Crusader's statutory capital and surplus as of December 31, 2018, was $50,148,258, a decrease of $298,630 (1%) from December 31, 2017. In the years ending December 31, 2018 and 2017, Crusader issued cash dividends of $0 and $3,000,000 to Unico, its parent and sole shareholder, respectively. These dividends were used primarily for general corporate purposes. Based on Crusader’s statutory surplus for the year ended December 31, 2018, the maximum dividend that could be made by Crusader to Unico without prior regulatory approval in 2019 is $5,014,826.
The Company had loss before taxes of $3,926,792 and $9,880,221 for the years ended December 31, 2018 and 2017, respectively. This represents a decrease in net loss of $5,953,429 (60%) for the 2018 year compared to the 2017. This decrease in loss before taxes is due primarily to a decrease in losses and loss adjustment expenses of $6,932,764 (23%), a decrease in salaries and employee benefits of $1,250,873 (21%), and a decrease in policy acquisition costs of $554,850 (9%), partially offset by decrease in net earned premium of $3,588,409 (11%).
When there is clear evidence that the actual claims costs that have emerged are different than the claims costs that were expected for any prior accident year, the claims cost estimates for that year are revised accordingly. If the claims costs that emerge are less favorable than initially anticipated, generally, the Company increases its loss and loss adjustment expense reserves immediately. However, if the claims costs that emerge are more favorable than initially anticipated, generally, the Company reduces its loss and loss adjustment expense reserves over time while it continues to assess the validity of the observed trends based on the subsequent emerged claims costs.
As a California insurance company, Crusader is obligated to pay a premium tax on direct written premium in all states that Crusader is admitted. Premium taxes are deferred and amortized as the related premium is earned. The premium tax is in lieu of state franchise taxes and is not included in the provision for state taxes.
The Company’s investment in certificates of deposit included $6,726,000 and $27,698,000 of brokered certificates of deposit as of December 31, 2018 and 2017, respectively. Brokered certificates of deposit provide the safety and security of a certificate of deposit combined with the convenience gained by one-stop shopping for rates at various institutions. This allows the Company to spread its investments across multiple institutions so that all of its certificates of deposit are insured by the Federal Deposit Insurance Corporation (“FDIC”). Brokered certificates of deposit are purchased through UnionBanc Investment Services, LLC, a registered broker-dealer, investment advisor, member of FINRA/SIPC, and a subsidiary of MUFG Union Bank, N.A. Brokered certificates of deposit are a direct obligation of the issuing depository institution, are bank products of the issuing depository institution, are held by Union Bank Global Custody Services for the benefit of the Company, and are FDIC insured within permissible limits.
Expected dividend yield is based on the historical dividend behavior as well as the expected dividend behavior of the Company. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate for periods within the contractual life of the option is based on the U.S. treasury yield curve for a ten-year treasury in effect at the time of grant. The expected term represents an estimate of time the options are expected to remain outstanding. The Company estimates forfeitures at the time of the grant and revises those estimates in subsequent periods if the actual forfeitures differ from those estimates.