We maintain loss and loss adjustment expense reserves to cover our estimated liability for both reported and unreported claims. We utilize a reserving methodology that calculates a point estimate for our ultimate losses, and we then develop a range around our point estimate. The point estimate represents management’s
Management believes that the reserves for loss and loss adjustment expenses are sufficient to cover losses that fall within the terms of our policies and agreements with our insured and reinsured customers on the basis of the methodologies used to estimate those reserves. However, there can be no assurance that actual losses will not exceed our total reserves. Loss and loss adjustment expense reserve estimates and the methodology of estimating such reserves are regularly reviewed and updated as new information becomes known to us. Any resulting adjustments are reflected in income in the period in which they become known.
The recognition of reinsurance recoverable requires two key judgments. The first judgment involves our estimation of the amount of gross IBNR to be ceded to reinsurers. Ceded IBNR is generally developed as part of our loss reserving process and consequently, its estimation is subject to similar risks and uncertainties as the estimation of gross IBNR (see - Loss and Loss Adjustment Expense Reserves above). The second judgment relates to the amount of the reinsurance recoverable balance that we will ultimately be unable to recover from reinsurers due to insolvency, contractual dispute, or for other reasons. At December 31, 2005 we recorded $55.6 million in reinsurance receivable on paid claims and $305.7 million in reinsurance recoverable on unpaid claims. Based on a review of the financial condition of the reinsurers and other factors we have determined that a reserve for uncollectible reinsurance recoverable on paid and unpaid loss and loss adjustment expenses is not considered necessary as at December 31, 2005.
We believe that the retrocessional market is currently ahead of the direct insurance and catastrophe excess of loss markets in implementing rate increases. These prices increased dramatically since the hurricanes occurred during the fall of 2005. In addition, we believe the Industry Loss Warranty and Catastrophe Bond markets have become much more influential in the provision of protection to reinsurers and they now also command the dominant share of available capacity. We anticipate that these markets will continue to see strengthening in pricing as the year goes on.
The Other Specialty loss ratio for the year ended December 31, 2005 was negatively impacted by Katrina and Rita losses to our Marine book of business. Marine losses from the two hurricanes contributed 68 points to the net loss ratio for the year for the Other Specialty category. In addition to the hurricane losses impacting the Marine book in the last two years, there is also a higher percentage of casualty business in the Other Specialty group in 2005 and 2004 compared with 2003. These classes have been reserved at higher loss ratios due to the longer tail nature of the casualty business.
Because we provide short-tail insurance and reinsurance coverage for losses resulting mainly from natural and man-made catastrophes, we could become liable to pay substantial claims on short notice. Accordingly, we have structured our investment portfolio to preserve capital and provide us with a high level of liquidity, which means that the large majority of our investment portfolio contains shorter term fixed maturity investments, such as U.S. government securities, U.S. government-sponsored enterprises securities, corporate debt securities and mortgage-backed and asset-backed securities.
short term fixed maturity investments, such as U.S. government securities, U.S. government-sponsored enterprises securities, corporate debt securities and mortgage-backed and asset-backed securities. Approximately $265.0 million of cash and cash equivalents relates to Blue Ocean which was capitalized in late December 2005 and had not invested most of its start-up capital by December 31, 2005.
All of the fixed maturity investments we currently hold were publicly traded at December 31, 2005. Based on the weighted average monthly investments held, and including net unrealized gains (losses), foreign exchange gains (losses) on investments and the foreign exchange effect of insurance balances, our total return for year ended December 31, 2005 was 2.1%. The average duration of our fixed maturity portfolio was 1.9 years and the average rating of the portfolio was AA at December 31, 2005. If the right conditions arise in 2006, we may deploy further capital in strategic investments or investment classes other than existing classes.
On June 1, 2005, Montpelier Re invested $10.0 million in Rockridge as part of a total $90.9 million in common equity raised by Rockridge in conjunction with its formation. In return for Montpelier Re’s investment, Montpelier Re received 100,000 common shares, representing approximately an 11.0% ownership in Rockridge’s outstanding common shares. Rockridge, a Cayman formed reinsurance company, was established to invest its assets in a fixed income arbitrage strategy and to assume high-layer, short-tail risks principally from Montpelier Re. Rockridge is an unquoted investment and is carried at $10.0 million at December 31, 2005 using the equity method of accounting. We are actively pursuing non-traditional approaches to partner with capital providers to enable them to assume insurance risk.