Several pieces of legislation were enacted to address the struggling mortgage market and the current economic and financial environment. One of these programs, the American Recovery and Reinvestment Act of 2009 (“ARRA”), passed on February 17, 2009, is a $787 billion stimulus package, that provided an array of types of relief for homebuyers, such as an $8,000 tax credit that became available to first-time homebuyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. On November 6, 2009, the President signed into law an extension of the first-time homebuyer credit to persons who signed a purchase contract by April 30, 2010 and closed the purchase by June 30, 2010. This extension also expanded the program to provide a $6,500 credit for buyers who have owned and lived in their current home for at least five of the past eight years. On June 30, 2010, the deadline to close the purchase was extended to September 30, 2010. The first-time homebuyers tax credit program expired at the end of the third quarter. We believe these measures had a positive impact on our order volumes in 2009 and through the first half of 2010; however, the end of the programs may adversely affect our future results of operations.
An approximate $36.4 million increase (decrease) in our annualized provision for title claim losses would occur if our loss provision rate were 1% higher (lower), based on 2010 title premiums of $3,641.2 million. A 10% increase (decrease) in the reserve for title claim losses would result in an increase (decrease) in our provision for title claim losses of approximately $221.1 million.
We recorded no impairment charges to our investments during 2010. During 2009 and 2008, we recorded other-than-temporary impairments totaling $6.9 million and $59.0 million, respectively. Impairment charges in 2009 related to equity securities that were deemed other-than-temporarily impaired. Impairment charges in 2008 included $25.4 million related to our fixed maturity securities, $30.1 million related to our equity securities, and $3.5 million related to other investments that were deemed other-than-temporarily impaired. The impairment charges relating to the fixed maturity securities were primarily the result of our conclusion that the credit risk relating to the holdings was too high not to impair the assets and record the loss through earnings. The impairment charges relating to the equity securities were primarily the result of the duration of the unrealized loss and inability to predict the time to recover if the investment continued to be held.
Revenues from specialty insurance include revenues from the issuance of flood, homeowners’, automobile, and other personal lines insurance policies and home warranty policies. In our flood insurance business, we provide coverage under the National Flood Insurance Program, which is the U.S. federal flood insurance program, and receive fees for selling policies and for assistance in settling claims. Specialty insurance revenues were $404.3 million, $380.2 million, and $383.3 million for the years ended December 31, 2010, 2009, and 2008, respectively. The increase in revenues in 2010 compared to 2009 was due to increases in all lines of specialty insurance business. The decrease in revenues in 2009 compared to 2008 was due to a decrease in the homeowners’ and flood insurance lines of business partially offset by an increase in the home warranty line of business.
Equity Security Investments. Our equity security investments are in companies whose values are subject to significant volatility. Should the fair value of these investments fall below our cost basis and/or the financial condition or prospects of these companies deteriorate, we may determine in a future period that this decline in fair value is other-than-temporary, requiring that an impairment loss be recognized in the period such a determination is made. During the year ended December 31, 2010, we determined that none of our equity securities were other-than-temporarily impaired.
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009, and 2008
Our reserve for claim losses includes known claims for title and specialty insurance as well as losses we expect to incur, net of recoupments. Each known claim is reserved based on our review as to the estimated amount of the claim and the costs required to settle the claim. Reserves for claims which are incurred but not reported are established at the time premium revenue is recognized based on historical loss experience and also takes into consideration other factors, including industry trends, claim loss history, current legal environment, geographic considerations and type of policy written. For specialty insurance, reserve for claims incurred but not reported are estimated based on historical loss experience.
The preparation of these Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The following table presents the changes in our investments that are classified as Level 3 for the year ended December 31, 2010 (in millions).
Fixed maturity securities valued at approximately $185.4 million and $185.9 million were on deposit with various governmental authorities at December 31, 2010 and 2009, respectively, as required by law.
During the years ended December 31, 2010, 2009 and 2008, gross realized gains on sales of fixed maturity securities considered available for sale were $91.6 million, $38.1 million, and $13.1 million, respectively; gross realized losses were $2.0 million, $2.8 million, and $9.8 million, respectively. Gross proceeds from the sale and maturity of fixed maturity securities considered available for sale amounted to $1,348.8 million, $1,130.1 million, and $845.3 million during the years ended December 31, 2010, 2009 and 2008, respectively.
Net unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2010 and 2009 were as follows (in millions):
Our net deferred tax asset was $32.1 million at December 31, 2010. At December 31, 2009 the Company had a $128.9 million net deferred tax asset. The significant changes in the deferred taxes are as follows: The insurance reserves decreased by $141.1 million causing a tax benefit of $51.5 million due primarily to actual title losses paid and deducted during the year. Utilization of prior year capital losses caused a decrease in the deferred tax asset by $23.2 million. The deferred tax liability for investment securities changed from $43.0 million to $30.7 million due in large part to a reduction in unrealized gains established through Other Comprehensive Income. Tax amortization of goodwill and intangible assets increased the deferred tax liability from $64.2 million to $88.9 million.
The risk free interest rates used in the calculation of compensation cost are the rates that correspond to the weighted average expected life of an option. The volatility was estimated based on the historical volatility of FNF’s stock price over a term equal to the weighted average expected life of the options. For options granted in the years ended December 31, 2010, 2009, and 2008, we used risk free interest rates of 2.0%, 2.5%, and 2.5%, respectively; volatility factors for the expected market price of the common stock of 57%, 53%, and 40%, respectively; expected dividend yields of 5.0%, 3.9%, and 4.0%, respectively; and weighted average expected lives of 4.4 years, 4.8 years, and 5.0 years, respectively. The weighted average fair value of each option granted in the years ended December 31, 2010, 2009, and 2008, were $4.57, $5.32, and $1.87, respectively.
We place cash equivalents and short-term investments with high credit quality financial institutions and, by policy, limit the
In January 2010, the FASB updated ASC Topic 820, to require additional disclosures about fair value measurements regarding transfers between fair value categories as well as purchases, sales, issuances and settlements related to fair value measurements of financial instruments with non-observable inputs. This update is effective for interim and annual periods beginning after December 15, 2009 except for disclosures about purchases, sales, issuances and settlements of financial instruments with non-observable inputs, which are effective for years beginning after December 15, 2010. These additional disclosure requirements required for the year ended December 31, 2010 have not impacted our disclosures on fair value measurements. We do not expect the update effective for the year ending December 31, 2011 to have a material impact on our financial condition or results of operations.