The increase in gross written premiums in 2004 as compared to 2003 was primarily attributable to two renewal rights agreements for the specialty commercial and public entity segments which were entered into in the fourth quarter of 2003. The increase in gross written premium in 2003 as compared to 2002 was primarily attributable to a renewal rights agreement in the excess and surplus lines segment, the public entity segment entering new markets, coupled with the restructuring of the products underwritten by the risk management segment. Consolidated gross written premiums include $402.2 million from new business written in 2004, as compared to $391.4 million in 2003 and $332.2 million in 2002. Consolidated gross written premiums from renewal business written in 2004 were $469.9 million, compared to $333.8 million for 2003 and $269.7 for 2002. The increase in premiums on renewal business was primarily the result of an increase in the amount of business inforce subject to renewal. Consolidated gross written premiums for the years ended December 31, 2004 and 2003 were also impacted by approximately $50.4 million and $87.4 million, respectively, from premiums written and assumed under various reinsurance agreements, partially offset by endorsements and cancellations of $19.1 million and $24.1 million, respectively.
Risk Management. Workers’ compensation is the primary line underwritten by Argonaut Insurance Company, concentrating on casualty risk management solutions for accounts that generally produce annual premiums between $500,000 and $5.0 million. In addition, commercial automobile and other liability policies are sometimes written as accompanying lines to the workers’ compensation coverage for certain risk management insureds. These insurance products are designed to meet the needs of business customers that are willing and able to bear a substantial portion of the insurance risk through deductibles and retrospectively rated premiums.
Gross written premiums assumed from involuntary pools were $6.9 million for 2004 compared to $12.7 million for 2003. The decrease in the premiums assumed in 2004 as compared to 2003 was due to a reduction of the assessments due to a decline in premiums written by the Company in the state of Massachusetts.
Losses and loss adjustment expenses for the year ended December 31, 2004 resulted in a loss ratio of 66.7% compared to 70.8% and 70.9% for 2003 and 2002, respectively. The decline in the loss ratio for the year ended December 31, 2004 was primarily attributable to a reduction in the catastrophe losses incurred in 2004 as compared to 2003 and 2002. Catastrophe losses for 2004 were $1.1 million resulting from the four hurricanes that made landfall in the southeastern United States in the third quarter. Catastrophe losses in 2003 included $2.1 million due to spring storms in the mid-western United States combined with food spoilage claims of $1.9 million resulting from the power outage in the eastern United States in August 2003. Catastrophe losses of $3.8 million in 2002 were the result of various storms. The specialty commercial segment’s loss reserves were $215.7 million, $182.0 million and $172.2 million as of December 31, 2004, 2003 and 2002, respectively. Included in losses and loss adjustment expense for the year ended 2004 was $3.5 million of adverse development related to prior accident years. This development was primarily attributable to reserve strengthening as a result of the actuarial analysis completed in the fourth quarter of 2004 coupled with the impact of the reserve discount related to the workers’ compensation reserves.
Annually the Company reviews its loss and loss adjustment expense reserves for its run-off lines of business, inclusive of its asbestos and environmental claims. The process is initiated at the end of the second quarter and is typically completed in the third quarter of the calendar year. The review entails a detailed analysis of the Company’s direct and assumed exposure. The Company engages a consulting actuary to provide its best estimate of ultimate losses and management evaluates that estimate in assessing the adequacy of the run-off loss and loss adjustment expense reserves. As of December 31, 2004, the Company recorded reserves are within 2% of the best estimate provided by the consulting actuary’s best estimate. The review completed during the third quarter of 2004, and updated in the fourth quarter, indicated the carried reserves were adequate based on all information then available to the Company.
In addition to its investment portfolio, the Company’s subsidiaries own real property for use as home office facilities for Argonaut Insurance Company and Argonaut Great Central, as well as one commercial property in California. These real properties are included in “Other Assets” valued at approximately $1.0 million, which is their original cost less accumulated depreciation.