The selected financial data below as of or for the period ended December 31, 1998 should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes.
Underwriting and Other Expenses. Losses and loss expenses incurred of $134.3 million for the period ended December 31, 1998 include the discounted value of the loss portfolios assumed under the reinsurance agreements with SNCC and RSL and provisions for losses and loss expenses for the professional liability aggregate excess reinsurance agreement and rent-a-captive program referred to above. Underwriting and acquisition expenses were $5.2 million for the period ended December 31, 1998 and were comprised of ceding commissions of $4.8 million and other underwriting expenses of $0.4 million. Interest expense on the Subordinated Notes for the period ended December 31, 1998 totaled $2.8 million.
The Company's current liquidity needs at the holding company level include funding operating expenses, the repayment of incorporation expenses paid by DFG and interest payments on the Subordinated Notes. At the Company's option, the Company may pay interest on the Subordinated Notes in additional Subordinated Notes in lieu of cash payments during any five-year period. As of December 31, 1998, the Company had $15.3 million in financial assets at the holding company level. The Company's other source of liquidity at the holding company level consists of dividends from Oracle Re. Dividend payments by the Company's insurance subsidiary to the Company are subject to certain Bermuda regulatory restrictions as well as contractual restrictions. Under the LOC Agreement, dividends by Oracle Re in any fiscal year may generally not exceed the greater of (a) 50% of Oracle Re's statutory net income for the preceding fiscal year and (b) the lesser of (i) $3,000,000 and (ii) Oracle Re's statutory net income for the preceding fiscal year. See "Business - Regulation - Bermuda."
The principal liquidity requirement of the Company's insurance subsidiary, Oracle Re, in addition to funding operating expenses, is the fulfillment of the obligations under its reinsurance agreements. The primary source of funding for these obligations, in addition to operating earnings, is the net cash flow from the investments included in Oracle Re's investment portfolio. Each of the Company's existing reinsurance agreements involved a one-time payment to Oracle Re at inception and does not provide for ongoing reinsurance premiums. If the Company finalizes the partial recapture by RSL of the liabilities ceded under its quota share reinsurance agreement with RSL, up to $26.3 million of the reserves carried by the Company with respect to this agreement will be transferred to RSL. See "Business - Reinsurance Business." The Company expects to have sufficient cash and cash equivalents available to fund such transfer.
The Company's fixed maturity investments subject it to risks resulting from changes in interest rates. The Company manages this interest rate risk by active portfolio management focusing on matching the durations of invested assets and related liabilities. If interest rates were to increase by 10% from their December 31, 1998 levels, the fair value of the Company's fixed maturity investments would decline by approximately $0.6 million. This analysis incorporates numerous assumptions and estimates and assumes no changes in the Company's investment portfolio in reaction to such interest rate changes. Consequently, the results of this analysis will likely be different from the actual changes experienced under given interest rate scenarios, and those differences may be material.
The Company's Subordinated Notes were issued at a fixed interest rate. A hypothetical 10% decrease in market interest rates would cause a corresponding $1.6 million increase in the fair value of the Company's fixed-rate corporate debt.
In connection with and because it desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions its readers regarding certain forward-looking statements in the foregoing discussions and elsewhere in this Form 10-K and in any other statement made by, or on behalf of, the Company, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Some forward looking statements may be identified by the use of terms such as "expects," "believes," "anticipates," "intends," or "judgment." Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control and many of which, with respect to future business decisions, are subject to change. Examples of such uncertainties and contingencies include changes in global economic and financial conditions and markets, the Company's investment strategy and implementation thereof, the performance of the Company's investment portfolio, the ability of the Company to generate new business opportunities and submissions, changes in insurance or other laws and regulations or governmental interpretations thereof, and the ability of the Company's or significant third parties' computer systems to process correctly dates in and after the year 2000. These uncertainties can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. The Company disclaims any obligation to update forward-looking information.