This discussion should be read with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included elsewhere in this report. Certain reclassifications have been made to prior-year financial information for consistency with the current-year presentation.
In conjunction with our goal to achieve greater efficiency, we revised our real estate strategy. This strategy involves a migration to leased office space from owned facilities. In 2006, we ceased the previously planned expansion of our headquarters in the University District of Seattle, Washington. We completed the sale of our Redmond, Washington office campus, completed the sale of our headquarters in the University District of Seattle, Washington and entered into leases for our corporate headquarters and Northwest regional office in downtown Seattle, Washington. We believe that this strategy, which will reduce our overall cost of ownership and occupancy, will provide us with greater flexibility in the use of our capital and allow us to be more agile in adopting business process and technology changes prospectively.
In addition, we track our operating performance with various productivity and efficiency measures; we report periodically on a subset of productivity measures, such as policies-in-force per full-time equivalent employee (PIF per FTE).
Investment activities are an important part of our business. We don’t include our investment portfolio results when measuring the profitability of our individual segments because we manage them separately. We invest the insurance premiums we receive in a diversified portfolio until needed to pay claims. Our first priority is to meet our promise to our policyholders that we will maintain resources to pay their claims. We invest in a diversified portfolio of primarily high-grade fixed maturities. This strategy is designed to provide protection for our policyholders and a steady income for our shareholders.
$47.0 increase in workers compensation reserves to reflect increased provisions for long-term medical claim inflation and associated claims adjustment expenses
$35.8 increase in our asbestos and environmental reserves to reflect increases in defense and containment costs
Section D shows the cumulative redundancy or deficiency developed through the years. A redundancy occurs when our reserves exceed our actual loss experience, and a deficiency occurs when our reserves are less than our actual experience. For example:
Our intent and ability to keep the security long enough for it to recover its value
Restructuring and asset impairment charges - During 2006, we began implementation of an organizational design initiative to make us a more nimble and efficient competitor and continued our real estate consolidation strategy. Our pretax restructuring and asset impairment charges were $25.7 in 2006 compared with $2.7 in 2005 and $5.4 in 2004.
Provision for income taxes - Our effective tax rate was 29.0% in 2006, 29.9% in 2005 and 30.5% in 2004. The decrease in our effective tax rate in 2006 reflected increased investments in tax-exempt fixed maturities, the tax-exempt contribution to the Foundation and interest received on a tax refund. Included in our 2005 results was a $10.6 tax benefit stemming primarily from the favorable resolution of state tax-related issues.
$2.3 in 2005 and $9.6 in 2004. These changes in prior-year reserve development decreased our combined ratio by 9.5 points in 2006 compared with 2005, and increased our combined ratio by 8.3 points in 2005 compared with 2004.
Our underwriting profit in SBI Regular increased $17.5, and our combined ratio decreased 1.6 points in 2006 compared with 2005. Our underwriting profit increased $70.4, and our combined ratio decreased 5.4 points in 2005 compared with 2004. Our underwriting results and combined ratio primarily reflected:
For earthquake events, we had an additional level of coverage. Our reinsurers reimbursed us for 90% of $500.0 in excess of the first $500.0 of the loss. The entire amount of any earthquake loss above $1,000.0 was ours.
Our reinsurers reimburse us 80% of the next $80.0 of the loss under each of the three layers of coverage.
This table shows by maturity, the total amount of gross unrealized losses on fixed maturities and marketable equity securities at December 31, 2006:
Our investment portfolio also included $144.2 of non-publicly traded fixed maturities and marketable equity securities - representing 1.4% of our total portfolio at year-end 2006, and $87.4 of not-rated fixed maturities - securities not rated by a national rating service - representing 0.8% of our total portfolio at year-end 2006. At year-end 2005, our portfolio included $129.3 of non-publicly traded fixed maturities and marketable equity securities - representing 1.2% of our total portfolio and $85.3 of not-rated fixed maturities- representing 0.8% of our total portfolio.
On November 7, 2006, we repurchased 10.2 million shares, or 8.8%, of our then outstanding common stock through an accelerated share repurchase (ASR) program. The shares were purchased from a dealer at $58.75 per share, for a total cost of $603.1. At the end of the ASR program, we may receive or be required to pay a price adjustment to the dealer based on the volume weighted average price of our common stock during the period of the ASR purchases. We have elected for this price adjustment to be settled in shares. If settled at December 31, 2006, the price adjustment would have been $34.1 or 545,819 shares. We anticipate the ASR program will be completed by the end of April 2007.