subject to a 90% quota share reinsurance agreement. Effective April 1, 2000, the 90% quota share reinsurance agreement was amended to become a 70% quota share reinsurance agreement, and the amended agreement was terminated at the Company's request effective April 1, 2001. Premiums ceded to reinsurers by the commercial segment amounted to $2,067 for the year ended December 31, 2001 versus $10,525 for the same period of 2000, a decrease of $8,458. Retaining a larger portion of its commercial book of business had a positive impact on the Company's premiums earned for the year ended December 31, 2001 over the same period of 2000. Partially offsetting this increase was the impact of a decrease in direct commercial writings of $1,276 for the year ended December 31, 2001 over the same period of 2000. In accordance with a mandate from the NCDOI, the Company ceased writing new risk-bearing commercial business in the state of North Carolina at the beginning of the third quarter of 2000. The Company may, however, continue renewing existing risk-bearing commercial business at its discretion.
Commission and service income for the year ended December 31, 2000 decreased $9,762, or 21.4%, to $35,890 from $45,652 for the year ended December 31, 1999. The automobile and commercial reporting segments accounted for $14,109 and $425 of the overall net decrease, respectively, posting commission and service income of $11,194 and $654, respectively, for the year ended December 31, 2000, versus $25,303 and $1,079, respectively, for the same period of 1999. These decreases are substantially the result of a decrease in the number of policies in the SC Facility, a residual market for automobile insurance in the state of South Carolina. Effective March 1, 1999, no new policies could be ceded to the SC Facility, and no voluntary renewals could be ceded to the SC Facility after September 1999. Designated agents are able to renew in the SC Facility through March 1, 2002. The new SCAAIP provides insurance to drivers unable to obtain coverage in the voluntary market. Although the Company is one of two servicing carriers for the SCAAIP, there has been very little activity to date.
Significantly offsetting this decrease were the policy fees and other income generated by a division of the adjusting services reporting segment. This division was formed in the third quarter of 1999 and has experienced rapid growth with a customer base containing both affiliated and unaffiliated companies. Policy fees and other income generated by this unit amounted to $2,028 for the year ended December 31, 2000, an increase of $1,054 over the $974 generated for the same period of 1999. Also offsetting the overall decrease in policy fees and other income is the Company's $129 of equity in earnings of its unconsolidated subsidiaries, Sunshine State Holding Corporation and QualSure Holding Corporation.
December 31, 1999. Under the agreement, 75% of losses incurred between January 1, 2000 and June 30, 2000 were ceded to the reinsurers. No such reinsurance arrangement was in effect during 1999. Further driving the decrease in losses and loss adjustment expenses was the discontinuation of Graward's operations and the withdrawal from the retained risk nonstandard automobile market in South Carolina (see prior discussion).
year, as adjusted for the potentially dilutive effects of stock options, warrants and/or convertible preferred stock, unless common equivalent shares are antidilutive.
Because only thirty-eight claims remain open as of December 31, 2001, the exposure to significant additional development is less than when the claims were less mature. In addition, the likelihood of
Effective October 14, 1999, the Company sold Kentucky Insurance Company ("Kentucky"), one of its insurance company subsidiaries, to an unrelated party for $6,454, resulting in a realized gain of $243. The operations of Kentucky generated net income of $113 in 1999.
The Company is a legal entity separate and distinct from its subsidiaries. As a holding company, the primary sources of cash needed to meet its obligations, including the redemption of its special stock, are dividends and other permitted payments, including management fees, from its subsidiaries and affiliates.
The 1995 Stock Option Plan for Non-Employee Directors ("Directors Plan") became effective June 15, 1995, with 250,000 shares of the Company's common stock reserved for grants. Under the Directors Plan, all non-employee directors holding office on June 15 of each year are granted 1,250 options to purchase the Company's common stock. The exercise price of the options is the market value on the date of grant. On June 15, 1999, 2000 and 2001, 12,500, 8,750 and 8,750 shares were granted, respectively, at exercise prices of $4.75, $1.09 and $2.55, respectively.
During the fiscal years ended December 31, 2001 and 2000, INS recorded commission and service income of $3,915 and $3,458, respectively, in connection with its Claims Administration Services Agreement with QualSure. Three of the Company's insurance subsidiaries hold a combined ownership interest of 30.625% in QualSure's parent.
The Company's primary source of policy fees has been its Nashville operations. Towards the end of 1999, the Company undertook several initiatives to improve that operation's unfavorable loss and operating expense ratios. These initiatives included an agent profitability review, more stringent underwriting guidelines and implementation of underwriting expense cost control measures. The initiatives had the effect of reducing the operation's premium volume and, as a result, policy fees began to decline. The Nashville operations were discontinued at the end of the second quarter of 2000. Therefore, by the end of the fourth quarter of 2000 policy fees showed a significant decrease over the prior year.