Our revenue consists primarily of premiums, commission and investment income. Our insurance company subsidiaries derive their premiums primarily from business written by the Navigators Agencies. The Lloyd's Operations derive their premiums from business written by NUAL. The Navigators Agencies and NUAL receive commissions and, in some cases, profit commissions and service fees on the business produced on behalf of our insurance company subsidiaries and others.
The 2003 increase compared to 2002 resulted from the increase in the Company's participation coupled with the increase in stamp capacity of Syndicate 1221.
Included in 2003 and 2002 were tax benefits related to the reversal of a tax valuation allowance related to the Company's foreign operations of $5,284,000 and $1,267,000, respectively. Additional information regarding our tax valuation allowance can be found in Note 5 to our consolidated audited financial statements, included herein.
The RITC recorded in 2004 when compared to 2003 reflects the increase in our participation in Lloyd's Syndicate 1221 to 97.4% for the 2003 year of account from 68.1% for the 2002 year of account. Two participants in Lloyd's Syndicate 1221 for the 2002 year of account changed their status for the 2003 year of account from participants to reinsurers. Upon closing the 2002 year of account at the end of 2004, substantially all of the RITC assumed on a gross basis for the 2002 year of account was ceded to these reinsurers for the 2003 year of account. One of these reinsurers ceded a large portion of their reinsurance
Navigators Specialty, a division of a Navigators Agency, produces business exclusively for our insurance company subsidiaries. It specializes in underwriting general liability insurance coverage for small general and artisan contractors and other targeted commercial risks, with the majority of its business located in California. Navigators Specialty also writes surety, commercial multiple peril, commercial automobile and personal umbrella insurance. In December 2004, a group of experienced underwriters was hired to expand our excess casualty business, particularly the commercial excess and umbrella liability business.
Through the end of 2003, the Navigators Specialty and Navigators Pro generally received a 7.5% management fee commission for the business they produced. Effective from January 1, 2004, Navigators Specialty and Navigators Pro received actual cost reimbursement from the Insurance Companies for the business produced. The Navigators Agencies producing the marine business received a 7.5% management fee and a 20% profit commission for the marine business produced. Beginning with the 2005 underwriting year, this management fee has been increased to 8.75%.
Other operating expenses consist of compensation and general and administrative expenses incurred in connection with underwriting, administrative and claims services performed on behalf of the Insurance Companies and unaffiliated insurers participating in the marine pool. Such expenses have increased each year commensurate with servicing the growth in the overall premium volume coupled with the increased costs incurred to comply with Section 404 of the Sarbanes-Oxley Act of 2002.
Income tax expense (benefit) includes Federal and state income taxes related to the taxable income or loss of the Navigators Agencies.
The average yield of the portfolio, excluding net realized capital gains, was 3.54% in 2004, 3.79% in 2003 and 4.78% in 2002 reflecting the prevailing interest rates during those years. As of December 31, 2004 and 2003, all fixed maturity securities and equity securities held by us were classified as available-for-sale.