Ocean marine net premiums written and net premiums earned for year ended December 31, 2006 increased by 7% and 9% respectively, when compared to 2005. Net written and earned premiums in 2005 were reduced by $14.8 million in reinstatement reinsurance premiums as a result of losses sustained from hurricanes Katrina and Rita. This compares to additional reinstatement reinsurance costs recorded in 2006 on hurricanes Katrina/Rita of $1.1 million
Net realized investment losses were $402,000 for the year ended December 31, 2006 as compared to $805,000 for the year ended December 31, 2005. These amounts result from the sale of fixed income investments as well as write-downs from other-than-temporary declines in the fair value of securities, which amounted to $371,000 and $678,000 for the years ended December 31, 2006 and 2005, respectively.
Year Ended December 31, 2005 as Compared to Year Ended December 31, 2004
The Company monitors cash and short-term investments in order to have an adequate level of funds available to satisfy claims and expenses as they become due. As of December 31, 2006, the Company’s assets included approximately $155.0 million in cash and short-term investments. In addition, the fixed maturities available for sale includes approximately $297 million in high investment grade floating rate mortgage backed securities. Cash and total investments increased from $622.4 million at December 31, 2005 to $664.9 million at December 31, 2006, principally as a result of collections on increased premium volume which was partially offset by both payments of losses and reinstatement reinsurance premiums made on prior year hurricane losses. Receivables for securities sold amounted to $18.8 million and $53.0 million as of December 31, 2006 and 2005, respectively. Payable for securities purchased amounted to $0 and $9.0 million at December 31, 2006 and 2005, respectively. The level of cash and short-term investments of $155.0 million at December 31, 2006 reflected the Company’s high liquidity position.
On March 11, 2004, the Company issued $100,000,000 in 6.5% senior notes due March 15, 2014 and received proceeds of $98,763,000 net of underwriting discount, but before other transaction expenses. The senior notes provide for semi-annual interest payments and are to be repaid in full on March 15, 2014. On July 1, 2004 the Company completed the exchange of registered 6.5% senior notes for the unregistered senior notes issued on March 11, 2004, as required by the registration rights agreement with the purchasers of the senior notes. The indenture relating to the senior notes provides that the Company and its restricted subsidiaries may not incur indebtedness unless the total indebtedness of the Company and its restricted subsidiaries, calculated on a pro forma basis after such issuance, would not exceed 50% of our total consolidated capitalization (defined as the aggregate amount of our shareholders’ equity as shown on our most recent quarterly or annual consolidated balance sheet plus the aggregate amount of indebtedness of the Company and its restricted subsidiaries). The indenture also provides that the Company and its restricted subsidiaries will not pay dividends or make other payments or distributions on the Company’s stock or the stock of any restricted subsidiary (excluding payments by any restricted subsidiary to the Company), purchase or redeem the Company’s stock or make certain payments on subordinated indebtedness unless, after making any such payment, the total indebtedness of the Company and its restricted subsidiaries would not exceed 50% of our total consolidated capitalization (as defined above). In addition, the indenture contains certain other covenants that restrict our ability and our restricted subsidiaries’ ability to, among other things, incur liens on any shares of capital stock or evidences of indebtedness issued by any of our restricted subsidiaries or issue or dispose of voting stock of any of our restricted subsidiaries. The Company used part of the net proceeds from the sale of the senior notes to purchase from certain of its shareholders in 2005 a total of 1,092,735 shares of common stock at $24.80 per share. The Company is using the remaining net proceeds for working capital and other general corporate purposes. The Company may also deploy the net proceeds for acquisitions, although the Company has no agreement with respect to any acquisition. We do, however, assess opportunities on an ongoing basis and from time to time have discussions with other companies about potential transactions.
Cash flows used in investing activities were $117.9 million and $153.1 million for the years ended December 31, 2006 and 2004, respectively. Net purchases of fixed maturities, limited partnerships and short-term investments were recorded during each of 2006 and 2004. Cash flows provided by investing activities were $104.0 million for the year ended December 31, 2005 and were provided by net sales of short-term investments and limited partnerships. Approximately $6.9 million in uses of cash flows in 2006 resulted from the effect of deconsolidation of the Tricadia limited partnership investment.