Net (loss) income per diluted share (4) $ (3.79 ) $ 8.71
Company continues to re-examine and adjust its comprehensive framework of risk assessment, accumulation monitoring and risk mitigation seeking balance between risk versus reward in the context of changing market conditions.
Premium Revenues. Net premiums earned declined by 10.4% to $3,963.1 million in 2005 from $4,425.1 million in 2004. Contributing to this decrease was a 34.4% ($157.8 million) decrease in the Specialty Underwriting operation, a 15.6% ($139.9 million) decrease in the Bermuda operation, a 12.2% ($114.6 million) decrease in the U.S. Insurance operation and a 5.3% ($77.4 million) decrease in the U.S. Reinsurance operation, partially offset by a 4.2% ($27.7 million) increase in the International operation. Partially tempering the decline in net premiums earned in 2005 were $81.8 million of reinstatement premiums of which $64.4 million were due to Hurricanes Katrina and Wilma. Generally, catastrophe reinsurance provides coverage for one event; however, when limits are exhausted, some contractual arrangements provide for the availability of additional coverage upon the payment of additional premium. This additional premium is referred to as reinstatement premium. There were no such reinstatement premiums for 2004. All of these changes reflect period to period changes in net written premiums and business mix, together with normal variability in earnings patterns. Business mix changes occur not only as the Company shifts emphasis between products, lines of business, distribution channels and markets, but also as individual contracts renew or non-renew, almost always with changes in coverage, structure, prices and/or terms, and as new contracts are accepted with coverages, structures, prices and/or terms different from those of expiring contracts. As premium reporting, earnings, loss and commission characteristics derive from the provisions of individual contracts, the continuous turnover of individual contracts, arising from both strategic shifts and day to day underwriting, can and does introduce appreciable background variability in various underwriting line items. Changes in estimates related to the reporting patterns of ceding companies also affect premiums earned.
retrocessional program. It is important to note that unfavorable non-A&E accident year reserve development arises from the re-evaluation of accident year results and that such re-evaluations also impact premiums and commissions attributed by accident year, generally mitigating, in part, the impact of loss development and that such impacts are recorded as part of the overall reserve evaluation process.
Imbedded after-tax yield of cash and invested assets at December 31 4.1 % 4.1 %
Interest expense in 2004 was $75.5 million compared to $57.3 million in 2003. Interest expense in 2004 included $42.0 million related to the senior notes, $32.4 million related to the junior subordinated debt securities and $1.2 million related to borrowings under the Company’s revolving credit facility. Interest expense in 2003 reflected $38.9 million related to the issuance of the senior notes, $17.0 million related to the junior subordinated debt securities and $1.4 million related to borrowings under the Company’s revolving credit facility. The increase in interest expense was due to the additional issuance of $320 million of junior subordinated debt securities in March 2004 and the issuance of $250 million of senior notes in October 2004.
With respect to asbestos claims in particular, several additional factors have emerged in recent years that further compound the difficulty in estimating the Company’s liability. These developments include: (a) continued growth in the number of claims filed, in part reflecting a much more aggressive plaintiff bar and including claims against defendants who may only have a “peripheral” connection to asbestos; (b) a disproportionate
Imbedded end of period yield, pre-tax 4.5 % 4.7 % 4.8 %
On October 6, 2005, the Company expanded the size of the remaining shelf registration to $486.0 million by filing under Rule 462(b) of the Securities Act of 1933, as amended, and General Instruction IV of Form S-3 promulgated there under. On the same date, the Company entered into an agreement to issue 5,200,000 of its common shares at a price of $91.50 per share, which resulted in $475.8 million in proceeds received on October 12, 2005, before expenses of approximately $0.3 million. This transaction effectively exhausted the December 22, 2003 shelf registration.
As the exact timing of the payment of claims and benefits cannot be predicted with certainty, the Company maintains portfolios of long term invested assets with varying maturities, along with short-term investments that are intended to provide adequate cash for payment of claims. At December 31, 2005 and December 31, 2004 the Company held cash and short-term investments of $1,551.0 million and $770.8 million, respectively. Part of the elevated short-term cash position will be used to pay catastrophe claims. In addition to these cash and short-term investments at December 31, 2005, the Company had $0.4 billion, at fair value, of available for sale fixed maturity securities maturing within one year or less, $2.5 billion maturing within one to five years and $7.2 billion maturing after five years. The Company’s $1.1 billion of equity securities are comprised primarily of securities that can be easily liquidated. These fixed maturity and equity securities, in conjunction with the short-term investments and positive cash flow from operations, provide adequate sources of liquidity for the expected payment of losses in the near future. The Company does not anticipate selling securities or using available credit facilities to pay losses and LAE but has the ability to do so. Sales might result in realized capital gains or losses and the Company notes that at December 31, 2005 it had $214.6 million of net unrealized appreciation, net of $125.5 million of taxes, comprised of $443.1 million of pre-tax appreciation and $103.0 million of pre-tax depreciation.