On July 7, 1998, State Auto Financial acquired all of the outstanding shares of Milbank from Mutual pursuant to the Option Agreement dated August 1993. The purchase price of Milbank was approximately $81.9 million. The transaction was effected through an exchange with Mutual of approximately 5.1 million State Auto Financial common shares for all the issued and outstanding capital stock of Milbank. This exchange of Milbank shares for State Auto Financial common shares increased Mutual's ownership of State Auto Financial to approximately 70% of its issued and outstanding shares. Since the transaction was a combination of entities under common control, it has been accounted for similar to a pooling of interests. The prior years' financial information includes the financial position and operations of Milbank.
Acquisition and operating expenses, as a percentage of earned premiums (the "expense ratio"), were 28.5% and 29.3% for the years 1999 and 1998, respectively. The decrease in the expense ratio in 1999 can be attributed to a reduced amount of Quality Performance Bonus earned by employees compared to that earned in 1998.
Other income primarily includes revenue from S.I.S.'s sales of its software products and, beginning in 1998, rental income on property leased by 518 PML to affiliate. In 1998, other income increased 76%. 518 PML's commencement of leasing operations in 1998 increased other income 19% while S.I.S.' increase in software sales over 1997 contributed a 47% increase.
write-offs of premium receivable during 1998, primarily in the nonstandard insurance segment. This segment has sought to improve its premium receivable collections by retaining the services of a third party whose business is receivables collection. Additionally, there was a general increase in corporate expenses over 1997.
(j) MANAGEMENT SERVICES INCOME Management services income includes income for executive management services provided by State Auto P&C and income for investment management services provided by Stateco. Executive management income is recognized quarterly based on a percentage of the five year average adjusted annual statutory surplus of each company managed except for Midwest Security Insurance Company (Midwest Security), a wholly-owned subsidiary of Mutual, which is based on a percentage of quarterly direct premiums written. Investment management income is recognized quarterly based on a percentage of the average fair value of investable assets and the performance of the equity portfolio of each company managed.
(e) OTHER TRANSACTIONS S.I.S. provides insurance software products and services to Mutual and its affiliate. Revenue relating to these services amount to $1,109,000, $1,048,000 and $889,000 in 1999, 1998 and 1997, respectively, and is included in other income. Effective January 1, 1998, 518 PML began leasing assets to Mutual and its affiliate. Revenue relating to these services amount to $567,000 and $268,000 in 1999 and 1998, respectively and is included in other income .
In May 1999, State Auto Financial's Board of Directors approved a plan to repurchase up to 4.0 million shares of its outstanding common stock over a period ending December 31, 2000. Repurchases were transacted to maintain the same ownership ratios between Mutual and the public as it existed in May 1999, with 69% repurchased from Mutual and 31% from the public. Through December 31, 1999 all 4.0 million shares have been repurchased, with approximately 2.7 million shares repurchased from Mutual and 1.3 million shares from the public. In conjunction with the stock repurchase plan, State Auto Financial entered into a line of credit agreement with Mutual. See related footnote at note 6 (c).