(1) Operating results include the operating results of Professionals Group since the date of consolidation, June 27, 2001. See Note 2 to the Consolidated Financial Statements.
(2) The Board of Directors declared a special stock dividend in December 1999 (5%). All net income per share and total capital per share data on this page have been restated as if the dividends had been declared on January 1, 1999. Additionally, treasury stock is excluded from the date of acquisition for purposes of determining the weighted average number of shares outstanding used in the computation of net income per share of common stock.
(3) Net income for the year ended December 31, 2002 was increased by $1.7 million due to the adoption of SFAS 141 and 142. See Note 14 to our consolidated financial statements. In accordance with SFAS 142, we wrote off the unamortized balance of deferred credits that related to business combinations completed prior to July 1, 2001. The cumulative effect increased net income per share (basic and diluted) by $0.07 per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements appearing elsewhere in this report. Throughout the discussion, references to ProAssurance, "we," "us" and "our" refers to ProAssurance Corporation and its subsidiaries. The discussion contains certain forward-looking information that involves risks and uncertainties. As discussed under "Forward-Looking Statements," our actual financial condition and operating results could differ significantly from these forward-looking statements.
- changes in the estimate, or the selection of a different estimate, could have a material effect on our consolidated results of operations or financial condition.
We believe the following policies used in the preparation of the consolidated financial statements are the most sensitive to estimates and judgments.
We consider our fixed maturity securities as available-for-sale and our equity securities as either available-for-sale or trading portfolio securities.
Our available-for-sale securities are available to be sold in response to a number of issues, including our liquidity needs, changes in market interest rates and investment management strategies, among others. Available-for-sale securities are recorded at fair value. The related unrealized gains and losses, net of income tax effects, are excluded from net income and reported as a component of stockholders' equity.
Our operating activities provided positive cash flow of $283 million during 2003. Our operating cash flows are primarily derived from net investment income received and from the excess of premiums collected over paid net losses and operating costs. Timing delays exist between the collection of premiums and the payment of losses, particularly so with regard to our professional liability premiums. In periods of premium growth such as in 2003, premium collections generally exceed losses paid in the calendar year.
We transfer most of the cash generated from operations into our investment portfolio, primarily into investment grade fixed maturity securities. Our investments, cash and cash equivalents at December 31, 2003 total $2.103 billion, an increase of $280 million as compared to December 31, 2002. At December 31, 2003, our investment portfolio includes net before-tax unrealized gains of $53.0 million. Our fixed maturity portfolio has a market value of $1.791 billion, including net before-tax unrealized gains of $48.8 million.