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We have audited the accompanying consolidated balance sheets of ING Life Insurance and Annuity Company and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in shareholder’s equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
The Company had a payable of $28.5 to ING AIH under the intercompany tax sharing agreement at December 31, 2006 and a payable of $30.3 to the Internal Revenue Service (“IRS”) at December 31, 2005 for federal income taxes.
Under prior law, life insurance companies were allowed to defer from taxation a portion of income. Prior to 2006, deferred income of $17.2 was accumulated in the Policyholders’ Surplus Account and would only become taxable under certain conditions, which management believed to be remote. In 2004, Congress passed the American Jobs Creation Act of 2004, allowing certain tax-free distributions from the Policyholders’ Surplus Account during 2005 and 2006. During 2006, the Company made a dividend distribution of $256.0, which eliminated the $17.2 balance in the Policyholders’ Surplus Account and, therefore, any potential tax on the accumulated balance.
The ING 401(k) Plan for ILIAC Agents, which allows participants to defer a specified percentage of eligible compensation on a pre-tax basis. Effective January 1, 2006, the Company match equals 60% of a participant’s pre-tax deferral contribution, with a maximum of 6% of the participant’s eligible pay.
The Registrant and a group of affiliated corporations provide property and casualty insurance related services. The Registrant also operated until December 1, 1996 a motor club through Enterprises. One hundred percent of the Registrant's insurance operations are in the State of New Jersey.
The increase in Motor Club's PPA loss and loss expense ratio is largely due to the new business written by Motor Club since January 1995. The Registrant has reserved the ultimate development of this new business at a loss and loss expense ratio of 78%; however it will be approximately twelve to eighteen months before the underlying loss development experience on this new business fully emerges.
FRR No. 48 amends rules and forms for registrants and requires clarification and expansion of existing disclosures for derivate financial instruments, other financial instruments and derivative commodity instruments, as defined therein. The amendments require enhanced disclosure with respect to these derivative instruments in the notes to financial statements. As of December 31, 1997, the Registrant has no derivative financial instruments.
The combined balance of our consolidated net unrealized gain on trading securities and other income, net increased by $35.4 million, to $11.8 million during the year ended December 31, 2009. This increase is attributable to an increase in the fair value of our trading securities portfolio and in the derivative component of our investment
Administrative service fees increased by $5.3 million, or 30.8%, to $22.5 million during the 2008 period. This fluctuation is primarily due to an increase in member months enrollment of self-funded arrangements of 495,265, or 25.7%. The higher member months enrollment is mainly the result of the contract for the Reform’s Metro-North region, which began on November 1, 2008. This contract is on an ASO basis and represented an increase in member months of 376,975.
The medical claims incurred of the Commercial business increased by $5.3 million during the 2008 period and its MLR decreased by 1.2 percentage points during the year ended December 31, 2008. The lower MLR is primarily the result of the re-pricing or termination of less profitable groups, cost containment initiatives and lower utilization trends in drug and medical services.
On December 8, 2008 we announced the immediate commencement of our $40.0 million share repurchase program. As of December 31, 2008, we have paid approximately $7.6 million under our stock repurchase program.
We have the ability to increase the premium rates throughout the year in the monthly renewal process, when renegotiating the premiums for the following contract year of each group as they become due. We consider the actual claims trend of each group when determining the premium rates for the following contract year.
For our audited consolidated financial statements as of December 31, 2009 and 2008 and for the three years ended December 31, 2009 see Index to financial statements in Item 15. Exhibits and Financial Statements Schedules” to this Annual Report on Form 10-K.
For the selected unaudited quarterly financial data corresponding to the years 2009 and 2008, see note 22 of the audited consolidated financial statements as of December 31, 2009 and 2008 and for the three years ended December 31, 2009.
Legislative and regulatory proposals have been made at the federal and state government levels related to the health care system, including but not limited to limitations on managed care organizations (including benefit mandates) and reform of the Medicare and Medicaid programs. (see Business-Government Regulation)
WellCare's principal source of revenue is premiums earned from the WellCare HMOs. Other revenue consists principally of interest and rental income. Premiums earned represented 98.2% of the Company's total revenue for the year ended December 31, 1999, and were less than the percentage recognized in 1998, after having declined in 1999 by 22.6%. In 1999, the average annual increase in WCCT commercial membership was offset by the decrease in WCNY commercial membership (see Business-GHI Transaction).
The Company seeks to control medical expenses through capitation arrangements with the Alliances/IPAs and with non-Alliance/IPA primary care physicians, capitation arrangements with certain specialty providers; and, through its quality improvement programs, utilization management. The Company also conducts reviews of hospital inpatient and outpatient services, and educational programs on effective managed care for its providers.
General and administrative ("G&A") expenses decreased 31.0% or $10.0 million, to $22.7 million in 1999 from $32.6 million in 1998, and decreased as a percentage of total revenue (the G&A ratio") to 20.1% in 1999 from 22.6% in 1998. Included in G&A in 1998 is an expense of $2.8 million to reduce Property & Equipment to its net realizable value. The decrease resulted primarily from reductions in the provision for doubtful receivables ($3.1 million), marketing related costs ($1.9 million), and payroll and payroll related costs resulting from staff reductions and associated operating costs brought about by consummation of the Comprehensive and GHI Transactions (see Business-Business Developments).
At December 31, 1999, the Company had a working capital deficiency of $7.4 million. At December 31, 1998 and December 31, 1997, the Company had working capital deficiencies of $26.1 and $5.1 million, respectively. The decreased deficiency is attributable primarily to the provider settlement agreements. The Company's requirements for working capital are principally to meet current obligation, to fund HMO operations and to maintain necessary regulatory reserves. In order to eliminate this deficiency, and to continue as a going concern, the Company was dependent upon the successful consummation of certain transactions which would provide capital sufficient to meet its financial obligations, including statutory compliance, and its achieving a return to profitability (see Business-Business Developments).
Equity securities available for sale: This security is valued using a blending of two models, a discounted cash flow model and a comparable company model utilizing earnings and multiples of similar publicly-traded companies.
The primary judgments relating to revenue recognition include determining whether (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and
We also assess the recorded value of computer software for impairment on a regular basis by comparing the carrying value to the estimated future cash flows to be generated by the underlying software asset. There is an inherent uncertainty in determining the expected useful life of or cash flows to be generated from computer software. We did not record any impairments for software
The change in revenue and net earnings is discussed in further detail at the segment level below.
Three of the Company’s title insurance underwriters, Fidelity National Title Insurance Company, Chicago Title Insurance Company and Commonwealth Land Title Insurance Company, have filed applications to redomesticate from their existing states of domicile to a new state of domicile. The anticipated redomestications are subject to prior regulatory approval, which may be received in the first quarter of 2017. If the anticipated redomestications are approved, the Company may receive a special dividend from the title insurance underwriters in 2017 related to such redomestication. This special dividend would be due in part to differences in the laws among the states of domicile.
Consolidated Statements of Equity for the years ended December 31, 2016, 2015, and 2014
Through FNFV group, our diversified investment holding company, we own majority and minority equity investment stakes in a number of entities, including American Blue Ribbon Holdings, LLC ("ABRH"), Ceridian HCM, Inc. ("Ceridian"), and Digital Insurance, Inc. ("OneDigital").
During the years ended December 31, 2016, 2015 and 2014 we incurred impairment charges relating to investments that were determined to be other-than-temporarily impaired, which resulted in impairment charges of $19 million, $14 million and $6 million, respectively. The impairment charges in 2016 related to fixed maturity securities of $13 million, an investment in an unconsolidated affiliate of $3 million, and an other long term investment of $3 million. In each case, we determined the credit risk of the holdings was high and the ability to recover our investment was unlikely. Impairment charges in the 2015 and 2014 periods were for fixed maturity securities that we determined the credit risk of these holdings was high and the ability of the issuer to pay the full amount of the principal outstanding was unlikely.
(1) See Note B for further discussion of assets and liabilities acquired in business combinations in the current year.
Travel expenses - decreased by $35,803, or 8%, from $421,796 in 2014 to $385,993 in 2015. The decrease was because of the Company’s expense control efforts.
accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the income statement in the year of disposition.
Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.72128:SGD1
The Company established a bank guarantee of HK$45,000 (approximately $5,770) for credit line with the China Construction Bank (Asia). The interest rate and charges are subject to change from time to time. The bank guarantee on the credit line is a pledge of a $6,418 fixed deposit which is included in Cash in bank - Fixed deposit as shown above. On December 31, 2015, no bank guarantee was provided.
The Company's effective tax rate for 2015 and 2014 was -10.56% and -12.07%, respectively. The provisions for income taxes for 2015 and 2014 are summarized as follows:
For the Singapore Office of ALCO Insurance, the initial term of the lease is two years beginning January 15, 2016 with a minimum lease commitment of $115,910.
ALCO’s subsidiary, ALC, is subject to a legal proceeding that has not been resolved and that has arisen in the ordinary course of business. On September 16, 2012, a ship-owner named Eastshine Limited filed a civil claim against five parties, including ALC, in the Qingdao Maritime Court (“QMC”) in China, claiming losses suffered of CNY 9.9 million (approximately $1.6 million) due to the allegedly wrongful arrest of a vessel named Tongli Yantai. Although ALC had no direct relationship with the Plaintiff in the business for the vessel, ALC was the insurance broker of one of the parties named in the legal proceeding, and assisted in resolving the vessel arresting matter. As a result, the Plaintiff has included ALC as one of the defendants in the legal action. In the opinion of management, there is a remote possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies. In addition, because the claims asserted in the legal proceeding are covered by an insurance policy with a policy limit of HK$75 million (approximately $9.6 million) any one claim and in the aggregate, ALC’s liability to the claim above is limited to HK$150,000 (approximately $19,230) and this amount is fully reserved in 2012. However, the outcome of this legal proceeding brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such as outcome to be remote, if the legal proceeding was resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.
UMC and UMY derive their primary revenues from medical claims processing and accounts receivable management services. A substantial portion of UMC and UMY revenues are derived from recurring monthly charges to their customers under service contracts that typically are cancelable with a 30 to 60 day notice. For the year ended December 31, 2004, 2003 and 2002, approximately 97%, 97% and 96% of UMC and UMY revenues were recurring. Recurring revenues are defined as revenues derived from services that are used by the UMC and UMY customers in connection with ongoing business, and accordingly exclude revenues from backlog accounts receivable management, UMClaimPros, and consulting services.
Office, vehicle and equipment rental expense decreased $3,000 or 15% in 2004 as compared to 2003 primarily as a result of the maturity of an auto lease in 2003. Assuming no significant changes in office space and equipment leased at 12/31/04, management expects lease and rental expense to be less than 1% of revenues in 2005.
On December 28, 1999, the Company executed a $500,000 recourse factoring agreement, which may be terminated by either party with ten days notice. The agreement is secured by all of the Company's non-factored accounts receivable and was previously personally guaranteed by Peter Seaman, Chairman and CEO. The factoring company released this personal guarantee on December 23, 2003. Other significant terms of the factoring agreement include recourse for invoices remaining unpaid at 90 days, interest at prime plus 2.5%, and a factoring fee of 1% of the face value of each invoice. The Company had no factored invoices at 12/31/2004.
The loss from discontinued operations totaling $1,019,000 for the year ended December 31, 2000, as compared with $1,109,000 in the prior year, includes our operating results prior to the merger with Sunteck. These costs consists primarily of interest expense of $701,000 and $935,000 for the years ended December 31, 2000 and 1999, respectively. In addition, the loss from discontinued operations for the year ended December 31, 1999 includes the write off of the net liabilities of our non-prime automobile subsidiary of $742,000 and an income tax benefit totaling $142,000 as a result of an audit by the Internal Revenue Service of our tax returns for the years ended May 31, 1993 through 1998.
Direct freight consisting primarily of delivery costs totaled $2,616,000 for the year ended December 31, 1999, as compared with $1,691,000 in the prior year. The increase is the result of the business expansion of Sunteck.
Income taxes totaling $16,000 for the year ended December 31, 1999 relate to the operating results of Sunteck prior to the date of acquisition.
The loss from discontinued operations was $13,624,000 for the year ended December 31, 1998. During 1998 we ceased to operate as an automobile finance company.
Please note this Form 10-K contains other information on factors that may affect financial results or cause actual results to differ materially from those contained in forward-looking statements.
In order for our life insurance operations to be profitable, we must achieve product experience consistent with our pricing assumptions. We price our products using a number of assumptions that are designed to support the desired level of profitability. The key assumptions made are investment return (the investment income that we will earn on the funds held to support reserves and capital requirements), persistency (the number of lapsed policies that we expect by each policy year), mortality (our future claims experience), and operating expenses, which includes the commission rate that we pay to the agents that market our insurance products. Additionally, we make assumptions about the characteristics of our insureds including age, sex, underwriting class, and coverage amounts purchased. Our operating results will be affected by variances between our pricing assumptions and our actual experience.
We use our historical experience combined with industry experience to develop our assumptions for the level, frequency, and pattern of future claims experience. If our actual experience differs from historical industry experience, we may incur claims in excess of the reserves that we have established.
The impact of a recession on the Company would depend on its duration and severity. A prolonged downturn in the economy could result in decreased demand for NAICO's insurance products and an increase in uncollectible premiums and/or reinsurance recoverables. In addition, an economic downturn could result in an increase in the number of insurance claims if insureds decrease expenditures that promote safety. Much of NAICO's insurance business is concentrated in the Southwest and Midwest areas of the United States. Approximately $145 million, or 86%, of NAICO's direct written premiums in 1999 were in the states of Oklahoma and Texas. An economic downturn in these states could have a significant adverse impact on the Company. A recession might also cause defaults on fixed-income securities owned by NAICO or Chandler Barbados. Management believes it has mitigated the impact of a recession by employing conservative underwriting practices and strict credit policies and maintaining a high-quality investment portfolio.
Gross premiums earned, before reductions for premiums ceded to reinsurers, increased 13%, 8% and 21% in 1997, 1998 and 1999, respectively. The increases are primarily attributable to an increase in written premium production in Texas and Oklahoma, which we believe resulted from increased marketing efforts in these states and new insurance programs in Texas. Net premiums earned, after such reductions, increased 6% in 1997, decreased 26% in 1998 and increased 55% in 1999. The reduction in net premiums earned in 1998 was due primarily to the purchase of additional reinsurance for NAICO's workers compensation, casualty and nonstandard private-passenger automobile insurance programs described previously. The rescission of two reinsurance treaties increased net premiums earned in 1999 by $19.6 million. See "Purchase of Additional Reinsurance."
Nonstandard private-passenger automobile gross premiums earned decreased 14%, 58% and 98% in 1997, 1998 and 1999, respectively. Net premiums earned in the nonstandard private-passenger automobile premiums decreased 47%, 95% and 99% in 1997, 1998 and 1999, respectively. During 1997, NAICO discontinued the Oklahoma and Arizona portions of its nonstandard private-passenger automobile program. Effective July 1, 1997, NAICO entered into a 100% quota share reinsurance agreement to fully reinsure the risk in the California portion of the program. NAICO has discontinued the California program.
On February 5, 2013, we received notice that another of the policies being purchased under the Agreement had matured prior to our completing the acquisition of the policy. The policy had a face value of $1,000,000. Under the terms of the Agreement with USI, as extended, we received proceeds equal to one half of the net proceeds less acquisition costs paid by USI. The gross revenue we received from the maturity of this policy was $452,923. At maturity, we had $83,715 capitalized into life settlement premiums paid for this policy.
The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of its office equipment or whether the remaining balance of office equipment should be evaluated for possible impairment.
On October 3, 2011, the Company issued 89,285,750 common shares pursuant to a share subscription agreement at $0.0005 per share for total proceeds of $45,000. Shares were issued to a company managed by our President.
On January 26, 2012, the Company repurchased and cancelled 89,285,750 shares of its own stock and as consideration issued a $45,000 promissory note to a company managed by our President. The promissory note is unsecured, bears interest at 10% per annum, and is due on or before January 26, 2013. During the year ended June 30, 2013, the Company settled the note in the amount of $48,205 including accrued interest to settlement. During the year ended June 30, 2013 the Company accrued $2,404 (year ended June 30, 2012 - $801) of interest expense in respect of this note payable.
The authorized common stock of the Company consists of 450,000,000 shares of common stock with par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001. As of June 30, 2013 the Company had 210,703,620 (June 30, 2012 - 205,446,480) common stock and zero (June 30, 2012 - zero) preferred stock outstanding.
On November 2, 2012, the Company issued 1,750,000 common shares pursuant to subscription agreements at $0.14 per share for total share proceeds of $245,000.
As a component of its investment strategy and to reduce its exposure to interest rate risk, the Company utilizes interest rate and total return swap agreements and interest rate cap agreements to match assets more closely to liabilities. Interest rate swap agreements are agreements to exchange with a counterparty interest rate payments of differing character (e.g., fixed-rate payments exchanged for variable-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes. The Company currently utilizes interest rate swap agreements to reduce asset duration and to better match interest earned on longer-term fixed-rate assets with interest credited to policyholders. A total return swap agreement is an agreement to exchange payments based upon an underlying notional balance and changes in variable rate and total return indices. The Company utilizes total return swap agreements to hedge its obligations related to certain separate account liabilities. The Company had 69 and 67 outstanding swap agreements with an aggregate notional principal amount of $3.8 billion and $3.4 billion as of December 31, 2000 and 1999, respectively.
The Company's consolidated financial statements and supplementary data are included under Item 14 of this Form 10-K beginning on page 44.
The Company has developed a plan to ensure its systems are compliant with the requirements to process transactions in the year 2000 and has a full-time manager dedicated to addressing Year 2000 compliance for the Company. The Company has utilized both internal and external resources to reprogram, or replace, and test software for Year 2000 compliance and plans to complete this project by late 1998. It is also working with each of its vendors to develop a test plan related to year 2000 data. The total project cost is estimated to be between $1.5 million and $2.0 million. All costs associated with the project have been expensed as incurred.
The Report of Independent Public Accountants and consolidated financial statements and related notes of Argonaut Group, Inc. and subsidiaries listed on the index to financial statements set forth in Item 14(a)1 of this Form 10-K Report are incorporated herein by reference to the Annual Report to Shareholders of Argonaut Group for the fiscal year ended December 31, 1997.
We recently received approval from the State of Florida to implement a 14.5% rate increase with respect to policies that renew or are written on or after April 10, 2010.
The combined loss and expense ratio (total of all expenses related to net premiums earned) is the key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio under 100.00% generally reflects profitable underwriting results. A combined ratio over 100.00% generally reflects unprofitable underwriting results. Our combined ratio for the year ended December 31, 2009 was 77.5% compared to 60.8% for the year ended December 31, 2008.
The combined loss and expense ratio to gross premiums earned for the year ended December 31, 2009 was 46.0% compared to 46.4% for the year ended December 31, 2008.
During 2009, we added investments in U.S. Treasury notes, commercial mortgage-backed securities, and corporate bonds to our investment portfolio. Such investments include securities that will be held-to-maturity and, also, certain investments that are available-for-sale. Fixed maturities classified as available-for-sale are carried at fair value while fixed maturities classified as held-to-maturity are carried at amortized cost. Changes in the general interest rate environment affect the returns available on new fixed maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing fixed maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new investments but increases the market value of existing investments, creating the opportunity for realized investment gains on disposition.
Property and Equipment. Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, which range from three to five years. Leasehold improvements are amortized over the shorter of the lease term or the asset’s useful life. Expenditures for improvements are capitalized to the property accounts. Replacements and maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred.
One of the Company’s directors owned the property located in St. Petersburg, Florida that was previously leased by the Company through the October 2008 lease termination date. Lease payments on this property for the year ended December 31, 2008 totaled $20,000.
Inland marine/fire gross premiums written, net premiums written and net premiums earned for the year ended December 31, 2007 decreased by 14%, 2% and 10%, respectively, when compared to 2006. Premiums in 2007 reflected mildly lower market rates when compared to 2006 as well as declines in production in certain property risks.
Total revenues for the year ended December 31, 2006 were $200.5 million, up 17%, compared with $171.3 million for the year ended December 31, 2005 primarily reflecting increases in both net premiums earned and net investment income.
Interest expense was $6.7 million for the years ended December 31, 2006 and 2005, respectively and resulted primarily from the Company’s $100 million 6.5% senior notes.
The Company has established three share-based incentive compensation plans (the “Plans”), which are described below. Management believes that the Plans provide a means whereby the Company may attract and retain persons of ability to exert their best efforts on behalf of the Company. The Plans generally allow for the issuance of grants and exercises through newly issued shares, treasury stock, or any combination thereof to officers, key employees and directors who are employed by, or provide services to the Company. The compensation cost that has been charged against income for the Plans was $2,210,615, $2,116,929 and $984,806 for the years ended December 31, 2007, 2006 and 2005, respectively. Of the $2.1 million expensed in 2006, approximately $343,000 related to the adoption of accounting for share-based compensation under SFAS 123(R). The approximate total income tax benefit accrued and recognized in the Company’s financial statements for the years ended December 31, 2007, 2006 and 2005 related to share-based compensation expenses was approximately $774,000, $741,000 and $345,000, respectively.
In January 2008 the Company made a commitment to purchase an interest in a hedge fund in the amount of $5.0 million.
Net income for the fiscal year ended June 30, 2002 was approximately $4.5 million as compared to approximately $1.2 million for the fiscal year ended June 30, 2001; a 285% increase. Earnings per diluted share increased by $0.40, to $0.56 for the fiscal year ended June 30, 2002.
There were a total of four negative adjustments reflected in the Company's financial performance during the fiscal year ended June 30, 2001, related to settlements with sponsors and/or lawsuits. These settlements, which are described above and in Note 9 to the Consolidated Financial Statements that comprise Item 8 hereof, reduced income before income taxes by approximately $2,086,000. Of this total, $773,000 was actually paid out during the fiscal year, with the balance to be paid during the fiscal year ended June 30, 2002. The Company is not currently aware of any other issues that might require a settlement. The Company believes its bad debt reserves and other reserves should be sufficient based on current information.
On August 20, 2002, the Company announced that it has signed a letter of intent to acquire Wellpartner Inc., a home-delivery pharmacy based in Portland, Oregon. Wellpartner offers personal pharmacy convenience through mail, telephone, facsimile, or online shopping to members throughout the United States. If this acquisition is consummated, the Company believes it will enhance its ability to offer integrated, full-service, mail order pharmacy services to its customers.
o program design and administrative service fees paid by our clients;
Significant reductions in operating expenses in 2004 versus 2003 were achieved based on the reorganization in the fourth quarter of 2003. Headcount at December 31, 2004 was 38 compared to 50 at December 31, 2003 and 109 at December 31, 2002. Rent and facility costs were significantly lower for the year ended December 31, 2004 compared to the year ended December 31, 2003 based on the vacated facilities as part of the fourth quarter 2003 reorganization.
We believe that our cash flow from operating activities will continue to provide sufficient funds to service our debt obligations. However, as our business grows, our working capital and capital expenditure requirements will also continue to increase. There can be no assurance that the net cash flow from operations will be sufficient to meet our anticipated cash flow requirements or that we will not require additional debt or equity financing in the future. We may issue stock to finance future acquisitions.
The information contained in “Selected Financial Data” on page 52 of the Annual Report is incorporated herein by reference.
In both the small group and large group businesses, the Company offers claims payment services, but such services are typically part of the monthly fee charged, as opposed to a function of the volume of claims filed. Thus, on the operating side, profitability is heavily reliant on both the volume of claims filed and the efficiency with which the Company processes claims. The same principle applies to the Company's other support functions, such as enrollment, billing, underwriting, customer service, and reporting. In the future, the Company's efficiency as an administrator of health care benefits will be influenced by its ability to increase the use of electronic data interchange ("EDI") in the claims collection and input function and its ability to expand the use of auto adjudication in the claims processing and payment function. Profitability also will be influenced by the Company's ability to increase operational efficiencies through consolidation of plants and maximization of economies of scale.
At the time of the TPCM acquisition, the Company projected a 10% to 15% growth rate in net cash flows at TPCM and paid a purchase price which resulted in $8.1 million of goodwill. Since this acquisition, TPCM has not achieved, and does not expect to achieve, the revenue and net cash flow projections prepared at the time of the acquisition due to, among other things, higher than originally expected attrition rates, significantly higher than expected claims experience (claims filed per enrollee), and greater than anticipated operating costs due to the inability to obtain economies of scale through integration. The Company's efforts to correct these deficiencies have not enabled it to meet its original projections. Lives covered at TPCM decreased by 32,000 during 1996. The Company has determined that its revised projected cash flows will not fully provide for the recovery of the goodwill balance of $7.5 million. Accordingly, the Company has written off $7.1 million of goodwill associated with the TPCM acquisition. Any further significant declines in TPCM's projected net cash flows may result in additional write-downs of remaining goodwill.
During the first quarter of 2005 the Company entered into a lease for 20,337 square feet of office space in Austin, Texas, under an eight year, triple net lease. The base rent was $0 in the first year (June 1, 2005 to May 31, 2006), $157,612 in the second year and payments escalate to $264,384 in the final year of the lease. Leasehold improvements totaled approximately $872,000 ($203,000 funded by landlord) on the new lease space that was occupied in December 2005. Leasehold improvements are being amortized over the lease term. The $117,000 initial rent holiday and $203,000 of landlord-funded leasehold improvements will be amortized over the lease term and reduce lease expense. Deferred rent credits are included in other liabilities and were approximately $284,000 and $320,000 for 2009 and 2008, respectively.
Claim liabilities for the Group Dental line are the most significant part of the Company’s claim liability. As stated above, the Company uses the completion factor method for calculating the liability. Two main assumptions are made in this approach. First, for months the claims are incurred where the completion factor is credible, the Company uses that completion factor to calculate the liability associated with that month the claim occurred. Second, for the most recent months before the Company’s financial statement date where it is determined that the completion factors are not fully credible, the Company reviews loss ratios and claims per insured per month to determine the liability for those months.
Operating expenses were $8,716,583 in 2009, $9,055,261 in 2008 and $9,012,950 in 2007. The decrease of approximately $338,678 in 2009 was primarily due to a decrease in executive incentive bonuses, claims administrative expense and printing and stationary expense. The decrease in the expense lines was primarily due to the decrease in the number of policies in force. The 4.7% increase for 2008 is primarily due to increased labor and other costs.
The Company has supported the growth of its PBM segment through three acquisitions. The revenues from this business segment are larger than those of the supplemental benefits segment and are continuing to grow at a higher rate.
Confidential Information. Most of our activities involve the receipt or use by us of confidential medical information concerning individual members, including the transfer of the confidential information to the member's health benefit plan. In addition, we use aggregated population data for research and analysis purposes. The HIPAA Regulations require our PBM clients to enter into business associate agreements with us that require us to assure confidential treatment of health care information and to only use or disclose such information as needed to provide our services and to use certain standard codes and data sets in processing claims. We believe that we have taken all necessary internal measures, and made all external vendor arrangements, to meet these obligations. However the HIPAA Regulations are just becoming effective on April 14, 2003 regarding the privacy rule, and future interpretation could result in expansion of our responsibilities. Moreover, any failure to meet current requirements, because of the heightened profile given to the privacy issue by HIPAA, could result in the loss of business by the Company. In addition, the laws of many states also restrict the use and disclosure of confidential medical information. Pursuant to HIPAA, state laws that are more protective of medical information are not pre-empted by HIPAA. Therefore, to the extent states enact more protective legislation, we could be required to make significant changes to our business operations.
We use both internally developed and third party systems to operate the Internet aspects of our business. If the number of users of our service increases substantially, we will need to significantly expand and upgrade our technology, transaction processing systems and network infrastructure. We do not know whether we will be able to accurately project the rate or timing of any increases, or expand and upgrade our systems and infrastructure to accommodate any increases in a timely manner. Our ability to facilitate transactions successfully and provide high quality customer service also
The Company incurred losses and administrative expenses during the year ended December 31, 1997 of $43,503,363 compared with $33,965,100 and $27,462,338 for the years ended December 31, 1996 and 1995, respectively. Expenses in 1997 were comprised of losses paid and provisions for losses incurred of $31,118,622, ceding commissions and excise taxes of $11,881,721 and operating expenses of $503,020. Losses incurred in 1996 and 1995 were $24,037,827 and $19,431,032 respectively. The loss ratio for the year ended December 31, 1997 was 68.1% compared to 66.6% and 67.5% for the years ended December 31, 1996 and 1995, respectively.
Years Ended --------------------------------------- 1997 1996 1995 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Reinsurance premiums collected $ 57,014,145 $ 46,031,997 $ 42,818,628 Losses and acquisition expenses paid (42,436,530) (34,302,453) (28,599,428) Administrative expenses paid (502,230) (501,147) (540,841) Investment income received 3,229,000 6,359,802 3,193,568 ------------ ------------ ------------ Net cash provided by operating activities 17,304,385 17,588,199 16,871,927 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments (318,139,315) (232,194,343) (182,526,749) Sales and maturities of investments 297,544,335 224,400,822 170,483,482 ------------ ------------ ------------ Net cash invested (20,594,980) (7,793,521) (12,043,267) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Participating Stock 217,500 120,000 150,000 Redemption of Participating Stock (10,965) (74,029) 0 Dividends paid (4,196,730) (4,007,483) (1,188,614) ------------ ------------ ------------ Net cash used in financing activities (3,990,195) (3,961,512) (1,038,614) ------------ ------------ ------------ (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,280,790) 5,833,166 3,790,046
The cost and fair value of debt securities at December 31, 1997, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Current claim year 31,904,950 24,080,078 19,540,192 Prior claim years (746,024) (42,251) (109,160) ----------- ----------- ----------- Total 31,158,926 24,037,827 19,431,032 ----------- ----------- ----------- Deduct paid losses attributable to:
The Company rents space for its principal executive offices under leases which expire up to June, 2009. Total rent expense for the years ended November 30, 1998, 1997 and 1996 were approximately $3.7 million, $2.1 million and $1.8 million, respectively. Future minimum rental commitments under existing leases are expected to be approximately $4.0 million annually. In 1997 the Company acquired commercial real estate in Hamilton, Bermuda for the purpose of securing long-term office space to meet its anticipated needs. The Company is in the process of developing this property and constructing its worldwide headquarters. The total cost of the development, including the land, is expected to be approximately $110.0 million, of which $23.7 million has been spent to date. It is estimated that the development will be completed sometime in 2001. Upon completion of the headquarters project, it is expected that the Company's rental commitments will be reduced.
In 1998, XLA obtained an unsecured revolving line of credit of $100 million for 364 days from Mellon Bank, N.A. During the year the full amount of this facility was borrowed at a weighted average rate of 5.898%. Total interest expense and facility costs amounted to $1.3 million for the year ended November 30, 1998. As at November 30, 1998, the outstanding balance was $100.0 million and is repayable within the next twelve months. This line of credit was replaced in December 1998 with a $150 million commercial paper funding facility provided by the same bank. XLI guarantees the indebtedness of XLA under this facility.
The credit agreements for all facilities contains various financial and non- financial covenants. The Company and its subsidiaries were in compliance with all covenants as at November 30, 1998.
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation". Had the Company adopted the accounting provisions of SFAS No. 123, compensation costs would have been determined based on the fair value of the stock option
The allocation of the purchase price is as follows (U.S. dollars in thousands):
stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share. (See Note 15).
The prior year reserve strengthening is comprised of $8.1 million in the Reinsurance division and $2.9 million in the ART division partially offset by $2.0 million of favorable prior year loss reserve development in the E&S and run-off. Reinsurance prior year loss reserve strengthening resulted from four casualty contracts that were non-renewed in prior years. The reserve strengthening in the ART division was primarily attributable to two casualty programs. The $2.0 million favorable development was driven by Environmental favorable development offset by unfavorable development in both Surety and Casualty lines.
Corporate and other expenses increased to $3.8 million compared to $2.7 million in 2011 due to increase excise taxes of $1.4 million in 2012 compared to $0.4 million in 2011.
On a quarterly basis, the Company’s internal actuary performs a reserve analysis. The evaluation entails the examination of our current actuarial assumptions compared to actual claim activity. If there is a material deviation from actual emerged losses and the actuarially determined expected losses, further research is completed to determine the cause. Discussions with the claims staff and the underwriting staff relative to these deviations, in some cases, reveal trends that warrant modifications of the current assumptions about loss development patterns and or expected loss ratios.
Many factors determine the profitability of an insurance company including regulation and rate competition; the frequency and severity of claims; the cost, availability and collectibility of reinsurance; interest rates; inflation; general business conditions; and jury awards, court decisions and legislation expanding the extent of coverage and the amount of compensation due for injuries and losses.
During 2004, NAICO experienced adverse loss development totaling $26.3 million primarily in the standard property and casualty and political subdivisions programs. This adverse development was due primarily to continued increases in losses in the workers compensation and other liability lines of business in the 1997-2002 accident years. Adverse loss development for other liability was $15.5 million. Adverse loss development for workers compensation, surety bonds and automobile liability were $7.6 million, $1.9 million and $1.1 million, respectively. As discussed previously, the adverse development in the 2002 accident year partially offset the reduction in losses for this accident year that was recorded during 2003. Involuntary workers compensation pools experienced $803,000 in adverse loss development, with $703,000 of this in 1996 and prior accident years. NAICO records losses based on information obtained from the pools plus an accrual for the lag time in reporting. The adverse loss development included approximately $409,000 for provisions for potentially uncollectible reinsurance and deductibles. Reserves for unpaid losses and loss adjustment expenses, net of related reinsurance recoverables, were $44.7 million at December 31, 2004 compared to $29.3 million at December 31, 2003, an increase of $15.4 million or 52%.