Total revenues for 1996 were $108,644,000, up 4% from $104,544,000 in 1995.
Net premiums earned for 1996 were $95,752,000, an increase of $1,003,000, or, 1% from $94,749,000 in 1995. Net premiums written for 1996 were $96,622,000, an increase of 3% excluding the effect of the decision by Mutual to exercise its option to not cede any of its direct voluntary premiums written to MNH for calendar year 1996, under the quota share reinsurance agreement between Mutual and MNH. In 1995, MNH assumed $2,110,000 of Mutual's direct voluntary premiums written under this agreement. The increase in net premiums written resulted primarily from a 2% increase in direct premiums written.
Losses and LAE in 1996 include $2,200,000 of higher than normal losses related to unusually severe winter weather that affected the northeastern United States during the first quarter of 1996. These higher than normal weather related losses increased the 1996 loss and LAE ratio by 2.3 percentage points.
Net premiums written increased 8% from $90,187,000 in 1994 to $97,577,000 in 1995, primarily due to a 10% increase in direct premiums written. This increase in direct premiums written was partially offset by a 48% decrease in premiums written assumed from Mutual in accordance with the quota share reinsurance agreement between Mutual and MNH. In December 1995, Mutual informed MNH that it would exercise its option to reduce its cessions to MNH under the agreement to 0% of Mutual's direct voluntary premiums written effective for calendar year 1996, including premiums written in 1995 which were unearned as of December 31, 1995. As a result, premiums written assumed by the Company from Mutual under this reinsurance agreement decreased
Voluntary personal lines direct premiums written increased 7% from $32,101,000 in 1994 to $34,393,000 in 1995. Private passenger automobile direct premiums written, which comprised 79% of total voluntary personal lines direct premiums written in 1995, increased 5% in 1995 compared to 1994. Homeowners direct premiums written increased 17% in 1995 compared to 1994 due to a 4% increase in policies in force and a 13% increase in average premium per policy.
Voluntary commercial lines direct premiums written increased 11% from $51,602,000 in 1994 to $57,304,000 in 1995. Commercial lines retention rates held constant and commercial lines policies in force increased 1% in 1995 compared to 1994. Average premium per policy increased 10% in 1995 compared to 1994. Direct premiums written in each commercial line of business, except contractors' coverall, increased in 1995 compared to 1994.
The Company's investment in Signet included in other long-term investments was carried at fair value. During 1995, the Company recorded an $840,000 loss on its investment in Signet which is included as a component of realized investment gains and losses in the consolidated statement of operations. There were no material gains or losses realized from the sale of investments in 1994 or 1995.
Losses in 1994 included $3,135,000 paid to Mutual as a one time settlement for losses relating to the 1985 through 1994 accident years on involuntary automobile insurance policies issued by Mutual under automobile insurance plans ("AIP").
Net cash used in financing activities increased $3,536,000 from $11,000 in 1995 to $3,547,000 in 1996 primarily due to a $2,983,000 increase in cash used by the Company to repurchase its common stock.
The Company generally designates newly acquired fixed maturity investments as available for sale and carries these investments at fair value. Unrealized gains and losses related to these investments are recorded as a component of stockholders' equity. At December 31, 1996, the Company had recorded $603,000 of unrealized losses, net of tax, associated with its fixed maturity investments. During 1996 the Company recorded a $246,000 increase in unrealized losses, net of tax.
Prior to 1996 in connection with the Company's stock option program for its agents, the Company's Board of Directors approved a plan to purchase up to 25,000 shares of the Company's common stock. During 1996, the Company's Board of Directors authorized the repurchase of up to 200,000 additional shares of the Company's common stock in the open market. During 1996 the Company repurchased 160,700 shares of its common stock and is holding theses shares in treasury as of December 31, 1996.
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
Industry and regulatory guidelines suggest that the ratio of a property and casualty insurer's annual net premiums written to its statutory surplus should not exceed 3 to 1. The Company has consistently followed a business strategy that would allow it to meet this 3 to 1 regulatory guideline. MNH's ratio of net premiums written to statutory surplus for 1996 was 2.2 to 1.
Inflation affects the Company, like other companies in the property and casualty insurance industry, by contributing to higher losses, LAE and operating costs, as well as greater investment income resulting from the higher interest rates which can prevail in an inflationary period. Premium rates, however, may not keep pace with inflation since competitive forces generally limit the Company's ability to increase premium rates. The Company considers inflationary trends in estimating its reserves for claims reported and for incurred but not reported claims.
The Company and MNH are subject to federal income taxation under the provisions of the Internal Revenue Code of 1986, as amended.