Platinum Holdings and Platinum Bermuda lease offices located at The Belvedere Building, 69 Pitts Bay Road, Pembroke, Bermuda. The term of this lease ends on December 31, 2009. The principal offices of Platinum US and all other U.S. based subsidiaries are located at Two World Financial Center, New York, New York. The term of this lease ends on September 29, 2013. Platinum US also leases 4,000 square feet of office space in Chicago. The term of the lease in Chicago ends on February 28, 2011. The principal offices of Platinum UK are located at St. Clare House, 30/33 Minories, London,
where Platinum UK leases approximately 3,200 square feet of office space. The term of this lease ends on October 22, 2011. We anticipate no difficulty in extending these leases or obtaining comparable office facilities in suitable locations and consider our facilities to be adequate for our current needs.
The following table sets forth certain of our selected financial data as of and for the years ended December 31, 2006, 2005, 2004 and 2003, and for the period from April 19, 2002 through December 31,
The underwriting results and the audited historical combined financial statements of St. Paul Re (the Predecessor Business) are not indicative of our actual results subsequent November 1, 2002.
Platinum Holdings is a Bermuda holding company organized in 2002. We operate through our two licensed reinsurance subsidiaries: Platinum Bermuda and Platinum US. Through December 31, 2006 we also underwrote business in Platinum UK. We provide property and marine, casualty and finite risk reinsurance coverages, through reinsurance intermediaries, to a diverse clientele of insurers and select reinsurers on a worldwide basis.
It is important to understand our accounting estimates in order to understand our financial position and results of operations. We consider certain of these estimates to be critical to the presentation of the financial results since they require management to make estimates and valuation assumptions.
Premiums receivable include premiums billed and in the course of collection as well as WBNR. WBNR is the component of premiums receivable that is subject to judgment and uncertainty. Premiums receivable as of December 31, 2006 of $377,183,000 included $315,243,,000 of WBNR that is based upon estimates. The appropriateness of WBNR is evaluated in light of the actual premium reported by the ceding companies and any adjustments to WBNR and EBNR that represent premiums earned are accounted for as changes in estimates and are reflected in results of operations in the period in which they are made. The initial estimates of premiums derived by our underwriting function in respect of the year ended December 31, 2006 were evaluated. The cumulative impact of our evaluation in respect of premiums receivable as of December 31, 2006 was to reduce WBNR by approximately $19,412,000 or 5.1%. For example, WBNR premium receivable in our North American casualty claims-made excess-of-loss reinsurance class was $68,065,000 of the $315,243,000 as of December 31, 2006 and reflects a $5,799,000 reduction from initial premium estimates. We believe that we reasonably could have made an adjustment of between $0 and $5,799,000 with respect to this reinsurance class as of December 31, 2006.
Due to the time lag inherent in the reporting of premiums by ceding companies, a significant portion of amounts included as premiums written and premiums earned represents estimated premiums and are not currently due based on the terms of the underlying contracts. Premiums earned, including EBNR, are a measure of exposure to losses, LAE and acquisition expenses. Consequently, when previous estimates of premiums earned are increased or decreased, the related provisions for losses and LAE and acquisition expenses previously recorded are also adjusted accordingly. An allowance for uncollectible premiums is established for possible non-payment of such amounts due, as deemed necessary. As of December 31, 2006, based on our historical experience, the general profile of our ceding companies and our ability in most cases to contractually offset those premium receivables against losses and LAE or other amounts payable to the same parties, we did not establish an allowance for uncollectible premiums receivable.
Unpaid losses and LAE represent management’s best estimate, at a given point in time, of the ultimate settlement and administration costs of claims incurred, and it is possible that the ultimate liability may materially differ from such estimates. Such estimates are not precise due to the fact that, among other things, they are based on predictions of future developments and estimates of future trends in claim severity and frequency and other factors. Because of the degree of reliance that we necessarily place on ceding companies for claims reporting, the associated time lag, the low frequency/high severity nature of some of the business that we underwrite and the varying reserving practices among ceding companies, our reserve estimates are highly dependent on management judgment and are therefore uncertain. Estimates of unpaid losses and LAE are periodically reviewed and adjusted as new information becomes available. Any such adjustments are accounted for as changes in estimates and are reflected in results of operations in the period in which they are made.
Generally, initial actuarial estimates of IBNR not related to a specific event are based on the loss ratio method applied to each Underwriting Year for each class of business. Actual paid losses and case reserves, generally referred to collectively as reported losses, are subtracted from expected ultimate losses to determine IBNR. The initial expected ultimate losses involve management judgment and are based on: (i) contract by contract expected loss ratios developed during our pricing process, and (ii) our historical loss ratios and those of St. Paul Re adjusted for rate changes and trends. These judgments take into account management’s view of past, current and future: (i) market conditions, (ii) changes in the business underwritten, (iii) changes in timing of the emergence of claims and (iv) other factors that may influence expected ultimate losses.
actual reported losses and expected patterns of reported losses, taking the initial expected ultimate losses into account to determine an estimate of expected ultimate losses. This technique is most appropriate when there are few reported claims and a relatively less stable pattern of reported losses. The chain ladder technique utilizes actual reported losses and expected patterns of reported losses to determine an estimate of expected ultimate losses that is independent of the initial expected ultimate losses. This technique is most appropriate when there are a large number of reported losses with significant statistical credibility and a relatively stable pattern of reported losses.
Loss reserve calculations for primary insurance business are not precise in that they deal with the inherent uncertainty of future developments. Primary insurers must estimate their own losses, often based on incomplete and changing information. Reserving for reinsurance business introduces further uncertainties compared with reserving for primary insurance business. The uncertainty in the reserving process for reinsurers is due, in part, to the time lags inherent in reporting from the original claimant to the primary insurer and then to the reinsurer. As a predominantly broker market reinsurer for both excess-of-loss and proportional contracts, we are subject to a potential additional time lag in the receipt of information as the primary insurer reports to the broker who in turn reports to us. As of December 31, 2006, we did not have any significant back-log related to our processing of assumed reinsurance information.
Fixed maturity securities for which we may not have the positive intent to hold until maturity are classified as available-for-sale and reported at fair value, with unrealized gains and losses excluded from net income and reported in other comprehensive income as a separate component of shareholders’ equity, net of deferred taxes. Fixed maturity securities for which we have the intent to sell prior to maturity are classified as trading securities and reported at fair value, with unrealized gains and losses included in other income and the related deferred income tax included in income tax expense.
We routinely review our investments to determine whether unrealized losses represent temporary changes in fair value or are the result of “other-than-temporary impairments.” The process of determining whether a security is other than temporarily impaired is subjective and involves analyzing many factors. These factors include, but are not limited to, the overall financial condition of the issuer, the duration and magnitude of an unrealized loss, specific credit events and our ability and intent to hold a security for a sufficient period of time for the value to recover the unrealized loss. If we determine that an unrealized loss on a security is other than temporary, we write down the carrying value of the security to its current fair value and record a realized loss in the consolidated statement of operations. During 2006, based on a definitive agreement to sell our other invested asset, we wrote down the carrying value of the investment and recorded a realized loss of $255,000. During 2005, as a result of the routine evaluation of investments, we wrote down the carrying value of the same other invested asset to its estimated net realizable value and recorded a realized loss of $1,769,000.
Reinsurance contracts that do not transfer sufficient insurance risk are accounted for as reinsurance deposit liabilities with interest expense charged to other income and credited to the liability.
The reinsurance industry historically has been cyclical, characterized by periods of price competition due to excessive underwriting capacity as well as periods of favorable pricing due to shortages of underwriting capacity. Cyclical trends in the industry and the industry’s profitability can also be significantly affected by volatile developments, including natural and other catastrophes, such as hurricanes, windstorms, earthquakes, floods, fires, explosions and terrorist attacks, the frequency and severity of which are inherently difficult to predict. Property and casualty reinsurance rates often rise in the aftermath of significant catastrophe losses. To the extent that actual claim liabilities are higher than anticipated, the industry’s capacity to write new business diminishes. The industry is also affected by changes in the propensity of courts to expand insurance coverage and grant large liability awards, as well as fluctuations in interest rates, inflation and other changes in the economic environment that affect market prices of investments.
Year Ended December 31, 2006 as Compared with the Year Ended December 31, 2005
Net income (loss) for the years ended December 31, 2006 and 2005 was as follows ($ in thousands):
Other income (expense) for the years ended December 31, 2006 and 2005 was ($2,872,000) and ($586,000), respectively. Other expense in 2006 included ($2,221,000) of net unrealized losses relating to changes in fair value of fixed maturity securities classified as trading and ($706,000) of net expense on reinsurance contracts accounted for as deposits. Other expense in 2005 included ($102,000) of net unrealized losses relating to changes in fair value of fixed maturity securities classified as trading and ($53,000) of net expense on reinsurance contracts accounted for as deposits.
The decreases in net losses and LAE and the resulting net loss and LAE ratio in 2006 as compared with 2005 were primarily due to the significant difference in major catastrophe losses. Major catastrophe losses were $5,500,000 representing 0.4% of net premiums earned in 2006 as compared with $604,890,000 representing 35.3% of net premiums earned in 2005. Included in the major catastrophe losses in 2005 were $580,290,000 from the 2005 Hurricanes representing 33.8% of net premiums earned. Net losses and LAE and the resulting net loss and LAE ratios were also impacted by net favorable loss development of $60,746,000, representing 4.5% of net premiums earned in 2006 and $97,314,000, representing 5.7% of net premiums earned in 2005. The net favorable loss development in 2006 included net unfavorable loss development on the 2005 Hurricanes of $3,596,000.
Exclusive of the effects of the catastrophe losses, including additional premiums generated by such catastrophe losses, and net favorable loss development, the net loss and LAE ratio in 2006 increased by approximately 1% as compared 2005. The increase is attributable to higher loss ratios in the Casualty segment reflecting decreases in price adequacy. The decrease in net premiums earned also contributed to the decrease in losses and LAE in 2006. Some of the most significant decreases in net premiums earned have been in the finite casualty, crop, trade credit and accident and health classes, which have loss ratios higher than our overall book of business. The net loss and LAE ratios were also affected by changes in the mix of business.
The decrease in net acquisition expenses was primarily due to the decrease in net premiums earned in 2006 as compared with 2005. The decrease in the acquisition expense ratio in 2006 as compared with 2005 was partially due to the decrease in assumed quota share contracts in the Property and Marine and Finite Risk segments that had higher ceding commissions than the remaining business. Net acquisition expenses also included increases in adjustable commissions of approximately $2,285,000 in 2006 relating to prior years’ loss development, representing 0.2% of net premiums earned as compared with $15,790,000, representing 0.9% of net premiums earned in 2005. Also contributing to the decrease in the acquisition expense ratio in 2006 as compared with 2005 was a ceding commission and override on the Property Quota Share Agreement.
currencies. Foreign currency exchange gains and losses result from the re-valuation into U.S. dollars of assets and liabilities denominated in foreign currencies. We periodically monitor our largest foreign currency exposures and purchase or sell foreign currency denominated invested assets to match these exposures. Net foreign currency exchange gains and losses arise as a result of fluctuations in the amounts of assets and liabilities denominated in foreign currencies as well as fluctuations in the currency exchange rates.
Interest expense for the years ended December 31, 2006 and 2005 was $21,805,000 and $20,006,000, respectively, and includes interest related to our Equity Security Units (“ESU’s”) as well as interest on other debt obligations. The increase in 2006 as compared with 2005 was due to the increase in average outstanding debt during the comparable periods. Interest expense in 2006 includes interest on $250,000,000 of Series B 7.5% Notes due June 1, 2017 (the “Series B Notes”) as well as interest on the remaining balance of $42,840,000 of the Series B 6.371% Remarketed Senior Guaranteed Notes due November 16, 2007 (the “Remarketed Notes”). The Series B Notes were originally issued as Series A and then subsequently exchanged for Series B Notes that have substantially the same terms and which were registered under the Securities Act. Interest expense in 2005 includes interest on the Series B Notes from issuance in May 2005 and interest on $137,500,000 of the Remarketed Notes at 5.25% per annum until remarketed in August 2005 at 6.371% per annum. The Remarketed Notes were then partially repurchased in December 2005. As a result of a repurchase of $94,660,000 of the Remarketed Notes in December 2005, we incurred a loss on repurchase of debt of $2,486,000. This includes a premium paid to the debt holders of $1,644,000, and related unamortized debt issuance costs, dealer/manager fees, and professional fees and expenses of $842,000.
Net investment income for the years ended December 31, 2005 and 2004 was $129,445,000 and $84,532,000, respectively. Net investment income increased during 2005 primarily due to increased invested assets attributable to positive cash flow from operations, excluding trading securities activities, which was $618,909,000 and $698,223,000 in 2005 and 2004, respectively. Also contributing to the increase in invested assets in 2005 were the net proceeds from the issuances of: debt of $246,900,000, preferred shares of $168,162,000 and common shares of $426,293,000. The book basis yields on fixed maturity securities were 4.4% and 4.3% as of December 31, 2005 and 2004, respectively. Net investment income included $8,172,000 and $2,651,000 of interest earned on funds held for the years ended December 31, 2005 and 2004, respectively. Net realized gains (losses) on investments were ($3,046,000) and $1,955,000 for the years ended December 31, 2005 and 2004, respectively. Net realized losses in 2005 included $1,769,000 relating to the write-down of our investment in Inter-Ocean Holdings, Ltd. The remaining net realized gains and losses on investments in 2005 and 2004 primarily result from our efforts to manage credit quality, duration, foreign currency exposure, investment sector allocation as well as to balance our investment risk and reinsurance risk.
Net losses and LAE and the resulting loss and LAE ratios for the years ended December 31, 2005 and 2004 were as follows ($ in thousands):
The increase in net losses and LAE in 2005 as compared with 2004 was primarily the result of more significant losses arising from the 2005 Hurricanes than from the 2004 Hurricanes. Net losses and LAE from the 2005 Hurricanes were $349,815,000 more than the net losses and LAE from the 2004 Hurricanes. The increase in net losses and LAE was also due to the growth in business in the Property and Marine and Casualty segments. The increase in the loss ratio in 2005 from 2004 was due primarily to losses from the 2005 Hurricanes that represented 33.8% of net premiums earned in 2005 as compared with losses from the 2004 Hurricanes that represented 15.9% of net premiums earned in 2004. Losses from major catastrophes in 2005 other than the 2005 Hurricanes were approximately $24,600,000 or 1.4% of net premiums earned. There were no significant catastrophe losses in 2004 other than from the 2004 Hurricanes. The net losses and LAE from the hurricanes in 2005 and 2004 were partially offset by net favorable loss development of $97,314,000, representing 5.7% of net premiums earned in 2005 and $57,151,000, representing 3.9% of net premiums earned in 2004.
Operating expenses for the years ended December 31, 2005 and 2004 were $69,827,000 and $66,333,000, respectively. Operating expenses include costs such as salaries, rent and like items related to reinsurance operations as well as costs associated with Platinum Holdings. The increase of $3,494,000 in operating expenses in 2005 as compared with 2004 was attributable to increased compensation costs.
Net foreign currency exchange gains (losses) for the years ended December 31, 2005 and 2004 were ($2,111,000) and $725,000, respectively. We routinely do business in various foreign currencies. Foreign currency exchange gains and losses result from the re-valuation into U.S. dollars of assets and liabilities denominated in foreign currencies. We periodically monitor our largest foreign currency exposures and purchase or sell foreign currency denominated invested assets to match these exposures. Net foreign currency exchange gains and losses arise as a result of fluctuations in the amounts of assets and liabilities denominated in foreign currencies as well as fluctuations in the currency exchange rates.
Interest expense for the years ended December 31, 2005 and 2004 was $20,006,000 and $9,268,000, respectively, and included interest related to the ESU’s as well as interest on debt obligations. The increase in 2005 as compared with 2004 was primarily due to interest on the Series B Notes issued in
The decrease in net acquisition expenses in 2006 as compared with 2005 was primarily due to the decrease in net premiums earned. The decrease in the net acquisition expense ratio was due in part to the commencement of the Property Quota Share Agreement which has an override and profit commission. Net acquisition expenses included increases in commissions of $3,067,000 in 2006, representing 0.7% of net premiums earned related to favorable loss development from prior years as compared with $6,489,000 representing 1.1% of net premiums earned in 2005. The net acquisition expense ratios were also impacted by changes in the mix of business.
The decrease in net acquisition expenses was due primarily to the decrease in net premiums earned in 2006 as compared with 2005. The net acquisition expense ratios were comparable for the years ended December 31, 2006 and 2005 and were impacted by changes in the mix of business.
Year Ended December 31, 2005 as Compared with the Year Ended December 31, 2004
The increase in net losses and LAE in 2005 as compared with 2004 was consistent with the growth in net premiums earned. Net losses and LAE in 2005 included net favorable loss development of
The Finite Risk portfolio consists of a small number of contracts that can be large in premium size and, consequently, overall premium volume may vary significantly from year to year. The decrease in net premiums written and earned in 2006 as compared with 2005 was primarily attributable to the termination of two significant finite casualty quota share contracts. One of the contracts was terminated effective January 1, 2006 on a cut-off basis, which resulted in the return of previously written but unearned premium. Net premiums written and earned in 2005 included approximately $4,042,000 of additional premiums resulting from losses arising from the 2005 Hurricanes. Additionally in 2005, favorable development of losses in this segment related to the 2004 Hurricanes resulted in a reduction of net premiums written and earned of $4,953,000.
Due to the often significant inverse relationship between losses and commissions for this segment, we believe it is important to evaluate the overall combined ratio, rather than its component parts of loss and LAE and acquisition expense ratios. Net losses and LAE, net acquisition expenses and the resulting ratios for the years ended December 31, 2006 and 2005 were as follows ($ in thousands):
The decrease in net losses, LAE and acquisition expenses in 2006 as compared with 2005 was primarily due to the reduction in net premiums earned. The decrease in the loss, LAE and acquisition expense ratio in 2006 was due to an absence of major catastrophe losses in 2006 as compared with losses of $31,000,000 from the 2005 Hurricanes representing 8.7% of net premiums earned in 2005. This was partially offset by net unfavorable development in 2006 of $2,531,000, representing 2.1% of net premiums earned as compared with net favorable development of approximately $21,187,000, representing 6.0% of net premiums earned in 2005. The unfavorable development in 2006 included unfavorable development on the 2005 Hurricanes of $3,500,000. Also contributing to the decrease in the net loss, LAE and acquisition ratio in 2006 was the termination of two finite casualty quota share contracts that had higher combined ratios than the remainder of the Finite Risk portfolio. The loss, LAE and acquisition expense ratio was also affected by the changes in the mix of business within the segment.
Net premiums written decreased significantly in 2005 as compared with 2004 as fewer contracts were in force. The decrease in net premiums written was primarily attributable to several large accident and health capped quota share contracts that were written in 2004 and not renewed in 2005. The resulting decline in finite accident and health net premiums earned was offset by an increase in finite casualty net premiums earned. Net premiums earned are related to current and prior years’ net premiums written and are affected by changes in the mix of business and the structure of the underlying reinsurance contracts. Net premiums written and earned in 2005 and 2004 included approximately $4,042,000 and $13,067,000 of additional premiums resulting from losses arising from the 2005 Hurricanes and 2004 Hurricanes, respectively. Additionally in 2005, favorable development of losses in this segment related to the 2004 Hurricanes resulted in a reduction of net premiums written and earned of $4,953,000.
Net losses and LAE, acquisition expenses and the resulting ratios for the years ended December 31, 2005 and 2004 were as follows ($ in thousands):
Net losses, LAE and acquisition expenses in 2005 are comparable to 2004 as a result of a small increase in net premiums earned offset by a decrease in the net loss, LAE and acquisition expense ratio. . Net losses, LAE and acquisition expenses arising from the 2005 Hurricanes were $31,000,000 representing 8.7% of net premiums earned in 2005 as compared with losses, LAE and acquisition expenses arising from the 2004 Hurricanes of $50,580,000 representing 14.4% of net premiums earned in 2004. Net favorable development impacting both losses and LAE and acquisition expenses occurred in both 2005 and 2004. Net favorable development in 2005 and 2004 amounted to $21,187,000 representing 6.0% of net premiums earned in 2005 as compared with $7,717,000 representing 2.2% of net premiums earned in 2004. Exclusive of hurricane losses and net favorable development, the overall loss, LAE and acquisition expense ratio increased in 2005 as compared with 2004 due to the shift toward casualty business that generally has a higher combined ratio.
The increase in cash and cash equivalents in 2006 as compared to 2005 was due, in part, to a sale of certain fixed maturity securities at year end. The total increase in cash and cash equivalents and investments was due to positive cash flow from operations, excluding trading securities activities, which was $525,025,000 in 2006. Our available-for-sale and trading portfolios are primarily composed of diversified, high quality, predominantly publicly traded fixed maturity securities. The investment portfolio, excluding cash and cash equivalents, had a weighted average duration of 2.7 years as of December 31, 2006. We routinely monitor the composition of our investment portfolio and cash flows in order to maintain liquidity necessary to meet our obligations.
Other invested asset represents an investment in Inter-Ocean Holdings, Ltd., a non-public reinsurance company. During 2006, based on a definitive agreement to sell our interest in Inter-Ocean Holdings, Ltd., we wrote down the carrying value of the investment and recorded a realized loss of $255,000. As a result of routine evaluations of investments during 2005, we wrote down the carrying value of the investment in Inter-Ocean Holdings, Ltd. to its estimated net realizable value and recorded a realized loss of $1,769,000. We have no ceded or assumed reinsurance business with Inter-Ocean Holdings, Ltd.
$91,151,000 is IBNR. These unpaid losses may result in a large amount of loss payments over the next year that could adversely affect net cash flows from operations.
Commissions payable as of December 31, 2006 of $140,835,000 include $124,906,000 that is based upon estimates. Commissions payable as of December 31, 2005 of $186,654,000 include $167,949,000 that is based upon estimates.
Our consolidated sources of funds consist primarily of premiums written, investment income, proceeds from sales and redemption of investments, losses recovered from retrocessionaires, issuances of securities and actual cash and cash equivalents held by us. Net cash flows provided by operations, excluding trading securities activities, for the years ended December 31, 2006, 2005 and 2004 were $525,025,000, $618,909,000 and $698,223,000, respectively, and were used primarily to acquire additional investments.
In May 2005, Platinum Finance issued $250,000,000 aggregate principal amount of Series A Notes due June 1, 2017, unconditionally guaranteed by Platinum Holdings. The Series A Notes were issued in a transaction exempt from the registration requirements under the Securities Act and then subsequently exchanged for Series B Notes that have substantially the same terms and which were registered under the Securities Act. The proceeds were used primarily to increase the capital of Platinum Bermuda and Platinum US.
On October 21, 2005 we entered into a three-year $200,000,000 credit agreement with a syndicate of lenders. On September 13, 2006, we amended and restated the existing agreement, increasing the term to five years and increasing the facility to $400,000,000. The amended and restated credit agreement consists of a $150,000,000 senior unsecured credit facility available for revolving borrowings and letters of credit and a $250,000,000 senior secured credit facility available for letters of credit. The revolving line of credit generally will be available for our working capital, liquidity and general corporate requirements and those of our subsidiaries. Platinum Holdings and Platinum Finance guarantee borrowings by our reinsurance subsidiaries under the credit facility. The interest rate on borrowings under the credit facility is based on our election of either: (1) LIBOR plus 50 basis points or (2) the higher of: (a) the prime interest rate of the lead bank providing the credit facility, or (b) the federal funds rate plus 50 basis points. The interest rate based on LIBOR rate would increase or decrease by up to 12.5 basis points should our senior unsecured debt credit rating increase or decrease.
In May 2005, Platinum Finance issued $250,000,000 aggregate principal amount of Series A Notes due June 1, 2017, unconditionally guaranteed by Platinum Holdings which were subsequently exchanged for the Series B Notes. Interest at a rate of 7.5% per annum is payable on the Series B Notes on each June 1 and December 1 commencing on December 1, 2005. Platinum Finance may redeem the Series B Notes, at its option, at any time in whole, or from time to time in part, prior to maturity. The redemption price will be equal to the greater of: (i) 100 percent of the principal amount of the Series B Notes, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest, discounted to the redemption date on a semiannual basis at a comparable treasury rate plus 50 basis points, plus in each case, interest accrued but not paid to the date of redemption.
In December 2005, Platinum Holdings issued 5,750,000 shares of mandatory convertible preferred shares for $173,363,000 under its unallocated shelf registration statement. Dividends on the preferred shares are $0.4525 per preferred share per quarter. Unless all accrued, cumulated and unpaid dividends on our preferred shares for all past quarterly dividend periods have been paid in full we cannot declare or pay any dividends or make any distributions to any of our common shareholders. Additionally, under the Companies Act, Platinum Holdings may declare or pay a dividend only if, among other things, it has reasonable grounds for believing that it is, or after the payment would be, able to pay its liabilities as they become due and if the realizable value of its assets would thereby not be less than the aggregate of its liabilities and issued share capital and share premium accounts. Accordingly, there is no assurance
that dividends will be declared or paid in the future. Currently, there is no Bermuda withholding tax on dividends paid by Platinum Holdings.
In December 2005, we repurchased $94,660,000 of the Remarketed Notes leaving an outstanding balance of $42,840,000. Interest at the rate of 6.371% per annum is payable on the outstanding Remarketed Notes on May 16 and November 16 of each year. The Remarketed Notes are unconditionally guaranteed by Platinum Holdings.
The payment of dividends and other distributions from our regulated reinsurance subsidiaries is limited by applicable laws and statutory requirements of the jurisdictions in which the subsidiaries operate, including Bermuda, the United States and the United Kingdom. Based on the regulatory restrictions of the applicable jurisdictions, the maximum amount available for payment of dividends or other distributions by our reinsurance subsidiaries in 2007 without prior regulatory approval is estimated to be approximately $307,000,000.
On August 4, 2004, the board of directors of Platinum Holdings approved a plan to purchase up to $50,000,000 of our common shares. During the year ended December 31, 2004 we purchased 349,700 of our common shares in the open market at an aggregate amount of $9,985,000 at a weighted average price of $28.55 per share. The shares we purchased were canceled. No repurchases of our common shares were made during 2006 or 2005.
There are generally no stated amounts related to reinsurance contracts. Both the amounts and timing of future loss and LAE payments are estimates and subject to the inherent variability of legal and market conditions affecting the obligations and make the timing of cash outflows uncertain. The ultimate amount and timing of unpaid losses and LAE could differ materially from the amounts in the table above. Further, the gross unpaid losses and LAE do not represent all of the obligations that will arise under the contracts, but rather only the estimated liability incurred through December 31, 2006. There are reinsurance contracts that have terms extending into 2007 under which additional obligations will be incurred.
The renewal season for contracts effective January 1, 2007 (the “January 1 Renewal Season”) has recently been completed. The January 1 renewal season is generally considered the most significant underwriting period of the year for the reinsurance industry. We were able to modestly grow our portfolio of business as terms and conditions improved in some lines of business and deteriorated in others.
In 2006 we expanded the operations of Platinum Bermuda in order to make it our principal reinsurer of global catastrophe reinsurance and financial lines. As part of this plan, we began to renew business previously written by Platinum UK in Platinum Bermuda. We also renewed certain property catastrophe contracts of Platinum US in Platinum Bermuda. After successfully renewing substantially all of the reinsurance business written by Platinum UK in Platinum Bermuda, we decided to cease underwriting reinsurance in Platinum UK in 2007. We plan to take steps in 2007 that will transition Platinum UK to a non-underwriting operation and to allow the release of a significant portion of its capital. These actions may include a 100% loss portfolio transfer of Platinum UK’s reinsurance business to Platinum Bermuda. We may also seek to novate Platinum UK reinsurance contracts to Platinum Bermuda.
Our consolidated financial statements as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006, together with the report thereon by KPMG LLP, our independent registered public accounting firm, are set forth on pages through hereto.