The two “primary” or “key” assumptions underlying the calculation of loss reserves for medical stop-loss business are (i) projected net loss ratio, and (ii) claim development patterns. The projected net loss ratio is set at expected levels consistent with the underlying assumptions (“Projected Net Loss Ratio”). Claim development patterns are set quarterly as reserve estimates are developed and are based on recent claim development history (“Claim Development Patterns”). The Company uses the Projected Net Loss Ratio to establish reserves until developing losses provide a better indication of ultimate results and it is feasible to set reserves based on Claim Development Patterns. The Company has concluded that a reasonably likely change in the Projected Net Loss Ratio assumption could have a material effect on the Company’s financial condition, results of operations, or liquidity (“Material Effect”) but a reasonably likely change in the Claim Development Pattern would not have a Material Effect.
The Company periodically reviews and assesses the vendor’s qualifications and the design and appropriateness of its pricing methodologies. Management will on occasion challenge pricing information on certain individual securities and, through communications with the vendor, obtain information about the
Goodwill and intangible assets with indefinite lives, which consist of licenses, are not amortized but are evaluated for impairment in the aggregate at the end of the fourth quarter of each year, or more frequently if indicators arise. If the fair value of the Company is less than its carrying amount (including goodwill), further evaluation is required to determine if a write-down of goodwill is required. Any impairment write-down of goodwill would be charged to expense. No impairment charge was required in 2013 or 2012. If the Company experiences a sustained decline in its results of operations and cash flows, or other indicators of impairment exist, the Company may incur a material non-cash charge to earnings relating to impairment of our goodwill, which could have a material adverse effect on our results.
Net Income attributable to the non-controlling interest. Net income attributable to the non-controlling interest increased $260,000 from 2011 to 2012. The net income for 2012 relates to the 49% non-controlling interest in HIO and the 10% non-controlling interest in IPA Family. The net income for 2011 relates to the 49% non-controlling interest in HIO and the 49% non-controlling interest in IPA Family for the first three quarters of the year and 21% non-controlling interest in IPA Family for the fourth quarter of the year.
Corporate derives cash flow funds principally from: dividends and tax payments from its subsidiaries and investment income from corporate liquidity. The ability of Independence American to pay dividends to its parent company is governed by Delaware insurance laws and regulations; otherwise, there are no regulatory constraints on the ability of any of our other subsidiaries to pay dividends to its parent company. For the twelve months ended December 31, 2013, Independence American and our Agencies paid $1,161,000 in dividends and $2,450,000 in tax payments to Corporate.
an other-than-temporary impairment loss for the year ended December 31, 2013. For the year ended December 31, 2012, the Company recorded a loss of $359,000 for other-than-temporary impairments. Of that impairment loss, $170,000 was recognized in earnings for the year ended December 31, 2012, and $170,000 of impairment loss was recognized in other comprehensive income for the year ended December 31, 2012. The following table summarizes the carrying value of securities with fair values less than 80% of their amortized cost at December 31, 2013 by the length of time the fair values of those securities were below 80% of their amortized cost (in thousands):
Certain amounts in prior years' Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2013 presentation.
Equity securities may experience other-than-temporary impairment in the future based on the prospects for full recovery in value in a reasonable period of time and the Company’s ability and intent to hold the security to recovery. If a decline in fair value is judged by management to be other-than-temporary or management does not have the intent or ability to hold a security, a loss is recognized by a charge to total other-than-temporary impairment losses in the Consolidated Statements of Income for the difference between the carrying value and the fair value of the securities. For the purpose of other-than-temporary impairment evaluations, redeemable preferred stocks are evaluated in a manner similar to debt securities. Declines in the creditworthiness of the issuer of debt securities with both debt and equity-like features are evaluated using the equity model in consideration of other-than-temporary impairment.
Substantially all of the unrealized losses on fixed maturities at December 31, 2013 and December 31, 2012 were attributable to changes in market interest rates. Because the Company does not intend to sell, nor is it more likely than not that the Company will have to sell, such
The following table summarizes the Company’s net realized investment gains (losses) for the years indicated (in thousands):
The current federal income tax provision for the periods ending December 31, 2013, 2012 and 2011 represents only federal alternative minimum tax due to the Company’s federal net operating loss carryforwards.
Independence American is required to maintain a certain minimum amount of statutory surplus to satisfy its state insurance department of domicile. Risk-based capital (“RBC”) requirements are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. At December 31, 2013 and 2012, the statutory capital of Independence American was significantly in excess of regulatory RBC requirements.
Included in accumulated other comprehensive income at December 31, 2013 and 2012 are adjustments of $269,000 and $269,000, respectively, related to the non-credit related component of other-than-temporary impairment losses recorded.