On April 15, 2008, the Company acquired a 51% interest in IPA (see Note 3 of Notes to Consolidated Financial Statements).
While the Company establishes a best estimate of the Projected Net Loss Ratio, actual experience may deviate from this estimate. This was the case with the 2005, 2006 and 2007 underwriting years that increased (decreased) by 8.0, 9.6, and (2.0) Net Loss Ratio points, respectively. While the Company believes that larger variations are possible, based on the Company’s experience to date, it is reasonably likely that the actual experience will fall within a range up to five Net Loss Ratio points above or below the expected Projected Net Loss Ratio for 2008 at December 31, 2008. The impact of these reasonably likely changes at December 31, 2008, would be an increase in net reserves (in the case of a higher ratio) or a decrease in net reserves (in the case of a lower ratio) of up to approximately $1.2 million with a corresponding increase or decrease in the pre-tax expense for insurance benefits, claims and reserves in the 2008 Consolidated Statements of Operations.
MGU and Agency Income. MGU and agency income increased $5,087,000 to $14,539,000 for 2008, compared to $9,452,000 for 2007. MGU fee income-administration decreased $1,319,000 to $7,822,000 for 2008, compared to $9,141,000 for 2007, as our MGUs have decreased their volume of business as a result of stricter underwriting guidelines. MGU fee income-profit commission increased $779,000 to $1,036,000 for 2008, compared to $257,000 for 2007 as a result of more favorable loss ratios experienced at certain of our MGUs. Profit commissions for a given year are based primarily on the performance of business written during portions of the three preceding years. Therefore, profit commissions for 2008 are based on business written during portions of 2005, 2006 and 2007. In 2008, income from our Agencies consisted of commission income and other fees of $4,716,000 from IPA and revenue of $965,000 from HIO. In 2007, income from our Agencies consisted of revenue of $54,000 from HIO. IPA was acquired subsequent to December 31, 2007 and ECA commenced operations in the fourth quarter of 2008.
Total investments decreased $7,301,000 to $52,847,000 at December 31, 2008 from $60,148,000 at December 31, 2007, due to unrealized losses and impairments of fixed income securities, the acquisitions of Marlton ($3,700,000) and IPA ($1,750,000), and the trading account loss of $2,006,000, net of expected recoveries, taken in the fourth quarter of 2008 relating to certain activities engaged in by the non-affiliate broker-dealer that managed a trading account of the Company. The $1,745,000 decrease in total stockholders' equity is primarily due to an increase of $2,853,000 in unrealized losses, offset by net income of $965,000 generated during 2008.
Preferred stock, $0.10 par value, 1,000 shares designated; no shares issued
In June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF No. 03-6-
The change in the carrying amount of goodwill for the year ended December 31, 2008 is as follows (in thousands):
The following table presents our financial assets and liabilities measured at fair value on a recurring basis at December 31, 2008 (in thousands):