Realized gain on the sale of subsidiaries of $3.0 million consists of a realized gain of $4.0 million on the sale of MMC to HPS net of a $1.3 million loss on the sale of PALHIC and a $0.3 million gain on the sale of NIA. PALHIC and NIA were both sold as a result of the transactions with CRLC.
In the event that the Computer Systems of the Company or any of the Company's vendors Carrier Partners or other business partners fail or exhibit significant problems as a result of Year 2000 processing the Company's service to its customers could be disrupted for a significant amount of time and result in significant lost income to the Company.
Credit risk: Insurance is written by the Company primarily throughout the Commonwealth of Pennsylvania. The Company performs ongoing credit and risk evaluations of its brokers, insureds and reinsurers.
Earnings (loss) per share of common stock: The Company presents basic and diluted earnings per share. Equivalents including warrants, stock options, and preferred stock were anti-dilutive in 1998 and 1997.
Effective May 1, 1996, the Company acquired all of the issued and outstanding stock of NIA Corporation ("NIA"), d/b/a National Insurance Administrators, and its wholly owned subsidiary, American Brokerage Corporation ("ABC") from MidAmerica Mutual Life Insurance Company ("MAM") for $254 of cash and 50,000 shares of PAMCO's common stock. NIA and ABC are Colorado corporations. NIA, a third party administrator, and ABC, an insurance marketer, collectively design, market and service private-label health insurance plans. As a part of this transaction, PILIC assumed approximately 3,500 in-force "HealthQuest" medical policies originally underwritten by MAM and its subsidiaries. This transaction was accounted for as a purchase. On December 31, 1998 the Company sold all of the outstanding shares of NIA to CRLC. The Company recognized a gain of approximately $300 on the sale of NIA.
Changes in fair value of bonds were generally attributable to changes in interest rates. The Company's bond investments are comprised of high-quality investment-grade securities.
During 1997, the Company entered into capital lease obligations with Harleysville National Bank in the amount of $1,390 on data processing and other equipment which are included in property and equipment. The obligation in 1998 and 1997 was $840 and $1,151, respectively, with $101 and $92, respectively of interest being paid on these leases.
During 1998, HealthAxis issued 625,529 shares of Series B to AOL at $4.40 per share for an aggregate purchase price of $2,750, less issuance costs amounting to $51, of which a portion of such net proceeds was used to pay amounts due to AOL under the IM Agreement.
Holders of the Series B Preferred Stock will be entitled to cumulative dividends accruing from the date of issuance, as and if declared by the Board of Directors at the annual rate of $.13 per share. If all accrued dividends on the Series B Preferred Stock have not been paid or set apart for payment, no dividends or other distributions may be declared and paid or set apart for payment upon the Common Stock, Series A Preferred Stock or any other class of securities of HealthAxis having a dividend or distribution preference junior to the Series B Preferred Stock (the "Junior Stock"); and HealthAxis shall not repurchase, redeem or otherwise acquire any shares of its Common Stock, Series A Preferred Stock or any series of Junior Stock, other than the repurchase by HealthAxis of Common Stock from any HealthAxis employee upon the cessation of the employee's employment with HealthAxis. Holders of Series B Preferred Stock are not entitled to participate in any other dividends or other distributions (cash, stock or otherwise) declared or paid on or with respect to the Common Stock or any other class of stock of HealthAxis.
The remaining weighted average contractual life for all options granted and outstanding is approximately 5 years.
The fair value of the options and warrants granted are estimated on the date of grant using the Black-Scholes option-pricing model. The major assumptions used and the estimated fair value include no dividends paid, assumed forfeitures of 10% annually for non-vested options and warrants granted in 1996, and the following:
The Company has an employment contract with Mr. Clemens for a five year term with an annual base salary of approximately $400.
1998 1997 1996 -------- -------- -------- Liability at January 1 .................... $ 31,109 $ 15,438 $ 10,105 Less reinsurance recoverables ........ 14,165 6,930 4,275 -------- -------- -------- Net Balance at January 1 .................. 16,944 8,508 5,830
Provision (benefit) for unpaid losses: Current year ......................... 70,610 41,528 23,858 Prior years .......................... 897 3,272 (499) -------- -------- -------- Total incurred ............................ 71,507 44,800 23,359
Effective December 31, 1998 PILIC entered into a coinsurance agreement with the RCH whereby PILIC received a $10,000 ceding commission which consisted of a $5,000 non-refundable payment and a $5,000 payment contingent upon RCH's earning at least $10,000 in future profits from the ceded inforce business, plus 12% interest (the "guaranteed amount"). PILIC recognized the $10 million as ceding commission revenue net of transaction costs or $417 and PAMCO recognized a $5 million ceding commission liability because of the negative financial history of the business. As a result of the transaction, PILIC wrote-off unamortized deferred acquisition costs and restructuring costs aggregating $4.2 million.