the liability is adjusted as appropriate, and reflected in current financial reports. The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. Future average severity
We conduct our reinsurance business through AMIC Ltd., our subsidiary, which is a registered insurer in Bermuda. On September 25, 2009, AMIC Ltd. entered into a professional liability quota share agreement with C&F (the “Reinsurance Agreement”) pursuant to which C&F agreed to cede and AMIC Ltd. agreed to accept as reinsurance a 50% quota share of C&F’s liability under insurance written by APSL on behalf of C&F and classified by C&F as accountants’ professional liability and lawyers’ professional liability, subject to AMIC Ltd.’s surplus limitations. The initial term of the Reinsurance Agreement is for four years with automatic one-year renewals thereafter.
AmerInst currently does not have a public market for its common stock, but the Company has historically caused Investco to purchase shares from the Company’s shareholders upon their death, disability or retirement from the practice of public accounting. The repurchase price has been equal to the year-end net book value per share for the most recently completed fiscal year reduced by the amount of any dividends already paid on the repurchased shares during the calendar year of the repurchase and any dividends the shareholder would be entitled to receive on the repurchased shares that have not been paid. In addition, the Bermuda Monetary Authority (“BMA”) has authorized Investco to purchase shares on a negotiated case-by-case basis, and Investco has typically negotiated share repurchases when requested by Company shareholders.
AMIC Ltd.’s ability to pay dividends to AmerInst is subject to the provisions of the Bermuda insurance and companies laws and the requirement to provide the ceding companies with collateral. Under the Companies Act, AMIC Ltd. would be prohibited from declaring or paying a dividend at December 31, 2012 if such payment would reduce the realizable value of its assets to an amount less than the aggregate value of its liabilities, issued share capital, and share premium accounts. As of December 31, 2012, approximately $33 million was available for the declaration of dividends to shareholders. However, due to the requirement to provide the ceding companies with collateral, approximately $25 million was available for the payment of dividends to the shareholders. In addition, AMIC Ltd. must be able to pay its liabilities as they fall due after the payment of a dividend. Our ability to pay dividends to common shareholders and to pay our operating expenses is dependent on cash dividends from our subsidiaries. The payment of such dividends by AMIC Ltd., including its subsidiary Investco, to us is also limited under Bermuda law by the Insurance Act and Related Regulations which require that AMIC Ltd. maintain minimum levels of solvency and liquidity.