The selected financial data set forth in the following table for each of the five years in the period ended December 31, 1995 have been derived from the audited consolidated financial statements of the Company.
Total revenues increased 3% from $101,352,000 in 1994 to $104,544,000 in 1995. Of the $3,192,000 increase, $3,904,000 was attributable to a 4% increase in net premiums earned and $519,000 was attributable to an 5% increase in net investment income. These increases were partly offset by a $852,000 decrease in net realized investment gains and a $379,000 decrease in other revenues.
The Company's investment in Signet included in other long-term investments is carried at fair value. During 1995, the Company recorded an $840,000 loss on its investment in Signet which is included as a component of realized investment gains and losses in the consolidated statement of income. There were no material gains or losses realized from the sale of investments in 1994 or 1995.
In July 1994, Mutual informed the Company that it had failed to identify and bill MNH during the period January 1, 1985 through June 30, 1994 for a portion of MNH's share of AIP losses paid by Mutual in that period. The amount of unbilled AIP losses was approximately $7,500,000. After extensive negotiations, between the Company's and Mutual's independent Directors, MNH agreed to pay Mutual $3,135,000 in full and complete settlement of the unbilled AIP paid losses for the period noted above. This settlement increased the 1994 loss and LAE ratio by 3.5 percentage points.
Involuntary automobile insurance business increased MNH's calendar year loss and LAE ratio by approximately 3.1 percentage points and decreased MNH's calendar year loss and LAE ratio by .6 percentage points for the years ended December 31, 1994 and 1995, respectively. The combined ratio on involuntary automobile business was greater than the combined ratio on voluntary automobile business.
The ratio of policy acquisition costs and other underwriting expenses to net premiums earned increased from 33.4% in 1994 to 35.0% in 1995. In 1995, other underwriting expenses included approximately $1,100,000 related to the 1995 resignation of the Company's former Chief Executive Officer. These expenses added approximately 1.2 percentage points to the ratio of policy acquisition costs and other underwriting expenses to net premiums earned in 1995.
Voluntary commercial lines direct premiums written increased by 7% from $48,304,000 in 1993 to $51,602,000 in 1994. Commercial lines retention rates held constant in 1994 compared to 1993 as did the number of commercial policies in force. Average premium per policy increased 3% in 1994 compared to 1993. Direct premiums written in each commercial line of business, except contractors' coverall, increased in 1994 compared to 1993.
Voluntary personal lines direct premiums written increased 2% from $31,575,000 in 1993 to $32,101,000 in 1994. Private passenger automobile direct premiums written, which comprised 82% of total voluntary personal lines direct premiums written in 1994, were unchanged in 1994 compared to 1993. Homeowners' direct premiums written increased 10% in 1994 compared to 1993.
Net investment income increased 8% from $9,155,000 in 1993 to $9,849,000 in 1994, primarily due to a 7% increase in average invested assets. On a taxable equivalent basis, net investment income increased 9% in 1994 compared to 1993.
underwriting expenses to net premiums earned in 1993 would have been 34.2%
Commissions, premium taxes and other state assessments that vary directly with the Company's premium volume represented 20.6% of net premiums earned in 1994, compared to 21.6% of net premiums earned in 1993. In addition, certain other underwriting expenses, such as salaries, employee benefits, and other operating expenses vary indirectly with volume and comprise the remainder of the Company's underwriting expenses.
Net cash provided by operations increased by $4,190,000 from $8,315,000 in 1994 to $12,505,000 in 1995. This increase resulted primarily from a $1,547,000 increase in premiums collected, a $1,034,000 decrease in payments of losses and LAE and a $702,000 decrease in income taxes paid.
Net cash used in financing activities decreased $602,000 from $613,000 in 1994 to $11,000 in 1995 primarily due to a $624,000 increase in proceeds from the exercise of employee stock options.
rates are not expected to have a material effect on the Company's liquidity, or its results of operations.
The Company's investment in Signet cumulative auction rate preference shares included in other long-term investments is carried at its fair value of $1,500,000 at December 31, 1995. During 1995, the Company determined that the decline in fair value of its Signet investment was other than temporary and recorded an $840,000 loss in its Consolidated Statement of Income as a component of realized gains and losses. Subsequent adjustments to the fair value of Signet are considered temporary and are recorded directly to stockholders' equity.
As a holding company, the Company is dependent upon cash dividends from MNH to meet its obligations and pay any cash dividends. MNH is subject to New Hampshire insurance laws which place certain restrictions on its ability to pay dividends without the prior approval of state regulatory authorities. These restrictions limit dividends to those that, when added to all other dividends paid within the preceding twelve months, would not exceed 10% of the insurer's policyholders' surplus as of the preceding December 31. The maximum amount of dividends that MNH could pay during any twelve month period ending in 1996 without the prior approval of the New Hampshire Insurance Commissioner is $4,661,000. The Company paid a $.05 per share quarterly cash dividend to its common stockholders totalling $635,000 in 1995.
On November 1, 1994, Mutual filed an application with the New York Insurance Department ("Department") to convert from a mutual to a stock corporation under the New York law that permits a mutual insurance company to demutualize. In a demutualization, a mutual insurance company's policyholders and surplus note holders are entitled to receive their equitable share of that company's appraised fair market value in cash or securities or a combination thereof. Mutual's application is currently pending with the Department and must ultimately be approved by the Department and Mutual's policyholders after the Department has determined Mutual's fair market value based upon an independent appraisal. The Company has advised Mutual and the Department of its interest in sponsoring Mutual's demutualization, and Mutual has granted the Company a right of first refusal in that regard. The Company would consider acquiring Mutual if it determines that the appraised value is acceptable and it has sufficient capital to fund the acquisition. In the event the Company is not able to acquire Mutual at a price, on terms or in a time frame acceptable to the Company, the Company may elect to develop its own management structure and might, therefore, terminate the Management Agreement, subject to its required five year notice provision, or request that Mutual and the Department agree to amend the Management Agreement. Such an amendment might include, but not be limited to, a shortening of the termination period.