Net realized gains (losses) and net appreciation (depreciation) in fair value of available for sale securities follow:
In the normal course of business, the Company seeks to reduce the loss that may arise from events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Amounts receivable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Although reinsurance agreements contractually obligate the Company's reinsurers to reimburse the Company for their proportionate share of losses, they do not discharge the primary liability of the Company. The Company remains liable for the ceded amount of reserves for unpaid losses and loss adjustment expenses and unearned premiums in the event the assuming insurance organizations are unable to meet their contractual obligations.
From July 1, 1997 through June 30, 1999, ProNational assumed, on a quota-share basis, 40% of MEEMIC's net business. In connection with the acquisition of MEEMIC Holdings (see Note 4), this quota share reinsurance agreement was cancelled on June 30, 1999.
The estimates for loss and loss adjustment expense reserves are reviewed regularly and adjusted as necessary which resulted in favorable reserve development of prior years' reserves in 2000 and 1999. The unfavorable reserve development in 1998 was mainly attributable to a $25.6 million reserve charge recorded in 1998 to reflect actuarial estimates and the application of the Company's reserving practices to the Florida book of business acquired as part of the merger with PPTF in July 1998 as well as a $9.5 million excess limits verdict on one Florida claim. This unfavorable reserve development was offset somewhat by $25.5 million of favorable reserve development related to the Company's Midwest book of business.
Options outstanding as of December 31, 2000 under the Incentive Plan consisted of the following:
The fair value of options at date of grant for the Incentive Plan and Directors Plan was estimated using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2000, 1999 and 1998: dividend yield of 0%; expected volatility of 37.1%, 35.4% and 35.6%; risk-free interest rate of 6.77% and 5.90% for the Incentive Plan (2000 and 1999, respectively); risk free interest rate of 6.74%, 6.01% and 5.69% for the Directors Plan; expected lives of 5 years and 10 years for the Incentive Plan (2000 and 1999, respectively); and expected lives of 7 years for the Directors Plan.
The only material statutory accounting method utilized by ProNational that was permitted rather than prescribed was the recording of the merger transaction with PPTF as a "pooling of interests" business combination for statutory reporting. SAP did not provide explicit guidance on the accounting for this transaction. As a result of applying "pooling of interests" accounting to the statutory financial statements, all prior periods were restated to reflect the combined operations of ProNational and PPTF. MEEMIC and ProNational Casualty do not utilize any permitted accounting practices.