The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8 of this report. This discussion includes forward-looking statements that are subject to risks, uncertainties and other factors described in Item 1A of this report. These factors could cause our actual results in 2014 and beyond to differ materially from those expressed in, or implied by, those forward-looking statements.
Two of the key financial measures that we use to evaluate our performance are return on average equity and growth in book value per share. We calculate return on average equity by dividing annual net income by the average of annual shareholders’ equity. Our return on average equity was 10.9% in 2013, 8.0% in 2012 and 7.1% in 2011. We calculate book value per share by dividing ending shareholder’s equity by number of common shares outstanding. Our book value per share was $22.41 at December 31, 2013, $20.88 at December 31, 2012 and $19.25 at December 31, 2011.
Investment income is an important element of our net income. Because the period of time between our receipt of premiums and the ultimate settlement of claims is often several years or longer, we are able to invest cash from premiums for significant periods of time. As a result, we are able to generate more investment income from our premiums as compared to insurance companies that operate in other lines of business that pay claims more quickly. From December 31, 2008 to December 31, 2013, our investment portfolio, including cash and cash equivalents, increased from $800.0 million to $1.0 billion and produced net investment income of $27.0 million in 2013, $27.0 million in 2012 and $26.3 million in 2011.
For example, for the five-year period ended December 31, 2013 we had recorded 49 severe claims, or an average of 10 severe claims per year for accident years 2009 through 2013. The number of severe claims reported in any one accident year as of December 31, 2013 ranged from a low of 6 in 2011 to a high of 13 in 2010. The average reported severity for these claims ranged from $1.5 million for the 2010 accident year to $2.2 million for the 2013 accident year. For the five accident years, these severe claims accounted for an average of 6.7 percentage points of our overall loss and loss adjustment expense, or LAE, ratio, measured at December 31, 2013.
impacted by external forces, principally frequency and severity of unreported claims, length of time to achieve ultimate settlement of claims, utilization, inflation in medical costs and wages, insurance policy coverage interpretations, jury determinations and legislative changes. Accordingly, our reserves may prove to be inadequate to cover our actual losses. If we change our estimates, these changes would be reflected in our results of operations during the period in which they are made, with increases in our reserves resulting in decreases in our earnings.
In 2013, we decreased our estimates for prior year loss reserves by $12.6 million. In 2012, we decreased our estimates for prior year loss reserves by $2.5 million. In 2011, we decreased our estimates for prior year loss reserves by $6.6 million.
Premiums Receivable. Premiums receivable represents premium-related balances due from our policyholders based on annual premiums for policies written, including surcharges and deposits and it is adjusted for premium audits, endorsements, cancellations, cash transactions and charge offs. The balance is shown net of the allowance for doubtful accounts and it includes an estimate for EBUB. The EBUB estimate is subject to significant variability and can either increase or decrease premiums receivable and earned premiums based upon several factors, including changes in premium growth, industry mix and economic conditions.
(6) The net combined ratio is the sum of the net loss ratio, the net underwriting expense ratio and the net dividend ratio.
Net Investment Income. Net investment income in 2013 was $27.0 million, in-line with the $27.0 million reported in 2012. The pre-tax investment yield on our investment portfolio was 2.8% per annum for 2013 and 3.1% for 2012. The tax-equivalent yield on our investment portfolio was 3.9% per annum for 2013, compared to 4.3% per annum for 2012. The tax-equivalent yield is calculated using the effective interest rate and a 35% marginal tax rate. Average invested assets, including cash and cash equivalents, increased 7.6%, from an average of $877.6 million for 2012 to an average of $944.4 million for 2013. During 2013, we invested $10 million in a limited partnership, which we account for under the equity method. The carrying value of this investment is $10.6 million at December 31, 2013.
Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for 2013 were $67.1 million, compared to $61.4 million for 2012, an increase of 9.3%. This increase was primarily due to a $3.2 million increase in commission expense, a $0.6 million increase in insurance related assessments, and a $0.8 million increase in mandatory pooling arrangement fees. Offsetting these increases were a $2.0 million decrease in bad debt expense, a $0.3 million decrease in taxes and fees, a $1.8 million increase in experience-rated commissions and a $0.5 million increase in ceding commission which serve to decrease the cost of our reinsurance. Our underwriting expense ratio decreased to 20.3% in 2013 from 21.1% in 2012.
Interest expense. There was no interest expense for 2013 compared with $0.6 million in 2012. The Company retired all of its debt in August 2012.
Net Realized Gains (Losses) on Investments. Net realized gains on investments in 2012 totaled $3.0 million, compared to $2.2 million in 2011. Net realized gains in 2012 resulted from gains from called fixed maturity securities, the sale of equity securities and the sale of fixed maturity securities from the available-for-sale portfolio. Net realized gains in 2011 primarily resulted from $2.4 million in gains from called fixed-maturity securities and the sale of certain equity and fixed-maturity securities from the available-for-sale portfolio. These gains in 2011 were offset by an other-than-temporary impairment of $0.2 million on one asset-backed security from our held-to-maturity portfolio.
Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for 2012 were $61.4 million, compared to $60.8 million for 2011, an increase of 1.0%. This increase was primarily due to a $3.6 million increase in commission expense, a $0.8 million increase in insurance related assessments, a $0.8 million increase in accounts receivable write-offs, and a $0.7 million increase in mandatory pooling arrangement fees. Offsetting these increases were a $5.4 million increase in experience-rated commissions, a $0.5 million decrease in taxes and fees and a $0.5 million decrease in ceding commission related to our 2012 reinsurance agreement. Our underwriting expense ratio decreased to 21.1% in 2012 from 24.2% in 2011.
Income tax expense. Income tax expense for 2012 was $7.8 million, compared to $3.1 million for 2011. The increase was primarily attributable to an increase in pre-tax income, from $27.4 million for 2011 to $37.1 million for 2012. The effective tax rate also increased to 21.0% for 2012, compared to 11.6% for 2011. This increase is due to the higher level of tax-exempt investment income relative to our higher pre-tax income. In 2011, the effective rate included a $1.4 million expense reduction for deferred tax assets related to unrealized losses on our investment portfolio.
The Company recorded favorable prior accident year loss and loss adjustment expense development of $12.6 million in calendar year 2013, $2.5 million in calendar year 2012 and $6.6 million in calendar year 2011. The table below sets forth the favorable or unfavorable development for accident years 2008 through 2012 and, collectively, all accident years prior to 2008.
At December 31, 2013, our incurred amounts for certain accident years, particularly 2008, 2009 and 2010, developed more favorably than management previously expected. The assumptions we used in establishing our reserves for these accident years were based on our historical claims data. However, as of December 31, 2013, actual results for these accident years have been better than our assumptions would have predicted. We do not presently intend to modify our assumptions for establishing reserves in light of recent results. However, if actual results for current and future accident years are consistent with, or different than, our results in these recent accident years, our historical claims data will reflect this change and, over time, will impact the reserves we establish for future claims.
Our principal sources of operating funds are premiums, investment income, and proceeds from maturities of investments. Our primary uses of operating funds include payments for claims and operating expenses. We pay claims and operating expenses using cash flow from operations and invest our excess cash in fixed maturity, equity securities and other investments. We presently expect that our projected cash flow from operations will provide us sufficient liquidity to fund future operations, including payment of claims and operating expenses and other holding company expenses, for at least the next 18 months.
We forecast claim payments based on our historical trends. We seek to manage the funding of claim payments by actively managing available cash and forecasting cash flows on a short- and long-term basis. Cash payments, net of reinsurance, for claims were $178.4 million in 2013, $181.9 million in 2012 and $179.1 million in 2011. We fund claim payments out of cash flow from operations, principally premiums, net of amounts ceded to our reinsurers, and net investment income. Our investment portfolio has increased from $759.1 million at December 31, 2007 to $1.0 billion at December 31, 2013.
In January 2013, the Company commuted reinsurance agreements with Clearwater Insurance Company, covering portions of accident years 1990 through 1995. The Company received cash of $0.3 million in exchange
for releasing these reinsurers from their reinsurance obligations under the commuted agreements. Clearwater Insurance Company remains obligated to the Company’s insurance subsidiaries under other reinsurance agreements. As a result of the commutation, the effect on the Company’s net income in the year ended December 31, 2013 was immaterial.
Net cash used in investing activities was $97.0 million in 2013, as compared to $9.3 million in 2012 and $42.9 million in 2011. In 2013, major components of net cash used in investing activities included investment purchases of $355.6 million and net purchases of furniture, fixtures and equipment of $1.1 million, offset by proceeds from sales and maturities of investment of investments of $259.8 million. In 2012, major components of net cash used in investing activities included investment purchases of $267.7 million and net purchases of furniture, fixtures and equipment of $1.2 million, offset by proceeds from sales and maturities of investments of $259.6 million. In 2011, major components of net cash used in investing activities included investment purchases of $294.8 million and net purchases of furniture, fixtures and equipment of $1.1 million, offset by proceeds from sales and maturities of investments of $252.9 million.
In 2011, the Company redeemed all $10.3 million of subordinated notes from the Amerisafe Capital Trust I (“ACT I”) and the related trust was canceled.
In October 2007, the Company entered into an agreement providing for a line of credit in the maximum amount of $20.0 million with Frost Bank, NA. The agreement expired in October 2010. The Company renewed this agreement in the fourth quarter 2010 for an additional three years to mature in December of 2013. Under the agreement, advances may be made either in the form of loans or letters of credit. Borrowings under the agreement accrue at interest rates based upon prime rate or LIBOR. The Company paid a fee of 0.375% on the unused portion of the loan in arrears quarterly for a fee of $75,000 annually, assuming the line of credit remains unused during the calendar year. The line of credit is unsecured. At December 31, 2013, there were no outstanding borrowings. In December of 2013, the Company renewed the agreement providing for a line of credit up to $20.0 million, expiring in December 2016. Under the new agreement, the Company will pay a fee of 0.25% on the unused portion of the loan in arrears quarterly for a fee of $50,000 annually.
AMERISAFE is a holding company that transacts business through its operating subsidiaries, including American Interstate, Silver Oak Casualty and American Interstate of Texas. AMERISAFE’s primary assets are the capital stock of these insurance subsidiaries. The ability of AMERISAFE to fund its operations depends upon the surplus and earnings of its subsidiaries and their ability to pay dividends to AMERISAFE. Payment of dividends by our insurance subsidiaries is restricted by state insurance laws, including laws establishing minimum solvency and liquidity thresholds. Based upon the prescribed calculation, the insurance subsidiaries could pay to AMERISAFE dividends of up to $35.4 million after September 2014 without seeking regulatory approval. See “Business-Regulation-Dividend Limitations” in Item 1 of this report.
Also on February 25, 2014 the Company declared a regular quarterly cash dividend of $0.12 per share payable on March 28, 2014 to shareholders of record on March 14, 2014. In 2013, the Company paid a quarterly cash dividend of $0.08 per share.
We allocate our portfolio into four categories: cash and cash equivalents, short term investments, fixed maturity securities and equity securities. Cash and cash equivalents include cash on deposit, money market funds and municipal securities, corporate securities and certificates of deposit with an original maturity of less than 90 days. Short-term investments include municipal securities, corporate securities and certificates of deposit with an original maturity greater than 90 days but less than one year. Our fixed maturity securities include obligations of the U.S. Treasury or U.S. agencies, obligations of states and their subdivisions, U.S. Dollar-denominated obligations of the U.S. or Canadian corporations, U.S. agency-based mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities.
On January 1, 2008, we adopted FASB ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a fair value hierarchy and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. As disclosed in Note 19 of the financial statements, our securities available-for-sale are classified using Level 1, 2 and 3 inputs. We did not elect the fair value option prescribed under FASB ASC Topic 825, Financial Instruments, for any financial assets or financial liabilities in 2012 or 2013.
The composition of our investment portfolio, including cash and cash equivalents, as of December 31, 2013 is shown in the following table.
The following table summarizes the fair value of, and the amount of, unrealized losses on our investment securities, segregated by the time period each security has been in a continuous unrealized loss position as of December 31, 2013 and 2012:
We reviewed all securities with unrealized losses in accordance with the impairment policy described above. With the exception of four equity securities deemed to be other-than-temporarily impaired, the Company expects to hold these investments in equity securities for a reasonable period of time sufficient for a recovery of fair value. We determined that the unrealized losses in the fixed maturity securities portfolio related primarily to changes in market interest rates since the date of purchase, current conditions in the capital markets and the impact of those conditions on market liquidity and prices generally, and the transfer of the investments from the available-for-sale classification to the held-to-maturity classification in January 2004. We expect to recover the carrying value of these securities as it is not more likely than not that we will be required to sell the security before the recovery of its amortized cost basis. In addition, none of the unrealized losses on debt securities are considered credit losses.
We lease equipment and office space under noncancelable operating leases. Future minimum lease payments at December 31, 2013, were as follows:
(1) The loss and loss adjustment expense payments due by period in the table above are based upon the loss and loss adjustment expense estimates as of December 31, 2013 and actuarial estimates of expected payout patterns and are not contractual liabilities as to a time certain. Our contractual liability is to provide benefits under the policy. As a result, our calculation of loss and loss adjustment expense payments due by period is subject to the same uncertainties associated with determining the level of loss and loss adjustment expenses generally and to the additional uncertainties arising from the difficulty of predicting when claims (including claims that have not yet been reported to us) will be paid. For a discussion of our loss and loss adjustment expense process, see “Business-Loss Reserves” in Item 1 of this report. Actual payments of
The Board of Directors and shareholders of AMERISAFE, Inc. and Subsidiaries
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AMERISAFE, Inc. and Subsidiaries at December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AMERISAFE, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February 28, 2014, expressed an unqualified opinion thereon.
AMERISAFE, Inc. is an insurance holding company incorporated in the state of Texas. The accompanying consolidated financial statements include the accounts of AMERISAFE and its subsidiaries: American Interstate Insurance Company (“AIIC”) and its insurance subsidiaries, Silver Oak Casualty, Inc. (“SOCI”) and American Interstate Insurance Company of Texas (“AIIC-TX”), Amerisafe Risk Services, Inc. (“RISK”) and Amerisafe General Agency, Inc. (“AGAI”). AIIC and SOCI are property and casualty insurance companies organized under the laws of the state of Nebraska. In 2013, AIIC and SOCI were re-domesticated to Nebraska from Louisiana. AIIC-TX is a property and casualty insurance company organized under the laws of the state of Texas. RISK, a wholly owned subsidiary of the Company, is a claims and safety service company servicing only affiliated insurance companies. AGAI, a wholly owned subsidiary of the Company, is a general agent for the Company. AGAI sells insurance, which is underwritten by AIIC, SOCI and AIIC-TX, as well as by nonaffiliated insurance carriers. The assets and operations of AGAI are not significant to that of the consolidated entity.
historical write-offs. This change in estimate was accounted for prospectively and lowered underwriting and certain other operating costs by $1.7 million, increased income tax expense $0.6 million for a net income statement impact of $1.1 million or approximately $0.06 per share.
Insurance-related assessments are accrued in the period in which they have been incurred. The Company is subject to a variety of assessments related to insurance commerce, including those by state guaranty funds and workers’ compensation second-injury funds. State guaranty fund assessments are used by state insurance oversight agencies to cover losses of policyholders of insolvent or rehabilitated insurance companies and for the operating expenses of such agencies. The Company has a premium tax benefit accrued of $3.6 million and $3.4 million as of December 31, 2013 and 2012, respectively, for mandatory assessments that may be recovered through a reduction in future premium taxes in certain states. Assessments based on premiums are generally paid one year after the calendar year in which the premium is written, while assessments based on losses are generally paid within one year of when the loss is paid.
The Company writes certain policies for which the policyholder may participate in favorable claims experience through a dividend. An estimated provision for workers’ compensation policyholders’ dividends is
accrued as the related premiums are earned. Dividends do not become a fixed liability unless and until declared by the respective Boards of Directors of AMERISAFE’s insurance subsidiaries. The dividend to which a policyholder may be entitled is set forth in the policy and is related to the amount of losses sustained under the policy. Dividends are calculated after the policy expiration. The Company is able to estimate the policyholder dividend liability because the Company has information regarding the underlying loss experience of the policies written with dividend provisions and can estimate future dividend payments from the policy terms.
The Company computes earnings per share (EPS) in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share. Additionally, for periods after December 31, 2012, the Company applied the “two-class method” in computing basic and diluted earnings per share.
The gross unrealized gains and losses on, and the cost or amortized cost and fair value of, those investments classified as available-for-sale at December 31, 2012 are summarized as follows:
A summary of the amortized cost and fair value of investments in fixed maturity securities, classified as held-to-maturity at December 31, 2013, by contractual maturity, is as follows:
A summary of the Company’s realized gains and losses on sales, calls or redemptions of investments for 2013, 2012 and 2011 is as follows:
At December 31, 2013, the Company held 182 and 8 individual fixed maturity and equity securities, respectively, that were in an unrealized loss position, of which 18 individual fixed maturity securities were in a continuous unrealized loss position for longer than 12 months.
In 2013, we recorded impairment charges of $2.2 million related to four equity securities. The impairment charges are included in “Net realized gains (losses) on investments” for 2013.
Deferred policy acquisition costs represent those costs that are incremental and directly related to the successful acquisition of new or renewal of existing insurance contracts. We defer incremental costs that result directly from, and are essential to, the acquisition or renewal of an insurance contract.
These costs are deferred and expensed over the life of the related policies. Major categories of the Company’s deferred policy acquisition costs are summarized as follows:
The Company had no capital lease obligations at December 31, 2013 and 2012.
In 2013, the Company returned previous recoveries of $2,316,000 due to a single closed claim. Excluding this impact, the Company received reinsurance recoveries of $2,078,000 in 2013, $5,344,000 in 2012 and $2,861,000 in 2011.
the transaction, the Company formed a Delaware statutory trust, Amerisafe Capital Trust II (“ACT II”). ACT II issued $25.0 million of preferred securities to investors and $0.8 million of common securities to the Company. ACT II used the proceeds from these issuances to purchase the subordinated debt securities. In May 2012, the Company redeemed $12.9 million of the $25.8 million aggregate principal amount of subordinated debt securities. The Company redeemed the remaining $12.9 million of subordinated debt securities from ACT II in August 2012 and the trust was canceled. The Company paid interest on its ACT II subordinated debt securities quarterly at a rate equal to LIBOR plus 3.80% per annum (4.3% at December 31, 2011). ACT II paid interest on its preferred securities at the same rate. Payments of principal, interest and premium, if any, on the ACT II preferred securities were guaranteed by the Company.
adjusting claims and is reflected in the financial statements when the information becomes available. It is typical for more serious claims to take several years or longer to settle and the Company continually revises estimates as more information about claimants’ medical conditions and potential disability becomes known and the claims get closer to being settled.
The following table details our exposures to various asbestos related claims:
Property and casualty insurance companies are subject to certain risk-based capital (“RBC”) requirements specified by the National Association of Insurance Commissioners. Under these requirements, a target minimum amount of capital and surplus maintained by a property/casualty insurance company is determined based on the various risk factors related to it. At December 31, 2013, the capital and surplus of AIIC and its subsidiaries exceeded the minimum RBC requirement.
Pursuant to regulatory requirements, AIIC cannot pay dividends to the Company in excess of the lesser of 10% of statutory surplus, or statutory net income, excluding realized investment gains, for the preceding 12-month period, without the prior approval of the Nebraska Director of Insurance. However, for purposes of this dividend calculation, net income from the previous two calendar years may be carried forward to the extent that it has not already been paid out as dividends. AIIC paid $15.0 million in dividends to the Company in 2013, $21.0 million in 2012 and $32.0 million in 2011. Based upon the dividend limitation described above, AIIC could pay to the Company dividends of up to $35.4 million after September of 2014 without seeking regulatory approval.
The Company is authorized to issue 50,000,000 shares of common stock, par value $0.01 per share. At December 31, 2013, there were 19,855,430 shares of common stock issued and 18,597,180 shares outstanding.
maximum of five years. Stock options generally expire 90 days after the cessation of an optionee’s service as an employee. However, in the case of an optionee’s death or disability, the unexercised portion of a stock option remains exercisable for up to one year after the optionee’s death or disability. Stock options granted under the 2005 Incentive Plan are not transferable, except by will or the laws of descent and distribution.
The Company uses the Black-Scholes-Merton option pricing model to estimate the fair value of each option on the date of grant. The expected terms of options are developed by considering the Company’s historical attrition rate for those employees at the officer level, who are eligible to receive options. Further, the Company aggregates individual awards into homogenous groups based upon grant date. Expected volatility is estimated using daily historical volatility for six companies within the property and casualty insurance sector. The Company believes that historical volatility of this peer group is currently the best estimate of expected volatility of the market price of the Company’s common shares. The dividend yield was assumed to be zero as the Company did not pay cash dividends until 2013. The risk-free interest rate is the yield on the grant date of U.S. Treasury zero coupon securities with a maturity comparable to the expected term of the options.
The following table summarizes information about the stock options outstanding under the 2005 Incentive Plan at December 31, 2011, 2012 and 2013:
The following table summarizes information about the restricted stock outstanding under the 2005 Incentive Plan at December 31, 2013:
payment of dividend equivalents paid with respect to awards made under the plan subject to adjustment in the event of a merger, stock dividend, stock split or similar event, which may be original issue shares or treasury shares or a combination of the two.
The table below sets forth the reconciliation of the weighted average shares used for the basic and diluted EPS calculation. Under the two-class method, unvested stock options, and out-of-money vested stock options are not considered to be participating securities.
Comprehensive income includes net income plus unrealized gains/losses on our available-for-sale investment securities, net of tax. In reporting comprehensive income on a net basis in the statement of income, we used a 35% tax rate. The following table illustrates the changes in the balance of each component of accumulated other comprehensive income for each period presented in the financial statements.
The sale or other-than-temporary impairment of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive income to current period net income. The effects of reclassifications out of accumulated other comprehensive income by the respective line items of net income are presented in the following table.
The Company manages risk on certain long-duration claims by settling these claims through the purchase of annuities from unaffiliated carriers. In the event these carriers are unable to meet their obligations under these contracts, the Company could be liable to the claimants. The following table summarizes (in thousands) the fair value of the annuities at December 31, 2013, that the Company has purchased to satisfy its obligations. The A.M. Best Company rating is shown parenthetically.
Rental expense was $200,000 in 2013, $218,000 in 2012 and $293,000 in 2011.
In ASC Topic 820, inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation
The fair values of the Company’s investments are based upon prices provided by an independent pricing service. The Company has reviewed these prices for reasonableness and has not adjusted any prices received from the independent provider. Securities reported at fair value utilizing Level 1 inputs represent assets whose fair value is determined based upon observable unadjusted quoted market prices for identical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were no transfers between Level 1 and Level 2 during the year ended December 31, 2013.
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 and 2012 are as follows:
The purchase reported on the Level 3 table above is related to an interest in a limited partnership.
At December 31, 2013, the Company held two securities measured at fair value on a nonrecurring basis due to a recognized impairment of $275,133. The securities are valued using Level 2 inputs and had a value of $486,299 at December 31, 2013.
The Board intends to continue to consider the payment of a regular cash dividend each calendar quarter. On an annualized basis, the cash dividend is expected to be $0.48 per share.
On November 14, 2013, American Interstate Insurance Company and Silver Oak Casualty, Inc. re-domesticated from Louisiana to Nebraska. As a result of the re-domestication, underwriting and certain other operating costs were reduced by $1.5 million to reflect the change in retaliatory premium taxes. This increase in pre-tax net income increased income tax expense $0.5 million, for a net income statement impact of $1.0 million in the three months ended December 31, 2013, or approximately $0.05 per share.
The Company’s Board of Directors initiated a share repurchase program in February 2011. In October 2012, and October 2013, the Board reauthorized this program with a new limit of $25.0 million. Unless reauthorized, the program will expire on December 31, 2014. Since beginning of this plan, the Company has repurchased a total of 1,258,250 shares for $22.4 million, or an average price of $17.78, including commissions.