ProAssurance recognized a tax benefit of $2.8 million for the year ended December 31, 2001 as compared to a tax expense of $4.0 million for the year ended December 31, 2000. Tax-exempt investment income is the primary reason that ProAssurance's effective rates for both years are significantly lower than the expected statutory rate of 35%. ProAssurance derives a significant portion of its investment income from tax-exempt sources. Income before taxes and minority interest includes tax-exempt investment income of approximately $18.7 million in 2001 and $17.4 million in 2000. After adjustment for tax-exempt income, ProAssurance experienced a taxable loss for the year ended December 31, 2001 as compared to taxable income for the year ended December 31, 2000.
Reserve for Losses and Loss Adjustment Expense. ProAssurance's reserve for losses and loss adjustment expense represents Management's estimate of the future amounts necessary to pay claims and expenses associated with investigation and settlement of claims. These estimates consist of case and reserves and bulk reserves. Case reserves are estimates of future losses and loss adjustment expenses ("losses and LAE") for reported claims and are established by ProAssurance's claims department. Bulk reserves, which include a provision for losses that have occurred but have not been reported to ProAssurance as well as development on reported claims, are the difference between (i) the sum of case reserves and paid losses and (ii) an actuarially determined estimate of the total losses and LAE necessary for the ultimate settlement of all reported claims and incurred but not reported claims, including amounts already paid. The estimates take into consideration ProAssurance's past loss experience, available industry data and projections as to future claims frequency, severity, inflationary trends and settlement patterns. Estimating reserves, especially professional liability reserves, is a complex process which is heavily dependent on judgment and involves many uncertainties. As a result, reserve estimates may vary significantly from the eventual outcome. The assumptions used in establishing ProAssurance's reserves are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in current operations.
As with written premiums, the increase in earned premiums for the for the year ended December 31, 2001 as compared to 2000 is primarily attributable to the consolidation and to a lesser degree, higher rates. Rate increases implemented after January 1, 2001 have not yet been fully reflected in earned premiums since premiums are earned over the entire policy period (usually one-year) after the policy is written.
ProAssurance's consolidation with Professionals Group on June 27, 2001 increased professional liability net loss reserves by approximately $498 million bringing consolidated professional liability net loss reserves to approximately $1.0 billion. As discussed in Note 2 of ProAssurance's consolidated financial statements, the transaction was accounted for as a purchase transaction and Professionals Group reserves were valued at their estimated fair value on the date of consolidation.
Net realized capital gains included in other income by quarter during each year are as follows (in thousands):
Medical professional liability premiums written during the year ended December 31, 2000 increased by $1.4 million as compared to the same period of 1999, from $178.6 million to $180.0 million. After giving effect to insureds that did not renew, a net increase of approximately $5.3 million resulted from rate increases and writing premiums at approved higher rates. Partially offsetting this $5.3 million increase was a decrease of $3.9 million resulting from one-time additional premiums written in January 1999 related to the purchase of a book of business.