The reserve categories where the above methods are not applicable are few. The largest of these is our workers’ compensation residual market reserve category, where we utilize detailed reserve analyses performed by the industry statistical agency NCCI in making our estimates. We adjust these estimates for timing differences in the reporting of the data. The other reserve categories that deviate from the above methods are smaller; as a group constituting approximately one percent of the total reserves.
Policy acquisition and other underwriting expenses increased $22.6 million, to $249.6 million for the year ended December 31, 2011, from $227.0 million for the same period in 2010. Our expense ratio decreased one percentage point to 33.4% for the year ended December 31, 2011, from 34.4% for the same period in 2010. This improvement reflects a reduction in variable compensation and a reduction in commission rates due to mix of business.
In July 2009, our subsidiary, Star, purchased a 28.5% ownership interest in an affiliate, MFH, for $14.8 million in cash. We are not required to consolidate this investment as we are not the primary beneficiary of the business nor do we control the entity’s operations. Our ownership interest is significant, but is less than a majority ownership and, therefore, we are accounting for this investment under the equity method of accounting. Star will recognize 28.5% of the profits and losses as a result of this equity interest ownership. We recognized equity earnings, net of tax, from MFH of $2.4 million, or $0.5 per dilutive share, for the year ended December 31, 2011, compared to $2.3 million, or $0.04 per dilutive share, for the comparable period of 2010, and $0.9 million, or $0.02 per dilutive share, for the comparable period of 2009. We received dividends from MFH in 2011, 2010 and 2009, for $3.4 million, $1.0 million and $0.4 million, respectively.
(6) The loss and loss adjustment expense payments do not have contractual maturity dates and the exact timing of payments cannot be predicted with certainty. However, based upon historical payment patterns, we have included an estimate of our gross losses and loss adjustment expenses. In addition, we have anticipated cash receipts on reinsurance recoverables on unpaid losses and loss adjustment expenses of $315.9 million, of which we estimate that these payments to be paid for losses and loss adjustment expenses for the periods less than one year, one to three years, three to five years, and more than five years, to be $58.6 million, $91.7 million, $43.9 million, and $121.6 million, respectively, resulting in net losses and loss adjustment expenses of $236.7 million, $282.6 million, $129.2 million, and $230.7 million, respectively.
Our variable compensation plans have been established as an incentive for performance of our management team, consist of an Annual Bonus Plan (“Bonus Plan”) and a Long-Term Incentive Plan (“LTIP”). The Bonus Plan is a discretionary cash bonus plan premised upon a targeted growth in net after-tax earnings on a year over year basis. Each year, the Compensation Committee and our Board of Directors establish a new target based upon prior year performance and the forecasted performance levels anticipated for the following year. The amount of the bonus pool is established by aggregating the individual targets for each participant, which is a percentage of salary. An employee’s actual bonus may be plus or minus his or her target based upon the Company and individual’s performance At the end of the year, the Compensation Committee and the Board of Directors review our performance in relation to performance targets and then establish the total bonus pool to be utilized to pay cash bonuses to the management team based upon overall corporate and individual participant goals.
The Gross Agents’ Balances to Policyholders’ Surplus on Star, Savers and Williamsburg were impacted by our Intercompany Reinsurance Pooling Agreement. The assumed premium receivable increased as a result of growth in business, thereby increasing the gross agents’ balances related to the pooling agreement. Excluding the intercompany pooling, this ratio would have been within the usual range for 2011 for all companies.