Membership and other related revenue of $6,120,000 in 1995 was 46% lower than 1994 revenue of $11,339,000, which is primarily related to the changing mix of the membership base. A large portion of the Company's membership no longer participates in the Company's E&O program and is exempted from paying the associated marketing/placement fees. Further impacting the membership results is the 6% decline in the Company's membership base from the prior year level. These factors have caused continuing decreases in related revenue and earnings in 1995, and reflect the continuing effects of the change in Company's E&O carriers. As a result of this change and the related increased competitive pressures within the E&O market, the Company has been unable to retain some of its Members as participants in its current E&O program. Additionally, attraction of new full members is more difficult, due to premium quotes which are not competitive for certain brokers and also due to declinations by the Company's primary insurance carrier of certain other brokers.
Direct expense of the membership operations approximated 70% of related revenue for 1995 and 63% of related revenue for 1994. The disproportionate cost ratio is related primarily to the results of the CORs, which were particularly impacted by the membership declines, especially in the states of California and Texas. Also impacting the direct cost ratio is the effect of promotional discounting of some of the Company's membership programs, a step the Company has taken to ease the membership transition and retain some of its top producing members.
Investment income approximated $120,000 in 1994, a decrease of 95% from the 1993 level of $2,599,000. The 1993 earnings are the result of profit taking initiated in the second quarter of 1993 on the Company's previously unrealized gains on investments. Originally intended to be reinvested in diversified debt and equity funds, essentially all equity securities were sold. However, due to the capital and operating needs of POMG, which has since been discontinued, management was not able to reinvest these funds. Further discussion of POMG is presented in the "Discontinued Operations" section herein. The Company's investment results in 1994 have been severely impacted by market interest rates increases, as well as the impact of implementation of Statement of Financial Accounting Standards, SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," in January 1994. SFAS 115 expands the use
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles.
The agreements with CNA impose certain restrictive covenants until the $5,000,000 CNA Obligation is satisfied. These covenants include limits on dividends and on future borrowings. The funds due to CNA are a senior obligation of the Company, secured by an interest in the common stock of the Company's HOMS subsidiary and in the Company's Member list. For a five year period ending November 30, 1998, the Company and its Affiliates must provide CNA/Schinnerer with right of first refusal on E&O insurance offered to its membership.