With the exception of historical information, the matters and statements discussed, made or incorporated by reference in this Annual Report on Form 10-K constitute forward-looking statements and are discussed, made or incorporated by reference, as the case may be, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve certain assumptions, risks and uncertainties that could cause actual results to differ materially from those included in or contemplated by those statements. These assumptions, risks and uncertainties include, but are not limited to, those associated with factors affecting the property and casualty insurance industry generally, including price competition, the Company's dependence on state insurance departments for approval of rate increases, size and frequency of claims, escalating damage awards, natural disasters, fluctuations in interest rates and general business conditions; the Company's dependence on investment income; the geographic concentration of the Company's business in the northeastern United States and in particular in New York, New Hampshire, New Jersey, Rhode Island, Pennsylvania and Massachusetts; the adequacy of the Company's loss reserves; government regulation of the insurance industry; exposure to environmental claims; dependence of the Company on its relationship with Mutual; and the other risks and uncertainties discussed or indicated in all documents filed by the Company with the Commission. The Company expressly disclaims any obligation to update any forward-looking statements as a result of developments occurring after the filing of this report.
Total revenues for 2000 were $108,626,000, an increase of $210,000, or less than 1%, from $108,416,000 in 1999.
Involuntary direct premiums written, primarily involuntary private passenger automobile insurance, which comprised 1% and 2% of total direct premiums written during 2000 and 1999, respectively, were $1,518,000 for 2000 compared to $2,113,000 in 1999, a decrease of $595,000 or 28%. This decrease resulted primarily from decreased mandatory assignments from the New York Automobile Insurance Plan ("NYAIP"), which provides coverage for individuals who are unable to obtain auto insurance in the voluntary market. Assignments from the NYAIP vary depending upon a company's private passenger automobile market share and the size of the NYAIP.
Net investment income was $13,903,000 in 2000, an increase of 6% from $13,147,000 in 1999, primarily due to an increase in average portfolio yield. Higher reinvestment rates in the Company's targeted maturity sector (2 years) led to the increase in average portfolio yield.
Net losses and LAE were $71,374,000 for 2000, an increase of 8% from $66,086,000 for 1999. The loss and LAE ratio increased to 75.7% in 2000 from 69.7% in 1999. In 2000, the Company recorded an increase to its reserves related to all prior accident years of $1,428,000. This increase, which was primarily attributable to higher than estimated loss experience on personal and commercial automobile and workers' compensation policies, added 1.5 percentage points to the Company's 2000 calendar year loss and LAE ratio. In 1999, the Company recorded a decrease to its reserves for prior years' accidents of $3,749,000, which in turn reduced the Company's 1999 calendar year loss and LAE ratio by 3.9 percentage points.
Involuntary direct premiums written, primarily involuntary private passenger automobile insurance, which comprised 2% and 5% of total direct premiums written during 1999 and 1998, respectively, were $2,113,000 for 1999 compared to $5,192,000 in 1998. This 59% decrease resulted primarily from decreased mandatory assignments from the NYAIP. During 1999 the NYAIP continued to adjust its assignments as a result of having over assigned policies to the Company in 1997 and an overall decrease in the NYAIP's pool of business. Assignments from the NYAIP vary depending upon a company's private passenger automobile market share and the size of the NYAIP.
Net losses and LAE were $66,086,000 for 1999, an increase of 1% from $65,234,000 in 1998. The increase in net losses and LAE was primarily attributable to a non-recurring charge related to insurance related assessments, which was offset by a non-recurring reduction in other underwriting expenses. Absent this non-recurring charge, net losses and LAE were relatively unchanged compared to 1998. The Company recorded decreases to its reserves for losses related to prior accident years of $3,749,000 and $2,145,000 in 1999 and 1998, respectively. These decreases in reserves for prior accident years reduced the loss and LAE ratio in 1999 and 1998 by 3.9 and 2.3 percentage points, respectively, and were primarily the result of favorable loss experience related to workers' compensation policies in 1999 and auto liability policies in 1998. The decrease in reserves for prior accident years was somewhat offset by an increase in the loss and LAE ratio for losses and LAE occurring in the current accident year.
Involuntary automobile insurance business increased the Company's calendar year loss and LAE ratio by approximately 1.1 and 3.5 percentage points for the years ended December 31, 1999 and 1998, respectively. The combined ratio on involuntary automobile business was greater than the combined ratio on voluntary automobile business.
The amounts recorded by the Company for income taxes in 1999 and 1998 differed from those calculated using statutory income tax rates primarily due to tax exempt bond income.
The Company generally designates newly acquired fixed maturity investments as available for sale and carries these investments at fair value. Unrealized gains and losses related to these investments are recorded as accumulated other comprehensive income within stockholders' equity. At December 31, 2000, the Company recorded as accumulated other comprehensive loss in its Consolidated Balance Sheet $875,000 of unrealized losses, net of taxes, associated with its investments classified as available for sale. During 2000 the Company recorded $313,000 of unrealized gains, net of tax, associated with its available for sale investments as other comprehensive income.
At December 31, 2000, the Company's portfolio of fixed maturity investments represented 91.0% of invested assets. Management believes that this level of bond holdings is consistent with the Company's liquidity needs because it anticipates that cash receipts from net premiums written and investment income will enable the Company to satisfy its cash obligations. Furthermore, a portion of the Company's bond portfolio is invested in mortgage-backed and other asset-backed securities which, in addition to interest income, provide monthly paydowns of bond principal.
During 2000 the Company repurchased 165,100 shares of its common stock at an average price of $17.71 and was holding 811,100 shares in treasury as of December 31, 2000.
Industry and regulatory guidelines suggest that the ratio of a property and casualty insurer's annual net premiums written to its statutory surplus should not exceed 3 to 1. The Company has consistently followed a business strategy that would allow MNH to meet this 3 to 1 regulatory guideline. MNH's ratio of net premiums written to statutory surplus for 2000 was 1.8 to 1.
The Company's and MNH's business and day-to-day operations are closely aligned with those of Mutual. This is the result of a combination of factors. Mutual has had a historical ownership interest in the Company and MNH. Prior to November 1986 MNH was a wholly-owned subsidiary of Mutual. Following the Company's initial public offering in November 1986 and until a secondary stock offering in July 1993 the Company was a majority-owned subsidiary of Mutual. Mutual currently owns 10.5% of the Company's common stock. Under the Management Agreement, Mutual provides the Company and MNH with all facilities and personnel to operate their business. The only officers of the Company or MNH who are paid full time employees are employees of Mutual whose services are purchased under the Management Agreement. Also, the operation of MNH's insurance business, which offers substantially the same lines of insurance as Mutual through the same independent insurance agents, creates a very close relationship among the companies.
During 1998, Mutual initiated discussions with the Company concerning proposals for the acquisition of the Company by Mutual. The Company determined that the terms proposed by Mutual were inadequate. The Company also determined that the Management Agreement prevents the Company's shareholders from realizing the Company's fair value in a sale or merger, and on July 23, 1998 the Company gave notice to Mutual of its intention to terminate the Management Agreement. The provisions of the Management Agreement require five years' prior written notice for its termination. The Company does not expect the notice of termination to have any material, short-term effect on the Company's operations. However, the Company believes that the Management Agreement, as currently written, creates a conflict of interest between the Company and Mutual in their joint operations and prevents the Company's shareholders from realizing the fair market value of their shares.