Assumed reinsurance premiums are recognized as revenues as premiums become earned, which generally occurs proportionately over the coverage period. Net premiums earned are recorded in the consolidated statement of operations, net of the cost of retrocession. Net premiums written not yet recognized as revenue are recorded on the consolidated balance sheet as unearned premiums, gross of any ceded unearned premiums.
While catastrophe activity in 2007 was greater than in 2006, it was still relatively low. We have established specific reserves for the following 2007 events: European Windstorm Kyrill, the June floods in the UK, the July floods in the UK and the October wildfires in California.
Net investment income for the years ended December 31, 2006 and 2005 was $187,987,000 and $129,445,000, respectively. Net investment income increased during 2006 primarily due to increased invested assets attributable to positive net cash flows provided by operations excluding trading securities activities, which was $525,025,000 in 2006 as well as proceeds from the issuance of common shares, preferred shares and debt obligations in 2005. The book basis yields on fixed maturities were 4.6% and 4.4% as of December 31, 2006 and 2005, respectively. Net investment income included $7,998,000 and $8,172,000 of interest earned on funds held for the years ended December 31, 2006 and 2005, respectively. Net realized gains (losses) on investments were $1,090,000 and ($3,046,000) for the years ended December 31, 2006 and 2005, respectively. Net realized losses in 2006 and 2005 included $255,000 and $1,769,000, respectively, relating to the write-down of our investment in Inter-Ocean Holdings, Ltd. The remaining net realized gains and losses on investments in 2006 and 2005 primarily resulted from our efforts to manage credit quality, duration, foreign currency exposure, and investment sector allocation and to balance our investment risk and reinsurance risk.
Net losses and LAE and the resulting loss ratios for the years ended December 31, 2007 and 2006 were as follows ($ in thousands):
The decrease in net losses, LAE and acquisition expenses in 2007 as compared with 2006 were primarily due to the decrease in net premiums earned. The decrease in the net loss, LAE and acquisition expense ratio was primarily due to the difference in net favorable development from prior years. Net favorable development was $6,658,000 in 2007, representing 19.9% of net premiums earned, as compared with net unfavorable development of approximately $2,531,000 in 2006, representing 2.1% of net premiums earned. Also contributing to the decrease in the net loss, LAE and acquisition ratio in 2007 was the expiration of a significant finite casualty proportional contract that had a higher combined ratio than the remainder of the Finite Risk segment.
The total increase in cash and cash equivalents and investments in 2007 was primarily due to positive net cash flows provided by operations excluding trading securities activities, which was $491,483,000 in 2007. In addition, the unrealized loss position of our available-for-sale fixed maturities improved in comparison with 2006 by approximately $25,393,000 due primarily to a decrease in interest rates in 2007. These increases were partially offset by the use of cash to repurchase $240,672,000 of our common shares throughout the year pursuant to our share repurchase program, and the repayment of $42,840,000 of the Remarketed Notes on November 16, 2007.
Our consolidated sources of funds consist primarily of net premiums written, net investment income, proceeds from sales and maturities of investments, losses recovered from retrocessionaires, issuances of securities and cash and cash equivalents held by us. Net cash flows provided by operations, excluding trading securities activities, for the years ended December 31, 2007, 2006 and 2005 were $491,483,000, $525,025,000 and $618,909,000, respectively, and were used primarily to acquire additional investments or, in 2007, to repurchase our common shares.
Platinum Holdings is a holding company that conducts no reinsurance operations of its own. All of its reinsurance operations are conducted through its wholly owned operating subsidiaries. As a holding company, the cash flow of Platinum Holdings consists primarily of dividends, interest and other permissible payments from its subsidiaries, and issuances of securities. Platinum Holdings depends on such payments for general corporate purposes and to meet its obligations, including the payment of dividends to its preferred and common shareholders and capital management activities.
Our contractual obligations as of December 31, 2007 by estimated maturity are presented below ($ in thousands):
There are generally no notional or stated amounts related to unpaid losses and LAE. 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, 2007. There are reinsurance contracts that have terms extending into 2008 under which additional obligations will be incurred.
During the January 1 Renewal Season we wrote approximately 11% less U.S. property premium than we had during the January 1, 2007 renewal season. We wrote approximately the same amount of international property premium and approximately 17% less marine business than we did a year ago. For 2008 we plan to deploy capacity such that up to approximately 22.5% of our total capital could be exposed to an event with a probability of 1 in 250 years.