The Company leases approximately 5,354 square feet in La Jolla, California for its principal executive offices.
There can be no assurance that sufficient opportunities will be found or that this business strategy will be successful. This strategy may negatively impact the business and financial condition and results of the Company.
Taken into account in the operating loss were the following positive factors:
* Property and casualty insurance income of $2.8 million after an estimated $1 million in increased costs due to the effects of the 1997-98 El Nino phenomenon;
Physicians' and PRO's assets are not designated on an individual security basis as belonging either to the MEDICAL PROFESSIONAL LIABILITY INSURANCE or the INVESTMENT OPERATIONS business segment. Consequently, Physicians' invested assets produce income in both the MEDICAL PROFESSIONAL LIABILITY INSURANCE and INVESTMENT OPERATIONS segments. All of PRO's revenues and pre-tax income are assigned to the MEDICAL PROFESSIONAL LIABILITY INSURANCE segment. However, all investment income and realized investment gains generated by Physicians from assets in excess of those needed to support the MPL claims are allocated to the Investment Operations segment. SEE NOTE 19 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, "SEGMENT REPORTING."
Revenues for 1998 included approximately $0.7 million in Summit's investment management fees, excluding those billed to related parties, compared to $0.6 million during 1997 and $0.3 million in 1996. In addition, although offset by miscellaneous charges in other areas, 1998 revenues included $0.1 million in real estate sales generated by Raven and $0.2 million in insurance commissions recorded by CLM. There were no real estate sales or commission income recorded by Raven and CLM during 1997. Raven and CLM recorded $1.6 million and $0.2 million, respectively, in revenues during 1996.
The primary use of operating cash flow during 1998 was $56.3 million in insurance claims and LAE, net of reinsurance recoveries. This compares to $69.6 million in 1997 and $39.2 million in 1996. Other expenses for 1998, including insurance and other operating costs, accounted for $26.9 million in additional cash outflows compared to $29.1 million and $19 million in 1997 and 1997, respectively. Premiums received amounted to $35.5 million in 1998, $41.6 million in 1997 and $29.2 million in 1996, net of ceded reinsurance payments. The increase in premiums from 1996 to 1997 was due to the November 20, 1996 Merger resulting in the inclusion of Citation for a full year beginning in 1997. The decrease in premiums from 1997 to 1998 was due to increased selectivity of Citation's insurance risks following its change in control and increased competition for commercial property and casualty insurance in California. Investment income, other than realized investment gains and losses, amounted to $10.7 million in 1998, compared to $13.1 million and $7.8 million in 1997 and 1996, respectively.
Physicians Insurance Company and Professionals Insurance Company have established reserves to cover losses on claims incurred under the medical malpractice liability policies including not only those claims reported to date, but also those that may have been incurred but not yet reported. The reserves for losses are estimates based on various assumptions and, in accordance with Ohio law, have been discounted to reflect the time value of money. These estimates are based on actual and industry experience and assumptions and projections as to claims frequency, severity and inflationary trends and settlement payments. In accordance with Ohio law, Physicians Insurance
Vidler Water Company, Inc. ("Vidler"). Vidler is a majority-owned Delaware corporation that was originally formed under the laws of the state of Colorado. Vidler is engaged in the acquisition, aggregation, marketing, storage and transfer of water and water rights for municipal and private industry use in the southwestern United States. Vidler attempts to identify areas where water supplies are needed in the southwestern United States and then to facilitate the transfer from current ownership to Vidler, and subsequently to municipalities, water districts, developers and others. Since its acquisition, Vidler has purchased water rights and related assets in California, Colorado, Nevada and Arizona.
Citation Insurance Company ("Citation"). Citation is a California-domiciled insurance company licensed to write commercial property and casualty insurance in Arizona, California, Colorado, Nevada, Hawaii, New Mexico and Utah.
At December 31, 1998, the Company's investment in Conex consisted of ownership of 32% of Conex's outstanding common stock, $5 million in preferred stock and $2.1 million in advances. In addition, the Company owns warrants to purchase additional Conex common stock. The common stock investment at December 31, 1998 is accounted for using equity method accounting, while the remaining investment balances are carried at cost. At December 31, 1998, the Company's equity method investment had been reduced to zero due to recurring Conex losses. For the year ended December 31, 1998 the Company's equity in losses of this investee totaled $771,000. The Company's interest in the stand-alone Conex balances is not currently material to the Company's financial position or results of operations.
Premiums and other receivables consisted of the following at December 31: