We utilize different processes to determine our best estimate for unpaid losses and unpaid loss adjustment expenses. We establish a standard system-generated case loss reserve that varies by state, program, coverage and, in some instances for certain coverages, elapsed time since date of loss or if the claim is in litigation. The only variation to this methodology for setting case loss reserves exists in the instance where we believe our financial exposure for a particular loss event is significant and in fact may approach or be equal to our policy limits. In these instances, we will establish a case loss reserve to reflect claims’ view regarding the potential cost of this exposure to us. The system automatically adjusts the case loss reserves downward in the event a partial payment is made and a claim remains open. We will re-adjust the case loss reserves in an instance where a partial payment is made if we believe the facts of the claim justify a different reserve. This activity is generally limited to our personal injury protection coverage, where we have a significant amount of this type of activity, the settlement time is longer than for our normal business and the types of losses do not lend themselves to an average reserve methodology.
Selling, General and Administrative Expenses. Another measurement of our performance that addresses our overall efficiency is the level of selling, general and administrative expenses. We recognize that our customers are primarily motivated by low prices. As a result, we strive to keep our costs as low as possible to be able to keep our prices affordable and thus to maximize our sales while still maintaining profitability. Our selling, general and administrative expenses include not only the cost of acquiring the insurance policies through our insurance carriers (the amortization of the deferred acquisition costs) and managing our insurance carriers and the retail stores, but also the costs of the holding company. The largest component of selling, general and administrative expenses is personnel costs, including compensation and benefits. Selling, general and administrative expenses for 2011 decreased $54.6 million, or 32.7%, compared with 2010, primarily due to a decrease in premium production and recognition of ceding commission income from the quota-share reinsurance agreements. The primary drivers of the decrease were a drop in independent agent expense with lower premium volume and ceding commission income in 2011 from the quota-share reinsurance agreements. There was no ceding commission income in the first nine months of 2010. Also, the decrease is related to a $9.0 million decrease in employee compensation and benefits primarily due to management actions to reduce expenses, a $5.2 million decrease due to lease termination and related charges incurred in 2010, a $3.1 million decrease due to lower IT consulting, a $1.9 million decrease in temporary labor costs and a $1.5 million decrease in severance costs.
Loss on interest rate swaps for 2009 was $6.4 million. The modification of the senior credit facility effective March 27, 2009 resulted in the interest rate swaps becoming ineffective as cash flow hedges. As a result, the previously hedged interest payments will not occur. Therefore, the amount recorded in accumulated other comprehensive loss through March 27, 2009 was reclassified to earnings as loss on interest rate swaps. Subsequent to March 27, 2009, we record changes in the fair value of the derivative instruments in earnings, as gain or loss on interest rate swaps.
Income tax expense for 2010 was $1.7 million as compared to $22.4 million for 2009. The decrease in income tax expense in 2010 was primarily due to an increase in the deferred tax liability related to goodwill and state tax expense, and the change in valuation allowance.
A waiver of any defaults or events of default for the period prior to the effective date of the amendment related to the risk-based capital ratio and loss ratio covenants under the prior terms of the agreement.
The table below presents the total amount of receivables due from reinsurers as of December 31, 2011 and 2010 (in thousands):
On May 27, 2011, PropertyOne, Inc. (PropertyOne) filed suit against USAgencies, LLC and Affirmative Insurance Holdings, Inc. in the 19th Judicial District Court, Parish of East Baton Rouge, Louisiana. PropertyOne’s petition asserts equitable claims for payment of broker commissions arising out of the December 2009 execution of a lease with a federal agency for investment property located in Baton Rouge, Louisiana, which is owned by the Company’s insurance subsidiaries. The Company removed the lawsuit to the U.S. District Court for the Middle District of Louisiana. On November 15, 2011, the Court entered an order granting in part and denying in part the Company’s motion to dismiss, and denying the Company’s motion for summary judgment. The parties are now proceeding to discovery. The Company believes that these claims lack merit and intends to defend itself vigorously. No estimate of the range of potential loss can be made at this time.
may provide that if shares of the Company’s common stock are used to pay the exercise price, additional stock options will be granted to the participant to purchase that number of shares used to pay the exercise price. Generally, stock options are not transferable except by will or the laws of descent and distribution, unless the board or Compensation committee provides that a nonqualified stock option may be transferred.