Through a review of our reinsurance contracts, we have evaluated and estimated our exposure arising from the event of September 11th. Our estimate is based on the most recent information available. Our initial estimate, established in 2001, appears to be appropriate; accordingly, such estimate has not been revised during the year ended December 31, 2002. As additional information becomes available, such estimate could be revised. Included in our consolidated statements of operations for the year ended December 31, 2001, is a net pre-tax loss of $95.0 million. The after tax loss, assuming a 35% tax rate, is $61.8 million. Considerable time may elapse before the adequacy of our estimates can be determined. With respect to the ceded underwriting loss, the reinsurance recoverable is with highly rated reinsurers and we do not foresee any potential credit risks.
Other Underwriting Expenses. Other underwriting expenses for the year ended December 31, 2002 were $70.3 million compared to $64.7 million for the year ended December 31, 2001. The other underwriting expense ratio, expressed as a percent of premiums earned, was 4.9% for the year ended December 31, 2002, compared to 7.2% for the year ended December 31, 2001. This ratio has decreased significantly during 2002 because our other underwriting expenses have increased at a much lower rate than our premiums earned.
Total cash used by investing activities for the year ended December 31, 2002 was $93.3 million compared to cash provided of $229.1 million from investing activities for the year ended December 31, 2001. The decrease in cash proceeds from investing activities is mainly due to a change in the mix of short-term investments and cash and cash equivalents. Cash and cash equivalents were $484.7 million and $375.1 million, as of December 31, 2002 and 2001, respectively. Cash and short-term investments are maintained for liquidity purposes and represented 21.9% and 14.8% as of December 31, 2002 and December 31, 2001, respectively, of total financial statement investments and cash on such dates. Total fixed income securities were $2.0 billion as of December 31, 2002. Total investments and cash amounted to $3.1 billion as of December 31, 2002, an increase of $422.6 million compared to December 31, 2001. The fixed income securities portfolio has a weighted average of AA security rating as measured by S&P.
On February 13, 2003, our Board of Directors declared a quarterly cash dividend of $0.025 per share payable on March 31, 2003 to all stockholders of record as of March 17, 2003. During each of the quarters of 2002, our Board of Directors declared a dividend of $0.025 per common share. Approximately $1.6 million in dividends was paid in each quarter. On September 28, 2001, our Board of Directors declared a cash dividend of $0.025 per share. The total dividend of approximately $1.6 million was paid on October 30, 2001.
Effective January 1, 2002, we adopted Statements of Financial Accounting Standard (“SFAS”) 141, “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets”, which are effective for all fiscal quarters of all fiscal years beginning after December 15, 2001. On January 1, 2002, we, in accordance with the provisions of SFAS 141, and in conjunction with the adoption of SFAS 142, fully amortized our negative goodwill of $36.9 million and reflected the amortization as a cumulative effect of a change in accounting principle item in our statement of operations for the year ended December 31, 2002. The amortization of negative goodwill during the years ended December 31, 2001 and 2000 was $8.3 million and was reflected in other income, net. SFAS 142 established new accounting and reporting standards for acquired goodwill and other intangible assets. It requires that an entity determine if the goodwill or other intangible assets have an indefinite or a finite useful life. Those with indefinite useful lives will not be subject to amortization and must be tested annually for impairment. Management has determined that the goodwill related to Odyssey America of $18.3 million reflected in other assets as of December 31, 2002 and 2001 has an indefinite life and is not impaired; accordingly, we have not amortized our goodwill during the year ended December 31, 2002. For the years ended December 31, 2001 and 2000, we amortized $2.6 million of goodwill, which was reflected in other expense (income), net. There is no effect on our federal and foreign income taxes resulting from the implementation of these accounting pronouncements.
(m) Funds held under reinsurance treaties is an account used to record a liability arising from the Company’s receipt of a deposit from a reinsurer or withholding of a portion of the premiums due as a guarantee that a reinsurer will meet its loss and other obligations. Interest generally accrues on withheld funds in accordance with contract terms.
The gross unrealized appreciation of $71.9 million and the gross unrealized depreciation of $38.3 million results principally from the current interest rate environment.
The Company markets its reinsurance products worldwide primarily through reinsurance brokers as well as directly to its customers. The Company’s five largest reinsurance brokerage firms accounted for an aggregate of approximately 45%, 55% and 64% of gross premiums written for the years ended December 31, 2002, 2001, and 2000, respectively, in the Americas division. Loss of all or a substantial portion of the business provided by these brokers could have a material adverse effect on us.
A summary of the combined status of the 2002 Plan and changes during the year ended December 31, 2002 is presented below:
of $1.3 million as of December 31, 2002, which is reflected in other liabilities, and a current tax recoverable of $12.1 million as of December 31, 2001, which is reflected in other assets.
The Company and its subsidiaries lease office space and furniture and equipment under long-term leases expiring through the year 2010. Minimum annual rentals follow (in thousands):
The National Association of Insurance Commissioners (“NAIC”) adopted the Codification of Statutory Accounting Principles (“the Codification”) guidance as the NAIC’s primary guidance on statutory accounting. The Codification provides guidance for areas where statutory accounting had been silent and changed statutory accounting in some areas. The Connecticut (Odyssey America) and Delaware (ORC and Hudson) Insurance Departments have adopted the Codification guidance, effective January 1, 2001.
for liabilities incurred but not reported. Case basis reserves are a combination of reserves reported to the Company by ceding companies and additional case reserves determined by the Company’s dedicated asbestos and environmental claims unit based on claims audits of cedants. The provision for liabilities incurred but not reported is established based on various methods such as loss development, market share and frequency and severity.
Estimation of ultimate liabilities for these exposures is unusually difficult due to outstanding issues such as whether coverage exists, definition of an occurrence, determination of ultimate damages and allocation of such damages to financially responsible parties. The determination of ultimate liabilities for waste site pollution exposure is especially uncertain due to the potential for an amendment to the Superfund Law proposed by various business groups, environmental groups and government agencies.