Orion Capital Corporation ("Orion") and its majority-owned subsidiaries (collectively the "Company") operate principally in the property and casualty insurance business. The Company reports its insurance operations in three segments - Regional Operations, Special Programs and Guaranty National Corporation. Regional Operations provides workers compensation insurance products through EBI Companies. Special Programs includes (i) DPIC Companies ("DPIC"), which markets professional liability insurance, (ii) Connecticut Specialty, which writes specialty insurance programs, (iii) Wm. H. McGee & Co., Inc. ("McGee"), an underwriting management company that specializes in ocean marine, inland marine and commercial property insurance and (iv) a 24.8% interest in Intercargo Corporation ("Intercargo") which underwrites insurance coverages for international trade. The third segment, Guaranty National Corporation, ("Guaranty National"), specializes in nonstandard commercial and personal automobile insurance. The miscellaneous income and expenses (primarily interest, general and administrative expenses and other consolidating elimination entries) of the parent company are reported as a fourth segment.
Pre-tax net investment income amounted to $145,391,000, $99,040,000 and $84,915,000 in 1996, 1995 and 1994, respectively. The pre-tax yields on the average investment portfolio were 6.9% in 1996, 7.1% in 1995 and 6.5% in 1994,
Fixed maturity investments which the Company has both the positive intent and the ability to hold to maturity are recorded at amortized cost. Fixed maturity investments which may be sold in response to, among other things, changes in interest rates, prepayment risk, income tax strategies or liquidity needs are classified as available-for-sale and are carried at market value. The carrying value of fixed maturity and short-term investments amounted to $1,858,045,000 and $1,235,051,000 at December 31, 1996 and 1995, respectively, or approximately 80.0% and 76.9% of the Company's cash and investments.
Cash provided by operating activities increased $19,724,000 to $167,741,000 in 1996 from $148,017,000 in 1995 and increased $29,238,000 in 1995 from $118,779,000 in 1994. The increase for 1996 is attributable to including Guaranty National's cash flow in the Company's consolidated financial statements. The increase in operating cash flow for 1995 was the result of an increase in premiums collected, net investment income received and lower paid losses, offset in part by higher payments for policy acquisition costs and federal income taxes. Cash flow for 1995 included a disbursement of $7,800,000 under a retrospectively rated program written by DPIC. In 1994 operating cash flow included a $10,223,000 receipt from DPIC's discontinuation of a reinsurance contract.
Orion's insurance subsidiaries maintain liquidity in their investment portfolios substantially in excess of that required to pay claims and expenses. The insurance subsidiaries held cash and short-term investments of $293,477,000 and $123,457,000 at December 31, 1996 and 1995, respectively. Orion's insurance subsidiaries had consolidated policyholders' surplus of $670,572,000 on a combined basis with Guaranty National at December 31, 1996 and $521,510,000 including the market value of the Company's investment in Guaranty National at December 31, 1995, and statutory operating leverage ratios of net premiums written to policyholders' surplus of 2.0:1 and 1.5:1 at December 31, 1996 and 1995, respectively.