Claims and claim adjustment expenses increased $7,725,000 (6%) in 2009 and the C & CAE ratio was 74.1% in 2009 versus 73.3% in 2008. The runoff lines recorded favorable development for prior accident years of approximately $2,057,000 and $1,421,000 during 2009 and 2008, respectively. The C & CAE ratio for nonstandard personal auto was 75.3% and 74.2% for 2009 and 2008, respectively. The increase in the C & CAE ratio was primarily due to an increase in accident frequency, particularly in Florida. The Company has encountered an increase in potential claims fraud in Florida and other markets, which led to an increase in reported frequency, a higher number of open claims and potentially higher claims costs. The increased accident frequency was offset to some extent, by favorable development for claims occurring in prior accident years of approximately $4,867,000 in 2009 versus unfavorable development of $4,385,000 in 2008 for claims occurring in prior accident years. The following table presents the favorable (unfavorable) development in nonstandard personal auto for claims occurring in prior accident years for each region during 2009:
The reserve estimates were made by our in-house actuarial staff. An analysis provided by an independent actuarial consulting firm was used to corroborate the methodologies used by the in-house actuarial staff.
Deferred policy acquisition costs are principally commissions, premium taxes and marketing expenses which are deferred. Policy acquisition costs are principally commissions, premium taxes, marketing expenses and the change in deferred policy acquisition costs that are charged to operations over the period in which the related premiums are earned. The Company utilizes investment income when assessing recoverability of Deferred policy acquisition costs. A premium deficiency and a corresponding charge to income is recognized if the sum of the expected claims and claim adjustment expenses, unamortized acquisition costs and maintenance costs exceeds related unearned premiums and anticipated investment income. At December 31, 2009, a premium deficiency of $66,000, net of anticipated investment income, that was recognized against Deferred policy acquisition costs for expected underwriting losses on the Southeast business. At December 31, 2008, there was no premium deficiency that was required to be recognized.
During our review of data for 2009, we continued to notice that the average case reserve per claimant in bodily injury coverages had increased. We attempted to take the increase in case reserves into consideration by selection of loss development factors and use of actuarial judgment.
Index to Financial Statements Under ASC 320-10-65, when an OTTI of a debt security has occurred, the amount of the OTTI recognized in earnings depends on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If the debt security meets either of these two criteria, the OTTI recognized in earnings is equal to the entire difference between the security’s amortized cost basis and its fair value at the impairment measurement date. For OTTI of debt securities that do not meet either of the two criteria, the net amount recognized in earnings is equal to the difference between the amortized cost of the debt security and its net present value calculated as described above. Any difference between the fair value and the net present value of the debt security at the impairment measurement date is recorded in other comprehensive income (loss). Unrealized gains or losses on securities for which an OTTI has been recognized in earnings is tracked as a separate component of accumulated other comprehensive loss. Prior to the adoption, an OTTI recognized in earnings for debt securities was equal to the total difference between amortized cost and fair value at the time of impairment. ASC 320-10-65 also requires extensive new interim and annual disclosure for both fixed maturities and equities to provide further disaggregating information as well as information about how the credit loss component of the OTTI charge was determined and requiring a roll forward of such amount for each reporting period. See notes 2, 4 and 5 to the consolidated financial statements included herein for the application of ASC 320-10-65 and further details regarding fair value measurement of the Company’s financial assets as of December 31, 2009.