• Rates, including rates on excess policies, being subject to or mandated by regulatory approval;
• Changes in our financial ratings resulting from one or more of these uncertainties or other factors and the potential impact on agents’ ability to place insurance business on behalf of FPIC;
Revenue Recognition. Premium income, which is our main source of revenue, is generally recognized pro-rata over the respective period of each policy. Premium receivables are recorded net of an estimated allowance for uncollectible amounts. Some of our assumed reinsurance agreements with Physicians’ Recipricol Insurers (“PRI”) contain adjustable premiums based upon loss experience and our financial statements include estimated adjustments accrued through the end of the reporting period corresponding with our loss experience under these agreements for the period.
Other expenses declined 64% to $1.0 million for the year ended December 31, 2001 from $2.8 million for the year ended December 31, 2000. Other expenses for the year 2000 included a non-recurring pre-tax severance charge of $1.8 million.
Claims administration and management fees increased 35% to $23.0 million for the year ended December 31, 2001, from $17.0 million for the year ended December 31, 2000. The increase in claims administration and management fees is due to an increase in the premiums written by PRI.
Goodwill decreased 72% to $18.9 million as of December 31, 2002 from $67.2 million as of December 31, 2001. The decrease in goodwill is due to the adoption of FAS 142. As a result of the transitional impairment tests required by FAS 142, we reduced the carrying value of goodwill at our reciprocal management and TPA segments. The transitional impairment charge at the reciprocal management segment primarily reflects certain intangibles and synergies, which, in our opinion, are opportunistic in nature and carry a relatively higher degree of uncertainty; therefore, we treated these intangibles conservatively in the valuation required by FAS 142. The transitional impairment charge at the TPA segment primarily reflects changes in market conditions and an increase in competition in recent years in the markets served by the TPA segment.
Other assets increased 313% to $54.6 million as of December 31, 2002 from $13.2 million as of December 31, 2001. Approximately $38.2 million of the increase in other assets is due to the sale of investments for which the proceeds from the sale had not been received at December 31, 2002 and a receivable from the broker was recorded. The increase in other assets is also attributable to receivables for amounts due under our fronting programs and an increase in amounts due from PRI related to a change in the management agreement between AFP and PRI, partially offset by the receipt of a state tax refund due to the overpayment of estimated taxes in 2001.
iii) Unexpected changes in operating costs, including new or increased taxes;
Income Taxes. FPIC accounts for income taxes in accordance with FAS 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those 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 against deferred tax assets is recorded if it is more likely than not that all or some portion of the benefits related to the deferred tax assets will not be realized. We have not established a valuation allowance because we believe it is more likely than not that our deferred tax assets will be fully realized.
Goodwill and Intangible Assets.FPIC has made acquisitions in the past that have included goodwill and other intangible assets. Under accounting principles in effect through December 31, 2001, these assets were amortized as expense over their estimated useful lives. They were also tested periodically to determine if they were recoverable from operating earnings on an undiscounted basis.
Proceeds from sales and maturities of bonds were $313,313, $221,596 and $59,373, for the years ended December 31, 2002, 2001 and 2000, respectively. Proceeds from sales of equity securities were $566 and $966 for the years ended December 31, 2001 and 2000, respectively. Gross gains of $8,769, $4,530 and $168 were realized on sales of debt and equity securities for the years ended December 31, 2002, 2001 and 2000, respectively. Gross losses of $4,092, $3,101 and $3 were realized on sales of debt and equity securities for the years ended December 31, 2002, 2001 and 2000, respectively.
During 2002, FPIC concluded examinations by the Internal Revenue Service (“IRS”) of its consolidated Federal income tax returns for the years ended December 31, 1998 and 1999. As a result of these examinations, a net additional provision for income taxes was recognized in the amount of $554. FPIC is scheduled to undergo an IRS examination of its Federal income tax returns for the years ended December 31, 2000 and 2001, beginning in April of 2003. Based on the results of our recently completed IRS examinations, we believe that our income tax returns are correct and in compliance with applicable tax laws in all material respects. However, there can be no assurance that additional tax adjustments and related penalties and interest will not be proposed and incurred as a result of an IRS examination.
Ceded (204,479 ) (166,384 ) (98,319 ) (67,633 ) (35,349 ) (33,523 )
Under the terms of the credit facility, we are required to meet certain financial and non-financial covenants. Significant covenants are as follows:
The future minimum annual rentals under non-cancelable operating leases are as follows:
The weighted average fair value of options granted during 2002, 2001 and 2000 are as follows: