In 1994, the Company completed its new corporate office complex on a 42-acre parcel in Mayfield Village, Ohio, owned by a subsidiary. The new facility consists of 517,800 square feet of space and replaces office space held under leases in a number of locations in the Cleveland, Ohio area. The cost of the project is $75.5 million and is being funded through operating cash flows. As of December 31, 1994, $71.7 million of the project's costs had been paid. The Company's central data processing facility occupies a modern, three-story brick building containing approximately 107,000 square feet of office space on this same parcel.
The Company owns two adjacent two-story brick buildings in Highland Heights, Ohio, which contain an aggregate of 233,000 square feet of office and warehouse space. The property was purchased in August 1994 for approximately $6.7 million. The buildings are currently being leased to a third party until late 1995, at which time the buildings will be renovated to accommodate the Company's operations.
The Company's Florida Division is headquartered in a modern, two-story building containing approximately 60,000 square feet of office space in Tampa, Florida. The property was financed with, and is held subject to a mortgage granted in connection with, industrial development revenue bonds bearing interest equal to 79.45% of a specified prime commercial lending rate. The remaining annual principal amounts payable are $368,000 in each of 1995 through 1997 and $92,000 in 1998.
The Company owns a modern, two-story building containing approximately 39,000 square feet of office space in Tampa, Florida; this building is leased to a non-affiliated tenant.
The Company leases approximately 660,000 square feet of modern office space at various locations throughout the United States for its other business units and staff functions. In addition, the Company leases approximately 261 processing and claim offices at various locations throughout the United States. Two offices are leased in Canada. These leases are generally short-term to medium-term leases of standard commercial office space.
The Company's insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims. For the three years ended December 31, 1994, operations generated a positive cash flow of $925.4 million, and cash flow is expected to be positive in both the short-term and reasonably foreseeable future. The Company's substantial investment portfolio is highly liquid, consisting almost entirely of readily marketable securities. The Company does not expect any material changes in its cash requirements and is not aware of any trends, events or uncertainties that are reasonably likely to have a material effect on its liquidity.
In June 1992, the Company reached an agreement with the California Department of Insurance to refund approximately $50 million of premiums (including interest) on business written between November 8, 1988 and November 7, 1989 to approximately 260,000 policyholders, thereby settling all rollback and refund exposure since Proposition 103 was adopted in November 1988. As a result, the Proposition 103 premium refund and rollback reserve was reduced by $106.0 million.
During 1992, the Company changed its financial arrangement with Progressive Partners Limited Partnership (Progressive Partners), its investment manager, as part of its strategy to compete more effectively for private passenger auto insurance by lowering costs. Under the new arrangement, Progressive Partners' people, now employed by a wholly-owned Progressive subsidiary, continue to provide the Company with investment and capital management. The transaction involved paying Progressive Partners a one-time fee for terminating the investment management contract, and an additional incentive fee for the period ended June 30, 1992, in the aggregate amount of $54.6 million. This transaction reduced the Company's costs for investment and capital management.
As of December 31, 1994, the Company held $154.6 million of Collateralized Mortgage Obligations ("CMOs"), which represented 4.9% of the total investment portfolio. There are two types of securities held in the CMO Portfolio. As of December 31, 1994, sequential bonds represented 61.3% of the portfolio ($94.8 million) and had an average life of 2.1 years. Planned Amortization Class bonds represented 38.7% of the portfolio ($59.8 million) and had an average life of 2.0 years. The portfolio contains no residual interests.
The 1994 marketable equity portfolio consisted of three principal components: (i) $15.6 million, or 3.3%, of standard adjustable rate preferreds, (ii) $338.0 million, or 71.0%, of perpetual preferreds with mechanisms that may provide an opportunity to liquidate at par, and (iii) $122.7 million, or 25.7%, of common stocks. The 1993 marketable equity portfolio consisted of three principal components; (i) $73.0 million, or 16.1%, of standard adjustable rate preferreds, (ii) $283.4 million, or 62.4%, of perpetual preferreds with mechanisms that may provide an opportunity to liquidate at par, and (iii) $97.5 million, or 21.5%, of common stocks.
The Company continually evaluates the creditworthiness of each issuer for all securities held in its portfolio. Changes in market value are evaluated to determine the extent to which such changes are attributable to: (i) interest rates, (ii) market-related factors other than interest rates and (iii) financial conditions, business prospects and other fundamental factors specific to the issuer.
Operating income, which excludes realized gains and losses and one-time items, was $212.7 million, or $2.76 per share, in 1994, $197.3 million, or $2.61 per share, in 1993 and $129.8 million, or $1.72 per share, in 1992. The GAAP combined ratio was 91.7 (88.5 including the elimination of the supplemental reserve discussed below) in 1994, 89.3 in 1993 and 96.5 in 1992.
Because the Company is primarily an insurer of motor vehicles, it has limited exposure for environmental, product and general liability claims. The Company has established reserves for these exposures, in amounts which it believes to be adequate based on information currently known by it. The Company does not believe that these claims will have a material impact on the Company's liquidity, results of operations or financial condition.