The Company's operating results may vary significantly depending on the underwriting results of the premiums serviced and underwritten by it. The Company does not assume any of the underwriting loss under its MPCI agreements with third party insurers; and under the Company's MPCI agreement with Fireman's Fund, there is no loss carryforward to reduce future underwriting gains. Underwriting gains or losses on crop insurance are generally not determinable until sometime after the second quarter of any year and, accordingly, the Company expects that revenues, if any, from these arrangements will typically be recognized in the third and fourth quarters. Underwriting gains on premiums serviced by the Company are recognized by the Company as additional service fees and, because they generally have very low related expenses, can have a material impact on the Company's operating results. Accordingly, although the Company's risk management strategy is to minimize its exposure to underwriting risk, the Company's earnings can be materially affected by factors which impact underwriting results and, accordingly, its portion of any underwriting gains, including the timing and severity of losses from storms and other natural perils.
Sales of VisAg-TM- and other mapping products have not made a significant contribution to revenues or earnings since their introduction. Management continues to assess the VisAg-TM- product marketing and distribution strategy, does not expect to achieve significant profitability in its software operations in 1997 and will seek to manage these operations to a break even level. The Company does, however, continue to believe map based technology is important in supporting its crop insurance operations and will continue to develop products or applications for use by its agency distribution network.
Historically, the Company has derived investment income from interest charged to policyholders who elect not to pay their MPCI premiums on the FCIC established due date and from investments. Under the MPCI program, the FCIC charges interest at a rate of 1.25% per month on overdue premiums and the insurance company, which is responsible for payment of the policyholder's premiums to the FCIC, passes such interest cost on to the policyholder.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased 150.6% to $28.9 million in the year ended December 31, 1995 from $11.5 million in the year ended December 31, 1994. The increase was due primarily to the increase in the number of employees hired to service the increased MPCI premium volume and additional general and administrative costs incurred as a result of the acquisitions made by the Company in 1995. At December 31, 1995 the Company had 524 employees, 142 of which were hired in 1995 as a result of acquisitions, compared to 228 at December 31, 1994. The Company also incurred significant start-up costs including development and marketing costs associated with the initial release of VisAg-TM- in December 1995.
Under its agreements with third-party insurance companies, the Company is generally responsible for billing and collecting premiums due from the insureds. To the extent that premiums are not collected, the Company is responsible for the uncollected balance. An allowance for uncollectible receivables has been provided based on historical experience and management's best estimate. The allowance was $3.1 million and $1.3 million at December 31, 1996 and 1995, respectively.
The Company may pay premiums which are due in advance of receipt of premium payments from the policyholder. Such amounts are considered an investing activity in the statements of cash flows.
Net (loss) earnings per common share is computed based on the weighted average number of common shares outstanding, including the effects of the Reorganization (see Note 8).
Based upon all available evidence including taxes paid during the carryback period, the Company believes that no valuation allowance is necessary for its deferred tax assets.
The Company has several operating leases for office space that expire at various dates over the next five years. Total rental expense was $1,079,042, $767,253, and $391,818 for the years ended December 31, 1996, 1995, and 1994, respectively.
In connection with the marketing and servicing of multi-peril crop insurance, crop hail and other named peril insurance, a significant amount of the premiums serviced are underwritten by CNA and Fireman's Fund. During 1996, 1995 and 1994, 40.2%, 59.9%, and 84.5% respectively, of the Company's service fee revenues were derived from premiums underwritten by CNA and 21.0% and 9.8% of the Company's service fee revenues were derived from premiums underwritten by Fireman's Fund. No premiums were serviced by the Company for Fireman's Fund in 1994.