For the years ended December 31, 2002, 2001 and 2000, our rental expense (income) was approximately $3.2 million, ($132,000) and $190,000, respectively. Our future minimum rental charges for the remaining terms of our existing leases, exclusive of escalation clauses and maintenance costs and net of rental income, will be approximately $46.9 million. We believe that the above described office space is adequate for our needs. However, as we continue to develop our business, we may open additional office locations during 2003.
We are a Bermuda public limited liability company with over $1.4 billion in equity capital and, through operations in Bermuda and the United States, we write insurance and reinsurance on a worldwide basis. While we are positioned to provide a full range of property and casualty insurance and reinsurance lines, we are focusing on writing specialty lines of insurance and reinsurance.
We commenced operations in September 1995 following the completion of the initial public offering of our predecessor, Arch Capital Group (U.S.) Inc. ("Arch-U.S."). Arch-U.S. is a Delaware company formed in March 1995 under the original name of "Risk Capital Holdings, Inc." From that time until May 2000, we provided reinsurance and other forms of capital to insurance companies. On May 5, 2000, we sold our prior reinsurance book of business to Folksamerica Reinsurance Company in an asset sale, but retained our surplus and our U.S.-licensed reinsurance platform. On November 8, 2000, following shareholder approval, we changed our legal domicile to Bermuda in order to benefit from Bermuda's favorable business, regulatory, tax and financing environment.
We derive our revenues primarily from our issuance of insurance policies and reinsurance contracts. Insurance and reinsurance premiums are driven by the volume and classes of business of the policies and contracts that we write and prevailing market prices. The premium we charge for the risks assumed is priced based on many assumptions. We price these risks well before our ultimate costs are known, which may extend many years into the future. In addition, our revenues include fee income and income we generate from our investment portfolio. Our investment portfolio is comprised primarily of fixed income investments that are held as available for sale. Under our basis of accounting, which is GAAP, these investments are carried at fair market value and unrealized gains and losses on the investments are not included in our statement of operations. Rather, these unrealized gains and losses are included on our balance sheet in accumulated other comprehensive gain or loss as a separate component of shareholders' equity.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities-an interpretation of ARB No. 51," ("FIN 46") which requires the consolidation of certain entities considered to be variable interest entities ("VIEs"). An entity is considered to be a VIE when it has equity investors which lack the characteristics of a controlling financial interest or its capital is insufficient to permit it to finance its activities without additional subordinated financial support. Consolidation of a VIE by an investor is required when it is determined that the investor will absorb a majority of the VIE's expected losses or residual returns if they occur. FIN 46 provides certain exceptions to these rules, including qualifying special purpose entities subject to the requirements of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." VIEs created after January 31, 2003 must be consolidated immediately, while VIEs that existed prior to February 1, 2003 must be consolidated as of July 1, 2003. Certain ceding companies may meet the definition of a VIE due to the protection provided to the ceding company's equity investors from the absorption of expected losses. We are currently evaluating this standard.
In the normal course of business, we purchase reinsurance to increase capacity and to limit the impact of individual losses and events on our underwriting results by reinsuring certain levels of risk with other insurance enterprises or reinsurers. During 2002, we ceded approximately 15% of our gross premiums written, substantially all of which relates to our insurance operations.
For information regarding net premiums written produced by geographic location for the reinsurance segment for 2002, refer to note 3, "Segment Information," of the notes accompanying our consolidated financial statements.
The following table sets forth our insurance segment's underwriting results for the year ended December 31, 2002:
In building our insurance segment's infrastructure, we capitalized certain software development costs. At December 31, 2002, approximately $8.6 million of such costs were capitalized and will be amortized over the software's useful life.
The following table reconciles the estimated fair value and carrying value of our fixed maturity securities and equity securities to amortized cost at December 31, 2002:
The following table presents the Standard & Poor's credit quality distribution of our fixed maturity securities at December 31, 2002:
As part of our investment strategy, we seek to establish a level of cash and highly liquid short-term and intermediate-term securities which, combined with expected cash flow, is believed by us to be adequate to meet our foreseeable payment obligations. Our investment portfolio is currently managed on a total return basis. The total return approach may result in realized gains or losses in any given period as the portfolio is adjusted to reflect perceived changes in relative value.