We lease approximately 271,000 square feet, under a non-cancelable lease expiring in 2016, in an office building in Houston, Texas, which is used for our corporate offices and for offices of several of our subsidiaries. In addition, we lease offices at approximately 800 additional locations that are used for branch offices, regional headquarters and technology centers. These additional locations include significant leased facilities in Dallas, Los Angeles, New York City, San Jose, Seattle and Toronto.
We also own seven office buildings located in Texas, Arizona, Colorado and New York. These owned properties are not material to our financial condition. We consider all buildings and equipment that we own or lease to be well maintained, adequately insured and generally sufficient for our purposes.
Our increase in revenues for the year 2006 compared with the year 2005 was primarily due to acquisitions, revenues from new agencies, continued growth in revenues from commercial transactions and an increase in international operations. The increase in revenues was substantially offset by a decline in transaction volume handled by our direct operations in certain major markets of the country. The decline was due to a softening real estate market resulting primarily from a higher interest rate environment.
We continue to incur significant other operating expenses and employee costs related to our technology advancements and compliance with both privacy laws and Sarbanes-Oxley. Although our employee costs increased in 2006 compared with 2005 primarily due to acquisitions and costs associated with developing technology initiatives, we reduced employee costs in markets where direct operations experienced revenue declines. In response to overall decreases in transaction volumes, our workforce in our title offices was reduced by approximately 920 employees, or 11.6%, during 2006. Giving effect to the increase in staff primarily for advancing technology, we reduced our total workforce by approximately 720 employees, or 7.1%. Right-sizing extended into January 2007 with the reduction of an additional 180 employees. These amounts exclude increases from new offices.
Based on our evaluation of goodwill as of June 30, which is completed annually in the third quarter, and events that may indicate impairment of the value of title plants and other long-lived assets, we estimate and expense to current operations any loss in value. The process of determining impairment relies on projections of future cash flows, operating results and market conditions. Uncertainties exist in these projections and bear the risk of change related to factors such as interest rates and overall real estate markets. Actual market conditions and operating results may vary materially from our projections. There were no impairment write-offs of goodwill during the three years ended December 31, 2006. We use independent appraisers to assist us in determining the fair value of our reporting units and assessing whether an impairment of goodwill exists.
Our accruals for unreported policies from agencies were not material to our total assets or stockholders’ equity for any of the three years ended December 31, 2006. The differences between the amounts our agencies have subsequently reported to us compared to our estimated accruals are substantially offset by any differences arising from the prior year’s accrual and have been immaterial to stockholders’ equity during each of the three prior years. We believe our process provides the most reliable estimation of the unreported revenues on policies and appropriately reflects the trends in agency policy activity.
Our primary business is title insurance and settlement-related services. We close transactions and issue title policies on homes, commercial properties and other real properties located in all 50 states, the District of Columbia and international markets through more than 9,500 policy-issuing offices and agencies. We also provide post-closing lender services, automated county clerk land records, property ownership mapping, geographic information systems, property information reports, flood certificates, document preparation, background checks and expertise in Section 1031 tax-deferred exchanges. Our current level of international operations is immaterial with respect to our consolidated financial results.
To the extent inflation causes increases in the prices of homes and other real estate, premium revenues are also increased. Premiums are determined in part by the insured values of the transactions we handle. These factors may override the seasonal nature of the title insurance business. Generally, our first quarter is the least active and our fourth quarter is the most active in terms of title insurance revenues.
Most industry experts project mortgage interest rates to remain stable in 2007 or to decline slightly. Due to the large number of refinancing transactions completed in 2004 and 2005 and rising interest rates in 2006, significantly fewer refinancing transactions occurred in 2006. Refinancing transactions are expected to remain relatively unchanged in 2007 compared with 2006 as interest rates stabilize.
Regulatory developments. In September 2006, the California Commissioner of Insurance alleged that some of our captive reinsurance programs may have constituted improper payments for the placement or referral of title business and is seeking approximately $47 million in fines and penalties from us. Stewart believes that its reinsurance is traditional reinsurance applied to residential business, which was authorized by the Department of Housing and Urban Development in its August 1997 and 2004 letters on permissible captive reinsurance in residential transactions covered by the Real Estate Settlement and Procedures Act (RESPA). We have filed a notice of defense with the California Department of Insurance requesting an administrative hearing in response to its allegations. We believe that we have adequately reserved for this allegation and that the likely resolution will not materially affect our consolidated financial condition or results of operations.
A comparison of our results of operations for 2006 with 2005 and 2005 with 2004 follows. Factors contributing to fluctuations in results of operations are presented in their order of monetary significance. We have quantified, when necessary, significant changes.
The number of direct closings we handled decreased 17.3% in 2006 and increased 5.5% in 2005. However, the average revenue per closing increased 17.0% in 2006 and 11.3% in 2005 primarily due to a lower ratio of refinancing transactions closed by our direct operations compared with the prior year. Title insurance premiums on refinancing transactions are typically less than on property sales. The increase in 2006 in average revenue per closing was also due to a higher complement of commercial transactions.
The Texas Department of Insurance reduced title insurance premium rates by 6.5% effective July 1, 2004. As a consequence, our revenues and net earnings were reduced by approximately $19.0 million and $5.6 million, respectively, in 2006, $17.6 million and $5.2 million, respectively, in 2005 and $8.8 million and $2.6 million, respectively, in 2004. In late 2006, the Texas Department of Insurance reduced premium rates by 3.2% effective February 1, 2007. The effect of this rate change is not expected to have a material impact on our consolidated financial condition or results of operations.
In January 2007, we sold our aerial photography and mapping businesses, GlobeXplorer® and AirPhotoUSA®, to DigitalGlobe® and entered into agreements with these companies to continue to provide spatial and digital imagery through, www.PropertyInfo.com. The impact of the sale transaction and these businesses was not material to our consolidated financial condition, results of operations or cash flows.
Investments. Investment income increased $5.8 million, or 19.9%, in 2006 primarily due to higher yields. Investment income increased $6.6 million, or 29.4%, in 2005 due to increases in average balances invested and higher yields. Certain investment gains and losses in 2006, 2005 and 2004 were realized as part of the ongoing management of the investment portfolio for the purpose of improving performance. In 2005, investment and other gains also included a pretax gain of $1.9 million realized from the sale of our ownership interest in an equity investee.
Employee costs. Employee costs for the combined business segments increased $33.9 million, or 4.9%, in 2006 and $103.5 million, or 17.5%, in 2005. The number of persons we employed at December 31, 2006, 2005 and 2004 was approximately 9,900, 10,100 and 9,200, respectively. Although employee costs increased in 2006 compared with 2005 primarily due to acquisitions and costs associated with developing technology initiatives, we reduced employee costs in markets where direct operations experienced revenue declines. In response to overall decreases in transaction volumes, we reduced our workforce in title offices by approximately 920 employees, or 11.6%, during 2006. Giving effect to the increase in staff primarily for advancing technology, we reduced our total workforce by approximately 720 employees, or 7.1%. These amounts exclude increases from new offices.
The number of employees and employee costs increased in 2005 compared with 2004 due to the impact of new offices and the increase in our volume of real estate transactions. Employee costs were increased $2.1 million in the fourth quarter of 2005 related to our accounting for employee vacations.
Income taxes. Our effective tax rates, based on earnings before taxes and after deducting minority interests ($66.3 million, $145.5 million and $133.2 million in 2006, 2005 and 2004, respectively), were 34.8%, 39.0% and 38.1% for 2006, 2005 and 2004, respectively. For 2006, our effective tax rate was positively impacted primarily by a higher ratio of tax-exempt income to earnings before taxes than in 2005.
Material contractual obligations consist primarily of notes payable, operating leases and estimated title losses. Operating leases are primarily for office space and expire over the next 10 years. The timing above for the payment of estimated title losses is not set by contract. Rather, it is projected based on historical payment patterns. The actual timing of estimated title loss payments may vary materially from the above projection because claims, by their nature, are complex and paid over long periods of time. Loss reserves represent a total estimate only, whereas the other contractual obligations are determinable as to timing and amounts. Title losses paid were $106.6 million, $82.2 million and $68.4 million in 2006, 2005 and 2004, respectively.
The most significant non-operating source of cash was from proceeds of investments matured and sold in the amounts of $435.5 million, $580.9 million and $405.7 million in 2006, 2005 and 2004, respectively. We used cash for the purchases of investments in the amounts of $405.9 million, $679.0 million and $470.8 million in 2006, 2005 and 2004, respectively.
During the years ended 2006, 2005 and 2004, acquisitions resulted in additions to goodwill of $48.7 million, $30.1 million and $45.6 million, respectively.
Historically, our operating cash flow has been sufficient to pay all title policy losses. As reported in Note 4 to the accompanying consolidated financial statements, the fair value of our debt securities maturing in less than one year was $57.9 million at December 31, 2006. Combining our expected annual cash flow provided by operations ($99.7 million in 2006) with investments maturing in less than one year, we do not expect future loss payments to create a liquidity problem for us. Beyond providing funds for loss payments, we manage the maturities of our investment portfolio to provide safety of capital, improve earnings and mitigate interest rate risks.