The executive and general offices of the Company and its subsidiaries are located at 10475 Fortune Parkway, Jacksonville, Florida 32256. During 1999 the Company renegotiated the lease on its existing 23,000 square feet and took over 11,000 additional contiguous square feet, consolidating its other Jacksonville location. The lease for all 34,000 square feet currently runs through August 2006, with annual lease payments of $324,702 escalating to $387,838 in the final year of the lease.
In 1996 the Company purchased land and a building in Jacksonville, Florida for $167,000. This facility currently serves as off-site storage.
Presentation of total assets at year-end has been changed to classify amounts due the Company under reinsurance agreements as assets rather than contra-liabilities.
Mobile America Corporation ("the Company") is a holding company whose revenue-producing operations are conducted through its insurance and non-insurance subsidiaries. The Company receives cash primarily through borrowings and subsidiary dividends and uses those proceeds to fund subsidiary operations, retire outstanding indebtedness and pay shareholder dividends.
The Company invests in fixed-maturity, equity and short-term securities. The Company's investment policy is designed to satisfy the high-quality, short- to medium-term duration investment composition necessitated by its insurance operations. This policy provides the Company with the flexibility it needs to maintain stable asset values while meeting the cash flow needs of its claims payments and other operational activities.
Due to the significant cash needs during 1999 to pay claims and fund operations the Company decided to eliminate the distinction between securities held to maturity and securities available for sale. As of year-end, the Company has classified all investment securities as available for sale.
The Company had no investments in derivative financial instruments at any time during 1999.
At December 31, 1999 the Company had receivables due from reinsurers totaling $26.0 million, compared to $27.1 million at December 31, 1998. On December 29, 1999 the Company was notified by one of its reinsurers that a cash call by the Company for $7.8 million was being denied. The disagreement centers on the calculation of the amount of cash owed the Company by the reinsurer. The Company strongly believes it is owed the entire amount and is currently reviewing the matter in detail with the reinsurer.
The Company's insurance loss reserves at December 31, 1999 totaled $26.0 million, compared with $29.1 million at December 31, 1998. Of those amounts, respectively, $22.4 million and $26.8 million represent loss reserves for personal injury protection and liability coverage on the Company's private passenger auto business. The Company's inventory of private passenger auto claims at the end of 1999 and 1998 totaled 6,386 and 10,107, respectively, with corresponding reserves per claim at the end of 1999 and 1998 of $3,509 and $2,655. The Company believes its level of reserves is sufficient to pay current and future claims on all insurance written to date.
Total stockholders' equity at December 31, 1999 totaled $24.4 million, or $3.27 per share outstanding, as compared with total stockholders' equity at December 31, 1998 of $35.6 million, or $4.96 per share outstanding. During 1999 the Company issued 150,000 shares of common stock to its current Chairman of the Board and 150,000 shares to its current President and Chief Executive Officer. The shares were all issued pursuant to the Company's Incentive Plan at fair market values totaling $843,750, and were 100% financed with purchase money loans from the Company which are collateralized by the common stock.
The Company has experienced significant negative net cash flow from operations for each of the past three years as its business volume has declined and as it has continued to settle outstanding claims from current and prior policies. Sufficient liquidity is maintained within the structure of the Company's investment portfolio to meet the cash flow needs of its operations. The Company expects cash flow from operations to turn positive during 2000.
Net income (loss) was ($9.9) million, or ($1.35) per share, in 1999, ($0.9) million, or ($0.13) per share, in 1998 and $6.0 million or $0.85 per share, in 1997.
Direct written premiums decreased 25%, to $57.3 million in 1999, compared to $75.9 million in 1998 and $86.9 million in 1997. Net written premiums were $29.2 million in 1999, compared to $29.3 million in 1998 and $42.5 million in 1997. The difference between direct and net written premiums represents reinsurance. The Company ceded 60% of the personal injury protection (PIP) and property damage liability (PDL) coverage on its private passenger automobile business through quota share reinsurance agreements in 1999, compared with 75% in 1998 and 60% in 1997.
Private passenger automobile insurance represents approximately 85% of the Company's total direct written premium. Homeowner's and other property insurance represents another 13% and commercial automobile insurance represents most of the remaining 2%.
Direct written premiums in the private passenger automobile business were $49.9 million in 1999, $69.8 million in 1998 and $80.2 million in 1997. In June of 1998 the Company installed a new underwriting and claims system. The conversion process from the former system did not work properly, nor did the new system perform as anticipated for new business. Throughout the balance of 1998 and the first half of 1999 the Company experienced significant backlogs in processing new business, endorsements and cancellations. The Company was unable during that period to adequately service its customers, and as a result new business volume declined.
Claim costs, the Company's most significant expense, represent actual payments made and changes in estimated future payments to be made to or on behalf of its policyholders, including expenses required to settle claims and losses. Claim costs are influenced by loss frequency and severity and by inflation. Loss ratios (claim costs expressed as a percentage of premiums earned) were 93% in 1999, compared to 74% in 1998 and 75% in 1997. The direct loss ratios for the Company's private passenger auto business for those three years were 100%, 89% and 81%, respectively. As the Company lost its ability to adequately service both its policyholders and its agents in 1998, the losses in the PIP line in particular began to increase rapidly. The Company believes that its inability to provide adequate agent and policyholder service during that timeframe led to adverse selection, as agents sent the company business they were not successful in placing elsewhere. The Company further believes that its backlogs of unprocessed business increased the amount of fraud perpetrated against the Company. Both factors contributed significantly to the increases in the private passenger auto loss ratios during 1998 and 1999.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Salaries and wages of $6.9 million were paid in 1999, compared to $7.5 million in 1998 and $7.5 million in 1997. As the Company's business volume shrank so did its headcount. In addition, no bonuses were paid in 1999.