The Company's central data processing facility occupies a modern, three-story brick building containing approximately 107,000 square feet of office space, on an approximately 40-acre parcel in Mayfield Village, Ohio, owned by a subsidiary. In spring 1992, construction began on the Company's new corporate office complex on this parcel, and in December 1993, the Company began occupying a portion of this complex. Construction is expected to be completed in 1994. The new facility will consist of approximately 520,000 square feet of space and will replace office space held under leases in a number of locations in the Cleveland, Ohio area. The cost of the project is currently estimated at $74.8 million and is being funded through operating cashflows. As of December 31, 1993, $50.5 million of the project's costs had been paid.
Total capital expenditures for the three years ended December 31, 1993, aggregated $122.6 million. In spring 1992, construction began on the Company's new corporate office complex in Mayfield Village, Ohio, and in December 1993, the Company began occupying a portion of this complex. Construction is expected to be completed in 1994. The new facility will consist of approximately 520,000 square feet of space and will replace office space held under leases in a number of locations in the Cleveland, Ohio area. The cost of the project is currently estimated at $74.8 million, and is being funded through operating cash flows. As of December 31, 1993, $50.5 million of the project's cost had been paid.
In December 1992, Mr. Alfred Lerner, then Chairman of the Company, converted his $75.0 million Floating Rate Convertible Subordinated Debenture due 2008 into 9,000,000 Common Shares and sold 5,175,000 of those Common Shares in an underwritten public offering. The public offering was completed pursuant to the registration rights provisions of the convertible debenture, under which the Company paid $5.1 million in underwriting and other expenses of the offering. These expenses were charged directly to shareholders' equity in accordance with generally accepted accounting principles. On the same date, Mr. Lerner agreed to a termination of his employment agreement with the Company, and, in connection with these transactions, the Company paid Mr. Lerner $10.0 million.
In 1993, the Company's Core business' net premiums written grew 25 percent, driven by an increase in unit sales. The Company anticipates continued growth in its Core business in 1994; however, the Company prices business to achieve a four percent underwriting margin. As a result, in the short run, operating earnings may not increase in proportion to volume growth.
Policy acquisition and other underwriting expenses as a percentage of premiums earned were 28 percent in 1993, compared to 31 percent in 1992 and 37 percent in 1991. The decrease reflects the cost-cutting measures discussed above, as well as process improvements, changed workflows and lower commission programs.
Fixed maturity securities which are held-to-maturity and short-term securities are reported at amortized cost; amortized cost of short-term securities approximates market. Available-for-sale securities are held for indefinite periods of time and include fixed maturities and equity securities. The available-for-sale securities are reported at market value with the changes in market value, net of deferred income taxes, reported directly in shareholders' equity as unrealized appreciation or depreciation.
As of December 31, 1993, the Company held $122.5 million of Collateralized Mortgage Obligations ("CMOs"), which represented 4.4% of the total investment portfolio. There are four types of securities held in the CMO Portfolio. As of December 31, 1993, sequential bonds represented 51.0% of the portfolio ($62.5 million) and had an average life of 1.5 years. Planned Amortization Class ("P.A.C.") bonds represented 25.9% of the portfolio ($31.7 million) and had an average life of 1.6 years. P.A.C. Principal Only and Interest Only bonds represented the remaining 23.1% of the portfolio ($28.3 million) and had an average life of 1.8 years. The portfolio contains no residual interests.
CMOs held by the Company are highly liquid with readily available quotes and, at December 31, 1993, had an average life of 1.6 years. Eighty- nine percent of the CMOs held by the Company are rated AAA by Moody's or Standard & Poor's. As of December 31, 1993, the Company's total CMO portfolio had an unrealized loss of $3.7 million. The single largest unrealized loss in any CMO security was $1.3 million, or only 1.1% of such position.
As of December 31, 1993 and 1992, the marketable equity portfolio of the Company was $453.9 million, or 16.3% and $398.6 million, or 16.7%, respectively, of the total investment portfolio. The 1993 marketable equity portfolio consisted of three principal components: (i) $73.0 million, or 16.1%, of standard adjustable rate preferreds (ARPS), (ii) $283.4 million, or 62.4%, of perpetual preferreds with mechanisms that may provide an opportunity to liquidate at par, and (iii) $97.5 million, or 21.5%, of common stocks. The 1992 marketable equity portfolio consisted of three principal components; (i) $138.9 million, or 34.8%, of standard adjustable rate preferred (ARPS), (ii) $64.1 million, or 16.1% of perpetual preferreds with mechanisms that may provide an opportunity to liquidate at par, and (iii) $195.6 million, or 49.1%, of common stocks.
Declines attributable to issuer fundamentals are reviewed in further detail. Available evidence is considered to estimate the realizable value of the investment. Evidence reviewed may include the recent operating results and financial position of the issuer, information about its industry, recent announcements and other information. The Company retains a staff of experienced security analysts to compile, review and evaluate such information.
However, the ultimate costs of the environmental and product liability claims are inherently difficult to project due to numerous uncertainties, including causation and policy coverage issues, the possible uncollectability of related reinsurance and third-party indemnity arrangements, unsettled and sometimes conflicting case law, difficulties in determining the scope of any contamination or injury and the nature and cost of the appropriate remedial action and the number and financial condition of responsible parties and their insurers, among other factors.
The Consolidated Financial Statements of the Company, along with the related notes, supplementary data and report of independent accountants, are incorporated by reference from the Company's 1993 Annual Report, pages 33 through 46 and pages 50 through 55.