The fixed maturity investments with continuous unrealized losses for less than twelve months were primarily due to the impact of the higher market interest rates rather than a decline in credit quality. There are $603.4 million in fixed maturity securities, at fair value, that at December 31, 2006, had been below amortized cost for over twelve months. The $15.0 million of unrealized losses on such securities primarily relates to securities which carry investment grade ratings and have declined in fair value roughly in line with market interest rate changes. Harleysville Group currently has the ability and intent to hold these securities until recovery.
Because of the nature of insurance claims, there are uncertainties inherent in the estimates of ultimate losses. Harleysville Group’s reorganization of its claims operation in recent years has resulted in new people and processes involved in settling claims. As a result, more recent statistical data reflects different patterns than in the past and gives rise to uncertainty as to the pattern of future loss settlements. There are uncertainties regarding future loss cost trends particularly related to medical treatments and automobile repair. Court decisions, regulatory changes and economic conditions can affect the ultimate cost of claims that occurred in the past. Accordingly, the ultimate liability for unpaid losses and loss settlement expenses will likely differ from the amount recorded at December 31, 2006.
Effective for one year from July 1, 2006, the Company’s subsidiaries and the Mutual Company and its wholly owned subsidiaries renewed its catastrophe reinsurance which provides coverage ranging from 20% to 85% of up to $245 million in excess of a retention of $40 million for any given catastrophe excluding terrorism for commercial lines. Harleysville Group’s 2006 pooling share of this coverage would range from 20% to 85% of up to $176.4 million in excess of a retention of $28.8 million for any given catastrophe. Pursuant to the terms of the treaty, the maximum recovery would be $153.5 million for any catastrophe involving an insured loss equal to or greater than $285 million. Harleysville Group’s 2006 pooling share of this maximum recovery would be $110.5 million for any catastrophe involving an insured loss of $205.2 million or greater. The treaty includes reinstatement provisions providing for coverage for a second catastrophe and requiring payment of an additional premium in the event of a first catastrophe occurring. Harleysville Group and the Mutual Company have purchased property per risk excess of loss reinsurance which covers certain terrorism losses and provides for recovery of up to $8.0 million in excess of $2.0 million of terrorism losses for any one risk under certain circumstances. The maximum recovery by Harleysville Group on a terrorism loss occurrence is $7.9 million.
Many reinsurers experienced significant losses related to Hurricanes Katrina, Rita and Wilma during 2005. Many reinsurers have increased rates not only for business in states impacted by these storms, but have also increased rates for business in other areas of the country, including the markets in which we write.
The threat of terrorism, both within the United States and abroad, and military and other actions and heightened security measures in response to these types of threats, may cause significant volatility and declines in the
We have a history of paying dividends to our shareholders when sufficient cash is available. However, future cash dividends will depend upon our results of operations, financial condition, cash requirements and other factors, including the ability of our subsidiaries to make distributions to us, which ability is restricted in the manner previously discussed in this section. Also, there can be no assurance that we will continue to pay dividends even if the necessary financial conditions are met and if sufficient cash is available for distribution.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)." This statement requires an employer to recognize the overfunded or underfunded status of a single-employer defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur through comprehensive income. An employer with publicly traded equity securities is required to initially recognize the funded status of defined benefit post-retirement plans and provide required disclosures as of the end of the fiscal year ending after December 15, 2006. Adoption of SFAS No. 158 had no impact on accumulated other comprehensive income as of December 31, 2006, as the projected benefit obligation was equal to the accumulated benefit obligation due to the freeze of the plan in 2006, and a minimum liability equal to the difference between the fair value of plan assets and the accumulated benefit obligation had been recognized in accumulated other comprehensive income as of that date.