To combat the adverse trends recognized in 1999, management implemented various action plans including higher premium rate increases, accelerated repricing in certain targeted business segments, the exit from three underperforming markets, and the introduction of redesigned products with the conversion of older group health plans into these new benefit designs. In response to the increased pharmacy costs and utilization, the Company has introduced a two-tiered drug copay plan. Also, in late December 1999, the Company entered into a new agreement with its prescription benefit manager which is expected to provide cost and efficiency benefits. Management has also initiated new administrative programs designed to reduce claim costs. The benefits expected from the implementation of these programs should begin to materialize in 2000 and reduce the health loss ratio.
As more fully described in "Summary of 1999 Results," the Company recorded a $13.7 million after-tax charge for a premium deficiency reserve in the third quarter of 1999 to recognize expected losses related to highly regulated markets.
Income from discontinued operations reflects the operating results of Newco/UWS through September 25, 1998, the distribution date of the spin-off. Reported results of discontinued operations in 1998 included direct costs associated with the spin-off of $4.9 million.
During 1999, the Company's Board of Directors authorized the Company to repurchase up to $10.0 million of the Company's outstanding common stock. The Company purchased 1.1 million shares of its outstanding common stock at an aggregate purchase price of $7.5 million. As the majority of the shares were purchased in the fourth quarter of 1999, the share repurchase program did not have a material impact on the earnings (loss) per share computation for the year ended December 31, 1999.
The primary investment objective of the Company is to maximize investment income while controlling risks and preserving principal. The Company seeks to meet this investment objective through diversity of coupon rates, liquidity, investment type, industry, issuer and geographic location. The investment portfolio of the Company consists primarily of investment grade debt securities. The Company uses outside investment managers who seek to maximize return on the portfolio within the Company's investment guidelines. At December 31, 1999, $274.1 million or 99.2% of the Company's total investment portfolio was invested in debt securities.
- - The Company's ability to maintain attractive preferred provider networks for its insureds.
On May 27, 1998, the Board of Directors of the Company, then known as United Wisconsin Services, Inc., ("UWS") approved a plan to spin off its managed care companies and specialty management business to its shareholders (the "Distribution"). In connection with the spin-off, the Company changed its name to "American Medical Security Group, Inc." On September 25, 1998, the Distribution date, shareholders of AMSG received one share of common stock of a newly formed company, Newco/UWS, Inc. ("Newco/UWS"), for every share of AMSG owned as of September 11, 1998, the record date. AMSG obtained a private ruling from the Internal Revenue Service to the effect that the spin-off qualified as tax free to AMSG, Newco/UWS and AMSG shareholders.