Our underwriting results for 2010 included $135.9 million of net catastrophe losses from earthquakes in Chile and New Zealand, as well as $20.0 million in net losses from the Deepwater Horizon oil rig explosion and fire. These losses were partially offset by $109.3 million of prior year favorable loss reserve development. Our investment results for 2010 included $50.6 million of net realized and unrealized investment gains which were comprised of $21.2 million in net gains from fixed maturities, $25.1 million in net gains from equity securities and $4.3 million in net gains from other investments.
Despite improvements in pricing for catastrophe-exposed lines, we have not yet witnessed a broad-based turn in the overall market. Our catastrophe risk profile remains cautious as compared to our historical levels, leaving us with additional capital to deploy as better opportunities arise.
The following table summarizes Montpelier Bermuda’s gross premiums, by line of business, for the years ended December 31, 2011, 2010 and 2009:
· $14.2 million from flooding resulting from a cloudburst in Denmark,
We recorded income (expense) of $7.1 million, $2.1 million and $(0.6) million associated with the Foreign Exchange Contracts during 2011, 2010 and 2009, respectively.
Our interest and other financing expenses decreased significantly during 2011, as compared to 2010. The reduction in interest expense experienced in 2011 was due to the interest rate on our $100.0 million of capital securities (the “Trust Preferred Securities”) moving from an 8.55% per annum fixed rate to a floating rate, effective March 30, 2011, which varied from 4.107% to 4.379% for the balance of the year. The reduction in letter of credit and trust fees experienced during 2011 was the result of the Reinsurance Trust replacing a large non-renewed letter of credit facility that expired during 2011.
During 2011 we reversed the $0.6 million net deferred tax liability that we had recorded as of December 31, 2010 as a result of 2011 net losses experienced at our U.K. operations. During 2010 we re-characterized an existing intercompany loan among two of our wholly-owned subsidiaries as a contribution of capital and recorded a one-time $1.0 million income tax benefit representing: (i) current and prior year reversals of U.K. deferred income tax provisions; and (ii) the amended treatment of foreign exchange gains we experienced while the loan was outstanding.
During 2011 we declared $9.1 million in cash dividends on our Preferred Shares from May 10, 2011 to December 31, 2011, the period during which the Preferred Shares were outstanding.
A number of states in the U.S. have recently considered reducing their collateral requirements for risks ceded to financially sound non-U.S. reinsurers. During 2011 we became authorized to post reduced collateral with respect to certain risks ceded from insurers domiciled in Florida and New York. We also intend to monitor and, where possible, take advantage of reduced collateral statutes as and when they are adopted in other states. During 2011 we established a trust in connection with our reduced collateral requirements in Florida (the “FL Trust”). As of December 31, 2011, the fair value of all assets held in the FL Trust was $25.0 million.
Cash and Cash Equivalents Held by Our U.S. and U.K. Subsidiaries
Our IBNR reserves are determined using various actuarial methods as well as a combination of our own historical loss experience, historical insurance industry loss experience, estimates of pricing adequacy trends and our professional judgment. In the case of our reinsurance business, our reserving process is highly dependent on the loss information we receive from ceding companies. The process we use to estimate our IBNR reserves involves projecting our estimated ultimate loss and LAE reserves and then subtracting paid claims and case reserves as notified by the ceding company, to arrive at our IBNR reserve.
Our assumed treaty reinsurance premiums are written on an excess-of-loss or on a pro-rata basis. Reinsurance contracts are typically written prior to the time the underlying direct policies are written by cedants and accordingly they must estimate such premiums when purchasing reinsurance coverage. For the majority of excess-of-loss contracts, including insurance contracts, a deposit or minimum premium is defined in the contract wording. The deposit or minimum premium is based on the ceding company’s estimated premiums and this estimate is recorded as written premium in the period the underlying risks incept. In the majority of cases, this premium is adjustable at the end of the contract period to reflect the changes in underlying risks in force during the contract period. Subsequent adjustments, based on reports by the ceding companies of actual premium, are recorded in the period they are determined, which is normally within six months to one year subsequent to the expiration of the policy. To date these adjustments have not been significant.
As of December 31, 2011 and 2010, we recorded $7.7 million and $12.9 million in reinsurance recoverable on paid losses, respectively, and $77.7 million and $62.4 million in reinsurance recoverable on unpaid losses, respectively. We record provisions for uncollectible reinsurance recoverable when collection becomes unlikely due to the reinsurer’s inability to pay. Based on a review of the financial condition of the reinsurers and other factors, we have determined that a reserve for uncollectible reinsurance recoverable on paid and unpaid loss and LAE was not considered appropriate as of December 31, 2011 and 2010.
As of December 31, 2011, we had no ongoing material reinsurance contract disputes.