The markets in which we operate have historically been cyclical. During periods of excess underwriting capacity, as defined by availability of capital, competition can result in lower pricing and less favorable policy terms and conditions for insurers and reinsurers. During periods of reduced underwriting capacity, pricing and policy terms and conditions are generally more favorable for insurers and reinsurers. Historically, underwriting capacity has been impacted by several factors, including industry losses, catastrophes, changes in legal and regulatory guidelines, investment results and the ratings and financial strength of competitors. We believe that we are currently operating in a marketplace that generally continues to offer favorable pricing and/or terms and conditions in all of our business segments; however, there are lines of business that are experiencing less favorable pricing, terms and conditions than in the prior year. For our global insurance segment, current pricing, terms and conditions are generally at or above the level required to produce target returns. As expected, the impact of the losses generated by the hurricanes in August and September is having a positive impact on pricing in our offshore energy business, particularly for loss-affected contracts. We believe that pricing pressure on U.S. large property accounts and onshore energy business still persists. For our U.S. insurance business, we expect pricing to stabilize in a number of areas in 2005. Most notably, we have begun to experience lessening in price decreases in our professional lines business in the last quarter of 2004 and expect this trend to continue into 2005. We anticipate that rate decreases will continue with respect to our U.S. property business. January 1 is traditionally a major renewal period for our reinsurance segments. The unprecedented claims burden from natural catastrophes in 2004 has heightened risk awareness and appreciation for protection against losses from natural perils, particularly in the U.S. While property reinsurance premiums are declining, we believe loss affected accounts in the U.S. are receiving increases commensurate with the severity of the loss experience of the program. The casualty reinsurance line of business has proven more resistant to rating pressures. We have seen many primary companies substantially increasing their retentions and ceding less business
Our expenses primarily consist of net losses and loss expenses, acquisition costs, general and administrative expenses and interest expense. Net losses and loss expenses are management's best estimate of the ultimate cost of claims incurred during a reporting period. Many of our lines of business have loss experience characterized as low frequency and high severity, which may cause volatility in our results of operations from period to period. Also, we have substantial exposure to unexpected losses resulting from natural disasters, man-made catastrophes and other catastrophic events. The incidence and occurrence of such catastrophes are inherently unpredictable and our losses from catastrophes could be substantial. Although we attempt to manage our exposure to such events across the organization in a variety of ways, including transfer of risk to other reinsurers, a single catastrophic event could affect multiple business segments and the frequency or severity of a catastrophic event could exceed our estimates.
For business written under a proportional contract, similar to our line slip business, we are able to reasonably estimate the premium written by reference to an initial estimate of expected ceded premium received from our clients. In most cases, the treaties are not new and the client can use historical experience to estimate the amount of premium. We may adjust the initial estimate of premium, and any adjustment is usually a result of the underwriter's prior experience with a client. We actively monitor the development of actual premium data and, if an adjustment in the premium estimate is warranted, it will be recorded in the period during which the adjustment is determined. During the
General and Administrative Expenses. General and administrative expenses for the year ended December 31, 2003 were $136.5 million compared to $57.6 million for the year ended December 31, 2002, an increase of $78.9 million. This increase was primarily driven by the addition of operations and employees in the U.S. and Europe. The general and administrative expense ratio for the year ended December 31, 2003 was 9.5% compared to 10.7% for the year ended December 31, 2002. The reduction in the ratio was caused by an increase in the volume of net premiums earned.
Other Insurance Related Income. Other insurance related income for the year ended December 31, 2004 was $10.3 million compared to $24.5 million for the year ended December 31, 2003, a decrease of $14.2 million. Other insurance related income related to the movement in the fair value of our insurance contracts that met the definition of a derivative. These contracts typically insure a portfolio of sovereign debt securities against the risk of default.
The net loss and loss expense ratio for the year ended December 31, 2004 was 54.7% compared to 41.7% for the year ended December 31, 2003. The increase in losses paid and the change in reported case reserves was due to losses from Hurricanes Charley, Frances, Ivan and Jeanne from which we incurred net losses and loss expenses of $135.7 million, or 21.2 percentage points. Our hurricane losses benefited from reinsurance recoveries of $72.5 million. Our estimates for the losses incurred from these hurricanes were derived from formal loss advices, the output of industry models, a review of in-force contracts and preliminary indications from clients. Consequently, actual losses from these hurricanes may vary materially from estimated losses. Our gross losses were reduced by reinsurance recoveries that were triggered by the occurrence of a series of large industry loss events. Recoveries under our reinsurance are dependent on industry losses, which are calculated by independent third parties, exceeding predetermined trigger points. Our assessment, based on a combination of public information, our own analysis of each loss and historical development factors, is that these trigger points have been exceeded. However, not all of the industry loss numbers have been finally determined, and actual reinsurance recoveries could be materially reduced. During the year ended December 31, 2003, our loss experience benefited from the lack of major catastrophes. Our global reinsurance segment has loss experience categorized as low frequency but high severity in nature and, therefore, our loss experience can be volatile.
The net loss and loss expense ratio for the year ended December 31, 2003 was 41.7% compared to 41.1% for the year ended December 31, 2002. We incurred claims from several catastrophe events during the year, most notably from the California fires in October 2003 and from tornadoes that affected Oklahoma in May 2003. During the year ended December 31, 2003, we experienced positive development of $28.1 million on our 2002 underwriting year, which generated a 6.7 percentage point reduction in the net loss ratio. This reduction was primarily experienced in our catastrophe and other books of business. We use the Bornhuetter-Ferguson method to estimate the ultimate cost of losses; it takes as a starting point an assumed ultimate loss and loss expense ratio and blends in the loss and loss expense ratio implied by the experience to date. During the year ended December 31, 2003, the lack of reported claims produced a favorable impact on our experience to date, which caused a reduction in the ultimate losses for these lines of business. Our global reinsurance segment has loss experience categorized as low frequency but high severity in nature and, therefore, our loss experience can be volatile. During the years ended December 31, 2003 and December 31, 2002, our loss experience benefited from the lack of major catastrophes.
In the year ended December 31, 2003, we generated a net operating cash inflow of $1.3 billion, primarily relating to premiums received and investment income. During the same period we paid losses of $89.4 million. During the year ended December 31, 2003, net cash of $319.7 million was generated from financing activities. We paid dividends of $10.8 million and raised net proceeds of $316.0 million from our initial public offering. We invested a net cash amount of $1.8 billion, and at December 31, 2003 had a cash balance of $605.2 million.
On December 9, 2004, we announced that our Board had authorized the repurchase of up to $350 million of our common shares. On February 16, 2005, we repurchased 12,783,094 common shares owned by initial investors at the formation of the Company pursuant to our repurchase program. The average purchase price was $27.38 per common share and the aggregate purchase price was $350.0 million, which exhausted our repurchase program.
IBNR is estimated by management in consultation with independent actuaries who use actuarial models to derive IBNR, primarily the Bornhuetter-Ferguson method although the initial expected loss ratio and chain ladder ("loss emergence") methods are also utilized for some lines of business. The Bornhuetter-Ferguson method is typically used by companies with limited loss experience. This method takes as a starting point an assumed ultimate loss and loss expense ratio and blends in the loss and loss expense ratio implied by the experience to date.
The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition of AXIS Surplus.
As of December 31, 2004, there were approximately 890 securities (2003: 640) in an unrealized loss position with a fair market value of $2,700.9 million (2003: $1,027.9 million). Of these securities, there are 78 securities (2003: 6) that have been in an unrealized loss position of 12 months or greater
The Company's subsidiaries use Marsh & McLennan Companies, Inc ("Marsh") and its subsidiaries for accounting and human resources consulting services and placement of insurance. During the year ended December 31, 2004, the Company incurred $648 (2003: $1,172; 2002: $570) in fees in connection with these transactions of which $51 (2003:$44) was included in accounts payable and accrued expenses. In addition, the Company pays brokerage and commissions to Marsh, which vary based on the amount of business produced. During the year ended December 31, 2004, the Company incurred $109.0 million (2003: $86.1 million; 2002: $34.3 million) in brokerage fees and commissions in connection with these transactions.