As of December 31, 2009 and 2008 investments included in the trading and commercial loan portfolios amounted to approximately $5.0 million and $31.9 million, respectively. Net investment (loss) income for 2009 and 2008 reflected approximately $6.4 million and $(43.8) million, respectively, derived from trading and commercial loan portfolio activities. In 2009, these activities include the trading of commercial loans, municipal bonds and preferred stocks. In 2008, these activities include the trading of commercial middle market debt, municipal bonds, preferred stocks and exchange traded funds. The Company’s trading portfolio is marked to market with the change recognized in net investment income during the current period. Any realized gains or losses resulting from the sales of trading securities are also recognized in net investment income. The ending balance in the trading portfolio can vary substantially from period to period due to the level of trading activity.
Total income tax expense (benefit) amounted to $10.4 million and $(33.4) million, respectively, for the years ended December 31, 2009 and 2008, respectively. Total income tax expense or benefit as a percentage of income or (loss) before taxes was 18.6% and (24.3%) for the years ended December 31, 2009 and 2008, respectively. The lower percentages in 2009 were largely attributable to tax benefits of $4.6 million for the year ended December 31, 2009 as a result of the partial reversal of the deferred tax valuation allowance previously provided for capital losses. Further contributing to the lower percentage in 2009 was greater investment income from tax-exempt municipal bonds. For the year ended December 30, 2008, the Company reported deferred tax valuation allowance increases of $18.5 million primarily for capital loss carryforwards.
Ceded reinsurance payable decreased to $13.6 million at December 31, 2009 from $23.8 million at December 31, 2008 mainly as a result of the payment of reinsurance reinstatement premiums on hurricane losses and the timing of payments of certain reinsurance balances.
Commission and other income (loss) increased to $0.3 million for the year ended December 31, 2008 from $(4.2) million in 2007. The Company’s write-off of $5.3 million relating to its computer systems in 2007 accounted for most of the change. Commission income in 2007 reflected a greater profit commission than in 2008 derived from ceded reinsurance in the ocean marine class of business.
Cash flows used in investing activities were $99.3 million for the year ended December 31, 2009 and resulted primarily from net purchases of fixed maturities and partially offset by the net sale of short-term investments. Cash flows used in investing activities were $176.9 million for the year ended December 31, 2008 and resulted primarily from net purchases of fixed maturities and short-term investments. Cash flows provided by investing activities were $295.7 million for the year ended December 31, 2007 and resulted primarily from net sales of fixed maturities and short-term investments.
The Company has capitalized $8.8 million in computer software expenses as of December 31, 2009. The Company anticipates additional expenses, of up to $3 million, to implement a new computer system expected to be completed in 2011.
The Company has investments in residential RMBS amounting to $56.6 million (amortized value) at December 31, 2009. These securities are classified as held to maturity after the Company transferred these holdings from the available for sale portfolio effective October 1, 2008. Upon acquisition of the RMBS portfolio and prior to October 1, 2008, the Company was uncertain as to the duration for which it would hold the RMBS portfolio and appropriately classified such securities as available for sale. See Item 1 “Business General” for a complete discussion regarding the Company’s RMBS portfolio.
In September 2009, the FASB issued (“ASU 2009-12”), Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2009-12 provides guidance on estimating the fair value of alternative investments when using the net asset value per share provided by the investment entity. The effective date of ASU 2009-12 is for interim and annual periods ending after December 15, 2009, with early adoption permitted. The adoption of ASU 2009-12 did not have a material impact on the Company’s financial condition, results of operations or liquidity.