Paid Loss Development - We use historical loss or loss adjustment expense payments over discrete periods of time to estimate future losses or loss adjustment expense. Paid development methods assume that the pattern of paid losses or loss adjustment expense occurring in past periods will recur for losses occurring in subsequent periods.
the amortization of deferred acquisition costs is correlated with earned premium and the ratio of amortization of deferred acquisition costs to earned premium in an accounting period is another measurement of performance.
Depreciation and Amortization. Depreciation and amortization expenses for 2010 increased $0.1 million, or 1.6%, compared with 2009.
Affirmative Insurance Holdings, Inc. (the Company), formerly known as Instant Insurance Holdings, Inc., was incorporated in Delaware in June 1998. The Company is a distributor and producer of non-standard personal automobile insurance policies and related products and services for individual consumers in targeted geographic areas. The Company currently offers insurance directly to individual consumers through retail stores in 9 states (Louisiana, Texas, Illinois, Alabama, Missouri, Indiana, South Carolina, Kansas and Wisconsin) as well as through 9,200 independent agents or brokers in 9 states (Louisiana, Texas, Illinois, Alabama, California, Michigan, Missouri, Indiana and South Carolina).
Income Taxes • The Company accounts for income taxes under the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial statement and tax return bases of assets and liabilities. Recorded amounts are adjusted to reflect changes in income tax rates for the period in which the change is enacted. Any resulting future tax benefits are recognized to the extent that realization of such benefits is more likely than not, and a valuation allowance is established for any portion of a deferred tax asset that management believes will not be realized. While the Company typically does not incur significant interest or penalties on income tax liabilities, the Company’s policy is to classify such amounts as income tax expense on the consolidated statement of income (loss).
The effect of reinsurance on premiums written and earned was as follows (in thousands):
Affirmative Insurance Company is party to a 100% quota share reinsurance agreement with a Texas county mutual insurance company, and the Company serves as a general agent for business written pursuant to that agreement. On January 10, 2011, the Company filed a petition for Interpleader and Declaratory Judgment in the District Court of Tarrant County, Texas on behalf of the Texas county mutual insurance company against Benjamin Rodriguez, Teresa Jaramillo, Oralia Barron and the Company’s insured, Cipriano Almanza, seeking leave to tender to the Court $20,000 in remaining proceeds of Almanza’s policy in satisfaction of a July 16, 2010 Final Judgment entered against Almanza in favor of Rodriguez, Jaramillo and Barron in the approximate amount of $770,000. The Texas county mutual insurance company included a claim for Declaratory Judgment based upon threatened action by counsel for Rodriguez, Jaramillo and Barron to assert direct claims against the Texas county mutual insurance company for amounts in excess of Almanza’s policy limits due to an alleged violation of the Stowers duty to settle within policy limits. As 100% reinsurer, the Company would be liable for any excess verdict entered against the Texas county mutual insurance company. The Company believes that the threatened Stowers claim lacks merit and intends to defend itself vigorously.
Gains and losses (realized and unrealized) for Level 3 assets and liabilities included in earnings for the year ended December 31, 2010, are reported in net investment income, other income and loss on interest rate swaps as follows (in thousands):
The condensed financial information of the parent company, Affirmative Insurance Holdings, Inc. as of December 31, 2010 and 2009, and for each of the three years ended December 31, 2010, 2009 and 2008 is presented as follows (in thousands, except share data):