Loss and loss adjustment expense reserves represented approximately 74% and 81% of the Company's consolidated liabilities at December 31, 1999 and 1998, respectively. The decrease in this percentage was due to the acquisition of MEEMIC Holdings, which has a smaller percentage of reserves to total liabilities when compared to professional liability reserves, therefore the percentage of reserves to total liabilities has decreased. These reserves are determined on the basis of individual claims and actuarially determined estimates of future losses based on the Company's past loss experience and projections as to future claims frequency, severity, inflationary trends and settlement patterns. Estimating reserves, and especially professional liability reserves, is a complex process that is heavily dependent on judgment and involves many uncertainties. As a result, reserve estimates may vary significantly from the eventual outcome. It has been the practice of the Company to establish its loss and loss adjustment expense reserves within the range of acceptable values periodically estimated by the Company's consulting actuary. The Company's carried reserves are recorded based on such actuarial estimates. The assumptions used in establishing the Company's reserves are regularly reviewed by management and revised as new data becomes available. Any adjustments necessary are generally reflected in current operations.
Reinsurance experience refunds were $3.1 million in 1998. Through 1995, reinsurance agreements on the Florida business included profit sharing provisions whereby premiums were refunded to the Company after an established period of time if premiums paid exceeded actual losses incurred plus an allowance for expenses. Interest income also accrued on excess premiums paid. In prior years, the amount of profit recognized in income was based on ultimate loss projections established by the Company's independent actuary. Reinsurance profits were paid to the Company when losses developed favorably. During 1998, reinsurance contracts covering claims prior to 1991 were commuted. Therefore, any deferred reinsurance profits from these contracts were recognized in 1998. Reinsurance experience refunds subsequent to 1998 are not expected to be material.
Professional liability net premiums earned were $110.7 million for 1998, a decrease of $1.2 million, or 1.0%, compared to net premiums earned of $111.9 million for 1997. The decrease in professional liability net premiums earned was due primarily to lower premiums earned in Michigan and Florida resulting from price-based competition. This decrease in professional liability net premiums earned was offset somewhat by increased business in Illinois and Ohio, expansion of business into Pennsylvania and an increase in the Company's net retention from $250,000 to $500,000, effective January 1, 1998.
The net loss for 1998 was $3.2 million, or a loss of $0.35 per diluted share, on revenues of $203.7 million. This compares to net income of $22.4 million, or $2.44 per diluted share, on revenues of $181.5 million in 1997.
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities", which is effective for fiscal quarters of all fiscal years beginning after June 15, 2000 (as amended by SFAS No. 137). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction, and if it is, the type of hedge transaction. As the Company currently does not use derivative instruments, we anticipate that the adoption of SFAS No. 133 will not affect the results of operations or financial position of the Company.
The Company applies APB Opinion 25 and related Interpretations in accounting for these plans. Accordingly, no compensation cost has been recognized for these stock option plans. Had compensation cost for these plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company's net income (loss) (in thousands) and net income (loss) per common share -- assuming dilution would have been reduced to the proforma amounts below: