Our Specialty Commercial Segment also maintains a branch office in Atlanta, Georgia. The rent is currently $12,305 per month pursuant to a lease that expires November 30, 2026.
Our Aerospace & Programs business unit, as well as certain employees of our Commercial Auto and E&S Casualty business units, were previously located at 13727 Noel Road, Dallas, Texas. These leased premises consist of 15,072 square feet of office space. The rent is currently $30,458 per month pursuant to a lease that expires November 30, 2022. We have entered into sublease for this office space at a monthly rent of $18,840 over the remaining term of the lease.
● Specialty Commercial Segment. Our Specialty Commercial Segment includes our Commercial Auto business unit which offers primary and excess commercial vehicle insurance products and services; our E&S Casualty business unit which offers primary and excess liability, excess public entity liability, E&S package and garage liability insurance products and services; our E&S Property business unit which offers primary and excess commercial property insurance for both catastrophe and non-catastrophe exposures; our Professional Liability business unit which offers healthcare and financial lines professional liability insurance products and services primarily for businesses, medical professionals, medical facilities and senior care facilities; and our Aerospace & Programs business unit which offers general aviation and satellite launch property/casualty insurance products and services, as well as certain specialty programs. Effective January 1, 2021, our Professional Liability business unit discontinued the program to offer medical professional liability to senior care facilities. During 2020, our Aerospace & Programs business unit discontinued the programs to offer satellite launch insurance products.
● Standard Commercial Segment. Our Standard Commercial Segment includes the package and monoline property/casualty and occupational accident insurance products and services handled by our Commercial Accounts business unit and the runoff of workers compensation insurance products handled by our former Workers Compensation operating unit. Effective June 1, 2016, we ceased marketing new or renewal occupational accident policies. Effective July 1, 2015, the former Workers Compensation operating unit ceased retaining any risk on new or renewal policies.
Debt Investments: We assess whether we intend to sell, or it is more likely than not that we will be required to sell, a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses. For fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the investment’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the investment’s fair value and the present value of future expected cash flows is recognized in other comprehensive income. The fair value at the time of impairment is the new cost basis for the impaired security.
Equity Investments: ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” requires equity investments that are not consolidated or accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net income each reporting period. As a result of this standard, equity securities with readily determinable fair values are not required to be evaluated for other-than-temporary-impairment.
● Level 1: quoted prices in active markets for identical assets;
● Level 3: inputs to the valuation methodology that are unobservable for the asset or liability.
Level 2 investment securities include corporate bonds, corporate bank loans, municipal bonds, U.S. Treasury securities, other obligations of the U.S. Government and mortgage-backed securities for which quoted prices are not available on active exchanges for identical instruments. We use a third party pricing service to determine fair values for each Level 2 investment security in all asset classes. Since quoted prices in active markets for identical assets are not available, these prices are determined using observable market information such as quotes from less active markets and/or quoted prices of securities with similar characteristics, among other things. We have reviewed the processes used by the pricing service and have determined that they result in fair values consistent with the requirements of ASC 820 for Level 2 investment securities. We have not adjusted any prices received from third-party pricing sources.
The method followed in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value. A premium deficiency exists if the sum of expected claim costs and claim adjustment expenses, unamortized acquisition costs, and maintenance costs exceeds related unearned premiums and expected investment income on those unearned premiums, as computed on a product line basis. We routinely evaluate the realizability of deferred policy acquisition costs. At December 31, 2020 and 2019 there was no premium deficiency related to deferred policy acquisition costs.
extent that we do not believe it is more likely than not that future taxable income will be adequate to realize these future tax benefits.
Although considerable variability is inherent in such estimates, we believe that our reserves for unpaid losses and LAE are adequate. Due to the inherent uncertainty in estimating unpaid losses and LAE, the actual ultimate amounts may differ from the recorded amounts. A small percentage change could result in a material effect on reported earnings. For example, a 1% change in December 31, 2020 reserves for unpaid losses and LAE would have produced a $7.9 million change to pretax earnings. The estimates are continually reviewed and adjusted as experience develops or new information becomes known. Such adjustments are included in current operations.
The range of unpaid losses and LAE estimated by our actuary as of December 31, 2020 was $720.1 million to $917.9 million. Our best estimate of unpaid losses and LAE as of December 31, 2020 is $789.8 million. Our carried reserve for unpaid losses and LAE as of December 31, 2020 is comprised of $387.6 million in case reserves and $402.2 million in incurred but not reported reserves. In setting this estimate of unpaid losses and LAE, we have assumed, among other things, that current trends in loss frequency and severity will continue and that the actuarial analysis was empirically valid. We have established a best estimate of unpaid losses and LAE which is $29.2 million below the midpoint, or 86.0% of the high end, of the actuarial range at December 31, 2020 as compared to $32.7 million below the midpoint, or 80.9% of the high end, of the actuarial range at December 31, 2019. We expect our best estimate to move within the actuarial range from year to year due to changes in our operations and changes within the marketplace. Due to the inherent uncertainty in reserve estimates, there can be no assurance that the actual losses ultimately experienced will fall within the actuarial range. However, because of the breadth of the actuarial range, we believe that it is reasonably likely that actual losses will fall within such range.
Management overview. During fiscal 2020, our total revenues were $478.7 million, which was $7.7 million less than the $486.4 million in total revenues for fiscal 2019. During the year ended December 31, 2020, we reported net loss before tax of $114.2 million as compared to a net loss before tax of $1.0 million during the same period of 2019.
Further contributing to the increase in the pre-tax loss for the year ended December 31, 2020 were increased losses and LAE of $50.7 million, due primarily to a $21.7 million charge for a loss portfolio transfer reinsurance contract, increased net premiums earned as compared to the same period in 2019 and increased net catastrophe losses. Loss and LAE for the year ended December 31, 2020 was impacted by a $17.7 million increase in catastrophe losses as compared to the same period of the prior year, of which $5.0 million was attributable to reserves for COVID-19 claims. We reported $58.3 million of unfavorable net prior year loss reserve development during the year ended December 31, 2020 as compared to $60.9 million of unfavorable net prior year loss reserve development during the same period of 2019.
Gross premiums written for the Specialty Commercial Segment were $560.3 million for the year ended December 31, 2020, which was $91.6 million, or 14%, less than the $651.9 million reported for the same period of 2019. Net premiums written were $295.2 million for the year ended December 31, 2020 as compared to $350.0 million for the same period of 2019. The decrease in gross premiums written was primarily the result of lower premium production in our Commercial Auto business unit, partially offset by increased premium production in our E&S Casualty, Professional Liability, E&S Property and Aerospace & Programs business units. The decrease in net premiums written was primarily the result of lower net premiums written in our Commercial Auto and E&S Property business units, partially offset by increased net premiums written in our E&S Casualty, Professional Liability and Aerospace & Programs business units. In February 2020, we made the strategic decision to exit the contract binding line of the primary automobile business marketed by our Commercial Auto business unit as a result of increasing claim severity and limited opportunity for meaningful rate increases. At that time, we began the process of non-renewing policies and placing in-force policies in runoff in accordance with state regulatory guidelines. The exit of the contract binding line of the primary commercial automobile business contributed $93.5 million and $69.4 million to the decline in gross premiums written and net premiums written, respectively, for the year ended December 31, 2020 as compared to the same period the prior year.
The $350.4 million of total revenue for the year ended December 31, 2020 was $40.8 million more than the $309.6 million reported by the Specialty Commercial Segment for the same period in 2019. This increase in revenue was primarily due to higher net premiums earned of $44.3 million attributable to increased net premiums earned of $23.6 million from the Professional Liability business unit, $19.6 million from the E&S Casualty business unit, $7.2 million from the E&S Property business unit and $2.2 million from the Aerospace & Programs business unit, partially offset by lower net premiums earned of $8.3 million from the Commercial Auto business unit. The increase in net premiums earned was partially offset by lower net investment income of $3.5 million for the year ended December 31, 2020 as compared to the same period of 2019.
Our Specialty Commercial Segment reported higher losses and LAE as the combined result of (a) a $7.3 million increase in losses and LAE in our Commercial Auto business unit due largely to a $21.7 million charge for the loss portfolio transfer reinsurance contract that closed during the third quarter 2020 and higher current accident year net loss trends, partially offset by $41.8 million of unfavorable prior year net loss reserve development recognized during the year ended December 31, 2020 as compared to $47.5 million of unfavorable prior year net loss reserve development during the same period of 2019, (b) a $3.5 million increase in losses and LAE in our E&S Casualty business unit due primarily to increased net premiums earned, partially offset by $6.2 million of unfavorable prior year net loss reserve development recognized during the year ended December 31, 2020 as compared to $13.6 million of unfavorable prior year net loss reserve development during the same period of 2019, as well as lower current accident year net loss trends, (c) a $13.1 million increase in losses and LAE in our E&S Property business unit due primarily to higher net catastrophe losses of $13.1 million during the year ended December 31, 2020 as compared to net catastrophe losses of $1.6 million during the same period of 2019 and higher net premiums earned, partially offset by favorable net prior year loss reserve development of $1.9 million during the year ended December 31, 2020 as compared to favorable net prior year loss reserve development of $0.3 million during the same period of 2019, (d) a $17.5 million increase in losses and LAE attributable to our Professional Liability business unit due primarily to increased net premiums earned, higher current accident year net loss trends as well as unfavorable net prior year loss reserve development of $0.1 million during the year ended December 31, 2020 as compared to favorable net prior year loss reserve development of $0.7 million during the same period the prior year, and (e) a $1.8 million increase in losses and LAE in our Aerospace & Programs business unit due primarily to higher net premiums earned, higher current
accident year net loss trends, partially offset by $0.4 million of favorable prior year net loss reserve development during the year ended December 31, 2020 compared to $0.1 million of unfavorable prior year net loss reserve development during the same period of 2019. The exited contract binding line of the primary automobile business contributed $32.8 million to the Commercial Auto business unit’s unfavorable prior year loss reserve development during the fiscal year ended December 31, 2020 as compared to $39.8 million for the same period the prior year.
Operating expenses increased $2.3 million primarily as the result of higher production related expenses of $1.8 million, increased professional services of $2.3 million and increased other operating expenses of $0.5 million, partially offset by lower salary and related expenses of $1.3 million, due primarily to incentive compensation accrual adjustments reported during the first quarter of 2020, lower occupancy and related expenses of $0.2 million and lower travel and related expenses of $0.8 million.
The Standard Commercial Segment reported a net loss ratio of 78.9% for the year ended December 31, 2020 as compared to 78.2% for the same period of 2019. The gross loss ratio before reinsurance for the year ended December 31, 2020 was 70.3% as compared to the 74.0% reported for the same period of 2019. The decrease in the gross loss ratio was due primarily to lower current accident year loss trends. The increase in the net loss ratio was due to unfavorable prior year reserve development and higher net catastrophe losses. During the year ended December 31, 2020, the Standard Commercial Segment reported unfavorable net loss reserve development of $3.4 million as compared to unfavorable net
Gross premiums written for the Personal Segment were $85.0 million for the year ended December 31, 2020 as compared to $99.3 million for the same period in the prior year. Net premiums written for our Personal Segment were $75.4 million for the year ended December 31, 2020, which was a decrease of $8.2 million from the $83.6 million reported for the same period in 2019. The decrease in gross and net premiums written was primarily due to lower premium production in our current geographical footprint.
Total revenue for the Personal Segment was $84.7 million for the year ended December 31, 2020 as compared to $88.2 million for the same period in 2019. The decrease in revenue was due to a decrease in net premiums earned of $2.0 million, lower net investment income of $0.3 million and lower finance charges of $1.2 million during the year ended December 31, 2020 as compared to the same period during 2019.
Pre-tax loss for the Personal Segment was $10.3 million for the year ended December 31, 2020 as compared to pre-tax income of $0.4 million for the same period of 2019. The decrease in pre-tax income was primarily the result of the increased losses and LAE of $5.1 million, increased operating expenses of $2.1 million and the decreased revenue discussed above for the year ended December 31, 2020 as compared to the same period during 2019.
The Personal Segment reported a net loss ratio of 87.4% for the year ended December 31, 2020 as compared to 78.9% for the same period of 2019. The gross loss ratio before reinsurance was 83.0% for the year ended December 31, 2020 as compared to 81.1% for the same period in 2019. The higher gross and net loss ratios were primarily the result of unfavorable prior year net loss reserve development of $9.1 million for the year ended December 31, 2020 as compared to $36 thousand of unfavorable prior year net loss reserve development in 2019, partially offset by lower gross current accident year loss trends and lower net catastrophe losses of $0.4 million for the year ended December 31, 2020 as compared to $1.5 million for the prior year. The Personal Segment reported a net expense ratio of 27.5% for the year ended December 31, 2020 as compared to 22.7% for the same period of 2019. The increase in the expense ratio was due primarily to higher operating expenses, as well as lower net premiums earned.
The state insurance departments also regulate financial transactions between our insurance subsidiaries and their affiliated companies. Applicable regulations require approval of management fees, expense sharing contracts and similar transactions. During 2020 our insurance subsidiaries paid $3.0 million in management fees to Hallmark and our non-insurance company subsidiaries. During 2019 our insurance subsidiaries did not pay any management fees to Hallmark or our non-insurance company subsidiaries.
Statutory capital and surplus is calculated as statutory assets less statutory liabilities. The various state insurance departments that regulate our insurance company subsidiaries require us to maintain a minimum statutory capital and surplus. As of December 31, 2020, our insurance company subsidiaries reported statutory capital and surplus of $211.6 million, substantially greater than the minimum requirements for each state. Each of our insurance company subsidiaries is also required to satisfy certain risk-based capital requirements. (See, “Item 1. Business - Insurance Regulation - Risk-based Capital Requirements.”) As of December 31, 2020, the adjusted capital under the risk-based capital calculation of each of our insurance company subsidiaries substantially exceeded the minimum requirements. Our total statutory net premium-to-surplus percentage for the years ended December 31, 2020 and 2019 was 207% and 195%, respectively.
On a consolidated basis, our cash and investments, excluding restricted cash and investments, at December 31, 2020 were $639.2 million compared to $729.0 million at December 31, 2019. The primary reasons for this decrease in unrestricted cash and investments were decreases in investment fair values and cash used in operations.
Comparison of Years Ended December 31, 2020 and December 31, 2019
Net cash provided by investing activities during the year ended December 31, 2020 was $122.7 million as compared to net cash used in investing activities of $32.4 million for the prior year. The increase in cash provided by investing activities during the year ended December 31, 2020 was primarily comprised of an increase of $178.3 million in maturities, sales and redemptions of investment securities and a $2.5 million decrease in purchases of fixed assets, partially offset by an increase of $25.7 million in purchases of debt and equity securities.
Each trust pays dividends on its preferred securities at the same rate each quarter as interest is paid on the junior subordinated debt securities. Under the terms of the trust subordinated debt securities, we pay interest only each quarter and the principal of each note at maturity. We may elect to defer payments of interest on the trust subordinated debt securities by extending the interest payment period for up to 20 consecutive quarterly periods. During any such extension period, interest continues to accrue on the trust subordinated debt securities, as well as interest on such accrued interest. In order to maintain compliance with the terms of our senior unsecured Notes, we have elected to defer payment of interest on the trust subordinated securities until our debt to capital ratio (as defined in the indenture governing the Notes) is less than 35%. The subordinated debt securities of each trust are uncollateralized and do not require maintenance of minimum financial covenants.
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements as of and for the years ended December 31, 2020 and 2019