One of the most significant estimates made by management in the preparation of our financial statements is the estimation of unpaid losses and LAE, also referred to as “loss reserves.” Unpaid losses and LAE include estimates of the cost of claims that were reported but not yet paid, generally referred to as case reserves, and IBNR. These liabilities are estimates of future amounts required to pay losses and LAE for reinsured claims for which we are liable and that have occurred at or before the balance sheet date. Every quarter, our actuaries prepare estimates of the loss reserves based on established actuarial techniques. Because the ultimate amount of unpaid losses and LAE is uncertain, we believe that the quantitative techniques used to estimate these amounts are enhanced by management’s professional judgment. We review these estimates and determine our best estimate of the liabilities to record in our consolidated financial statements. From time to time we may obtain third party actuarial reviews of a portion or all of our unpaid losses and LAE to assist in the reserve valuation process.
The increase in net premiums written and earned was due to growth primarily in the casualty excess class as well as expanded participation in proportional general liability, surety and trade credit business. Also, net premiums written and earned in 2005 as compared with 2004 were affected by revisions of prior years’ estimates resulting in increases in net premiums written and earned in 2005 of approximately $55,500,000 and $37,600,000, respectively. This increase was due to growth in the casualty business and increased ultimate premiums from prior underwriting years’ excess-of-loss classes due to greater than expected premiums being reported from ceding companies. This compares with revisions of prior years’ estimates resulting in reductions of net premiums written and earned in 2004 of approximately $21,300,000 and $14,300,000, respectively. These adjustments were based on reported premiums from ceding companies and revised projections of ultimate premiums written under reinsurance contracts. The net effect of changes in premium estimates, net of corresponding changes in related losses, LAE and expenses, did not have a significant net effect on underwriting income. The increase in net premiums earned was related to the growth in current and prior years’ written premiums and was affected by changes in the mix of business and the structure of the underlying reinsurance contracts.
Net losses and LAE and the resulting loss ratios for the years ended December 31, 2005 and 2004 were as follows ($ in thousands):
file one or more supplements to the prospectus forming a part of such registration statement, which will provide details of any proposed offering. In December 2005, Platinum Holdings issued $132,909,000 of common shares and $173,363,000 of mandatory convertible preferred shares under the unallocated shelf registration statement. On December 1, 2005, certain reform measures simplifying the process for conducting registered securities offerings under the Securities Act came into effect. The new rules provide that shelf registration statements of certain well-known seasoned issuers, such as Platinum Holdings, are eligible for effectiveness automatically upon filing. Should Platinum Holdings seek to issue securities in the future, it may make use of such new rules.
Investments with a carrying value of $190,045,000 and cash and cash equivalents of $4,594,000 as of December 31, 2006 were held in trust to collateralize obligations under the Quota Share Retrocession Agreements. Investments with a carrying value of $241,533,000 and cash and cash equivalents of $11,637,000 as of December 31, 2006 were held in trust and letters of credit of $80,769,000 were issued to collateralize obligations under various other reinsurance contracts. Investments with a carrying value of $53,364,000 and cash and cash equivalents of $36,333,000 as of December 31, 2006 were held in trust to collateralize letters of credit.
We do not have any off-balance sheet arrangements, as defined for purposes of SEC rules, which are not accounted for or disclosed in the consolidated financial statements as of December 31, 2006.
For the Property and Marine segment, underlying primary rates and reinsurance rates increased considerably in 2006, particularly for risks exposed to Atlantic hurricanes. During the January 1 Renewal Season we achieved average rate increases of over 20% on our U.S. property catastrophe excess renewal business while rates on our non-U.S. property catastrophe excess renewal business were down slightly.