Our earnings per share were higher in 2005 in part because we had approximately 66,000 fewer shares outstanding (for purposes of the earnings per share calculation) in 2005 as a result of the self tender offer completed in January 2005.
Policy acquisition costs of $2,615,133 were expensed in 2005 compared to $2,591,612 in 2004, an increase of 1.0%. Policy acquisition costs, which are primarily ceding commissions paid to the ceding insurer, are established as a percentage of premiums written; therefore, any increase or decrease in premiums written will result in a similar increase or decrease in policy acquisition costs. Policy acquisition costs expensed in 2004 reflected an increase of 5.9% from $2,446,978 in 2003. Such costs as a percentage of premiums earned were 28.8% in 2005, 29.3% in 2004 and 29.2% in 2003.
Deferred policy acquisition costs, which represent the deferral of ceding commission expense related to premiums not yet earned, decreased from December 31, 2004 along with the decrease in unearned premiums. The current ceding commission rate, which became effective August 1, 1995, is 28.5% for CNA. The ceding rate for the carrier for the CAMICO treaty we began reinsuring in 2005 is 10% and for the attorneys professional liability we reinsured in 2003 was 10%. In addition a federal excise tax of 1% is applied on premiums earned. The 2.5% decrease in deferred policy acquisition costs in 2004 was due to the decrease in unearned premiums compared to the prior year.
We paid our first semi-annual dividend of $1.30 per share during the third quarter of 2005. The next semi-annual dividend of $1.30 per share will occur during the first quarter of 2006. The prior forty consecutive dividends were paid on a quarterly basis. Since AmerInst began paying dividends in 1995, our original shareholders have received approximately $37.80 in cumulative dividends per share, which when measured by a total rate of return calculation has resulted in an effective annual rate of return of approximately 10.1% from the inception of the Company based on a per share purchase price of $25.00 paid by the original shareholders, and using a value of $84.24 (book value) per share as of December 31, 2005.
Declines in the market value of investments below cost are evaluated for other than temporary impairment losses. The evaluation for other than temporary impairment losses is a quantitative and qualitative process which is subject to risks and uncertainties in the determination of whether declines in the fair value of investments are other than temporary. The risks and uncertainties include changes in general economic conditions, the issuer’s financial condition or near term recovery prospects, and the effects of changes in interest rates. AMIG Ltd.’s accounting policy requires that a decline in the value of a security below its cost basis be assessed to determine if the decline is other than temporary. If so, the security is deemed to be impaired and a charge is recorded in net realized losses equal to the difference between the fair value and the cost basis of the security. The fair value of the impaired investment becomes its new cost basis.
Details of the liability for unpaid losses and loss adjustment expenses and related reinsurance recoveries receivable at December 31, 2005 and 2004 are as follows:
Liability for losses and loss adjustment expense activity is as follows: