2006 compared to 2005. The expense on amounts withheld increased $1.2 million in 2006 to $2.1 million from $1.0 million in 2005. The increase in 2006 is attributable to continued growth in our alternative risk transfer component.
We will have continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends and taxes. Funds to meet these obligations will come primarily from dividend and tax payments from our insurance company subsidiaries and from our line of credit. Under the state insurance laws, dividends and capital distributions from our insurance companies are subject to restrictions relating to statutory surplus and earnings. The maximum amount of dividends that our insurance companies could pay to us without seeking regulatory approval in 2007 is $37.7 million. Our insurance subsidiaries paid $4.0 million and $3.0 million in dividends in 2007 and 2006, respectively, without the need for regulatory approval.
The Credit Agreement requires us to maintain specified financial covenants measured on a quarterly basis, including consolidated net worth, fixed charge coverage ratio and debt to capital ratio. In addition, the Credit Agreement contains certain affirmative and negative covenants, including negative covenants that limit or restrict our ability to, among other things, incur additional indebtedness, effect mergers or consolidations, make investments, enter into asset sales, create liens, enter into transactions with affiliates and other restrictions customarily contained in such agreements. The Credit Agreement will terminate on December 19, 2012. No amounts were borrowed under this Credit Agreement at December 31, 2007.
We recorded favorable development of $1.4 million in 2007, $4.1 million in 2006 and $1.8 million in 2005 for this line of business as actual claim severity, driven by favorable negotiated settlements and jury awards, was significantly lower than previously anticipated. We continually monitor development trends in each line of business as a component of estimating future ultimate loss and related LAE liabilities. Management has not made any changes to the key assumptions used in calculating current year reserves in the commercial auto liability line of business.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), National Interstate Corporation’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2008, expressed an unqualified opinion thereon.
NIIC entered into a limited partnership with Clutterbuck Funds, LLC and other partners to invest in CF Special Situation Fund I, LP (“Clutterbuck”) during the third quarter of 2006. As of December 31, 2007 the Company owned approximately 12% of Clutterbuck. In September 2007, the Chairman of the Company, who at the time was
The Company invests funds in the participant loss layer for several of the alternative risk transfer programs. The Company receives investment income and incurs an equal expense on the amounts owed to alternative risk transfer participants. “Expense on amounts withheld” represents investment income that we remit back to alternative risk transfer participants. The related investment income is included in the Company’s “Net investment income” line on its Consolidated Statements of Income. Beginning in the fourth quarter 2007 the Company began presenting this expense as a separate income statement line item and no longer included as part of “Other operating and general expenses.” All prior periods have been reclassified to conform to the current year’s presentation.