The following table sets forth selected financial data for the Company. The financial data for 2008, 2007, 2006, 2005 and 2004 reflects the consolidated results of operations and financial position of the Holding Company and the Insurance Company including the effects of the Conversion which occurred on October 15, 2004. You should read this data in conjunction with the Company’s consolidated financial statements and accompanying notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this report.
We believe the critical accounting policies and estimates discussed below reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements. These may be further commented upon in applicable sections on Results of Operations and Liquidity and Capital Resources that follow. Information about the significant accounting policies we use in the preparation of our financial statements is included in Note 1-Significant Accounting Policies to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.
For the property lines of business including special property and personal and commercial auto physical damage as well as the personal and commercial auto liability lines of business we relied on the incurred Bornhuetter-Ferguson method for accident years 2006 to 2008 while the incurred loss development method was used for accident years prior to 2006.
The following table shows the activity in the loss and LAE reserve balances of the Company for the years ended December 31, 2008, 2007 and 2006, prepared in accordance with accounting principles generally accepted in the United States of America.
related to commercial multi-peril, $336,000 related to workers compensation, $179,000 related to farm, $204,000 relating to general liability while the remaining lines of business had redundant development of $325,000. The favorable development was concentrated in accident years 2005 through 2007 and is a result of downward development on both case and incurred but not reported reserves and loss adjusting expense reserves. There were no significant changes in the key assumptions utilized in the analysis and calculations of the Company’s reserves during 2008.
In 2007, the Company experienced favorable development on losses and loss adjustment expenses for prior accident years of $4,132,000. The redundant development included $1,334,000 related to homeowners, $939,000 related to personal auto, $873,000 related to commercial multi-peril, $280,000 related to workers compensation, $281,000 related to farm while the remaining lines of business had redundant development of $425,000. The favorable development was concentrated in accident years 2004 through 2006 and is a result of downward development on both case and incurred but not reported reserves and loss adjusting expense reserves. There were no significant changes in the key assumptions utilized in the analysis and calculations of the Company’s reserves during 2007.
Reinsurance recoverables include balances due from reinsurance companies for paid and unpaid losses and LAE that will be recovered from reinsurers, based on contracts in force. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance contracts do not relieve the Company from its primary obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk with respect to the individual reinsurer that participates in its ceded programs to minimize its exposure to significant losses from reinsurer insolvencies. When necessary the Company holds collateral in the form of letters of credit or trust accounts for amounts recoverable from reinsurers that are not considered authorized insurers by the State of Michigan Office of Financial and Insurance Regulation.
In 2008, the personal segment experienced an increase in incurred loss and LAE as well as the loss and LAE ratio driven primarily by the personal auto product line and, to a lesser extent, the homeowner’s line. Incurred loss and LAE from personal auto increased $3,759,000 or 45.7% while homeowners increased $1,366,000 or 14.6%. Other personal segment products experienced a decline in incurred loss and LAE of $387,000. The increased incurred loss and LAE in personal auto is driven by exposure and premium growth (up 25.2% in 2008) coupled with increased severity and frequency, particularly in liability coverages. In 2008, incurred loss and LAE from personal auto liability increased $1,588,000 or 84.6%. The increase in incurred loss and LAE in the homeowners line was driven by increased weather related losses experienced primarily during the fourth quarter.
Amortization of deferred policy acquisition costs (“DAC”) increased in 2008 as compared to 2007 as a result of increased earned premium volume. However, as a percentage of net premiums earned DAC amortization decreased from 17.2% to 16.5% as a result of the increased volume of personal automobile premium which pays a lower commission than other products as well as increased ceding commission. Other underwriting expenses decreased $549,000 or 6.4% in 2008 compared to 2007. The major item contributing to the decrease from 2007 to 2008 was higher non-recurring assessments from state mandated pools and associations in 2007. This decrease was offset by higher depreciation expense and surveys and inspections costs in 2008. Depreciation was up in 2008 due to continued investment in Fremont Complete while surveys and inspections were up due to the continued growth experienced in the personal auto and homeowners product lines.
In 2008, gross investment income from fixed maturities was nearly $280,000 which is 13.5% higher than in 2007. The majority of the increase came from the steady growth in the book value of the portfolio which is up 5.5%. The tax-equivalent portfolio yield on fixed maturities ended 2008 at 4.72%, versus 5.33% at the end of 2007. Up until the fourth quarter of 2008 the tax-equivalent book yield ranged from 5.14% to 5.33%. During the fourth quarter of 2008 the portfolio duration was decreased which resulted in a corresponding decline in the tax-equivalent yield. At December 31, 2008, the portfolio duration was 4.1 years compared to 5.1 years as of December 31, 2007. The moderate duration of the fixed income portfolio should allow for a predictable income stream from these maturities, since the yields are locked in for a number of years even as interest rates in the current market have dropped significantly. If yields remain low for an extended period of time, however, the income from the portfolio may begin to decrease as principal from maturing securities is reinvested into lower rates.
Other Income, Net. Other income, net which includes premium installment charges, fees for non-sufficient fund checks, late payment fees and other miscellaneous income and expense items increased 30.4% to $615,000 in 2008 compared to $471,000 in 2007. The increase was driven by premium volume growth in 2008.
Interest Expense. The Company did not incur interest expense in 2008 as a result of paying off its surplus notes in September 2007. 2007 interest expense was approximately $146,000.
Federal Income Tax. During the year ended December 31, 2008 and 2007 the Company recorded income tax expense of approximately $1,577,000 and $2,036,000 respectively. The decrease is due to a decline in pre-tax income in 2008 compared to 2007. The effective tax rate for 2008 was 29.5 % compared to 29.4% for 2007.
The increase in the commercial segment incurred loss and LAE and the related ratio was focused in the following product lines: business owners ($647,000), workers compensation ($329,000) and commercial auto ($82,000). The increase in losses for the business owners line was driven by weather related losses sustained during the first three quarters of 2007, several larger fire losses in 2007 as well as favorable development recorded in 2006. The increase in incurred losses and LAE in the workers compensation line was driven by favorable reserve development recorded in 2006.
Gross investment income from fixed maturities increased 9.0% over 2006, while income from cash and cash equivalents increased 80.4%. The increase in income from cash and cash equivalents was due to the fact that the Company had a larger portion of its invested assets placed in short-term securities over this time period compared to 2006 in contemplation of the surplus note repayment which occurred in September 2007. When income from cash and cash equivalents are combined with fixed maturities, gross investment income was 15.0% higher in 2007 compared to 2006. Growth in invested assets, along with higher investment yields, were the main reasons for the increase in gross investment income.
To accurately compare between time periods with different tax-exempt allocations, yields on the portfolio need to be calculated on a tax-equivalent basis. The tax-equivalent portfolio yield on fixed maturities ended 2007 at 5.33%, versus 4.87% at the end of 2006. Over the course of the year, a greater portion of the fixed maturity portfolio was invested into tax-exempt municipal securities carrying higher tax-equivalent yields than similar taxable securities. The portfolio duration was also increased from 3.96 at December 31, 2006 to 5.06 at December 31, 2007. These factors led to the significant increase in tax-equivalent yield.
Gross investment income from the equity portfolio decreased due to a decline in dividend paying securities in the portfolio. During 2006, the Company received approximately $23,000 in dividends on common and preferred stocks held by the Company. As of December 31, 2006, the Company had liquidated its holdings in common and preferred stocks and shifted those investments into mutual funds. As a result of this shift the dividend income went down as the mutual funds held by the Company do not pay the regular dividends that had been traditionally paid by the common and preferred stocks historically held by the Company. The decline in investment income from the equity portfolio was also affected by a decrease in funds invested in equity securities during 2007.
Interest Expense. Interest expense decreased approximately $82,000 to $146,000 in 2007 from $228,000 in 2006. The decrease is due to the September 2007 payoff of the surplus notes.
Federal Income Tax. During the year ended December 31, 2007 and 2006 the Company recorded income tax expense of approximately $2,036,000 and $3,466,000 respectively. The decrease is due to a decline in pre-tax income in 2007 compared to 2006. The effective tax rate for 2007 was 29.4% compared to 32.4% for 2006. The
decrease in the effective tax rate is due to increased tax-exempt interest income received during 2007 compared to 2006 coupled with an increase in the provision to return variance recorded in 2007.
The principal sources of funds for the Insurance Company are insurance premiums, investment income and proceeds from the maturity and sale of invested assets. Funds are primarily used for the payment of claims, commissions, salaries and employee benefits, other operating expenses and dividends paid to the Holding Company.
Cash flow provided by operations was $4,303,000 in 2007 compared to $8,303,000 in 2006, a decrease of $4,000,000. During the year ended December 31, 2007 as compared to 2006 premiums collected increased $4,264,000 as a result of increased premium writings, net loss and LAE paid increased $7,315,000 while policy acquisition and other underwriting expenses paid increased $1,705,000. Cash paid for income taxes decreased $550,000 during 2007 compared to 2006 due to lower pretax income generated in 2007. Other cash provided by operational activities increased $206,000 during the year ended December 31, 2007 compared to 2006.
Cash used in investing activities was $2,000,000 and $5,258,000 during the years ended December 31, 2007 and 2006, respectively, a decrease of $3,258,000. During 2007, net cash invested into the Company’s investment portfolio was $494,000 compared to $3,972,000 in 2006, a decrease of $3,478,000. The decrease in cash placed into the investment portfolio was due to the repayment of the surplus notes in September 2007. Offsetting the reduction in cash placed into the investment portfolio was an increase in capital expenditures of $228,000 in 2007. The majority of the Company’s capital expenditures were related to Fremont Complete. Cash used in financing activities of $2,868,000 consisted primarily of the repayment of the surplus notes.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fremont Michigan InsuraCorp, Inc. at December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for defined benefit pension and other postretirement plans as of December 31, 2006, to adopt Financial Accounting Standards Board Statement No. 158, Employers’ Accounting for Defined Benefit pension and Other Postretirement Plans.
The Company reviews the status and market value changes of its investment portfolio on at least a quarterly basis during the year, and any provisions for other-than-temporary impairments in the portfolio’s value are evaluated and established at each quarterly balance sheet date. In reviewing its fixed maturity securities for other than temporary impairment, the Company takes into consideration the security’s market price history, the length of time that the security’s fair value has been below cost, the issuer’s operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current audit opinion, industry and securities market conditions, and analyst expectations, to reach its conclusions. In reviewing its equity securities, which currently consist of mutual funds, the Company takes into consideration the mutual fund’s market price history, the length of time that the fund’s fair value has been below cost, the individual investments held within the mutual fund, most current audit opinion, industry and securities market conditions, and analyst expectations to reach its conclusions. In addition to analyzing each individual security that has a fair value below cost, the Company also considers its intent and ability to hold a security until its maturity, in the case of a fixed maturity security, or until its fair value is equal to or greater than its cost.
When a security in the Company’s investment portfolio has an unrealized loss in value that is deemed to be other than temporary, the Company reduces the book value of such security to its current market value, recognizing the decline as a realized loss in the statement of operations. Any future increases in the market value of investments written down are reflected as changes in unrealized gains as part of accumulated other comprehensive income within stockholders’ equity.
Losses and loss adjustment expense (“LAE”) reserves represent the estimated liability for reported losses and loss adjustment expenses and actuarial estimates for incurred but not reported losses and loss adjustment expenses based upon the Company’s actual experience, assumptions and projections as to claims frequency, severity, inflationary trends and settlement payments. The reserve for losses and loss adjustment expenses is intended to cover the ultimate net cost of all losses and loss adjustment expenses incurred but unsettled through the balance sheet date. The reserves are reported gross of any amounts recoverable from reinsurers and are reduced for anticipated salvage and subrogation. The methods of making estimates and establishing these reserves are reviewed regularly, and resulting adjustments are reflected in income currently. The liability for losses and loss adjustment expenses is necessarily an estimate and while it is believed to be adequate, the ultimate liability could exceed or be less than such estimate. The anticipated recoverable salvage and subrogation at December 31, 2008 and 2007 was approximately $131,000 and $344,000, respectively.
The Company accounts for reinsurance contracts under the provisions of Statement of Financial Accounting Standards (“SFAS”), No. 113, “Accounting and Reporting for Reinsurance on Short-Duration and Long-Duration Contracts.” Net premiums earned, losses and LAE and policy acquisition and other underwriting expenses are reported net of the amounts related to reinsurance ceded to other companies. Amounts recoverable from reinsurers related to the portions of the liability for losses and LAE and unearned premiums ceded to them are reported as assets. Reinsurance assumed from other companies, including assumed premiums written and earned and losses and LAE, is accounted for in the same manner as direct insurance written.
Property and equipment is recorded at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method. Estimated useful lives are: building-35 years, computer equipment including software-3 to 5 years and furniture, fixtures and equipment-5 to 7 years. Software is capitalized in accordance with Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” and amortized on a straight-line method over the estimated useful life of the software, generally not exceeding 3 years. Maintenance, repairs and minor renewals are charged to expense as incurred. Depreciation expense was $1,194,211, $769,161 and $602,687 for the years ended December 31, 2008, 2007, and 2006, respectively. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Upon sale or retirement, the cost and related accumulated depreciation of assets disposed of are removed from the accounts; any resulting gain or loss is reflected in income.
The Company accounts for its postretirement benefit plan in accordance with SFAS No. 106 “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” as amended by SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS 158, effective at the end of fiscal year 2006, requires companies to recognize the funded status of defined benefit postretirement plans on the balance sheet and recognize changes in the funded status of the plan in the year in which the changes occur. See Note 10-Employee Benefits for additional information.
Income tax expense is computed under the liability method, whereby deferred income taxes reflect the estimated future tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and those for income tax purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.
In February 2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”), which permits a one-year deferral of the application of FAS 157 for all non-financial assets and
Valuations based on unadjusted quoted market prices in active markets for identical securities. The fair value of fixed maturity and equity securities (mutual funds) included in the Level 1 category were based on quoted prices that are readily and regularly available in an active market. The Level 1 category includes publicly traded equity securities (mutual funds) and U.S. Government Treasury and Agency securities.
Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of fixed maturity securities in the Level 2 category were based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information. The independent pricing service also monitors market indicators, industry and economic events. For broker-quoted only securities, quotes are obtained from market makers or broker-dealers that it recognizes to be market participants. The Level 2 category includes corporate bonds, municipal bonds, and mortgage-backed securities.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS 141(R)). The Standard will significantly change the financial accounting and reporting of business combination transactions. SFAS 141(R) establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for acquisition dates on or after the beginning of an entity’s first year that begins after December 15, 2008. The Company does not expect the implementation of SFAS 141(R) to have a material impact on its consolidated financial statements.
In December 2007, the SEC issued Staff Accounting Bulletin No. 110, “Use of a Simplified Method in Developing Expected Term of Share Options” (SAB 110). SAB 110 expresses the current view of the staff that it will accept a company’s election to use the simplified method discussed in SAB 107 for estimating the expected term of “plain vanilla” share options regardless of whether the company has sufficient information to make more refined estimates. The staff noted that it understands that detailed information about employee exercise patterns may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The implementation of SAB 110 did not have a material impact on the Company’s consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS
The cost or amortized cost and estimated fair value of fixed maturities at December 31, 2008, by contractual maturity, are shown below. Expected maturities on certain corporate and mortgage-backed investments may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Net realized gains (losses) on investments for the years ended December 31, 2008, 2007 and 2006 are summarized as follows:
Sales of available-for-sale fixed maturities resulted in the following during the years ended December 31, 2008, 2007 and 2006:
The following tables show the estimated fair value and gross unrealized losses, aggregated by investment category and length of time that individual investments have been in a continuous unrealized loss position at December 31, 2008 and 2007.
As of December 31, 2007, the portfolio included 6 fixed maturity securities and 4 equity securities in an unrealized loss position for less than 12 months and 45 fixed maturity securities in an unrealized loss position for more than 12 months. None of the fixed maturity securities were trading below 90% of cost or amortized cost. All of the fixed maturity securities in an unrealized loss position and assigned a rating by commercial credit rating companies are rated investment grade securities. Of the 4 equity securities in an unrealized loss position, 1 was trading at 85% of cost while the remaining 3 were trading at or above 90% of cost. While all of these securities are monitored for potential impairment, the Company’s experience indicates that they generally do not present as great a risk of impairment, as fair value often recovers over time. These securities have generally been adversely affected by the downturn in the financial markets and overall economic conditions. Management believes that the analysis of each of these securities as well as the Company’s intent and ability to hold fixed maturity investments until maturity supports the view that these securities were not other-than-temporarily impaired.
At December 31, 2008, fixed maturities with a carrying value approximating $447,000 were on deposit with regulatory authorities, as required by law.
The excess of loss program is the Company’s primary reinsurance coverage. For all lines of business covered by this treaty, the Company’s retention on any one risk in 2008, 2007 and 2006 was $150,000.
The property excess of loss layers provided up to $2,850,000 of coverage over the $150,000 retention. The casualty and workers compensation excess of loss layers provided up to $4,850,000 of coverage over the $150,000 retention. An additional workers compensation catastrophe excess of loss layer provided an additional $5,000,000 of coverage to cover a catastrophic event.
The Company’s catastrophe treaty has three layers which in total provided up to $24,750,000 of coverage above a $1,250,000 retention in 2008, $21,750,000 of coverage above a $1,250,000 retention in 2007 and $22,000,000 of coverage above a $1,000,000 retention in 2006. The Company has an automatic reinstatement provision after the first loss for each layer to provide coverage in the event of subsequent catastrophes during the year. Coverage would have lapsed after the second event, in which case the Company would have evaluated the need for a new contract for the remainder of a particular year. During 2008, 2007 and 2006 the coverage could be reinstated for a fee of 100% of the original premium.
The Company’s boiler and machinery quota share agreements are primarily an equipment breakdown endorsement to commercial and farm policies. The agreements are 100% quota share and the Company receives ceding commissions ranging from 32% to 35% on the premiums ceded. In 2008, the Company entered into a quota share agreement which covers employment practices liability. The agreement is 100% quota share and the Company receives ceding commission of 35% on the premiums ceded.
The Company utilizes facultative reinsurance to provide additional underwriting capacity, to mitigate the effect of individual losses and to reduce the Company’s net liability on individual risks. Coverage is determined on each individual risk. In 2008, the Company obtained coverage ranging from $100,000 up to $18,900,000 for certain commercial properties it insured. The Company also purchased facultative reinsurance on certain casualty risks ranging from $1,000,000 to $3,000,000 for certain commercial umbrella policies. In 2007, the Company obtained coverage ranging from $1,200,000 up to $5,600,000 for certain commercial properties it insured. In 2006, the Company obtained coverage ranging from $850,000 up to $4,000,000 for certain commercial properties it insured.
The Company receives a ceding commission in conjunction with certain reinsurance activities. These ceding commissions are offset against direct commission expense and were $413,592, $180,158 and $181,749 in 2008, 2007 and 2006, respectively.
The effect of reinsurance on premiums written and earned for the years ended December 31, 2008, 2007 and 2006, are as follows:
The effect of reinsurance on incurred losses and loss adjustment expenses for the years ended December 31, 2008, 2007 and 2006, are as follows:
Deferred federal income tax assets and liabilities are recognized for the estimated future tax consequences attributable to the difference between financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company’s management reviews both positive and negative evidence, including current and historical results of operations, the annual limitation on utilization of net operating loss carryforwards pursuant to Internal Revenue Code Section 382 (“Section 382”), future income projections and the overall prospects of our business. As of December 31, 2008, the Company has net operating loss carryforwards of approximately $6,948,000, which begin to expire in 2010 and fully expire in 2021, and alternative minimum tax credits of approximately $358,000, which may be carried forward indefinitely. As a result of the demutualization of FIC in 2004 the aforementioned net operating losses are subject to certain “change in control” limitations under Section 382. The annual limitation on the utilization of the net operating losses is approximately $400,000. In addition to the net operating loss carryforwards, the Company’s alternative minimum tax credit carryforwards are also subject to the
Section 382 limitation however these credit carryforwards have no expiration and can be carried forward indefinitely. Based on the annual Section 382 limitation of the utilization of net operating loss carryforwards management has determined that approximately $2,971,000 of net operating loss carryforwards will not be realized and therefore a valuation allowance of approximately $1,010,000 will be maintained for the deferred tax asset associated with these amounts.
Based upon management’s assessment of all available evidence, including the Company’s cumulative net income for recent fiscal years, estimates of current and future profitability and the overall prospects of our business, it has been determined that as of December 31, 2008 it is more likely than not that sufficient taxable income will exist in the periods of reversal in order to realize the recorded net deferred tax asset.
The following table shows the allocation of the change in the deferred tax valuation allowance for the years ended December 31, 2008, 2007 and 2006.
Up until September 2007, the Company had surplus notes outstanding of approximately $2,890,000 which included approximately $1,955,000 of surplus notes held by related parties consisting of a non-employee director, agents of the Company and an investment broker who provided services to the Company. The notes, which matured and were repaid in September 2007, carried an annual interest rate of 7 percent. Interest expense on the surplus notes for 2007 and 2006 was approximately $146,000 and $202,000, respectively. Interest expense on surplus notes held by related parties was approximately $97,000 in 2007 and $137,000 in 2006.
the plan amendment. The balance of the unrecognized reduction to prior service cost will be amortized over 17.7 years which represents the average future lifetime of retirees and fully eligible active participants at the date of the amendment.
The Company uses a December 31 measurement date for its other postretirement plan. As this plan is not pre-funded, no contributions other than those necessary to cover benefit payments are anticipated. At December 31, 2008, the Company’s expected future benefit payments are as follows:
The Company leases various vehicles under non-cancelable operating lease agreements which expire in 2009. Rental expense was approximately $9,000, $22,000 and $48,000 in 2008, 2007 and 2006, respectively.
Future minimum lease payments required under the vehicle leases as of December 31, 2008 are as follows:
FIC’s statutory capital and surplus at December 31, 2008 and 2007 and statutory net income for the years ended December 31, 2008, 2007 and 2006 are as follows:
During 2003, the Company issued a $140,000 mortgage receivable to an agent of the Company. The note requires a monthly payment, including interest at 6%, of $1,003, which is based on a 20 year amortization. The
A nonemployee director of the Company is a partner in a law firm. The Company has retained this law firm for certain legal matters in the past and plans to continue to do so in the future. Legal fees paid by the Company to the law firm were approximately $69,000 in 2008, $74,000 in 2007 and $35,000 in 2006.
The Company defines its operations as property and casualty insurance operations. The Company writes four major insurance lines exclusively in the State of Michigan: Personal Lines, Commercial Lines, Farm and Marine. The separate financial information of these four major insurance lines is consistent with the way results are regularly evaluated by management in deciding how to allocate resources and in assessing performance. All revenues are generated from external customers and the Company does not have a significant reliance on any single major customer or agent.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2008, 2007 and 2006. The expected volatility in 2008 and 2007 is based on historical volatility of the Company’s stock. The expected volatilities in 2006 are based on historical volatility of similar publicly traded entities following a comparable period in their
A summary of option activity under the plans as of December 31, 2008 and changes during the year then ended is presented below:
A summary of the status of the Company’s nonvested options as of December 31, 2008 and changes during the year ended December 31, 2008 is presented below: