Direct premiums written for 2008 totaled $182.8 million, an increase of $6.6 million (4%) from 2007. The increase is primarily attributable to an increase in the Company’s fleet transportation business of $8.3 million (6%). The higher premium volume from the fleet transportation program resulted from the addition of contractors by existing accounts and from modifications to the program whereby workers’ compensation coverages were offered to employees of the independent contractors. This increase was partially offset by a decrease in the Company’s private passenger automobile program of $3.1 million (13.0%) due to ongoing rate competition and the resultant loss of business.
Premiums assumed from other insurers and reinsurers totaled $39.1 million during 2008, an increase of $8.0 million (26%) from 2007. The property reinsurance increase resulted from increased premiums generated by most of the Company’s programs reflecting increased exposure and, to a lesser extent, higher premium rates. As was the case in 2007, slightly less than half of the net premium volume for this segment is produced through an exclusive marketing arrangement for property catastrophe business produced by Paladin Catastrophe Management, a non-affiliated firm which focuses on soliciting coverage from insurance companies with risks throughout the U.S. Midwest and limited coastal regions excluding Florida and California as well as Canadian exposures. This business complements other property reinsurance by Protective in different geographic regions. Premium volume from property reinsurance will often fluctuate depending on the favorability of pricing for the coverages provided. Further, premium volume for this segment is limited by the Company’s self-imposed limitation to loss from a single catastrophic event.
The Company’s reserves for known claims are determined on an individual case basis and can range from the routine private passenger “fender bender” valued at a few hundred dollars to the very complex long-haul trucking claim involving multiple vehicles, severe injuries and extensive property damage costing several millions of dollars to settle. Each known claim, regardless of complexity, is handled by a claims adjuster experienced with claims of this nature and a “case” reserve, appropriate for the individual loss occurrence, is established. For very routine “short-tail” claims such as private passenger physical damage, the Company initially records a minimum reserve that is based upon historical loss settlements adjusted for current trends. As information regarding the loss occurrence is gathered in the claim handling process, the reserve is adjusted to reflect the anticipated ultimate cost to settle the claim. For more complex claims which can tend toward being “long-tail” in nature, an experienced claims adjuster will review the facts and circumstances surrounding the loss occurrence to make a determination of the reserve to be established. Many of the more complex claims involve litigation and necessitate an evaluation of potential jury awards in addition to the factual information to determine the value of each claim. Each claim is continually monitored and the recorded reserve is increased or decreased relative to information gathered during the settlement life cycle.
In the ordinary course of business, the Company’s federal income tax returns are audited by the Internal Revenue Service.
Unrealized losses in the Company’s fixed maturity portfolio are generally the result of interest rate fluctuations as well as the disruption of credit markets occasioned by recent financial market turmoil. The largest unrealized loss for any individual issue is approximately 12% of original or adjusted cost and the average unrealized loss for all fixed maturity securities in a loss position at December 31, 2008 is approximately 3% of original or adjusted cost. The Company has the ability and intent to hold these fixed maturity securities until their full cost can be recovered. Therefore, the Company does not believe the unrealized losses represent an other-than-temporary impairment as of December 31, 2008.
Minimum statutory surplus necessary for the insurance subsidiaries to satisfy statutory risk based capital requirements was $86,739 at December 31, 2008.