Expected loss ratios represent management’s expectation of losses, in relation to earned premium, at the time business is written, before any actual claims experience has emerged. This expectation is a significant determinant of the estimate of loss reserves for recently written business where there is little paid or incurred loss data to consider. Expected loss ratios are generally derived from historical loss ratios adjusted for the impact of rate changes, loss cost trends and known changes in the type of risks underwritten.
than the amounts reflected above. We believe the above analysis provides a reasonable benchmark for sensitivity as we believe it is within historical variation for our reserves. Currently, none of the scenarios is believed to be more likely than the other.
For PCC, loss and LAE for 2010 reflect a $12.5 million increase of prior accident year workers’ compensation net loss reserves, compared with a $26.5 million reserve increase of prior accident year workers’ compensation loss reserves during 2009. The $12.5 million increase relates primarily to a decrease in ceded loss and LAE based on a fourth quarter 2010 review of reinsurance coverage estimates, and to a lesser extent, an increase in unallocated LAE reserves. Such increase did not impact the assumptions used in estimating PCC’s loss and LAE liabilities for business earned in 2010. The review of reinsurance coverage estimates also resulted in a $5.0 million, decrease in ceded premiums earned which increased net premiums earned. The $26.5 million increase in 2009 primarily reflects a significant acceleration in claims emergence and higher than anticipated increases in industry-wide severity. In addition, the $26.5 million increase in 2009 also reflects the estimated impact of judicial decisions by the Workers’ Compensation Appeals Board, or the “WCAB.” Such WCAB decisions related to permanent disability determinations that have materially weakened prior workers’ compensation reforms instrumental in reducing medical and disability costs in earlier years. These decisions are in the process of being appealed to the California appellate courts but will continue in effect during the appeals process. With respect to the $26.5 million increase for prior accident years, $17.7 million primarily reflected higher than expected paid losses and $8.8 million reflected the estimated impact of the WCAB decisions. Such increases impacted the assumptions used in estimating PCC’s loss and LAE liabilities for business earned in 2009, causing an increase of current accident year reserves of $8.0 million in 2009. Of the $8.0 million, $6.2 million primarily reflected higher than expected paid losses and the remainder reflected the estimated impact of the WCAB decisions.
At December 31, 2010, we had consolidated total investments of approximately $4.8 billion, of which approximately $2.8 billion was invested in debt securities and approximately $1.5 billion was invested in equity securities. Net realized capital gains, other-than-temporary impairment losses and net investment income related to such investment assets are subject to market conditions and management investment decisions and as a result can have a significant impact on our results. Net realized capital gains were $97.4 million in 2010, compared with $320.4 million in 2009, and other-than-temporary impairment losses were $12.3 million in 2010, compared with $85.9 million in 2009.
At December 31, 2010, AIHL also had fully collateralized reinsurance recoverables of $92.7 million due from Darwin, now a subsidiary of AWAC. The A.M. Best financial strength rating of Darwin was A (Excellent) at December 31, 2010. AIHL had no allowance for uncollectible reinsurance as of December 31, 2010.
Mortgage- and Asset-Backed Securities. At December 31, 2010, our mortgage- and asset-backed securities portfolio consisted of the following and was backed by the following types of underlying collateral (in millions):
Basic earnings per share of common stock are based on the average number of shares of common stock, par value $1.00 per share, of Alleghany (“Common Stock”) outstanding during the years ended December 31, 2010, 2009 and 2008, respectively, retroactively adjusted for stock dividends. Diluted earnings per share of Common Stock are based on those shares used to calculate basic earnings per share of Common Stock. Diluted earnings per share of Common Stock also include the dilutive effect of stock-based compensation awards, retroactively adjusted for stock dividends. See Note 12.
Alleghany holds its equity and debt securities as available for sale, and as such, these securities are recorded at fair value. Alleghany continually monitors the difference between cost and the estimated fair value of its investments, which involves uncertainty as to whether declines in value are temporary in nature. If Alleghany believes a decline in the value of a particular investment is temporary, Alleghany records the decline as an unrealized loss in stockholders’ equity. If the decline is deemed to be other than temporary, Alleghany writes it down to the carrying value of the investment and records an other-than-temporary impairment loss on its statement of earnings, regardless of whether Alleghany continues to hold the applicable security. In addition, under GAAP, any portion of such decline that relates to debt securities that is believed to arise from factors other than credit is recorded as a component of other comprehensive income.
Of the $85.9 million of other-than-temporary impairment losses in 2009, $57.6 million related to equity security holdings in the energy sector, $16.5 million related to equity security holdings in various other sectors and $11.8 million related to debt security holdings (all of which were deemed to be credit-related). Of the $244.0 million of other-than-temporary impairment losses in 2008, $144.8 million related to equity security holdings in the energy sector, $96.0 million related to equity security holdings in various other sectors and $3.2 million related to debt security holdings (all of which were deemed to be credit-related). The determination that unrealized losses on such securities were other than temporary in 2009 and 2008 was primarily based on the severity of the declines in fair value of such securities relative to cost as of the balance sheet date. Such severe declines were primarily related to a significant deterioration of U.S. equity market conditions during the latter part of 2008 and the first quarter of 2009, which abated somewhat in the remainder of 2009.
plans was $2.3 million, $2.4 million and $3.2 million in 2010, 2009 and 2008, respectively. In 2010, 2009 and 2008, $2.1 million, $3.8 million and $6.8 million of Common Stock at fair market value, respectively, and $2.9 million, $2.1 million and $3.9 million of cash, respectively, was paid by Alleghany under plans for parent-level employees and directors. As noted above, as of December 31, 2010 and December 31, 2009, all outstanding awards were accounted for under the fair-value-based method of accounting.
For 2009 and 2008, primarily reflects net realized capital gains from the sale of shares of Burlington Northern common stock.