During 2008, we incurred $244.9 million in net realized and unrealized investment losses which significantly reduced our total revenues in that year.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in
· The decrease, as adjusted for reinstatements, relates mainly to our Property Catastrophe - Treaty line of business and reflects our decision to reduce gross exposures in connection with the lapsing of certain outward reinsurance protections. This reduction was partially offset by price increases on 2009 renewal business.
· Certain contracts that would have been written by this segment during 2007 were written instead by our Montpelier Syndicate 5151 segment during 2008.
Our best estimate for Montpelier Bermuda’s ending gross loss and LAE reserves at December 31, 2009 and 2008 was $569.4 million and $750.0 million, respectively.
· A reassessment of loss and LAE reserves in our casualty class of business, primarily relating to medical malpractice policies, resulted in a decrease in estimated prior year losses and LAE of $6.6 million during 2009.
Syndicate 5151’s current focus is primarily on short-tail business that does not contain catastrophe exposure. The majority of Syndicate 5151’s Property Catastrophe - Treaty writings during each of the years presented represent business transferred from the Montpelier Bermuda and Blue Ocean segments.
The following tables summarize Montpelier Syndicate 5151’s loss and LAE reserve activities for the years ended December 31, 2009, 2008 and 2007:
The following table presents Montpelier Syndicate 5151’s underwriting expenses for the years ended December 31, 2009, 2008 and 2007:
(1) 2009 includes $0.5 million of inter-segment reinsurance cover with Montpelier Syndicate 5151. This intercompany arrangement is eliminated in consolidation.
MUSIC’s gross unpaid loss and LAE reserves and reinsurance recoverable on unpaid losses include the Acquired Reserves associated with the MUSIC Acquisition.
Our best estimate for MUSIC’s ending gross loss and LAE reserves at December 31, 2009 and 2008 was $15.4 million and $10.1 million, respectively.
As a result of MUSIC’s limited premium writings and loss experience, MUSIC’s loss and LAE expenses incurred to date primarily represent IBNR. MUSIC’s unfavorable prior period loss reserve development to date has not been significant, totalling $0.4 million in 2009.
MUSIC’s fixed expenses of $7.4 million and $4.5 million for 2009 and 2008, respectively, represent recurring expenses associated with its growing operations whereas its fixed expenses of $1.1 million for 2007 primarily represent costs associated with establishing its operating platform. MUSIC’s variable expenses of $1.6 million, $0.5 million and $0.1 million for 2009, 2008 and 2007, respectively, consisted of annual and long-term incentive accruals tied primarily to the performance of the Company.
Corporate and Other, which collectively represents the Company, certain intermediate holding and service companies and intercompany eliminations relating to inter-segment reinsurance and support services, is not considered to be a reportable segment of our business. The results of Corporate and Other principally reflect general and administrative expenses of the Company in support of its various operating companies.
From time to time we have entered into foreign currency exchange agreements (the “Foreign Exchange Contracts”) which constitute an obligation to purchase or sell a specified currency at a future date at a price set at the inception of the contract. These agreements do not eliminate fluctuations in the value of our assets and liabilities denominated in foreign currencies; rather, they are designed to protect us against adverse movements in foreign exchange rates. Our open foreign currency agreements at December 31, 2009 were denominated in European Union euros and Canadian dollars.
In November 2006 Blue Ocean obtained a secured loan of $75.0 million from a syndicate of lenders (the “Blue Ocean Debt”). The Blue Ocean Debt had an initial maturity date of February 28, 2008. The Blue Ocean Debt bore interest on the outstanding principal amount at a rate equal to a base rate plus a margin of 200 basis points. The Blue Ocean Debt was repaid in full in January 2008.
Excluding the off-balance sheet derivative transactions outlined above, as of December 31, 2009, we are not party to any other off-balance sheet transaction that we believe is material to our investors.
Most of our treaty reinsurance contracts comprise business which has both a low frequency of claims occurrence and a high potential severity of loss, such as claims arising from natural catastrophes, terrorism, large individual property risks, and marine, space and aviation risks. Given the high-severity, low-frequency nature of these events, the losses typically generated do not lend themselves to traditional actuarial reserving methods. Therefore, our reserving approach for these types of coverages is generally to estimate the ultimate cost associated with a single loss event rather than analyzing the historical development patterns of past losses as a means of estimating ultimate losses for an entire accident year. We generally estimate our reserves for these large events on a contract-by-contract basis by means of a review of policies with known or potential exposure to a particular loss event.
Reinsurance recoverable on paid losses represents amounts currently due from reinsurers. Reinsurance recoverable on unpaid losses represent amounts collectible from reinsurers once the losses are paid. The recognition of reinsurance recoverable requires two key judgments. The first judgment involves an estimate of the amount of gross IBNR to be ceded to reinsurers. Ceded IBNR is generally developed as part of our loss reserving process and consequently, the estimate is subject to similar risks and uncertainties as the estimate of gross IBNR. The second judgment relates to the amount of the reinsurance recoverable balance that ultimately will not be collected from reinsurers due to insolvency, contractual dispute, or other reasons.
RSUs are phantom restricted shares which, depending on the individual award, vest in equal tranches over three, four or five-year periods, subject to the recipient maintaining a continuous relationship with us (either as an employee, a director or a consultant) through applicable vesting dates. Holders of RSUs are not entitled to voting rights but are entitled to receive cash dividend equivalents.
For the years ended December 31, 2009, 2008 and 2007, we recognized $14.8 million, $8.3 million and $8.2 million of RSU expense.