Full Year 2012
Net premiums written increased 38.9% to $569.7 million in 2012 compared with $410.0 million in 2011.
Net premiums earned were $501.5 million, an increase of 38.0% from 2011, primarily due to policy count growth of 31.5% year over year at December 31, 2012.
Net investment income was $72.4 million compared with net investment income of $80.1 million in 2011. The decrease was primarily related to a decrease in yield from 4.1% at December 31, 2011 to 3.7% at December 31, 2012.Realized gains on investments were $5.0 million compared with $20.2 million in 2011. The higher realized gains in 2011 resulted from the strategic re-balancing of our investment portfolio to increase portfolio allocations to taxable fixed income sectors, shorten portfolio duration following the decline in interest rates in the second half of 2011, and increase the allocation of the portfolio to high dividend equity securities. Losses and LAE were $287.9 million compared with $262.5 million in 2011 primarily as a result of an increase in net premiums earned, partially offset by a $9.6 million LPT Contingent Commission Adjustment and the $73.3 million favorable LPT Reserve Adjustment in 2012. The current accident year provision rate for losses was 77.0% in 2012 compared with 77.2% in 2011. Before the impact of the LPT, losses and LAE were $387.8 million in 2012 and $281.8 million in 2011. Commission expense was $65.6 million compared with $47.3 million in 2011. Higher commission expense in 2012 was primarily due to higher net premiums earned and higher agency incentive commissions from increased agent production. Dividends to policyholders were $3.2 million in 2012 compared with $3.4 million in 2011. Policyholder dividends fluctuate due to changes in premium levels on dividend policies and the eligibility of policyholders to receive dividend payments. Underwriting and other operating expenses were $121.4 million compared with $100.7 million in 2011, an increase of 20.6% primarily as a result of a $7.2 million increase in bonus and equity compensation expenses, an increase in premium taxes and assessments of $3.1 million and an increase in bad debt expense of $2.1 million. These increases were partially offset by a $1.6 million decrease in professional services fees compared to 2011. Additionally, implementation of the new accounting guidance for DAC resulted in a $7.1 million increase in our underwriting and other operating expenses for the full year 2012. This increase was partially offset by a $1.4 million net reduction in underwriting and other operating expenses in 2012 related to a change in estimate for guarantee fund assessments.
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