The following selected financial data, other than the selected statutory data, are derived from our consolidated financial statements which were prepared in accordance with GAAP. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included elsewhere in this report. The selected statutory data are derived from our annual statements which were prepared in accordance with statutory accounting practices as required by insurance regulatory authorities. See Note 20 of the Notes to Consolidated Financial Statements for a discussion of the principal differences between GAAP and statutory accounting practices. Such information is incorporated herein by reference.
Our loss experience is a major component of our results of operations. When we receive notice of a claim that is covered under a policy we have issued, our claims adjusters establish a reserve for the expected cost to settle the claim, including estimates of any related legal or other expenses associated with resolving the claim. These reserves are referred to as “case basis” reserves. In addition, at the end of each reporting period, certain losses will have occurred that have not been reported to us. Accordingly, we establish reserves for such incurred but not reported (“IBNR”) losses and related loss adjustment expenses. Our incurred loss and loss adjustment expenses represent any payments made to settle losses, including related loss adjustment expense payments, as well as any change in our case basis and IBNR reserves.
The rising cost of medical professional liability insurance has been prominent in the media in recent years. Several factors have contributed to the recent premium rate increases such as, an increase in paid losses, decreased investment income due to lower prevailing interest rates, reduced competition, and increased reinsurance rates.
The following table shows the aging of unrealized losses included in our investment portfolio as of December 31, 2003:
This ratio compares our losses and loss adjustment expenses incurred, net of reinsurance, to our net premiums earned, and indicates how much we expect to pay policyholders for claims and related settlement expenses compared to the amount of premiums we earn. The calendar year loss ratio uses all losses and loss adjustment expenses incurred in the current calendar year (i.e., related to all accident years). The accident year loss ratio uses only those loss and loss adjustment expenses that relate to the current accident year (i.e., excludes the effect of development on prior year loss reserves). The lower the percentage, the more profitable our insurance business is, all other things being equal.
The following table sets forth our results of operations for the years ended December 31, 2003, 2002 and 2001 on a consolidated basis. The discussion that follows should be read in connection with the Consolidated Financial Statements, and Notes thereto, included elsewhere in this report.
Amortization expense during 2003 relates to a definite-lived intangible asset acquired in connection with our investment in PIC. See Note 4 of the Notes to Consolidated Financial Statements for further information regarding this and other intangible assets. Such information is incorporated herein by reference.
The federal income tax expense recorded in 2003, as compared to the benefit recorded in 2002, was the result of the establishment of the deferred tax valuation allowance as described above. Once we have
The following table sets forth summary premium, loss and expense information regarding the underwriting results of our workers’ compensation insurance operations for the years ended December 31, 2003, 2002 and 2001.
Activity in the liability for unpaid loss and loss adjustment expenses by insurance segment for the year ended December 31, 2003 was as follows:
Goodwill consists of the excess of cost over fair market value of the net assets of acquired businesses. Prior to 2002, goodwill was amortized on a straight-line basis over a period of ten years.
The composition of the investment portfolio including unrealized gains and losses at December 31, 2003 and 2002 was: