The Company does not own, directly or indirectly, any real estate. The Company leases office space for day-to-day operations in the following cities:
The Company’s principal executive offices are approximately 69,000 square feet in size and are located at 919 Third Avenue, New York, New York 10022. The Company entered into a sublease for approximately 28,000 square feet of this space, which 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 amended 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. Rent payments under the amended sublease commenced in 2005 and end in 2016, with payments amounting to $20.8 million, collectively, over the term of the agreement. In June 2007, the Company leased an additional 30,615 square feet at the principal executive location in New York City. The lease provides for minimum monthly rental payments of $197,722 beginning in 2008 and $210,478 beginning in 2013. The lease expires on July 30, 2016. 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.
Favorable net loss reserve development reported on prior year loss reserves of $20.0 million
The Company records premiums written in the year policies are issued and earns such premiums on a monthly pro-rata basis over the terms of the respective policies. The following tables present the Company’s gross premiums written, net premiums written and net premiums earned for each of the past three years.
Unlike many types of commercial insurance, ocean marine and inland marine premium rates and coverage terms are not strictly regulated by governmental authorities. In addition, much of the Company’s property, casualty and professional liability writings are written on a surplus lines basis or in the New York Free Trade Zone. With respect to these lines, the Company is able to adjust premium rates and coverage terms quickly in response to competition, varying degrees of risk and other factors. In addition, the Company, by virtue of its underwriting flexibility, is able to emphasize specific lines of business in response to advantageous premium rates and its anticipation of positive underwriting results. However, the insurance industry is highly competitive and the companies against which the Company competes may seek to limit any market premium rate.
Year Ended December 31, 2009 as Compared to Year Ended December 31, 2008
The Company reported net income for the year ended December 31, 2009 of $45.5 million, or $5.26 per diluted share, as compared to a net loss of $(104.3) million, or $(12.23) per diluted share, for the year ended December 31, 2008. The increase in results of operations for the year ended December 31, 2009 when compared to the same period in 2008 was primarily attributable to stronger investment results from trading activities and limited partnership income, lower other-than-temporary write-downs, a lower combined ratio derived from lower catastrophe losses and deferred tax valuation allowance decreases resulting from the utilization of capital loss carryforwards. In 2008, pre-tax losses arose from other-than-temporary write-downs of $46.0 million resulting substantially from our RMBS, 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, 2009 were $217.5 million, an increase of 287%, compared with $56.2 million for the year ended December 31, 2008 primarily reflecting increases in net investment income and net realized investment gains.
Ocean marine net premiums written and net premiums earned for the year ended December 31, 2009 decreased by 16% and 20%, respectively, when compared to 2008. Net premiums written and net premiums earned in 2009 largely reflected the decline in gross cargo premiums written and mildly lower premium rates over the past year. There were no reinsurance reinstatement costs arising from catastrophe losses in 2009. This compared to reinsurance reinstatement costs of $1.6 million resulting from Hurricane Ike in 2008.
Inland marine/fire gross premiums written and net premiums written increased by 26% and 55% for the year ended December 31, 2009 when compared to the same period of 2008. Gross premiums written in 2009 reflected increases in production largely relating to property risks written on a nationwide basis. Increases in production relating to surety risks largely occurred as a result of an additional agent appointment. Gross premiums written reflected mildly lower market rates when compared to the prior year. The increase in net premiums written in 2009 resulted from a change in the mix of gross premiums which resulted in lower premium cessions to reinsurers. Surety premiums are written net of reinsurance. Net premiums earned was flat in 2009 when compared to 2008 reflecting declines in premium production from the prior year, which was offset mostly by current year increases in production largely relating to property risks written on a nationwide basis.
Other liability gross premiums written increased by 1% for the year ended December 31, 2009 when compared to 2008. Net premiums written and net premiums earned for the year ended December 31, 2009 rose by 4% and 3%, respectively, when compared to 2008. The increase in premiums is primarily due to premiums written from MMO Agencies, which was formed in 2008 to write premiums through a network of general agents with binding authority subject to underwriting criteria established and monitored by the Company, and an increase in production of professional liability writings. Substantially offsetting this increase were declines in premiums from excess workers’ compensation and contractors’ liability that resulted from lower production largely as a consequence of reduced construction and commercial activities.
The Company writes excess workers’ compensation insurance on behalf of certain self-insured workers’ compensation trusts. Gross and net premiums written in the excess workers’ compensation class decreased to $33.4 million and $29.5 million, respectively, in 2009 from $36.0 million and $31.9 million, respectively, in the same period of 2008. The decrease in gross and net premiums in 2009 largely reflected rate reductions and reduced commercial activities.
Aircraft premiums were nominal in 2009 and 2008 as a result of the Company having ceased writing new commercial aircraft policies subsequent to March 31, 2002. In 2009, the Company entered into an agreement with an agent to write general aviation insurance. There were no significant amounts written during the year.
Net losses and loss adjustment expenses incurred as a percentage of net premiums earned (the loss ratio) were 48.1% for the year ended December 31, 2009 as compared to 65.8% for 2008. The lower loss ratio in 2009 was partly attributable to lower current accident year loss ratios in the ocean marine and other liability lines of business and partly attributable to larger amounts of favorable loss reserve development. The ocean marine loss ratio benefited in part from lower catastrophe losses reported in 2009 as well as the non-renewal of certain unprofitable hull business. The lower other liability loss ratio was due in part to lower loss estimates used for contractors liability business. The inland marine/fire segment loss ratio was lower in the current year due to favorable loss development. The larger loss ratios in 2008 were 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.
Each of the Company’s major business segments contributed to the approximately $20.0 million decrease in 2009 in estimated losses and loss adjustment expenses for claims occurring in prior years. The ocean marine line of business recorded the largest favorable development primarily occurring in the 2004 through 2006 accident years largely as a result of lower than expected reported loss and paid loss trends. This was partially offset by adverse development in the 2007 accident year due to the emergence of a large shock loss. The other liability line of business reported favorable development in the 2005 through 2008 accident years partly due to revisions in loss estimates on contractor’s business and partly due to favorable reporting trends in the excess workers’ compensation class in the 2007 accident year and the professional liability class in the 2006 and 2007 accident years. The favorable development in the other liability line was partially offset by shock losses occurring in the professional liability class in the 2008 accident year. The aviation class reported $2.0 million in favorable loss development relating to accident years prior to 2002 largely due to recoveries. The inland marine/fire line also reported favorable development largely attributable to the fire class.
General and administrative expenses increased by 10% for the year ended December 31, 2009 when compared to 2008. Larger expenses were incurred in 2009 to service the expansion of the Company’s business operations, including increased staffing for MMO Agencies as well as computer system implementation expenditures.
Net investment income for the year ended December 31, 2009 was $41.7 million as compared to net investment loss of $(63.5) million in 2008. Net investment income in 2009 reflected increases in income from trading, limited partnerships and commercial loan portfolios. Trading portfolio income of $4.5 million resulted primarily from interest income and the fair value changes in municipal obligations. The net investment loss 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. Income from commercial loans of $1.9 million resulted primarily from the tightening of credit spreads in the market for these types of securities during 2009. This compared to a loss of $(1.5) million from commercial loans in 2008. Limited partnership income in 2009 increased from 2008 as a result of higher returns amounting to 19.4% as compared to (17.6)% in 2008. Hedge fund returns in fixed income strategies were mainly derived from G-7 government arbitrage, which reported higher returns in 2009 than 2008. Included in limited partnership income was $9.8 million and $1.2 million for 2009 and 2008, respectively, from our investment in Altrion. The Company redeemed its remaining interest in Altrion effective December 31, 2009, resulting in the Company receiving approximately a $35 million direct investment in the Tiptree Financial, $7.3 million in cash, $1.1 million in commercial loans and $118,000 in private equity. As of December 31, 2009 the majority of Tiptree Financial’s assets were invested in cash, corporate credits, the municipal funding sector and commercial real estate.
As of December 31, 2009 and 2008, investments in limited partnerships amounted to approximately $151.9 million and $122.9 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 2009 and 2008 reflected approximately $26.7 million and $(26.8) million, respectively, derived from limited partnership hedge fund investments.
The Company’s investment income results may be volatile depending upon the level of limited partnerships, commercial loans and trading portfolio investments held. If the Company continues to increase its percentage of its investment portfolio in limited partnership hedge funds, and/or if the fair value of trading and/or commercial loan investments held varies significantly during different periods, there may also be a greater volatility associated with the Company’s investment income.
Commission and other income increased to $3.6 million for the year ended December 31, 2009 from $0.3 million for the same period in the prior year. The increase was attributable to the Company’s receipt of $3.2 million as beneficiary of a life insurance policy on a former director in the third quarter of 2009.
Net realized investment gains after impairments were $15.3 million for the year ended December 31, 2009 as compared to net realized investment losses after impairments of $(47.7) million for the year ended December 31, 2008. Net realized investment gains in 2009 primarily reflect gains from the sales of municipal bonds and U.S. Treasury securities. Net realized investment losses in 2008 resulted from the sale of fixed income investments as well as write-downs from other-than-temporary (OTTI) declines in the fair value of securities, which amounted to $46.2 million. The OTTI in 2008 was primarily attributable to the decline in the fair value of the Company’s RMBS portfolio. The decision to write down such securities as of September 30, 2008 was based upon the possibility then that we might not hold such securities until their fair value decline was recovered.
Interest expense was $6.7 million for each of the years ended December 31, 2009 and 2008, and resulted primarily from the Company’s $100 million 6.5% senior notes.
Deferred income taxes at December 31, 2009 decreased to $29.3 million from $35.5 million at December 31, 2008, primarily due to reductions in deferred tax benefits arising from the increase in the fair value of investments. Management believes the Company’s total deferred tax assets, net of the recorded valuation allowance account, as of December 31, 2009 will more-likely-than-not be fully realized.
Reinsurance receivables on unpaid balances, net at December 31, 2009, decreased to $205.1 million from $213.9 million at December 31, 2008, and reinsurance receivables on paid balances, net at December 31, 2009, decreased to $13.1 million from $28.4 million at December 31, 2008 largely as a result of the collection of reinsurance balances on gross losses paid on prior year hurricane claims.
Net realized investment losses, after impairment, for the year ended December 31, 2008 were $47.7 million compared with $6.9 million for 2007. The realized investment losses in 2008 primarily relate to write-downs in the Company’s investments RMBS.
Gross premiums written of $217.3 million and net premiums written of $165.4 million decreased by 5% and 1%, respectively for the year ended December 31, 2008 when compared to the same period of 2007. However, net premiums earned increased by 1% for the year ended December 31, 2008 over the same period of 2007.
Other liability gross premiums written increased by 7% for the year ended December 31, 2008 when compared to 2007. Net premiums written and net premiums earned for the year ended December 31, 2008 each rose by 10%, respectively, when compared to 2007. The increase in premiums is primarily due to an increase in production of excess workers’ compensation, professional liability and contractors’ liability writings.
Professional liability writings increased 2% in 2008 when compared to 2007 primarily due to production increases that were partially offset by a softening of premium rates.
General liability premiums from the recently formed MMO Agencies contributed approximately $2.7 million in gross premiums written during 2008. Volume increases from the contractors’ liability class were also achieved in the first nine months of 2008 when compared to the same period in 2007 and contributed to the overall growth in general casualty premiums in 2008.
The Company reported favorable development of prior year loss reserves of $13.8 million in 2007. This favorable loss reserve development included $6.2 million recorded on the novation of excess workers’ compensation policies in the other liability line for accident years 2004 through 2006. Partially offsetting this benefit in the other liability line was adverse development of $3.0 million in the professional liability class as a result of two large claims in the 2006 accident year. The ocean marine line reported favorable development in the 2003 through 2005 accident years largely as a result of favorable loss trends. The inland marine/fire segment also reported favorable loss development partially due to lower emergence of severity losses. The favorable development in 2007 was partially offset by approximately $3.3 million in adverse development from the runoff aviation class.
Policy acquisition costs as a percentage of net premiums earned (the acquisition cost ratio) for the years ended December 31, 2008 and 2007 were 23.1% and 22.7%, respectively. The slightly higher 2008 ratio is due in part to 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. In addition, slight increases occurred in the other liability acquisition cost ratios in 2008 when compared to 2007 as the prior year’s ratio was lower as a result of override commissions received from the quota share reinsurance agreement in the excess workers’ compensation class. Partially offsetting the overall increase was a decrease in the ocean marine acquisition cost ratio primarily resulting from lower brokerage costs as a result of the termination of a relationship with one of the Company’s agents writing cargo business in 2007.
The Company’s investment income results may be volatile depending upon the level of limited partnerships, commercial loans and trading portfolio investments held. If the Company invests a greater percentage of its investment portfolio in limited partnership hedge funds, and/or if the fair value of trading and/or commercial loan investments held varies significantly during different periods, there may also be a greater volatility associated with the Company’s investment income. The Company will account for future purchases of fixed income and equity securities as part of its held to maturity or available for sale portfolio and not its trading portfolio. This decision to include such securities in the held to maturity or available for sale portfolio was based upon our intent to hold and not trade such securities.
Interest expense was $6.7 million for each of the years ended December 31, 2008 and 2007, and resulted primarily from the Company’s $100 million 6.5% senior notes.
Total income tax (benefit) expense amounted to $(33.4) million and $6.8 million, respectively, for the year ended December 31, 2008 and 2007. The Company’s effective tax rate for the year ended December 31, 2008 and 2007 was 24.3% and 33.7%, respectively. The change in the effective tax rate is largely attributable to the deferred tax valuation allowance increase of $18.5 million resulting in large part from capital loss carryforwards.
Deferred income taxes at December 31, 2008 increased to $35.5 million from $14.4 million at December 31, 2007, primarily due to deferred tax benefits provided on declines in the fair value of investments.
Reinsurance receivables on unpaid balances, net at December 31, 2008, decreased to $213.9 million from $250.1 million at December 31, 2007, and reinsurance receivables on paid balances, net at December 31, 2008, decreased to $28.4 million from $38.8 million at December 31, 2007 largely as a result of the payment of gross ocean marine losses and asbestos and environmental losses that were substantially reinsured, the collection of ceded hurricane loss payments, the write off of disputed receivable balances with a reinsurer and the subsequent reevaluation of reserves for doubtful accounts.
Property, improvements and equipments, net increased to $10.0 million at December 31, 2008 from $4.8 million at December 31, 2007, primarily as a result of capitalized expenditures relating to information technology infrastructure initiatives and capital improvements on leased office space.
Cash flows provided by financing activities were $0.5 million for the year ended December 31, 2009. Cash flows used in financing activities were $10.0 million and $2.8 million for the years ended December 31, 2008 and 2007, respectively. The repurchase of treasury stock accounted for most of the use of cash flows in each of 2008 and 2007.
On March 22, 2006, the Company entered into an agreement (the “Letter Agreement”) to amend the Option Certificate granted under a Securities Purchase Agreement, dated January 31, 2003, by and between the Company and Conning Capital Partners VI, L.P. (“CCPVI”). The Amended and Restated Option Certificate dated as of March 22, 2006 by and between the Company and CCPVI (“Amended and Restated Option”) decreased the number of shares of Company common stock that may be issued upon the exercise of the Amended and Restated Option from 400,000 to 300,000 and extended the term from January 31, 2008 to December 31, 2010.
At December 31, 2009, NYMAGIC’s investments consist of cash and short-term investments, RMBSs, limited partnership hedge funds and short-term premium and investment receivables as follows:
The Company made no capital contributions during 2009 to its insurance subsidiaries. During 2009, the Company purchased $2.9 million in overdue receivables from New York Marine.
New York Marine and Gotham collectively paid ordinary dividends of $10,850,000, $6,795,000 and $14,475,000 in 2009, 2008 and 2007, respectively.
On March 7, 2008, the Company declared a dividend of eight cents per share to shareholders of record on March 31, 2008, payable on April 3, 2008. On May 22, 2008, the Company declared a dividend of eight cents per share to shareholders of record on June 30, 2008, payable on July 8, 2008. On September 9, 2008, the Company declared a dividend of eight cents per share to shareholders of record on September 30, 2008, payable on October 7, 2008. On December 4, 2008, the Company declared a dividend of eight cents per share to shareholders of record on December 31, 2008, payable on January 7, 2009.
The Company has established three share-based incentive compensation plans (the “Plans”), which are described in Note (15) Incentive Compensation of the Notes to Financial Statements. Management believes that the Plans provide a means whereby the Company may attract and retain persons of ability to exert their best efforts on behalf of the Company. The Plans generally allow for the issuance of grants and exercises through newly issued shares, treasury stock, or any combination thereof to officers, key employees and directors who are employed by, or provide services to the Company. The compensation cost that has been charged against income for the Plans was $2,337,233, $2,535,351 and $2,210,615 for the years ended December 31, 2009, 2008 and 2007, respectively. The approximate total income tax benefit accrued and recognized in the Company’s financial statements for the years ended December 31, 2009, 2008 and 2007 related to share-based compensation expenses was approximately $818,000, $887,000 and $774,000, respectively.
The following table presents the Company’s contractual obligations as of December 31, 2009:
Unpaid losses and loss adjustment expenses are based on individual case estimates for losses reported. A provision is also included, based on actuarial estimates utilizing historical trends in the frequency and severity of paid and reported claims, for losses incurred but not reported, salvage and subrogation recoveries and for loss adjustment expenses. Unpaid losses with respect to asbestos/environmental risks are difficult for management to estimate and require considerable judgment due to the uncertainty regarding the significant issues surrounding such claims. For a further discussion concerning asbestos/environmental reserves see “Reserves.” Unpaid losses and loss adjustment expenses amounted to $555.5 million and $548.7 million at December 31, 2009 and 2008, respectively. Unpaid losses and loss adjustment expenses, net of reinsurance amounted to $350.4 million and $334.8 million at December 31, 2009 and 2008, respectively. Management believes that both the gross and net unpaid loss reserve estimates as of December 31, 2009 have been reasonably estimated. Management continually reviews and updates the estimates for unpaid losses and any changes resulting therefrom are reflected in operating results currently. The potential for future adverse or favorable loss development is highly uncertain and subject to a variety of factors including, but not limited to, court decisions, legislative actions and inflation.
The allowance for doubtful accounts is based on management’s review of amounts due from insolvent or financially impaired companies. Allowances are estimated for both premium receivables and reinsurance receivables. Management continually reviews and updates such estimates for any changes in the financial status of companies. For a further discussion concerning reinsurance receivables see “Reinsurance Ceded.” The allowance for doubtful accounts on reinsurance receivables amounted to $17.6 million and $21.4 million at December 31, 2009 and 2008, respectively. The allowance for doubtful accounts on premiums and other receivables amounted to $300,000 on both December 31, 2009 and December 31, 2008.
Impairment of investments, included in realized investment gains or losses, results from declines in the fair value of investments which are considered by management to be other-than-temporary. Management reviews investments for impairment based upon specific criteria that include the duration and extent of declines in fair value of the security below its cost or amortized cost. The Company performs a qualitative and quantitative review of all securities in a loss position in order to determine if any impairment is considered to be other-than-temporary. The Company also reviews all securities with any rating agency declines during the reporting period. This review includes considering the effect of rising interest rates, credit losses and the Company’s intent to sell impaired securities in the foreseeable future to recoup any losses. In addition to subjecting its securities to the objective tests of percent declines in fair value and downgrades by major rating agencies, when it determines whether declines in the fair value of its securities are other-than-temporary, the Company also considers the facts and circumstances that may have caused the declines in the value of such securities. As to any specific security, it may consider general market conditions, changes in interest rates, adverse changes in the regulatory environment of the issuer, the duration for which the Company expects to hold the security and the length of any forecasted recovery. Effective April 1, 2009, under ASC 320 and ASC 958, “Recognition and Presentation of Other-Than-Temporary Impairments” impairment is considered to be other than temporary if an entity (1) intends to sell the security, (2) more likely than not will be required to sell the security before recovering its amortized cost basis, or (3) does not expect to recover the security’s entire amortized cost basis. The OTTI of $478,407 recognized for the year ended December 31, 2009 resulted from the Company’s intention to sell certain municipal securities under circumstances in which those securities are not expected to recover their entire amortized cost prior to sale. Credit impairment occurs under ASC 320 if the present value of cash flows expected to be collected from the debt security is less than the amortized cost basis of the security. There were no credit impairments recorded during the year ended December 31, 2009. Approximately $0.5 million and $46.2 million were charged to results from operations for the year ended December 31, 2009 and 2008, respectively, resulting from fair value declines considered to be other-than-temporary. Gross unrealized gains and losses on fixed maturity investments available for sale amounted to approximately $1.4 million and $0.3 million, respectively, at December 31, 2009. The Company believes the unrealized losses are temporary and result from changes in market conditions, including interest rates or sector spreads.
The Company uses the quoted market prices as fair value for assets classified as Level 1. The Company receives quoted market prices from a third party, a nationally recognized pricing service. Prices are obtained from available sources for market transactions involving identical assets. For the majority of Level 1 investments, the Company receives quoted market prices from an independent pricing service. The Company validates primary source prices by back testing to trade data to confirm that the pricing service’s significant inputs are observable. The Company also compares the prices received from the third party service to alternate third party sources to validate the consistency of the prices received on securities.
The Company generally obtains valuations from third party pricing services and/or security dealers for identical or comparable assets or liabilities by obtaining non-binding broker quotes (when pricing service information is not available) in order to determine an estimate of fair value. The Company bases all of its estimates of fair value for assets on the bid price as it represents what a third party market participant would be willing to pay in an arm’s length transaction. Prices from pricing services are validated by the Company through comparison to prices from corroborating sources and are validated by back testing to trade data to confirm that the pricing service’s significant inputs are observable. Under certain conditions, the Company may conclude the prices received from independent third party pricing services or brokers are not reasonable or reflective of market activity or that significant inputs are not observable, in which case it may choose to over-ride the third-party pricing information or quotes received and apply internally developed values to the related assets or liabilities. In such cases, those valuations would be generally classified as Level 3. Generally, the Company utilizes an independent pricing service to price its municipal debt obligations and corporate debt securities. Currently, these securities are exhibiting low trade volume. The Company considers such investments to be in the Level 2 category.
Level 3 -Fair value is based on at least one or more significant unobservable inputs that are supported by little or no market activity for the asset. These inputs reflect the Company’s understanding about the assumptions market participants would use in pricing the asset or liability.
The Company’s Level 3 assets include its residential RMBS, commercial loans and private equity as they are illiquid and trade in inactive markets. These markets are considered inactive as a result of the low level of trades of such investments. The RMBS investments are not considered within the Level 3 tabular disclosure because they have been transferred to “held to maturity” category effective October 1, 2008. Held to maturity investments are not measured at fair value on a recurring basis and, as such, do not fall within the scope of ASC 820. See Note 2, “Investments” for a complete discussion regarding the Company’s RMBS portfolio.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (ASC 815), Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities and specifically requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The adoption of SFAS 161 did not have an impact on the Company’s financial condition, results of operations or liquidity.
In December 2008, the FASB issued Statement of Financial Accounting No. 160, Non-controlling Interests in Consolidated Financial Statements (“SFAS 160”) (ASC 810), which requires non-controlling interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of SFAS 160 did not have an impact on the Company’s financial condition, results of operations or liquidity.
In December 2008, the FASB issued (“ASC 715”), Employers’ Disclosures about Postretirement Benefit Plan Assets. ASC 715 requires an employer to provide certain disclosures about plan assets of its defined benefit pension or other postretirement plans. The disclosures required include the investment policies and strategies of the plans, the fair value of the major categories of plan assets, the inputs and valuation techniques used to develop fair value measurements and a description of significant concentrations of risk in plan assets. ASC 715 is effective for fiscal years ending after December 15, 2009. The adoption of ASC 715 did not have an impact on the Company’s financial condition, results of operations or liquidity.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 (ASC 320), “Recognition and Presentation of Other-Than-Temporary Impairments.” (FSP 115-2) which is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. FSP FAS 115-2 modifies the requirements for recognizing other-than-temporarily impaired debt securities, the presentation of other-than-temporary impairment losses and increases the frequency of and expands the required disclosures about other-than-temporary impairment for debt and equity securities. The Company adopted FSP FAS 115-2 and FAS 124-2 effective April 1, 2009. The adoption of FSP 115-2 resulted in a cumulative effect adjustment as of April 1, 2009, which increased retained earnings by $26.1 million, net of taxes of $14.1 million, with an offsetting decrease to accumulated other comprehensive income (loss). The adoption of FSP 115-2 did not have a material impact on the Company’s financial condition, results of operations or liquidity.
In April 2009, the FASB issued FSP FAS 107-1 (ASC 825) and ABP 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” The FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. FSP FAS 107-1 and APB 28-1 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The adoption of FSP FAS 107-1 and ABP 28-1 did not have a material impact on the Company’s financial condition, results of operations or liquidity.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes principles and disclosure requirements for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, the Statement sets forth (a) the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (b) the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements, and (c) the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. An entity shall disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. The Company adopted SFAS 165 for its interim reporting period ending on June 30, 2009. The adoption of SFAS No. 165 had no material impact on the Company’s financial condition, results of operations or liquidity.
In August 2009, the FASB issued Accounting Standard Update (“ASU 2009-05”), Measuring Liabilities at Fair Value. ASU 2009-05 is an amendment of ASC 820, Fair Value Measurements and Disclosures. ASU 2009-05 applies to all entities that measure liabilities at fair value within the scope of ASC 820, Fair Value Measurements and Disclosures. ASU 2009-05 provides guidance on measuring the fair value of liabilities under circumstances in which a quoted price in an active market for the identical liability is not available. ASU 2009-05 is effective for the first interim or annual reporting period beginning after August 28, 2009. The adoption of ASU 2009-05 did not have a material impact on the Company’s financial condition, results of operations or liquidity.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 is an amendment of ASC 820, Fair Value Measurements and Disclosures ASU 2010-06 provides additional disclosures for transfers in and out of the Levels I and II and for activity in Level III as well as clarifying certain existing disclosure requirements including level of desegregation and disclosures around inputs and valuation techniques. The final amendments to ASU 2010-06 will be effective for annual and interim reporting periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis. That requirement will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company will adopt ASU 2010-06 during the first quarter of 2010 and the adoption will not have an effect on its results of operations, financial position or liquidity.
Inflation also affects the final settlement costs of claims, which may not be paid for several years. The longer a claim takes to settle, the more significant the impact of inflation on final settlement costs. The Company periodically reviews outstanding claims and adjusts reserves for the pools based on a number of factors, including inflation.