Other operating and general expenses consist primarily of personnel expenses (including salaries, benefits and certain costs associated with awards under our equity compensation plans, such as stock compensation expense associated with the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123(R)) and other general operating expenses. Our personnel expenses are primarily fixed in nature and do not vary with the amount of premiums written.
Our underwriting approach is to price our products to achieve an underwriting profit even if we forego volume as a result. From 2000 through 2005, our insurance subsidiaries increased their premium rates to offset rising losses and reinsurance costs. In 2007, we experienced relatively flat rate levels on renewal business due to the continued softening market. We maintained flat rate levels on renewal business in 2006 as compared to the increase in rates in 2005.
2006 compared to 2005. Losses and LAE increased $12.0 million, or 10.3%, for 2006 compared to 2005. The loss and LAE ratio for the year ended December 31, 2006 was 59.6% compared to 60.4% for the year ended December 31, 2005. The decrease in the loss and LAE ratio in 2006 of 0.8 percentage points is primarily due to favorable development of $7.5 million from prior year’s loss reserves compared to favorable development in 2005 of $5.2 million. The increase in favorable development lowered the loss ratio by 0.8 percentage points. The favorable development for both years was primarily the settlements below the established case reserves and revisions to our estimated future settlements on an individual case by case basis. This savings represents 4.9% and 4.7% for 2006 and 2005, respectively, of the prior year reserves.
2007 compared to 2006. We had net realized losses of $0.7 million for 2007 compared to net realized gains of $1.2 million for 2006. The turmoil in investment markets during the last half of 2007 resulted in market declines in the portfolio, particularly in the financial and real estate related holdings. This has had an impact on the Company’s investment portfolio in 2007, as net realized gains from sales were offset by write-downs of $1.0 million related to several preferred stock holdings with market values that were significantly below cost in the housing and credit markets.
2006 compared to 2005. Other operating and general expenses increased $1.0 million, or 12.3% to $9.5 million during the year ended December 31, 2006 compared to $8.4 million for the same period in 2005. These increases reflect the continuing growth in our business, stock compensation expense recognized under SFAS No. 123(R) and additional costs incurred related to being a publicly traded company.
Our insurance subsidiaries generate liquidity primarily by collecting and investing premiums in advance of paying claims. We believe that our insurance subsidiaries maintain sufficient liquidity to pay claims and operating expenses, as well as meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies. Our principal sources of liquidity are our existing cash, cash equivalents and short-term investments. Cash, cash equivalents and short-term investments were $64.0 million at December 31, 2007, a $19.1 million increase from December 31, 2006. For 2007, 2006 and 2005, we generated consolidated cash flow from operations of $93.2 million, $83.3 million and $76.5 million, respectively. The increase of $9.9 million and $6.8 million in 2007 and 2006, respectively, are attributable to an increase in net income of $7.9 million and $5.4 million, respectively, as well as various fluctuations within the operating activities associated with our growth.
At December 31, 2007 and 2006, the carrying value of all deposits with state insurance departments was $32.7 million and $14.2 million respectively. These deposits consisted of fixed maturity investments, certificates of deposit and money market funds.
Cash interest paid on long-term debt during the years ended December 31, 2007, 2006 and 2005 was $1.5 million, $1.4 million and $1.3 million, respectively. No principal amount of long-term debt is required to be paid in any of the next five years ending December 31, 2008 through December 31, 2012.
The Company cedes premiums through reinsurance agreements with reinsurers to reduce exposure in certain of its property-casualty insurance programs. Ceded losses and loss adjustment expense recoveries recorded for the years ended December 31, 2007, 2006 and 2005 were $38.1 million, $34.5 million and $24.9 million, respectively. The Company remains primarily liable as the direct insurer on all risks reinsured and a contingent liability exists to the extent that the reinsurance companies are unable to meet their obligations for losses assumed. To minimize its exposure to significant losses from reinsurer insolvencies, the Company seeks to do business with only reinsurers rated “Excellent” or better by A.M. Best Company and regularly evaluates the financial condition of its reinsurers.