Loss trend factors that are used to establish the above noted expected loss ratios. Such factors take into account such variables as judgments and estimates for premium rate trends and adequacy, current and expected interest rates, current and expected social and economic inflation trends, and insurance industry statistical claim trends.
(6) Represents .3% of the cost of the total equity securities portfolio, while gross unrealized gains represent 25.5% of the portfolio.
The Company's investment policies have not been designed to maximize or emphasize the realization of investment gains. Rather, these policies aim to assure a stable source of income from interest and dividends, protection of capital, and provision of sufficient liquidity to meet insurance underwriting and other obligations as they become payable in the future. Dispositions of fixed maturity securities arise mostly from scheduled maturities and early calls; in 2006, 2005, and 2004, 77.2%, 67.9% and 80.3%, respectively, of all such dispositions resulted from these occurrences. Dispositions of equity securities at a realized gain or loss reflect such factors as ongoing assessments of issuers’ business prospects, rotation among industry sectors, and tax planning considerations. Additionally, the amount of net realized gains and losses registered in any one accounting period are affected by the aforementioned assessments of securities’ values for other than temporary impairment. As a result of the interaction of all these factors and considerations, net realized investment gains or losses can vary significantly from period-to-period, and in the Company’s view are not indicative of any particular trend or result in the basics of its insurance business.
The following table shows a breakdown of gross and net of reinsurance claim reserve estimates for major types of insurance coverages as of December 31, 2006 and 2005:
The percentage of net claims, benefits and related settlement expenses measured against premiums earned by major general insurance coverage types were as follows:
The effective consolidated income tax rates were 31.7% in 2006, 26.2% in 2005, and 33.2% in 2004. The 2005 effective tax rate was reduced and net earnings enhanced by tax and related interest recoveries of $57.9 ($45.9 net of tax, or 20 cents per share), in the second quarter due to the favorable resolution of tax issues applicable to the three years ended December 31, 1990. Excluding the effects of these tax and related interest recoveries, the effective tax rates remained consistent with those of the corresponding prior periods. The rates for each year reflect primarily the varying proportions of pretax operating income derived from partially tax-sheltered investment income (principally state and municipal tax-exempt interest) on the one hand, and the combination of fully taxable investment income, realized investment gains or losses, and underwriting and service income, on the other hand.
(1) At December 31, 2006 and 2005, there were 75,000,000 shares of $0.01 par value preferred stock authorized, of which no shares were outstanding. As of the same dates, there were 500,000,000 shares of common stock, $1.00 par value, authorized, of which 231,047,890 in 2006 and 229,575,404 in 2005 were issued and outstanding. At December 31, 2006 and 2005, there were 100,000,000 shares of Class B Common Stock, $1.00 par value, authorized, of which no shares were issued.
The benefits expected to be paid as of December 31, 2006 for the next 10 years are as follows: 2007: $9.9; 2008: $11.0; 2009: $11.4; 2010: $12.2; 2011: $12.7; and for the five years after 2011: $76.2.
The weighted-average asset allocations of the Plans as of the above measurement dates are as follows:
(q) Stock Option Compensation- Effective April 1, 2003, the Company adopted the requirements of Statement of Financial Accounting Standards No. 148 (“FAS 148”), “Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FAS No. 123” on a prospective basis. Under FAS 148, stock-based compensation expense is recognized for awards granted after the beginning of the fiscal year of adoption, as such awards become vested. Prior to April 1, 2003, the Company accounted for stock options under APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees” and related interpretations under Statement of Financial Accounting Standards No. 123 (“FAS 123”), “Accounting for Stock-Based Compensation” which permitted the inclusion of stock-based compensation as a pro forma disclosure in the financial statements.