(2) As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 concerning the accounting for goodwill and other intangible assets. The adoption of this standard eliminated the Company's amortization of goodwill and intangibles after December 31, 2001 and therefore, increased the Company's reported 2002 net income by $5.7 million, or 13 cents per share, respectively, as compared to the same period in 2001. If the provisions of this standard were applied to prior periods, net income for the years ended December 31, 2001 and 2000 would have been $42.6 million or $0.99 per share, and $59.3 million or $1.38 per share, respectively.
Short-term investments that generally include U.S. Treasury bills, corporate notes, money market funds and investment grade commercial paper equivalents, are carried at amortized cost which approximates fair value. Invested assets are exposed to various risks, such as interest rate risk, market risk and credit risk. Due to the level of risk associated with invested assets and the level of uncertainty related to changes in the value of these assets, it is possible that changes in risks in the near term may materially affect the amounts reported in the Consolidated Balance Sheets and Consolidated Statements of Income.
For 2004, net investment income was $30.2 million compared to net investment income for 2003 and 2002 of $26.3 million and $27.8 million, respectively. The annualized pretax yield was 4.5%, 4.4% and 4.8% for 2004, 2003 and 2002, respectively. The annualized after-tax yield was 3.7%, 3.6% and 3.8% for 2004, 2003 and 2002, respectively. The increase in investment income for 2004 is attributable to higher overall invested assets resulting primarily from significant cash flow from operations. The decrease in investment income for 2003 is attributable to the impact of lower investment yields in part due to increased investment in tax-exempt securities.
The consolidated financial statements include the accounts of CNA Surety and all majority-owned subsidiaries.
premiums represent the portion of premiums written, before ceded reinsurance which is shown as an asset, applicable to the unexpired terms of policies in force determined on a pro rata basis.
controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN No. 46R requires an entity to consolidate a variable interest entity ("VIE") in which it is the primary beneficiary even though the entity does not, either directly or indirectly, own over fifty percent of the outstanding voting shares.
In May of 2004, the FASB revised FASB Staff Position ("FSP") 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" and issued FSP 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" (FSP 106-2). The FSP provides accounting guidance to employers who sponsor postretirement health care plans that provide prescription drug benefits and the prescription drug benefit provided by the employer is "actuarially equivalent" to Medicare Part D and hence qualifies for the subsidy under the Medicare amendment act. This FSP was effective for the Company as of July 1, 2004, and its adoption did not have a material impact on the Company's results of operations or equity.
The carrying amounts and estimated fair values of financial instruments at December 31, 2004 and 2003 were as follows (dollars in thousands):