RSUI recorded an underwriting loss of $133.0 million in 2005 reflecting $287.3 million of pre-tax catastrophe losses, net of reinsurance and $26.1 million of reinsurance reinstatement premiums, related to 2005 hurricane activity. RSUI reported an underwriting profit of $83.2 million in 2004, despite recording $146.7 million of pre-tax catastrophe losses, net of reinsurance and $10.5 million of reinsurance reinstatement premiums, related to 2004 hurricane activity. RSUI’s underwriting profit of $91.8 million for the period July 1, 2003 through year-end 2003 reflected strong markets in its lines of business and aggregate pre-tax catastrophe losses of $18.7 million.
RSUI’s net premiums earned decreased slightly in 2005 from 2004 primarily due to a decrease in the amount of gross premiums written in RSUI’s property line of business, as well as an increase in ceded premiums paid to reinsurers under RSUI’s catastrophe reinsurance program including reinsurance reinstatement premiums. This decrease was partially offset by increases in net premiums earned across all other lines of business, primarily reflecting increased retentions due to changes in RSUI’s reinsurance structure and an increase in gross premiums written.
AIHL continually monitors the difference between cost and the estimated fair value of its investments, which involves uncertainty as to whether declines in value are temporary in nature. If AIHL believes a decline in the value of a particular investment is temporary, it records the decline as an unrealized loss in common stockholders’ equity. If the decline is believed to be other than temporary, it is written down to the carrying value of the investment and a realized loss is recorded on AIHL’s statement of earnings. Management’s assessment of a decline in value includes, among other things, its current judgment as to the financial position and future prospects of the entity that issued the investment security. If that judgment changes in the future, AIHL may ultimately record a realized loss after having originally concluded that the decline in value was temporary.
Net pre-tax investment income for the period divided by average investments for the same period.
us to expand our operations through internal growth at our subsidiaries and through acquisitions of, or substantial investments in, operating companies. At December 31, 2005, we held approximately $588 million of marketable securities and cash at the parent company and had no debt outstanding under our credit facility.
Capital Contributions. From time to time, we make capital contributions to our subsidiaries when third-party financing may not be attractive or available. In 2005, we made capital contributions of $150.8 million to AIHL to provide additional capital to RSUI as a result of the 2005 hurricanes and $135.0 million to AIHL to provide additional capital to Darwin to support its business expansion and transition to a stand-alone insurance underwriting group. In 2004, we made capital contributions of $20.0 million to AIHL for its acquisition of DNA and to fund business expansion. In 2003, Alleghany made capital contributions of approximately $636.0 million to AIHL to acquire and capitalize Resurgens Specialty, RIC and Landmark (as discussed below) and to allow CATA to strengthen reserves. We expect that we will continue to make capital contributions to our subsidiaries in the future for similar or other purposes.
On January 4, 2002, AIHL acquired CATA. The total purchase price was approximately $182.0 million. At the same time AIHL acquired Platte River, a Nebraska-domiciled insurance company, for approximately $40.0 million, $31.0 million of which represented consideration for Platte River’s investment portfolio and the balance of which represented consideration for licenses. The seller provided loss reserve guarantees for all of the loss and LAE liabilities of Platte River that existed at the time of the sale.
In December 2004, FASB Statement 123 (revised), “Share-Based Payment,” was issued. This Statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements, establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires the application of a fair value based measurement method in accounting for share-based payment transactions with employees. This Statement is effective as of the beginning of the first annual reporting period that begins after December 15, 2005. The Company’s present method of accounting for share-based payments is described in Note 1.n. The pro forma effects of the adoption of this Statement are also described in Note 1.n. The Company will adopt this Statement in the first quarter of 2006.
The gross unrealized investment losses and related fair value for debt securities and equity securities at December 31, 2005 were as follows (in thousands):
$2.75 million of loss on the first $10.0 million of loss and $1.0 million of the next $10.0 million of loss. For certain of Darwin’s classes of E&O business (primarily public entities and psychiatrists professional liability) Darwin generally retains $250,000 to $500,000 of loss. For Darwin’s medical malpractice line of business, Darwin generally retains $1.75 million of loss at its maximum offered limit of $10.0 million. Some of Darwin’s reinsurance treaties contain premiums that will vary, within a range, depending upon the profitability of the underlying premium subject to the treaty. Darwin also obtains facultative reinsurance for certain business.
Activity in liability for losses and loss adjustment expenses in 2005, 2004 and 2003 is summarized as follows (in thousands):
Total gross and net loss and loss adjustment expense reserves increased at December 31, 2004 from December 31, 2003 by $794.3 million primarily reflecting an increase in business generated by AIHL’s insurance operating units and losses incurred in connection with the 2004 hurricanes. Property lines of business increased $391.7 million primarily reflecting unpaid losses on AIHL’s gross property catastrophe losses of $401.8 million from the 2004
Under the incentive plans, participants are entitled, at the end of a four-year award period, to a maximum amount equal to the value of one and one-half shares of Alleghany’s common stock for each performance share issued to them based on market value on the payment date. Performance shares have historically typically paid one-half in cash and one-half in Alleghany common stock. Commencing in 2006, it is expected that performance share payouts will be made in cash to the extent of minimum statutory withholding requirements in respect of an award, with the balance in common stock. Payouts are made provided defined levels of performance are achieved. As of December 31, 2005 (for all award periods through the award period ending December 31, 2005), 103,649 performance shares were outstanding. Expense is recognized over the performance period on a pro rata basis.