This Management's Discussion and Analysis (“MD&A”) is intended to provide an understanding of the Company’s financial condition and results of operations by focusing on changes in certain key measures from year to year. This MD&A should be read in conjunction with the Company’s consolidated financial statements and notes thereto. This discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this Annual Report on Form 10-K, particularly in Item 1A - “Risk Factors.”
Total revenues for the year ended December 31, 2019, were $31,372,814 compared to $33,612,796 for the year ended December 31, 2018, a decrease of $2,239,982. The Company’s net loss for the year ended December 31, 2019, was $3,115,703 compared to net loss of $3,169,559 for the year ended December 31, 2018.
The Company’s financial performance has suffered in recent years, and the Company has reported net losses for each fiscal year beginning with the year ended December 31, 2015. While losses in recent years have been driven primarily by losses from Crusader’s policies and Crusader’s high loss ratios, management believes that other contributing factors include (1) flat or declining revenues due to intense competition, (2) the somewhat-fixed nature of many of the Company’s expenses relative to flat or declining revenues, (3) the failure to have replaced or upgraded the Company’s legacy IT system in order to process Crusader’s smaller premium accounts more efficiently, and (4) the failure to have shifted focus to larger premium accounts and fee-for-service operations.
As of December 31, 2019, Crusader was licensed as an admitted insurance carrier in the states of Arizona, California, Nevada, Oregon, and Washington. From 2004 until June 2014, all of Crusader’s business was written in the state of California. Crusader’s business remains concentrated in California (99.9% and 99.8% of direct written premium, which represents written premium before cession to reinsurers, in 2019 and 2018, respectively). During the years ended December 31, 2019 and 2018, 98% of Crusader’s business was CMP policies.
The following is a reconciliation of Crusader’s underwriting gain (loss) before income taxes to the Company’s loss before taxes:
On January 17, 2019, A.M. Best Company downgraded Crusader’s Financial Strength Rating to B++ (Good) from A- (Excellent) and its Long-Term Issuer Credit Rating (Long-Term ICR”) to bbb+ from a-. The outlook of the Financial Strength Rating was revised at that time to stable from negative while the outlook of the Long-Term Issuer Credit Rating remained negative. The rating downgrades reflected a revision in A.M. Best’s assessment of Crusader’s operating performance to adequate from strong.
On January 30, 2020, A.M. Best Company affirmed Crusader’s Financial Strength Rating of B++ (Good) and further downgraded Crusader’s Long-Term Issuer Credit Rating (“Long-Term ICR”) to “bbb” from “bbb+”. The outlook of the FSR of Crusader remains stable while the outlook of the Long-Term ICR of Crusader was revised to stable from negative. Also on January 30, 2020, A.M Best downgraded the Long-Term ICR of Unico to “bb” from “bb+”. The outlook of the Long-Term ICR of Unico was revised to stable from negative.
Some of Crusader’s policyholders, or the lenders, landlords or clients of Crusader’s policyholders, require insurance from a company that has an A.M. Best Company Financial Strength Rating of “A-” or higher, and the A.M. Best Company’s changed ratings of Crusader may also have a negative impact on Crusader’s reputation. Therefore, Crusader’s and Unico’s changed ratings may have a negative impact on the Company’s revenue and results of operations. The Company cannot quantify the impact that the rating changes will have on its revenue and results of operations, and the Company cannot determine if or when Crusader might regain the “A-” Financial Strength Rating from the A.M. Best Company. The Company does not expect Crusader to regain the A.M. Best Company “A-” Financial Strength Rating prior to January of 2021 at the earliest.
The property and casualty insurance business is cyclical in nature. The conditions of a “soft market” include premium rates that are stable or falling and insurance is readily available. Contrarily, “hard market” conditions occur during periods in which premium rates rise and coverage may be more difficult to find. The Company believes that the California property and casualty insurance market is relatively mature and intensely competitive, with different products in different stages of the soft/hard market cycle at any given time.
The Company generated revenues from its total invested assets of $84,997,226 (at amortized cost) and $90,119,542 (at amortized cost) as of December 31, 2019 and 2018, respectively.
Due to the current interest rate environment, the current target effective duration for the Company’s investment portfolio is between 3.25 and 4.75 years. As of December 31, 2019, all of the Company’s investments are in U.S. Treasury securities, corporate fixed maturity securities, agency mortgage-backed securities, Federal Deposit Insurance Corporation (“FDIC”) insured certificates of deposit, money market funds, and a savings account. The Company’s investments in U.S. Treasury securities, corporate fixed maturity securities, agency mortgage-backed securities, and money market funds are readily marketable. As of December 31, 2019, the weighted average maturity of the Company’s investments was approximately 7.7 years, and the effective duration for available-for-sale investments (investments managed under the investment guidelines) was 2.7 years.
Crusader has a significant amount of cash, cash equivalents and investments as a result of its holdings of unearned premium reserves, its reserves for loss and loss adjustment expense payments and its capital and surplus. Crusader's loss and loss adjustment expense payments are the most significant cash flow requirement of the Company. These payments are continually monitored and projected to ensure that the Company has the liquidity to cover these payments without the need to liquidate its investments. Cash, cash equivalents, and investments (at amortized cost) of the Company at December 31, 2019, were $90,778,865 compared to $95,037,304 at December 31, 2018. Crusader's cash, cash equivalents, and investments were 99% and 98% of the total cash, cash equivalents, and investments (at amortized cost) held by the Company as of December 31, 2019 and 2018, respectively.
As of December 31, 2019, all of the Company’s investments are in U.S. Treasury securities, corporate fixed maturity securities, agency mortgage-backed securities, Federal Deposit Insurance Corporation (“FDIC”) insured certificates of deposit, money market funds, and a savings account. The Company’s investments in U.S. Treasury securities, corporate fixed maturity securities, agency mortgage-backed securities, and money market funds are readily marketable.
The short-term investments include U.S. Treasury bills and certificates of deposit that are all highly rated and have initial maturities between three and twelve months. Amortized costs of the short-term investments approximate their fair values.
The Company is required to classify its investment securities into one of three categories: held-to-maturity, available-for-sale, or trading securities. Although part of the Company's investments in fixed maturity securities is classified as available-for-sale and, while the Company may sell investment securities from time to time in response to economic, regulatory and market conditions, its investment guidelines place primary emphasis on buying and holding high-quality investments to maturity.
The Company’s Board of Directors approved investment guidelines which are similar to what the Company believes are general investment guidelines used by Crusader’s peers.
Under the Company’s investment guidelines, investments may only include U.S. Treasury notes, U.S. government agency notes, mortgage-backed securities (including pass through securities and collateralized mortgage obligations) that are backed by agency and non-agency collateral, commercial mortgage-backed securities, U.S. corporate obligations, asset backed securities (including but not limited to credit card, automobile and home equity backed securities), tax-exempt bonds, preferred stocks, common stocks, commercial paper, repurchase agreements (treasuries only), mutual funds, exchange traded funds, bank certificates of deposits and time deposits. The investment guidelines provide for certain investment limitations in each investment category.
Unless agreed to in advance in writing by Crusader, investments in the following types of securities are prohibited:
An independent investment advisor manages Crusader’s investments. The advisor’s role currently is limited to maintaining Crusader’s portfolio within the investment guidelines and providing investment accounting services to the Company. The investments continue to be held by Crusader’s current custodian, Union Bank Global Custody Services.
The Company reported net cash used by operating activities for each of the years ended December 31, 2019 and 2018. Cash used by operating activities in 2019 was $3,163,209 compared to $2,130,260 in 2018. Fluctuations in cash flows from operating activities relate to changes in loss and loss adjustment expense payments, unearned premium holdings, and the timing of the collection and the payment of insurance-related receivables and payables. The increase in net cash used by operating activities during the year ended December 31, 2019, was due primarily to increase in reinsurance recoverables associated with several large losses which were incurred during the year ended December 31, 2019. The variability of the Company’s losses and loss adjustment expenses is primarily due to its small population of claims which may result in greater fluctuations in claim frequency and/or severity. Although the Consolidated Statements of Cash Flows reflect net cash used by operating activities for the years ended December 31, 2019 and 2018, the Company does not anticipate future liquidity problems, and the Company believes that it continues to be well capitalized and adequately reserved.
During the years ended December 31, 2019 and 2018, no cash dividends were declared or issued by the Company to its shareholders. Declaration of future cash dividends, if any, will be subject to the Company’s profitability, cash requirements, capital requirements, and general business conditions, among other factors.
The decrease in total revenues for the year ended December 31, 2019, compared to the year ended December 31, 2018, was due primarily to a decrease in net earned premium of $2,017,442 (7%).
Written premium is a required statutory measure. Direct written premium (written premium before reinsurance) reported on Crusader’s statutory financial statements increased $3,374,215 (10%) to $35,803,950 for the year ended December 31, 2019, compared to $32,429,735 for the year ended December 31, 2018.
The property casualty insurance marketplace continues to be intensely competitive. While Crusader attempts to meet such competition with competitive prices, its emphasis is on service, innovation, promotion, and distribution. Crusader believes that rate adequacy is more important than premium growth and that underwriting profit (net earned premium less losses and loss adjustment expenses and policy acquisition costs) is its primary goal. The Company believes that it can grow its sales and profitability through improved specialization and sales incentives, currently focused in four underwriting verticals: (1) Transportation, (2) Food, Beverage & Entertainment, (3) Garage & Mercantile, and (4) Apartments & Commercial Buildings. The increase in direct written premium for the year ended December 31, 2019, is due to growth in the Company’s Transportation underwriting vertical partially offset by declines in the other three underwriting verticals.
Ceded earned premium (premium ceded to reinsurers under reinsurance treaties) increased $742,234 (11%) to $7,220,734 for the year ended December 31, 2019, compared to $6,478,500 for the year ended December 31, 2018. Ceded earned premium as a percentage of direct earned premium was 21% for the year ended December 31, 2019, and 18% for the year ended December 31, 2018. The increase in the ceded earned premium as a percentage of direct earned premium for the year ended December 31, 2019, compared to the year ended December 31, 2018, was due primarily to higher rates on Crusader’s excess of loss reinsurance treaties.
Crusader evaluates each of its ceded reinsurance treaties at its inception to determine if there is sufficient risk transfer to allow the contract to be accounted for as reinsurance under current accounting literature. As of December 31, 2019, all such ceded contracts are accounted for as risk transfer reinsurance.
Net investment income increased $190,183 (10%) to $2,097,956 for the year ended December 31, 2019, compared to $1,907,773 for the year ended December 31, 2018. This increase in net investment income was due primarily to an increase in the yield on average invested assets. The Company had net realized investment losses of $12,661 for the year ended December 31, 2019, compared to net realized investment gains of $148 for the year ended December 31, 2018.
(2) Investment income from invested assets included $129,842 of investment expense for the year ended December 31, 2019, compared to $114,232 for the year ended December 31, 2018.
The weighted average maturity of the Company’s investments was approximately 7.7 years as of December 31, 2019, and 6.5 years as of December 31, 2018.
The Company closely monitors its investments. If an unrealized loss is determined to be other-than-temporary, it is written off as a realized loss through the Consolidated Statements of Operations. The Company’s methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors including the length of time to maturity and the extent to which the fair value has been less than the cost, the financial condition and the near-term prospects of the issuer, and whether the debtor is current on its contractually obligated interest and principal payments. The unrealized losses as of December 31, 2019, and December 31, 2018, were determined to be temporary.
Gross commissions and fees decreased $252,724 (10%) to $2,176,658 for the year ended December 31, 2019, compared to $2,429,382 for the year ended December 31, 2018.
AAQHC is a third party administrator for contracted insurance companies and is a membership association that provides various consumer benefits to its members, including participation in group health care insurance policies that AAQHC negotiates for the association. For these services, AAQHC receives membership and fee income from its members. Membership and fee income for the year ended December 31, 2019, increased $14,514 (19%) compared to the year ended December 31, 2018. The increase is a result of an increase in administration fees.
Finance charges and fees earned consist of finance charges, late fees, returned check fees and payment processing fees. These charges and fees earned by AAC increased $94,599 (65%) to $239,524 for the year ended December 31, 2019, compared to $144,925 for the year ended December 31, 2018, due primarily to the increase in earned finance charges as a result of the change in annual percentage rate charged on AAC new loans from a single fixed interest rate to a tiered interest rate structure effective April 1, 2019, partially offset by a decrease in late fees due to a reduction in the number of AAC loans issued. During the year ended December 31, 2019, AAC issued 1,547 loans and had 1,173 loans outstanding as of December 31, 2019. During the year ended December 31, 2018, AAC issued 2,095 loans and had 1,568 loans outstanding as of December 31, 2018. AAC provides premium financing only for Crusader policies produced by Unifax in California. The number of loans issued decreased by 548 (26%) during 2019 when compared to 2018. The average premium financed by AAC was $5,672 and $4,395 in 2019 and 2018, respectively. During 2019, 44% of all Unifax generated policies were financed and 56% of those policies were financed by AAC. During 2018, 39% of all Unifax generated policies were financed and 74% of those policies were financed by AAC.
The $19,384,942 provision for insured events of current year for the year ended December 31, 2019, was $1,250,844 lower than the $20,635,786 provision for insured events of current year for the year ended December 31, 2018, due primarily to lower claims costs related to Crusader’s underwriting activities in the Company’s Food, Beverage & Entertainment vertical, associated with a reduction in net earned premium for that vertical during the year ended December 31, 2019, and also associated with lower claims frequency and severity in that vertical.
The variability of Crusader’s losses and loss adjustment expenses for the periods presented is due primarily to the small and diverse population of Crusader’s policyholders and claims, which may result in greater fluctuations in claim frequency and/or severity. In addition, Crusader’s reinsurance retention, which is relatively high in relationship to its net earned premium, can result in increased loss ratio volatility when large losses are incurred in a relatively short period of time. Nevertheless, management believes that its reinsurance retention is reasonable given the amount of Crusader’s surplus and its goal to minimize ceded premium.
Based on the loss and loss adjustment expense reserve estimates as of December 31, 2019, the estimated ultimate loss ratio is within five percentage points of the initial expected loss ratio in 10 of Crusader’s 35 years. Since Crusader’s net earned premium in 2019 was $26,737,468, a difference between the accident year 2019 actual and initial expected loss ratios of five percentage points will or may ultimately impact losses and loss adjustment expenses by $1,336,873. The estimated ultimate loss ratio is within ten percentage points of the initial expected loss ratio in 13 of Crusader’s 35 years. A ten percentage point difference between the accident year 2019 actual and the initial expected loss ratios will or may ultimately impact losses and loss adjustment expenses by $2,673,747. The estimated ultimate loss ratio is within twenty percentage points of the initial expected loss ratio in 27 of Crusader’s 35 years. A twenty percentage point difference between the accident year 2019 actual and the initial expected loss ratios will or may ultimately impact losses and loss adjustment expenses by $5,347,494.
Reserves for losses and loss adjustment expenses before reinsurance for each of Crusader’s lines of business are as follows:
If future development ultimately differs by five percent from Crusader’s 2019 net reserve, $2,017,031 would be reflected in future periods as an increase or decrease in the development of insured events of prior years and would be recognized in the Company’s Consolidated Statements of Operations in future periods. If future development ultimately differs by ten percent from Crusader’s 2019 net reserve, $4,034,062 would be reflected in future periods as an increase or decrease in the development of insured events of prior years and would be recognized in the Company’s Consolidated Statements of Operations in future periods.
Policy acquisition costs decreased in the year ended December 31, 2019, compared to the year ended December 31, 2018, due primarily to relatively higher sales in the Company’s Transportation vertical which pays a lower commission rate than the other verticals.
Other operating expenses generally do not change significantly with changes in production. This is true for both increases and decreases in production.
As of December 31, 2019, the Company has $19,741,828 of federal net operating loss carryforwards that will begin to expire in 2035. In light of the net losses that were generated in recent years, the Company periodically performs an analysis of future income projections to determine the adequacy of the valuation allowance. For the years ended December 31, 2019 and December 31, 2018, a valuation allowance on deferred tax assets generated from federal net operating losses was established in the amount of $600,000 and $0, respectively as the Company does not expect to realize that portion of the tax benefit from its federal net operating losses in the future.
As of December 31, 2019, the Company had deferred tax assets of $1,931,665 generated from state net operating loss carryforwards. For the years ended December 31, 2019 and December 31, 2018 the amount of state net operating losses that expired were $0. The remaining $1,931,665 of state tax carryforwards expire between 2028 and 2039. For the years ended December 31, 2019 and December 31, 2018, a valuation allowance on deferred tax assets generated from state net operating loss carryforwards was established in the amount of $1,931,665 and $1,850,934, respectively as the Company does not expect to realize a tax benefit from its state net operating losses in the future.
The differences between actual and expected claims costs are typically not due to one specific factor but to a combination of many factors such as the period of time between the initial occurrence and the final settlement of the claim, current and perceived social and economic inflation, and many other economic, legal, political, and social factors. The information that management uses to arrive at its booked reserve estimate comes from many sources within the Company, including its accounting, claims, and underwriting departments. Informed managerial judgment is applied throughout the reserving process. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount will tend to be. Accordingly, short-tail claims, such as the emergence of property damage claims costs, tend to be subject to less variability than the emergence of long-tail liability claims costs. The liability for unpaid losses and loss adjustment expenses is based upon the accumulation of individual case estimates for losses reported prior to the close of the accounting period plus estimates based on experience and industry data for development of case estimates and for unreported losses and loss adjustment expenses. Since the emergence and disposition of claims are subject to uncertainties, the net amounts that will ultimately be paid to settle claims should be expected to vary, perhaps significantly, from the estimated amounts provided for in the accompanying consolidated financial statements. Any adjustments to reserves are reflected in the operating results of the periods in which they are made. Management believes that the aggregate reserves for losses and loss adjustment expenses are reasonable and adequate to cover the cost of claims, both reported and unreported.
The Company must estimate its ultimate losses and loss adjustment expenses using a very small claim population size. At the beginning of 2019, Crusader had 538 open claim files. During 2019, 692 new claim files were opened and 720 claim files were closed, leaving 510 open claim files at the end of 2019. Due to the small size of Crusader and the related small population of claims, Crusader’s losses and loss adjustment expenses for any accident year can vary significantly from the initial expectations. Due to the small number of claims, changes in claim frequency and/or severity can materially affect Crusader’s reserve estimate. The potential variability from management’s best estimate cannot be measured from any meaningful statistical basis due to the numerous uncertainties in the claims reserving process and the small population of claims.
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. The fluctuation in development of insured events of prior years underscores the inherent uncertainty in insurance claims costs, especially for a relatively small insurer, such as Crusader. While the Company believes the reserves were adequate at December 31, 2019 and 2018, adverse or (favorable) development may emerge in the future.
Crusader’s recoverable from reinsurers represents an estimate of the amount of future loss and loss adjustment expense payments that will be recoverable from Crusader’s reinsurers. These estimates are based upon estimates of the ultimate losses and loss adjustment expenses that Crusader expects to incur and the portion of those losses that are expected to be allocable to reinsurers based upon the terms of the reinsurance agreements. Given the uncertainty of the ultimate amounts of losses and loss adjustment expenses, the estimates may vary significantly from the eventual outcome. Crusader’s estimate of the amounts recoverable from reinsurers is regularly reviewed and updated by management as new data becomes available. Crusader’s assessment of the collectability of the recorded amounts recoverable from reinsurers is based primarily upon public financial statements and rating agency data. Any adjustments necessary are reflected in the current operations. Crusader evaluates each of its ceded reinsurance contracts at its inception to determine if there is sufficient risk transfer to allow the contract to be accounted for as reinsurance under current accounting literature. At December 31, 2019, all such ceded contracts are accounted for as risk transfer reinsurance.
The Company employs a fair value hierarchy that prioritizes the inputs for valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Financial assets and financial liabilities recorded on the Consolidated Balance Sheets at fair value are categorized based on the reliability of inputs to the valuation techniques. (See Note 5.)
Crusader employs reinsurance to provide greater diversification of business allowing management to control exposure to potential losses arising from large risks by reinsuring certain levels of risk in various areas of exposure, to reduce the loss that may arise from catastrophes, and to provide additional capacity for growth. Prepaid reinsurance premium and reinsurance receivables are reported as assets and represent ceded unearned premium and reinsurance recoverable on both paid and unpaid losses and loss adjustment expenses, respectively. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. Crusader evaluates each of its ceded reinsurance contracts at its inception to determine if there is sufficient risk transfer to allow the contract to be accounted for as reinsurance under current accounting literature. As of December 31, 2019, all such ceded contracts are accounted for as risk transfer reinsurance.
Share-based compensation expense for all share-based payment awards is based on the grant-date fair value estimated in accordance with the provisions of ASC Topic 718, “Compensation - Stock Compensation” using the modified prospective transition method.
In August, 2018, the FASB issued ASU 2018-13 “Fair Value Measurement”: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure requirements for assets and liabilities measured at fair value. The amendments in this ASU require certain existing disclosure requirements to be modified or removed, and certain new disclosure requirements to be added. In addition, this ASU allows entities to exercise more discretion when considering fair value measurement disclosures. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. As the amendments are only disclosure related, the effect of adoption will not have a material impact on the Company’s financial statements.
The following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the amounts shown in the consolidated statements of cash flows:
Cash equivalents were comprised of highly liquid investments with initial maturity of 90 days or less. As of December 31, 2019 and 2018, cash equivalents included custodial trust, bank money market accounts, and a bank savings account.
The amortized cost and estimated fair value of fixed maturity investments at December 31, 2019, by contractual maturity are as follows:
The following securities from three different banks represent statutory deposits that are assigned to and held by the California State Treasurer and the Insurance Commissioner of the State of Nevada. These deposits are required for writing certain lines of business in California and for admission in the state of Nevada.
The following table presents information about the Company’s financial instruments and their estimated fair values, which are measured on a recurring basis, allocated among the three levels within the fair value hierarchy as of December 31, 2019 and 2018:
Depreciation on the Calabasas building is computed using the straight line method over 39 years. Improvements to the building structure are amortized over the useful life of the improvements. Depreciation on furniture, fixtures and equipment in the Calabasas building is computed using the straight line method over 3 to 15 years. Amortization of tenant improvements in the Calabasas building is being computed using the shorter of the useful life of the tenant improvements or the remaining years of the lease. Depreciation and amortization expense on all property and equipment for the years ended December 31, 2019 and 2018 were $565,876 and $551,183, respectively.
The total square footage of the Calabasas building is 46,884, including common areas. As of December 31, 2019 and 2018, 6,942 and 14,481 square feet of the Calabasas building was leased to non-affiliated entities, respectively. As of December 31, 2019, 7,539 square feet was vacant and available to be leased to non-affiliated entities.
Premium receivable and premium finance notes receivables are substantially secured by unearned premium and funds held as security for performance. Premium finance notes receivable represents the balance due to AAC, the Company's premium finance subsidiary, from policyholders who elected to finance their premium over a nine-month term. These notes are net of unearned finance charges and credit loss reserves.
The following table presents loss development information by accident year, including cumulative incurred and paid losses and allocated loss adjustment expenses (“ALAE”), net of reinsurance, as well as cumulative claim frequency and the total of incurred but not reported liabilities plus expected development on reported claims as of December 31, 2019:
The following table reconciles the above cumulative incurred and paid data to Crusader’s loss and loss adjustment expense reserves:
The Company determines the number of reported claims based on the number of loss events. A claim is considered a single loss event, per policy, and it may include multiple claimants and multiple coverages on a single policy. The cumulative number of reported claims is a sum of open claims, closed claims, and claims closed without payment.
Likewise, the Company is sometimes named as a cross-defendant in litigation, which is principally directed against an insured who was issued a policy of insurance directly or indirectly through the Company. Incidental actions related to disputes concerning the issuance or non-issuance of individual policies are sometimes brought by customers or others. These items are also handled on a routine basis by counsel, and they do not generally affect the operations of the Company. Management is confident that the ultimate outcome of pending litigation should not have an adverse effect on the Company’s consolidated results of operations or financial position. The Company vigorously defends itself unless a reasonable settlement appears appropriate.
Crusader’s primary excess of loss reinsurance agreements during the years ended December 31, 2019 and 2018 are as follows:
On most of the premium that Crusader cedes to the reinsurer, the reinsurer pays a commission to Crusader that includes a reimbursement of the cost of acquiring the portion of the premium that is ceded. Crusader does not currently assume any reinsurance. Crusader intends to continue obtaining reinsurance although the availability and cost may vary from time to time. The unpaid losses and loss adjustment expenses ceded to the reinsurer are recorded as an asset on the Consolidated Balance Sheets.
The effect of reinsurance on written premium, earned premium, and incurred losses and loss adjustment expenses is as follows:
Crusader is restricted in the amount of dividends it may pay to its parent in any 12-month period without prior approval of the CA DOI. Presently, without prior regulatory approval, Crusader may pay a dividend in any 12-month period to Unico up to the greater of (a) 10% of its statutory surplus or (b) its statutory net income for the preceding calendar year. Based on Crusader’s statutory surplus for the year ended December 31, 2019, the maximum dividend that could be made by Crusader to Unico without prior regulatory approval in 2020 is $4,649,896. During the year ended December 31, 2019, Crusader issued cash dividends of $2,000,000 to Unico. No cash dividends were declared or issued during the year ended December 31, 2018.
As of December 31, 2019, the Company had no unrecognized tax benefits, no unrecognized additional liabilities or reduction in deferred tax asset, and no uncertain tax positions. In addition, the Company had not accrued interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.
Wish Properties Inc., an office of Wish Sotheby’ International Reality, owned by Ernest A. Wish, a member of the Company’s Board of Directors, leased 4,189 square feet at the Calabasas building. The lease commenced on July 13, 2017 and had a six month term. Effective January 8, 2018, the lease was amended to extend its termination date until January 11, 2019, and to allow an option to extend the term of the lease for three additional twelve month terms commencing on January 11, 2019. The lease ended on February 11, 2019. The monthly lease payment was $8,378 through February 11, 2019. The Company believes the terms of the lease were at least as favorable to the Company as could have been obtained from other third parties.
Summarized unaudited quarterly financial data for each of the calendar years 2019 and 2018 is as follows:
NOTE 22 - SUPPLEMENTARY INFORMATION ON LOSS AND ALAE DEVELOPMENT (UNAUDITED)
The following table presents average annual percentage payout of incurred claims by age, net of reinsurance, as of December 31, 2019: