(d) From January 2006 to June 2008, the period prior to Blue Ocean Re Holdings Ltd. (“Blue Ocean”) becoming a wholly-owned subsidiary, we fully consolidated Blue Ocean in our financial statements. Net income attributable to noncontrolling interest represents the portion of Blue Ocean’s net income attributable to shareholders other than the Company.
(f) During 2011 we issued 6.0 million 8.875% Non-Cumulative Preferred Shares, Series A with a liquidation preference of $25.00 per share representing $150.0 million in face value.
The table below details the projected net impact from single event losses as of January 1, 2012 for selected zones at selected return period levels using AIR Worldwide Corporation’s CLASIC/2 model version 13.0, one of several industry-recognized third-party vendor models. It is important to note that each catastrophe model contains its own assumptions as to the frequency and severity of loss events, and results may vary significantly from model to model.
Gross premiums written by Montpelier Bermuda during 2011 were largely unchanged from 2010, decreasing by less than two percent. However, there was a sizable business shift that occurred during the year among its Other Specialty - Treaty line of business and its Property Catastrophe - Treaty line of business due primarily to: (i) the non-renewal of several large marine and casualty contracts (both of which are Other Speciality - Treaty classes); and (ii) the assumption of a property catastrophe quota share (Property Catastrophe - Treaty) from a competitor.
Montpelier Syndicate 5151 recognized net foreign exchange translation gains related to its current and prior year loss and LAE reserves of $2.0 million, $2.0 million, and $0.5 million during 2011, 2010 and 2009, respectively. Montpelier Syndicate 5151’s foreign currency translation gains and losses, which are a component of its comprehensive income or loss, do not impact its underwriting results.
During 2009 we recognized $104.2 million in net realized and unrealized gains from our fixed maturity portfolio, $74.6 million in net realized and unrealized gains from our equity portfolio and $3.0 million in net realized and unrealized gains from our other investments. The fixed maturity net gains and the majority of the other investment net gains we experienced during 2009 were largely the result of a declining U.S. Treasury yield curve as well as tightening credit spreads between the yield on those securities versus that of U.S. Treasuries. The significant equity portfolio net gains we experienced during 2009 followed a year in which we experienced significant unrealized losses, as we benefitted from a recovery in the U.S. equity market as a whole during 2009.
We may need to raise additional capital in the future, through the issuance of debt, equity or hybrid securities, in order to, among other things, write new business, pay significant losses, respond to, or comply with, any changes in the capital requirements that rating agencies or various regulatory bodies use to evaluate us, acquire new businesses, invest in existing businesses or to refinance our existing obligations.
In the normal course of our business, we maintain letter of credit facilities and trust arrangements as a means of providing collateral and/or statutory credit to certain of our constituents. These facilities and arrangements are outlined below:
In March 2010 we entered into the Lloyd’s Capital Trust in order to meet our ongoing Funds at Lloyd’s requirements. The minimum value of cash and investments held by the Lloyd’s Capital Trust is determined on the basis of MCL’s Individual Capital Assessment, which is used to determine the required amount of Funds at Lloyd’s. As of December 31, 2011 and 2010, the fair value of the investments held in the Lloyd’s Capital Trust was $251.8 million and $249.5 million, respectively.
· we had a $101.3 million increase in our restricted cash,
· we had a $14.9 million decrease in our restricted cash,
Estimating loss and LAE reserves requires us to make assumptions regarding reporting and development patterns, frequency and severity trends, claims settlement practices, potential changes in legal environments, inflation, loss amplification and other factors. These estimates and judgments are based on numerous considerations and are often revised as we: (i) receive changes in loss amounts reported by ceding companies; (ii) obtain additional information, experience or other data; (iii) as new or improved methodologies are developed; or (iv) as laws change.
The nature and extent of loss information provided under many facultative and per occurrence excess-of-loss contracts, where company personnel work closely with the ceding company in settling individual claims, may not differ significantly from the information received under a primary insurance contract. Loss information from aggregate excess-of-loss contracts, including catastrophe losses and proportional treaties, will often be less detailed. Occasionally, such information is reported in summary format rather than on an individual claim basis.
Our internal actuaries review our reserving assumptions and our methodologies on a quarterly basis. Our third quarter and year-end loss estimates are subject to a corroborative review by independent actuaries using generally accepted actuarial principles. The Audit Committee receives quarterly and annual reserve analyses and meets with our independent actuaries no less than annually.
Favorable development of prior period net losses experienced as a percentage of our opening net loss reserves across all underwriting years was 12.4%, 17.9% and 11.0% for the years ended December 31, 2011, 2010 and 2009, respectively. As of December 31, 2011, we estimate that a 15% change in our net unpaid loss and LAE reserves would result in an increase or decrease in our net income or loss and shareholders’ equity of approximately $150.0 million. The net income or loss and shareholders’ equity impact of the change in net reserves might be partially offset by adjustments to items such as reinstatement premiums, profit commission expense, incentive compensation and income taxes.
The financial statements and supplementary data have been filed as a part of this Annual Report on Form 10-K as indicated in the Index to Consolidated Financial Statements and Financial Statement Schedules appearing on page 87 of this report.