The U.S. Insurance division accounted for $344.1 million of our gross reserves for unpaid losses and loss adjustment expenses, comprised of case reserves of $86.2 million and IBNR of $257.9 million as of December 31, 2004. The U.S. Insurance division ceded reserves for losses and loss adjustment expenses of $144.6 million, of which $105.4 million is IBNR as of December 31, 2004. U.S. Insurance division net reserves for unpaid losses and loss adjustment expenses as of December 31, 2004 were $199.5 million, of which $47.0 million was case reserves and $152.5 million was IBNR.
Interest Expense. We incurred interest expense, related to our debt obligations, of $25.6 million for the year ended December 31, 2004, compared to $12.7 million for the year ended December 31, 2003. The increase is due primarily to the fourth quarter 2003 issuance of $225.0 million aggregate principal amount of 7.65% senior notes due 2013, offset by the prepayment of $50.0 million aggregate principal amount of our 7.49% senior notes due 2006.
The increase in the Americas division gross premiums written for the year ended December 31, 2003, compared to 2002, is comprised of increases in treaty property business of $67.1 million (22.0%), treaty casualty business of $122.0 million (17.4%), other treaty business of $10.8 million (15.4%) and facultative reinsurance of $32.5 million (28.9%).
Federal and Foreign Income Tax Provision. Our federal and foreign income tax provision for the year ended December 31, 2003 increased by $42.3 million to $129.1 million, from $86.8 million for the year ended December 31, 2002, as a result of the increase in income.
As of December 31, 2004 and 2003, 86.7% and 92.3%, respectively, of the aggregate of our fixed income securities, short-term investments, cash and cash equivalents portfolio consisted of securities rated investment grade, with 13.3% and 7.7%, respectively, rated below investment grade.
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, which could differ from actual results, that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities.
On October 1, 2004, Odyssey America sold all of its shares of First Capital Insurance Ltd. (“First Capital”) to Fairfax Asia Limited (“Fairfax Asia”) in exchange for Class B non-voting shares of Fairfax Asia representing an ownership interest of approximately 45%, or $38.6 million, in Fairfax Asia. Fairfax owns the controlling
Certain employees of the Company have been granted shares of restricted Fairfax common stock under the Fairfax Financial Holdings Ltd. Restricted Share Plan. The Fairfax restricted stock, which was granted from 1996 to 2000, vests over a three to ten year period. The Company has reflected $0.4 million, $0.3 million and $0.3 million of expense for the years ended December 31, 2004, 2003 and 2002, respectively, which represents the vested portion of the restricted stock. The Company no longer participates in this plan.
In October 2002, a dispute arose between Odyssey America and a retrocessionaire arising from an excess of loss retrocessional contract pursuant to which the retrocessionaire reinsured Odyssey America for certain exposures assumed by Odyssey America from a third party insurer. At December 30, 2004, Odyssey America entered into commutation and release agreements that provide for the settlement of all claims relating to this
During the second quarter of 2004, Odyssey America pledged and placed on deposit at Lloyd’s the equivalent of £110 million of U.S. Treasury Notes on behalf of Advent Capital (Holdings) PLC (“Advent”). Advent is 46.8% owned by Fairfax and its affiliates, including 15.0% by the Company. nSpire Re had previously pledged assets at Lloyd’s on behalf of Advent pursuant to a November 2000 Funding Agreement with Advent whereby the funds are used to support Advent’s underwriting activities for the 2001 to 2005 underwriting years of account. Advent is responsible for the payment of any losses resulting from the use of these funds to support its underwriting activities.