Several factors contributed to the increase in our total incurred losses. Our homeowners exposures grew by 37.9% in 2009, and we also experienced increases, on an accident-year basis, in claim frequency totaling 9.4% and in claim severity totaling 8.1%. The noted increases resulted in a 65.7% increase in direct incurred loss on an accident-year basis, which in turn drove the overall change. The impact of wind-mitigation credits, discussed earlier, suppressed our gross premiums earned and the increase in our reinsurance costs further affected our net premiums earned.
We do not conduct any business operations of our own; UPC, UIM and SCS conduct the business operations of the consolidated group. As a result, we rely on cash dividends or intercompany loans from UIM to pay our general and administrative expenses. State regulatory authorities in the states in which we operate heavily regulate UPC, including restricting any dividends paid by UPC and requiring approval of any management fee UPC pays to UIM for services rendered; however, nothing restricts our non-insurance company subsidiaries from paying us dividends other than state corporate laws regarding solvency. Our non-insurance company subsidiaries may therefore pay us dividends from any positive net cash flows that they generate. UIM pays us dividends primarily using cash from the collection of management fees from UPC, pursuant to a management agreement in effect between those entities.
During 2010, we generated $160,648 of proceeds from sales and maturities of securities. The increase in the proceeds from dispositions of securities resulted from several factors that we discuss in more detail in the TOTAL INVESTMENTS section above when explaining the decrease in investments. We only used $80,343 of cash to purchase securities available for sale; we did not reinvest all of the remaining proceeds from our sales of securities in December because, as noted previously, we are holding some of the proceeds to reinvest in what we believe will be fixed maturities with higher interest rates than the interest rates on the securities we sold.
The table below summarizes our fixed maturities at December 31, 2010, by contractual maturity periods. Actual maturities may differ as issuers may have the right to call, with or without penalties, prior to the contractual maturity of those obligations.
During 2008, we reclassified ($17,896) of additional paid-in capital to retained earnings to eliminate the negative additional paid-in capital balance.
The carrying amounts for the following financial instrument categories approximate their fair values at December 31, 2010 and 2009 because of their short-term nature: cash and cash equivalents, accrued investment income, premiums receivable, reinsurance recoverable, reinsurance payable, and accounts payable and accrued expenses. The carrying amount of our note payable also approximates its fair value as it is variable in nature.
The investments held at the end of the year were comprised mainly of U.S. government and agency securities, securities of states and municipalities, and securities of high-quality corporate issuers.
For a single hurricane catastrophe, we have chosen to pay, or “retain”, the first $15,000 of catastrophe losses before our reinsurance contracts provide coverage. For a second and a third hurricane catastrophe, we would retain the first $5,000 of catastrophe losses for each event. Our agreements will reimburse us as much as $513,200 for the first event.
We executed a 20-year, $20,000 note payable to the SBA under the SBA’s Insurance Capital Build-Up Incentive Program, effective October 1, 2006. The stated rate for the SBA note is a rate equivalent to the 10-year U.S. Treasury Bond rate. We made quarterly interest-only payments for the first three years, then, as of October 1, 2009, we began making quarterly principal and interest payments. On November 7, 2008, the SBA amended the note, effective July 1, 2008, to make it easier for companies participating in the program to meet the minimum writing ratio covenant discussed below.
a writing ratio based on net written premium to surplus of 2:1 ratio for the year beginning January 1, 2010 and thereafter for the remaining term of the note agreement, or
We are subject to various assessments in the states in which we write policies. See Note 3(j) for a description of how we recover assessments imposed upon us.
FMGI holds warrants to purchase 1,070,181 shares of our common stock. As long as FMGI, or certain permitted assigns, hold these warrants, we cannot redeem the warrants and FMGI, or certain permitted assigns, can exercise the warrants on a “cashless” basis.