GAAP Combined Ratio. For 2004 the combined ratio increased to 131.3% from 92.4% in 2003. The loss ratio increased to 95.1% in 2004 from 66.1% in 2003 principally due to the increase in losses on the discontinued bond program. Excluding the discontinued bond program losses and LAE, the Company’s loss ratio was 54.8% for 2004 compared to 65.3% for 2003. This decrease was attributable to the decreases in losses and LAE for ULI, CPI and UC products described above. The expense ratio increased to 36.2% in 2004 from
Effective January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, we no longer amortize goodwill and intangibles which have indefinite lives. SFAS No. 142 requires that we assess goodwill and intangibles with indefinite lives for impairment at least annually, based on the fair value of the related reporting unit. Our annual impairment assessment is performed in the fourth quarter, or earlier if deemed necessary.
Intangible assets represent databases acquired by ALPC. The databases are comprised of municipal code data and related files. Provision for amortization of the databases is based on estimated useful lives of twenty years and is computed on the straight-line method.
In the ordinary course of business, we cede and assume reinsurance with other insurers and reinsurers. We report balances pertaining to reinsurance transactions “gross” on the balance sheet, meaning that reinsurance recoverables on unpaid losses and ceded unearned premiums are not deducted from insurance reserves but are recorded as assets. Ceded reinsurance transactions for the Company represent quota share arrangements for certain lender/dealer customers. In addition, the Company participates in a waste surety program under a quota share arrangement in which the Company assumes and cedes business. As discussed in Note 16 to the Consolidated Financial Statements, the Company assumed bail and immigration bond business through the second quarter of 2004 after which the program was discontinued.
Certain policies are eligible for premium adjustments based on loss experience. For certain policies, return premiums are calculated and settled on an annual basis. These balances are presented in the accompanying balance sheets as retrospective premium adjustments payable. Certain other policies are eligible for an experience rating adjustment that is calculated and adjusted from period to period and settled upon cancellation of the policy. These balances are presented in the accompanying balance sheets as experience rating adjustments payable. These adjustments are included in the calculation of net premiums earned.
The proceeds from sales of available for sale securities were $28,255,910, $38,118,613 and $24,990,022 for the years ended December 31, 2004, 2003 and 2002, respectively.
expected residual returns if they occur, or both. The Company adopted FIN 46 on July 1, 2003. Upon adoption, BIC Trust I was deconsolidated effective July 1, 2003 with prior periods reclassified in the consolidated financial statements. The deconsolidation did not have any impact on net income. In accordance with FIN 46, BIC Trust II was not consolidated upon formation in September 2003.
Deferred income taxes at December 31 reflect the impact of “temporary differences” between amounts of assets and liabilities for financial reporting purposes and such amounts as measured on an income tax basis. Temporary differences which give rise to the net deferred tax liability at December 31 are as follows:
Generally, Ohio Indemnity is restricted by the insurance laws of the State of Ohio as to amounts that can be transferred to the parent in the form of dividends, loans, or advances without the approval of the Department. Under these restrictions, during 2005, dividends, loans or advances in excess of $3,087,967 will require the approval of the Department.
Effective October 1, 2003, the Company entered into a producer-owned reinsurance arrangement with an existing lender/dealer customer whereby 100% of that customer’s premiums (along with the associated risk) was ceded to its PORC. For this reinsurance arrangement, the Company has obtained collateral in the form of a trust from the reinsurer to secure its obligations. Under the provisions of the reinsurance agreement, the collateral must be equal to or greater than 102% of the reinsured reserves and the Company has immediate access to such collateral if necessary. Under this arrangement, the Company ceded premiums earned of $894,717 and $8,124,672 during 2004 and 2003, respectively.