During 2009 and 2010, there were a number of events that impacted the property and casualty industry generally. While natural and man-made catastrophes occur each year affecting reinsurance industry results, 2009 generally featured fewer such events, favorably impacting industry performance. Further, despite the ongoing global economic recession, industry investments in risk assets performed significantly better in 2009 and 2010, increasing capital on both a statutory and generally accepted accounting principles (“GAAP”) basis in the United States at both the individual market participant level and in the aggregate across the reinsurance industry more generally. In 2010, a series of significant natural and man-made catastrophes occurred, including major earthquakes in Chile and New Zealand, damaging windstorms in Europe (Xynthia), a series of severe winter storms in the northeastern United States and the Deepwater Horizon explosion and oil spill in the Gulf of Mexico. Consistent with its business model, the Company experienced no losses from the Chilean and New Zealand earthquakes, Deepwater Horizon explosion or European windstorms, while losses from the United States winter storms, if any, are expected to be immaterial.
• A reinsurance agreement (the “IICL Agreement”) under which the Maiden Bermuda reinsures all of the existing contracts written by GMAC IICL pursuant to a loss portfolio transfer; under the purchase agreement, all future contracts will be underwritten by Maiden Bermuda;
• change in IBNR reserves, which are reserves established by us for changes in the values of claims that have been reported to us but are not yet settled, as well as claims that have occurred but have not yet been reported. The portion recoverable from reinsurers is deducted from the gross estimated loss.
The Company will challenge any prices for its investments which are not considered to represent fair value. If a fair value is challenged, the Company will typically obtain a non-binding quote from a broker-dealer; multiple quotations are not typically sought. As of December 31, 2010 and 2009, only one security valued using the market approach at approximately $8.6 million and $7.9 million, respectively or less than 0.5% of Level 2 fixed maturities, was priced using a quotation from a broker as opposed to the Pricing Service. At December 31, 2010 and 2009, we have not adjusted any pricing provided by broker-dealers based on the review performed by our investment managers.
• Completion of the IIS Acquisition. We completed the IIS Acquisition on November 30, 2010. For the period from November 30, 2010 to December 31, 2010, net premium written was $29.6 million, which includes $24.3 million of assumed unearned premium as of November 30, 2010, which was acquired net of acquisition expenses of $25.5 million. Premiums associated with the IIS Acquisition are included in the Diversified Reinsurance segment.
• The first full year of premium from the GMAC Acquisition. The first full year for the premiums associated with the GMAC Acquisition in the Diversified Reinsurance segment, which caused net premiums written to increase $363.9 million or 126.0%. This transaction was completed on October 31, 2008.
The average yield for the year ended December 31, 2010 and 2009 is 3.5%. We increased our allocation to corporate bonds during 2010, generating higher yields. This was offset by yields in cash and cash equivalents which have continued to be at historically low levels throughout 2010. Interest on the loan to AmTrust amounted to $2.0 million in 2010 compared to $2.4 million for the same period in 2009 due to a reduction in average 30 day LIBOR interest rates during 2010. Investment management fees and expenses of $3.0 million and $2.7 million were incurred during the year ended December 31, 2010 and 2009, respectively.
Net Losses and Loss Expenses. Net losses and loss expenses increased by $66.0 million, or 30.7%, for the year ended December 31, 2010 compared to the same period in 2009. Loss ratios were 63.1% and 61.1% for the years ended December 31, 2010 and 2009, respectively. The increase in the loss ratio reflects the continuing change in the mix of business ceded by AmTrust to us. AmTrust’s Specialty Risk and Extended Warranty business generates higher loss ratios than AmTrust’s core Small Commercial Business segment, which is smaller as a percentage of the total in 2010 as compared to 2009.
Net Losses and Loss Expenses. Net losses and loss expenses increased by $17.1 million, or 8.6%, for the year ended December 31, 2009 compared to the same period in 2008. Loss ratios were 61.1% and 59.0% for the years ended December 31, 2009 and 2008, respectively. The increased loss ratio is attributable to the continuing change in the mix of business in the segment, particularly those premiums associated with the UBI unit within AmTrust’s Small Commercial Business segment, which generate higher loss ratios than the underlying core AmTrust Small Commercial Business segment.