Debt-to-Total Capital Ratio - long-term debt divided by the sum of total stockholders’ equity and long-term debt (often referred to as total capital resources). This ratio helps management measure the amount of financing leverage in place (long-term debt) in relation to total capital resources and future leverage capacity.
•Declared and paid dividends per common share of $0.77, including a $0.13 special dividend in December 2020.
Premiums earned, net of ceded premium earned, grew by 9.6%, or $81.1 million, to $923.6 million for the year ended December 31, 2020, reflecting an increase in direct premium earned offset by increased costs for reinsurance.
Recognition of Premium Revenues. Direct and ceded premiums are recognized as revenue on a pro rata basis over the policy term or over the term of the reinsurance agreement. The portion of direct premiums that will be earned in the future is deferred and reported as unearned premiums. The portion of ceded premiums that will be earned in the future is deferred and reported as prepaid reinsurance premiums (ceded unearned premiums).
Policy Fees. Policy fees, which represents fees paid by policyholders to the MGA’s on all new and renewal insurance policies, are generally recognized as income upon policy inception, which coincides with related service obligations.
Deferred Policy Acquisition Costs. The Company defers direct commissions and premium taxes relating to the successful acquisition or renewal of insurance policies and defers the costs until recognized as expense over the terms of the policies to which they are related. Deferred policy acquisition costs are recorded at their estimated realizable value.
The following table provides the credit quality of available-for-sale debt securities with contractual maturities as of the dates presented (dollars in thousands):
Interest expense was $0.1 million, $0.2 million, and $0.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Awards under the Incentive Plan may include incentive stock options, non-qualified stock option awards (“Stock Option”), stock appreciation rights, non-vested shares of common stock, restricted stock awards (“Restricted Stock”), performance share units (“PSUs”), restricted stock units (“RSUs”), and other share-based awards and cash-based incentive awards. Awards under the Incentive Plan may be granted to employees, directors, consultants or other persons providing services to the Company or its affiliates.
The Company accrued for aggregate contributions of approximately $2.6 million, $2.2 million and $1.8 million to the 401(k) Plan for the years ended December 31, 2020, 2019 and 2018, respectively.
(2)Effective January 1, 2018, the Company adopted ASU 2018-02 and ASU 2016-01 and this amount represents reclassifications to retained earnings associated with the disproportional income tax effects of the Tax Act on items within AOCI and unrealized losses in AOCI relating to available-for-sale equity security investments, respectively.
The information about unpaid losses and loss adjustment expenses for the years ended December 31, 2016 to 2019, is presented as supplementary information and is unaudited.
Set forth is the following reconciliation of the net incurred and paid claims development tables to the liability for unpaid losses and LAE in the consolidated Balance Sheet as of December 31, 2020 (in thousands):
During 2020, the liability for unpaid losses and loss adjustment expenses, prior to reinsurance, increased by $54.7 million from $267.8 million as of December 31, 2019 to $322.5 million as of December 31, 2020. The increase in unpaid losses and LAE was the result of significant weather events above plan occurring during 2020, increases in litigated claims, reopened claims and prior years’ reserve development. During the year ended December 31, 2020, there were a significant number of storms including Hurricane Sally, compared to prior years which in the aggregate exceeded core loss ratio expectations. The number of adverse weather events and resulting claims during the fourth quarter of 2020 exceeded weather event claims reported during the first three quarters of 2020. Reported losses from Hurricane Sally significantly benefited from the Company’s catastrophe reinsurance protection. The Company reinsurance program reduced its direct estimate of Hurricane Sally ultimate losses of $133.4 million to $43.0 million on a net basis after estimated reinsurance recoveries. Other weather events resulting in losses with only limited benefit from the Company’s catastrophe reinsurance protection included Hurricanes Isaias, Eta, Delta and Zeta and other unnamed storms tracked by an industry numerically assigned identifier. These weather events totaled direct losses of $123.5 million and $119.0 million net after reinsurance.
•Case reserves, which are the reserves established by the claims examiner on reported claims.
landfall statistics, the range of estimates developed from industry catastrophe models, and claim reporting and handling statistics from our field units. It is common for the company to update its projection of unpaid losses and LAE for a significant hurricane event on a monthly, or even weekly basis, for the first 6-months following an event.
The methodology used to determine claim counts is based first around the event and then based on coverage. One event could have one or more claims based on the policy coverage, for example an event could have a claim for the first party coverage and a claim for third party liability regardless of the number of third party claimants. If multiple third-party liability claims are reported together, they would be counted as one claim.
On a consolidated basis, the balance sheet classification and exposure is comprised of $10.1 million of restricted cash held in a reinsurance trust account, which can be used only to settle specific reinsurance obligations of that VIE.