The discontinued line of business and hurricane losses were substantially reinsured; therefore, the net losses are substantially less than the gross losses in each year. Our net adverse development (redundancy) relating to prior year losses was $(6.5) million in 2006, $25.4 million in 2005 and $30.5 million in 2004, including $20.2 million in 2006 and $26.0 million in 2005 due to commutations that affected our discontinued line of business. The commutation losses primarily represent the discount for the time value of money on the reinsurance recoverables commuted. We reduced our net loss reserves on prior year hurricanes by $17.7 million in 2006 and $7.2 million in 2005 to reflect current estimates of our remaining liabilities. As a result of adverse development of certain run-off assumed accident and health reinsurance business in our discontinued lines of business, we strengthened our reserves for this line in all years to bring them above our actuarial point estimate. See our discussion of factors that caused the adverse development in the section covering gross losses above. The other reserve redundancies in 2006 resulted primarily from our year-end review of reserves and relate primarily to loss reserves of various lines of business for various accident years where the anticipated development was considered to be less than the recorded reserves. In some cases, the prior year redundancies were utilized to augment the 2006 accident year reserves for the same line of business. Deficiencies and redundancies in reserves occur as a result of our continuing review and as losses are finally settled or claims exposures change. We have no material exposure to environmental or asbestos losses and believe we have provided for all material net incurred losses.
Policy acquisition costs, which are net of the related portion of commissions on reinsurance ceded, increased to $319.9 million in 2006 from $261.7 million in 2005 and $222.3 million in 2004. Policy acquisition costs as a percentage of net earned premium decreased to 18.7% in 2006 from 19.1% in 2005 and 22% in 2004. The decrease in the acquisition cost percentage from 2005 to 2006 is due to a change in the mix of business. The decrease from 2004 to 2005 is due to a change in the mix of business, reductions in commission rates on certain lines of business and our increased retentions which increased our net earned premium at a higher rate than our non-commission acquisition costs.
This table summarizes, by rating, the market value of our investments in fixed income securities at December 31, 2006.
As a result of the investigation, we had to record non-cash compensation expense in each year from 1997 through 2006. To correct these accounting errors, we restated our consolidated financial statements for the applicable periods and filed our Annual Report on Form 10-K/A for 2005 and our Quarterly Report on Form 10-Q/A for the first quarter of 2006 on December 27, 2006. The investigation and restatements have exposed us to greater risks associated with litigation. Publicity resulting from these actions may materially adversely affect us, regardless of the cause or effect of the actions. Since December 31, 2006, two derivative actions have been filed naming a number of current and former officers and Directors. The Company is a nominal defendant. We cannot assure you about the outcome of these two derivative lawsuits or any future litigation. The conduct and resolution of litigation could be time consuming, expensive, cause us to have to advance expenses in certain instances to current and former officers and Directors, and may distract management from the conduct of our business. In addition, damages and other remedies awarded in any such litigation could harm our business and financial condition.