The London Market division is comprised of our Lloyd’s of London business, in which we participate through our 100% ownership of Newline which in turn owns and manages Syndicate 1218, and our London branch office. Our Lloyd’s membership provides strong brand recognition, extensive broker and direct distribution channels and worldwide licensing, including the ability to write primary business on an excess and surplus basis in the United States. The London Market writes reinsurance and insurance business worldwide through brokers, generating $315.3 million, or 16.6%, of our gross premiums written for the year ended December 31, 2002 as compared to $165.9 million, or 14.4%, of our gross premiums written for the year ended December 31, 2001. The increase in gross premiums written of $149.4 million, or 90.1%, was mainly in financial lines, marine and aerospace and international casualty business.
2001. The increase in net realized gains in 2002 was primarily related to the sale of mid-maturity fixed income securities, which generated gains as we realized the benefits of the appreciation in the portfolio due to the decline in interest rates, which hit levels not experienced in 40 years.
Excluding the effects of the event of September 11th and Enron, the federal and foreign income tax provision for the year ended December 31, 2001 would have increased by $5.1 million to $30.9 million compared to $25.8 million for the year ended December 31, 2000.
Through investment in securities denominated in foreign currencies, we are exposed to foreign (non-U.S.) currency risk. Foreign currency exchange rate risk is the potential for loss in market value owing to a decline in the U.S. dollar value of these investments due to a decline in the exchange rate of the foreign currency in which these assets are denominated. As of December 31, 2002 and December 31, 2001, our total exposure to foreign denominated securities in U.S. dollar terms was approximately $541.5 million and $268.0 million, respectively, or 17.6% and 10.1%, respectively, of our investment portfolio, including cash and cash equivalents. The primary foreign currency exposure was in Canadian dollar denominated securities, which represented 7.6% and 7.0% as of December 31, 2002 and December 31, 2001, respectively, of our investment portfolio, including cash and cash equivalents. As of December 31, 2002, the potential impact of a 10% decline in each of the foreign exchange rates on the valuation of investment assets denominated in those respective foreign currencies would result in a total $54.2 million dollar decline in the fair value of the total investment portfolio.
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001 and 2000
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions, which could differ from actual results, that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. As of December 31, 2001, certain amounts have been reclassified to conform to the balance sheet presentation as of December 31, 2002.
Odyssey America has purchased whole account stop loss retrocessional protection related to its 1994 and 1996 through 2002 results. The contracts provide loss recovery in excess of a contractual ratio of incurred losses and acquisition costs as a percentage of earned premiums.
In addition to the amounts in the consolidated balance sheets are amounts receivable related to expense sharing arrangements with affiliates of $0.7 million and $4.7 million as of December 31, 2002 and 2001, respectively, and payable to affiliates of $5.3 million and $4.3 million as of December 31, 2002 and 2001, respectively.
The following table shows the components of the change in accumulated other comprehensive income (loss) for the years ending December 31, 2002 and 2001 (in thousands):
The Company also maintains a deferred compensation plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended. Employees may contribute up to 10% of annual compensation on a pre-tax basis. The Company contributes an amount equal to two-thirds of each employee’s pre-tax contribution up
During 2000, the Company sold fixed income securities with a discounted tax basis. Such sale resulted in a tax liability of $45.9 million payable to Fairfax. This tax liability was forgiven by Fairfax and has been reflected as a capital contribution in 2000.
Through UK Holdings, Odyssey America became a limited liability participant in the Lloyd’s market in 1997. In order to continue underwriting at Lloyd’s, Newline has established a clean irrevocable letter of credit and a trust account in favor of the Society and Council of Lloyd’s. As of December 31, 2002, the letter of credit was valued at £69.5 million ($111.9 million) and was collateralized by $136.0 million of the Company’s