The following is a discussion and analysis of our results of operations for the years ended December 31, 2009, 2008 and 2007 and our financial condition as of December 31, 2009 and 2008. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes thereto included within this filing.
We track gross reinsurance treaty contract limits that we believe are exposed to a single natural perils occurrence within certain broadly defined major catastrophe zones. The resulting measure represents the sum of all contract limits assumed through property reinsurance treaties, other specialty reinsurance treaties and event-linked insurance derivatives, but excludes limits relating to individual risk insurance business and the benefit of any reinsurance protections we have purchased. As of December 31, 2009, our largest single zonal concentration was Northern European windstorm (the zone consisting of the U.K., Ireland, Germany, France, the Benelux countries, Switzerland, Denmark, Norway and Sweden). For individual risk business, including both direct insurance and facultative reinsurance accounts, we supplement our treaty approach by tracking contract limits to a finer geographic resolution.
During 2007, Montpelier Bermuda incurred losses from European windstorms Kyrill and Gonu, California wildfires and floods in the U.K. and Australia. These events generated combined net losses of $88.6 million.
The increase in Montpelier Bermuda’s fixed expenses incurred during 2009, as compared to 2008, was primarily attributable to two items. The first was the implementation of a new reinsurance accounting system. Fixed expenses recognized during 2009 associated with this new system include the periodic amortization of capitalized costs, as well as maintenance and enhancement costs incurred subsequent to its implementation. The second was a $2.9 million increase in legal fees incurred during 2009, primarily in connection with our unresolved contract dispute with MPCL.
Annual contract payments expensed in connection with the CAT Bond Protection, calculated at 12.83% per annum on the first tranche and 13.58% per annum on the second tranche, total $0.2 million during 2009 and $11.9 million during each of 2008 and 2007.
During 2003, we issued $250.0 million of Senior Notes. The Senior Notes bear interest at a rate of 6.125% per annum, payable semi-annually in arrears on February 15 and August 15 of each year. The Senior Notes are scheduled to mature on August 15, 2013. As of December 31, 2009 and 2008, we had $229.0 million and $250.0 million of principal amount of Senior Notes outstanding, respectively, with an unamortized carrying value of $228.6 million and $249.4 million, respectively.
· we spent $28.4 million on dividends to our common shareholders,
Our cash flows provided from investing activities totaled $500.6 million, resulting from the following:
· we spent $3.9 million to amend the second Forward Share Agreement,
Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported and disclosed amounts of our assets and liabilities as of the balance sheet dates and the reported amounts of our revenues and expenses during the reporting periods. We believe the items that require the most subjective and complex estimates are: (i) our loss and LAE reserves; (ii) our written and earned premiums; (iii) our ceded reinsurance; and (iv) our share based compensation.
Estimating loss reserves requires us to make assumptions regarding reporting and development patterns, frequency and severity trends, claims settlement practices, potential changes in the legal environment and other factors such as inflation and demand surge. These estimates and judgments are based on numerous factors, and are often revised as we receive changes in loss amounts reported by ceding companies, as additional information, experience or other data becomes available and is reviewed, as new or improved methodologies are developed, or as laws change.