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portfolio at December 31, 2003 and 2002, including disclosures regarding other-than-temporary declines in investment value, see the "Business-Investments" section and Note 2 to our consolidated audited financial statements, both included herein.
Translation of Foreign Currencies. Financial statements of subsidiaries expressed in foreign currencies are translated into U.S. dollars in accordance with SFAS No. 52 "Foreign Currency Translation" issued by the FASB. Under SFAS 52, functional currency assets and liabilities are translated into U.S. dollars using period end rates of exchange and the related translation adjustments are recorded as a separate component of accumulated other comprehensive income. Functional currencies are generally the currencies of the local operating environment. Statement of income amounts expressed in functional currencies are translated using average exchange rates. Gains and losses resulting from foreign currency transactions are recorded in "other income (expense)" in the Company's Consolidated Statements of Income.
Net Written Premium. Net written premium increased 15.4% from 2002 to 2003 as a result of the increase in the gross written premium and the increase in the marine pool participation from 75% in 2002 to 80% in 2003, partially offset by the increased ceded premium, as discussed above. Net written premium increased 54.2% from 2001 to 2002 due to the increase in
Net Losses and Loss Adjustment Expenses Incurred. The ratio of net loss and loss adjustment expenses incurred to net earned premium was 76.0%, 64.6% and 70.7% in 2003, 2002 and 2001, respectively. The increase in the loss ratio in 2003 compared to 2002 was primarily due to the asbestos losses recorded in the fourth quarter of 2003 accounting for 11.4 percentage points of the 2003 loss ratio and, to a lesser extent, the adverse development in the California contractors' liability portion of the Specialty business. The decrease in the loss ratio in 2002 compared to 2001 was primarily due to the losses resulting from approximately $4.1 million of net losses related to the World Trade Center attack, accounting for 2.7 percentage points of the 2001 loss ratio, and from approximately $1.9 million of net losses resulting from one large offshore energy claim (Petrobras) in the first quarter of 2001, accounting for 1.3 percentage points of the 2001 loss ratio. Gross losses resulting from the terrorist attack were $17.6 million with the ceded portion of the losses reinsured by highly rated reinsurers. We do not discount any of our loss reserves. The improvements in the premium rates have benefited the loss ratio.
Other Operating Expenses. The increases in other operating expenses in 2003 and 2002 of 28.8% and 44.4%, respectively, are consistent with revenue growth and attributable primarily to employee related expenses resulting from expansion of the business. Included in 2003 was $761,000 recorded for employee stock option expense. The Company adopted the fair value method of accounting for stock-based employee compensation as of January 1, 2003. Included in 2002 was an expense reimbursement benefit of $1,141,000 in connection with a claims settlement.
Lloyd's syndicates report the amounts of premiums, claims, and expenses recorded in an underwriting account for a particular year to the companies or individuals that participate in the syndicates. The syndicates generally keep accounts open
Navigators Pro, a division of a Navigators Agency, specializes in underwriting professional liability insurance and began producing directors and officers liability insurance exclusively for our insurance company subsidiaries in the fourth quarter of 2001. In late 2002, Navigators Pro introduced additional products to complement its directors and officers liability coverage. The products include employment practices liability, lawyers professional liability and miscellaneous professional liability coverages.
Commission income generally consists of intersegment management fees and profit commissions received from insurance premiums of the Insurance Companies for marine, specialty and professional liability business as well as business from
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