2 Includes extra dividends of $0, $0, $.65, $1.70 and $.55 for 2009, 2008, 2007, 2006 and 2005, respectively.
Reinsurance ceded credits were $2.3 million (74%) higher in 2009, resulting from the Company ceding a higher percentage of the gross premium to other companies under reinsurance treaties, principally for workers’ compensation coverages. After consideration of these expense offsets, operating expenses increased $10.5 million, or 18% from the prior year.
The reserving process requires management to continuously monitor and evaluate the life cycle of claims based on the class of business and the nature of claims. As previously noted, our claims range from the very routine Private Passenger Automobile “fender bender” to the highly complex and costly third party bodily injury claim involving large tractor-trailer rigs. Reserving for each class of claims requires a set of assumptions based upon historical experience, knowledge of current industry trends and seasoned judgment. The high limits provided in the Company’s Fleet Transportation liability policies provide for greater volatility in the reserving process for more serious claims. Court rulings, legislative actions and trends in jury awards also play a significant role in the estimation process of larger claims. The Company continuously reviews and evaluates loss developments subsequent to each measurement date and adjusts its reserve estimation assumptions, as necessary, in an effort to achieve the best possible estimate of the ultimate remaining loss costs at any point in time. Changes to previously established reserve amounts are charged or credited to losses and loss expenses incurred in the accounting periods in which they are determined. Note C to the consolidated financial statements includes additional information relating to loss and loss adjustment expense reserve development.
Share-Based Payments: The Company uses a "Black-Scholes" option pricing model to value options granted to employees and non-employee directors in accordance with FASB Guidance. Compensation costs for all share-based awards to employees and non-employee directors are measured based on the grant date fair value of the award and are recognized over the period(s) during which the employee or non-employee director is required to perform service in exchange for the award (the vesting period).
Earnings Per Share: Diluted earnings per share of common stock are based on the average number of shares of Class A and Class B common stock outstanding during the year, adjusted for the dilutive effect, if any, of share-based awards outstanding. Basic earnings per share are presented exclusive of the effect of share-based awards outstanding.
There is no primary or secondary market for the Company’s investments in limited partnerships and, in most cases, the Company is prohibited from disposing of its limited partnership interests for some period of time and generally must seek approval from the general partner for any such disposal. Distributions of earnings from these partnerships are largely at the sole discretion of the general partners and distributions are generally not received by the Company for many years after the earnings have been reported. The Company has commitments to contribute an additional $2,200 to various limited partnerships as of December 31, 2009.
The Company’s limited partnerships include one significant investment accounted for using the equity method. This limited partnership investment’s value as of December 31, 2009 and 2008 was $29,676 and $18,761, respectively. At December 31, 2009, the Company’s estimated ownership interest in this limited partnership investment was less than 4%.
The insurance subsidiaries cede portions of their gross premiums written to certain other insurers under excess and quota share treaties and by facultative placements. Reinsurance treaties with other companies permit the recovery of a portion of related direct losses. Management determines the amount of net exposure it is willing to accept generally on a product line basis. Certain treaties covering Fleet Transportation include annual deductibles which must be exceeded before the Company can recover under the terms of the treaty. In these cases, the Company retains a higher percentage of the direct premium in consideration of the deductible provisions. The Company remains liable to the extent the reinsuring companies are unable to meet their obligations under reinsurance contracts.
Effective June 11, 2009, the Company issued 20,900 shares of restricted stock to the Company’s outside directors. The restricted stock will be paid solely in the Company’s Class B common stock. The restricted stock represents the annual retainer compensation for outside directors. The restricted stock will vest on May 5, 2010. Vesting will be accelerated only on the condition of death, disability, or change in control of the Company. Each restricted stock is valued at $21.05 per share representing a total value of $440. Compensation expense related to the above stock grant is to be recognized over the period in which the directors render the services which will also coincide with the vesting period. The new directors’ stock plan will be presented to shareholders for approval at the May 2010 annual shareholders meeting.
On October 31, 2008, the Company purchased Transportation Specialty Insurance Agency, Inc., (“TIA”) of Toledo, Ohio for a cash purchase price of $3,500. TIA is a commercial lines specialty insurance agency primarily focusing on the needs of the transportation industry including trucking independent contractors as well as fleet trucking companies. TIA is part of the Company’s property and casualty insurance segment. As part of the purchase, the Company recorded goodwill of $3,152 and intangible assets related to customer relationships and employment agreements of $179 with are included in Other Assets in the consolidated balance sheet.
We lease office space and certain computer and related equipment using noncancelable operating leases. Lease expense for 2009, 2008 and 2007 was $1,465, $1,325 and $1,245, respectively. At December 31, 2009, future lease payments for operating leases with initial or remaining noncancelable terms of one year or more consisted of the following: