Our overall change in the loss reserve estimates related to prior years increased as a percentage of total carried reserves during 2010 and 2009. On an opening carried reserve base of $3,841.8 million, after reinsurance recoverable, we had a net decrease of $313.3 million, or 8.2%, during 2010, and for 2009 we had a net decrease of $248.0 million, or 6.7%, on an opening carried reserve base of $3,688.5 million, after reinsurance recoverables. We believe that these changes are reasonable given the long-tail nature of our business.
In accordance with U.S. GAAP, we are required to recognize certain assets at their fair value in our consolidated balance sheets. This includes our fixed maturity investments, hedge funds and other invested assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset or liability are observable or unobservable in the market at the measurement date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the input that is significant to determining such measurement. The three levels are defined as follows:
determining the reporting unit, we analyze the inputs, processes, outputs and overall operating performance of the reporting unit.
Increased stock-related compensation of $8.5 million, which included a one-time increase of $4.3 million for performance-based awards granted under the Company’s equity plans in 2009 to recognize expected performance above the target level. For all performance-based awards, we initially recognize the stock compensation expense at 100% of the fair market value of Allied World Switzerland’s common shares on the date of grant and reassess, at least annually, the projected growth in book value to determine whether an adjustment to the initial estimate of the expense should be made. During the year ended December 31, 2010, we have accrued 150% of the fair market value of Allied World Switzerland’s common shares awarded, as we believe it is probable that we will achieve the maximum performance criteria when these performance-
Gross premiums written increased by $250.7 million, or 17.3%, for the year ended December 31, 2009 compared to the year ended December 31, 2008. The overall increase in gross premiums written was primarily the result of the following:
Gross premiums written in our international insurance segment decreased by $139.6 million, or 20.1%, due to the continued trend of the non-renewal of business that did not meet our underwriting requirements (which included inadequate pricing and/or policy terms and conditions) and increased competition. This was most noticeable in our general property and energy lines of business where gross premiums written decreased by $55.9 million and $37.6 million, respectively, during the year ended December 31, 2009 compared to the year ended December 31, 2008. Also causing lower gross premiums written was a reduction of $27.1 million in professional liability business related to the financial services industry where rates were not sufficient for the risks within that industry.
An overall increase in headcount, including the addition of Darwin employees for a full year. The increased headcount resulted in overall increase in salary and related costs by $45.4 million.
Increase of $2.8 million related to the Darwin LTIP that we assumed as part of the Darwin acquisition.
Net premiums written increased by $58.0 million, or 11.8%, for the year ended December 31, 2010 compared to the year ended December 31, 2009. The increase in net premiums written was primarily due to higher gross
Premiums. Gross premiums written decreased by $139.6 million, or 20.1%, for the year ended December 31, 2009 compared to the same period in 2008. The decrease in gross premiums written was due to the continued trend of the non-renewal of business (primarily property and energy business) that did not meet our underwriting requirements (which included inadequate pricing and/or policy terms and conditions) and increased competition in our international insurance segment. Gross premiums written decreased by $56.2 million and $37.6 million in our general property and energy lines of business, respectively, as a result of pricing that did not meet our underwriting requirements and the non-renewal of 90 out of 116 energy accounts. Also causing lower gross premiums written
Premiums. Gross premiums written increased by $58.6 million, or 12.6%, for the year ended December 31, 2010 compared to the same period in 2009. The increase in gross premiums written was primarily due to increased writings in our property and international reinsurance lines of business with the build out of our London and Singapore offices, including business written through Syndicate 2232. We increased our participation on one property reinsurance treaty for $23.6 million in 2010 from $9.0 million in 2009, and we wrote one new treaty in our general casualty reinsurance line of business for $31.4 million. These increases were partially offset by the non-renewal of business that did not meet our underwriting requirements (which included inadequate pricing and/or terms and conditions), increased competition and increased cedent retention.
The table below illustrates our gross premiums written by line of business for the year ended December 31, 2010 and 2009.
The table below is a reconciliation of the beginning and ending reserves for losses and loss expenses for the year ended December 31, 2010 and 2009. Losses incurred and paid are reflected net of reinsurance recoverables.
Net losses and loss expenses. Net losses and loss expenses decreased by $14.5 million, or 5.8%, for the year ended December 31, 2009 compared to the year ended December 31, 2008. The decrease in net losses and loss expenses was primarily due to lower storm activity compared to the year ended December 31, 2008, which included Hurricanes Gustav and Ike, partially offset by lower net favorable reserve development. Overall, our reinsurance segment recorded net favorable reserve development of $38.1 million and $75.1 million during the years ended December 31, 2009 and 2008, respectively.
Allied World Bermuda is a holding company and transacts no business of its own. Cash flows to Allied World Bermuda may comprise dividends, advances and loans from its subsidiary companies. Allied World Bermuda is therefore reliant on receiving dividends and other permitted distributions from its subsidiaries to make principal and interest payments on its senior notes.
The following were the financial strength ratings of all of our insurance and reinsurance subsidiaries as of February 21, 2011, except as noted below: