- - Realized rate increases commencing during the latter part of 2000 on certain renewal business.
Income Tax Expense: The Company's effective tax rates for 1999 and 1998 were 29.3% and 26.0%, respectively. The effective rates differed from the 35% statutory rate principally due to investments in tax-exempt securities. The increase in the effective tax rate is principally due to a greater investment of cash flows in taxable securities relative to tax-exempt securities and greater net investment gains on the sale of securities in 1999 vs. 1998.
On May 4, 1998, the consolidated capitalization of the Company increased by approximately $99.0 million from the sale of FELINE PRIDES(SM) and Trust Preferred securities. The sales of FELINE PRIDES(SM) consisted of 9,350,000 units of Income Prides with a stated amount of $10.00, 1,000,000 units of Growth Prides with a face amount equal to the stated amount, and 1,000,000 units of separate Trust Preferred securities with a stated amount of $10.00. The Company utilized $25.7 million of the net proceeds during 1999 for its acquisition of Liberty, and contributed $33.1 million of the net proceeds to its subsidiaries in 1998, of which $20.0 million was contributed to the insurance subsidiaries. For the three year period ended December 31, 2000, $27.8 million was utilized by the Company to repurchase its common stock under its stock repurchase authorization. The Company is obligated to make cash distributions through May 15, 2001, at a rate of 7.0% of the stated amount per annum for the Income Prides and the separate Trust Preferred securities and contract adjustment payments at the rate of .50% per annum of the $10.00 stated amount to the holders of the Growth Prides.
contained in the applicable Pennsylvania and Florida Insurance Company statutes, the insurance subsidiaries' capital and surplus is in excess of the prescribed risk-based capital requirements.
The Company issues professional liability coverage, including directors and officers liability, and commercial multi-peril insurance policies. Coverage under certain of these policies may cover losses suffered by insureds as a result of the Year 2000 issues. Professional liability policies are written on a "claim made and reported" basis. Since early 1997 approximately 50% of these policies have included a Year 2000 exclusion endorsement. The Company includes a Year 2000 exclusion endorsement on virtually all new or renewing professional liability policies providing coverage effective January 1, 1999 and thereafter. On occasion, for qualifying accounts, the Company's underwriters may remove the exclusion after receipt and review of a satisfactory supplemental application (which includes a warranty statement) and other underwriting information. With respect to commercial multi-peril policies, the Company believes that it should not be held liable for claims arising from the Year 2000 issue under comprehensive general liability policies. However, the Company cannot determine whether or to what extent courts may find liability for such claims. Additionally, expenses could be incurred to contest Year 2000 issue coverage claims, even if the Company prevails in its position. As a result, it cannot presently be determined what, if any, insurance exposure ultimately exists for Year 2000 issue claims. Therefore, there can be no assurance that any future Year 2000 issue claims will not materially adversely affect the Company. However, no Year 2000 issue claims have been reported to the Company as of March 15, 2001.
In November 2000 the Company, pursuant to a Board of Directors authorization, entered into an unsecured revolving credit facility for aggregate borrowings of up to $22.0 million at any one time outstanding with a maturity date of 364 days after closing. During 2000, $22.0 million of the facility was utilized by the Company to pay a withholding tax liability as a result of the CEO electing to have shares otherwise issuable withheld in satisfaction of the minimum withholding tax attributable to the exercise of stock options. Borrowings under the facility bear interest at adjusted LIBOR and unused commitments under the facility are subject to a fee of 20 basis points per annum. Interest expense amounted to $0.2 million for the year ended December 31, 2000.