Interest from Notes Receivable. Interest from notes receivable increased 8.5% from $2,409,000 in 1998 to $2,615,000 in 1999 as a result of an increase of the average outstanding secured notes receivable. The average annual pretax yield on notes receivable was 22.4% and 18.0% in 1998 and 1999, respectively.
Brokerage Commission Income. Income from insurance brokerage operations decreased 1% from $1.1 million in 1998 to $1.1 million in 1999 as a result of increased commissions derived from insurance business produced through the Company's risk retention group affiliate which was offset by lower commissions from the Company's brokerage operations.
Management Fees. Management fees increased 1.2% from $714,000 in 1998 to $722,000 in 1999 as a result of increased service levels provided by the Company to its risk retention group affiliate.
Net Realized Gains. Net realized gains from the sale of investments decreased from $443,000 in 1998 to $174,000 in 1999.
Payroll and Other Expenses. Payroll and other expenses increased 53.6% from $4.8 million in 1998 to $7.4 million in 1999 as a result of increases in salary, benefits and operating expense primarily due to increased staffing for new and existing programs combined with operating expenses from the Company's new financial services subsidiary.
Income Taxes. Federal and state income taxes increased from a benefit of $199,244 in 1998 to an expense of $82,722 in 1999 due to increased taxable income in the Company's U.S. subsidiaries.
Year Ended December 31, 1998 to Year ended December 31, 1997
Interest from Notes Receivable. Interest from notes receivable increased 201.9% from $798,000 in 1997 to $2,409,000 in 1998 as a result of an increase of $10.9 million in outstanding secured notes receivable.
Brokerage Commission Income. Income from insurance brokerage operations decreased 44.3% from $2 million in 1997 to $1.1 million in 1998 as a result of additional premiums being written by the Company's U.S. insurance subsidiary in which acquisition expenses and brokerage income are eliminated due to consolidation.
Losses and Loss Adjustment Expenses. Loss and loss adjustment expenses increased 26.5% from $4.1 million in 1997 to $5.2 million in 1998 primarily due to a 10.1% increase in net earned premiums combined with an increase in the projected losses for workers' compensation and a decrease in the projected losses for general liability. The Company recorded loss and loss adjustment expenses for workers' compensation to the aggregate stop-loss attachment point of its reinsurance.
Total assets increased from $47.7 million at December 31, 1997 to $86.1 million at December 31, 1998 and to $104.4 million at December 31, 1999, primarily due to increases in premiums receivable, reinsurance recoverables and real estate investments. Cash, invested assets and notes receivable increased from $37.4 million at December 31, 1997 to $72 million at December 31, 1998 and to $73 million at December 31, 1999 as a result of increases in net premiums written and investment income. The Company completed its 1999 stock repurchase program of 300,000 common shares of the Company on December 31, 1999 at a total cost of $2,169,339.
Harbour Village Development. American Safety announced in March 2000 its plans to complete development of the Harbour Village Golf and Yacht Club, located in Ponce Inlet, Florida, consisting of 786 residential condominium units, a marina containing 142 boat slips, a par 3 golf course and beach club. The property, acquired by American Safety through foreclosure in April 1999, has been under development through its Ponce Lighthouse Properties, Inc. subsidiary. While the property was being marketed for sale, deposits have been received for in excess of $40 million of pre-construction sales that have been generated under American Safety's development effort.
It is anticipated that Harbour Village will be developed in three phases over the next three to five years, depending on future sales activities and economic conditions that may impact the marketing of the condominium units. The Company intends to obtain an acquisition and development loan and a revolving bank credit facility in order to construct in sequence the three phases of Harbour Village. The anticipated construction cost for the entire project is in excess of $160 million. Financing in the approximate amount of $34 million will be required for construction of Phase I. The Company has received a proposal for the bank credit facility, and is in the process of obtaining a commitment for such credit facility. Phase I of the development consists of construction of all site work including a 142-boat slip marina, 372 residential units, and amenities. No assurance can be given, however, as to either future sales activities of the condominium units or the impact of local and national economic conditions on the Company's marketing efforts for Harbour Village.
Certain of the Company's insurance policies and reinsurance assumed, including general and pollution liability policies covering environmental remediation risks, as well as workers' compensation policies, may be subject to claims brought years after an incident has occurred or the policy period has ended. The Company is required to maintain reserves to cover its estimated liability for losses and loss adjustment expenses with respect to reported and unreported claims incurred. The Company engages an independent internationally recognized actuarial consulting firm to provide reserve studies, opinions and rate studies. Reserves are estimates at a given time, which are established from actuarial and statistical projections by the Company of the ultimate settlement and administration costs of claims occurring on or prior to such time, including claims that have not yet been reported to the insurer. The establishment of appropriate loss reserves is an inherently uncertain process, and there can be no assurance that the ultimate payments will not materially exceed the Company's reserves.