immediate demands for funds for withdrawals or collateral, combined with falling asset values and their inability to sell assets to meet the increased demands. As a result, several financial institutions have failed or been acquired at distressed prices, while others have received loans from the U.S. government to continue operations. The liquidity crisis significantly increased the spreads on fixed maturities and, at the same time, had a dramatic and negative impact on the stock markets around the world. The combination of losses on securities from failed or impaired companies combined with the decline in values of fixed maturities and equity securities has resulted in significant declines in the capital bases of most insurance and reinsurance companies. It is too early to predict the timing and extent of impact the capital deterioration will have on insurance and reinsurance market conditions. There is an expectation that these events will ultimately result in increased rates for insurance and reinsurance in certain segments of the market, but there is no assurance that this will not be the case.
Worldwide insurance and reinsurance market conditions continued to be very competitive. Generally, there was ample insurance and reinsurance capacity relative to demand. We noted, however, that in many markets and lines, the rates of decline have slowed, pricing in some segments was relatively flat and there was upward movement in some others. Competition and its effect on rates, terms and conditions vary widely by market and coverage yet continues to be most prevalent in the U.S. casualty insurance and reinsurance markets. In addition to demanding lower rates and improved terms, ceding companies have retained more of their business by reducing quota share percentages, purchasing excess of loss covers in lieu of quota shares, and increasing retentions on excess of loss business. Our quota share premiums have declined, particularly on catastrophe exposed property business, due to slower growth and increased purchases of common account covers by ceding companies, which reduces the premiums subject to the quota share contract. The U.S. insurance markets in which we participate were extremely competitive as well, particularly in the workers’ compensation, public entity and contractor sectors. While our growth has slowed, given the specialty nature of our business and our underwriting discipline, we believe the impact on the profitability of our business will be less pronounced than on the market generally.
Rates in the international markets have generally been more adequate than in the U.S., and we have seen some increases, particularly for catastrophe exposed business. We have grown our business in the Middle East, Latin America and Asia. We are expanding our international reach by opening a new office in Brazil to capitalize on the recently expanded opportunity for professional reinsurers in that market and on the economic growth expected for Brazil in the future.
Gross written premiums decreased by $30.9 million, or 1.0%, in 2007 compared to 2006, reflecting a decline of $50.2 million in our reinsurance business, partially offset by an increase of $19.3 million in our U.S. insurance business. Net written premiums decreased by $217.4 million, or 9.5%, in 2007 compared to 2006, due to the change in the mix of our program business and the resulting change in reinsurance. Premiums earned decreased by $68.3 million, or 3.0%, in 2007 compared to 2006. The decrease is primarily due to the result of timing; premiums are earned ratably over the coverage period whereas net written premiums are reflected at the initiation of the coverage period.
Net investment income increased by 9.2% in 2007 compared to 2006, primarily due to the growth in invested assets to $9.0 billion at December 31, 2007 from $8.5 billion at December 31, 2006. The growth in invested assets was principally driven by the $400.0 million of long term note issuance and $151.9 million of operating cash flows, partially offset by the redemption of $216.5 million of junior subordinated debt securities. Pre-tax investment portfolio yield for 2007 was 4.9% compared to 4.8% for 2006.
The net realized capital losses for 2008 were primarily the result of the global declines in the values of equity and fixed income securities. We incurred $193.5 million of net realized capital losses from the sale of fixed maturity and equity securities we owned as we realigned our investment portfolios. Our equity security portfolio decreased $134.9 million and our other invested assets decreased $87.8 million as a result of fair value adjustments. Our fixed maturity securities decreased $74.5 million due to other-than-temporary impairments. We report changes in fair values as realized capital gains or losses in accordance with Statement of Financial Accounting Standards (“FAS”) No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment to FASB Statement No. 115” (“FAS 159”), and we report realized capital losses on our fixed income portfolio from other-than-temporary impairments as realized capital losses in accordance with FASB Staff Position (“FSP”) FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairments and Its Application to Certain Investments” (“FAS 115-1”).
Other Income (Expense). We recorded income of $57.9 million for 2008 and expense of $73.6 million and $40.5 million, for 2007 and 2006, respectively. The fluctuations in net other income (expense) were primarily due to the change in foreign currency exchange rates over the periods and change in deferrals on retroactive reinsurance agreements with affiliates.
Incurred Losses and LAE. The following table presents our incurred losses and LAE for the periods indicated.
We strengthened our asbestos reserves by $266.4 million in 2007, and had no development in 2008 as loss activity in 2008 was generally in line with the expected run-off of the reserves established at December 31, 2007.
The decrease in catastrophe losses reflects the non-recurrence in 2007 of significant prior years’ development experienced in 2006 on catastrophe loss reserves. The increase in A&E reserves emanated from actions taken in response to an extensive in-house study of our asbestos exposures by our actuarial and claim units.
Commission, brokerage and tax expenses increased by $27.4 million, or 6.3%, in 2007 compared to 2006. An increase in ceding commissions due to market conditions and higher commissions on new insurance programs were the principal drivers in this directly variable expense.
Other underwriting expenses for 2007 were $123.9 million compared to $98.7 million for 2006. The increase was primarily due to higher compensation and benefits expense resulting from increased staff, primarily in the U.S. Insurance segment. Included in other underwriting expenses were corporate expenses of $5.3 million and $4.5 million for 2007 and 2006, respectively.
Interest, Fees and Bond Issue Cost Amortization Expense. Interest and other expense was $79.0 million and $91.1 million for 2008 and 2007, respectively. The decrease was primarily due to the acceleration of amortization of the bond issue costs for the junior subordinated debt securities which were retired in November, 2007, with no such expense in 2008. In addition, the interest reduction on the retired junior subordinated notes was partially offset by the interest on the new long term notes.
Interest and other expense was $91.1 million and $69.7 million for 2007 and 2006, respectively. The increase was due to the new long term notes we issued in April, 2007 and the acceleration of the amortization of the bond issue costs associated with the November 15, 2007 early retirement of the 7.85% junior subordinated debt securities.
We recorded a net loss of $124.8 million for 2008 compared to net income of $304.2 million for 2007 and $332.9 million for 2006. The decrease was primarily driven by after-tax net realized capital losses and increased catastrophe losses in 2008 compared to after-tax net realized capital gains and fewer catastrophe losses in 2007.
Our combined ratio increased by 9.7 points to 106.0% in 2008 compared to 96.3% in 2007. Most of the increase was due to an 8.7 point increase in the 2008 loss ratio compared to 2007. Items affecting this ratio, period over period, were a higher current accident year attritional loss ratio, greater catastrophe losses and higher adverse development on attritional loss reserves, which were partially offset by the non-recurrence in 2008 of any A&E development.
Stockholder’s equity decreased by $364.5 million to $2,203.0 million in 2008 from $2,567.5 million in 2007, due to $179.7 million of unrealized depreciation, net of tax, on our investments, at market value; a net loss of $124.8 million; $30.5 million of foreign currency translation adjustments; $25.2 million pension adjustments and $10.0 million of dividends, partially offset by $5.6 million of capital paid-in from share-based compensation transactions. The increase in unrealized depreciation is due to the current financial market liquidity crisis that has resulted in significantly increased credit spreads and concomitantly lower corporate and municipal security values.
Stockholder’s equity increased by $349.1 million to $2,567.5 million in 2007 from $2,218.4 million in 2006, due to net income of $304.2 million, $30.1 million of foreign currency translation adjustments, $11.3 million of pension adjustments and $9.4 million of capital paid-in from share-based compensation transactions, partially offset by $6.0 million of unrealized depreciation, net of tax, on our investments at market value.
Net investment income decreased 10.7% to $363.1 million in 2008 from $406.6 million in 2007, primarily due to the decrease in short-term investment income from both lower rates and decreased holdings, diminished limited partnerships investment income, particularly from limited partnerships which were principally invested in public equity securities and decreased dividend income from reduced holdings in equity securities. Partially offsetting these decreases was an increase in fixed maturity securities income.
We recorded $221.2 million in net realized capital losses due to fair value re-measurements on fixed maturity securities, equity securities and other invested assets for 2008 and $96.6 million of net realized capital gains due to fair value re-measurements on equity securities and other invested assets for 2007. In addition, we recorded other-than-temporary impairments of $74.5 million and $4.0 million for 2008 and 2007, respectively. These net realized capital losses were attributable to the current financial liquidity crisis and related global economic downturn. Numerous financial corporations have either filed for bankruptcy or received assistance from the U.S. Government. This activity has severely impacted both the equity and credit markets. Equities are trading at multiyear lows, spreads on fixed maturities are at unprecedented levels and many securities have been downgraded by rating agencies.
Premiums. Gross written premiums decreased by 19.7% to $957.9 million in 2008 from $1,193.5 million in 2007, primarily due to a $104.9 million (14.7%) decrease in treaty property volume, a $71.7 million (21.6%) decrease in treaty casualty volume and a $57.9 million (39.9%) decrease in facultative volume. Property premiums were lower due to increased common account reinsurance protections, particularly on one Florida quota share account and two quota share non-renewals. Our treaty casualty premium was lower than last year as we reduced this book to a group of core accounts in response to the softer market conditions. Facultative volume decreased due to ceding companies retaining a greater portion of gross premiums and a marketplace that remains competitive. Net written premiums decreased by 33.3% to $569.9 million in 2008 compared to $854.8 million in 2007, primarily due to the decrease in gross written premiums and increased cessions under the affiliated quota share agreement. Correspondingly, premiums earned decreased by 27.1% to $685.1 million for 2008 compared to $939.7 million for 2007, consistent with the change in net written premiums.
Incurred losses were lower by $76.9 million in 2008 compared to 2007, primarily due to no reserve adjustments in 2008 for A&E losses, which experienced $266.4 million adverse development in 2007. Partially offsetting the decrease were catastrophe losses, principally from Hurricanes Gustav and Ike and unfavorable reserve development on prior years’ losses for 2008 compared to favorable development in 2007.
Segment Expenses. Commission and brokerage expenses decreased 30.7% to $159.7 million for 2008 from $230.5 million in 2007, generally in line with the decrease in premiums earned. Segment other underwriting expenses for 2008 decreased slightly to $32.2 million from $33.3 million for 2007.
Commission and brokerage expense increased by 13.7% to $230.5 million for 2007 from $202.8 million in 2006, principally driven by an increase in ceding commissions due to market conditions. Segment other underwriting expenses for 2007 increased to $33.3 million from $24.9 million for 2006, principally due to
Premiums. Gross written premiums decreased by 12.9% to $771.8 million for 2008 from $885.6 million for 2007. Conditions for workers’ compensation, contractors and public entity business have gotten increasingly competitive, which has reduced the volume of business that meets our underwriting and pricing criteria. A little less than half of the decline compared to last year was from the C.V. Starr program, where we have lost some public entity business because we did not match market pricing and terms. In addition, the $76.3 million of gross written premium we assumed on a new program in 2007, did not recur in 2008. Net written premiums decreased by 16.9% to $398.7 million for 2008 compared to $479.8 million for 2007. The decrease in net written premiums was larger than the decline in gross written premiums primarily due to increased reinsurance purchases on select larger new programs and an increase in the ceding percentage for 2008 in the affiliated quota share agreement. Premiums earned decreased 2.7% to $482.7 million for 2008 from $496.2 million for 2007. The reduction 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 reflected at the initiation of the coverage period.
Commission and brokerage expenses decreased by 11.5% to $64.3 million for 2007 from $72.7 million in 2006, in line with the decrease in premiums earned. Segment other underwriting expenses for 2007 increased to $58.2 million as compared to $48.9 million for 2006 due to the allocation of certain corporate charges to segments, which had been previously retained in corporate expenses.
Premiums. Gross written premiums decreased by 3.6% to $260.4 million for 2008 from $270.1 million for 2007. Aviation premiums were lower by $16.9 million (58.9%) owing to very competitive market conditions and A&H premiums were lower by $15.4 million (16.1%) largely due to lower premiums under certain quota share contracts where the ceding companies have culled their books to improve their loss experience. Partially offsetting these declines were marine premiums, up by $19.8 million (19.8%) due to higher premiums on our quota share covers and improved rates across the book and surety premiums, up $2.8 million or 6.1%. Net written premiums decreased by 9.5% to $167.7 million for 2008 compared to $185.4 million for 2007, as a result of the decrease in gross written premiums combined with the increased cessions under the affiliated quota share agreement. Premiums earned decreased by 8.9% to $168.4 million for 2008 compared to $184.9 million for 2007 as a result of the decline in net written premiums.
Gross written premiums increased by 7.5% to $270.1 million for 2007 from $251.2 million for 2006. This increase was the result of a $36.9 million (58.7%) increase in marine writings and a $12.2 million (14.7%) increase in A&H writings, partially offset by a $24.6 million (34.9%) decrease in surety writings and a $5.7 million (16.5%) decrease in aviation writings. The increased marine premium growth emanated from growth in existing quota share business as well as new quota share contracts. We continued to decrease our aviation and surety writings in response to more competitive market conditions. Net written premiums increased by 6.3% to $185.4 million for 2007 compared to $174.4 million for 2006, as a result of the increase in gross written premiums. Premiums earned increased by 4.9% to $184.9 million for 2007 compared to $176.3 million for 2006, generally in line with the growth in net written premiums.
Incurred losses and LAE decreased by 1.7% to $116.3 million for 2008 compared to $118.3 million for 2007 primarily due to lower catastrophe losses in 2008 as compared to 2007, partially offset by slightly higher attritional losses in 2008.
Gross written premiums increased by 10.1% to $805.9 million for 2007 from $731.7 million for 2006. Approximately half of this increase was attributable to the impact of the weaker U.S. dollar. We write business in many currencies and as these currencies strengthened against the U.S. dollar, they converted to higher dollar values. Business written through the Miami and New Jersey office increased by $35.0 million (8.0%), business written through the Asian branch increased by $22.3 million (15.6%) and business written through the Canadian branch increased by $17.9 million (11.8%). We have experienced strong fundamental growth in geographic areas where economic growth and demand for reinsurance is strong. Net written premiums increased by 4.0% to $553.0 million for 2007 compared to $531.8 million for 2006, primarily as a result of the increase in gross written premiums. Premiums earned increased by 7.6% to $558.2 million for 2007 compared to $518.8 million for 2006. 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 reflected at the initiation of the coverage period.
Incurred Losses and LAE. The following table presents the incurred losses and LAE for the International segment for the periods indicated.
Incurred losses and LAE increased by 22.0% to $339.7 million for 2007 compared to $278.5 million for 2006. The segment loss ratio increased by 7.2 points year over year, principally due to an increase in the catastrophe losses in 2007.
Segment Expenses. Commission and brokerage expenses increased slightly to $129.7 million for 2008 from $126.7 million in 2007 despite a slight decline in premiums earned. The commission and brokerage ratio increased principally due to increased contingent commissions emanating from the profitable results. Segment other underwriting expenses for 2008 was $19.8 million compared to $18.6 million for 2007.
Commission and brokerage expenses increased by 7.3% to $126.7 million for 2007 from $118.1 million in 2006, consistent with the increase in premiums earned. Segment other underwriting expenses for 2007 was $18.6 million compared to $13.8 million for 2006, primarily due to the allocation of certain corporate charges to segments, which had been previously retained in corporate expenses.