In determining appropriate reserve levels for the year ended December 31, 2010, we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates. No significant changes in methodologies were made to estimate the reserves since the last reporting date; however at each reporting date we reassess the actuarial estimate of the reserve for loss and loss adjustment expenses and record our best estimate. Consistent with prior reserve valuations, as claims data becomes more mature for prior accident years, actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data. These modifications to the analysis varied depending on whether the line of business was short-tailed or long-tailed and also varied by accident year. While prior accident years’ net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years, this does not infer that more recent accident years’ reserves also will develop favorably; pricing, reinsurance costs, the legal environment, general economic conditions including changes in inflation and many other factors impact management’s ultimate loss estimates.
The following table represents a reconciliation of the number of asbestos and environmental claims outstanding for each of the years in the three-year period ended December 31, 2010:
Settlement of the litigation referenced above accounted for $19.5 million of the $34.5 million in direct payments on open claims made in 2009. Final payments to settle this litigation accounted for the majority of the payment on closed claims for the year ended 2010.
Cash provided (used) by operating activities can fluctuate due to timing difference in the collection of premiums and reinsurance recoverables and the payment of losses and expenses. For the year ended December 31, 2010, net cash used by operating activities was $3.1 million compared to cash provided of $301.8 million and $118.5 million for the years ended December 31, 2009 and 2008, respectively. The decrease in cash flows from operations in 2010 compared to 2009 was primarily due to decreased written premiums which was slightly offset by reduced claim payments. The increase in cash flows from operations in 2009 as compared to 2008 was primarily attributable to the inclusion of a full year of Argo International activity and increased cash flow from the U.S. and Bermuda operations.
Under certain insurance programs (i.e. large deductible programs, surety bonds) and various reinsurance agreements, collateral and letters of credit are held for our benefit to secure performance of insureds and reinsurers in meeting their obligations. At December 31, 2010, the amount of such collateral and letters of credit held under insurance and reinsurance agreements were $327.7 million and $297.6 million, respectively. Collateral can be provided in the form of trust accounts. As we are only the beneficiaries of amounts held in trust accounts, these amounts are not reflected in our Consolidated Balance Sheets. Collateral provided by an insured or reinsurer may exceed or fall below their total outstanding obligation.