The Company’s net income was $1,953,728 in 2012, $3,739,876 in 2011, and $2,329,152 in 2010.
Losses and loss adjustment expenses were 56% of net premium earned for the year ended December 31, 2012, compared to 54% of net premium earned for the year ended December 31, 2011, and compared to 66% of net premium earned for the year ended December 31, 2010.
The insurance premium financing operation currently finances policies written only through its sister company, Unifax. Since July 2010, AAC has offered 0% financing on policies written by Unifax for Crusader as a promotion to increase the sale of Crusader policies. The Company monitors the cost of providing this incentive, and depending on the cost/benefit determination, the Company can continue to offer 0% financing or withdraw it at any time. AAC issued 3,264 loans in 2012, 3,158 in 2011 and 2,429 in 2010. Revenue earned in 2012 consists entirely of late fees and other miscellaneous fees charged. The average premium financed by AAC was $3,039 in 2012, $2,817 in 2011 and $2,304 in 2010.
On December 19, 2008, the Board of Directors authorized a stock repurchase program to acquire from time to time up to an aggregate of 500,000 shares of the Company’s common stock. This program has no expiration date and may be terminated by the Board of Directors at any time. During the years ended December 31, 2012 and 2011, the Company repurchased 23,563 and 1,124 shares of the Company’s common stock, in unsolicited transactions at a cost of $243,469 and $10,959, of which $11,579 and $553 were allocated to capital and $231,890 and $10,406 were allocated to retained earnings, respectively. As of December 31, 2012, the Company had remaining authority under the 2008 program to repurchase up to an aggregate of 222,669 shares of its common stock. The 2008 program is the only program under which there is authority to repurchase shares of the Company’s common stock. The Company has or will retire all stock repurchased.
During 2012, the claims costs emerging for the current accident year were consistent with the 2011 accident year. It was noted previously that the 2010 claims costs emerging during 2010 were higher than expected; however the 2010 claims costs as they developed during 2011 and 2012 were slightly lower than expected. Each year, management reviews claims costs that appear to be different from the historical claims costs to determine whether those differences are a normal part of the process or an indication that a change in reserve assumptions is appropriate. Management concluded that the differences noted above are normal differences between actual and expected claims costs that emerge from time to time, particularly in an insurer the size of the Company, and does not believe a change of assumptions to be appropriate.
At each quarterly review, actual claims costs that emerge are compared with the claims costs that were expected to emerge during that development period. Sometimes the previous claims costs estimates prove to have been too high; sometimes they prove to have been too low. In the case of the Company, the estimates proved to be too high in each of the years reflected in the table. The favorable development in 2010 through 2012 underscores the inherent uncertainty in insurance claims costs, especially for a very small insurer.
The Company and its wholly owned subsidiaries file consolidated federal and state income tax returns. Pursuant to the tax allocation agreement, two of the Company’s subsidiaries, Crusader Insurance Company (Crusader) and American Acceptance Corporation (AAC) are allocated taxes, or tax credits in the case of losses, at current corporate rates based on their own taxable income or loss. The Company is subject to examination by U.S. federal income tax authorities for tax returns filed starting at taxable year 2009 and California state income tax authorities for tax returns filed starting at taxable year 2008. There are no ongoing examinations of income tax returns by federal or state tax authorities.
Crusader is required to file an annual statement with insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory). Statutory accounting practices differ in certain respects from GAAP. The more significant of the differences for statutory accounting are (a) policy acquisition and commission costs are expensed when incurred rather than over the periods covered by the policies; (b) fixed maturity securities are reported at amortized cost, or the lower of amortized cost or fair value, depending on the quality of the security as specified by the NAIC; (c) non-admitted assets are charged directly against surplus; (d) loss reserves and unearned premium reserves are stated net of reinsurance; and (e) federal income taxes are recorded when payable and deferred taxes, subject to limitations, are recognized but only to the extent that they do not exceed a specified percentage of statutory surplus; changes in deferred taxes are recorded directly to surplus as regards policyholders. Additionally, the cash flow presentation is not consistent with U.S. generally accepted accounting principles and reconciliation from net income to cash provided by operations is not presented. Comprehensive income is not presented under statutory accounting.
No options were granted during the year ended December 31, 2010. The Company granted no options to non-employees during the years ended December 31, 2012 and 2011.