One of the key financial measures that we use to evaluate our operating performance is return on average equity. We calculate return on average equity by dividing annual net income by the average of annual shareholders’ equity plus redeemable preferred stock. Our return on average equity was 10.6% in 2010, 16.0% in 2009 and 17.1% in 2008.
between $1.0 million and $5.0 million has two parts, as fully described in “Business-Reinsurance” in Item 1 of this report. For losses between $5.0 million and $10.0 million, the three year aggregate limit is 13.2% of subject earned premium. As losses are incurred and recorded, we record amounts recoverable from reinsurers for the portion of the losses ceded to our reinsurers.
For example, for the five-year period ended December 31, 2010 we had recorded 178 severe claims, or an average of 36 severe claims per year for accident years 2006 through 2010. The number of severe claims reported in any one accident year as of December 31, 2010 ranges from a low of 31 in 2006 to a high of 40 in 2009. The average reported severity for these claims ranges from $0.7 million for the 2008 accident year to $1.1 million for the 2009 accident year. For the five accident years, these severe claims by themselves account for an average of 11.5 percentage points of our gross case loss and LAE ratio, measured at December 31, 2010.
Net Realized Gains (Losses) on Investments. Net realized gains on investments in 2009 totaled $2.0 million, compared to net realized losses of $18.9 million in 2008. Net realized gains in 2009 primarily resulted from $1.7 million in gains from the sale of certain equities and $0.3 million in gains from the sale of one asset-backed security. Net realized losses in 2008 were attributable to $1.6 million in realized losses, primarily on the sale of equity securities, and $17.3 million in other-than-temporary impairments of certain equities and asset-backed securities.
The Company recorded favorable prior accident year loss and loss adjustment expense development of $21.6 million in 2010 and $21.9 million in 2009. The table below sets forth the favorable or unfavorable development for accident years 2005 through 2009 and, collectively, all accident years prior to 2005.
The Company’s property and equipment, including certain costs incurred to develop or obtain software for internal use, are stated at cost less accumulated depreciation. Depreciation is calculated primarily by the straight-line method over the estimated useful lives of the respective assets, generally 39 years for the building and three to seven years for all other fixed assets.
The Company writes certain policies for which the policyholder may participate in favorable claims experience through a dividend. An estimated provision for workers’ compensation policyholders’ dividends is accrued as the related premiums are earned. Dividends do not become a fixed liability unless and until declared by the respective Boards of Directors of AMERISAFE’s insurance subsidiaries. The dividend to which a policyholder may be entitled is set forth in the policy and is related to the amount of losses sustained under the policy. Dividends are calculated after the policy expiration. The Company is able to estimate the policyholder dividend liability because the Company has information regarding the underlying loss experience of the policies written with dividend provisions and can estimate future dividend payments from the policy terms. Additionally, Florida law requires payment of dividends to Florida policyholders pursuant to a formula based on underwriting results from policies written in Florida over a consecutive three-year period.
Furniture and equipment included property held under capital leases of $86,000 at December 31, 2010 and 2009 and software included property held under capital leases of $103,000 at December 31, 2010 and 2009. Accumulated depreciation includes $136,000 and $73,000 that is related to these properties at December 31, 2010 and 2009, respectively. The capital lease obligations related to these properties are included in accounts payable and other liabilities.