Our residential property segment includes primarily manufactured housing and site-built dwelling insurance products. Approximately 41% of American Modern’s property and casualty and credit life gross written premium relates to physical damage insurance and related coverages on manufactured homes, generally written for a term of 12 months with many coverages similar to homeowner’s insurance policies. Our recreational casualty segment includes specialty insurance products such as motorcycle, watercraft, recreational vehicle, collector car and snowmobile. Our financial institutions segment includes specialty insurance products such as mortgage fire,
collateral protection and debt cancellation, which are sold to financial service institutions or their customers. The all other insurance segment includes products such as credit life, long-haul truck physical damage, commercial, excess and surplus lines and also includes the results of our fee producing subsidiaries.
American Modern’s commissions and other policy acquisition costs decreased 1.3% in 2005 to $198.6 million from $201.2 million in 2004. This decrease is attributable to the decrease in net earned premium. However, the decrease was partially offset by an increase in performance-based commission expense as a result of the improved underwriting results achieved in 2005 compared to 2004. The fluctuations in performance-based commission expense are attributable, in part, to American Modern’s “Pay for Performance” commission policy with agents representing the Company which reduces the up-front commission paid but rewards favorable underwriting and growth performance with a higher performance-based commission.
Also included in the above table are four fifteen-year operating lease arrangements relating to the lease of 80 barges used in the transportation operations. The barges can be purchased near the end of the fifteen-year terms at predetermined prices or, at the end of each lease period, the company can either return the barges or purchase the equipment at fair market
As of December 31, 2006, the transportation subsidiaries have $16.6 million of collateralized equipment obligations outstanding.
Premiums for physical damage and other property and casualty related coverages, net of premium ceded to reinsurers, are recognized as income on a pro-rata basis over the lives of the policies. Credit accident and health and credit life premiums are recognized as income over the
The number of open claims is the basis of this approach and consequently, changes in reserve adequacy will not affect the result of this method
While the hurricane activity over the past couple of years has significantly increased the cost of obtaining reinsurance, our strong relationships with our reinsurers have allowed us to provide exposure management that is consistent with our overall risk management strategy. In addition, our strong relationships with our reinsurers and our disciplined overall exposure management philosophy, combined with the financial strength of these reinsurers (as of December 31, 2006, approximately 85% of the Company’s catastrophe reinsurers had an A.M. Best rating of “A-” or better), allow us to be confident that we will be able to effectively manage our exposures in the future.
As discussed in Note 1, the Company adopted the recognition and related disclosure provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R), on December 31, 2006 and Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment, on January 1, 2005.
At December 31, 2006 and 2005, the Company had outstanding receivables, all of which were current, from one of its customers of $20.0 million and $12.6 million, respectively.