The Company produced an overall savings on the handling of prior year claims during 2005 of $13.7 million. This net savings is included in the computation of loss ratios shown in the table insert. Approximately $8.0 million of this savings relates to retrospectively-rated contracts whereby return premiums were recorded concurrently with the loss savings. The majority of the remaining $5.7 million in savings relates to the Company's large fleet trucking business, generally consistent with, but less than, recent prior years. Because of the high limits provided by the Company to its large trucking fleet insureds, the length of time required to settle larger, more complex claims and the volatility of the trucking liability insurance business, the Company believes it is important to have a high degree of conservatism in its reserving process. As claims are settled in years subsequent to their occurrence, the Company's claim handling process has, historically, tended to produce savings from the reserves provided. The Company believes that favorable loss developments are attributable to the Company's long-standing policy of reserving for losses realistically and a willingness to settle claims based upon a seasoned evaluation of its exposures. Changes in both gross premium volumes and the Company's reinsurance structure for its large trucking fleets can have a significant impact on future loss developments and, as a result, loss and loss expense ratios and prior year reserve development may not be consistent year to year.
The ratio of net operating expenses of the insurance subsidiaries to net premiums earned was 22.0% during 2005 compared to 24.0% for 2004. Including the agency operations, and after elimination of inter-company commissions, the ratio of other operating expenses to operating revenue (defined as total revenue less gains on investments) was 19.0% for 2005 compared with 16.2% for 2004, reflective of the loss of more than 60% of ceding commissions from reinsurers, as discussed above.
Amounts recoverable under the terms of reinsurance contracts comprise approximately 19% of total Company assets as of December 31, 2006. In order to be able to provide the high limits required by the Company's trucking company insureds, we share a significant amount of the insurance risk of the underlying contracts with various insurance entities through the use of reinsurance contracts. Some reinsurance contracts provide that a loss be shared among the Company and its reinsurers on a predetermined pro-rata basis ("quota-share") while other contracts provide that the Company keep a fixed amount of the loss, similar to a deductible, with reinsurers taking all losses above this fixed amount ("excess of loss"). Some risks are covered by a combination of quota-share and excess of loss contracts. The computation of amounts due from reinsurers is based upon the terms of the various contracts and follows the underlying estimation process for loss and loss expense reserves, as described below. Accordingly, the uncertainties inherent in the loss and loss expense reserving process also affect the amounts recorded as recoverable from reinsurers. Estimation uncertainties are greatest for claims which have occurred but which have not yet been reported to the Company. Further, the high limits provided by the Company's insurance policies for trucking liability and workers' compensation, provide more variability in the estimation process than lines of business with lower coverage limits.
To the extent possible, the Company attempts to recover the costs of inflation by increasing the premiums it charges. Within the fleet trucking business, a majority of the Company's premiums are charged as a percentage of an insured's gross revenue or payroll. As these charging bases increase with inflation, premium revenues are immediately increased. The remaining premium rates charged are adjustable only at periodic intervals and often require state regulatory approval. Such periodic increases in premium rates may lag far behind cost increases.
The Company has invested a total of $24,000 in three limited partnerships, with an aggregate market value of $39,203, that are managed by organizations in which two directors of the Company are executive officers, directors and owners. The Company's ownership interest in these limited partnerships ranges from 13% to 31%. These limited partnerships added $7,942 and $7,145, respectively, to investment gains in 2006 and 2005. During 2006 and 2005, the Company has recorded management fees of $604 and $481, respectively, and
The fair value of regulatory deposits with various insurance departments in the United States and Canada totaled $22,359 at December 31, 2006.
The Company maintains two stock option plans which are described below. Compensation cost charged against income for those plans was $20, $197, and $256 for 2006, 2005, and 2004, respectively.