During the year ended December 31, 1999, the Company's operating activities used $4.1 million of net cash, compared to generating $28.7 million of net cash during 1998 and $8.1 million in 1997. The cash generated from (used by) operating activities varies according to the Company's net income (loss) and the timing of collections and payments of the Company's own insurance and reinsurance balances.
In November 1998, the AICPA Accounting Standards Executive Committee issued SOP 98-7, "Deposit accounting: Accounting for Insurance and Reinsurance Contracts that do not transfer risk". This statement is effective for all quarters of fiscal years beginning after June 15, 1999. This SOP provides accounting guidance for insurance and reinsurance contracts that do not transfer risk, as determined by the provisions of SFAS 113. The Company adopted this standard effective January 1, 1999 and it did not have a significant impact on the Company's financial position or results of operations.
The Company's insurance and reinsurance subsidiaries may also have an underwriting exposure to the Year 2000 issue. Although the subsidiaries have not received any claims of coverage from insureds based on losses resulting from Year 2000 issues, there can be no assurance that insureds will be free from losses of this type or that these subsidiaries will be free from claims made under their policies.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This Form 10-K, or any oral or written statements made by or on behalf of the Company, may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are identified by their use of such terms and phrases as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects," "expect," "expected," "project," "projected," "projections," "plans," "anticipates," "anticipated," "should," "designed to," "foreseeable future," "believe," "believes" and "scheduled" and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
(ii) Managing general agency fees are included within program business segment revenue, and are reported net of commission expense to agents and are initially recorded as of the effective date of the related insurance policy and are recognized in income over the period of the underlying policy (which is typically one year). Fee income for claims handling services are recognized in income over the period that services are performed in accordance with the Company's contractual obligations, typically ranging up to five years, based on the Company's estimation of expected claims handling requirements in each accounting period. Such estimation is based upon industry standards. Any subsequent adjustments, including adjustments due to policy cancellation and premium adjustments, are recorded when advised by the client or agent. The portion that will be earned in the future is deferred and reported as deferred income in the consolidated balance sheets.
The fair value of options granted during 1999 was $1.25 per share. There were no options granted during 1998. The fair value of options granted during 1997 was $6.59 per share.
All U.K. judicial proceedings against the Company's subsidiaries have been stayed or held in abeyance pursuant to standstill agreements or court order, except for one proceeding where the subsidiaries are considering a request for a standstill and except for standstill agreements between two of the Company's subsidiaries and one ceding insurer client, which recently gave notice of termination of those standstill agreements.
One result of this market disruption has been that certain reinsurers with whom the Company's broker subsidiaries placed business on behalf of ceding insurer clients suspended claims payments to those clients, as well as to the Company's insurance and reinsurance subsidiaries. As a result, a number of arbitrations were commenced between Company clients and their reinsurers.