Some actuarial techniques rely on our past loss and LAE experience to estimate our future payments. The changes we’ve made in our business in recent years, however, also affect our future payments. For instance, we have introduced new products, tightened our underwriting criteria and improved our claims-handling practices. As a result, we also consider these changes when estimating future payments.
The table below provides our loss and ALAE reserves, excluding ULAE reserves, before reinsurance for our commercial products:
OUR ASBESTOS LIABILITY EXPOSURE - Here’s the breakout of our asbestos loss reserves, net of reinsurance:
Accordingly, we’ve established two separate special claims-handling functions, one that specializes in asbestos claims related to our runoff assumed reinsurance operations, and one that specializes in asbestos claims related to our direct exposure.
More about our investments can be found in the Our Investment Results section on page 73.
Interest expense - Our interest expense decreased in 2005 and 2004 due to our debt repurchases described below.
Loss costs - During 2005, our homeowners loss costs changes were relatively flat. Loss costs for other Property lines were down, resulting in a net decrease in loss costs for the Property segment. This change reduced our combined ratio by 0.6 points in 2005 compared with 2004. In 2004, we experienced reductions in frequency of claims in the mid-teens, partially offset by a mid-teen increase in severity, decreasing our combined ratio by 2.2 points compared with 2003.
Business Growth - As our business grows, we may write more policies in markets where we previously have not written significant business. We will continue to grow into eastern states where we currently have less geographic presence, being selective where we write business to manage our catastrophe exposure. We also will focus on the changing nature of the independent distribution channel through new agency appointments and customized business approaches. As we promote growth, we will seek scale economies and ways to control expenses.
Automated Underwriting Platform - Our automated underwriting platform uses multivariate models to assess the risk of loss based on many factors and provides a more accurate price for a wider range of risks. This allows us to offer policies to a wider range of small businesses. We believe this capability is a key competitive advantage. It allows us to better segment our business with higher risks charged higher rates. We validate the underwriting factors we use by reviewing them every month for unusual patterns in quotes, close rates and other factors by state, zip code and agency.
Net written premiums increased $47.0, or 20.3%, in 2005 compared with 2004, and $52.6, or 29.4%, in 2004 compared with 2003. The increase in net written premiums in 2005 compared with 2004 was driven by increased large contract new business. The favorable market conditions for construction and economic expansion fueled the growth in large contract business in 2005. The increase in net written premiums in 2004 compared with 2003 was driven by increased new business from a reduction in competitors due to consolidation of other surety companies and the opening of new offices in Glendale, California; Syracuse, New York; and Richmond, Virginia.
Our underwriting profit increased $12.6, and our combined ratio decreased 0.2 points in 2005 compared with 2004. Our underwriting profit increased $14.8, and our combined ratio decreased 2.9 points in 2004 compared with 2003. The results in both years reflected our disciplined underwriting, favorable loss experience and decreased commission expense.
Our investment portfolio also included $129.3 of non-publicly traded fixed maturities and marketable equity securities - representing 1.2% of our total portfolio at year-end 2005, and $85.3 of not-rated fixed maturities - securities not rated by a national rating service - representing 0.8% of our total portfolio at year-end 2005. At year-end 2004, our portfolio included $122.8 of non-publicly traded fixed maturities and marketable equity securities - representing 1.2% of our total portfolio, and $89.1 of not-rated fixed maturities - representing 0.9% of our total portfolio.
$300.0 to pay off notes that had a 7.875% interest rate and were due March 15, 2003