Our Wholesale Brokerage segment is marketed under our Bliss & Glennon and South Bay Acceptance brands. Bliss & Glennon is one of the largest surplus lines brokers in California according to the Surplus Line Association of California, and ranked in the top 20 wholesale brokers in the United States in 2009 by premium volume according to Business Insurance, an industry publication. We acquired Bliss & Glennon in April 2009. This business segment uses a wholesale model to sell specialty property and casualty ("P&C") and surplus lines insurance through retail insurance brokers and agents and insurance companies. We believe that our emphasis on customer service, rapid responsiveness to submissions and underwriting integrity in this segment has resulted in high customer satisfaction among retail insurance brokers and agents and insurance companies.
(2) IBNR reserves represent amounts reserved to pay claims where the insured event has occurred and has not yet been reported. IBNR reserves for credit disability also include the net present value of future claims payment of $1,094, $1,159 and $1,201 as of December 31, 2010, December 31, 2009 and December 31, 2008, respectively.
Demand for surplus lines insurance products also affects our premium volume and net commissions. State regulations generally require a buyer of insurance to have been turned down by three or more traditional carriers before being eligible to purchase the surplus lines distributed by us. As standard insurance carriers eliminate non-core lines of business and implement more conservative risk selection techniques, demand for excess and surplus lines insurance improves. The surplus lines market has increased from approximately 6.7% of total P&C commercial lines insurance premiums in 1998 to approximately 13.8% in 2008, as reported by A.M. Best. Premiums written by surplus lines property and casualty insurers increased from $9.9 billion to $34.4 billion over the same time period.
Net Investment Income. Net investment income consists of investment income from our invested assets portfolio. We recognize investment income from interest payments and dividends less portfolio management expenses. Our investment portfolio is primarily invested in fixed maturity securities. The fair market value of the fixed maturity securities in our portfolio and the investment income from these securities fluctuate depending on general economic and market conditions. The fair market value generally increases or decreases in an inverse relationship with fluctuations in interest rates. Investment income can be significantly impacted by changes in interest rates. Interest rate volatility can increase or reduce unrealized gains or unrealized losses in our portfolios. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Fluctuations in interest rates affect our returns on, and the market value of, fixed maturity and short-term investments.
Net earned premium decreased $4.7 million, or 4.1%, to $108.1 million for the year ended December 31, 2009 from $112.8 million for the year ended December 31, 2008. Direct and assumed earned premium decreased $15.3 million due to the run-off of two of our clients' credit insurance programs ($22.4 million), offset primarily by growth in our other Payment Protection products. One of our clients migrated its program to a debt cancellation program, which is administered by us, and the other client canceled its program. Ceded earned premium decreased by $10.6 million, or 5.3%, which was comparable to the decrease in direct and assumed earned premium of $15.3 million, or 4.9%. On average, we maintained a 64% overall cession rate of direct and assumed earned premium in 2009 and 2008.
The revolving credit facility contains a number of affirmative and restrictive covenants, including limitations on the incurrence of additional indebtedness, liens on property, sale and leaseback transactions, investments, loans and advances, mergers, consolidations or dissolutions, asset sales, acquisitions, transactions with affiliates, prepayments of subordinated indebtedness, restricted payments, hedging transactions, modifications to certain material documents, lease obligations (including obligations under operating leases) and ERISA events. Under the revolving credit facility, our subsidiaries are permitted to make distributions to us if no default or event of default has occurred and is continuing at the time of such distribution. As of December 31, 2010, we were in compliance with such requirements.
In connection with the Summit Partners Transactions, LOTS Intermediate Co. issued $35.0 million of fixed/floating rate preferred trust securities due 2037. The preferred trust securities bear interest at a rate of 9.61% per annum until the June 2012 interest payment date. Thereafter, interest on the preferred trust securities will be at a rate of 3-month LIBOR plus 4.10% for each interest rate period. We are not permitted to redeem the preferred trust securities until after the June 2012 interest payment date. After such date, we may redeem the preferred trust securities, in whole or in part, at a price equal to 100% of the principal amount of such preferred trust securities outstanding plus accrued and unpaid interest. Interest is payable quarterly.
capital stock of our significant subsidiaries unless such security interests are secured indebtedness of not more than $20 million, in the aggregate, at any one time. The limitation on the ability to issue, sell or dispose of the capital stock of significant subsidiaries are not applicable if such transactions are made at fair value and we retain at least 80% of the ownership of such subsidiary. The indenture governing the preferred trust securities also contains customary events of default, including failure to pay any principal or interest when due, failure to comply with covenants or agreements contained in the indenture or preferred trust securities, cross defaults with other indebtedness of payment of principal or acceleration of principal payments and bankruptcy events.
the Company's intent and ability to hold the investment for a sufficient period to allow for any anticipated recovery in fair value; and
The Company accounts for stock-based compensation in accordance with FASB Topic ASC 718, "Compensation-Stock Compensation" ("ASC 718"), which addresses accounting for stock-based awards, including stock options and restricted stock, with compensation expense measured using fair value and recorded over the requisite service or performance period of the awards. The Company measures stock-based compensation using the calculated value method. Under that method, The
accounting guidance also requires an entity to perform an ongoing analysis to determine whether the entity’s variable interest or interests give it a controlling financial interest in a variable interest entity. This accounting guidance is effective for the Company beginning in fiscal 2011 and is not expected to have a material impact on the Company’s consolidated financial statements.
Common and preferred stock: The fair value of publicly traded common and preferred stocks were obtained from market value quotations provided by an independent pricing service. The values of common stocks that are not publicly traded were based on prices obtained from an independent pricing service.
The 2010 Omnibus Incentive Plan was established on December 13, 2010 and permits awards of (i) Incentive Stock Options, (ii) Non-qualified Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock, (v) Other Stock-Based Awards and (vi)
The Company has 296,724 options outstanding as of December 31, 2010 that were issued outside of its existing plans. Total options granted during 2010 were 88,268. No options were granted in 2009, and, 41,853 options were granted during 2008.
Reconciliation of Segment Net Revenue and EBITDA to Total Revenue and Net Income