(2) GAAP loss and LAE ratio represents the sum of losses and LAE as a percentage of net premiums earned. GAAP underwriting expense ratio represents underwriting expenses as a percentage of net premiums earned. GAAP combined ratio represents the sum of the GAAP loss and LAE ratio and GAAP underwriting expense ratio. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION."
The Company's net premiums written increased 20.7% to $2,905.7 million for the year ended December 31, 1999, from $2,406.8 million in 1998. The Company experienced increases in both treaty and facultative net premiums written. Treaty net premium writings increased 22.9% to $1,952.4 million for the year ended December 31, 1999, from $1,588.8 million for the same period in 1998. This increase was primarily attributable to DICO, which increased treaty net written premiums 22.4% to $1,277.8 million for the year ended December 31, 1999, from $1,044.1 million for the same period in 1998, as a result of retrospective premium adjustments on several reinsurance contracts. The Company's two other major business segments, RiskPartners, the Company's alternative market operation, and International Operations, also had increased treaty net premium writings: RiskPartners increased treaty net written premiums 62.8% to $207.4 million for the year ended December 31, 1999, from $127.4 million for the same period in 1998, and International Operations increased treaty net written premiums 11.9% to $467.0 million for 1999, from $417.3 million for 1998.
increase in RiskPartners' facultative net premiums written to $347.2 million for 1999, from $309.1 million for 1998; and (iii) a 27.6% increase in International Operations' facultative net premiums written to $44.8 million for 1999, from $35.1 million for 1998.
In accordance with industry practice, the Company establishes IBNR reserves to provide for future case reserves and loss payments on incurred claims that have not yet been reported to an insurer or reinsurer. In calculating its IBNR reserves, the reinsurance/insurance companies use generally accepted actuarial reserving techniques that take into account quantitative loss experience data, together, where appropriate, with qualitative factors. IBNR reserves are based on loss experience and are grouped both by class of business and by accident year. IBNR reserves are also adjusted to take into account certain factors such as changes in the volume of business written, reinsurance contract terms and conditions, the type of
business, claims processing and other variable factors that can be expected to affect the Company's liability for losses over time.
The reconciliation between statutory basis and GAAP basis reserves for each of the three years in the period ended December 31, 1999, is shown below:
ASBESTOS, ENVIRONMENTAL-RELATED AND OTHER LATENT LIABILITY CLAIMS. Since the early 1980s, American Re-Insurance's underwriting results have been adversely affected by claims developing from latent liability exposures. During this period, reserves established by American Re-Insurance for latent liability exposures necessarily reflected the uncertainty inherent in estimating the ultimate future claim amounts arising from these types of exposures and the lack of credible actuarial methods to measure and quantify these exposures. American Re-Insurance's difficulty in accurately quantifying these exposures was attributable to the need for latent liability exposures to be first quantified by the insured party and then the primary insurer before the information was made available to the reinsurer.
Loss reserves for latent liability exposures at December 31, 1999 and 1998, represent best estimates drawn from a range of possible outcomes based upon currently known facts, projected forward for additional claimants using assumptions and methodologies considered reasonable. There can be no assurance that future losses resulting from these exposures will not materially adversely affect future earnings.
The following table presents three calendar years of development of losses and LAE reserves associated with latent liability exposures, including case and IBNR reserves. The application of reinsurance recoveries to calculate net incurred and net paid losses, and the reinsurance recoverables on unpaid losses, are based on specific reinsurance contracts only, before the application of any adverse loss coverage for 1992 and prior years, which are not allocated to specific causative events.