General. Our discussion and analysis of financial condition, results of operations and liquidity and capital resources is based upon the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We generally base our estimates on historical experience or other appropriate assumptions that we believe are reasonable and relevant under the circumstances and evaluate them on an ongoing basis. The results of these estimation processes form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Reinsurance recoverables include balances due from reinsurance companies for paid and unpaid losses and LAE that will be recovered from reinsurers, based on contracts in force. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance contracts do not relieve the Company from its primary obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk with respect to the individual reinsurer that participates in its
Cash used in investing activities was $6,002,000 and $6,087,000 during the years ended December 31, 2009 and 2008, respectively, a decrease of $85,000. During 2009, net cash invested into the Company’s investment portfolio was $4,763,000 compared to $4,945,000 in 2008, a decrease of $182,000. During the second quarter 2009, the Company began adding to its equity portfolio via purchases of common stocks and mutual funds. Since March 31, 2009, the Company has added approximately $4,078,000 to the equity portfolio. Funding for the equity purchases has come from existing cash balances, operating cash flow and sales and maturities of fixed maturities.
During 2009, the Holding Company paid a quarterly cash dividend. The Holding Company paid a quarterly dividend of $.03 per share in the first, second and third quarters and $.04 per share in the fourth quarter of 2009. Total dividends paid was approximately $228,000. The Company cannot assure our stockholders that dividends will continue to be paid in the future. The Board’s current intention is to evaluate each quarter whether a cash dividend will be declared. The payment of future dividends will depend upon the availability of cash resources at the Holding Company, the financial condition and results of operations of the Company and such other factors as are deemed relevant by the Board of Directors. The Holding Company’s principal source of cash available for payment of dividends is dividends from the Insurance Company. The annual future cash requirements of the Holding Company are not foreseen to be significant. They include dividends paid to shareholders and other administrative expenses related to annual filings such as income tax returns and other compliance type filings. During 2009, the Board of Directors of the Insurance Company declared and paid ordinary dividends totaling $250,000 to the Holding Company, its sole shareholder. As of December 31, 2009, the Holding Company had a cash balance of approximately $98,000.
Although reinsurance agreements contractually obligate the Company’s reinsurers to reimburse the Company for their share of losses, they do not discharge the primary liability of the Company. The Company remains liable for the ceded amount of reserves for unpaid losses and loss adjustment expenses and ceded
The estimated prior service credit and net actuarial loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $85,682 and $2,480, respectively.
The Company has two stock-based compensation plans which are described below. The compensation cost for these plans that has been charged against income for the years ended December 31, 2009, 2008 and 2007 was $122,057, $103,228 and $95,772, respectively. The total income tax benefit recognized in the statement of operations for stock-based compensation was $41,499, $35,098 and $32,562, for the years ended December 31, 2009, 2008 and 2007, respectively.
A summary of option activity under the plans as of December 31, 2009 and changes during the year then ended is presented below: