The selected consolidated financial data presented below for, and as of the end of, each of the years ended December 31, 1994 through 1997, has been derived from the consolidated financial statements of the Company which have been audited by KPMG Peat Marwick, independent certified public accountants. The consolidated balance sheet as of December 31, 1997, and the consolidated statements of operations, shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 1997, and the report thereon are included elsewhere in this Annual Report. The selected consolidated financial data presented below for the periods January 1, 1998, through July 10, 1998, and July 11, 1998, through December 31, 1998, and as of December 31, 1998, is derived from consolidated financial statements of the Company, which have been audited by Deloitte & Touche. The consolidated statement of net assets in liquidation as at December 31, 1998, and the related consolidated statement of changes in net assets in liquidation for the period July 11, 1998, through December 31, 1998, the consolidated statements of operations for the periods from January 1, 1998, through July 10, 1998, and from July 11, 1998, through December 31, 1998, and the consolidated statement of cash flows for the periods from January 1, 1998, through July 10, 1998, and from July 11, 1998, through December 31, 1998, and the report thereon are included elsewhere in this Annual Report. The information presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the consolidated financial statements and the notes thereto, and the other financial information included herein. The Company's records are maintained in United States dollars, and all amounts set forth in this Annual Report are expressed in United States dollars except as otherwise indicated.
Premiums written, reinsurance purchased, net premiums earned, net claims and claims expenses and acquisition cost all show decreases in comparison to the year ended December 31, 1997 due to the disposal of the insurance operations in the second quarter of 1998. During the third and fourth quarters the Company was engaged in the voluntary liquidation and winding up of its business and no longer had the insurance and claims adjusting operations.
The only revenues during this period were from investments being held, pending final distributions to creditors and shareholders. The only expenses during the period were for the payment of items relating to the winding up of the Company's business.
Given the sale of all operations and the voluntary liquidation proceedings, additional comparisons between the periods would not be meaningful.
For the "Financial Year" ended December 31, 1997, the Company experienced a net increase in reserves for prior accident years of $2,176,000. When such deficiency of $2,176,000 is divided by earned premiums for 1997 of $35,865,000 it produces a 6% claims deficiency. This percentage is subtracted from the "Financial Year" current claims expense ratio of 69% ($24,605,000 divided by $35,865,000) to produce the 1997 "Accident Year" total claims expense ratio of 63% (($24,605,000 less $2,176,000) divided by $35,865,000).
For the "Financial Year" ended December 31, 1996, the Company experienced a net decrease in reserves for prior accident years of $1,089,000. When this redundancy is divided by the earned premiums for 1996 of $55,401,000 it produces a 2% redundancy. This is the percentage added to the "Financial Year" current claims expense ratio of 76% ($42,197,000 divided by $55,401,000) to produce the "Accident Year" total claims expense ratio of 78% (($42,197,000 plus 1,089) divided by $55,401,000).
Specialty lines net expense decreased by $219,000. Increased commission expense associated with increased premium writings were offset by increased reinsurance ceding commissions. Personal lines net expense decreased by $1,804,000 due primarily to increases in contingent ceding commissions as a result of lower loss ratios.
CLAIMS ADJUSTING OPERATIONS. Adjusting fees earned decreased by $4,830,000, and service fees and commissions expenses decreased by $2,767,000 due to the decline in storm activity. General and administrative expenses decreased by $1,263,000 due primarily to expense reduction strategies implemented to improve profitability.
NET INVESTMENT INCOME AND GAINS. Investment gains increased by $1,849,000, offset by a decrease in investment income of $635,000. During 1997, as a result of its transition to a taxable status, the Company changed the composition of its investment portfolio to include a higher proportion of tax-advantaged bonds. In order to effect this change, the Company sold a portion of its securities classified as available for sale. Additional sales of investments were made in order to fund negative cash flow. An increase in realized gains amounting to $2,762,000 resulted primarily from the sale of these investments. This increase was offset by an increase in unrealized losses of $913,000 in the Company's trading portfolio. The decrease in investment income resulted principally from the decrease in invested assets.
Net cash provided by operating activities was $13,691,000 for the period January 1, 1998, through July 10, 1998, and $200,000 for the period July 11, 1998, through December 31, 1998, as compared to net cash provided of $84,000 for 1997. Net cash provided by investing activities was $36,517,000 for the period January 1, 1998, through July 10, 1998, and zero for the period July 11, 1998, through December 31, 1998, as compared to net cash provided of $3,954,000 for 1997. Net cash provided by financing activities was $5,481,000 for the period January 1, 1998, through July 10, 1998, and net cash used by financing activities was $60,197,000 for the period July 11, 1998, through December 31, 1998, as compared to net cash used of $965,000 for 1997. The net financing cash used for the 1998 periods was comprised of the RenaissanceRe limited recourse note of $8,894,000, plus $1,080,000 received from exercise of stock options, less repayment of $4,493,000 in notes payable, and less $60,197,000 partial liquidating distribution.
See Part IV, Item 14(a)1 for information required for this item.