We reinsure with other insurance companies a portion of our potential liability under the policies we have underwritten, thereby protecting us against an unexpectedly large loss or a catastrophic occurrence that could produce large losses, primarily in our homeowners line of business. We use various software products to measure our exposure to catastrophe losses and the probable maximum loss to us for catastrophe losses such as hurricanes. The models include estimates for our share of the catastrophe losses generated in the residual market for property insurance by the Massachusetts Property Insurance Underwriting Association ("FAIR Plan"). In the aftermath of Hurricane Katrina in 2005, the reinsurance market has seen from the various software modelers, increases in the estimate of damage from hurricanes in the southern and northeast portions of the United States due to revised estimations of increased hurricane activity and increases in the estimation of demand surge in the periods following a significant event. We continue to adjust our reinsurance programs as a result of the
Our IBNR reserves for CAR assumed private passenger and commercial automobile business are 37.3% and 45.1% respectively of our total reserves for CAR assumed private passenger and commercial automobile business as of December 31, 2008 due to the reporting delays in the information we receive from CAR, as described further in the section on CAR Loss and Loss Adjustment Expense Reserves.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the year ended December 31, 2008, decreased by $4,670 or 1.2%, to $369,823 from $374,493 for the comparable 2007 period. Our GAAP loss ratio for the year ended December 31, 2008, increased to 64.1% compared to 61.5% for the comparable 2007 period. Our GAAP loss ratio excluding loss adjustment expenses for the year ended December 31, 2008, increased to 55.1% from 52.7% for the comparable 2007 period. The loss ratio increased primarily as a result of a decrease in personal automobile average earned premiums per exposure. In addition, for the quarter ended December 31, 2008, the pre-tax net impact of catastrophes was an estimated $4,000 in losses related to the December 2008 New England ice storm compared to no catastrophe losses for the comparable 2007 period. Total prior year favorable development included in the pre-tax results for the year ended December 31, 2008 was $35,938 compared to prior year favorable development of $30,791 for the comparable 2007 period.
Net Earned Premiums. Net earned premiums for the year ended December 31, 2007, decreased by $15,725, or 2.5%, to $609,208 from $624,933 for 2006. This decrease was due to the factors that decreased direct and net written premiums.
period. Our GAAP loss ratio for the year ended December 31, 2007, increased to 61.5% compared to 56.6% for the comparable 2006 period. Our GAAP loss ratio excluding loss adjustment expenses for the year ended December 31, 2007, increased to 52.7% from 49.2% for the comparable 2006 period. The loss ratio increased primarily as a result of a decrease in personal automobile average earned premiums, less favorable development, and slightly higher claim frequency than the comparable 2006 period. Total prior year favorable development included in the pre-tax results for the year ended December 31, 2007 was $30,791 compared to prior year favorable development of $42,747 for the comparable 2006 period.
On August 3, 2007, our Board approved a share repurchase program of up to $30,000 of Safety's outstanding common shares. Under the program, Safety may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise, at management's discretion. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require Safety to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notice. During the twelve months ended December 31, 2008, the Company purchased 183,889 of its common shares on the open market under the program at a cost of $5,931. During the twelve months ended December 31, 2007, the Company purchased 48,124 of its common shares on the open market under the program at a cost of $1,585.
The Company is a leading provider of personal lines property and casualty insurance focused primarily on the Massachusetts market. The Company's principal product line is private passenger automobile insurance, which accounted for 71.7% of its direct written premiums in 2008. The Company operates through its insurance company subsidiaries, Safety Insurance Company, Safety Indemnity Insurance Company and Safety Property and Casualty Company (together referred to as the "Insurance Subsidiaries").
Diluted EPS excludes stock options with exercise prices and exercise tax benefits greater than the average market price of the Company's common stock during the period because their inclusion would be anti-dilutive. There were 168,925, 174,925 and 186,225 anti-dilutive stock options for the years ended December 31, 2008, 2007 and 2006.
As of December 31, 2008, there was $910 of unrecognized compensation expense related to non-vested option awards that is expected to be recognized over a weighted average period of 1.4 years.
The Company incurred interest expense of $81, $83 and $86 for the years ended December 31, 2008, 2007 and 2006, respectively, related to all current outstanding obligations during these periods.