The Company’s assets at December 31, 2012 included $68.7 million in short-term and cash equivalent investments which are readily convertible to cash without market penalty and an additional $150.7 million of fixed maturity investments (at par) maturing in less than one year. The Company believes that these liquid investments, plus the expected cash flow from current operations, are more than sufficient to provide for projected claim payments and operating cost demands. In the event competitive conditions produce inadequate premium rates and the Company chooses to further restrict volume, the liquidity of its investment portfolio would permit management to continue to pay claims as settlements are reached without requiring the disposal of investments at a loss, regardless of interest rates in effect at the time. In addition, the Company’s reinsurance program is structured to avoid significant cash outlays that accompany large losses.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Baldwin & Lyons, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2012, 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 8, 2013 expressed an unqualified opinion thereon.
The Company’s fixed maturities are over 90% invested in investment grade fixed maturity investments. The Company has a total of $35,300, representing 17 different investments, of fixed maturity investments which were originally issued with guarantees by three different third party insurance companies, with the largest exposure to a single investment being $5,300. The average S&P credit rating of such investments, with consideration of the guarantee, is AA. The average S&P underlying credit rating of such investments, without consideration of the guarantee, would remain AA. The Company does not have any direct exposure to any guarantor.
Net losses and loss expenses incurred for 2012, 2011 and 2010 have been reduced by ceded reinsurance recoveries of approximately $90,899, $56,600, and $15,318, respectively. Ceded reinsurance premiums and loss recoveries for the purchase of catastrophe reinsurance coverage on the Company’s net direct business were not material.
Under the Employee Option Plan (the “Employee Plan”), which is shareholder approved, the Company has reserved 1,125,000 shares of Class B common stock for the granting of discounted and market value options to employees. Approximately 259,000 shares of Class B common stock are available for future grants. No options were granted to employees during the three year period ended December 31, 2012. Additionally, no options were outstanding or exercised at any time during this period. Accordingly, no compensation cost was charged against income for the Employee Plan for 2012, 2011 and 2010.
Each year, beginning in 2009, the Company has issued shares of class B restricted stock to the Company’s outside directors. The shares serve as the annual retainer compensation for the outside directors for the periods shown below. The shares are distributed on the vesting date and have a total value of $440 for each of the annual periods. The table below provides detail of the stock issuances to date as of December 31, 2012:
Limited partnerships: The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to carry the investment at its proportionate share of the limited partnership’s equity. The underlying assets of the Company’s investments in limited partnerships are carried at fair value, and, therefore, the Company’s carrying value of limited partnerships approximates fair value. As these investments are not actively traded and the corresponding inputs are based on data provided by the investees, they are classified as Level III.
A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company’s consolidated balance sheet at December 31, 2012 is as follows: