Net earnings from insurance operations for the year ended December 31, 2005 increased from 2004 as a result of improved underwriting results and increased investment income. The decrease in net earnings from real estate operations was due to the substantial completion of the Harbour Village project. In 2004, earnings from other items included a $2.6 million payment received by the Company in settlement of an impaired note receivable. Total revenues for the year ended December 31, 2005 decreased 27.4% to $155.9 million compared to 2004 as a result of lower real estate income. Net premiums earned for the year ended December 31, 2005 increased 1.6% to $138.5 million from 2004 due to increased production in the Company’s core business lines. Investment income increased 46.5% to $14.3 million compared to 2004 as a result of increased invested assets of $88.5 million. Net cash flow from operations decreased to $70.4 million for the year ended December 31, 2005 from $89.8 million for 2004 as a result of increased loss payments, which were anticipated as a result of the long-tail nature of the risks that the Company insures, where, with the maturity of the Company’s business, loss payments are expected to continue to increase.
The Company’s book value of outstanding shares increased 9.4% to $17.54 at December 31, 2005 from $16.04 at December 31, 2004, due primarily to the Company’s continued profitability during the years offset by an unrealized loss of $3.4 million in the Company's investment portfolio.
Real estate income decreased to $3.0 million for the year ended December 31, 2005 as compared to $68.0 million in 2004. The reduction in real estate income was due to the substantial completion of the Harbour Village project. The final condominium units at Harbour Village were sold and closed in the second quarter of 2005. The Company does not expect to engage in any further real estate activities. The funds generated from Harbour Village have been invested into the Company’s insurance operations. See “Business-Harbour Village Development” and Note 3 to the Company’s consolidated financial statements for additional information regarding Harbour Village.
Net premiums earned decreased 54.5% to $6.7 million for the year ended December 31, 2004 compared to $14.8 million for 2003. Net premiums written decreased 97.9% to $208,000 for the year ended December 31, 2004 compared to $14.8 million for 2003. The decrease in runoff premiums earned was attributable to the Company’s exit from specific business lines that did not meet its profit or production expectations, such as workers’ compensation.
Real estate expenses associated with the Harbour Village project increased to $55.5 million for the year ended December 31, 2004 from $54.0 million for 2003. The majority of real estate expenses, including construction costs, capitalized interest and commissions were recognized at the same time as revenue is recognized. General and administrative expenses were expensed as incurred.
The Company conducts business in the U.S. and Bermuda. Significant differences exist in the regulatory environment in each country. The table below describes the Company’s operations by geographic segment for the years ended December 31, 2003 and 2004 (in thousands):
The Company meets its cash requirements and finances its growth principally through cash flows generated from operations. Since 2000 the Company has operated in a hardening market with increased insurance premium rates for general liability coverages and increased fees for program business opportunities. During 2004 and 2005, the Company began to experience a leveling of premium rates due to entrance of new insurance competitors and overall market conditions. The Company’s primary sources of short-term cash flow are premium writings and investment income and income from real estate development sales. Short-term cash requirements relate to claims payments, reinsurance premiums, commissions, salaries, employee benefits, real estate development expenses and other operating expenses. Due to the uncertainty regarding the timing and amount of settlements of unpaid claims, the Company’s future liquidity requirements may vary; therefore, the Company has structured its investment portfolio maturities to help mitigate the variations in those factors. The Company believes its current cash flows are sufficient for the short-term needs of its business and its invested assets are sufficient for the long-term needs of its insurance business. However, the Company does expect to grow its business, in which event, it will need to raise additional capital.
Less than 1 1-3 3-5 More than 5 Total year Years Years Years -------------- --------------- -------------- ----------------- -------------- Long term debt $ 37,811 $ - $ - $ - $ 37,811 Interest (1) 95,062 3,026 6,155 6,471 79,410 Operating leases 1,262 661 590 11 - -------------- --------------- -------------- ----------------- -------------- Total Contractual Obligations $134,135 $ 3,687 $6,745 $ 6,482 $117,221