The following table shows the development of our reserves for unpaid losses and LAE on a GAAP basis for each of the years ended December 31, from 1998 to 2008. The line in the table titled “Net liability for loss and LAE,” shows the initial reserves at the balance sheet date, including losses and LAE incurred but not reported. The portion of the table titled “Cumulative net paid as of,” shows the cumulative amounts subsequently paid as of successive years with respect to the reserve shown at the top of the table. The portion of the table titled “Re-estimated net liability as of:” shows the re-estimated amount of the previously reported liability for loss and LAE based on experience as of the end of each succeeding year. The estimates of liability for loss and LAE change as more information becomes available about the frequency and severity of claims for individual years. A redundancy (or deficiency) exists when the re-estimated amount of liability at each December 31 is less (or greater) than the prior liability estimate. The “Net cumulative redundancy (deficiency)” depicted in the table, for any particular calendar year, represents the aggregate change in the initial estimates over all subsequent calendar years and does not present accident year loss development. The portion of the table titled “Gross liability end of year” shows the impact of reinsurance for the years shown, reconciling the net reserves in the upper portion of the table to gross reserves. In evaluating the re-estimated liability and cumulative redundancy (deficiency), it should be noted that each data point includes the effects of changes in amounts for prior periods. Conditions and trends that have affected development of the liability in the past may not necessarily exist in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on this table.
Despite soft market conditions in the industry, Fremont was able to generate growth of 1.9% in its commercial segment. The commercial growth was driven by commercial auto and workers compensation. New business grew 26.5%, with renewals down 4.3%, which is consistent with soft market conditions as companies look to retain profitable renewal business which in many instances means lower premiums on renewals. Commercial auto was up 20.2% while workers compensation was up 8.4%. Growth in these two lines was mitigated by a reduction in business owners of 2.0% and a decrease in commercial package of 2.7%. Commercial in-force policy count was up 6.8%. The growth in commercial auto and workers compensation was due to a concerted effort by the commercial department to encourage agents to round out commercial accounts by adding commercial auto and workers compensation coverages. Furthermore, the commercial department focused on expanding it writings of low hazard mono-line workers compensation policies.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the implementation of SFAS 160 to have a material impact on its consolidated financial statements.
During the year ended December 31, 2008, other-than-temporary impairment losses on available-for-sale fixed maturity investments amounted to $362,000 and are included in net realized investment gains (losses) on investments in the consolidated statement of operations. There were no other-than-temporary impairment losses in 2007 or 2006.
The fair values of available-for-sale fixed maturity and equity securities are based on quoted market prices, when available. If not available, fair values are based on values obtained from independent pricing services.
In 2006, the Company experienced favorable development on losses and loss adjustment expenses for prior accident years of $5,224,000. There were no significant changes in the key assumptions utilized in the analysis and calculations of the Company’s reserves during 2006. The redundant development included $1,340,000 related to homeowners, $1,329,000 related to personal auto, $1,247,000 related to commercial multi-peril, $715,000 related to workers compensation, $379,000 related to farm while the remaining lines of business had redundant development of $214,000. There were no significant changes in the key assumptions utilized in the analysis and calculations of the Company’s reserves during 2006. The favorable development was concentrated in accident years 2003 through 2005 and is a result of downward development on both case and incurred but not reported reserves and loss adjusting expense reserves.
Pursuant to the 2003 Plan, the Company is authorized to grant up to 88,796 shares. Pursuant to the 2006 Plan, the Company is authorized to grant up to 154,500 shares. Option awards under both plans are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards vest 20% per year and have a 10 year contractual term. The options may fully vest upon the death or disability of the optionee or a change in control of the Company as defined in the plans. Under both plans if awards should expire, become unexercisable or be forfeited for any reason without having been exercised or without becoming vested in full, the shares of common stock subject to those awards would be available for the grant of additional awards.