The following tables present the Insurance segment results for the year ended December 31, 2019 and 2018.
For the year ended December 31, 2019, employee compensation and benefits were $49.8 million and other expenses were $50.7 million, as compared to $45.5 million and $41.3 million, respectively, for the year ended December 31, 2018. Employee compensation and benefits increased by $4.3 million, or 9.3% driven by investments in human capital associated with our growth objectives in commercial and warranty programs. Other expenses increased by $9.3 million, or 22.5%, driven by increases in premium taxes, which grew in line with premiums.
The below table shows gross written premiums and premium equivalents by business mix for the years ended December 31, 2020, 2019 and 2018.
Underwriting and fee revenues were $693.1 million for the year ended December 31, 2020, as compared to $619.5 million, for the year ended December 31, 2019. Of the total underwriting and fee revenues for the year ended December 31, 2020, the drivers by business mix were U.S. Insurance $499.7 million, U.S. Warranty Solutions $170.7 million and Europe Warranty Solutions $22.7 million, as compared to $519.1 million, $93.6 million and $6.8 million, respectively, for the year ended December 31, 2019. Total underwriting and fee revenues were up $73.6 million, or 11.9% driven by growth in U.S. and Europe Warranty Solutions, partially offset by a decline in U.S. Insurance. The decrease in U.S. Insurance was $19.4 million, or 3.7%, driven by increased ceded premiums and increased cancellations from the impacts of increased stimulus related to COVID-19 in our credit insurance and collateral protection programs. This was partially offset by growth in commercial, warranty insurance and niche personal lines programs. The increase in U.S. Warranty Solutions was $77.1 million, or 82.4%, driven by the acquisition of Smart AutoCare and growth in auto, consumer goods, and premium and warranty finance programs. Europe Warranty Solutions increased by $15.8 million, or 231.4%, driven by growth in auto and consumer goods
(1) See “-Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Total stockholders’ equity was $373.5 million as of December 31, 2020, compared to $411.4 million as of December 31, 2019, primarily driven by the year to date net loss, stock repurchases and dividends. As of December 31, 2020, there were 32,682,462 shares of common stock outstanding, as compared to 34,562,553 as of December 31, 2019.
We define underwriting and fee revenues as total revenues from our Insurance segment excluding net investment income and net realized and unrealized gains (losses). Underwriting and fee revenues represents revenues generated by our underwriting and fee-based operations and allows us to evaluate our underwriting performance without regard to investment income. We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Underwriting and fee revenues should not be viewed as a substitute for total revenues calculated in accordance with GAAP, and other companies may define underwriting and fee revenues differently.
Cash provided by financing activities was $36.9 million for the year ended December 31, 2019. In 2019, our new borrowings from various debt arrangements exceeded our principal repayments primarily due to increased borrowings on our mortgage warehouse facilities due to increased volume in our mortgage business, increased borrowing on our secured corporate credit agreement in our insurance business to support growth, and a vessel backed term loan, offset by the repayment of asset based borrowings in our credit loan fund, held within our insurance investment portfolio. Net cash provided by increased borrowings under our debt facilities was offset by the repurchase of $9.1 million of the Company’s common stock and the payment of $5.5 million in dividends.
For AFS securities, the Company reviews its securities portfolio for impairment and determines if impairment is related to credit loss or non-credit loss. In making the assessment of whether a loss is from credit or other factors, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis.
Ceding commissions earned under reinsurance agreements are based on contractual formulas that take into account, in part, underwriting performance and investment returns experienced by the assuming companies. As experience changes, adjustments to the ceding commissions are reflected in the period incurred and are based on the claim experience of the related policy. The adjustment is calculated by adding the earned premium and investment income from the assets held in trust for the Company’s benefit less earned commissions, incurred claims and the reinsurer's fee for the coverage.
◦With assistance from our actuarial specialists, we developed an independent expected range of policy liabilities and unpaid claims based on historical and industry claim development factors.
•Reserves for unpaid losses and loss adjustment expenses, estimated future claims and losses, potential litigation and other claims;
•Level 1 - Unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Subsequent activity related to the credit loss component (e.g. write-offs, recoveries) is recognized as part of the allowance for credit losses on AFS securities. For AFS securities which have an expectation of zero risk nonpayment of the amortized cost basis (e.g. U.S. Treasury securities or agency securities), the expected credit loss is zero.
The Company’s restricted cash primarily consists of cash for unremitted premiums received from agents and insurers, fiduciary cash for reinsurers and pledged assets for the protection of policy holders in various state jurisdictions. Restricted cash also includes cash posted as collateral under credit facilities to maintain borrowing base sufficiency, borrower escrow
Through the insurance business, the Company has various reinsurance agreements in place whereby the amount of risk in excess of its retention goals is reinsured by unrelated domestic and foreign insurance companies. The Company is required to pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement. Reinsurance receivables include amounts related to paid benefits, unpaid benefits and prepaid reinsurance premiums. Reinsurance receivables are based upon estimates and are reported on the consolidated balance sheets separately as assets, as reinsurance does not relieve the Company of its legal liability to policyholders. Management continually monitors the financial condition and agency ratings of the Company’s reinsurers and believes that the reinsurance receivables accrued are collectible. Balances recoverable from reinsurers and amounts ceded to reinsurers relating to the unexpired portion of reinsured policies are presented as assets. Experience refunds from reinsurers are recognized based on the underwriting experience of the underlying contracts.
Other liabilities and accrued expenses primarily consist of lease liabilities, accounts payable and accrued expenses, deferred tax liabilities, net, securities sold, not yet purchased, commissions payable and accrued interest payable. See Note (15) Other Assets and Other Liabilities and Accrued Expenses.
During the year ended December 31, 2020, the Company recorded an impairment of $4,428 related to assets and liabilities held for sale. See Note (16) Other Revenue and Other Expenses. No impairment related to assets and liabilities held for sale was recorded for the years ended December 31, 2019 or 2018.
The Company conducts its operations primarily in the U.S. with less than 6% of total revenues generated overseas for the years ended December 31, 2020, 2019 and 2018.
The Company applies a discounted cash flow model, based on assumptions and model outputs provided by an investment management company, in determining its lifetime expected credit losses on AFS securities. This includes determining the present value of expected future cash flows discounted at the book yield of the security.
(1) The cost basis of Corporate loans was approximately $11,282 and $11,969 at December 31, 2020 and December 31, 2019, respectively.
The following table presents the activity in goodwill, by operating segment and/or reporting unit, as appropriate, and includes the adjustments made to the balance of goodwill to reflect the effect of the final valuation adjustments made for acquisitions, as well as the reduction to any goodwill attributable to impairment related charges:
(2) The addition to Other relates to a fishing license acquired by our shipping operations.
Mortgage Loans Held for Sale: Mortgage loans held for sale are generally classified under Level 2 in the fair value hierarchy and fair value is based upon forward sales contracts with third-party investors, including estimated loan costs.
Management considers the prior year development for each of the two years to be insignificant when considered in the context of our annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims expenses. We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or adverse development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our product pricing or offerings.
On November 2, 2020, the Board of Directors authorized the Company to make repurchases of up to $20,000 of shares of the Company’s outstanding common stock in the aggregate, at the discretion of the Company's Executive Committee. The shares purchased during the first, second and third quarters of 2020 were purchased under a previous authorization. The following table presents the Company’s stock repurchase activity and remaining authorization.
Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant. The option awards have a 10-year term and are subject the recipient’s continuous service, a market requirement, and vest one third on each of the three, four, and five year anniversaries of the grant date. The market requirement is a book value per share target that can be met at any time before the option expires and it only needs to be met once for the option to remain exercisable for the remainder of its term. If the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period whether the market requirement is met or not. The options granted after 2017 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date. Book value targets for grants in 2020, 2019, 2018, 2017 and 2016 are $11.52, $10.79, $9.97, $10.14 and $8.96, respectively.
The Company is a defendant in Mullins v. Southern Financial Life Insurance Co., which was filed in February 2006, in the Pike Circuit Court, in the Commonwealth of Kentucky. A class was certified in June 2010. At issue is the duration or term of coverage under certain disability and life credit insurance policies. The action alleges violations of the Consumer Protection Act and certain insurance statutes, as well as common law fraud and seeks compensatory and punitive damages, attorney fees and interest. To date, the court has not awarded sanctions in connection with Plaintiffs’ April 2012 Motion for Sanctions. In January 2015, the trial court issued an Order denying the Company’s motion to decertify the class, which was upheld on appeal. Following a February 2017 hearing, the court denied the Company’s Motion for Summary Judgment as to certain disability insurance policies. In January 2018, the court vacated its November 2017 order granting Company’s Motion for Summary Judgment as to the life certificates at issue with leave to refile. No trial or additional hearings are currently
On March 9, 2021, the Company’s board of directors declared a quarterly cash dividend of $0.04 per share to holders of common stock with a record date of March 22 2021, and a payment date of March 29, 2021.