Premium revenue at Bankers Fidelity increased $19.3 million, or 27.6%, during 2012 as compared to 2011. Premiums from the Medicare supplement line of business increased $18.5 million, or 33.9%, in 2012 as compared to 2011, due primarily to an increase in business generated from the company’s core producers, new business issued in the state of Missouri as a result of favorable pricing compared to competitors, and active management and implementation of rate increases on renewal business, as appropriate. Other health product premiums increased $0.2 million, or 3.9%, during 2012 as compared to 2011, primarily as a result of new sales of the company’s short-term care products. Premiums from the life insurance line of business increased $0.7 million, or 6.0%, in 2012 from 2011 due to new sales activity. In 2012, the company’s five principal states in terms of premium revenue were Georgia, Missouri, Indiana, Ohio, and Pennsylvania and accounted for approximately 49% of total premiums for 2012.
Investment income increased $0.9 million, or 8.7%, in 2012 as compared to 2011. The increase in investment income was primarily attributable to an increase in yield on invested assets and a higher average balance of fixed maturities held by the Company in 2012 as compared to 2011.
As of December 31, 2011, financial instruments carried at fair value were measured on a recurring basis as summarized below:
Liabilities for life insurance future policy benefits are based upon assumed future investment yields, mortality rates, and withdrawal rates after giving effect to possible risks of unexpected claim experience. The assumed mortality and withdrawal rates are based upon the Company’s experience. The interest rates assumed for life, accident and health future policy benefits are generally: (i) 2.5% to 5.5% for issues prior to 1977, (ii) 7% graded to 5.5% for 1977 through 1979 issues, (iii) 9% for 1980 through 1987 issues, (iv) 5% to 7% for 1988 through 2009 issues, and (v) 4% for 2010 through 2012 issues.
The Company’s rental expense, including common area charges, for operating leases was $1,204 and $1,205 in 2012 and 2011, respectively. The Company’s future minimum base lease obligations under non-cancelable operating leases are as follows:
On May 1, 2012, the Company’s shareholders approved the 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan authorizes the grant of up to 2,000,000 stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other awards for the purpose of providing the Company’s non-employee directors, consultants, officers and other employees incentives and rewards for superior performance. As of December 31, 2012, no awards had been made under the 2012 Plan. During 2012, the Company’s 1992 Incentive Plan, 1996 Director Stock Option Plan and 2002 Incentive Plan (the “2002 Plan”) were terminated or expired pursuant to their terms with respect to the grant of additional awards thereunder. During the years ended December 31, 2012 and 2011, no awards were made under any of these plans. As of December 31, 2012, an aggregate of seventeen employees and officers held unexpired, unexercised options issued previously under the 2002 Plan. No awards were outstanding under the other expired plans.
Data on options outstanding and exercisable at December 31, 2012 is as follows:
The fair value of options granted is determined on the date of grant using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including the expected volatility of the stock price.