Management's discussion and analysis of financial condition and results of operations is presented in a condensed disclosure format pursuant to General Instruction I(1)(a) and (b) of Form 10-K. Management's narrative that follows reviews our consolidated financial condition as of December 31, 2004 and 2003, the consolidated results of operations for the years ended December 31, 2004, 2003 and 2002 and, where appropriate, factors that may affect future financial performance. This management narrative for the Company should be read in conjunction with the consolidated financial statements and related notes, included elsewhere in this Form 10-K. The Company's news releases and other information are available on the internet at www.jhancock.com, and its financial statements are available at www.manulife.com, under the link labeled "Securities Filings" on the "Investor Relations" Page. In addition, all of the Company's United States Securities and Exchange Commission filings are available on the internet at www.sec.gov, under the name Hancock John Life.
The Company's purchase adjustments resulted in a revalued balance sheet which may result in future earnings trends which differ significantly from historical trends. The Company does not anticipate any impact on its liquidity, or ability to pay claims of policyholders, arising out of the purchase accounting process related to the merger.
The Company has a number of relationships with a disparate group of entities (Other Entities), which result from the Company's direct investment in their equity and/or debt. This group includes energy investment partnerships, investment funds organized as limited partnerships, and businesses which have undergone debt restructurings and reorganizations and various other relationships.
Other operating costs and expenses increased $218.1 million from the prior year driven by a charge for unrecoverable reinsurance of $142.1 million, an increase of $47.9 million in merger transaction expenses and an increase of $29.5 million in the integration costs. There was a $5.5 million increase in operating expenses at the Hancock Natural Resource Group, which included $4.4 million of expenses associated with the expansion of its property management division. Partially offsetting these increases was a decrease in operating expenses of $11.9 million at Signature Fruit. Signature Fruit other operating costs and expenses were $245.9 million in 2004 and $257.8 million in the prior year. Operating expenses at the institutional advisory businesses, Declaration Management & Research and Independence Investments LLC, decreased $6.9 million to $40.9 million primarily due to lower compensation expenses.
Universal life and investment-type product fees increased 5.5%, or $33.2 million, from the prior year. These product fees consist primarily of cost of insurance fees on our variable life insurance and universal life insurance products and mortality and expense fees on our variable annuity products. The increase was primarily due an increase of $34.6 million in the Protection Segment driven by growth in average account values in universal life insurance products driven by the acquisition of the Allmerica block of fixed universal life insurance business as of December 31, 2002 and growth in the existing business. Partially offsetting the growth in the Protection Segment was a decline of $1.8 million in product fees in the Wealth Management Segment where the decline in variable annuity fund balances drove the fees down.
Management of credit risk is central to our business and we devote considerable resources to the credit analysis underlying each investment acquisition. Our corporate bond management group includes a staff of highly specialized, experienced, and well-trained credit analysts. We rely on these analysts' ability to analyze complex private financing transactions and to acquire the investments needed to profitably fund our liability requirements. In addition, when investing in private fixed maturity securities, we rely upon broad access to proprietary management information, negotiated protective covenants, call protection features and collateral protection.
1) With respect to securities that are awaiting rating, the Company has assigned a rating based on an analysis that it believes is equivalent to that used by the SVO. 2) Comparisons between SVO and S&P ratings are published by the National Association of Insurance Commissioners. 3) Includes 58 securities with gross unrealized losses that are awaiting an SVO rating with a carrying value of $1,763.4 million and unrealized losses of $27.1 million. Due to lags between the funding of an investment, the processing of final legal documents, the filing with the SVO, and the rating by the SVO, there will always be a number of unrated securities at each statement date. Unrated securities comprised 18.9% and 5.8% of the total carrying value and total gross unrealized losses of securities in a loss position, including redeemable preferred stock, respectively.
Net cash (used in) or provided by financing activities was $(2,523.6) million, $1,856.1 million and $3,617.7 million, for the years ended December 31, 2004, 2003 and 2002, respectively. Changes in cash provided by financing activities primarily relate to excess deposits or withdrawals under investment type contracts, the issuance of debt and borrowings or re-payments of the Company's debt. The $4,379.7 million decrease in net cash provided by financing activities for 2004 as compared to 2003 was driven by a decrease in deposits and an increase in cash payments made on withdrawals of universal life insurance and investment-type contracts totaling $3,704.3 million, a decrease in funds from the issuance of consumer notes of $480.5 million. The $1,761.6 million decrease in net cash provided by financing activities for 2003 as compared to 2002 was driven by a decrease in deposits and an increase in cash payments made on withdrawals of universal life insurance and investment-type contracts totaling $2,783.0 million, somewhat offset by a $970.0 million increase in funds from the issuance of consumer notes, a program initiated in the second half of 2002.