Total shareholders’ equity of $216.0 million, or $24.84 per diluted share
Total cash and invested assets of $675.7 million at year end 2009
A.M. Best Rating of A (excellent) for New York Marine and Gotham
The Company’s results of operations are derived from participation in pools of insurance covering ocean marine, inland marine, aircraft and other liability insurance managed by MMO and affiliates. Since January 1, 1997, the Company’s participation in the pools has been increased to 100%. The Company formerly wrote aircraft business, but has ceased writing any new policies covering aircraft insurance for periods subsequent to March 31, 2002. . The Company in 2009, however, began underwriting policies covering single engine non-commercial aircraft. There were no material amounts written during the year.
The property and casualty industry historically has been highly cyclical. Rates for property and casualty insurance are influenced primarily by factors that are outside of our control, including competition and the amount of available capital and surplus in the industry. For example, the substantial losses in the insurance industry arising from the events of September 11, 2001 caused rates in the insurance industry to rise. However, new capital has since flowed into the insurance industry. To the extent that more capital is available, there may be downward pressure on premium rates as a result of increased supply. These factors affecting rates for the industry in general impact the rates we are able to charge. Any significant decrease in the rates for property and casualty insurance could reduce our net income. While rates impact our net income, there is not necessarily a direct correlation between the level of rate increases or decreases and net income because other factors, such as the amount of catastrophe losses and the amount of expenses, also affect net income.
Prevailing policy terms and conditions in the property and casualty insurance market are also highly cyclical. Changes in coverage terms unfavorable to insurers, which tend to be correlated with declining rates, could further reduce our net income. Even as rates rise, the average percentage rate increases can fluctuate greatly and be difficult to predict.
The Company estimates reserves each year based upon, and in conformity with, the factors discussed under “Business-Reserves.” Changes in estimates of reserves are reflected in operating results in the year in which the change occurs.
Net realized investment gains, after impairment, for the year ended December 31, 2009 were $15.3 million compared with net realized investment losses, after impairment, of $47.7 million for 2008. Net realized investment gains in 2009 primarily reflect gains from the sales of municipal bonds and U.S. Treasury securities. The realized investment losses in 2008 primarily relate to write-downs in the Company’s investments in RMBS.
Shareholders’ equity increased to $216.0 million as of December 31, 2009 from $164.1 million as of December 31, 2008. The increase was primarily attributable to net income for the period and increases in unrealized appreciation of fixed maturities held for sale.
Accumulated other comprehensive income (loss) included in shareholders’ equity as of December 31, 2009 decreased by $(20.1) million to $(23.0) million from $(2.9) million as of December 31, 2008. This includes $(26.1) million attributable to the reclassification from retained earnings to accumulated other comprehensive income (loss) of non-credit investment impairment losses previously recognized in net income on the Company’s RMBS holdings as a result of the adoption of ASC 320 on April 1, 2009. The adoption of ASC 320 had no impact on total shareholders’ equity. Gross premiums written of $213.6 million and net premiums written of $162.6 million each decreased by 2% for the year ended December 31, 2009 when compared to the same period of 2008. Net premiums earned decreased by 6% for the year ended December 31, 2009 when compared to the same period of 2008.
Ocean marine gross premiums written in 2009 decreased by 11%, primarily reflecting decreases in volume in the cargo and hull classes. There was a decrease in 2009 of $8.6 million from 2008 resulting from the change in gross cargo and war premiums arising from one of the Company’s program management agreements, which was terminated at the end of 2007. Decreased production occurred in most of the other marine classes largely as a result of competitive markets and declining rates. Increases were recorded in the energy class largely due to firmer rates.
Professional liability writings increased by 5% in 2009 when compared to 2008 primarily due to production increases that were partially offset by a softening of premium rates.
The Company reported approximately $20.0 million of favorable loss reserve development recorded in 2009. The Company reported adverse loss reserve development of $2.7 million in 2008.
The adverse loss reserve development of $2.7 million in 2008 resulted primarily from the resolution of the dispute over reinsurance receivables with a reinsurer and the reevaluation of the reserve for doubtful reinsurance receivables that contributed $12.4 million of adverse development in 2008 for both the other liability and ocean marine lines of business for accident years prior to 1999. Further contributing to adverse loss development in 2008 was $3.2 million from asbestos and environmental losses in the other liability line for accident years prior to 1999. Partially offsetting this adverse development in the other liability line was favorable development in the contractors’ class as a result of lower than anticipated incurred loss development of approximately $3.6 million in the 2004 through 2006 accident years. The ocean marine line also reported favorable development of approximately $14.0 million in the 2004 through 2006 accident years largely as a result of lower reported and paid loss trends. The inland marine/fire segment also reported favorable loss development partially due to larger than expected reinsurance recoveries in accident years 2005 through 2006. Contributing to the overall adverse development in 2008 was approximately $3.5 million in adverse development from the runoff aviation class relating to accident years prior to 2002.
Policy acquisition costs as a percentage of net premiums earned (the acquisition cost ratio) for the years ended December 31, 2009 and 2008 were 23.5% and 23.1%, respectively. A change in premium mix in the other liability segment whose underlying classes of business have higher acquisition cost ratios than other lines of business was partially offset by a lower ocean marine ratio which benefited from lower reinstatement premium charges in 2009 when compared to 2008.
The increase in investment income in 2009 from fixed maturities available for sale largely resulted from higher yields on the portfolio. The increase in investment income in 2009 from fixed maturities held to maturity largely resulted from maintaining the portfolio for an entire year in 2009 when compared to three months in 2008. Short-term investment income declined in 2009 when compared to 2008 largely as a result of lower yields.
Reserves for unearned premiums increased to $89.5 million as of December 31, 2009 from $83.4 million as of December 31, 2008 primarily as a result of the increase in fourth quarter 2009 over fourth quarter 2008 gross premiums which was largely attributable to writings from MMO agencies.
Other liabilities at December 31, 2009 increased to $34.9 million from $25.8 million at December 31, 2008 primarily due to the amounts owed to the MMO insurance pools.
Other assets decreased to $4.1 million at December 31, 2009 from $23.9 million at December 31, 2008, primarily due to cash received on federal income taxes recoverable and the receipt as beneficiary of proceeds of a life insurance policy on a former director.
Property, improvements and equipments, net increased to $14.6 million at December 31, 2009 from $10.0 million at December 31, 2008, primarily due to as a result of capitalized expenditures relating to information technology infrastructure initiatives.
The Company reported a net loss for the year ended December 31, 2008 of $(104.3) million, or $(12.23) per diluted share, as compared to net income of $13.4 million or $1.46 per diluted share, for the year ended December 31, 2007. The decrease in results of operations for the year ended December 31, 2008 when compared to the same period in 2007 was primarily attributable to pre-tax losses from other-than-temporary write-downs of $46.0 million resulting substantially from our RMBS holdings, losses of $42.3 million from the trading portfolio, losses of $26.3 million from the limited partnership portfolio, hurricane losses from hurricanes Gustav and Ike of $6.6 million, deferred tax valuation allowance increase of $17.6 million for capital loss carryforwards and $12.4 million in reevaluations of the provision for reinsurance receivable balances.
Total revenues for the year ended December 31, 2008 were $56.2 million, down 70%, compared with $190.4 million for the year ended December 31, 2007 primarily reflecting decreases in net investment income and increases in realized investment losses.
Shareholders’ equity decreased to $164.1 million as of December 31, 2008 from $279.4 million as of December 31, 2007. The decrease was primarily attributable to the net loss for the period.
Ocean marine gross premiums written in 2008 decreased by 16% when compared to 2007, primarily reflecting decreases in volume in the cargo and hull classes. The decrease in cargo production resulted primarily from the termination of a relationship with Southern Marine and Aviation, one of the Company’s agents writing cargo business. The decrease in hull premiums reflected the non-renewal of certain unprofitable accounts resulting from a continued effort to improve profitability in this class. Rates in the various classes of marine business declined slightly when compared to the prior year’s comparable period.
Ocean marine net premiums written and net premiums earned for the year ended December 31, 2008 decreased by 13% and 10%, respectively, when compared to 2007. Larger net premium retention levels in 2008 resulted from lower excess of loss reinsurance costs and lower reinsurance reinstatement costs. Losses from hurricane Ike resulted in incurring reinsurance reinstatement costs of $1.6 million in 2008 as compared with $2.3 million of reinsurance reinstatement costs arising from a cargo loss in 2007. Net earned premiums in 2008 largely reflected the decline in gross premiums written, which was partially offset by lower reinsurance costs in 2008 when compared to 2007.
Inland marine/fire gross premiums written, net premiums written and net premiums earned for the year ended December 31, 2008 decreased by 13%, 35% and 18%, respectively, when compared to 2007. Gross premiums written in 2008 reflect declines in production in certain property risks and surety business and also reflect mildly lower market rates when compared to the prior year. Net premiums written reflected additional reinsurance costs as a result of a change in mix of gross property writings as well as lower surety writings, which are written on a net basis without reinsurance costs. Net premiums earned reflected the decreases in property earned premiums, which were partially offset by the earnings in 2008 of larger surety business production in 2007.
Net losses and loss adjustment expenses incurred as a percentage of net premiums earned (the loss ratio) were 65.8% for the year ended December 31, 2008 as compared to 54.1% for 2007. The larger loss ratio in 2008 was primarily attributable to losses incurred from hurricanes Gustav and Ike amounting to $6.6 million (including $1.6 million of reinstatement costs), which added 4.0% to the 2008 loss ratio and the resolution of a dispute in 2008 over reinsurance receivables with a reinsurer including a reevaluation of the provision for doubtful reinsurance receivables that resulted in additional losses of $12.4 million and added 7.4% to the 2008 loss ratio. The decision to resolve the dispute regarding non-core reinsurance receivables and adjust our allowance for other potentially uncollectible non-core reinsurance receivables was related to reinsurance cessions made under a number of reinsurance contracts written from 1978 to 1986. The Company’s loss ratio in 2007 benefited from the novation of substantially all of the excess workers’ compensation policies written in conjunction with a prior producer. The novation reduced the overall loss ratio by 3.7% in 2007. Also contributing to a higher loss ratio in the other liability segment in 2008 was a change in premium mix in the other liability class. Excess workers’ compensation premiums have a higher loss ratio than other classes of other liability business and resulted in an overall increase in the other liability loss ratio. The inland marine/fire loss ratio decreased in 2008, reflecting lower severity losses and lower frequency of losses in the fire and the surety classes.
The adverse loss reserve development of $2.7 million in 2008 resulted primarily from the resolution of the dispute over reinsurance receivables with a reinsurer and the reevaluation of the reserve for doubtful reinsurance receivables that contributed $12.4 million of adverse development in 2008 for both the other liability and ocean marine lines of business for accident years prior to 1999. Further contributing to adverse loss development was $3.2 million from asbestos and environmental losses in the other liability line for accident years prior to 1999. Partially offsetting this adverse development in the other liability line was favorable development in the contractors class as a result of lower than anticipated incurred loss development of approximately $3.6 million in the 2004 through 2006 accident years. The ocean marine line also reported favorable development of approximately $14.0 million in the 2004 through 2006 accident years largely as a result of lower reported and paid loss trends. The inland marine/fire segment also reported favorable loss development partially due to larger than expected reinsurance recoveries in accident years 2005 through 2006. Contributing to the overall adverse development in 2008 was approximately $3.5 million in adverse development from the runoff aviation class relating to accident years prior to 2002.
General and administrative expenses increased by 7% for the year ended December 31, 2008 when compared to 2007. Larger expenses were incurred in 2008 to service the growth in the Company’s business operations, including increased staffing, consulting costs and additional office space.
Net investment loss for the year ended December 31, 2008 was $(63.5) million as compared to net investment income of $35.5 million in 2007. The decrease in 2008 primarily reflected trading portfolio losses and lower income from limited partnerships. Trading portfolio losses of $(42.3) million were recorded in 2008 and resulted primarily from the fair value changes in the underlying securities. This included municipal obligations of $(3.0) million, preferred stocks of $(31.5) million, economic hedged positions of $(1.1) million and exchange traded funds of $(6.7) million. Limited partnership income in 2008, excluding income from Altrion, decreased from the prior year’s comparable period as a result of lower returns amounting to (24.6)% as compared to 3.4% for the same period in 2007. Most of our hedge fund investments reported lower returns in 2008 than in 2007. Income from Altrion was $1.2 million and $7.9 million for the year ended December 31, 2008 and 2007, respectively. Income from Altrion was greater in 2007 as a result of interest income received from the warehousing of CDO and CLO debt securities. There were no such activities in 2008. The reduction in investment income from fixed maturities available for sale and short-term investments resulted from maintaining lower average balances during 2008 in such investments.
As of December 31, 2008 and 2007 investments in limited partnerships amounted to approximately $122.9 million and $188.3 million, respectively. The equity method of accounting is used to account for the Company’s limited partnership hedge fund investments. Under the equity method, the Company records all changes in the underlying value of the limited partnership hedge funds to results of operations. Net investment (loss) income for 2008 and 2007 reflected approximately $(26.8) million and $13.0 million, respectively, derived from limited partnership hedge fund investments.
Net realized investment losses were $(47.7) million for the year ended December 31, 2008 as compared to $(6.9) million for the year ended December 31, 2007. These amounts result from the sale of fixed income investments as well as write-downs from other-than-temporary declines in the fair value of securities, which amounted to $46.2 million and $6.7 million for the years ended December 31, 2008 and 2007, respectively. The write-downs in 2008 and 2007 primarily relate to the Company’s investments in RMBS. The Company has collected all applicable interest and principal repayments on such securities to date. The Company collected $8.5 million in principal repayments on these securities in 2008, which resulted in $1.2 million in realized investment gains as a result of the recapture of previous write-downs of investment balances. The decision to write down such securities in 2008 was based upon the likelihood that the securities may not be held until the fair value decline is recovered. Contributing to management’s decision was the uncertainty of the duration of declines in the residential mortgage-backed market. However, on October 1, 2008, management reconsidered the classification of these securities as a result of our desire to hold such securities for their duration. Accordingly, the Company transferred these holdings to the held to maturity classification using the fair value of these securities on such date as its adjusted cost basis. The Company has both the intent and the ability to hold such securities until maturity.
Other assets increased to $23.9 million at December 31, 2008 from $10.2 million at December 31, 2007, primarily as a result of federal income taxes recoverable.
The Company monitors cash and short-term investments in order to have an adequate level of funds available to satisfy claims and expenses as they become due. As of December 31, 2009, the Company’s assets included approximately $75.5 million in cash and short-term investments. Fixed maturities held to maturity are comprised of $56.6 million in RMBS. Cash and total investments increased from $547.0 million at December 31, 2008 to $675.7 million at December 31, 2009, principally as a result of strong cash flows from operations as well as the appreciation of the Company’s investments. Receivables for securities sold amounted to $4.2 million and $25.4 million as of December 31, 2009 and 2008, respectively. The level of cash and short-term investments of $75.5 million at December 31, 2009 reflected the Company’s high liquidity position.
Cash flows provided by operating activities were $89.8 million for the year ended December 31, 2009. This compared to cash flows provided by operating activities of $57.6 million for the year ended December 31, 2008 and cash flows used in operating activities of $106.4 million for the year ended December 31, 2007. Cash flows from operating activities are significantly impacted by changes in the Company’s trading and commercial loan portfolios. Any securities purchased by the Company in its trading and commercial loan portfolios would be reflected as a use of cash from operating activities and any securities sold from these portfolios would be reflected as a source of cash from operating activities. Trading portfolio activities include the purchase and sale of preferred stocks, municipal bonds, CDO/CLO securities and exchange traded funds. Commercial loan activities include the purchase and sale of middle market loans made to commercial companies. Trading and commercial loan portfolio activities of $26.9 million and $84.2 million favorably affected cash flows for the years ended December 31, 2009 and December 31, 2008, respectively, while trading and commercial loan portfolio activities adversely affected cash flows for the year ended December 31, 2007 by $116.2 million. As the Company’s trading and commercial loan portfolio balances may fluctuate significantly from period to period, cash flows from operating activities may also be significantly impacted by such trading activities.
For the years ended December 31, 2009 and 2007, cash flows from operations excluding adjustments for trading and commercial loan activities were favorable and for the year ended December 31, 2008, cash flows from operating activities excluding adjustments for trading and commercial loan activities were unfavorable. Cash flows were favorably impacted in 2009 by collections of reinsurance recoverables on hurricane losses, net investment income and lower net paid losses; were adversely impacted in 2008, principally as a result of lower investment income; and, were favorably impacted in 2007, principally as a result of collections of reinsurance recoverables on hurricane losses and lower net paid losses, which were partially offset by payments of quota share reinsurance premiums.
Under the Common Stock Repurchase Plan, as amended in 2008, the Company may purchase up to $75 million of the Company’s issued and outstanding shares of common stock on the open market. The Company paid $0, $7.7 million and $7.1 million to repurchase its common stock during the years ended December 31, 2009, 2008 and 2007, respectively.
In 2002, the Company signed a sublease at 919 Third Avenue, New York, NY 10022 for approximately 28,000 square feet for its principal offices in New York. The sublease commenced on March 1, 2003 and expires on July 30, 2016. In April 2005, the Company signed an amendment to the sublease, for approximately 10,000 square feet of additional space. The sublease expires on July 30, 2016. The minimum monthly rental payments of $144,551 under the amended sublease include the rent paid by the Company for the original sublease. Such payments began in 2005 and end in 2016. They will amount to $20.8 million of total rental payments, collectively, over the term of the amended sublease.
Effective August 1, 2008, the Company has subleased Space A for a term of 29 months, with an option to extend for an additional 19 months. The monthly rental income recognized under the sublease agreement is approximately $82,000 and has reduced overall general and administrative expenses by $984,000 and $410,000 for the years ended December 31, 2009 and 2008. The Company did not extend its sublease of Space A.
In 2008, the Company entered into a lease for 2,136 square feet for the office space for its newly formed MMO Agencies, an underwriting division of the Company. The office is located in Long Island, New York. Rent payments under the lease end in 2013, with payments amounting to approximately $370,000, collectively, over the term of the agreement. The lease expires in May 2013.
NYMAGIC’s principal source of cash flow is dividends from its insurance company subsidiaries, which are then used to fund various operating expenses, including interest expense, loan repayments and the payment of any dividends to shareholders. The Company’s domestic insurance company subsidiaries are limited by statute in the amount of dividends that may be declared or paid during a year.
A significant portion of the Company’s invested assets are in hedge funds. The Company is in the process of redeeming its investment in Mariner Voyager. The level of liquidity of invested assets is impacted by hedge fund investments as one of our hedge funds (Mariner Voyager) has invoked gated provisions that allow the fund to disperse redemption proceeds to investors over an extended period. The Company is subject to such restrictions and they will affect the timing of the receipt of hedge fund proceeds. The timing of the redemption proceeds is uncertain. The Company also maintains a significant investment in Tiptree Financial. See “Investment Management Arrangement” for a complete discussion of the Company’s investment in Tiptree Financial.
On March 6, 2009, the Company declared a dividend of four cents to shareholders of record on March 31, 2009, payable on April 7, 2009. On May 21, 2009, the Company declared a dividend of four cents per share to shareholders of record on June 30, 2009, payable on July 7, 2009. On September 17, 2009, the Company declared a dividend of six cents per share to shareholders of record on September 30, 2009, payable on October 6, 2009. On December 10, 2009, the Company declared a dividend of six cents per share to shareholders of record on December 31, 2009, payable on January 6, 2010.
On March 5, 2007, the Company declared a dividend of eight cents per share to shareholders of record on March 30, 2007, payable on April 5, 2007. On May 23, 2007, the Company declared a dividend of eight cents per share to shareholders of record on June 29, 2007, payable on July 5, 2007. On September 14, 2007, the Company declared a dividend of eight cents per share to shareholders of record on September 28, 2007, payable on October 3, 2007. On December 7, 2007, the Company declared a dividend of eight cents per share to shareholders of record on December 31, 2007, payable on January 4, 2008.
The Company’s records compensation costs at the fair value of all share options, restricted shares units, deferred share units and performance share units over their related vesting period or service period. Total stock compensation expense recorded in 2009, 2008 and 2007 amounted to $2.3 million, $2.4 million and $2.2 million, respectively.
The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The standard describes three levels of inputs that may be used to measure fair value and categorize the assets and liabilities within the hierarchy:
Level 1 -Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These prices generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following for the measured asset/liability: i) many transactions, ii) current prices, iii) price quotes not varying substantially among market makers, iv) narrow bid/ask spreads and v) most information publicly available.
The Company’s Level 1 assets are comprised of U.S. Treasury securities and preferred stock, which are highly liquid and traded in active exchange markets.
Level 2 -Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, non-binding quotes in markets that are not active for identical or similar assets and other market observable inputs (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.).
The Company’s Level 2 assets include municipal debt obligations and corporate debt securities.
The FASB issued “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“ASC 105”). ASC 105 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with U.S. GAAP. ASC 105 establishes the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative accounting principles recognized by the FASB in the preparation of financial statements in conformity with U.S. GAAP. The Codification does not create new accounting and reporting guidance; rather, it reorganizes U.S. GAAP pronouncements into approximately 90 topics within a consistent structure. All guidance contained in the Codification carries an equal level of authority. Relevant portions of authoritative content, issued by the SEC, for SEC registrants, have been included in the Codification. After the effective date of ASC 105, all nongrandfathered, literature not included in the Codification is superseded and deemed nonauthoritative (other than Securities and Exchange guidance for publicly-traded companies). ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASC 105 did not have an impact on the Company’s financial condition, results of operations or liquidity.
In February 2008, the FASB issued FSP FAS 157-2 (ASC 820), Effective Date of FASB Statement No. 157, which permits a one-year deferral of the application of SFAS 157, Fair Value Measurements, for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company adopted SFAS 157 for non-financial assets and non-financial liabilities on January 1, 2009 and its adoption did not have an impact on the Company’s financial condition, results of operations or liquidity.
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 163 (ASC 944), Accounting for Financial Guarantee Insurance Contracts (“SFAS 163”). SFAS 163 clarifies how FASB Statement No. 60, Accounting and Reporting by Insurance Enterprise, applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition and measurement of premium revenue and claim liabilities. It also requires expanded disclosures about financial guarantee insurance contracts. The provisions of SFAS 163 are effective for financial statements issued for fiscal years beginning after December 15, 2008 and all interim periods within those fiscal years, except for disclosures about the insurance enterprise’s risk-management activities, which are effective the first period (including interim periods) beginning after May 23, 2008. The adoption of SFAS 163 did not have an impact on the Company’s financial condition, results of operations or liquidity.
In June 2008, the FASB issued FSP Emerging Issues Task Force Issues No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“EITF 03-6-1”) (ASC 260). EITF 03-6-1 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The adoption of EITF 03-6-1 did not have a material impact on the Company’s financial condition, results of operations or liquidity.
In December 2008, the FASB issued Statement of Financial Accounting No. 141(R) (ASC 810), Business Combinations (“ SFAS 141(R)”), which requires most identifiable assets, liabilities, non-controlling interests, and goodwill acquired in a business combination to be recorded at full fair value. Under SFAS 141(R), all business combinations will be accounted for by applying the acquisition method (referred to as the purchase method in SFAS 141, Business Combinations). SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008 and is to be applied to business combinations occurring after the effective date. The adoption of SFAS 141(R) will not have an impact on the Company’s financial condition, results of operations or liquidity unless an acquisition occurs after the effective date of SFAS 141(R).
In February 2010, the FASB issued (“ASU 2010-09”) to address potential practice issues associated with FASB ASC Topic 855, Subsequent Events (Statement 165). The amendments in the update would no longer require entities that file or furnish financial statements with the SEC to disclose the date through which subsequent events have been evaluated in originally issued and reissued financial statements. Other entities would continue to be required to disclose the date through which subsequent events have been evaluated; however, disclosures about the date through which subsequent events have been evaluated in reissued financial statements would be required only in financial statements revised because of an error correction or retrospective application of U.S. GAAP. The ASU is effective immediately except for the use of the issued date for conduit bond obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The adoption of ASU 2010-09 did not have a material impact on the Company’s financial condition, results of operations or liquidity.
In June 2009, the FASB issued ASC 860, Transfers and Servicing (“ASC 860”). ASC 860 amends the derecognition guidance in Statement 140 and eliminates the concept of qualifying special-purpose entities (“QSPEs”). ACS 860 is effective for fiscal years and interim periods beginning after November 15, 2009. Early adoption of ASC 860 is prohibited. The Company will adopt ASC 860 during the first quarter of 2010 and does not expect the adoption to have an effect on its results of operations, financial position or liquidity.
In June 2009, the FASB issued ASC 810, Amendments to FASB Interpretation No. 46 (“ASC 810”), which amends the consolidation guidance applicable to variable interest entities (“VIE”). An entity would consolidate a VIE, as the primary beneficiary, when the entity has both of the following characteristics: (a) The power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) The obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE is required. ASC 810 amends interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a VIE. This Statement is effective for fiscal years and interim periods beginning after November 15, 2009. The Company will adopt ASC 810 during the first quarter of 2010 and has not yet determined the impact adoption will have on its results of operations, financial position or liquidity.
Periods of inflation have prompted the pools, and consequently the Company, to react quickly to actual or potential imbalances between costs, including claim expenses and premium rates. These imbalances have been corrected mainly through improved underwriting controls, responsive management information systems and frequent review of premium rates and loss experience.