The Group’s actuarially determined loss and loss adjustment expense reserves on a net basis range from a low of $106.3 million to a high of $138.5 million. The Group’s carried is $132.9 million. Management’s point estimate of reserves is at the higher end of its actuarially determined range in recognition of the inherent challenge in assessing the potential ultimate liabilities given legal developments as well as the evolution in its operations. The evolution in its operations include such things as changes in coverage and pricing in response to market opportunity as well as higher reinsurance retentions and geographic and product diversification all of which affect management’s reserve estimates.
Investment income on fixed income securities was up $1.9 million, or 58.2%. The increase included $1.8 million, or 54.0 percentage points of the increase, as a result of the inclusion of the investment income of Financial Pacific since acquisition. A much larger proportion, as compared to the Group’s business before the acquisition, of Financial Pacific’s premiums written relate to casualty, or longer-tail, business. By its nature, longer-tail business requires more time for losses to manifest themselves, with the result that claims tend to be paid later on casualty claims than on other types of claims. The later payment of claims associated with casualty reserves provides a company with the opportunity to use the funds which will ultimately be paid out as claims for a longer period of time, thus generating a larger relative portfolio of fixed income securities and higher investment income. Accordingly, the inclusion of Financial Pacific’s investment income on fixed income securities had a significant impact on the Group’s gross investment income in 2005, and since October 1, 2005, when Financial Pacific was acquired. It is expected that a similar impact on gross investment income will be present in quarter-on-quarter comparisons until Financial Pacific has been included in the Group’s operations for four quarters.
We had a strong performance in our commercial lines underwriting results, and a modest improvement in our personal lines underwriting results in 2004. Our GAAP combined ratio improved to 98.8% in 2004 from 103.8%, and our statutory combined ratio improved in 2004 to 95.4% from 102.2%. Our net investment income increased 66.4% to $2.8 million, primarily as a result of the increased investment portfolio resulting from the receipt of $53 million in Conversion proceeds on December 16, 2003. Realized investment gains, primarily from the sale of equity securities in both 2004 and 2003, added to the Company’s income as the equities portfolio value continued to grow in 2004. Our other income, primarily service charges recorded on insurance premiums paid over the term of the policy instead of when the policy is issued, declined modestly in 2004. In 2004 there was no minority interest in the income of our subsidiary, as there was in 2003, because all of the minority interest was acquired immediately after the Conversion in the acquisition of the remaining 51% of Franklin Holding Company. Also impacting the Company’s income in 2004 was the cost of being a public company, which adversely impacted both net income and the GAAP underwriting expense ratio, and, to a lesser extent, the statutory underwriting expense ratio.
Total assets increased 146.0%, or $265.1 million, to $446.7 million, at December 31, 2005, from December 31, 2004. Financial Pacific, which the Group acquired on October 1, 2005, added $266.3 million to total assets at December 31, 2005. The Financial Pacific assets included in total Group assets as of December 31, 2005, consisted primarily of $157.2 million in fixed income securities, $12.5 million in cash and cash equivalents, $75.5 million in reinsurance receivables, $27.6 million in premium receivables, $20.2 million in prepaid reinsurance premiums, and $14.4 million in other assets. Excluding the balances of Financial Pacific from comparison with the prior year, the Group’s total assets decreased $0.9 million, or less than one percent.
There are two equity securities that are in an unrealized loss position at December 31, 2005. Both of these securities have been in an unrealized loss position for less than six months. The Group believes these declines are temporary.