Index to Financial Statements In July 2008, we commuted certain reinsurance agreements with Partner Reinsurance Company of the U.S. (“Partner Re”) covering portions of the 2005 and 2006 accident years. As a result of this commutation, we recorded pre-tax income of approximately $703,000 in the third quarter of 2008. Partner Re remains obligated to the Company’s insurance subsidiaries under other reinsurance agreements.
We manage risk on certain long-duration claims by settling these claims through the purchase of annuities from unaffiliated life insurance companies. In the event these companies are unable to meet their obligations under these annuity contracts, we could be liable to the claimants, but our reinsurers remain obligated to indemnify us for all or part of these obligations in accordance with the terms of our reinsurance contracts. As of December 31, 2008, the present value of these annuities was $81.8 million, as estimated by our annuity providers. Substantially all of the annuities are issued or guaranteed by life insurance companies that have an A.M. Best rating of “A” (Excellent) or better. For additional information, see Note 17 to our consolidated financial statements in Item 8 of this report.
A summary of the cost or amortized cost and fair value of investments in fixed maturity securities, classified as held-to-maturity at December 31, 2008, by contractual maturity, is as follows:
The Company recorded a valuation allowance in 2008 for unrealized losses resulting from other-than-temporary impairments.
The Company’s reserves for loss and loss adjustment expenses, net of amounts recoverable from reinsurers, at December 31, 2007 were decreased in 2008 by $20.4 million. Reserves at December 31, 2006 were decreased in 2007 by $9.5 million, and at December 31, 2005 reserves were decreased in 2006 by $2.2 million. The revisions to the Company’s reserves reflect new information gained by claims adjusters in the normal course of adjusting claims and then reflected in the financial statements when the information becomes available. It is typical for more serious claims to take several years to settle and the Company continually revises estimates as more information about claimants’ medical conditions and potential disability becomes known and the claims get closer to being settled.
If holders of two-thirds of the outstanding shares of Convertible Preferred Stock consent to the payment of a dividend by the Company to the holders of common stock or non-voting common stock, holders of Convertible Preferred Stock will receive (on an as-converted to common stock or non-voting common stock basis) a dividend equal to the dividend paid to holders of common stock and non-voting common stock.
In SFAS No. 157, inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable:
At December 31, 2008, assets and liabilities measured at fair value on a recurring basis are summarized below: