The selected financial data set forth in the following table for each of the five years in the period ended December 31, 2000 have been derived from the audited consolidated financial statements of the Company.
In 2000, the Company implemented a program to underwrite specialized commercial auto insurance (the Auto Program). All policies issued under the Auto Program are 100% reinsured through certain Lloyd's syndicates and therefore have no impact on net premiums written, net premiums earned or net losses and LAE incurred by the Company. The Company records all direct underwriting expenses incurred, including commissions with respect to the acquisition of these policies, which are offset by reinsurance commission income.
Voluntary personal lines direct premiums written for 2000 were $38,491,000, substantially unchanged from $38,493,000 in 1999. Private passenger automobile direct premiums written, which comprised 74% and 76% of total voluntary personal lines direct premiums written in 2000 and 1999, respectively, decreased 2% in 2000 compared to 1999 primarily due to fewer new policies and renewal policies retained resulting from price-based market competition. Homeowners direct premiums written increased 6% in 2000 compared to 1999 due to an 8% increase in policies in force resulting primarily from a 7% increase in new business units in 2000 as compared to 1999.
Net premiums earned for 2000 were $94,259,000, a decrease of $516,000, or less than 1%, from $94,775,000 in 1999. This decrease in net premiums earned resulted primarily from a decrease in assumed premiums earned and is consistent with the decrease in net written premiums.
Direct premiums written for 1999 were $100,227,000, an increase of $1,271,000, or 1%, from $98,956,000 in 1998. Net written premiums for 1999 were $94,470,000, an increase of $1,712,000, or 2%, from $92,758,000 in 1998.
The increase in commercial auto direct premiums written was primarily due to a 25% increase in policies in force at December 31, 1999 compared to December 31, 1998, partially offset by a 3% decrease in average premium per commercial auto policy at December 31, 1999 compared to December 31, 1998. The commercial auto market continued to respond favorably in 1999 to the Company's commercial auto product enhancements and premium rate decreases enacted in early 1998. The increase in workers' compensation direct premiums written was due to a 9% increase in new business units in 1999 as compared to 1998. The increase in contractors coverall direct premiums written was primarily due to a 14% increase in average policies in force in 1999 compared to 1998 which in turn was due to rate decreases in this line of business effective in the first quarter of 1999.
Net premiums earned for 1999 were $94,775,000, an increase of $1,235,000, or 1%, from $93,540,000 in 1998. Net premiums earned increased primarily due to the 1% increase in direct premiums written.
Net investment income was $13,147,000 in 1999, a decrease of 1% from $13,277,000 in 1998, due to a decrease in average portfolio yield. Average invested assets in 1999 were substantially unchanged from 1998.
Other revenues were $434,000 for 1999, an increase of $281,000, or 184%, from $153,000 in 1998, primarily due to increased investment income from residual market facilities.
The ratio of policy acquisition costs and other underwriting expenses to net premiums earned decreased to 33.7% in 1999 from 35.2% in 1998, primarily due to the aforementioned non-recurring reduction in insurance related assessments. Expenses that vary directly with the Company's premium volume, primarily commissions, premium taxes and state assessments, represented 20.6% and 21.7% of net premiums earned in 1999 and 1998, respectively. Certain other underwriting expenses, such as salaries, employee benefits and other operating expenses vary indirectly with volume and comprise the remainder of the Company's underwriting expenses.
The Company's objectives with respect to its investment portfolio include maximizing total return while protecting policyholders' surplus and maintaining flexibility. Like other property and casualty insurers, the Company relies on premiums as a major source of cash, and therefore liquidity. Cash flows from the Company's investment portfolio, either in the form of interest or principal payments, are an additional source of liquidity. Because the duration of the Company's investment portfolio relative to the duration of its liabilities is closely managed, increases or decreases in market interest rates are not expected to have a material effect on the Company's liquidity, or its results of operations.
At December 31, 2000, $80,434,000, or 41.0%, of the Company's fixed maturity portfolio was invested in mortgage-backed and other asset-backed securities. The Company invests in a variety of collateralized mortgage obligation ("CMO") products but has not invested in the derivative type of CMO products such as interest only, principal only or inverse floating rate securities. All of the Company's CMO investments have an active secondary market and their effect on the Company's liquidity does not differ from that of other fixed maturity investments. The Company does not own any other derivative financial instruments.
The Company maintains a $2,000,000 unsecured credit facility from a bank in the form of a master grid note. Any borrowings under this facility are payable on demand and carry an interest rate which can be fixed or variable and is negotiated at the time of each advance. This facility is available for general working capital purposes and for repurchases of the Company's common stock. At December 31, 2000, no amount was outstanding on this loan.
As a holding company, the Company is dependent upon cash dividends from MNH to meet its obligations and to pay any cash dividends. MNH is subject to New Hampshire insurance laws which place certain restrictions on its ability to pay dividends without the prior approval of state regulatory authorities. These restrictions limit dividends to those that, when added to all other dividends paid within the preceding twelve months, would not exceed 10% of the insurer's policyholders' surplus as of the preceding December 31st. The maximum amount of dividends that MNH could pay during any twelve month period ending in 2001 without the prior approval of the New Hampshire Insurance Commissioner is $5,061,000. MNH paid the maximum allowable dividend to the Company in 2000. Dividends were paid in February 2000, May 2000 and September 2000, of $2,200,000, $1,500,000 and $1,500,000, respectively. MNH paid a dividend of $2,200,000 to the Company on February 15, 2001 and as such is restricted from paying another dividend to the Company until May, 2001. The Company paid a quarterly cash dividend to its common stockholders of $.10 per share in 2000, which amounted to $993,000 in 2000.
MNH, like many other property and casualty insurance companies, is subject to environmental damage claims asserted by or against its insureds. Management of the Company is of the opinion that based on various court decisions throughout the country, such claims should not be recoverable under the terms of MNH's insurance policies because of either specific or general coverage exclusions contained in the policies. However, there is no assurance that the courts will agree with MNH's position in every case, nor can there be assurance that material claims will not be asserted under policies which a court will find do not explicitly or implicitly exclude claims for environmental damages. Management, however, is not aware of any pending
claim or group of claims which would result in a liability that would have a material adverse effect on the financial condition of the Company or MNH.