The following is a discussion and analysis of the results of our operations for the twelve months ended December 31, 2011, 2010 and 2009 and of our financial condition at December 31, 2011. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and accompanying Notes included in this report. This discussion contains forward-looking statements that involve risks and uncertainties and that are not historical facts, including statements about our beliefs and expectations. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and particularly under the headings “Risk Factors,” “Business” and “Forward-Looking Statements” contained in Item 1A, Item 1, and Part I of this report, respectively.
The following overview of our 2009, 2010 and 2011 operating results and financial condition is intended to identify important themes and should be read in conjunction with the more detailed discussion further below.
Across our entire book of business, January renewal rates increased on average by 4% overall. However, we cannot ascertain that a hard market has arrived. Behind this overall increase, there are some attractive areas. In property, in both insurance and reinsurance, a combination of model change in the U.S. and much-needed lessons from the 2011 catastrophe losses in the rest of the world is creating an underwriters’ market. For most U.S. and Asian catastrophe exposures, we can expect to be paid properly for the risks we want to take. For different reasons, a similar phenomenon exists in many lines of business that are affected by credit risk, financial risk, political risk and other forms of uncertainty. Our underwriters in lines such as surety, trade credit, political risk and financial institutions are well placed to drive rates upwards which we believe should achieve attractive results. If the rates do not meet our targets, we anticipate waiting for the right moment to grow. Taken together, these lines that are affected
Reserving procedures and process. Our actuaries calculate the IELR, BF and Chain Ladder and, if appropriate, other methods for each line of business and each accident year. They then provide a range of ultimates within which management’s best estimate is most likely to fall. This range will usually reflect a blend of the various methodologies. These methodologies involve significant subjective judgments
explain why in general a higher proportion of the initial reinsurance reserves are represented by IBNR than for insurance reserves for business in the same class. Delays in receiving information from cedants are an expected part of normal business operations and are included within the statistical estimate of IBNR to the extent that current levels of backlog are consistent with historical data. Currently, there are no processing backlogs which would materially affect our financial statements.
The 10th percentile represents a 1 in 10 chance that, for example, reinsurance reserves will be at or lower than $2,244.8 million. The 90th percentile represents a 1 in 10 chance that reserves will be at or greater than $3,240.2 million. Diversification reflects the fact that not all the segments are perfectly correlated; that is, we would not expect all lines of business to run off better than or worse than the mean at the same time.
Deferred tax assets. We provide for income taxes for our subsidiaries operating in income tax-paying jurisdictions. Our deferred tax assets and liabilities primarily result from the net tax effect of temporary differences between the amounts recorded in our audited consolidated financial statements and the tax basis of our assets and liabilities. We determine deferred tax assets and liabilities separately for each tax-paying component in each tax jurisdiction.
the earthquakes in Chile and New Zealand, which had an impact of 15.8 and 14.9 percentage points on the loss ratio and combined ratio, respectively, compared to an absence of significant catastrophe-related losses in 2009. Net reserve releases of $65.6 million (2009 - $103.8 million) were due mainly to favorable claims development in most lines but were significantly lower than 2009, in particular for property catastrophe and specialty reinsurance.
The tables below show our other investments as at December 31, 2011 and 2010:
Valuation of Other Investments. The value of our investment in Cartesian Iris Offshore Fund L.P. or in Cartesian Iris 2009A L.P. is based on our shares of the capital position of the partnership which includes income and expenses reported by the limited partnership as provided in its quarterly management accounts. Each of Cartesian Iris Offshore Fund L.P. and Cartesian Iris 2009A L.P. is subject to annual audit evaluating the financial statements of the partnership. We periodically review the management accounts of Cartesian Iris Offshore Fund L.P. and Cartesian Iris 2009A L.P. and evaluate the reasonableness of the valuation of our investment.