- --------------- (1) The Company sold Fremont Financial Corporation on December 20, 1999. (2) The Company acquired UNICARE Specialty Services, Inc. on September 1, 1998. (3) The Company acquired Industrial Indemnity Holdings, Inc. on August 1, 1997. (4) The Company acquired Casualty Insurance Company on February 22, 1995. (5) Effective January 1994, FASB 115 changed the accounting treatment afforded the Company's investment portfolio wherein unrealized gains and losses on securities designated by the Company as available for sale are included net of deferred taxes, as a component of stockholders' equity. (6) For 1999, dilutive securities were excluded from diluted weighted average shares because the effect would have been antidilutive. (7) Company-obligated mandatorily redeemable preferred securities of subsidiary Trust holding solely Company junior subordinated debentures.
Fremont General Corporation is an insurance and financial services holding company operating select businesses nationally in niche markets. The reported assets of Fremont General Corporation and its subsidiaries ("Fremont" or "the Company") as of December 31, 1999 were $8.0 billion. The Company incurred a loss before taxes from continuing operations of $66.3 million in the year ended December 31, 1999, resulting entirely from losses recognized within the Company's property and casualty insurance segment. (See "Property and Casualty Insurance Operation -- Special Discussion Concerning Property and Casualty Insurance Results.") Additionally, Fremont recorded a net loss from discontinued operations of $25 million which resulted primarily from a deterioration in the Company's estimated reserves for asbestos and environmental claims.
The Company's businesses are managed within two reportable segments: property and casualty insurance and financial services. Revenues from these segments are derived from two basic financial products; policies of insurance (property and casualty insurance), and loans (financial services). They are managed separately and use different pricing, distribution, and operating methods. Fremont evaluates the performance of its reportable segments based on income before taxes using accounting policies which are the same as those described in the summary of significant accounting policies. (See Note A of Notes to Consolidated Financial Statements.) Additionally, there are certain corporate revenues and expenses, comprised primarily of investment income, interest expense and certain general and administrative expenses, that Fremont does not allocate to its segments.
Substantially all of Fremont's property and casualty insurance operation is represented by the underwriting of workers' compensation insurance policies. The Company began its workers' compensation insurance operation in 1959 and continues to derive the majority of its revenues from this business. Fremont's workers' compensation insurance business has grown through internal expansion, as well as through the acquisition of other workers' compensation insurance companies and currently has premium volume concentrated in California, Illinois, and to a lesser extent, Alaska, Arizona, Colorado, Indiana, Michigan, New Jersey, Texas and Wisconsin. For the year ended December 31, 1999, these states collectively accounted for over 80% of the Company's premium. At December 31, 1999 the Company had premiums inforce in forty-five states and the District of Columbia.
The operations of Fremont's financial services segment are consolidated within Fremont General Credit Corporation, which is engaged in collateralized lending to businesses and individuals nationwide through its California-chartered thrift and loan subsidiary, Fremont Investment & Loan (the "thrift"). After the sale of the Company's commercial finance subsidiary in December 1999, Fremont's remaining lending activities include commercial and residential real estate lending, interests in large syndicated commercial loans ("syndicated loans") and insurance premium financing. In December 1999, the Company discontinued its commercial finance lending activities through the sale on December 20, 1999 of Fremont Financial Corporation, its commercial finance subsidiary, to FINOVA Capital Corporation, a subsidiary of The FINOVA Group, Inc. for approximately $708 million in cash including the refinancing and assumption of existing debt. Fremont's financial services business is developed by the Company through independent loan brokers, through its own marketing representatives and referrals from various financial intermediaries and financial institutions. The Company's financial services loan portfolio was $3.1 billion at December 31, 1999. In addition, the Company had residential real estate loans of approximately $1.3 billion under three securitizations at December 31, 1999 which are not included in the Company's balance sheet. (See "Financial Services Operation.")
The real estate lending operations of Fremont currently consist of more than 6,000 residential real estate loans and 600 commercial real estate loans. The real estate lending activities are financed mainly through deposit accounts (approximately 80,000 accounts at December 31, 1999), which are insured by the Federal Deposit Insurance Corporation ("FDIC"). (See "Item 1. Business -- Regulation -- Thrift and Loan Regulation.") The thrift's deposits are currently serviced through 19 branch offices in California. Fremont's syndicated loans and insurance premium finance loans are also funded by the thrift. Fremont originates real estate loans nationwide primarily through independent loan brokers, through its own marketing representatives and through bulk purchases. For commercial real estate loans, principal amounts primarily range in loan size between $1 million and $15 million and are primarily secured by first mortgages on income-producing properties in California and, to a lesser degree, Illinois, Texas, and many other states. The real estate securing these loans includes a wide variety of property types including office, retail, industrial, multi-family and mixed-use properties. For residential real estate loans, principal amounts are generally below $350,000 and are secured by single family residences located in California, and to a lesser degree Illinois, Florida, Washington, New Jersey, and many other states. The residential real estate loans are originated using underwriting standards that are less stringent than the Federal National Mortgage Association's guidelines and are commonly known as "subprime" loans. To mitigate the higher potential for credit losses that accompanies these types of borrowers, Fremont attempts to maintain underwriting standards that require conservative loan to collateral valuations. The Company's operating strategy is to grow its commercial and residential real estate loan portfolios through the origination of new loans that meet its underwriting guidelines. Over the three year period ended December 31, 1999, the commercial real estate loan portfolio grew to $2.33 billion at the end of 1999 from $846 million at the end of 1996, and the residential real estate loan portfolio grew to $388 million from $268 million for the same respective period-end dates. The growth in these portfolios was due primarily to increased loan originations and, to a lesser extent, the purchase of loan portfolios from other financial institutions. (See "Item 1. Business -- Financial Services Operation -- Real Estate Lending.")
Prior to the December 1999 sale of the Company's commercial finance subsidiary, Fremont provided commercial finance loans, primarily secured by accounts receivable, inventory, and machinery and equipment, to small and middle market companies on a nationwide basis.
By engaging in geographically diverse businesses nationwide, the Company believes it has provided opportunities for growth in its revenues. Since the year ended December 31, 1995 to the year ended December 31, 1999, the Company's revenues grew at a compound annual rate of approximately 11% to $1.4 billion for 1999. The Company's book value increased to $731 million at December 31, 1999 from $498 million at December 31, 1995.
The Company generated revenues of approximately $1.40 billion for 1999, as compared to revenues of $1.03 billion and $971 million for 1998 and 1997, respectively. Higher revenues in 1999 as compared to 1998 resulted from higher workers' compensation insurance premiums in the property and casualty insurance segment and higher loan interest in the financial services segment. Higher workers' compensation insurance premiums were achieved primarily from new business development, and from the September 1, 1998 acquisition of Unicare. (See "Property and Casualty Insurance Operation -- Premiums.") The increase in loan interest revenue is consistent with the significant growth in the average loan portfolio of the financial services operation to $3.9 billion in 1999 from $2.4 billion in 1998. Higher revenues for 1998 as compared to 1997 resulted from higher financial services revenues, offset partially by lower revenues in the property and casualty segment. The lower property and casualty revenues were due primarily to the net effects of higher workers' compensation insurance premiums and investment income resulting from the acquisitions of Unicare on September 1, 1998 and Industrial on August 1, 1997, more than offset by additional ceded reinsurance premiums which have the result of lowering premium revenues. These additional ceded reinsurance premiums were due mainly to additional excess of loss reinsurance purchased for Fremont's workers' compensation insurance business which was in effect from January 1, 1998 through December 31, 1999. (See "Item 1. Business -- Property and Casualty Insurance Operation -- Reinsurance Ceded.") Higher revenues in the financial services segment in 1998 as compared to 1997 were achieved primarily from increased loan interest revenues which resulted from significant growth in the average financial services loan portfolio and to higher gains on whole loan sales of residential real estate loans. (See "Financial Services Operation.") Also included in revenues were realized investment losses of $3.5 million, $0.6 million, and $2.0 million for 1999, 1998 and 1997, respectively.
of 1999 in the Company's estimates of reinsurance recoverables on unpaid losses, and the recognition of a $75 million charge before taxes associated with a settlement agreement executed on February 28, 2000 with Reliance Insurance Company ("Reliance") under a workers' compensation reinsurance contract that was in effect from January 1, 1998 through December 31, 1999. (See "Property and Casualty Insurance Operation -- Special Discussion Concerning Property and Casualty Insurance Results" and "Item 1. Business -- Property and Casualty Insurance Operation -- Reinsurance Ceded.") The increase in income before taxes of 17% in 1998 as compared to 1997 was due primarily to the inclusion of a full year of Industrial's operating results and lower losses incurred resulting from the additional reinsurance purchased by the Company which was effective from January 1, 1998 through December 31, 1999. The combined ratio for 1999 was 128.7% as compared to 96.2% and 93.0% for 1998 and 1997, respectively.
The financial services segment posted income before taxes of $79.9 million for 1999, as compared to $55.5 million and $42.3 million for 1998 and 1997, respectively. The 44% increase in 1999 is due primarily to the combined effect of a significant growth in the average loan portfolio of the financial services operation to $3.9 billion in 1999 from $2.4 billion in 1998, and the recognition of a $10.3 million gain before taxes resulting from the December 20, 1999 sale of the Company's commercial finance subsidiary. Partially offsetting these increases in income before taxes were lower gains in 1999 on residential real estate whole loan sales. Furthermore, the Company did not recognize any gains in conjunction with three securitizations of residential real estate loans completed in 1999. The 31% increase in income before taxes in 1998 as compared to 1997 is due mainly to the general growth in the average financial services loan portfolio to $2.4 billion in 1998 from $1.9 billion in 1997, as well as gains in 1998 on residential real estate whole loan sales. (See "Financial Services Operation.")
Unallocated corporate revenues consisted primarily of investment income, while unallocated corporate expenses consisted primarily of interest expense and general and administrative expense. The unallocated corporate loss before income taxes was $30.0 million, $28.0 million and $28.1 million for 1999, 1998 and 1997, respectively. Higher interest expense, offset partially by lower general and administrative expense, accounted for the modest increase in unallocated corporate loss before tax in 1999. The unallocated corporate loss before tax was flat in 1998 as compared to 1997 due primarily to the net effects of lower interest expense, offset by higher general and administrative expenses.
Special Discussion Concerning Property and Casualty Insurance Results. In 1999, the Company's property and casualty insurance operation recorded a loss before taxes from continuing operations of $116.2 million. This loss resulted primarily from the combined adverse effect on incurred loss and loss adjustment expense ("LAE") of a lower than expected level of reinsurance recoverables than had been actuarially predicted, coupled with the Company's recognition of the settlement agreement with Reliance under a reinsurance treaty that was in effect from January 1, 1998 through December 31, 1999.
Premiums. Premiums earned from the Company's property and casualty insurance operation were $831.0 million for 1999, as compared to $552.1 million and $601.2 million for 1998 and 1997, respectively. The increase of 51% in premiums earned in 1999 as compared to 1998 is due primarily to new business development and, to a lesser extent, the acquisition of Unicare. New business development was significant in 1999 totaling approximately $448.8 million in estimated annual direct premiums written, as compared to $221 million in estimated annual direct premiums written for 1998. Using estimated annual premiums on policies in effect at December 31, 1999 and 1998 (referred to as "inforce premiums"), the Company's inforce premium has grown 41% to $1.034 billion at December 31, 1999 from $734.3 million at December 31, 1998. While the growth in inforce premium is considered significant, the Company believes it has remained conservative in its underwriting standards. This is evidenced by the fact that the new business written in 1999 represents only 8% of the approximate $5.4 billion in estimated annual premiums submitted to the Company for underwriting consideration in 1999. This percentage compares to 7% for 1998 and is in line with the Company's historical experience. The growth in inforce premium has occurred across all of the Company's geographic regions nationally. (See "Variability of Operating Results" and "Workers' Compensation Regulation.")
Net Investment Income. Net investment income within the property and casualty insurance operation was $157.7 million, $178.3 million and $138.9 million in 1999, 1998 and 1997, respectively. Higher invested assets associated with the Unicare acquisition were more than offset by higher ceded reinsurance costs and claim payments, resulting in lower investment income in 1999 as compared to 1998. The higher investment income in 1998 as compared to 1997 was due mainly to significantly higher average invested assets resulting from the acquisitions of Unicare and Industrial. (See "Item 1. Business -- Investment Portfolio.")
Loss and Loss Adjustment Expense. The property and casualty loss and LAE incurred was $770.5 million, $335.5 million and $389.2 million in 1999, 1998 and 1997, respectively. In addition, the ratio of these losses and LAE to property and casualty insurance premiums earned ("loss ratio") was 92.7%, 60.8% and 64.7% in 1999, 1998 and 1997, respectively. The loss ratio increased significantly in 1999 as compared to 1998 due to the combined adverse effect on loss and LAE incurred of a lower than expected level of reinsurance recoveries than had been actuarially predicted, coupled with the effect of the Company's recognition of the settlement agreement with Reliance under a reinsurance treaty that was in effect from January 1, 1998 through December 31, 1999. (See "Special Discussion Concerning Property and Casualty Insurance Results" and "Item 1. Business -- Property and Casualty Insurance Operation -- Reinsurance Ceded.") The decrease in the loss ratio in 1998 as compared to 1997 is due predominately to the additional reinsurance purchased by
Fremont and which was in effect from January 1, 1998 through December 31, 1999, offset partially by higher loss ratios in 1998 associated with Industrial.
Policy Acquisition Costs and Other Operating Costs and Expenses. The ratio of policy acquisition costs and other operating costs and expenses to premiums earned is referred to as the expense ratio, which was 31.6%, 34.5% and 27.5% in 1999, 1998 and 1997, respectively. The lower expense ratio in 1999 as compared to 1998 is due mainly to the significant increase in the premium base in 1999 resulting from increases in new business development, as well as to the acquisition of Unicare. The increase in this ratio in 1998 as compared to 1997 is due mainly to a lower premium base in 1998 resulting from the additional reinsurance purchased by Fremont that was effective from January 1, 1998 through December 31, 1999. (See "Premiums.")
Fremont's workers' compensation insurance business competes in a market characterized by competition on the basis of price and service. In addition, state regulatory changes could affect competition in the states where the Company transacts business. Although the Company is one of the largest writers of workers'
Fremont's workers' compensation insurance operations are concentrated in California and Illinois, with 60% of the Company's premium inforce being located in these two states. Because of this concentration, the Company's financial position and results of operations have been and are expected to continue to be influenced by general trends in the respective states' economies, and in particular, the condition of the workers' compensation insurance market within each state. The impact of unfavorable economic conditions, legislation and other trends within these two states may result in greater uncertainty and volatility in the Company's business operations and could adversely affect the results of Fremont's operations and its financial condition more than if the Company's premium had been originated with more geographic diversification.
Workers' Compensation Regulation. The Company's workers' compensation insurance operation has premiums inforce in forty-five states and the District of Columbia. Insurance companies are subject to supervision and regulation by the state insurance authority in each state in which they transact business. Such supervision and regulation relate to the numerous aspects of an insurance company's business and financial condition. The primary purpose of such supervision and regulation is the protection of injured workers and policyholders rather than investors or stockholders of an insurer. Fremont's multistate insurance operations require, and will continue to require, significant resources of the Company in order to continue to comply with the regulations of each state in which Fremont transacts business.
Illinois began operating under an open rating system in 1982 and California began operating under such a system effective January 1, 1995. Generally, in an open rating system, workers' compensation insurance companies are provided with advisory premium rates (expected losses and expenses) or loss costs (expected losses only) which vary by job classification. Each insurance company sets its base rates to reflect its particular loss experience and operating costs. Although insurance companies are not required to adopt such advisory premium rates, companies in Illinois generally follow such rates. However, insurance companies in California have, since the adoption of an open rating system, generally set their premium rates below such advisory rates. Before January 1, 1995, California operated under a minimum rate law, whereby premium rates established by the California Department of Insurance were the minimum rates that could be charged by an insurance carrier. The repeal of the minimum rate law has resulted in lower premiums and profitability on the Company's California workers' compensation insurance policies due to increased price competition. Beginning in the second half of 1999, however, Fremont observed a lessening of price competition in its primary regions of California and Illinois. More recently, in January 2000 Fremont experienced weighted average renewal premium rate increases of 26% and 14% in California and Illinois, respectively, and Fremont's total inforce premiums for all regions combined remained in excess of $1 billion at January 31, 2000. It is uncertain however, whether the observed lessening in the competitive environment and the Company's ability to increase premium rates will continue.
Revenues increased 38% and 28% in 1999 and 1998, respectively, due primarily to greater loan interest revenue attributable to growth in the average financial services loan portfolio over the three year period ended December 31, 1999. The average financial services loan portfolio grew in 1999 to $3.9 billion from $2.4 billion and $1.9 billion in 1998 and 1997, respectively. Also contributing to the increase in revenues in 1999 is a gain before taxes of $10.3 million recognized by the Company from the December 20, 1999 sale of its commercial finance subsidiary.
The following table identifies the interest income, interest expense, average interest bearing assets and liabilities, and interest margins for Fremont's financial services operation:
The margin between the Company's interest income and expense ("net yield") decreased in 1999 as compared to 1998 due mainly to the combined effect of a decrease in the net yields on commercial real estate and commercial finance loans and an increase in the level of average syndicated loans, which generally carry lower yields. The Company's overall net yield decreased in 1998 as compared to 1997, due primarily to the combined effect of a decrease in the net yields on commercial finance loans and an increase in the level of average syndicated loans.
During 1997, the Company began originating both commercial and residential real estate loans outside of California. The Company intends to seek portfolio growth outside of California in order to achieve greater geographic diversity in its loan portfolio and thereby lessen Fremont's exposure to regional economic conditions. The total amount of commercial and residential real estate loans outstanding, excluding loans held for sale, on properties located outside of California at December 31, 1999 was $992 million and $176 million, respectively. (See "Variability of Operating Results.")
Non-performing assets increased to $35.1 million at December 31, 1999 from $28.7 million at December 31, 1998, due to increases in non-performing commercial and residential real estate loans. Non-performing assets at December 31, 1998 were lower than December 31, 1997 despite total loans receivable increasing to $3.0 billion at December 31, 1998 from $2.0 billion at December 31, 1997.
The higher provision for loan losses in the year ended December 31, 1999 as compared to the prior year is consistent with the significant increase in average total loans receivable to $3.9 billion in 1999 from $2.4 billion in 1998. While net charge-offs as a percentage of average total loans receivable has increased in 1999 to 0.28% as compared to 0.11% in 1998, the increase is due primarily to commercial finance loans charged off within the Company's commercial finance subsidiary which was sold in December 1999. The coverage of the allowance for possible loan losses to non-accrual loans and accrual loans 90 days past due has remained high at 179.97% as of December 31, 1999. The lower provision for loan losses in the year ended December 31, 1998 as compared to the year ended December 31, 1997 is due primarily to improved loan loss experience. This improvement is evidenced by the decrease in net charge-offs to $2.6 million in 1998 as compared to $5.7 million in 1997, while total loans receivable increased during this same period.
Fremont's financial services businesses include a Federal Deposit Insurance Corporation ("FDIC") insured thrift and loan subject to supervision and regulation by the California Department of Financial Institutions and the FDIC. Federal and state regulations prescribe certain minimum capital requirements and, while the Company's thrift is currently in compliance with such requirements, in the future the Company could be required to make additional contributions to its thrift in order to maintain compliance with such requirements. Future changes in government regulation and policy could adversely affect the thrift and loan industry, including Fremont's thrift. Such changes in regulations and policies may place restrictions on or make changes to the Company's lending business and increase the costs of compliance.
The property and casualty insurance operation has exposure to changes in long-term interest rates due mainly to the significant investment in the available-for-sale investment portfolio. Fluctuations in these interest rates affect the carrying value of the fixed rate investments resulting in fluctuations in unrealized gains and losses on investments, which also affects the Company's stockholders' equity. For an investment in a fixed rate bond, a rise in market interest rates for bonds with a similar remaining term and face amount will result in a decline in the fair value of the fixed rate bond. The converse situation applies as well.
During 1999, the Company began a program to securitize certain of its residential real estate loans. A securitization has the effect of reducing interest rate risk since the securitized loans are typically removed from the balance sheet. However, the Company retains a residual interest in the securitized loans, and this residual interest is recorded on the balance sheet at fair value ($63 million at December 31, 1999). These residual interests are subordinated to the right of other investors. Residual interests do not have a stated maturity or amortization period. The expected amount of the net cash flow, as well as the timing of such cash flow, depends on the performance of the underlying collateral supporting each securitization. The actual cash flow of these instruments could vary substantially if performance is different from the Company's assumptions.
The Company's thrift and loan subsidiary finances its lending activities through customer deposits, which have grown to $3.42 billion at December 31, 1999 from $2.13 billion at December 31, 1998. Additionally, beginning in 1999, the Company financed certain of its residential real estate loans through securitization. During 1999, the Company sold approximately $1.41 billion of residential real estate loans in three securitizations. (See "Financial Services Operation.") The thrift is also eligible for financing through the Federal Home Loan Bank of San Francisco ("FHLB"), which financing is available at varying rates and
On February 28, 2000, Fremont reached an agreement with one of its reinsurers, Reliance Insurance Company ("Reliance"), to settle all obligations between the Company and Reliance under a contract of reinsurance which was in effect for the period January 1, 1998 through December 31, 1999. Under the terms of the settlement agreement, the Company will receive in excess of $100 million in cash and will no longer have any involvement with the Reliance workers' compensation reinsurance programs brokered for Reliance by Unicover Managers, Inc. In recognition of this settlement, Fremont recorded a charge to its operating results in the quarter ended December 31, 1999 of approximately $48.8 million after taxes, consisting primarily of the adjustment necessary to bring the estimated unpaid reinsurance recoverables under the reinsurance contract to a present value basis at December 31, 1999. The cash payment is expected to be made to the Company on or shortly after the effective date of the agreement, which is anticipated by the end of the first quarter of 2000. Upon receipt of this cash settlement, the Company's reinsurance recoverables on unpaid loss will be reduced by a like amount. (See "Property and Casualty Insurance Operation -- Reinsurance Ceded.")
On August 1, 1997, the Company completed the acquisition of Industrial which resulted in the ultimate disbursement of funds totaling $434 million, comprised of $355 million in purchase price, as adjusted pursuant to certain audit and settlement provisions in the purchase agreement, $79 million in the pay-off of an outstanding debt obligation that Industrial owed to Talegen Holdings, Inc., and $10 million in costs incurred in connection with the acquisition. The disbursement of cash used to fund the acquisition included $219 million in borrowings under the Company's existing line of credit and the remainder from internally generated funds.
On March 1, 1996, Fremont General Financing I, a statutory business trust (the "Trust") and consolidated wholly-owned subsidiary of the holding company, sold $100 million of 9% Trust Originated Preferred Securities(SM) ("the Preferred Securities") in a public offering. The Preferred Securities represent preferred undivided beneficial interests in the assets of the Trust. The proceeds from the sale of the Preferred Securities were invested in 9% Junior Subordinated Debentures of the holding company ("the Junior Subordinated Debentures"). The $100 million Junior Subordinated Debentures are the sole asset of the Trust. The Preferred Securities will be redeemed upon maturity of the Junior Subordinated Debentures in 2026, subject to the election available to Fremont General Corporation to extend the maturity up to 2045, and they may be redeemed, in whole or in part, at any time on or after March 31, 2001 and under certain specified circumstances. The Junior Subordinated Debentures are subordinate and junior to all senior indebtedness of the holding company. Payment of distributions out of cash held by the Trust, and payments on liquidation of the Trust or the redemption of the Preferred Securities are guaranteed by Fremont General Corporation.
Net cash used in operating activities of continuing operations was $131.9 million, $199.7 million and $18.0 million for 1999, 1998 and 1997, respectively. Net cash used in operating activities decreased in 1999 as compared to 1998 due mainly to an increase in claims and policy liabilities in 1999 versus a significant decline in 1998, and an increase in the provision for loan losses resulting from the general growth in the average financial services loan portfolio. (See "Property and Casualty Insurance Operation -- Special Discussion Concerning Property and Casualty Insurance Results.") Partially offsetting these decreases in cash used in operating activities were: (i) the decrease in income from continuing operations to a loss in 1999; (ii) an increase in premiums receivable resulting from the increase in premiums earned in 1999; (iii) the recognition of residual interests in three securitizations completed by the Company in 1999; and (iv) a decrease in the provision for deferred income taxes to a benefit in 1999 due primarily to the net loss carryover generated in 1999. (See Note G of Notes to Consolidated Financial Statements.) Net cash used in operating activities increased in 1998 as compared to 1997, due primarily to a higher reduction in claims and policy liabilities and an increase in premiums receivable and agents' balances, offset partially by an increase in net income and an increase in the provision for deferred income taxes. The higher reduction in claims and policy liabilities is due mainly to an increase in 1998 in reinsurance recoverables on unpaid losses resulting from the additional excess of loss reinsurance purchased by Fremont and which became effective January 1, 1998. (See "Results of Operations -- Property and Casualty Insurance Operation -- Premiums.") Additionally, the higher provision for deferred income taxes is due predominately to this higher reduction in claims and policy liabilities.
Net cash used in investing activities was $429.4 million, $721.4 million and $393.2 million for 1999, 1998 and 1997, respectively. The decrease in net cash used in investing activities in 1999 as compared to 1998 results mainly from: (i) a decrease in loan originations and bulk purchases funded, net of receipts from
repayments and bulk sales of loans; (ii) a reduction in cash used in acquisitions of companies since the Company did not complete an acquisition in 1999; and (iii) an increase in securities sold, matured or called, net of purchases. The decrease in loan originations net of repayments and bulk sales is due primarily to $2.1 billion included in bulk loan sales in 1999, comprised of $1.4 billion of residential real estate loans sold in three securitizations and $655 million in commercial finance loans sold through the sale of the Company's commercial finance subsidiary. Partially offsetting these decreases in net cash used in investing activities is an increase in short-term investments resulting primarily from the receipt of $131 million in cash from FINOVA Capital Corporation pursuant to the December 1999 sale of the Company's commercial finance subsidiary, and an increase in the short-term liquidity portfolio within the Company's thrift. The increase in net cash used in investing activities in 1998 as compared to 1997 is due mainly to increases in loan originations and bulk purchases funded, net of repayments and a smaller decrease in short-term investments. This was partially offset by increases in securities sold, matured or called, net of purchases and a decrease in the purchase of subsidiaries. The decrease in the purchase of subsidiaries occurs as the 1998 acquisition of Unicare at $110 million in purchase price was smaller than the 1997 acquisition of Industrial.
Net cash provided by financing activities was $546.5 million, $936.1 million, and $420.8 million in 1999, 1998 and 1997, respectively. The decrease in net cash provided by financing activities in 1999 as compared to 1998 is due primarily to an increase in long-term and short-term debt repayments and an increase in deferred compensation plans, offset partially by an increase in thrift deposits and an increase in net long-term and short-term debt proceeds. Included in the long-term and short-term debt repayments in 1999 is a $315 million payoff of the Company's bank line of credit from the proceeds of the issuance in March 1999 of the Senior Notes, and $564 million in long-term and short-term debt assumed by FINOVA Capital Corporation pursuant to the December 1999 sale of the Company's commercial finance subsidiary. The increase in long-term debt proceeds resulted mainly from the March 1999 issuance of Senior Notes. The increase in thrift deposits was used to support the growth in the Company's financial services portfolio. The increase in deferred compensation plans was due mainly to the Company's common stock buyback program initiated by the Company in July 1999 and completed in September 1999. The increase in net cash provided by financing activities in 1998 as compared to 1997 is due mainly to increases in short-term and long-term debt proceeds, net of repayments and an increase in thrift deposits. These increases resulted primarily from the financing of the general growth of the Company's financial services loan portfolio.
The Company believes that its existing cash, revenues from operations and other available sources of liquidity will be sufficient to satisfy its liquidity needs for at least the next twelve months.
Company will continue to monitor its critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
The information set forth under the subheadings "Market Risk," "Property and Casualty Insurance Operation -- Interest Rate Risk," "Financial Services Operation -- Interest Rate Risk," and "Fremont General Corporation (Parent-only) -- Interest Rate Risk" in the Company's Management's Discussion and Analysis is incorporated herein by reference.