In addition to the regulatory oversight of the Company's insurance subsidiaries, the Company is also subject to regulation under the laws of the Cayman Islands and the Nebraska Insurance Holding Company System Act (the "Holding Company Act"). The Holding Company Act contains certain reporting requirements including those requiring the Company, as the ultimate parent company, to file information relating to its capital structure, ownership and financial condition and general business operations of its insurance subsidiaries. The Holding Company Act contains special reporting and prior approval requirements with respect to transactions among affiliates. The Holding Company Act also imposes certain requirements upon any person controlling or seeking to control an insurance company domiciled in Nebraska. Control is generally presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote or holds proxies representing 10% or more of the voting securities of the insurance company or of any other person or entity controlling the insurance company. The 10% presumption is not conclusive and control may be found to exist at less than 10%. Persons owning any securities of the Company must comply with the Holding Company Act. See "BUSINESS - Regulation."
L&W's brokerage commissions and fees before intercompany eliminations were $8.5 million in 1996, $9.0 million in 1997 and $8.5 million in 1998. The decrease in 1998 is primarily a result of increased competition and general declines in premium rates. A large portion of the brokerage commissions and fees for L&W is incurred by NAICO and thus eliminated in the consolidation of the Company's subsidiaries.
General and administrative expenses were 13.1%, 11.0% and 9.9% of gross premiums earned and commissions, fees and other income in 1996, 1997 and 1998, respectively. General and administrative expenses have historically not varied in direct proportion to the Company's revenues. A portion of such expenses is allocated to policy acquisition costs (indirect underwriting expenses) and loss and loss adjustment expenses based on various factors, including employee counts, salaries, occupancy and specific identification. Because certain types of expenses are fixed in nature, the percentage of such expenses to revenues will vary depending on the Company's overall premium volume. General and administrative expenses decreased 6.6% in 1997, due primarily to $441,000 in litigation-related expenses related to the termination of an agreement with a former underwriting manager and $527,000 in litigation-related expenses related to the reinsurance arbitration discussed previously which were incurred in 1996. General and administrative expenses decreased 3.1% in 1998, due primarily to a reduction in costs attributable to Network. Network ceased functioning as a third party administrator during 1997.
In 1996, the Company also recorded a $982,000 estimated recovery of costs from its directors and officers liability insurer related to the Company's claim for reimbursable amounts previously paid for defense and litigation costs associated with the litigation involving the CenTra Group. Excluding the effects of the unusual charges and related expenses and the estimated recovery, net income would have been approximately $2.7 million for 1996.