were not dilutive at December 31, 2002, but at December 31, 2003 there were 2,302,603 dilutive options. Potentially dilutive shares outstanding are calculated using the treasury method.
Management considers that market conditions during 2003 provided a very attractive environment for trading in all segments of our business. We offer the following forward-looking observations regarding the trading environment for 2004.
Casualty reinsurance has been from our inception a core area of expertise for us. With the exception of a small facultative account written in the U.S., our casualty reinsurance business is generated by two separate teams based in our London operations. Our first team, the international team, covers the world outside the U.S., although in practice, the weight of their exposures is spread across the U.K., Europe and Australia. Rates in this class increased by approximately 26% in 2002 into 2003 and have increased by a further 10% year to date.
The second of our casualty reinsurance teams joined us in January 2003 and has a record for writing U.S. treaty business profitably in the London market. In our view, the key to success in this class is to be highly selective regarding coverage types and the nature and location of cedents. We estimate that rates in the classes we underwrite rose by nearly 30% in 2003 and have risen by a further 22% year to date.
Before our initial public offering, we also established our U.S. surplus lines operations, Aspen Specialty, but it did not have the opportunity to write much business in 2003. However, we expect it to grow strongly in 2004. Overall, we currently expect that this business might develop gross written premiums in excess of $100 million, in due course, split approximately 35% casualty risks and 65% property risks.
For classes of business which are not related to catastrophe, and where early claims experience may not provide a sound statistical basis to estimate the loss reserves, our approach is to establish an initial expected loss and loss expense ratio. This is based upon a combination of (a) an analysis of a portfolio of similar business written by Syndicate 2020 adjusted by an index reflecting how insurance rates, terms and conditions have changed, (b) market benchmark data, and (c) a contract by contract analysis. This initial expected loss and loss expense ratio is then modified in light of the actual experience to date measured against the expected experience. Loss reserves for known catastrophic events are based upon a detailed analysis of our reported losses and potential exposures conducted in conjunction with our underwriters.
Other than the matters described above, the Company did not make any significant changes in assumptions used in our reserving process. However, because the period of time we have been in operation is short, our loss experience is limited and reliable evidence of changes in trends of numbers of claims incurred, average settlement amounts, numbers of claims outstanding and average losses per claim will necessarily take years to develop.
Net investment income. Net investment income for the period was $29.6 million.
Income before tax. Income before tax for the period was $206.6 million, including underwriting income of $178.3 million, investment returns of $28.7 million and interest on loans of $0.4 million.
Income tax expense. Income tax expense for the period was $54.5 million. Our consolidated tax rate for 2003 was 26.4%, whereas in 2002 it was 18.5%. The lower rate for the year ended December 31, 2002 reflected the inclusion in pre-tax income of a non-taxable currency gain of $12.7 million. We consider that the tax rate reported for the twelve months ended December 31, 2003 is more
Insurance losses and loss adjustment expenses. Insurance losses and loss adjustment expenses for the period were $76.9 million, including paid claims of $3.7 million. The only material claims incurred and reported during the period arose from the European floods ($3 million) and an explosion in a United States grain store ($1.8 million). Of the reserves of $93.9 million, at the balance sheet date, a total of $83.6 million represents IBNR claims. The expense for the period is stated after crediting reinsurance recoveries of $10.1 million which mainly relate to estimated recoveries against IBNR claims.
The following table summarizes gross and net written premium, underwriting results, and combined ratios and reserves for each of our two business segments for the period from incorporation on May 23, 2002 to December 31, 2002 and the twelve months ended December 31, 2003. Aspen Holdings was formed on May 23, 2002 but did not commence operations until June 21, 2002. The condensed consolidated statement of operations for the period from May 23, 2002 to December 31, 2002 therefore reflects the results of our business operations for only twenty-eight weeks and comparisons with the current period may not be meaningful.
The following table summarizes gross and net written premiums and underwriting results for each of the lines of business within our insurance segment for the twelve months ended December 31, 2003:
The following table summarizes gross and net written premiums and underwriting results for each of the lines of business within our insurance segment for the period from May 23, 2002 to December 31, 2002:
Aspen Holdings was formed on May 23, 2002 but did not commence operations until June 21, 2002. The condensed consolidated statement of cash flows for the period from May 23, 2002 to December 31, 2002 therefore reflects the results for only twenty-eight weeks and comparisons with the current period may not be meaningful.
Cash is used primarily to pay reinsurance premiums, losses and loss adjustment expenses, brokerage commissions, general and administrative expenses and taxes and to purchase new investments. In the future, we may also use cash to pay for any authorized share repurchases and dividends.
We are obliged by the terms of our contractual obligations to U.S policyholders and by undertakings to certain U.S. regulatory authorities to facilitate the issue of letters of credit or maintain certain balances in trust funds for the benefit of policyholders. Our current arrangements with our bankers for the issue of letters of credit require us to provide cash collateral for the full amount of all undrawn letters of credit that are outstanding. We monitor the proportion of our otherwise liquid assets that are committed to trust funds or to the collateralization of letters of credit. As at December 31, 2003 these funds amounted to 10% of the $1.8 billion of cash and investments held by the Aspen group. We do not consider that this unduly restricts our liquidity at this time.
Capital Resources. On August 29, 2003, the Company entered into a 364-day revolving credit facility in the aggregate principal amount of $50 million and a three-year revolving credit facility in the aggregate principal amount of $150 million (together, the "Credit Facilities") to provide additional liquidity to our operations. Barclays Capital acts as lead arranger and Barclays Bank plc acts as administrative agent and collateral agent for a syndicate of lenders under the Credit Facilities. The syndicate consists of Barclays Bank plc, Credit Lyonnais New York Branch, Credit Suisse First Boston (acting through its Cayman Islands branch), ABN Amro Bank N.V., Deutsche Bank AG, New York Branch, Lloyds TSB Bank plc, The Bank of Bermuda, The Bank of N.T. Butterfield & Son Ltd., Fleet National Bank and UBS AG, Cayman Islands Branch. The terms and conditions of the Credit Facilities are substantially identical.