The Company's underwriting expenses increased during 2001 primarily due to the following: underwriting, servicing and marketing initiatives; information systems costs; consulting fees; guarantee fund charges; severance payments and recruitment fees; and brokers commissions. Commissions for policies sold through brokers and agents typically range from 2.0% to 12.5% of premiums, whereas the Company does not incur commissions on products it sells directly. To the extent that brokered business represents an increased percentage of the Company's business in the future, expense ratios may increase.
As a result of reserve studies conducted by the Company, the Company's outside actuary and a second actuarial firm specializing in medical malpractice reserving, the Company recorded a $64.5 million net adjustment to loss and loss adjustment expenses as of December 31, 2001. During 2001, the Company increased direct and assumed prior year loss and loss adjustment expense reserves of $113.1 million and $4.8 million, respectively. During 2001, ceded reserves associated with the Company's aggregate reinsurance contracts increased by $61.7 million. The increase in prior year loss and loss adjustment expense reserves resulted from three primary factors: increased loss severity, particularly in the Pennsylvania institutions and New Jersey physicians book; adverse development in the form of additional frequency and severity relating to physicians business in certain states, primarily in Pennsylvania, Texas and Ohio; and adverse development associated with reserves held on an assumed excess of loss reinsurance contract which was non-renewed January 1, 2001. The increase in current year loss and loss adjustment expense reserves resulted primarily from increased severity levels and reduced profitability indications from prior accident years.
During 2000, loss and loss adjustment expense were significantly impacted by the reserve strengthening actions taken by the Company at June 30, 2000 that resulted from a loss and LAE study conducted by the Company. Following the reserve study, gross loss and loss adjustment expense reserves were increased by $92.4 million, including $48.4 million for 1999 and prior accident years and $14.0 million for accident year 2000. Ceded loss and LAE reserves were increased by $22.3 million. Net loss and LAE reserves were increased by $70.1 million. The increase in loss and loss adjustment expense reserves in 2000 resulted from three primary factors: increased loss severity combined with a lengthened loss development period on the New Jersey physician book; greater than expected loss frequency and severity on the Pennsylvania physician and institutional book; and greater than anticipated loss frequency and, particularly, severity in the Company's book of physician and institutional business outside of New Jersey and Pennsylvania.
OTHER EXPENSES. Other expenses decreased $2.4 million, or 41.6%, to $3.4 million in 2001 from $5.8 million in 2000 and primarily consisted of expenses associated with the leasing and other businesses owned by the Company. The decrease is primarily related to the sale of substantially all of the assets of the Company's reinsurance intermediary subsidiary on July 1, 2000.
Short term investments are composed of highly rated money market instruments. The Company also holds a portfolio of equity investments. At December 31, 2001, the cost and fair value of equity investments was $7.1 million and $6.6 million, respectively. At December 31, 2000, the cost and fair value of equity investments was $6.9 million and $5.8 million, respectively. A 10% decline in value of the equity investments at December 31, 2001 would result in after-tax accumulated unrealized losses on equity investments of $0.7 million or 0.5% of total shareholders' equity gross of net after-tax unrealized losses on investments.