For the twelve months ended December 31, 2005, losses and loss adjustment expenses for insured events of the current year were $35,338,196, offset by $3,824,464 favorable development for events of prior years. For the twelve months ended December 31, 2004, losses and loss adjustment expenses for insured events of the current year were $35,286,172, offset by $835,434 favorable development for events of prior years. The favorable developments resulted from settling or re-estimating claims for lesser amounts than they were initially reserved.
Unifax primarily sells and services insurance policies for Crusader. The commissions paid by Crusader to Unifax are eliminated as intercompany transactions and are not reflected as income in the financial statements. As a result of the decrease in the number of policies sold by Unifax during 2005 as compared to 2004, policy fee income for the 12 months ended December 31, 2005, decreased 12% as compared to the prior year period.
The Company's investment guidelines on equity securities limit investments in equity securities to an aggregate maximum of $2,000,000. The Company's investment guidelines on fixed maturities limit those investments to high-grade obligations with a maximum term of eight years. The maximum investment authorized in any one issuer is $2,000,000 and the maximum in any one U.S. government agency or U.S. government sponsored enterprise is $3,000,000. This dollar limitation excludes bond premiums paid in excess of par value and U.S. government or U.S. government guaranteed issues. Investments in municipal securities are primarily pre-refunded and secured by U.S. treasury securities. The short-term investments are either U.S. government obligations, FDIC insured, or are in an institution with a Moody's rating of P2 and/or a Standard & Poor's rating of A1. As of December 31, 2005, all of the Company's fixed maturity investments were investment grade and readily marketable and could be liquidated without any materially adverse financial impact.
No dividends were declared or paid by Crusader to Unico in 2005, 2004 or 2003. Based on Crusader's statutory surplus as regards policyholders as of December 31, 2005, the maximum dividend that can be made by Crusader to Unico without prior regulatory approval in 2006 is $3,658,644.
As a California insurance company, Crusader is obligated to pay a premium tax on gross premiums written in all states that Crusader is admitted. Premium taxes are deferred and amortized as the related premiums are earned. The premium tax is in lieu of state franchise taxes and is not included in the provision for state taxes.
Earned ceded premium for the 12 months ended December 31, 2005, decreased $3,594,396 (20%) to $14,234,844 compared to $17,784,240 for the 12 months ended December 31, 2004. Earned ceded premiums as a percentage of direct earned premiums were 22% and 26% for 2005 and 2004, respectively. Although direct earned premiums in 2005 decreased 5% as compared to 2004, earned ceded premiums decreased 20% primarily as a result of a rate decrease by the Company's reinsurers effective January 1, 2005. Earned ceded premiums for the 12 months ended December 31, 2004, increased $1,136,220 (7%) to $17,784,240 compared to $16,648,020 for the 12 months ended December 31, 2003. Earned ceded premiums as a percentage of direct earned premiums were 26% and 31% for 2004 and 2003, respectively. The 2005 and 2004 earned ceded premium to direct earned premium ratio decreased primarily as a result of rate decrease by the Company's reinsurers. The rates decreased primarily due to the Company's improving ceded loss experience.
Policy fee income for the year ended December 31, 2004, decreased $63,776 (2%) as compared to the year ended December 31, 2003. The slight decrease in policy fee income is a result of a 540 (3%) decrease in the number of policies issued during 2004 as compared to 2003.
Premium Finance Program ----------------------- Premium finance charges and late fees earned from financing policies are as follows:
Investment Income and Net Realized Gains - ---------------------------------------- Investment income and net realized gains are as follows:
In the year ended December 31, 2003, the Company recognized an income tax expense of $287,000 resulting from an assessment for the years 1999 and 2000 from the California Franchise Tax Board. The assessment resulted from a court ruling in Ceridian vs. Franchise Tax Board that held that the California statute permitting the tax deductibility of dividends received from a wholly owned insurance subsidiary was unconstitutional because it discriminated against out-of-state holding companies and thus was in violation of the interstate commerce clause of the United States Constitution. The ruling concluded that the discriminatory sections of the statute are not severable and the entire statute was invalid and unenforceable. California law provides that the proper remedy in such circumstances is to disallow the deduction to those taxpayers that benefited from the deduction. As a result of the court ruling, in February 2003, the Franchise Tax Board (FTB) notified the Company that it would issue a Notice of Proposed Assessment (NPA) for tax years 1999 and 2000 of approximately $287,000 representing California state franchise taxes plus related interest of approximately $80,000. In September 2004, California enacted legislation (AB 263) that addresses many aspects of the tax treatment of insurance company owners, including holding companies such as Unico. The legislation provides for an election, applicable if made to all tax years ending after December 1, 1997, and before January 1, 2005, under which a dividend-received deduction of up to 80% of dividends paid by an insurer to a non-insurer parent is allowed. The Company made the election authorized by AB 263 and, therefore, has reversed 80% of the $287,000 income tax expense and 80% of the interest accrued thereon. In addition, as a result of AB 263, the Company is obligated to establish a state deferred tax liability which represents the Company's future state tax liability for all undistributed earnings of Crusader since January 1, 1993, in accordance with FASB 109.
Year ended December 31, 2005 $6,817,451 Year ended December 31, 2004 $3,343,859 Year ended December 31, 2003 $(3,106,103)