Gross earned premiums $ 823.8 $ 770.5 $ 609.3 Ceded premiums 441.9 374.4 118.1 ------------------------------- Insurance premiums 381.9 396.1 491.2
Ceded premiums increased 18.0 and 217.0 percent in 1999 and 1998, respectively, resulting from the HSB Industrial Risk Insurers arrangement and related reinsurance with Employers Reinsurance Corporation (ERC), as well as the increasing effect of the Company's reinsurance programs which utilized significantly more quota share reinsurance on certain of our books of business. The Company anticipates that quota share reinsurance will not have as significant a role as 2000 progresses.
The reinsurance agreements effective January 1, 1998 between The Hartford Steam Boiler Inspection and Insurance Company (HSBIIC), ERC and IRI, as discussed below, were terminated with respect to loss or liabilities arising out of occurrences taking place on or after January 1, 2000. As a result, HSBIIC will no longer retain 85 percent of the equipment breakdown insurance and 15 percent of the property insurance of the combined insurance portfolio for risks arising on or after January 1, 2000. The joint underwriting association that was known as HSB Industrial Risk Insurers will, from January 1, 2000, be known as Industrial Risk Insurers (IRI).
Concurrent with the termination of the reinsurance agreements, HSBIIC, ERC and IRI replaced the operating agreement dated January 1, 1998. The new agreement, effective January 1, 2000, calls for HSBIIC to retain 0.5 percent membership share in IRI with the ability to increase its total share up to a maximum of 10 percent, at no cost, at HSBIIC's option. In addition, the agreement also establishes an arrangement for HSB to perform equipment breakdown engineering and inspection services for clients of IRI and provides for a fixed fronting fee in the event that IRI continues to use HSBIIC's licenses. HSBIIC received payments of $27 million in December 1999 related to the partial settlement of unearned reinsurance premiums and ceding commissions due to HSBIIC under the prior agreement. Final settlement is expected to occur in the second half of 2000.
will not write business at rates that do not provide sufficient opportunity to earn a profit. As a result, the Company anticipates that premiums in the Global Special Risks areas may continue to experience revenue declines. In addition, the new January 1, 2000 agreement with IRI, previously discussed, will also result in a decrease in gross earned premiums. In 1998, gross earned premiums increased 26.5 percent primarily as a result of HSB Industrial Risk Insurers ($155.4 million) as well as the addition of the Kemper portfolio to our commercial business.
In addition to the impact of HSB's results of operations, the Consolidated Statements of Comprehensive Income display the effects of price movements on HSB's invested assets. In 1999, the impact of rising interest rates on the carrying values of the Company's fixed income investments more than offset the strong performance of its common equities such that 1999 cumulative holding gains, net of taxes, decreased $45.2 million as compared to the increase of $28.1 million in 1998 and $21.3 million in 1997.
Cash provided from operations decreased to $43.2 million in 1999 as compared to $55.6 million in 1998. The decrease was primarily attributable to a $22 million decline in net cash flows from HSBIIC's participation in HSB Industrial Risk Insurers, offset by an increase in insurance operating cash flows. Net cash flows from HSB Industrial Risk Insurers were favorably impacted by a $27 million accelerated collection of receivables pursuant to the termination of certain reinsurance agreements between HSBIIC, ERC and IRI, as previously discussed. Operating cash flows from insurance, excluding HSB Industrial Risk Insurers, were positively impacted by a decline in net claims paid of 10.3 percent, as well as, a decrease in payments to reinsurers for ceded premiums of 9.1 percent offset by a decrease in premiums collected of 5.5 percent.
first quarter of 1998. Prior to July 1997, HSBIIC's share of the joint venture's results were recorded as equity in Radian LLC.
On April 21, 1998, the Board of Directors approved a three-for-two stock split for shares held of record on May 1, 1998. Additional shares of HSB's stock resulting from the split were distributed on May 22, 1998. In accordance with SFAS No. 128 "Earnings per Share" (EPS), all earnings per share presentations have been adjusted to reflect the impact of the stock split, including retroactive restatement of prior periods. Shares have also been restated for comparative purposes.
On July 15, 1997, HSB sold $110 million of 30 year Global Floating Rate Capital Securities in a private placement. On December 31, 1997, HSB issued $300 million of 20 year fixed rate Convertible Capital Securities to ERC (see note 13).
The following table presents revenue and net income from the Company's reportable segments and reconciles these amounts to the corresponding consolidated totals.
HSBIIC is a Connecticut domiciled insurance company which is licensed to conduct business in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. The annual statements for state insurance regulatory authorities are currently prepared using accounting methods prescribed or permitted by such authorities (statutory basis) and are not consolidated. Statutory accounting practices (SAP) also differ in certain other respects from GAAP. With respect to HSBIIC, these differences are primarily comprised of the accounting for prepaid acquisition costs, deferred income taxes, fixed maturity investments, valuation of certain non-insurance affiliates and employee benefit plans. At December 31, 1999 and 1998, policyholders' surplus on a statutory basis was $428.8 and $612.6 million, respectively. Statutory net income, adjusted to include the earnings of all HSBIIC domestic insurance subsidiaries for 1999, 1998 and 1997 was $81.1, $202.5 and $42.9 million, respectively.
(1) The 1998 increase primarily resulted from the decision rendered under an arbitration proceeding and adverse claims experience in international operations.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: