For our property catastrophe reinsurance operations, we initially set our claims reserves based on case reserves reported by insureds and ceding companies. We then add to these case reserves our estimates for additional case reserves, and an estimate for IBNR. In addition to the loss information and estimates communicated by cedants, we also utilize industry information which we gather and retain in our REMS© modeling system. When property catastrophe losses do occur, the information stored in
In our Individual Risk business, it is often necessary to estimate portions of premiums written from quota-share contracts and by program managers and the related commission expense. Management estimates these amounts based on discussions with ceding companies and program managers, together with historical experience and judgment. Total premiums written estimated in our Individual Risk business at December 31, 2004, 2003 and 2002 were $30.1 million, $103.7 million and $74.6 million, respectively. The large accrual at December 31, 2003 was primarily due to one large contract where there was a delay in reporting actual figures to us and accordingly we accrued our best estimate of the premiums written as at December 31, 2003 on this contract. At December 31, 2004, there was no such delay on this contract and accordingly there was a corresponding reduction in our year-end premium accruals for our Individual Risk business. Total commissions estimated at December 31, 2004, 2003 and 2002 were $9.1 million, $32.3 million and $20.1 million, respectively. Management tracks the actual premium received and commissions incurred and compares this to the estimates previously booked. Such estimates are subject to adjustment in subsequent periods when actual figures are recorded. To date such subsequent adjustments have not been material.
Our 2004 net income was $133.1 million compared to net income of $606.0 million in 2003. The substantial decline in net income results from the four large hurricanes, Charley, Frances, Jeanne and Ivan, that occurred during the third quarter of 2004, which together caused a negative impact of $570.2 million to our 2004 results. This impact is reflected in the following items: net losses of $725.5 million, plus the reversal of previously accrued profit commission of $12.6 million, which is reflected as an increase to acquisition expenses of the Reinsurance segment, less reinstatement premiums earned of $30.1 million and less minority interest offset of $137.8 million. These amounts are based on management's estimates following a review of our potential exposures and discussions with our counterparties. Given the magnitude of these loss events and due to delays in receiving claims data, these results are subject to change based on developments including new or revised data received from our counterparties. Additionally, depending on the ultimate level of the industry losses from these events, it is possible that in future periods additional recoveries from certain of our retrocessional coverages may be triggered and result in a reduction to our net losses from these events. Changes to these estimates will be recorded in the period in which they occur.
The following table summarizes the underwriting results and ratios for the Reinsurance segment for the years ended December 31, 2004, 2003 and 2002:
Although we would remain liable to the extent that any of our reinsurers fail to pay our claims, before placing reinsurance we evaluate the financial condition of our reinsurers. At December 31, 2004, the majority of the $217.8 million of net losses recoverable relates to outstanding claims reserves on our books (as distinguished from claims that we have already paid), and, in accordance with the terms of the policies, we generally must wait to collect from our reinsurers until we pay the underlying claims. We expect to collect the recorded net balance of the losses recoverable.
Effective January 1, 2002, the Company adopted Financial Accounting Standards Board ("FASB") Statement No. 142, "Goodwill and Other Intangible Assets," ("FAS 142"). In the second quarter of 2002, the Company completed its initial impairment review in compliance with the transition provisions of FAS 142 and, as a result, the Company decided to record goodwill at zero value, the low end of an estimated range of values, and wrote off the balance of its goodwill during the second quarter of 2002, which totaled $9.2 million. In accordance with the provisions of FAS 142, this is required to be recorded as a cumulative effect of a change in accounting principle in the consolidated statement of income and is required to be recorded retroactive to January 1, 2002.
Our gross case reserves and IBNR by line of business at December 31, 2004 and 2003 are as follows: