Includes a gain on extinguishment of debt of $4.6 million for the period ended December 31, 2008.
paid factor. For each successive prior maturity, the ultimate development factor is calculated similarly. The result of multiplying the ultimate development factor times the case reserve is the total indicated unpaid.
Our on-going commitment to adequate rates and strong underwriting standards affects our willingness to write new business and to renew existing business in the face of this price-based competition. Improvements in loss cost trends have allowed us to reduce rates in certain markets during 2008 and to offer targeted new business and renewal retention programs in selected markets. In 2008 we launched a new branding campaign, “Treated Fairly”, which we believe will help us emphasize our fair treatment of our insureds and other important stakeholders. We are emphasizing “Treated Fairly” in all of our activities, and we believe that as we reach more customers with this message we will both improve retention and add new insureds, both of which will help offset the effects of lower rates.
We also believe our recent acquisition of Georgia Lawyers (which will be merged into PRA Casualty) and Mid-Continent, along with our pending acquisition of PICA will add at least $100 million of premium during 2009. In addition to providing an avenue for premium growth, we believe these transactions will also broaden our business footprint and diversify our book of business.
In December 2007 the FASB issued SFAS 141 (Revised December 2007), Business Combinations. SFAS 141R replaces FASB Statement No. 141, Business Combinations, but retains the fundamental requirement in SFAS 141 that the acquisition method (referred to as the purchase method in SFAS 141) of accounting be used for all business combinations. SFAS 141R provides new or additional guidance with respect to business combinations including: defining the acquirer in a transaction, the valuation of assets and liabilities when noncontrolling interests exist, the treatment of contingent consideration, the treatment of costs incurred to effect the acquisition, the treatment of reorganization costs, and the valuation of assets and liabilities when the purchase price is below the net fair value of assets acquired. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. We will adopt the Statement on its effective date.
In September 2008, unprecedented events occurred in the financial markets which affected our investment results. Our investment portfolio was directly affected by the U.S. Treasury conservatorship of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), the declaration of bankruptcy by Lehman Brothers Holding, Inc. (Lehman), the Federal Reserve’s lending facility to American International Group, Inc. (AIG), and the ratings downgrades and subsequent FDIC facilitated sale of Washington Mutual Bank (Washington Mutual). In connection with these events, the net asset value of our investment in the Reserve Primary Fund (the Reserve Fund), a money market fund, fell below $1 per share on a market value basis due to a combination of holdings of short-term securities issued by Lehman Brothers and major shareholder redemptions. During 2008, our portfolio of asset-backed securities, particularly mortgage-backed securities, has been impacted by the dramatic deterioration of the real estate market due to a significant increase in home foreclosures and commercial delinquencies.
Hospital and facility coverages are the most significant component of non-physician premiums and represent 7% and 6% of our total gross premiums written for the years ended December 31, 2008
Exclusive of amounts included in the following table, our reinsurance expense ratio (premiums ceded as a percentage of premiums earned) averages 9.0% in both 2008 and 2007.
The Consolidated Financial Statements and Financial Statement Schedules of ProAssurance Corporation and subsidiaries listed in Item 15(a) have been included herein beginning on page 82. The Supplementary Financial Information required by Item 302 of Regulation S-K is included in Note 18 to the Consolidated Financial Statements of ProAssurance and its subsidiaries.