The Group's executive and administrative offices are located on six floors of a ten-story office building at 122 Fifth Avenue, New York, New York 10011 and one floor of an adjoining office building at 120 Fifth Avenue, New York, New York 10011, under leases each of which expire on September 30, 1998.
The Group also conducts limited operations from branch offices located in Manhattan, Mineola and Rochester, New York, Boston, Massachusetts and Bedford, New Hampshire. The rental charged to the Company for these facilities is prorated in accordance with the pooling agreement described in "Pooling Agreement" under Item 1, herein.
During each of the three years in the period ended December 31, 1996, the Company operated profitably and net cash was provided from operations. In 1996, net cash provided from operations reflected a marked decrease primarily due to a decrease in premiums written and a program to reduce pending claims and settle claims more quickly than in the past which resulted in more loss and loss adjustment expense payments.
The Company believes its immediate cash needs will not require the sale of bonds, although it may sell certain of these securities from time to time.
Principally as a result of rising market interest rates during 1996, the market value of the Company's available for sale bond portfolio at December 31, 1996 was $2,572,000 below amortized cost. While this has resulted in a decrease in shareholders' equity, it had no effect on results of operations or cash flows.
Earned premium revenues of the Company increased by approximately $1.8 million, or 1.9%, and $5.2 million, or 5.8%, in 1996 and 1995, respectively. Beginning in the fourth quarter of 1995, higher premium rates were charged on certain lines of business, including in 1996 amounts related to increased minimum automobile liability coverage required by New York State. Such rate increases were largely offset by a decrease in the number of policies in force. This decrease primarily resulted from a depopulation of the assigned risk pools and reduced volume in other lines of business that have not been profitable, primarily certain specialty programs within voluntary commercial automobile lines. In addition, increased competition, primarily in workers' compensation and commercial package policies has reduced volume. The increase in 1995 as compared to 1994 principally was attributable to growth in policies in force and increased premium rates. The majority of the growth in 1995 resulted from assigned risk service business.
million, or 55%, was primarily the result of increased acquisition of blocks of automobile assigned risk business from other insurance companies.
The combination of other underwriting expenses incurred and the amortization of deferred policy acquisition costs reflected increases of approximatley $1.7 million, or 6.6%, and $0.8 million, or 3% in 1996 and 1995, respectively. The increase in 1996 was primarily the result of higher operating costs, primarily relating to pension and severance benefits for certain employees, and higher systems costs as the Company has begun a program to upgrade its processing and information systems, some of which are currently not year 2000 compliant. The increase in 1995 was the result of increased amortization of acquisition costs related to the growth in earned premiums.