The principal offices of Platinum UK are located at Fitzwilliam House, 10 St. Mary Axe, London, where Platinum UK leases approximately 7,265 square feet of office space. The term of this lease ended on February 15, 2006. Platinum UK is in the process of negotiating an extension of this lease until February 15, 2007.
The Company does not establish liabilities until the occurrence of an event that may give rise to a loss. When an event of sufficient magnitude occurs, the Company may establish a specific IBNR reserve. Generally, this is done following a catastrophe that affects many ceding companies. Ultimate losses and LAE are based on management’s judgment and reflect estimates gathered from ceding companies, estimates of insurance industry losses gathered from public sources and estimates derived from catastrophe modeling software.
Generally, North American casualty excess business has the longest pattern of reported losses and, therefore, loss estimates have a higher degree of uncertainty than other reinsurance classes. IBNR for these classes at December 31, 2005 was $719 million which was 40% of the total IBNR at that date. Because estimates of unpaid losses and LAE related to North American casualty excess business have a higher degree of uncertainty, we would not consider a variance of five percentage points from the initial expected loss ratio to be unusual. As an example, a change in the initial expected loss ratio from 65% to 70% would result in an increase of the IBNR for these classes by $60 million. This equates to approximately 7% of the liability for total unpaid losses and LAE for these classes at December 31, 2005. As another example, if the estimated pattern of reported losses was accelerated by 5% the IBNR for these classes would decrease by $5 million which is less than 1%. We have selected these two inputs as examples of sensitivity analyses because we believe that the two most important inputs to the reserve estimation methodologies described above are the initial expected loss ratio and the estimated pattern of reported losses.
rate fluctuations by holding invested assets denominated in the foreign currencies in which the related net insurance liabilities are denominated. We periodically review our largest foreign currency exposures and purchases or sells foreign currency denominated invested assets to match these exposures.
Interest expense for the years ended December 31, 2004 and 2003 was $9,268,000 and $9,492,000, respectively, and relates to the Company’s ESU’s, which were classified as debt obligations on our balance sheet.
Other underwriting expenses for the years ended December 31, 2004 and 2003 were $27,827,000 and $35,598,000, respectively. The decrease in other underwriting expenses is due to cost reductions in the Property and Marine segment in 2004, the reduction of incentive based compensation in 2004, as well as various non-recurring start-up costs incurred in 2003. Other underwriting expenses for the years ended December 31, 2004 and 2003 include fees of $6,396,000 and $5,350,000, respectively, relating to the RenRe Agreement.
The increase in net premiums written and earned is 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
Commissions payable as of December 31, 2005 of $186,654,000 include $167,949,000 that is based upon estimates. Commissions payable as of December 31, 2004 of $181,925,000 include $165,050,000 that is based upon estimates.
Authority resulted in significantly diminished demand for limited risk transfer products in 2005. We believe we can deploy our human and financial capital more profitably in other lines of business. As a result, we are devoting fewer underwriting and pricing resources to this segment than in prior years and wrote a relatively small amount of finite business during the January 1 renewal season relative to the comparable period last year. Although we expect the relatively low level of demand will continue during 2006, there are signs that buyers are, once again, considering finite reinsurance as a solution to their risk management needs.