Properties [S] The Group has entered into a twenty year lease agreement which expires in 2018, consisting of 286,510 square feet, in an office building located at 335 Adams Street in Brooklyn, New York, in which Leucadia has an equity interest. The Group received certain incentives from both the City and State of New York in connection with this lease, which will be recognized over the term of the lease.
Empire has subleased 133,140 square feet of the office space to its parent, Leucadia at similar terms as in the original lease.
[S] The purpose of this section is to discuss and analyze the Company's financial condition, liquidity and capital resources and results of operations. This analysis should be read in conjunction with the financial statements and related notes which appear elsewhere in this Report. [S] Liquidity and Capital Resources [S] In 1999 and 1998, net cash was used for operations as a result of a decrease in premiums written and a program to reduce pending claims.
At December 31, 1999 and 1998 the yield of the Company's fixed maturities portfolio was 6.5% and 5.8%, respectively, with an average maturity of 2.6 and 3.2 years for 1999 and 1998, respectively. Additionally, the Company maintains a diversified investment portfolio of securities, of which at December 31, 1999, approximately 82% of the fixed maturities portfolio was invested in issues of the U.S. Treasury and its governmental agencies with the remainder primarily invested in investment grade corporate and industrial issues.
In 1998, the decrease in earned premium revenues was primarily due to a decline in the number of assigned risk automobile pool contracts acquired due to competition and the depopulation of the assigned risk automobile pool ($7.4 million) and a reduction in certain lines, principally voluntary commercial automobile ($2.6 million), private passenger automobile ($1.8 million), commercial package policies ($1.3 million) and workers' compensation ($1.1 million), due to tighter underwriting standards, re- underwriting and increased competition.
[S] The Company's combined ratios increased in 1999 and 1998 primarily due to the reduction in premium volume at a rate greater than the reduction in net underwriting and other costs. In addition, the reduction in servicing fees negatively affected the expense ratios. Expense ratios were also adversely affected by increased expenditures related to the installation of new information systems, providing Internet access to agents and severance costs. Included in the Company's results for 1999, 1998 and 1997 were $5.1 million, $12.9 million and $8.3 million, respectively, for reserve strengthening related to losses from prior accident years.
As a consequence of its reserve increases, the Company has reduced premiums and pre-tax profits to recognize reinsurance premiums due for 1995 and prior years under retrospectively rated reinsurance agreements. Such amounts totaled $1.4 million, $0.6 million and $1.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. The Company has not entered into retrospectively rated reinsurance agreements after 1995.
The combination of other underwriting expenses incurred and the amortization of deferred policy acquisition costs reflected a decrease of $2.2 million in 1999 or 10.5% and an increase of approximately $1.0 million or 4.9% in 1998. The decrease in 1999 primarily related to the decline in premium revenue coupled with a reduction in operating expenses. The increase in 1998 was largely the result of expenses relating to the move of the Company's executive and administrative offices to Brooklyn, New York and higher underwriting costs relating to surveys and audits of insureds records in connection with the Company's re-underwriting efforts offset in part by a $2.0 million pension curtailment gain. The decrease in 1997 was primarily the result of lower operating costs, primarily relating to pension and severance benefits for certain employees, and a decrease in the provision for servicing carriers expenses in connection with the NYPAP, offset by higher systems costs. [S] Impact of Inflation [S] The Company, as well as the property and casualty insurance industry in general, is affected by inflation. With respect to losses, the Company's claim severity is affected by the impact of inflation on the cost of automobile repair parts, medical costs and lost wages. The costs of adjusting claims and other underwriting expenses have also been affected by inflationary pressures on salaries and employee benefits. The Company receives rate increases based in part upon its experience as well as the industry's experience. Accordingly, premium increases generally follow the rate of inflation. [S] Cautionary Statement for Forward-Looking Information [S] Statements included in this Report may contain forward-looking statement pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements s. Such forward-looking statements are made may relate, but are not limited, to projections of revenues, income or loss, capital expenditures, fluctuations in insurance reserves, plans for growth and future operations, competition and regulation as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified. When used in this Report, the words "estimates", "expects", "anticipates", "believes", "plans", "intends" and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. The factors that could cause actual results to differ materially from those suggested by any such statements include, but are not limited to, those discussed or identified from time to time in the Company's public filings, including general economic and market conditions, changes in domestic laws, regulations and taxes, changes in competition and pricing environments, regional or general changes in asset valuation, the occurrence of significant natural disasters, the inability to reinsure certain risks economically, the adequacy of loss reserves, prevailing interest rate levels, weather related conditions that may affect the Company's operations and changes in composition of the Company's assets and liabilities through acquisitions or divestitures. Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof. The Company undertakes no obligation to revise or update these forward- looking statements to reflect events or circumstances that arise after the date of this Report or to reflect the occurrence of unanticipated events.