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During October 2003, the Company enhanced its financial position and ability to take advantage of market opportunities as a result of the net proceeds of $110.8 million from its equity offering by paying off its remaining outstanding debt, contributing $95 million to the statutory surplus of Navigators Insurance Company and increasing its stamp capacity at Lloyd's by increasing its letter of credit facility.
Commission Income. Commission income from unaffiliated business increased 19.6% to $5.7 million in 2005 compared to $4.8 million in 2004 and $4.3 million in 2003. The 2005 increase principally resulted from higher profit commission in the Lloyd's Operations on the closing of the 2003 year of account. Commission income from the Navigators Agencies decreased as the result of less profit commission due to the losses generated by Hurricanes Katrina and Rita and the increase in Navigators Insurance Company's participation in the marine pool to 85% in 2005 from 80% in 2004. The marine pool has been eliminated beginning with the 2006 underwriting year.
The Company's overall gross loss reserves increased $592 million to $1,558 million in 2005 and reinsurance receivables on paid and unpaid losses increased $493 million to $1,016 million in 2005. In 2004, the overall gross loss reserves increased $242 million to $966 million and reinsurance receivables on paid and unpaid losses increased $147 million to $523 million.
The actuarial methods generally utilize analysis of historical patterns of the development of paid and reported losses for each line of business by underwriting year. This process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is an appropriate basis for predicting future outcomes. This basic assumption is particularly relevant for our marine and energy business written by our Insurance Companies and Lloyd's Operations where we generally rely on the substantial loss development data accumulated over many years to establish IBNR loss reserves for immature underwriting years.
The Company also employs outside actuaries to perform annual loss reserve studies of the Insurance Companies and Lloyd's Operations. The results of such studies are used by the Company to judge the reasonableness of the loss reserves recorded by the Company. There can be no assurance however that such outside actuarial studies provide greater reliability as to the adequacy of the Company's loss reserves than the Company's estimates given the inherent uncertainty of the loss reserve process coupled with the fact that such studies generally employ similar actuarial methods and the same Company loss data.
Following are the underwriting results of the Insurance Companies for each of the years in the three-year period ended December 31, 2005:
The Insurance Companies experienced premium growth in all three active lines of business as reflected in the above tables. Overall, the net earned premium increased 0.6%, 9.9% and 40.3% in 2005, 2004 and 2003, respectively. This growth is particularly pronounced in our specialty unit, where 2005 net earned premium grew 35.6% when compared to 2004, due to higher gross premiums and the increase in retained premium resulting from the cancellation of the specialty quota share treaty at March 31, 2005. The 2004 assumed premium from the Lloyd's Operations' net earned premium includes $22.2 million as a result of the RITC transaction recorded for the close of the 2002 year of account at Syndicate 1221. The 2003 marine earned premium included approximately $11.0 million as a result of a commutation agreement with a former pool member. Approximately nil, 17.4% and 10.3% of the net earned premium recorded in 2005, 2004 and 2003, respectively, is a result of the Insurance Companies participating on reinsurance treaties supporting the Lloyd's Operations' marine and energy business.
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Through the end of 2003, Navigators Specialty and Navigators Pro generally received a 7.5% management fee commission for the business they produced. Effective from January 1, 2004, Navigators Specialty and Navigators Pro received actual cost reimbursement from the Insurance Companies for the business produced. The Navigators Agencies producing the marine business received a 7.5% management fee and a 20% profit commission for the marine business produced. For the 2005 underwriting year, this management fee has been increased to 8.75%. Commencing with the 2006 underwriting year, the Navigators Agencies will receive actual cost reimbursement from the Insurance Companies for the marine business produced.
Cash flow provided by operations was $238.8 million, $162.5 million and $134.5 million for 2005, 2004, and 2003, respectively. The increases in the 2005, 2004 and 2003 operating cash flows were primarily due to the increases in net written premium. Operating cash flow was used primarily to acquire additional investments.
The Company believes that it has adequately managed its cash flow requirements related to reinsurance recoveries from its positive cash flows and the use of available short-term funds when applicable. However, there can be no assurances that the Company will be able to continue to adequately manage such recoveries in the future or that collection disputes or reinsurer insolvencies will not arise that could materially increase the collection time lags or result in recoverable write-offs causing additional incurred losses and liquidity constraints to the Company. The payment of gross claims and related collections from reinsurers with respect to Hurricanes Katrina and Rita could significantly impact the Company's liquidity needs. However, we expect to pay the 2005 hurricane losses over a period of years from cash flow and, if needed, short-term investments and expect to collect our paid reinsurance recoverables generally under the terms described above.