Earned premiums included in the above table within the Financial Indemnity Coverages category and related risk in force pertaining to the Company’s consumer credit indemnity ("CCI") coverage have been in a downtrend since 2008. The decline is largely due to a temporary discontinuation of active sales efforts due to the lack of market demand for the Company’s current offerings. The following table shows CCI net premiums earned during the indicated periods and the maximum calculated risk in force at the end of the respective periods. Net earned premiums include additional premium adjustments arising from the variable claim experience of individual policies subject to retrospective rating plans. Risk in force reflects estimates of the maximum risk exposures at the inception of individual policies adjusted for cumulative claim costs and the lower outstanding loan balances attributed to such policies through the end of the periods shown below.
Most of Old Republic’s consolidated claim and related expense reserves stem from its general insurance business. At December 31, 2010, such reserves accounted for 76.6% and 66.9% of consolidated gross and net of reinsurance reserves, respectively, while similar reserves at December 31, 2009 represented 68.0% and 59.6% of the respective consolidated amounts.
The General Insurance expense ratio has trended up since 2008 due primarily to a declining premium base. The Mortgage Guaranty segment’s lower expense ratios for the periods shown is reflective of the continued emphasis on operating efficiency. As a consequence of the previously mentioned GAAP accounting requirement for reinsurance contract terminations, this segment’s 2009 expense ratio dropped from 14.3% to 12.6%. Production expenses for the Title segment were relatively lower as a percentage of premium and fees revenue, but rose dollar-wise in reflection of greater personnel and other production costs related to the higher revenues attained and anticipated. The Title segment’s 2008 expense ratio resulted from a decline in revenues from direct operations during these periods, most of which are concentrated in the Western United States, to a level lower than necessary to support the fixed portion of the operating expense structure.
At December 31, 2010, the Company held 283 fixed maturity and 3 equity securities in an unrealized loss position, representing 13.5% as to fixed maturities and 7.1% as to equity securities of the total number of such issues it held. At December 31, 2009, the Company held 155 fixed maturity and 5 equity securities in an unrealized loss position, representing 7.5% as to fixed maturities and 31.3% as to equity securities of the total number of such issues it held. Of the securities in an unrealized loss position, 5 and 35 fixed maturity securities and 2 and 3 equity securities, had been in a continuous unrealized loss position for more than 12 months as of December 31, 2010 and 2009, respectively. The unrealized losses on these securities are primarily attributable to a post-purchase rising interest rate environment and/or a decline in the credit quality of some issuers. As part of its assessment of other-than-temporary impairments, the Company considers its intent to continue holding and the likelihood that it will not be required to sell investment securities in an unrealized loss position until cost recovery, principally on the basis of its asset and liability maturity matching procedures. The Company has not sold nor does it expect to sell investments for purposes of generating cash to pay claim or expense obligations.
In common with all other insurance lines, mortgage guaranty paid and incurred claim and claim adjustment expenses include only those costs actually or expected to be paid by the Company. Claims not paid by virtue of coverage rescissions and claims denials amounted to $748.8, $719.5 and $211.0 for 2010, 2009, and 2008, respectively. In a similar vein, changes in mortgage guaranty aggregate case, IBNR, and loss adjustment expense reserves shown in the following table and entering into the determination of incurred claim costs, take into account, among a large number of variables, claim cost reductions for anticipated coverage rescissions and claims denials. The effect of changes in anticipated coverage rescissions and claims denials on period end loss reserve estimates resulted in an increase (decrease) to incurred losses of $1,001.9, ($881.9) and ($830.5) for the years ended December 31, 2010, 2009 and 2008, respectively. The significant decline of $149.9 in 2009 for prior years’ mortgage guaranty incurred claim provisions resulted mostly from greater than anticipated coverage rescissions and claim denials.
The Plans use quoted values and other data provided by the respective investment custodians as inputs for determining fair value of debt and equity securities. The custodians obtain market quotations and actual transaction prices for securities that have quoted prices in active markets and uses its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of "matrix pricing" in which the investment custodian uses observable inputs, including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes-Merton Model. The following table presents the assumptions used in the Black-Scholes Model for the awards granted during the periods presented, inclusive of replacement options issued pursuant to the PMA merger. Expected volatilities are based on the historical experience of Old Republic’s common stock. The expected term of stock options represents the period of time that stock options granted are assumed to be outstanding. The Company uses historical data to estimate the effect of stock option exercise and employee departure behavior; groups of employees that have similar historical behavior are considered separately for valuation purposes. The risk-free rate of return for periods within the contractual term of the share option is based on the U.S. Treasury rate in effect at the time of the grant.
2010 and 2009 results reflect the impact of the accounting treatment for certain reinsurance commutations. Refer to further discussion at Note 1(e).