Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products;
Our profitability is influenced by many factors, including price, competition, economic conditions, interest rates, catastrophic events and other natural disasters, man-made disasters, state regulations, court decisions, and changes in
Assumed premiums written increased $2.2 million in 2012 as compared to 2011 due to pricing increases in recent years and our renewal of our participation levels in all of our active assumed programs, with the exception of one contract for which we decreased our participation level after a review of the results of our catastrophe experience.
For 2011, commercial lines without Mercer Insurance Group experienced a slight improvement, primarily in the other liability lines of business that was somewhat offset by the fire and allied lines, as these lines were affected by a significant amount of catastrophe losses during the year.
The favorable net loss ratio in 2010 resulted from our process to evaluate the overall adequacy of our property and casualty insurance reserves. We re-estimated our reserve requirement for this line of business as our largest assumed contract had been in run-off for many years and we believe any new claims on this contract in future years will be minimal. In addition, our participation levels in assumed business were much lower than our historical participation levels through selective renewal of the number and type of assumed contracts we have elected to continue writing.
Our invested assets at December 31, 2012, totaled $3.0 billion, compared to $2.9 billion at December 31, 2011, an increase of $136.4 million. At December 31, 2012, fixed maturity securities and equity securities comprised 92.7 percent and 5.9 percent of our investment portfolio, respectively. Because the primary purpose of the investment portfolio is to fund future claims payments, we utilize a conservative investment philosophy, investing in a diversified portfolio of high-quality, intermediate-term taxable corporate bonds, taxable U.S. government bonds and tax-exempt U.S. municipal bonds. Our overall investment strategy is to keep less cash on hand in the low interest rate environment. If extra cash is needed we have an ability to borrow funds available under our revolving credit facility.
Our cash flows from operations were sufficient to meet our liquidity needs for 2012, 2011 and 2010.
Actual future results could differ materially from our assumptions used to calculate the recorded DAC asset. Changes in our assumed loss and loss settlement expense ratios in the future would impact the amount of deferred costs in the period such changes in assumptions are made. The premium deficiency charge calculated for the three months ended December 31, 2012, was $2.3 million as compared to the premium deficiency charge of $2.6 million calculated for the three months ended December 31, 2011. The reduction in the premium deficiency charge resulted in a comparatively larger DAC asset at December 31, 2012, than at December 31, 2011.
In 2012, we did not change the key assumptions on which we based our reserving calculations. In estimating our 2012 loss and loss settlement expense reserves, we did not anticipate future events or conditions that were inconsistent with past development patterns.
Factors that can cause reserve uncertainty in estimating reserves in this line include: reporting time lags; the number of parties involved in the underlying tort action; whether the “event” triggering coverage is confined to only one time period or is spread over multiple time periods; the potential dollars involved in the individual claim actions; whether such claims were reasonably foreseeable and intended to be covered at the time the contracts were written (i.e., coverage disputes); and the potential for mass claim actions.
In addition, for the postretirement benefit plan, a 100 basis point increase in the medical trend rate would increase the postretirement benefit obligation at December 31, 2012, by $7.9 million, while a 100 basis point decrease in the medical trend rate would decrease the benefit obligation at December 31, 2012, by $8.4 million.
Investments in equity securities, which include common and non-redeemable preferred stocks, are classified as available-for-sale and recorded at fair value.
In June and December 2011, the FASB issued guidance (Accounting Standards update ("ASU") 2011-05, Presentation of Comprehensive Income and ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05) amending the presentation of comprehensive income and its components. Under the new guidance, a reporting entity has the option to present comprehensive income in a single continuous statement or
The equity securities reported as purchases primarily relate to our acquisition of Mercer Insurance Group. We purchased securities in the Federal Home Loan Bank of Des Moines, as a requirement to obtain membership and secure a loan used as part of the acquisition financing. These securities were classified as Level 3 because there was no observable market price at December 31, 2011. The reported disposals relate to the receipt of principal on calls or sinking fund bonds, in accordance with the indentures.
The securities reported as transfers in relate to securities transferred from either Level 1 or 2 to Level 3 because an updated market value was not available. The securities reported as transfers out relate to securities transferred from Level 3 to either Level 1 or 2 because an updated market value was available.
Pricing levels for our property and casualty insurance products are influenced by many factors, including an estimation of expected losses, the expenses of producing, issuing and servicing business and managing claims, the time value of money associated with such loss and expense cash flows, and a reasonable allowance for profit. We