The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes appearing elsewhere in this report. The consolidated financial statements include the results of FIG's wholly owned subsidiary McCreary, since July 1, 1995. All amounts have been rounded to the nearest $100,000.
overall rate level for physicians by 2.4%, while much of the market was forced to initiate double digit rate increases during 1996.
FPIC's frequency of reported claims is decreasing. Frequency is the rate at which claims are reported. Florida Department of Insurance data indicate frequency trends have been increasing for the overall market. The major risk factors associated with changes in frequency include new grounds for litigation, changing social policies, and amendments to applicable laws. The frequency trend per 100 Class I equivalents was as follows: 13.12 in 1992, 11.54 in 1993, 12.27 in 1994, 11.34 in 1995 and 10.79 in 1996.
FPIC continues to work on the development of an office package policy for its core markets, as well as a workers' compensation product. Both of these products will be reinsured to limit FPIC's risk in the early years of the programs. These products, along with FPIC's managed care liability insurance and provider stop-loss insurance, will be offered to solo practitioners and group practices as well as managed care organizations.
MCC contributed more than $1 million in pretax income to the Company in 1996. Revenues for 1996 increased 8.6% to more than $5 million. Most of this growth occurred in claims administration and commission income as a result of growth in MCC's customer base.
As surplus grows, the Company will constantly evaluate when it should assume more investment risk in order to improve the investment return. As of year end, the average yield of the portfolio was approximately 6.27%.
Net realized investment losses in 1996 were $0.1 million as compared to net realized investment gains of $.2 million in 1995. With the buy and hold approach described earlier, net realized investment gains or losses are expected to be minimal.
during 1994 were principally the result of an increase in interest rates during the first six months of 1994 coupled with an active trading strategy by an external portfolio manager. The Company terminated this external manager in June 1994. The Company thereafter changed its investment strategy from an active trading strategy to a buy and hold approach.
The Company did not borrow any funds in 1996 and has no current plans to borrow funds during 1997. At December 31, 1996, the Company held approximately $21.3 million in investments scheduled to mature during the next twelve months, which combined with net cash flows from operating activities, are expected to provide the Company with sufficient liquidity and working capital. As highlighted in the accompanying Consolidated Statements of Cash flows, the Company generated positive net cash from operations of $24.1 million in 1996.
FPIC is subject to assessment by the Florida Insurance Guaranty Association, Inc. (FIGA) as well as similar associations in Alabama and Georgia for the provision of funds necessary for the settlement of covered claims under certain policies of insolvent insurers. The standard assessments that may be levied annually by these associations on an "as needed" basis, are expensed as paid. In 1996, a $0.1 million assessment was levied. In 1995, no assessment was levied.
In addition to the standard FIGA assessments, in 1992 the Florida Legislature passed a special assessment to retire bonds issued to pay property losses arising from Hurricane Andrew. FPIC is assessed 2% of the greater of either net direct premium written during the current year or 1991, the base year. The bonds were initially scheduled for defeasance in the year 2003, but may be paid off
prior to that time. However, changes in the premium levels of insurers in this pool could revise the pay off date. At December 31, 1996, the balance of this reserve was $1.3 million.
The forward-looking statements are based on assumptions that FIG will continue to: (i) price and market its insurance products competitively; (ii) reserve appropriately for losses and LAE; (iii) maintain its successful handling of claims, that competitive conditions within the MPL insurance business will not change materially or adversely, that demand for MPL insurance will remain strong, that the market will accept FIG's new products and services, that FIG will retain existing agents and key management personnel, that FIG's reinsurers will remain solvent and that there will be no material adverse change in FIG's operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and further business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company.