(1) Cash dividends declared are those of American Country. Dividends per share declared by Western Systems prior to the Acquisition were $0 for each year presented.
Country recorded a charge of approximately $400,000 in 1997 primarily for termination benefits that were paid in 1997 that is estimated to result in future annual savings in salaries and benefits. In addition, fixed income advisors have been engaged to enhance the quality and yield on the portfolio of invested assets.
The ratio of losses and LAE for other commercial lines increased to 115.0% in 1999 from 82.1% in 1998. Much of this increase is the result of the continuing prior years' adverse development of the Workers' Compensation line, which resulted in American Country posting additional reserves for this line of $3.5 million over management's initial estimate. Additionally, the poor results of the commercial line are attributable to continuing pricing pressures commonplace throughout the industry.
Transportation lines, which consists of taxi and limousine liability and physical damage programs, grew during 1998 as a result of American Country's geographic expansion into additional states. Total premium revenues generated by transportation lines grew 10.6% to $31.0 million in 1998 as compared to $28.1 million in 1997. In 1998, revenues generated outside of Illinois increased from 1.5% in 1997 to 8.6% in 1998. This increase is attributable to the establishment of new programs in Pennsylvania, Michigan, Minnesota, New Jersey, Wisconsin.
investment advisors in late 1997, the Company's portfolio of invested assets was restructured to achieve stated guidelines, and as a result, significant gains were realized. Investment expenses for 1998 were $702,000 as compared to $1.1 million in 1997, which resulted in savings of $423,000 in 1998, primarily the result of the appointment of professional investment advisors.
Transportation lines loss ratios continued to improve during 1998, with a loss and loss adjustment expense ratio of 79.6% as compared to 81.5% for 1997. This decrease is attributable to savings in loss adjustment expense realized through staff reductions effected in the fourth quarter of 1997.
The ratio for losses and LAE for hospitality lines declined slightly to 75.2% in 1998 from 76.0% in 1997. Although claims activity increased during 1998 due to the geographic and market expansion of this program, loss ratios remained relatively constant during the year.
The ratio of losses and LAE for other commercial lines decreased to 82.1% in 1998 as compared to 99.0% in 1997. Although it is impossible to determine how much of this improvement is the result of the re-underwriting program, management believes the impact was significant. Additionally, the commercial lines experienced a lower severity in claims during the year. Workers' compensation and multi-peril liability and property coverages were the lines most responsible for effecting this improvement.
The ratio of losses and LAE for personal lines during 1998 decreased to - - -8.4% compared to 94.4% in 1997, primarily due to the reinsurance agreement with Ohio Casualty and the decision to cease marketing this business and accepting personal lines business from independent agents.
Administrative and general expenses increased 16% in 1998 as a result of higher corporate expenses incurred in connection with acquisition and financing activities of the Company. Expenses of the operating companies decreased to $6.6 million as compared to $6.7 million in 1997. The decrease is attributable to
cost saving initiatives begun during the fourth quarter of 1997, primarily staff reductions. Interest expense for 1998 increased by $330,000 to $491,000, due to increased borrowings and to a full period of interest expense.
At December 31, 1999, the following table provides a profile of the Company's fixed maturity investment portfolio by rating:
The Company does not own or utilize derivative financial instruments for the purpose of hedging, enhancing the overall return of its investment portfolio, or reducing the cost of its debt obligations. The Company employs traditional investment management tools and techniques to address the yield and valuation exposures of its invested assets. The long term fixed maturity investment portfolio is managed so as to limit various risks inherent in the bond market. Credit risk is addressed through adequate diversification and the purchase of investment grade securities. Reinvestment rate risk is controlled by concentrating on non-callable issues, and through asset-liability matching practices. Purchases of mortgage and asset backed securities, which have variable principal prepayment options, are generally avoided. Market value risk is limited through the purchase of bonds of intermediate maturity. The combination of these investment management tenets generally provides a more stable long term fixed maturity investment portfolio that is not subject to extreme interest rate sensitivity and principal deterioration. The market value of the Company's long term fixed maturity investment portfolio is sensitive, however, to fluctuations in the level of interest rates, but not materially affected by changes in anticipated cash flows caused by any prepayments. The impact of interest rates movements on the long term fixed maturity investment portfolio
generally affects net realized gains or losses when securities are sold. With a market value of approximately $126.3 million, the long term fixed maturity investment portfolio has an average maturity of 5.8 years and an indicated duration of 3.7. This implies that a 100 basis point parallel increase in interest rates from current levels would result in a possible decline in the market value of the long term fixed maturity investment portfolio of approximately 3.9%, or $4.8 million. These possible declines in values for bond and stock portfolios would affect negatively the common stockholders' equity at any point in time, but would not necessarily result in the recognition of realized investment losses as long as operating cash flow and the ongoing emergence of bond maturities continued to provide sufficient funds to meet obligations to policyholders and claimants, as well as debt service and cash dividend requirements at the holding company level.
On July 28, 1997, the Company obtained a $7 million revolving loan credit facility under which it borrowed $4.8 million at an initial rate of 7.5% based upon LIBOR, payable quarterly, to fund a portion of the $40.3 million paid in connection with the Acquisition.
On October 5, 1999, the Board of Directors approved a loan proposal from Northern Trust wherein the line of credit was converted to an $8.0 million four year term loan and a $7.0 million 364 day revolving credit. Under the $8.0 million term loan, the first installment of $2.0 million is due April 30, 2001. The interest rate on the term loan may be based upon LIBOR + 1%, the New York Federal Funds rate +1%, or the prime rate minus 1%.
The $7.0 million revolving credit agreement has a maturity of 364 days, with a Commitment Fee of .25% per annum on the unused portion.
The purpose of these regulatory efforts at all levels is to improve the solvency of insurers. These regulatory initiatives, and the overall focus on solvency, may intensify the restructuring and consolidation of the insurance industry. While the impact of these regulatory efforts on the Company's operations cannot be quantified until enacted, the Company believes it will be adequately capitalized to compete in an environment of more stringent regulation.