Net investment income decreased $.6 million (5%) during 2004 reflecting lower overall pre-tax yields while average invested assets increased 11%. The average pre-tax yield on invested assets dropped to 2.9% this year from 3.3% during 2003 (13%). The decline in yields occurred entirely within the bond portfolio which averaged 3.2% during 2004 compared to 3.9% last year. A portion of this decline in pre-tax yield is attributable to the increased use of tax-exempt bonds during 2004. Yields on equity securities and short-term investments increased to 3.3% and 1.2%, respectively, from 3.1% and 1.0%, respectively, during 2003, partially offsetting the decline in bond yields. After-tax yields were 2.2% and 2.4% for 2004 and 2003, respectively. As discussed in the Liquidity and Capital Resources section, the Company has maintained its bond portfolio at an
Direct premiums written for 2003 totaled $215.6 million, an increase of $50.9 million (31%) from 2002. This increase is primarily attributable to increases in fleet trucking liability and private passenger automobile programs of $32.6 million (43%) and $6.9 million (19%), respectively, from 2002 levels. Direct premium writings from the Company's small trucking fleet, independent contractor and small business workers' compensation programs also increased by $4.6 million (43%), $3.5 million (10%) and $3.3 million (53%), respectively. Large trucking fleet volume increased primarily from the addition of new accounts during 2003 and the fact that a full year of premiums was recorded for the new accounts added in 2002. Increased revenues from renewal accounts and, to a lesser degree, premium rate increases also contributed to the increase in large fleet trucking liability premiums during 2003. The higher premium volume from the independent contractor program resulted from the addition of contractors by existing accounts. Increased premium volume from the Sagamore personal automobile and commercial divisions came largely from existing market areas resulting from improving market conditions and, to a lesser extent, from geographic expansion.
PROPERTY AND EQUIPMENT: Property and equipment is carried at cost. Depreciation is computed principally by the straight-line method.
For the three years ended December 31, 2004. the Company executed 23% of total purchases and 41% of total sales of securities through broker-dealers in which certain directors of the Company are or were officers, directors or owners. Commission rates charged by these affiliated broker-dealers to the Company were commensurate with rates charged to non-affiliated customers. In addition, at December 31, 2004, the Company has invested approximately $11,146 in certain limited partnerships which are managed by organizations in which certain directors of the Company are officers, directors, general partners or owners. Certain of these investments contain profit sharing provisions to the affiliated organizations. Total fees and profit sharing earned by affiliated investment advisors, other than ABN, were $480, $2,529 and $181 in 2004, 2003 and 2002, respectively.
Loss reserves on certain permanent total disability workers' compensation reserves have been discounted to present value at pre-tax rates not exceeding 3.5%. At December 31, 2004 and 2003, loss reserves have been reduced by approximately $3,932 and $5,549, respectively. Discounting is applied to these claims since the amount of periodic payments to be made during the lifetime of claimants is fixed and determinable.
Net losses and loss expenses incurred for 2004, 2003 and 2002 have been reduced by ceded reinsurance recoveries of approximately $103,730, $96,812 and $60,055, respectively. Net losses and loss expenses incurred for 2004, 2003 and 2002 include approximately $6,349, $5,732 and $5,160 relating to reinsurance assumed from non-affiliated insurance or