The Company owns approximately 413,541 square feet of space in four contiguous executive office properties in Princeton, New Jersey, on land owned by Princeton University and subject to long-term ground leases. In 2000, American Re-Insurance purchased a 10 acre parcel of land which is contiguous with the executive office properties for potential future expansion. The Company also owns properties for its foreign subsidiaries and representative offices totaling 20,305 square feet in Mexico City, Cairo, Santiago, Bogota and Buenos Aires.
(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."
(3) Represents statutory data for the applicable period. Ratio of net premiums written to surplus represents statutory net premiums written for the period over statutory policyholders' surplus at the end of such period. Statutory loss and LAE ratio represents the sum of statutory losses and LAE as a percentage of statutory net premiums earned. Statutory underwriting expense ratio represents statutory underwriting expenses as a percentage of statutory net premiums written. Statutory combined ratio represents the sum of the statutory loss and LAE ratio and the statutory underwriting expense ratio. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION."
Pre-tax net investment income increased 12.0% to $464.9 million for the year ended December 31, 2000, from $415.1 million in 1999. This increase is the result of an increase in the Company's invested asset base and the repositioning of the investment portfolio into higher yielding taxable securities.
The Company incurred a net loss to common stockholder of $101.0 million for the year ended December 31, 1999 compared to net income of $226.0 million in 1998.
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
Included in the results described above were increased net premiums written resulting from changes in the Company's retrocessional programs and retrospective premium adjustments under several reinsurance contracts under which higher losses were also ceded to the Company. In addition, the Company's initiative with healthcare providers yielded $123.1 million of net premiums written for the year ended December 31, 1999, compared to $45.2 million for the same period in 1998.
During 1999, the Company undertook a study to reevaluate its reserves for asbestos, environmental-related and other latent liabilities ("latent liability exposures"). This was a result of the Company's assessment of its reported claims activity, which reflected continued emergence of newly reported claims in each of these areas and recent insurance industry efforts to accelerate the settlement of outstanding latent liability claims. As a result of this reevaluation, during the fourth quarter of 1999, the Company increased its gross incurred but not reported ("IBNR") loss reserves for latent liability exposures. This charge was partially offset by reserves in other accident years and by the utilization of the remaining limit under the Company's Adverse Loss Agreement with Travelers, covering losses for accident years 1991 and prior. See "
GENERAL. The reinsurance/insurance subsidiaries are required to maintain reserves to cover their estimated ultimate liability for losses and LAE with respect to reported and unreported claims incurred as of the end of each accounting period (net of estimated related salvage and subrogation claims). These reserves are estimates that involve actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims based on facts and circumstances then known, predictions of future events, estimates of future trends in claims severity and other variable factors. The inherent uncertainties of estimating loss reserves are exacerbated for reinsurers by the significant periods of time
that often elapse between the occurrence of an insured loss, the reporting of the loss to the primary insurer and, ultimately, to the reinsurer, and the primary insurer's payment of that loss and subsequent indemnification by the reinsurer (the "tail"). As a consequence, actual losses and LAE paid may deviate, perhaps substantially, from estimates reflected in the reinsurance/insurance subsidiaries' reserves in their financial statements. If actual net losses and LAE paid exceed the reinsurance/insurance subsidiaries' net reserves; the Company's net income will be reduced in the year determined.
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.
CHANGES IN HISTORICAL RESERVES. The following table shows the year-end reserves from 1990 through 2000, and the subsequent changes in those reserves, presented on a combined basis for the reinsurance/ insurance subsidiaries. The following data is not accident year data, but a display of 1990 through 2000 year-end reserves and the subsequent changes in those reserves. For instance, the "Redundancy (Deficiency)" shown in the table for each year represents the aggregate amount by which original estimates of reserves at that year-end have changed in subsequent years. Accordingly, the cumulative deficiency for a year relates only to reserves at that year-end and such amounts are not additive. For example, the initial year-end 1990 reserves have developed a $424 million deficiency through December 31, 2000.
CHANGES IN HISTORICAL RESERVES FOR UNPAID LOSSES AND LAE FOR THE LAST TEN YEARS--GAAP BASIS AS OF DECEMBER 31, 2000
The reconciliation between statutory basis and GAAP basis reserves for each of the three years in the period ended December 31, 2000, is shown below:
RECONCILIATION OF RESERVES FOR UNPAID LOSSES AND LAE FROM STATUTORY BASIS TO GAAP BASIS
During 1999, the Company undertook a study to reevaluate its reserves for latent liability exposures. This was a result of the Company's assessment of its reported claims activity, which reflected continued emergence of newly reported claims in each of these areas and recent insurance industry efforts to accelerate the settlement of outstanding latent liability claims. Each of the Company's related exposures was evaluated individually to determine its expected ultimate liability for losses and LAE. As a result of this reevaluation, during the fourth quarter of 1999, the Company increased its IBNR loss reserves for such exposures. This charge was partially offset by favorable development on reserves in other accident years and by the utilization of the remaining limit under the Company's Adverse Loss Agreement with Travelers.
Travelers provides indemnification in the form of an Adverse Loss Agreement (the "Cover") for adverse development of losses and allocated loss adjustment expenses of $500.0 million representing an 80% pro rata share (American Re-Insurance retains the remaining 20%) of up to $625.0 million of losses in excess of $2,700.0 million incurred on or prior to December 31, 1991. At December 31, 2000, the Company has utilized the full limit of the Cover.
Loss reserves for latent liability exposures at December 31, 2000 and 1999, 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 Company has disclosed certain forward-looking statements concerning its operations, economic performance and financial condition, including, in particular the likelihood of the Company's success in developing and expanding its business and the risks related thereto. These statements are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Company, and reflect future business decisions that are subject to change. Some of these assumptions inevitably will not materialize, and unanticipated events will occur which will affect the Company's results. Such statements may include, but are not limited to, projections of premium revenue, investment income, other revenue, losses, expenses, earnings, cash flows, plans for future operations, common stockholder's equity, investments, capital plans, dividends, plans relating to products or services of American Re, estimates concerning the effects of litigation or other disputes, adverse state or federal legislation or regulation, adverse publicity or news coverage or changes in general economic factors as well as the assumptions for any of the foregoing and are generally expressed with words, such as "believes," "estimates," "expects," "anticipates," "plans," "projects," "forecasts," "goals," "could have," "may have" and similar expressions.