We also have entered into leases for office space in locations of our subsidiary operations. These locations include Boston, Massachusetts; Rocky Hill, Connecticut; Alpharetta, Georgia; Scottsdale, Arizona; Pasadena, California; Manhattan Beach, California and Atlanta, Georgia in the U.S. Our international offices for our subsidiaries include locations in Paris, Zurich, Singapore and Dublin. In 2010, we are also looking to open an office in Cologne, Germany and offices in Miami and New York.
an increase in net of tax unrealized gains on investments of $101.8 million, accounted for in other comprehensive income; and
The amount under our senior notes was the only material debt that we had outstanding as of December 31, 2007, 2008 and 2009. Management monitors the ratio of debt to total capital, with total capital being defined as shareholders’ equity plus outstanding debt. At December 31, 2009, this ratio was 7.0% (2008 - 8.2%; 2007 - 8.1%).
Our preference shares are classified in our balance sheet as equity but may receive a different treatment in some cases under the capital adequacy assessments made by certain rating agencies. Such securities are often referred to as ‘hybrids’ as they have certain attributes of both debt and equity. We also monitor the ratio of the total of debt and hybrids to total capital which was 17.0% as of December 31, 2009 (2008 - 22.1%; 2007 - 21.8%).
Liquidity. Management monitors the liquidity of Aspen Holdings and of each of its Insurance Subsidiaries. With respect to Aspen Holdings, management monitors its ability to service debt, to finance
As part of the organizational change, Julian Cusack has assumed the role of Group Chief Risk Officer. Mr. Cusack previously served as Chief Operating Officer. Mr. Cusack will remain Chairman and Chief Executive Officer of Aspen Bermuda and will continue to chair our Reserve Committee.
Non-proportional treaties. A large number of the reinsurance contracts we write are written on a non-proportional or excess of loss treaty basis. As the ultimate level of business written by each cedant can only be estimated at the time the reinsurance is placed, the reinsurance contracts generally stipulate a minimum and deposit premium payable under the contract with an adjustable premium determined by variables such as the number of contracts covered by the reinsurance, the total premium received by the cedant and the nature of the exposures assumed. Minimum and deposit premiums generally cover the majority of premiums due under such treaty reinsurance contracts and the adjustable portion of the premium is usually a small portion of the total premium receivable. For excess of loss contracts, the minimum and deposit premium, as defined in the contract, is generally considered to be the best estimate of the contract’s written premium at inception. Accordingly, this is the amount we generally record as written premium in the period the underlying risks incept. During the life of a contract, notifications from cedants and brokers may affect the estimate of ultimate premium and result in either increases or reductions in reported revenue. Changes in estimated adjustable premiums do not generally have a significant impact on short-term liquidity as the payment of adjustment premiums generally occurs after the expiration of a contract.
We anticipate that ultimate premiums might reasonably be expected to vary by up to 5% as a result of variations in one or more of the assumptions described above, although larger variations are possible. Based on gross written premiums of $181.4 million (2008 - $174.7 million) in our property reinsurance treaty pro rata account as of December 31, 2009, a variation of 5% could increase or reduce net income before taxation by approximately $1.8 million (2008 - $0.8 million).
Deferred Tax Assets. We provide for income taxes for our subsidiaries operating in income tax- paying jurisdictions. Our deferred tax assets and liabilities primarily result from the net tax effect of temporary differences between the amounts recorded in our audited consolidated financial statements and the tax basis of our assets and liabilities. We determine deferred tax assets and liabilities separately for each tax-paying component in each tax jurisdiction.
teams in 2008 and 2009. Gross earned premium decreased by $14.2 million in 2008 compared to 2007 reflecting the reduction in written premiums in our property and casualty reinsurance segments.
The increase in net premiums earned in 2009 in property reinsurance and U.S. insurance was due to favorable market conditions for U.S. property business and also the earnings generated by the newly established credit and surety reinsurance business included in our property reinsurance segment. An increase of $64.3 million in net earned premiums in our international insurance segment was predominantly due to the contribution from new underwriting teams.
Facultative reinsurance is normally purchased by insurers where individual risks are not covered by their reinsurance treaties, for amounts in excess of the dollar limits of their reinsurance treaties or for unusual risks. We also underwrite “facultative automatics” where all original risks that meet certain contractual criteria are covered under the same reinsurance contract. There is typically a different type of underwriting expertise required in facultative underwriting as compared to treaty underwriting. We also write some structured risks on a treaty basis out of Aspen Bermuda. Our property reinsurance segment business is written out of Bermuda, London, the U.S., Paris, Zurich and Singapore. For a more detailed description of this segment, see Part I, Item 1, “Business - Business Segments - Property Reinsurance.”
The net loss ratio for 2008 was 59.1% compared to 39.7% in 2007 due to the recognition of $140.5 million of Hurricanes Ike and Gustav losses partially mitigated by a $23.6 million increase in prior year releases compared to 2007 due to favorable development on the catastrophe line of business in 2008 compared to adverse development on Hurricane Katrina claims in 2007. The segment also experienced a high incidence of risk losses in 2008 which contributed to the increase in the loss ratio.
For a more detailed description of this segment, see Part I, Item 1, “Business - Business Segments - Casualty Reinsurance.”
The $8.2 million decrease in gross written premiums in 2009 compared to 2008 was due primarily to continued challenging market conditions. The increase in gross written premiums for the U.S. treaty business unit was due to additional premiums from adjustable contracts while the reduction in premiums from the international treaty business line was due to increased competition. The 3.5% decrease in gross written premiums in 2008 was due to the challenging market conditions in addition to negative prior period premium adjustments in our international treaty business written in London. Premium increased in our facultative business following the reorganization of the business and its relocation from New Jersey to Connecticut in 2007.
Cartesian Iris 2009A L.P. On May 19, 2009, we invested $25 million with Cartesian Iris 2009A L.P. through our wholly-owned subsidiary, Acorn Limited. Cartesian Iris 2009A L.P. is a Delaware Limited Partnership formed to provide capital to Iris Re, a newly formed Class 3 Bermuda reinsurer focusing on insurance linked securities. In addition to returns on our investment, we provide services on risk selection, pricing and portfolio design in return for a percentage of profits from Iris Re. In the twelve months ended December 31, 2009, a fee of $0.1 million was payable to us.
comparison of the fair value estimates to its knowledge of the current market.
For the twelve months ended December 31, 2007. The analysis of the development by each segment is as follows:
Management monitors the ratio of debt to total capital, with total capital being defined as shareholders’ equity plus outstanding debt. At December 31, 2009, this ratio was 7.0% (2008 - 8.2%, 2007 - 8.1%).
As a holding company, Aspen Holdings relies on dividends and other distributions from its insurance subsidiaries to provide cash flow to meet ongoing cash requirements, including any future debt service payments and other expenses, and to pay dividends, if any, to our preference and ordinary shareholders.