the availability of primary and reinsurance coverage, including the implications relating to terrorism legislation and regulation;
the impact of economic factors on companies on whose behalf we have issued surety bonds, and in particular, on those companies that have filed for bankruptcy or otherwise experienced deterioration in creditworthiness;
Results in 2001 were adversely affected by net surety losses of $220 million related to Enron. Results in 2002 and 2003 benefited from reductions in net surety losses related to Enron of $88 million and $17 million, respectively.
It is expected that reinsurance costs will increase in 2004 in line with the higher premiums on the policies reinsured. In January 2004, we discontinued a casualty per risk treaty that responded primarily to excess liability exposures over $25 million, due to a reduction in the number of such exposures that we believed made this treaty no longer economical. Our executive protection per risk treaty was renewed on terms similar to the prior year, except our initial deductible on directors and officers liability losses was increased.
It is possible that our estimate of ultimate losses related to the September 11 attack may change in the future, and that the change in estimate could have a material effect on the Corporation’s results of
In addition, we must consider the uncertain effects of emerging or potential claims and coverage issues. These issues can have a negative effect on our loss reserves by either extending coverage beyond the original underwriting intent or by increasing the number or size of claims. Examples of emerging or potential claims and coverage issues include increases in the number and size of water damage claims related to remediation of mold conditions and increases in the number and size of directors and officers liability and errors and omissions liability claims arising out of investment banking practices and accounting and other corporate malfeasance. As a result of issues such as these, the uncertainties inherent in estimating ultimate claim costs on the basis of past experience have become increasingly unpredictable, further complicating the already complex loss reserving process. The future impact of these issues and other unforeseen emerging or potential claims and coverage issues is extremely hard to predict and could materially adversely affect the adequacy of our loss reserves.
compensation, terrorism coverage is mandatory. For those classes of business where it is not mandatory, insureds may choose not to accept the terrorism coverage, which would reduce our exposure. While the provisions of the Terrorism Act will serve to mitigate our exposure in the event of a large-scale terrorist attack, our deductible is substantial, approximating $600 million in 2004. Therefore, we are making a concerted effort to monitor and control terrorism risk aggregations. However, our future operating results could be more volatile due to the limited terrorism coverage in our reinsurance program.
Property and casualty investment income before taxes increased by 14% in 2003 compared with 2002 and by 3% in 2002 compared with 2001. Growth in both years was due to an increase in invested assets, which reflected substantial cash flow from operations over the period. Growth in 2003 also benefited from capital contributions to the property and casualty subsidiaries by the Corporation of $1 billion in the fourth quarter of 2002 and $800 million in the second quarter of 2003. Growth in 2002 benefited from a capital contribution in the fourth quarter of 2001 that added $500 million to the invested assets of the property and casualty subsidiaries. Lower available reinvestment rates on fixed maturities that matured in each year dampened growth in investment income.
The non-insurance business of CFS produced a loss before taxes of $127 million in 2003 compared with a loss of $70 million in 2002 and income of $9 million in 2001.
We establish deferred income taxes on the undistributed earnings of foreign subsidiaries. Similarly, we establish deferred tax assets related to the expected future U.S. tax benefit of losses and foreign taxes incurred by our foreign subsidiaries. To evaluate the realization of the future tax benefit of these deferred tax assets, management must consider whether it is more likely than not that sufficient taxable income will be generated. Management’s judgment is based on its assessment of business plans and related projections of future taxable income that reflect assumptions about increased premium volume, higher rates and improved policy terms as well as available tax planning strategies. The tax loss carryforwards and foreign tax credits have no expiration. However, we are