The following is a discussion and analysis of the Company’s consolidated results of operations for the three months ended December 31, 2010 and 2009 and for years ended December 31, 2010, 2009 and 2008 and the Company’s consolidated financial condition, liquidity and capital resources at December 31, 2010 and 2009. The Company completed the acquisition of IPC on September 4, 2009. IPC is included in the Company’s consolidated results only for the four months ended December 31, 2009. This discussion and analysis pertains to the results of the Company inclusive of IPC from the date of acquisition. This discussion and analysis should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto included elsewhere within this filing.
We underwrite global specialty property insurance and reinsurance and have large aggregate exposures to natural and man-made disasters. The occurrence of claims from catastrophic events results in substantial volatility, and can have material adverse effects on the Company’s financial condition and results and ability to write new business. This volatility affects results for the period in which the loss occurs because U.S. accounting principles do not permit reinsurers to reserve for such catastrophic events until they occur. Catastrophic events of significant magnitude historically have been relatively infrequent, although management believes the property catastrophe reinsurance market has experienced a higher level of worldwide catastrophic losses in terms of both frequency and severity in the period from 1992 to the present. We also expect that increases in the values and concentrations of insured property will increase the severity of such occurrences in the future. The Company seeks to reflect these trends when pricing contracts.
continued to see increased competition and decreased premium rates in most classes of business. During the year ended December 31, 2010, Validus Re experienced rate decreases in most classes of business with the exception of offshore energy and Latin America. The Talbot segment also experienced pricing pressure in most classes of business, the exceptions being the offshore energy, financial institutions and political risk lines. These lines experienced favorable renewal terms and conditions following recent losses.
The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported and disclosed amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities as at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Management believes the following accounting policies are critical to the Company’s financial reporting as the application of these policies requires management to make significant judgments. Management believes the items that require the most subjective and complex estimates are (1) reserve for losses and loss expenses, (2) premiums, (3) reinsurance premiums ceded and reinsurance recoverable, and (4) investment valuation.
Net reserve for losses and loss expenses at December 31, 2010 - Sensitivity to expected loss expenses