The premiums earned, net and fee revenue corresponding to the Health Insurance - Commercial Program increased $21.4 million, or 3.1%, during this period. The increase in premiums earned, net of this segment is due to increases in premium rates and an increase in the average enrollment of Self-funded Employers accounts.
Operating expenses increased by $2.7 million, or 2.9%, during 2004, sustaining an expense ratio of 13.1% in 2004. The increase in operating expenses is mostly due to the effect of the following:
The increase in technology related expenses of $1.5 million is directly related to the segment’s commitment to continuously enhance services to its members and service providers.
Total premiums written for the 2005 period increased by $9.3 million, or 6.5%, when compared to the total premiums written for the year 2004. This increase is mostly reflected in the premiums written for the commercial multi-peril package and auto physical damage lines of business, which experienced an increase in premiums of $9.1 million, or 16.2%, and $1.8 million, or 9.3%, during this period, respectively. Other lines of business reported modest increases in production, except for the dwelling business, which reported a decrease in premiums written of $2.2 million, or 7.9%, during the year 2005. The market in the year 2005 was characterized by strong and aggressive competition for commercial lines, with premiums rates at lower level than previous years. However, the segment’s focus on business retention and relationships with general agents resulted in growth in the premium volume of package policies. The reported decrease in premiums written for the dwelling business is attributed to policy retention efforts of competitors and lower originations of mortgage loans.
The increase experienced in net premiums earned is mainly attributable to an increase in the segment’s volume of business since the segment has been successful in attracting new accounts and increasing insurance coverage for existing accounts. The property and casualty insurance market has been in soft market conditions since 2004; this soft market affects primarily the commercial lines. Premiums for commercial lines have been subject to strong competition and a reduction in premium rates. Personal lines premium rates have remained steady during the 2005 period.
Increase of $75.5 million in 2005 and $13.2 million in 2004 in the amount of cash paid to suppliers and employees. This increase is principally attributed to the initial ceding commission of $60.0 million paid by SVTS to GA Life on the effective date of the coinsurance funds withheld agreement (described in “Item 1. Business” of this Annual Report on Form 10-K in the section corresponding to the Life and Disability Insurance segment). The initial ceding commission was recorded by the Corporation within the deferred policy acquisition costs. Also, the Corporation has incurred additional commission expense generated from the acquisition of new business and general operating expenses.
The net proceeds of investments in the trading portfolio increased by $98.9 million during the 2005 period. This fluctuation during 2005 is due to the sale of the corporate bonds portfolio, which was considered as a trading portfolio. In addition, in 2004, the amount of net acquisitions of investments in the trading portfolio decreased by $12.3 million.
As of December 31, 2005 the Corporation has the following senior unsecured notes payable: