4. The possibility that the Company is not able to increase its market share at the anticipated premium rates.
MAMSI, through its 100% owned subsidiary companies, is predominately in the business of selling various forms of health insurance. In 2001, 96% of revenues were earned from the sale of health insurance products, mostly to employers who purchase health insurance for their employees. Since premium rates are generally fixed for a one year period, it is critical to the Company's continued financial success that its prices are set at levels that will at least cover the next policy year's medical costs for members plus administrative costs to pay claims, provide member services, pay taxes, and cover other related costs.
Another accounting policy that is very important to the fair presentation of our financial results is the proper valuation of the Company's accounts receivable. The Company bills the majority of its health insurance customers on a monthly basis. The premium bill is typically sent out 15 days in advance of the month being billed for, so that the Company can receive the cash at the start of the month for which the insurance is being provided. The vast majority of our
The Company's consolidated net income for the year ended December 31, 2001 increased to $57,195,000 from $39,406,000 for the year ended December 31, 2000. Diluted earnings per share increased from $1.00 in year ended December 31, 2000 to $1.41 for the year ended December 31, 2001. The increase in earnings is attributable to an increase in premiums per member, a reduction in medical expenses as a percentage of health premium revenue ("medical care ratio"), and a reduction in administrative expenses as a percentage of total revenue ("administrative expense ratio"). The Company has priced its health products competitively in order to increase its membership base and thereby enhance its strategic position in its market place. The Company currently has one of the largest HMO and managed care enrollments and also the largest network of contract providers of medical care in its service area (which includes the entire states of Maryland and Delaware, the District of Columbia, most counties and cities in Virginia and certain areas of West Virginia, North Carolina and Pennsylvania).
The Company's consolidated net income for the year ended December 31, 2000 increased to $39,406,000 from $26,322,000 for the year ended December 31, 1999. Diluted earnings per share increased from $.64 in year ended December 31, 1999 to $1.00 for the year ended December 31, 2000. The increase in earnings is attributable to an increase in premiums per member, a reduction in the medical care ratio, offset somewhat by an increase in administrative expense.
Investment income increased $2.4 million primarily due to an increase in the amount of investments.
term of the contract which commenced in January 2000. From inception through December 31, 2001, the Company has recognized approximately $28 million of the $41 million guarantee for financial statement purposes as a reduction of medical expense and medical claims payable. On August 30, 2001, the Company filed a Demand for Arbitration against Merck asserting that Merck has reneged on its obligations under the agreement. The Company believes that it has complied with its contractual obligations, that its financial statements are fairly stated with regard to the aforementioned contracts and that the dispute will be resolved in the Company's favor. See Note 11.
For the years ended December 31, 2001, 2000 and 1999, marketable equity available-for-sale securities with a fair value at the date of sale of $900,000, $317,000 and $2,524,000, respectively, were sold. The gross realized gains on such sales totaled $18,000, $71,000 and $50,000, and the gross realized losses totaled $17,000, $-0- and $75,000 for each of the respective periods. Realized gains and losses are included in investment income. Other sales and maturities of investment securities consisted principally of redemptions on municipal bond funds.
The Company follows APB 25 under which no compensation expense has been recognized in connection with its stock option plans. Pro forma information regarding net income and earnings per share are required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2001, 2000 and 1999, respectively: risk-free interest rates of 4.8%, 6.6%, and 5.2%; volatility factors of the expected market price of the Company's common stock of .65, .65, and .59 and a weighted average life of the options of three years. The Company anticipates that it will declare no dividends.