As of December 31, 2011, we leased an aggregate of approximately 437,627 square feet of office space in various locations throughout the United States. The office space includes a lease for approximately 56,875 aggregate square feet of office space in a common building in Burr Ridge, Illinois, and our Burr Ridge lease term expires in November 2016. We lease approximately 56,888 square feet of office space in Addison, Texas, and our Addison lease term expires in March 2015. We also have two leases of approximately 55,186 aggregate square feet of office space in Baton Rouge, Louisiana. One Baton Rouge lease is for approximately 51,792 square feet of office space with a term that expires in January 2020. The second Baton Rouge lease is for approximately 3,394 square feet of office space with a term that expires in July 2014. We also have offices in Chicago and Dallas, which have 4,003 and 2,619 square feet, respectively. In addition, we have 201 owned retail stores that presently lease space on an individual basis at various locations in the states in which we do business. None of these individual retail store leases are material to our operations.
In Baton Rouge, Louisiana, we own a building of approximately 177,469 square feet for investment purposes. The building is under a lease agreement with a federal agency. The lease expires on November 16, 2020. However, the federal agency may terminate the lease, in whole or in part, on or after December 17, 2015 by giving at least one hundred twenty days’ written notice.
At December 31, 2011 and 2010, investments in fixed-maturity securities with an approximate carrying value of $10.2 million and $9.7 million, respectively, were on deposit with regulatory authorities as required by insurance regulations.
A quota-share reinsurance agreement was put in place effective January 1, 2011 ceding 28% of gross written premium in all states other than Michigan through December 31, 2011. Written premiums ceded under this agreement totaled $66.7 million during 2011.
Assumed written premiums by ceding insurer were as follows (in thousands):
The annual requirements for the risk-based capital covenant calculation were changed for December 31, 2010 and December 31, 2011.
As of December 31, 2011 and 2010, the principal balance of the senior secured credit facility was $99.6 million and $108.4 million, respectively. The interest rate on the borrowings under the facility at December 31, 2011 was 10.5%, which is the sum of the LIBOR floor of 3.0% plus 7.5%, based on the Company’s leverage ratio.
The Company’s obligations under the facility are guaranteed by its material operating subsidiaries (other than the Company’s insurance companies) and are secured by a first lien security interest on all of the Company’s assets and the assets of its material operating subsidiaries (other than the Company’s insurance companies), including a pledge of 100% of the stock of AIC. The facility contains certain financial covenants, which include capital expenditure limitations, minimum interest coverage requirements, maximum leverage ratio
On February 3, 2012, the Chapter 7 Trustee for the Estate of Inga Nikokhosyan filed suit against Affirmative Insurance Company (AIC) and Platinum Claims Services, Inc. (Platinum) in the Superior Court for the State of California, County of Los Angeles. Platinum is a third-party claims administrator contracted by AIC to handle claims written through an unaffiliated program managed by Carnegie General Insurance Agency. The lawsuit alleges claims for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, and punitive damages arising out of Platinum’s handling of a claim. The Company believes that these claims lack merit and intends to defend itself vigorously. No estimate of the range of potential loss can be made at this time.
In the fourth quarter of 2010, the Company committed to invest $2.5 million in Varadero, a hedge fund, and $10.0 million in a related liquidity-focused product. The investment manager of Varadero is Varadero Capital, L.P., of which Varadero GP, LLC is the general partner. Both the investment manager and general partner are partially-owned by an entity affiliated with Mr. Flowers. As of December 31, 2011, the Company had funded $2.5 million in the hedge fund and approximately $8.6 million in the related liquidity-focused product. At December 31, 2011, the fair value of the hedge fund was approximately $2.9 million, based on net asset value and recorded as other invested assets, and the fair value of the liquidity-focused product was approximately $8.5 million, included in available-for-sale securities in the consolidated balance sheets.
The Company is subject to comprehensive regulation and supervision by government agencies in Illinois, Louisiana, Michigan, and New York, the states in which the Company’s insurance company subsidiaries are domiciled, as well as in the states where its subsidiaries sell insurance products, issue policies, handle claims and finance premiums. Certain states impose restrictions or require prior regulatory approval of certain corporate actions, which may adversely affect the Company’s ability to operate, innovate, obtain necessary rate adjustments in a timely manner or grow its business profitably. These regulations provide safeguards for policy owners and are not intended to protect the interests of stockholders. The Company’s ability to comply with these laws and regulations, and to obtain necessary regulatory action in a timely manner, is and will continue to be critical to its success.