We own our approximately 60,000 square foot executive offices and 3,200 of warehouse space located in DeRidder, Louisiana. In addition, we lease an additional 12,808 square feet of office space in DeRidder, Louisiana, pursuant to a lease agreement that has been extended to March 31, 2011 at a rental rate of $12,300 per month. We also lease space at other locations for certain of our service and claims representatives.
(3) Reflects the participation rights of our redeemable preferred stock, which was redeemed on December 31, 2009. See Note 12 to our audited financial statements.
(4) The current accident year loss ratio is calculated by dividing loss and loss adjustment expenses incurred for the current accident year by the current year’s net premiums earned.
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 2011 and beyond to differ materially from those expressed in, or implied by, those forward-looking statements.
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, 2005 to December 31, 2010, our investment portfolio, including cash and cash equivalents, increased from $582.9 million to $826.5 million and produced net investment income of $26.2 million in 2010, $28.0 million in 2009 and $31.0 million in 2008.
Substantial judgment is required to determine the relevance of our historical experience and industry information under current facts and circumstances. The interpretation of this historical and industry data can be impacted by external forces, principally frequency and severity of unreported claims, length of time to achieve ultimate settlement of claims, inflation in medical costs and wages, insurance policy coverage interpretations,
Our gross reserves for loss and loss adjustment expenses at December 31, 2010, 2009 and 2008 were $532.2 million, $534.7 million and $531.3 million, respectively. As a percentage of gross reserves at year end, IBNR represented 19.6% in 2010, 20.9% in 2009 and 26.2% in 2008.
Net Premiums Earned. Net premiums earned is the earned portion of our net premiums written. Net premiums written is equal to gross premiums written less premiums ceded to reinsurers. Gross premiums written includes the estimated annual premiums from each insurance policy we write in our voluntary and assigned risk businesses during a reporting period based on the policy effective date or the date the policy is bound, whichever is later.
Net Investment Income and Net Realized Gains and Losses on Investments. We invest our statutory surplus funds and the funds supporting our insurance liabilities in fixed maturity and equity securities. In addition, a portion of these funds are held in cash and cash equivalents to pay current claims. Our net investment income includes interest and dividends earned on our invested assets, and amortization of premiums and discounts on our fixed-maturity securities. We assess the performance of our investment portfolio using a standard tax equivalent yield metric. Investment income that is tax-exempt is increased by our marginal federal tax rate of 35% to express yield on tax-exempt securities on the same basis as taxable securities. Net realized gains and losses on our investments are reported separately from our net investment income. Net realized gains occur when our investment securities are sold for more than their costs or amortized costs, as applicable. Net realized losses occur when our investment securities are sold for less than their costs or amortized costs, as applicable, or are written down as a result of other-than-temporary impairment. We classify the majority of our fixed maturity securities as held-to-maturity. We also have some fixed-maturity securities classified as available-for-sale, as are our equity securities. Net unrealized gains or losses on our equity securities are reported separately within accumulated other comprehensive income on our balance sheet.
Our reserves for loss and DCC expenses are estimated using case-by-case valuations based on our estimate of the most likely outcome of the claim at that time. In addition to these case reserves, we establish reserves on an aggregate basis that have been incurred but not reported, or IBNR. Our IBNR reserves are also intended to provide for aggregate changes in case incurred amounts as well as for recently reported claims which an initial case reserves have not been established. The third component of our reserves for loss and loss adjustment expenses is our AO reserve. Our AO reserve is established for those future claims administration costs that cannot be allocated directly to individual claims. The final component of our reserves for loss and loss adjustment expenses is the reserve for mandatory pooling arrangements.
In establishing our reserves, we review the results of analyses using actuarial methods that utilize historical loss data from our more than 25 years of underwriting workers’ compensation insurance. The actuarial analysis of our historical data provides the factors we use in estimating our loss reserves. These factors are primarily measures over time of the number of claims paid and reported, average paid and incurred claim amounts, claim closure rates and claim payment patterns. In evaluating the results of our analyses, management also uses substantial judgment in considering other factors that are not considered in these actuarial analyses, including changes in business mix, claims management, regulatory issues, medical trends, employment and wage patterns, insurance policy coverage interpretations, judicial determinations and other subjective factors. Due to the inherent uncertainty associated with these estimates, and the cost of incurred but unreported claims, our actual liabilities may vary significantly from our original estimates.
Share-Based Compensation. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Compensation-Stock Compensation, we are using the “modified prospective” method to record compensation costs for stock option awards over the applicable vesting periods.
(4) The net underwriting expense ratio is calculated by dividing underwriting and certain other operating costs, commissions and salaries, and benefits by the current year’s net premiums earned.
Net Realized Gains (Losses) on Investments. Net realized gains on investments in 2010 totaled $2.4 million, compared to $2.0 million in 2009. Net realized gains in 2010 primarily resulted from $3.1 million in gains from called fixed-maturity securities and the sale of certain available-for-sale equity and fixed-maturity securities. These gains were offset by an other-than-temporary impairment of $0.7 million on one equity security. Net realized gains in 2009 were attributable to $1.7 million in gains from the sale of certain equities and $0.3 million in gains from the sale of one asset-backed security.
Gross Premiums Written. Gross premiums written for 2009 were $256.5 million, compared to $307.8 million for 2008, a decrease of 16.7%. The decrease was attributable to a $23.9 million decrease in annual premiums on voluntary policies written during the period, a $25.9 million decrease in premiums resulting from payroll audits and related premium adjustments, a $1.1 million decrease in direct assigned risk premiums and a $0.4 million decrease in premiums from mandatory pooling arrangements. The decrease from payroll audits and related premium adjustments includes a $7.2 million decrease in EBUB premium. In connection with decreasing payroll audit premiums, the EBUB premium estimate was updated to reflect future decreased premium from policy audits resulting from projected lower payrolls during the current economic downturn.
Net Premiums Written. Net premiums written for 2009 were $236.3 million, compared to $288.2 million for 2008, a decrease of 18.0%. The decrease was primarily attributable to the decline in gross premiums written. As a percentage of gross premiums written, ceded premiums were 7.9% for 2009, compared to 6.4% for 2008.
Net Investment Income. Net investment income in 2009 was $28.0 million, compared to $31.0 million in 2008, a decrease of 9.6%. The change was attributable to a decrease in the tax-equivalent yield on our investment portfolio, to -3.7% per annum for 2009 from 5.3% per annum for 2008. The pre-tax investment yield on our investment portfolio was 3.5% per annum for 2009, compared to 4.0% per annum for 2008. Average invested assets, including cash and cash equivalents, increased 4.3%, from a monthly average of $778.4 million for 2008 to a monthly average of $811.9 million for 2009.
Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for 2009 were $54.0 million, compared to $55.9 million for 2008, a decrease of 3.5%. This decrease was primarily due to a $3.8 million decrease in insurance-related assessments, a $2.2 million decrease in commissions and a $1.1 million decrease in premium taxes. Offsetting these expense decreases, income from the commutation of certain reinsurance contracts decreased $3.7 million, salaries and benefits increased $1.0 million and legal expenses increased $0.6 million. Our underwriting expense ratio increased from 19.3% in 2008 to 21.5% in 2009.
The table below sets forth the number of open claims as of December 31, 2010, 2009 and 2008, and the numbers of claims reported and closed during the years then ended.
Our reserves for loss and loss adjustment expenses are inherently uncertain and our focus on providing workers’ compensation insurance to employers engaged in hazardous industries results in our receiving relatively fewer but more severe claims than many other workers’ compensation insurance companies. As a result of this focus on higher severity, lower frequency business, our reserve for loss and loss adjustment expenses may have greater volatility than other workers’ compensation insurance companies. For additional information, see “Business-Loss Reserves.”
Interest on our outstanding subordinated notes accrues at a floating rate equal to the three-month LIBOR plus a marginal rate. Our $10.3 million of subordinated notes due 2034 have a marginal rate of 4.1%, and, as of
December 31, 2010, had an effective rate of 4.4%. These notes were prepayable at par beginning in January 2009. Our $25.8 million issuance of subordinated notes due 2034 have a marginal rate of 3.8% and, as of December 31, 2010, had an effective rate of 4.1%. These notes were prepayable at par beginning in April 2009.
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 pays a fee of 3/8% ( three eighths of one percent ) on the unused portion of the loan in arrears quarterly for a fee of $75,000 annually, assuming the line of credit is not used during the calendar year. The line of credit is unsecured. At December 31, 2010, there were no outstanding borrowings.
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 $22.0 million after March of 2011 without seeking regulatory approval. See “Business-Regulation-Dividend Limitations” in Item 1 of this report.
securities and certificates of deposit with an original maturity greater than three months 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, long-term certificates of deposit, U.S. Dollar-denominated obligations of the U.S. corporations, U.S. agency-based mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities.
Under Louisiana and Texas law, as applicable, each of American Interstate, Silver Oak Casualty and American Interstate of Texas is required to invest only in securities that are either interest-bearing or eligible for dividends, and must limit its investment in the securities of any single issuer to five percent of the insurance company’s assets. As of December 31, 2010, we were in compliance with these requirements.
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 and 2 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 2009 or 2010.
(1) Equity securities represented 0.5% of shareholders’ equity as of December 31, 2010.
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, 2010 and 2009:
In 2008, we recorded aggregate impairment charges of $17.3 million with respect to two asset-backed securities, two equity securities and four value-based exchange traded funds in our investment portfolio. The impairment charges are included in “Net realized gains (losses) on investments” for 2008. Of the $17.3 million of impairment charges, $14.0 million related to four value-based exchange traded funds. The value of these securities fell throughout 2008 in line with other major indices during a volatile market cycle. As of December 31, 2008, the unrealized losses on these exchange-traded funds exceeded 35% of cost. While we believe some portion of the value will be regained as the economy recovers, such recoveries can not be determined to be in the near term. These securities were impaired using the market close price on the last day of the year. Also, impairments of $3.1 million related to one asset-backed security. We determined to impair this security because, among other things, the credit rating of the security had been downgraded to below investment grade, and the fair value of the security had been less than 80% of its amortized cost for ten consecutive months. We believe that the factors resulting in the impairment of this asset-backed security were generally specific to this security and do not impact our other investments. This security was impaired at fair value as of December 31, 2008 and subsequently sold in the third quarter of 2009.
The pre-tax investment yield on our investment portfolio was 3.2% per annum during the twelve months ended December 31, 2010, compared to 3.5% per annum during the same period in 2009.
We manage risk on certain long-duration claims by settling these claims through the purchase of annuities from unaffiliated life insurance companies. In the event these companies are unable to meet their obligations under these annuity contracts, we could be liable to the claimants, but our reinsurers remain obligated to indemnify us for all or part of these obligations in accordance with the terms of our reinsurance contracts. As of December 31, 2010, the present value of these annuities was $88.6 million, as estimated by our annuity providers. Substantially all of the annuities are issued or guaranteed by life insurance companies that have an A.M. Best rating of “A” (Excellent) or better. For additional information, see Note 17 to our consolidated financial statements in Item 8 of this report.
We lease equipment and office space under noncancelable operating leases. Future minimum lease payments at December 31, 2010, were as follows:
Rental expense was $0.5 million in 2010, $0.9 million in 2009 and $0.8 million in 2008.
The table below provides information with respect to our long-term debt and contractual commitments as of December 31, 2010.
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Audited Financial Statements as of December 31, 2010 and 2009 and for the three years in the period ended December 31, 2010:
We have audited the accompanying consolidated balance sheets of AMERISAFE, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also include the financial statement schedules listed in the Index at Item 15. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
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, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2011, expressed an unqualified opinion thereon.
The Company provides workers’ compensation and general liability insurance for companies primarily in special trade groups, including construction, trucking and agriculture. Assets and revenues of AIIC represent approximately 99% of comparable consolidated amounts of the Company for each of 2010, 2009 and 2008.
Investment income is recognized as it is earned. The discount or premium on fixed maturities is amortized using the “constant yield” method. Anticipated prepayments, where applicable, are considered when determining the amortization of premiums or discounts. Realized investment gains and losses are determined using the specific identification method.
The direct costs of acquiring and renewing business are capitalized to the extent recoverable and are amortized over the effective period of the related insurance policies in proportion to premium revenue earned. These capitalized costs consist mainly of sales commissions, premium taxes and other underwriting costs. The Company evaluates deferred policy acquisition costs for recoverability by comparing the unearned premiums to the estimated total expected claim costs and related expenses, offset by anticipated investment income. The Company would reduce the deferred costs if the unearned premiums were less than expected claims and expenses after considering investment income, and report any adjustments in amortization of deferred policy acquisition costs. There were no adjustments necessary in 2010, 2009 or 2008.
ultimate premium is referred to as “earned but unbilled” premium, or EBUB premium. EBUB premium can be higher or lower than the estimated premium. EBUB premium is subject to significant variability and can either increase or decrease earned premium based upon several factors, including changes in premium growth, industry mix and economic conditions. Due to the timing of audits and other adjustments, ultimate premium earned is generally not determined for several months after the expiration of the policy.
Experience-rated commissions are earned from certain reinsurance companies based on the financial results of the applicable risks ceded to the reinsurers. These commission revenues on reinsurance contracts are recognized during the related reinsurance treaty period and are based on the same assumptions used for recording loss and allocated loss adjustment expenses. These commissions are reflected as a reduction in underwriting and other operating costs and are adjusted as necessary as experience develops or new information becomes known. Any such adjustments are included in current operations. Experience-rated commissions reduced underwriting and other operating costs by $9.5 million in 2010, $9.9 million in 2009 and $13.6 million in 2008.
All advertising expenditures incurred by the Company are charged to expense in the period to which they relate and are included in underwriting and other operating costs in the consolidated statements of income. Total advertising expenses incurred were $413,000 in 2010, $444,000 in 2009 and $469,000 in 2008.
The Company accounts for income taxes using the liability method. The provision for income taxes has two components, amounts currently payable or receivable and deferred amounts. Deferred income tax assets and liabilities are recognized for the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Under the two-class method, net income is allocated between common stock and any securities other than common stock that are eligible to participate in dividends with common stock. The Company’s redeemable preferred stock and unvested restricted stock qualified as “participating securities” under ASC Topic 260 in 2009. With redemption of the Series C and D preferred shares in December 2009, the two-class method is no longer applicable in 2010 for redeemable preferred stock.
Short-term investments held at December 31, 2010 include $1.8 million of municipal securities, $1.2 million of corporate bonds and certificates of deposit of $75.8 million. All certificates of deposits are fully insured by the Federal Deposit Insurance Corporation.
A summary of the cost or amortized cost and fair value of investments in fixed maturity securities, classified as available-for-sale at December 31, 2010, by contractual maturity, is as follows:
At December 31, 2010, there were $25,000 of cash and short-term investments and $18,954,818 of held-to-maturity investments on deposit with regulatory agencies of states in which the Company does business.
A summary of the Company’s realized gains and losses on sales, calls or redemptions of investments for 2010, 2009 and 2008 is as follows:
At December 31, 2008, the Company’s estimate for EBUB premium was $10.2 million, an increase from December 31, 2007 of $1.2 million or 0.4% of gross premiums written in 2008. At December 31, 2009, the Company’s estimate for EBUB premium was $4.2 million, a decrease of $6.0 million or 2.3% of gross premiums written in 2009. At December 31, 2010, the Company’s estimate for EBUB premium was $1.8 million, a decrease of $2.5 million or 1.1% of gross premiums written in 2010.
Amounts recoverable from reinsurers consists of ceded case reserves, ceded incurred but not reported (“IBNR”) reserves, paid losses recoverable and experience-rated commissions recoverable. Ceded case and ceded IBNR reserves represent the portion of gross loss and loss adjustment expense liabilities that are recoverable under reinsurance agreements, but are not yet due from reinsurers. Paid losses recoverable are receivables currently due from reinsurers for ceded paid losses. The Company considers paid losses recoverable outstanding for more than 90 days to be past due. At December 31, 2010, there were no paid losses recoverable past due. Experience-rated commissions recoverable represents earned commission from certain reinsurance companies based on the financial results of the applicable risks ceded to the reinsurers.
The Company received reinsurance recoveries of $3,667,000 in 2010, $6,376,000 in 2009 and $19,852,000 in 2008.
At December 31, 2010, unsecured reinsurance recoverables from reinsurers that exceeded 1.5% of statutory surplus of the Company’s insurance subsidiary are shown below (in thousands). The A.M. Best Company rating for the reinsurer is shown parenthetically.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2010 and 2009.
On April 29, 2004, the Company entered into a second trust preferred securities transaction pursuant to which it issued $25,780,000 aggregate principal amount of subordinated debt securities due in 2034. To effect the transaction, the Company formed a Delaware statutory trust, Amerisafe Capital Trust II (“ACT II”). ACT II issued $25,000,000 of preferred securities to investors and $780,000 of common securities to the Company. ACT II used the proceeds from these issuances to purchase the subordinated debt securities. The Company pays interest on its ACT II subordinated debt securities quarterly at a rate equal to LIBOR plus 3.80% per annum (4.1% at December 31, 2010). ACT II pays interest on its preferred securities at the same rate. The Company subordinated debt securities and ACT II preferred securities were repayable on or after April 29, 2009. Payments of principal, interest and premium, if any, on the ACT II preferred securities are guaranteed by the Company.
The following table provides a reconciliation of the beginning and ending reserve balances, net of related amounts recoverable from reinsurers, for 2010, 2009 and 2008:
The Company’s insurance subsidiaries file financial statements prepared in accordance with statutory accounting principles prescribed or permitted by the insurance regulatory authorities of the states in which the subsidiaries are domiciled. Statutory-basis shareholder’s capital and surplus at December 31, 2010, 2009 and 2008 of the directly owned insurance subsidiary, AIIC, and the combined statutory-basis net income and realized investment gains for all AMERISAFE’s insurance subsidiaries for the three years in the period ended December 31, 2010, were as follows (in thousands):
The Company is authorized to issue 50,000,000 shares of common stock, par value $0.01 per share. At December 31, 2010, there were 19,060,649 shares of common stock issued and 18,352,041 shares outstanding.
Prior to June 15, 2010 the Company was authorized to issue 1,500,000 shares of Series A preferred stock, par value $0.01 per share, of which 862,924 shares had been canceled and retired and were not eligible for reissue. Shareholders approved an amended Certificate of Formation for the Company on June 15, 2010 under which no such class of shares was authorized to be issued. There were no shares of Series A preferred stock outstanding at December 31, 2010 and 2009.
Prior to June 15, 2010 the Company was authorized to issue 1,500,000 shares of Series B preferred stock, par value $0.01 per share. Shareholders approved an amended Certificate of Formation for the Company on June 15, 2010 under which no such class of shares was authorized to be issued. There were no shares of Series B preferred stock outstanding at December 31, 2010 and 2009 or issued during the three-year period ended December 31, 2010.
Prior to June 15, 2010 the Company was authorized to issue 500,000 shares of Series E preferred stock, par value $0.01 per share, of which 317,744 shares had been redeemed by the Company, canceled and retired without eligibility for reissue. Shareholders approved an amended Certificate of Formation for the Company on June 15, 2010 under which no such class of shares was authorized to be issued.
Prior to June 15, 2010 the Company was authorized to issue up to 10,000,000 shares of junior preferred stock, par value $0.01 per share, in one or more series. Shareholders approved an amended Certificate of Formation for the Company on June 15, 2010 under which no such class of shares was authorized to be issued. There were no shares of junior preferred stock outstanding at December 31, 2010 and 2009 or issued during the three-year period ended December 31, 2010.
As of December 31, 2010, the Company had made awards of stock options under the 2005 Incentive Plan on September 1, 2006, September 25, 2006, March 2, 2007, January 24, 2008, November 10, 2008, August 7, 2009 and November 19, 2009. At December 31, 2010, 243,009 shares of common stock were available for future awards under the 2005 Incentive Plan.
The following table summarizes information about the restricted stock outstanding under the 2005 Incentive Plan at December 31, 2010:
Under the 2010 Restated Restricted Stock Plan, each non-employee director is automatically granted a restricted stock award for a number of shares equal to $30,000 divided by the closing price of the Company’s common stock on the date of the annual meeting of shareholders at which the non-employee director is elected or is continuing as a member of the Board. Each restricted stock award vests on the date of the next annual meeting of shareholders following the date of grant, subject to the continued service of the non-employee director.
As of December 31, 2010, there were 11,830 shares of restricted stock outstanding under the 2010 Restated Restricted Stock Plan, all of which will vest on the date of the annual meeting of shareholders in 2011.
The Company recognized compensation expense of $163,000 in 2010, $101,000 in 2009 and $108,000 in 2008 related to the 2010 Restated Restricted Stock Plan. In 2010, total tax benefits realized for tax deductions from vesting of restricted stock was $5,000. In 2009, total tax expense of $2,000 was realized for tax from vesting of restricted stock. In 2008, total tax benefits realized for tax deductions from vesting of restricted stock was $9,000.
Diluted earnings per share includes common shares assumed issued under the “treasury stock method,” which reflects the potential dilution that would occur if any outstanding options are exercised. Diluted earnings per share also includes the “if converted” method for participating securities if the result is dilutive. The two-class method of calculating diluted earnings per share is used whether the “if converted” result is dilutive or anti-dilutive.
The Company’s 401(k) benefit plan is available to all employees. The Company matches up to 2% of employee compensation for participating employees, subject to certain limitations. Employees are fully vested in employer contributions to this plan after five years. Company contributions to this plan were $307,000 in 2010, $313,000 in 2009 and $311,000 in 2008.
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, 2010, that the Company has purchased to satisfy its obligations. The A.M. Best Company rating is shown parenthetically.
The Company leases equipment and office space under noncancelable operating leases. At December 31, 2010, future minimum lease payments are as follows (in thousands):
Net premiums earned during 2010, 2009 and 2008 for the top ten states in 2010 and all others are shown below:
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are to be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
Effective January 1, 2011 the Company has entered into a renewal rights transaction under which it has the first right to renew certain workers compensation policies, primarily covering agricultural employees, previously issued by Cooperative Mutual Insurance Company of Omaha, Nebraska. Effective March 1, 2011 the Company entered into an Assumption Agreement with Austin Mutual Insurance Company, successor in interest by merger to Cooperative Mutual Insurance Company, under which it assumed liability for the remaining terms of certain policies covered by the Renewal Rights agreement described above. The company does not expect the agreement to have a material effect on the Company’s 2011 results of operations.
The following table represents unaudited quarterly financial data for the years ended December 31, 2010 and 2009.