throughout the calendar year. The alternative risk transfer component of our business grew to 44.3% of total gross premium written during 2006 as compared to 38.4% in 2005.
2006 compared to 2005. Other operating and general expenses increased $2.2 million, or 23.2% to $11.6 million during the year ended December 31, 2006 compared to $9.4 million for the same period in 2005. These increases reflect the continuing growth in our business, stock compensation expense recognized for SFAS No. 123(R) and additional costs incurred related to being a publicly traded company.
Our insurance subsidiaries generate liquidity primarily by collecting and investing premiums in advance of paying claims. We believe that our insurance subsidiaries maintain sufficient liquidity to pay claims and operating expenses, as well as meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies. Our principal sources of liquidity are our existing cash, cash equivalents, and short-term investments. Cash, cash equivalents and short-term investments were $44.9 million at December 31, 2006, a $29.5 million increase from December 31, 2005. For 2006, 2005 and 2004, we generated consolidated cash flow from operations of $83.3 million, $76.5 million, $56.9 million and $45.4 million, respectively. The increase of $6.8 million in 2006 is attributable to an increase in net income of $5.4 million, as well as various fluctuations within the operating activities associated with our growth.
On March 29, 2005, the Securities and Exchange Commission (“SEC”) published Staff Accounting Bulletin (“SAB”) No. 107, which expressed the views of the Staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provided the Staff’s views regarding the valuation of stock-based payment arrangements for public companies. SAB 107 requires that stock-based compensation be classified in the same expense category as cash compensation. Accordingly, the Company has included stock-based compensation expense with the Other Operating and General Expenses in the consolidated statements of income.
Options to acquire the Company’s shares are granted to officers of the Company under the Long Term Incentive Plan (“LTIP”). At December 31, 2006, there were 1,058,997 of the Company’s common shares reserved for issuance upon exercise of stock options or other awards under the LTIP and options for 665,000 shares were outstanding. Treasury shares are used to fulfill the options exercised. Options typically vest pursuant to the terms of a written grant agreement and expire no later than the tenth anniversary of the date of grant. As set forth in the LTIP, the Company may accelerate vesting and exercisability of options. The Compensation Committee of the Board of Directors must approve all grants.
As a direct writer of insurance, the Company receives assessments by state funds to cover losses to policyholders of insolvent or rehabilitated companies and other authorized fees. These mandatory assessments may be partially recovered through a reduction in future premium taxes in some states. At December 31, 2006 and 2005, the liability for such assessments was $3.3 million and $2.5 million, respectively, and will be paid over several years as assessed by the various state funds.