Gross Premiums Written; Net Premiums Written; Net Premiums Earned. Gross premiums written increased to $550.2 million in 1997 from $361.0 million in 1996. The increase in gross premiums written arises from:
(b) $39.1 million of premiums related to reinsurance to close of "orphaned" Lloyd's syndicates from the 1993 year of account; and
Net premiums written increased by 55.4% to $483.5 million in 1997 from $311.2 million in 1996, as a consequence of the increase in gross premiums written referred to above and lower reinsurance costs. Net premiums earned increased 50.3%, to $419.1 million in 1997 from $278.8 million in 1996.
(b) Improved insurance cash flows in Terra Nova and Terra Nova (Bermuda) due to favorable loss activity and increases in written premiums;
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(a) Investments and related income: Investments in fixed maturities and equity securities are classified as available for sale and held with the intention of selling such investments from time to time, and are carried at fair value. Unrealized gains and losses, net of related deferred income taxes and minority interests, are reflected directly in shareholders' equity. Realized gains and losses are reflected in operations and determined by specific identification. Investment income is recorded as earned.
Long term debt: Fair value is based on quoted market price.
The Company's net unrealized appreciation of fixed maturities (before income tax) at December 31, 1997 included gross unrealized appreciation of $43,203,000 and gross unrealized depreciation of $1,544,000. The Company's net unrealized appreciation of fixed maturities at December 31, 1996 included gross unrealized appreciation of $28,682,000 and gross unrealized depreciation of $4,277,000. The Company's net unrealized appreciation of fixed maturities at December 31, 1995 included gross unrealized appreciation of $65,006,000 and gross unrealized depreciation of $4,251,000. Net unrealized appreciation of equities (before income tax) at December 31, 1997 of the Company included gross unrealized appreciation of $38,111,000 and gross unrealized depreciation of $3,658,000. Net unrealized appreciation of equities at December 31, 1996 of the Company included gross unrealized appreciation of $34,047,000 and gross unrealized depreciation of $6,513,000. Net unrealized appreciation of equities at December 31, 1995 of the Company included gross unrealized appreciation of $15,288,000 and gross unrealized depreciation of $4,078,000, and is stated net of minority interests of $383,000.
The amortized cost and estimated fair value of the Company's fixed maturities at December 31, 1997, by contractual maturity date, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay certain obligations with or without call or prepayment penalties.
(b) Guarantees have been given by Terra Nova in favor of The Prudential Insurance Company Limited and the Royal Bank of Scotland (Industrial Leasing) Limited in respect of leases granted to Market Building Limited in connection with the development of the London Underwriting Centre ("LUC"). The fire that occurred in August 1991, during the course of fitting out the new LUC, gave rise to the possibility of some shortfall of rental income in the future. Each year, the Company, charges its share of the expense necessary to maintain the LUC as a trading center.
On August 26, 1997 UK Holdings completed an issue of $75 million 7.2% Senior Notes due 2007, guaranteed fully and unconditionally by Bermuda Holdings. The net proceeds were used to finance the acquisition of Corifrance on September 8, 1997 and for other corporate purposes.
Insurance cover provided under Aviation policies issued by Terra Nova ceased upon the expiration of the last policy on December 31, 1992. However, Terra Nova may continue to receive payments from policyholders pursuant to existing contracts and to make payments under ceded reinsurance contracts. In addition, Terra Nova will continue to settle claims and make recoveries from its reinsurers. These future receipts and payments, together with the costs of running off the Aviation business, have been considered as part of estimating the loss