Everest Re’s corporate offices are located in approximately 230,500 square feet of leased office space in Liberty Corner, New Jersey. The Company’s other ten locations occupy a total of approximately 93,114 square feet, all of which are leased. Management believes that the above described office space is adequate for its current and anticipated needs.
Gross written premiums increased by $439.3 million, or 15.2%, in 2009 compared to 2008, reflecting an increase of $368.6 million in our reinsurance business and $70.8 million in our insurance business. The increased reinsurance business was primarily attributable to increased rates on property business, in both the international and U.S. markets, new crop hail quota share treaty business, expanded participation on renewal contracts and new writings as ceding companies continued to favor reinsurers, such as Everest, with strong financial ratings. The increase in insurance premiums were primarily in the workers’ compensation and financial institution D&O and E&O lines of business, which were new offerings for us in 2009. Net written premiums increased by $59.9 million, or 3.6%, in 2009 compared to 2008. The disproportionate variance in net written premiums as compared to gross written premiums is primarily due to the increase in cessions under the affiliated quota share agreement. Premiums earned decreased $96.7 million, or 5.1%, in 2009 compared to 2008. The change in net premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period, whereas written premiums are recorded at the initiation of the coverage period.
Net Investment Income. Net investment income increased $88.3 million, or 33.7%, to $350.3 million in 2010, compared with net investment income of $262.1 million in 2009, primarily as a result of a $73.9 million increase in investment income from our limited partnerships. Net pre-tax investment income, as a percentage of average invested assets, was 4.4% in 2010, compared to 3.4% for 2009. The variance in this yield was primarily the result of fluctuations in our limited partnership income.
Net Realized Capital Gains (Losses). Net realized capital gains were $65.3 million and $56.9 million in 2010 and 2009, respectively, and net realized capital losses were $489.2 million in 2008. Of the $65.3 million, there were $93.8 million of gains in fair value re-measurements, which were partially offset by $26.4 million of net realized capital losses from sales on our fixed maturity and equity securities and $2.1 million of other-than-temporary impairments on our available for sale fixed maturity securities. The net realized capital gains of $56.9 million in 2009 were the result of $80.3 million of gains in fair value re-measurements, partially offset by $17.9 million of net realized capital losses from sales on our fixed maturity and equity securities and $5.5 million in other-than-temporary impairments on our available for sale fixed maturity securities. The net realized capital losses in 2008 were primarily the result of the credit crisis impacting the global financial markets, which drove down the values of equity and fixed income securities. The components of the $489.2 million of realized losses in 2008 were $221.2 million of losses in fair value re-measurements, $193.5 million of net realized capital losses from sales of fixed maturity and equity securities and $74.5 million in other-than-temporary impairments on our available for sale fixed maturity securities.
Other Income (Expense). We recorded other income of $12.1 million, $0.4 million and $57.9 million in 2010, 2009 and 2008, respectively. The changes were primarily due to fluctuations in the amortization of deferred gains on retroactive reinsurance agreements with affiliates and fluctuations in currency exchange rates for the corresponding periods.
Corporate Expenses. Corporate expenses, which are expenses that are not allocated to segments, were $5.9 million, $7.7 million and $5.6 million for the years ended December 31, 2010, 2009 and 2008, respectively. These expenses were previously included as underwriting expenses and therefore included in the other underwriting expense ratio. Effective January 1, 2010, these expenses were removed from the calculation of the other underwriting expense ratio and prior periods were recalculated to conform.
Income Tax Expense (Benefit). We had an income tax benefit of $36.6 million in 2010, an income tax expense of $129.4 million in 2009 and an income tax benefit of $134.7 million in 2008. Our income tax is primarily a function of the statutory tax rates coupled with the impact from tax-preferenced investment income. The taxes for 2010 included a $48.9 million benefit resulting from a favorable Internal Revenue Service (“IRS”) audit settlement. Absent these types of unusual items, variations in our effective tax rate generally result from changes in the level of pre-tax income.
Our net income was $395.9 million, in 2009, compared to a net loss of $124.8 million, in 2008. This increase was primarily driven by after-tax net realized capital gains, in 2009, compared to after-tax net realized capital losses, in 2008. In addition, there were fewer catastrophe losses in 2009 compared to 2008.
Net realized capital gains were $65.3 million in 2010 compared to net realized capital gains of $56.9 million and net realized capital losses of $489.2 million in 2009 and 2008, respectively. In 2010, we recorded $93.8 million of gains due to fair value re-measurements on fixed maturity and equity securities and other invested assets, partially offset by $26.4 million of net realized capital losses from sales of fixed maturity and equity securities and $2.1 million of other-than-temporary impairments on fixed maturity securities. The losses included the impact of selling part of our municipal bond portfolio in the latter part of the year as credit concerns arose in this market sector. We will be able to carry these realized losses back for income tax purposes to offset previously realized gains. This carry back availability expired at the end of 2010. In 2009, we recorded $80.3 million of gains due to fair value re-measurements on fixed maturity and equity
Through our subsidiaries, we operate in four segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting and International. The U.S. Reinsurance operation writes property and casualty reinsurance, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies within the U.S. The U.S. Insurance operation writes property and casualty insurance primarily through general agents, brokers and surplus lines brokers within the U.S. The Specialty Underwriting operation writes A&H, marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies. The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada and Singapore and offices in Brazil, Miami and New Jersey.
Segment Expenses. Commission and brokerage expenses decreased 4.9% to $135.1 million in 2010 compared to $142.1 million in 2009, primarily due to the decline in premiums earned. Segment other underwriting expenses in 2010 decreased slightly to $33.9 million from $36.2 million in 2009.
Commission and brokerage expenses decreased 11.0% to $142.1 million in 2009 compared to $159.7 million in 2008, primarily due to the change in the mix and type of business written and the increased cessions under the affiliated quota share agreement. Segment other underwriting expenses were $36.2 million and $32.2 million in 2009 and 2008, respectively. The increase was due to growth in staff and related benefits.
Premiums. Gross written premiums increased by 1.0% to $850.7 million in 2010 compared to $842.6 million in 2009. This was primarily due to increased writings in professional liability and California workers’ compensation business, partially offset by a reduction in audit premiums for workers’ compensation business. Net written premiums increased 3.3% to $363.7 million in 2010 compared to $352.1 million in 2009, primarily due to the increase in gross written premiums. Premiums earned increased 4.4% to $399.8 million in 2010 compared to $382.8 million in 2009. The change in premiums earned is relatively consistent with the increase in net written premium.
Gross written premiums increased by 9.2% to $842.6 million in 2009 compared to $771.8 million for 2008. Most of the new premium was derived from our entry into the financial institution D&O and E&O market and additional property insurance written in Florida, where rates to exposure remain attractive. Net written premiums decreased by 11.7% to $352.1 million in 2009 compared to $398.7 million for 2008, as the increase in gross written premiums was offset by an increase in ceded written premiums. Premiums earned decreased 20.7% to $382.8 million in 2009 compared to $482.7 million for 2008. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period, in addition to the impact of the affiliated quota share agreement.
Incurred losses and LAE increased by 11.4% to $353.9 million in 2010 compared to $317.8 million in 2009. The increase was primarily due to the $32.2 million increase in current years’ attritional losses, primarily due to higher expected loss ratios on several programs, reflective of current market conditions. The 2010 prior years’ unfavorable development of $29.9 million was primarily the result of reserve strengthening on several terminated programs.
Commission and brokerage expenses decreased by 56.3% to $29.8 million in 2009 compared to $68.2 million in 2008. The variance was primarily due to the change in the mix of business written and additional cessions under the affiliated quota share agreement. Segment other underwriting expenses were $74.6 million and $64.3 million for 2009 and 2008, respectively. The increase was primarily due to costs associated with the expanded infrastructure in support of expanding our direct lines of business.
Incurred losses and LAE decreased by 17.2% to $96.3 million in 2009 compared to $116.3 million in 2008, primarily as a result of the decline in earned premiums, a decrease in catastrophe losses on the marine book of business, period over period, in addition to more favorable reserve development on prior years’ attritional losses for the surety and A&H lines.
Segment Expenses. Commission and brokerage expenses decreased 12.2% to $35.9 million in 2010 compared to $40.9 million in 2009. The decrease was due to the changes in the mix of business, with a higher level of excess of loss marine business and primary A&H business in 2010, both of which carry lower commission ratios. Lower contingent commissions on the surety and aviation books of business, driven by changes in the expected profitability of this business also favorably impacted the commission ratio. Segment other underwriting expenses decreased slightly to $8.6 million in 2010 compared to $8.7 million in 2009.
Premiums. Gross written premiums increased by 11.3% to $1,207.0 million in 2010 compared to $1,084.5 million in 2009, due to continued strong growth in premiums written through the Brazil, Miami and New Jersey offices, a $42.7 million increase; Asia, a $55.7 million increase; and Canada, a $24.2 million increase; resulting from a combination of new business, rate increases in select areas, and economic and insurance growth in some markets. Also contributing to the increase was $16.0 million in reinstatement premiums from the Chilean earthquake and Calgary hailstorm. Net written premiums increased by 8.8% to $641.4 million in 2010 compared to $589.7 million in 2009, principally as a result of the increase in gross written premiums. Premiums earned increased by 6.7% to $626.3 million in 2010 compared to $586.7 million in 2009 consistent with the trend noted for net written premiums.
Gross written premiums increased by 19.9% to $1,084.5 million in 2009 compared to $904.7 million in 2008. As a result of our strong financial strength ratings, we saw increased participations on treaties in most regions, new business writings and preferential signings, including preferential terms and conditions. In addition, rates, in some markets, also contributed to the increased written premiums. Premiums written through the Brazil, Miami and New Jersey offices increased by $122.9 million (21.3%), the Asian branch increased by $32.4 million (17.1%) and the Canadian branch premiums increased by $24.5 million (17.7%). Net written premiums increased by 9.4% to $589.7 million in 2009 compared to $539.1 million in 2008, primarily due to the increase in gross written premiums coupled with the increase in cessions under the affiliated quota share. Premiums earned increased by 7.5% to $586.7 million in 2009 compared to $545.6 million in 2008, generally consistent with the increase in net written premiums.
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”. Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic events on our financial statements and the ability of our subsidiaries to pay dividends. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause our actual events or results to be materially different from our expectations include those discussed under the caption ITEM 1A, “Risk Factors”. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.