In December 2000, Vidler closed the sale of various water rights and related assets to the City of Golden, Colorado for $1 million. We have granted the City options to acquire other water rights. The aggregate purchase price is approximately $1.6 million.
On December 15, 2000, Vidler entered into a definitive agreement to sell 86 acre-feet of water rights to the East Dillon Water District for $3.1 million. The agreement must be approved by a referendum, so closing is not expected until late 2002. In the meantime, part of the senior water rights are being leased out for approximately $110,000 per annum.
Vidler has completed the second stage of construction at its facility to store water underground in the Harquahala Valley. The Vidler Arizona Recharge Facility is the first privately owned water storage facility for the Colorado River system, which is a primary source of water for the Lower Division States of Arizona, California, and Nevada.
Vidler continues to be approached by parties who are interested in obtaining a water supply, or discussing joint ventures to commercially develop water assets and/or develop water storage facilities.
Due to the fixed nature of some costs, Sequoia's management anticipates that operating expenses will increase at a slower rate than premium volume, which should have the effect of reducing Sequoia's average operating expense per policy and underwriting expense ratio.
Shares of HyperFeed closed 2000 at $1.5625. If we were to exercise all of the HyperFeed warrants which we own, the cash cost of our investment would be approximately $15.1 million, or $1.32 per HyperFeed share.
PICO incurred an $18 million comprehensive loss in 2000. This was comprised of the $9.5 million net loss, net unrealized depreciation in investments of $7.6 million after-tax, and negative foreign currency translation of $963,000. A $3.2 million comprehensive loss was recorded in 1999, consisting of a $6.8 million net loss, a $28,000 decrease due to foreign currency translation, and a partially offsetting $3.7 million net unrealized gain in investments. In 1998, PICO incurred an $11 million comprehensive loss, consisting of a $7.9 million net loss, $415,000 in net unrealized depreciation in investments, and negative foreign currency translation of $2.7 million.
Vidler generated total revenues of $3.1 million in 2000, compared to $1.1 million in 1999, and $943,000 in 1998.
Segment policy acquisition costs were $11.7 million in 2000, compared to $9.8 million in 1999, and $11.2 million in 1998. The largest component, commissions to agents, was $7.2 million in 2000, $5.6 million in 1999, and $6.7 million in 1998. The level of agent commissions fluctuates depending on the amount of direct written premium. Other acquisition expenses totaled $4.6 million in 2000, $4 million in 1999, and $4.5 million in 1998. These include non-insurance expenses such as salaries and benefits, and sales and marketing.
Our cash flow position fluctuates depending on the requirements of our operating subsidiaries for capital, and activity in our investment portfolios. Our primary sources of funds include cash balances, cash flow from operations, and--potentially--the sale of investments, and the proceeds of bank borrowings or offerings of equity and debt. We endeavor to manage our cash flow to ensure that funds are always available to take advantage of new investment opportunities.
Vidler's most important water-related assets did not begin to generate significant cash flow until the first quarter of 2001. As commercial use of these assets increases, we expect that Vidler will start to generate free cash flow as receipts from leasing water or storage and the proceeds from selling water begin to overtake maintenance capital expenditure, financing costs, and operating expenses. As water lease and storage contracts are signed, we anticipate that Vidler may be able to monetize some of the contractual revenue streams which could potentially provide another source of funds;
In 1999, Investing Activities used $17.5 million of cash, as the purchase of additional shares in Jungfraubahn and AOG exceeded the proceeds from the sale and maturity of investments. During 1998, Investing Activities generated cash of $40.8 million. This was primarily because the proceeds from the sale and maturity of investments exceeded new purchases, and a total of $33.6 million was received from the sale of American Physicians Life, residual international investments of Global Equity, and the Physicians' former home office building in Columbus, Ohio.
At December 31, 2000, PICO had no significant commitments for future capital expenditures, other than in the ordinary course of business.
Physicians Insurance Company of Ohio and The Professionals Insurance Company have established reserves to cover losses on claims incurred under the medical malpractice liability policies including not only those claims reported to date, but also those that may have been incurred but not yet reported. The reserves for losses are estimates based on various assumptions and, in accordance with Ohio law, have been discounted to reflect the time value of money for years prior to 2000. These estimates are based on actual and industry experience and assumptions and projections as to claims frequency, severity and inflationary trends and settlement payments. In accordance with Ohio law, Physicians Insurance Company of Ohio and The Professionals Insurance Company annually obtain a certification from an independent actuary that their respective reserves for losses are adequate. They also obtain a concurring actuarial opinion. Due to the inherent uncertainties in the reserving process, there is a risk that Physicians Insurance Company of Ohio's and The Professionals Insurance Company's reserves for losses could prove to be inadequate. This could result in a decrease in income and shareholders' equity. If we underestimate our reserves, they could reach levels which are lower than required by law.
The liabilities for unpaid losses and loss adjustment expenses of Physicians, Professionals, Sequoia, and Citation were $121.5 million at December 31, 2000, $139.1million at December 31, 1999, and $155 million in 1998, net of discount on medical professional liability insurance reserves in 1999 and 1998, and before reinsurance reserves, which reduce net unpaid losses and loss adjustment expenses. Of those amounts, the liabilities for unpaid loss and loss adjustment expenses of prior years increased by $8.6 million in 2000, $16.3 million in 1999, and $7.3 million in 1998. The 2000 increase included $7.5 million of accumulated discount on reserves that was expensed as a result of our decision to discontinue discounting reserves effective January 1, 2000. See Note 24 of Notes to Consolidated Financial Statements. These reserve changes for prior years' reserves were due to the following:
The Company's investment portfolio at December 31, 2000 and 1999 is comprised of investments with fixed maturities, including U.S. government bonds, agency securities, investment-grade corporate bonds and commercial paper; equity securities, including investments in common and preferred stocks, and warrants; debentures of public and private companies; mortgage interests; and real estate.
Depreciation expense was $1.1 million, $1 million and $1.3 million in 2000, 1999, and 1998, respectively.
Summit Global Management, Inc. is a Registered Investment Advisor providing investment advisory services to managed accounts including the Company's subsidiaries, until June 30, 2000. On January 1, 1995, Summit's President and CEO was granted an option expiring December 31, 2004 to purchase 49% of Summit's common shares for a nominal amount, which represented the fair value on the grant date. In January 2000, PICO sold its interest in Summit to its chief executive officer in exchange for a note receivable of $100,000 bearing interest at 7% per annum, and due 2002. In addition, Summit owes PICO approximately $65,000 for operating expenses. The agreement that two of the Company's directors, now officers of the Company, were entitled to receive 50% of the first $1 million of profits attributed to PICO's ownership of Summit's common stock terminated on January 31, 2000. No compensation was ever earned under this arrangement.
As expected during the run-off process, the bulk of this segment's revenues come from investment income. The Physicians' and Professionals' portfolios contain some of the Company's long term holdings.