Investment income and realized gains (losses) on investments decreased approximately $4,000, or 3.5%, to $111,000 in 2011 from $115,000 in 2010. This decrease is the result of funds that were invested in low yield money market investments during the transition from short duration to medium duration corporate bond investments in 2011. In 2010, we invested in short duration investment grade corporate bonds, Federal Deposit Insurance Corporation (“FDIC”) insured certificates of deposit and money market funds. In 2011, we invested in medium duration investment grade corporate bonds, FDIC insured certificates of deposit and money market funds.
Our accounting for income taxes requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that are recognized in our financial statements in different periods than those in which the events are recognized in our tax returns. The measurement of deferred tax liabilities and assets is based on current tax laws as of the balance sheet date. We record a valuation allowance related to deferred tax assets in the event that available evidence indicates that the future tax benefits related to deferred tax assets may not be realized. A valuation allowance is required when it is more likely than not that the deferred tax assets will not be realized. Our determination of whether a valuation allowance is required is subject to change based on future estimates of the recoverability of our net deferred tax assets.
Company estimates that the adoption of the guidance will result in a decrease in the deferred acquisition cost asset and total redeemable preferred and common shares of approximately $125,000, net of tax, at adoption on January 1, 2012.
As an Ohio-domiciled insurance company dually licensed as a life and health insurer and a specialty health insuring corporation, Dental Care Plus Inc. is able to underwrite dental indemnity, dental PPO, dental HMO, and vision benefit products as well as other life and health insurance products.
The investment grade corporate bonds consisted of seventeen different securities each with a credit rating of A- or better at December 31, 2011. The remaining six securities had a credit rating of between BB+ and BBB+ at December 31, 2011. The weighted average yield-to-book value of our investment grade corporate bonds was approximately 4.38% at December 31, 2011. The weighted average maturity of our investment grade corporate bonds was 9.36 years at December 31, 2011. The unrealized gains and losses on available-for-sale investment activity are due to a change in the market prices for these investments caused by any changes in prevailing interest rates since they were purchased. The Company realized approximately $17,000 of net investment gains for the year ended December 31, 2011. There were no realized gains or losses for the years ended December 31, 2010 and 2009.
In accordance with the 2006 Dental Care Plus Management Equity Incentive Plan and the Dental Care Plus, Inc. and DCP Holding Company Deferred Compensation Plan (the “Plans”), Company directors and certain key employees elected to defer portions of their director fees and employee compensation, as applicable. The Company recorded expense of approximately $60,000, $59,000 and $93,000 related to deferred director fees and deferred employee compensation for the years ended December 31, 2011, 2010 and 2009, respectively. Directors and key employees who elect to defer cash compensation may request that the Company invest this compensation in a mutual fund investment or phantom shares of the Company. The Plans also provide for the directors and key employees to receive share awards based on the book value of the Redeemable Common Shares. Key employees may elect to defer receiving such amounts until termination of employment and vesting requirements are met. If a key employee does not elect to defer receiving his or her share awards, the individual will receive Class B Redeemable Common Shares upon vesting. Effective with share based awards granted after January 1, 2010, directors may not defer their share based awards and may only receive Class B Redeemable Common Shares upon vesting. If the share awards are deferred, these deferred amounts will be paid in cash at redemption. An individual director’s award vests 100% at the end of each year if the director meets certain attendance requirements. The key employee awards vest 10%, 20%, 30% and 40% at the end of each respective year in a four-year period following the grant date. There are no performance criteria associated with the vesting of the awards for key employees and the only requirement for vesting is that the individual is an employee of the Company at the end of the vesting year in question. The deferred compensation expense related to these awards is recorded ratably during the applicable vesting period. The Company recorded deferred compensation expense of approximately $288,000, $27,000, and $186,000 related to deferred share awards and the change in the value of phantom shares for the years ended December 31, 2011, 2010 and 2009, respectively. As of December 31, 2011 there is approximately $102,000 of total unrecognized compensation cost related to non-vested award compensation under the Plans. That cost is expected to be recognized over a weighted average period of 1.7 years.