In view of the short period between the date of the Terra Nova Acquisition and year-end, December 31, 1994 has been considered the date of the Terra Nova Acquisition for accounting purposes. As a result, the operations of the Company, UK Holdings and Terra Nova (Bermuda) for the period December 21, 1994 to December 31, 1994, which were not material, have been included in the results of operations of Terra Nova.
to 65.8% in 1997 from 61.6% in 1996, due to a movement away from property catastrophe reinsurance towards less volatile, but lower margin, primary business. The loss and LAE ratio for non-marine casualty business decreased to 74.9% in 1997 from 82.0% in 1996 as a result of stable results for prior years in 1997. The increase in the marine loss and LAE ratio to 64.6% in 1997 from 55.9% in 1996 was a consequence of the competitive market conditions that existed in 1997 compared to 1996.
The sources of funds for the Company's subsidiaries consist primarily of net premiums, investment income and proceeds from sales and redemption of investments. The funds are used primarily to pay claims and operating expenses and for the purchase of investments, largely fixed income securities.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Terra Nova (Bermuda) Holdings Ltd. and subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with accounting principles generally accepted in the United States of America.
(p) Accounting pronouncements: In February 1997, the FASB issued SFAS No. 129 "Disclosure of Information about Capital Structure". SFAS No. 129 is effective for financial statements for periods ending after December 15, 1997. SFAS No. 129 consolidates existing guidance in APB Opinion No. 10 "Omnibus Opinion", Opinion No. 15 "Earnings per Share" and SFAS No. 47 "Disclosure of Long-Lived Obligations", relating to a company's capital structure. Owing to its quoted status, the Company is already bound by the requirements of SFAS No. 129 and so no additional disclosures are required.
Cash and securities with a carrying value of $53,350,644 and $41,487,658 at December 31, 1997 and 1996 respectively, were held in trust for the benefit of the Company's Canadian cedents.
On January 9, 1995, the Company adopted two Executive Share Option Plans (the "Stock Option Plan"). The Stock Option Plan provides for the grant to eligible employees of options to purchase Class A ordinary shares of the Company (the "Option Shares"). The aggregate number of Option Shares issued and Option Shares for which an option may be granted is limited to 8% of the aggregate number of common shares of the Company outstanding. The options are only exercisable upon the occurrence of certain specified events and will expire no later than 10 years after the date granted. The Stock Option Plan is administered by the Board of Directors of the Company, which determines which employees are granted options.
ENVIRONMENTAL POLLUTION LOSSES AND LOSS ADJUSTMENT EXPENSES INCURRED AND RESERVES OUTSTANDING (NET OF REINSURANCE)
Insurance balances receivable and reinsurance recoverable on paid and unpaid losses are stated after deduction of an allowance for doubtful accounts as of December 31, 1997 and 1996 of $28,904,000 and $29,149,000, respectively. Doubtful accounts against which provisions of $841,000 had previously been made were written off during 1997. The charge to doubtful accounts was $1,238,000, for the year ended December 31, 1997, a release for doubtful accounts of $1,142,000 was made for the year ended December 31, 1996 and a charge to doubtful accounts of $3,000,000 was made for the year ended December 31, 1995.