Unpaid loss and loss adjustment expense reserves represent our best estimate of the ultimate liability for losses and loss adjustment expenses that occurred prior to, but were unpaid at, the end of any given accounting period. At December 31, 2005 and 2004, we had $117.8 million and $96.6 million, respectively, of gross loss and loss adjustment expense reserves. Evaluation of these gross reserves requires the estimation of loss development over an extended period of time. Numerous factors will affect the ultimate settlement values of claims, including tort reform, expected future inflationary trends, medical costs and jury awards. These factors, coupled with the character of the business we write (much of which is small volume specialty commercial lines), continual changes in the mix of business we write, as well as ongoing rate and underwriting modifications, require that significant judgment be used in the reserve setting process. For example, our gross premiums written in commercial multi-peril increased by 16.3% in 2005; our personal automobile business is now in run-off, and we began writing homeowners in Florida in December 2004. These changes in our mix of business, among other less substantial changes, create additional uncertainty in estimating the ultimate loss costs.
When persuasive evidence exists that causes us to evaluate a decline in market value to be other than temporary, we reduce the book value of such security to its current market value, recognizing the decline as a realized loss in the income statement. All other unrealized gains or losses are reflected as a change in shareholders’ equity. Since total unrealized losses are already a component of our shareholders’ equity, any recognition of additional other-than-temporary impairment losses would have no effect on our comprehensive income or book value.
Gross premiums written in our personal lines segment for 2005 were $33.5 million as compared to $23.1 million for 2004, an increase of $10.4 million, or 45.0%. Policy count in our personal lines segment was 35,200 as of December 31, 2005 as compared to 16,700 as of December 31, 2004, an increase of 18,500 policies, or 110.8%. The increase in gross premiums written was primarily attributable to $27.8 million increase in gross premiums written in our Florida homeowners insurance line in 2005, which business we began writing in December 2004. This increase was partially offset by a $15.6 million decrease in our personal automobile line and a $1.8 million decrease in our Midwest homeowners line. We ceased writing personal automobile policies in October 2004 upon the sale of our renewal rights to that line of business. The average annual premiums per policy for the Florida homeowners insurance line is approximately 50% of the average annual premiums per policy that we obtained from our personal automobile insurance line. The decrease in our Midwest homeowners line was attributable to rate increases implemented in late 2003 and early 2004 in an effort to improve the profitability of our Midwest homeowners line, which led to a reduction in policy count of 14.7% from December 31, 2004 to December 31, 2005.
realized losses, of $886,000 for 2004, a decrease in realized gains of $1.1 million or 124.2%. The decrease in net realized gains was primarily attributable to an increase in the prevailing market interest rates, which reduced the amount of unrealized gains carried within our debt securities portfolio.
Year Ended December 31, 2003. Federal income tax expense for 2003 was $3.7 million, representing an effective tax rate of 36.2%. Our effective rate in 2003 was higher than the statutory rate of 34.0% primarily due to a provision relating to a $238,000 taxable gain on the sale of a Universal Fire & Casualty which was not recorded as a gain for book purposes.
There are no restrictions on the payment of dividends to us by our non-insurance company subsidiaries other than state corporate laws regarding solvency. As a result, our non-insurance company subsidiaries generate revenues, profits and net cash flows that are generally unrestricted as to their availability for payment of dividends. We may use these revenues to service our corporate financial obligations, such as debt service, shareholder dividends or acquisitions. Our administrative segment is comprised of the operations of our non-insurance company subsidiaries.
This transaction would have violated certain provisions of our senior credit facility, specifically the purchase of equity interests in the Trust and our guaranty of the payment of amounts owed by the Trust to holders of the Trust’s preferred interests. Accordingly, we obtained the consent and waiver from our senior lenders to acknowledge that the transactions described above would not constitute an event of default under the senior credit facility.