During the year ended December 31, 2006, gross premiums written decreased 30.6% compared to the year ended December 31, 2005 due primarily to a decrease in life and annuity business written of $230.0 million compared to the year ended December 31, 2005. The nature of life and annuity reinsurance transactions that we consider results in a limited number of transactions actually bound with potentially large variations in annual premium volume. In addition, for the year ended December 31, 2005, we recognized $182.0 million in additional premiums on two excess of loss structured reinsurance contracts written in prior years. These additional premiums were triggered as revisions to ultimate loss estimates caused ultimate losses to exceed loss thresholds specified in the contracts. We do not expect to have significant additional premiums in the future, as the majority of our excess of loss structured reinsurance contracts that had additional premium triggers have already reached the loss thresholds required to trigger the additional premium.
Our alternative investments produced a 6.96% return during the year ended December 31, 2006 compared to 3.34% for the year ended December 31, 2005. The return of our alternative investment portfolio includes a loss of $35.0 million stemming from energy trading losses in certain hedge fund investments in the third quarter of 2006. In 2005, we suffered $34.0 million in reinsurance private equity investment losses associated with hurricanes in the year ended December 31, 2005.
Our property and casualty reinsurance premiums are recorded at the inception of each contract, based upon contract terms and information received from ceding clients and their brokers. For excess of loss contracts, the amount of minimum and/or deposit premium is usually contractually documented at inception, and variances between deposit premium and final premium are generally small. An adjustment is posted to amend the minimum and/or deposit premium if there are changes in underlying exposures insured. For quota share or proportional property and casualty reinsurance contracts, gross premiums written are normally estimated at inception based on information provided by cedants and/or brokers. We generally account for such premiums using the client’s initial estimates, and then adjust them as more current information becomes available, with such adjustments recorded as premiums written in the period they are determined. We believe that the ceding clients’ estimate of the volume of business they expect to cede to us represents the best estimate of gross premium written at the beginning of the contract. As the contract progresses, we monitor actual premium received in conjunction with correspondence from the ceding client in order to refine our estimate. Variances from original premium estimates are normally greater for quota share contracts than excess of loss contracts. Premiums are earned on a pro rata basis over the coverage period. The net adjustments to gross premiums written as a result of changes in premium estimates for the year ended December 31, 2006 were not material.
Our casualty insurance loss reserves, which include case reserves, amounts for IBNR reserves and loss adjustment expenses, are compiled on a portfolio basis and are computed on an undiscounted basis. The majority of the insurance business we have written is casualty business. Historically, losses associated with casualty business have had a long claim-tail, which is the time period between the occurrence of a loss and the time it is settled by the insurer. Casualty losses are also generally more susceptible to litigation and can be significantly affected by changing contract interpretations and a changing legal environment. Due to the long claim-tail nature of casualty business, a high degree of judgment is involved in establishing loss reserves.
(2) The difference between the loss development included above and that reflected in the reconciliation of losses and loss adjustment expenses in Note 4 to the consolidated financial statements of $791 relates to amortization of deferred charges on retroactive reinsurance.
Gross premiums written for the property and casualty insurance segment for the year ended December 31, 2005 were $355.3 million compared to $248.1 million for the year ended December 31, 2004, an increase of 43.2%. The increase is the result of the continued expansion of this segment, including new business coming from the addition of our property underwriting team in 2004.
Net gains on the alternative investment portfolio were $39.9 million, or 3.34%, including a loss of $26.2 million from our private equity reinsurance investments, for the year ended December 31, 2005 compared to $81.6 million, or 8.23%, including a loss of $8.1 million from our private equity reinsurance investments, for the year ended December 31, 2004. Our investment in DaVinci was impacted by losses from hurricanes Katrina, Rita and Wilma in the year ended December 31, 2005 and by losses from hurricanes Charley, Frances, Ivan and Jeanne in the year ended December 31, 2004. DaVinci is a property catastrophe reinsurer and therefore, it was expected that losses would be incurred during periods where there are severe or frequent catastrophes. For 2005, the return from our Max Re Diversified fund portfolio was 5.88%. This return reflected the mediocre returns available in the capital markets as represented by the average money market fund returning 3.0%, the Lehman Brothers Intermediate Aggregate Bond Index returning 2.0% and the Standard & Poors 500 Index returning 3.0%.
Max Re Capital’s Board of Directors declared a dividend of $0.05 per share on each of February 10, 2006 and April 28, 2006 and $0.07 per share on each of July 28, 2006 and October 26, 2006, payable to shareholders of record on February 24, 2006, May 12, 2006, August 11, 2006 and November 9, 2006, respectively. Continuation of cash dividends in the future will be at the discretion of the board of directors and will be dependent upon our results of operations and cash flows, and our financial position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends and other factors the board of directors deems