The following information presented for CNA Surety is as of and for the years ended December 31, 2009, 2008, 2007, 2006 and 2005.
functions, among other things. The decision as to how much weight to give to any particular projection methodology is ultimately a matter of experience and professional judgment.
At December 31, 2009, the range of reasonable loss reserve estimates, net of reinsurance receivables, was from $302 million to $360 million. Ranges of reasonable loss reserve estimates are not calculated for the sub-lines of business. Management believes that the range calculated over total reserves provides the most meaningful information due to the importance of correlation of losses between the sub-lines of business related to the impact of general economic conditions.
The Company’s insurance subsidiaries purchase reinsurance from other insurance companies and affiliates. Reinsurance arrangements are used to limit maximum loss, provide greater diversification of risk and minimize exposure on larger risks. The cost of this reinsurance is recorded as ceded written premium. Ceded written premium decreased from $35.5 million to $27.3 million in 2009 compared to 2008. The Company’s decision to increase the per principal retention from $10.0 million to $15.0 million resulted in lower ceded premiums on the 2009 core reinsurance program. Further, as a result of additional losses ceded under the 2007 third party excess of loss treaty, the Company recorded additional ceded premiums of $0.5 million during 2009 compared to $4.2 million in 2008. Ceded written premium decreased from $43.4 million to $35.5 million in 2008 compared to 2007. This decrease was due to the cost savings on the Company’s core reinsurance program, partially offset by $4.3 million of additional ceded premiums recorded as a result of losses ceded under the 2007 excess of loss treaty.
With respect to contract surety, the Company’s portfolio is predominantly comprised of contractors with bonded backlog of less than $30.0 million. Bonded backlog is an estimate of the Company’s exposure in the event of default before indemnification. The Company does have accounts with bonded backlogs greater than $30.0 million.
and $0.7 million, respectively. Effective July 1, 2009 through June 30, 2010, the underwriting limitations of Western Surety and Surety Bonding are $54.7 million and $0.7 million, respectively. Through the Quota Share Treaty previously discussed, CNA Surety has access to CCC and its affiliates’ U.S. Department of Treasury underwriting limitations. Effective July 1, 2008 through June 30, 2009, the underwriting limitations of CCC and its affiliates utilized under the Quota Share Treaty totaled $783.7 million. Effective July 1, 2009 through June 30, 2010, the underwriting limitations of CCC and its affiliates utilized under the Quota Share Treaty total $732.3 million. CNA Surety management believes that the foregoing U.S. Treasury underwriting limitations are sufficient for the conduct of its business.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2009 of the Company and our report dated February 19, 2010 expressed an unqualified opinion on those financial statements and financial statement schedules and included an explanatory paragraph relating to a change in method of accounting for the recognition and presentation of other-than-temporary impairments in 2009.
In May 2009, the FASB issued guidance on the recognition and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. This guidance was effective for interim and annual periods ending after June 15, 2009 and requires the disclosure of the date through which an entity
In June 2009, the FASB announced that the FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The Codification supersedes all then-existing accounting and reporting standards that are not standards of the Securities and Exchange Commission (“SEC”). All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. This guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption did not have an impact on the Company’s financial condition or results of operations.
In 2008, the Company recorded other-than-temporary impairment losses of $1.0 million on one fixed income security. The security was issued by the financing subsidiary of a large domestic automaker and was rated below investment grade by S&P and Moody’s Investor Services (“Moody’s”). The Company determined that this previously recorded OTTI loss was credit-related.
The Company holds only two collateralized commercial mortgage-backed securities. At December 31, 2009, both of these securities were in an unrealized loss position of $0.2 million, 3.6% of amortized cost and 3.4% of amortized cost, respectively. The overall unrealized loss position of these two securities has improved from $1.9 million at December 31, 2008. The Company believes that these securities will recover in value based on the current performance of the underlying collateral, the senior or super-senior position of each of the holdings and the amount of credit support available to these holdings. The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost. The Company does not believe these unrealized losses are indicative of credit losses and, as such, has not recorded any OTTI losses on these securities at December 31, 2009.
As of December 31, 2009, CNA Surety had an insurance receivable balance from CCC and CIC of $9.8 million, comprised of premiums receivable. At December 31, 2008, CNA Surety’s insurance receivable balance from CCC and CIC was $60.4 million, including $46.1 million of reinsurance recoverables and $14.3 million of premiums receivable, respectively. CNA Surety had no reinsurance payables to CCC and CIC as of December 31, 2009 and had reinsurance payables of $1.2 million to CCC and CIC as of December 31, 2008.
Western Surety previously provided surety bonds guaranteeing insurance premium payment obligations of certain customers of CCC and its affiliates under retrospectively rated insurance policies underwritten by CCC and its affiliates. The Company discontinued the writing of such bonds in 2001 and the Company has no remaining exposure as of December 31, 2009.