The following information for the Company is as of and for the years ended December 31, 1994, 1993, 1992, 1991 and 1990 (amounts in thousands, except per share data):
Underwriting income for the year ended December 31, 1994 was virtually unchanged as compared to the prior year despite increased net earned premiums. The consolidated combined ratio increased to 83.5% in 1994 from 82.3% in 1993. The consolidated loss ratio increased to 25.2% in 1994 from 23.2% in 1993, reflecting less favorable development of prior years' loss reserves at United Capitol than was experienced in 1993. United Capitol's loss ratio increased to 61.1% in 1994 from 47.5% in 1993. Excluding the effects of favorable development, United Capitol would have reported loss ratios of 98.3% and 110.3% in 1994 and 1993, respectively. The surety and fidelity loss ratio decreased to 15.8% in 1994 from 16.7% in 1993, primarily due to favorable development of prior years' loss reserves and increased salvage recoveries at Western Surety.
The consolidated expense ratio increased to 59.1% in 1993 from 50.1% in 1992, reflecting the inclusion of full year results of operations for Western Surety. The surety and fidelity expense ratio was 69.1% in both 1993 and 1992. United Capitol's expense ratio increased slightly to 21.6% in 1993 from 20.5% in 1992.
Interest expense decreased 24.7%, or $1.6 million for the year ended December 31, 1994, reflecting the effect of reduced debt. The Company's average debt outstanding for the twelve months ended December 31, 1994 was approximately $74.0 million compared to $96.0 million in 1993. In connection with the early retirement of the Company's bank term loans, the Company incurred a $1.6 million write-off of unamortized deferred loan fees in the year ended December 31, 1994. Interest expense increased 29.8%, or $1.4 million for the year ended December 31, 1993. The increase was attributable to increased borrowings in connection with the acquisition of Western Surety which more than offset the effects of lower average interest rates.
LIQUIDITY AND CAPITAL RESOURCES The Company's insurance subsidiaries are highly liquid. The insurance operations derive liquidity from net premium collections, reinsurance recoveries and investment earnings and use these funds to pay claims and operating expenses. The operations of an insurance company generally result in cash being collected from customers in the form of premiums in advance of cash outlays for claims. Each insurance company invests its collected premiums, generating investment income, until such time cash is needed to pay claims and associated expenses.
Capsure's insurance subsidiaries are subject to regulation and supervision by the various state insurance regulatory authorities in which they conduct business, including regulations with respect to the payment of dividends. Without prior regulatory approval in 1995, Capsure's insurance subsidiaries may pay stockholder dividends of $19.3 million in the aggregate. In 1994, 1993 and 1992 Capsure received $21.0 million (including $5.0 million of dividends requiring prior approval), $11.8 million, and $29.0 million (including $15.1 million of dividends requiring prior approval), respectively, in dividends from its insurance subsidiaries.
United Capitol, in the ordinary course of business, chooses to underwrite accounts which have hazardous, unique or unusual risk characteristics and applies a strict and specialized underwriting discipline to such risks. Since United Capitol's organization in 1986, its liability policies have included an absolute pollution coverage exclusion (except for policies offering pollution liability coverage to contractors involved in the remediation of preexisting pollution). In addition, except as discussed below, United Capitol's product liability and other primary general liability policies contain exclusions, which management believes are enforceable, for coverage of claims for bodily injury or property damage caused by exposure to asbestos.
IMPACT OF ADOPTING STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") As discussed in Note 2 to the consolidated financial statements, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" effective January 1, 1994 and SFAS No. 109, "Accounting for Income Taxes" and SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-duration and Long-duration Contracts" effective January 1, 1993.