Direct premiums written for commercial lines of business other than workers’ compensation, such as commercial auto, general liability, umbrella, multi-peril and commercial property lines (collectively, “Commercial Lines”), increased by $32.3 million in 2009, compared to 2008. Our renewal retention rate on existing Commercial Lines accounts in 2009 was 86%, and new business was $45.1 million. New business for these lines in 2009 primarily consisted of captive accounts where we earn fees and only take a limited amount of underwriting risk. Direct premiums written for Commercial Lines increased by $9.8 million in 2008, compared to 2007. Our renewal retention rate on existing Commercial Lines accounts was 89% for both 2008 and 2007, and new business was $19.4 million in 2008, compared to $13.4 million in 2007. Overall pricing on Commercial Lines decreased 2% in 2009, compared to decreases of 6% in 2008 and 2% in 2007.
Total premiums assumed decreased by $1.4 million in 2009 and $3.0 million in 2008, compared to each immediately preceding year. The declines for both periods were primarily due to reductions in the involuntary residual market business assigned to us. Although our total direct premiums written in both 2009 and 2008 increased, we believe the declines in assumed premiums assigned to us were a result of more business written in the traditional market and less business assigned to the total involuntary market pool. Companies that write premiums in certain states generally must share in the risk of insuring entities that cannot obtain insurance in the voluntary market. Typically, an insurer’s share of this residual market business is assigned on a lag based on its market share in terms of direct premiums in the voluntary market. These assignments are accomplished either by direct assignment or by assumption from pools of residual market business.
The Corporate and Other segment primarily includes corporate expenses and debt service. Corporate and Other had net expenses of $19.1 million in 2009, compared to $20.7 million in 2008 and $19.6 million in 2007. The decrease in net expenses in 2009, compared to 2008, related primarily to lower stock-based compensation expense and lower interest expense on variable rate debt. The increase in net expenses in 2008, compared to 2007, related primarily to certain intercompany transactions, which are eliminated in the Corporate and Other segment.
In 2007, we recognized an after-tax impairment loss of $40.0 million related to the sale of the Run-off Operations. The components of the loss were as follows:
The PMA Insurance Group retained an aggregate $12.9 million deductible on the first layer of its workers’ compensation reinsurance, which is $750,000 excess of $250,000. Effective January 1, 2010, the aggregate deductible increased to $14.2 million.
collateral and short average life of these securities, we do not expect to incur material losses of principal from these securities.
As of December 31, 2009, there were recently issued accounting guidance that we either implemented during the year or will implement in the future. None of this guidance had or is expected to have a material effect on our consolidated financial condition, results of operations or liquidity. See Note 2-L to our Consolidated Financial Statements for a more complete summary.
uncertainty as to the price and availability of reinsurance on business we intend to write in the future, including reinsurance for terrorist acts;
Treasury stock, at cost (2009 - 1,966,825 shares; 2008 - 2,252,139 shares)
Fee-based Business - Fee-based Business consists of the results of PMA Management Corp., Midlands Management Corporation, and PMA Management Corp. of New England, Inc. PMA Management Corp. is a TPA that provides various claims administration, risk management, loss prevention and related services, primarily to self-insured clients under fee for service arrangements, as well as to insurance carriers on an unbundled basis. Midlands is an Oklahoma City-based managing general agent, program administrator and provider of TPA services, which the Company acquired on October 1, 2007. PMA Management Corp. of New England, Inc., which the Company acquired on June 30, 2008, is a Connecticut-based provider of risk management and TPA services.
Discontinued operations - Discontinued operations, formerly the Company’s Run-off Operations segment, consist of the results of the Company’s reinsurance and excess and surplus lines businesses. The Company’s reinsurance operations offered excess of loss and pro rata property and casualty reinsurance protection mainly through reinsurance brokers. The Company withdrew from the reinsurance business in November 2003 and from the excess and surplus lines business in May 2002. On December 24, 2009, the Company sold the Run-off Operations. See Note 9 for additional information regarding the sale of the discontinued operations.
In addition to issuer-specific financial information, general economic data and management’s projections of discounted cash flows, management also assesses whether it has the intent to sell a particular security or whether it is more likely than not it will be required to sell the security before its anticipated recovery. When management determines that it either intends to sell or is no longer more likely than not to hold the security until its anticipated recovery, an other than temporary impairment loss is recorded in the statement of operations for the full amount of the difference between fair value and amortized cost.
I. Dividends to Policyholders - The Company sells certain workers’ compensation insurance policies with dividend payment features. These policyholders share in the underwriting results of their respective policies in the form of dividends. Dividends to policyholders are accrued during the period in which the related premiums are earned and are determined based on the terms of the individual policies.
In December 2008, the FASB issued guidance on “Employers’ Disclosures about Postretirement Benefit Plan Assets.” The objectives of these disclosures are to provide financial statement users with an understanding of (a) how investment allocation decisions are made, (b) the major categories of plan assets, (c) the inputs and valuation techniques used to measure the fair value of plan assets, (d) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period, and (e) significant concentrations of risk within plan assets. See Note 11 for the impact of the Company’s adoption of this guidance.
(1) Represents the total other than temporary impairments ("OTTI") recognized in accumulated other comprehensive loss.
Level 2 - Fair value measures are based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of securities included in the Level 2 category were based on market values generated by external pricing models that vary by asset class and incorporate available trade, bid and other market information, as well as price quotes from other well-established independent market sources.
The following table provides a summary of changes in the fair value of Level 3 assets within the fair value hierarchy for the year ended December 31, 2009 and 2008.
Unpaid losses and LAE reflect management’s best estimate of future amounts needed to pay claims and related settlement costs with respect to insured events which have occurred, including events that have not been reported to the Company. Due to the “long-tail” nature of a significant portion of the Company’s business, in many cases, significant periods of time, ranging up to several years or more, may elapse between the occurrence of an insured loss, the reporting of the loss to the Company and the Company’s payment of that loss. The Company defines long-tail business as those lines of business in which a majority of coverage involves average loss payment lags of several years beyond the expiration of the policy. The Company’s primary long-tail line is its workers’ compensation business. This business is subject to more unforeseen development than shorter tailed lines of business. As part of the process for determining the Company’s unpaid losses and LAE, various actuarial models are used that analyze historical data and consider the impact of current developments and trends, such as trends in claims severity and frequency and claims settlement trends. Also considered are legal developments, regulatory trends, legislative developments, changes in social attitudes and economic conditions.
In 2007, the Company had another fronting arrangement under which workers’ compensation policies were underwritten and serviced in California. During the term of the arrangement, the Company retained between 0% and 10% of the underwriting results on this business. The Company also earned an administrative fee based upon the actual amount of premiums earned pursuant to the agreement. This fronting arrangement was terminated in March 2008.
Subsequent to 2007, the loss from discontinued operations, net of tax, reflected decreases in the amount of proceeds the Company either expected to receive or actually received at the closing of the sale. As there was normal operating activity in 2008 and 2009 that did not impact the sales proceeds, the Company adjusted the valuation adjustment against the net assets of discontinued operations that it recorded in 2007 to offset this activity.
The asset allocation for the Company’s Qualified Pension Plan at the end of 2009 and 2008, and the target allocation for 2010, by asset category, are as follows: