Based on weighted average diluted common shares outstanding of 60.8 million, 62.0 million, 63.6 million, 65.3 million and 58.5 million for 2009, 2008, 2007, 2006 and 2005, respectively.
Net Investment Income. Net investment income decreased by 3.2% in 2009, compared to 2008, due primarily to lower yields on new money, partially offset by a decrease in losses from our limited partnership investments that invest in public and non-public securities, both equity and debt. As a result, net pre-tax investment income, as a percentage of average invested assets, was 3.8% for 2009 compared to 4.0% for 2008.
Interest and other expense was $79.2 million and $91.6 million in 2008 and 2007, respectively. The decrease was primarily due to the acceleration of amortization of the bond issue costs for the junior subordinated debt securities which were retired in November, 2007, with no such expense in 2008. In addition, the interest reduction on the retired junior subordinated notes was partially offset by the interest on the new long term notes.
Shareholders’ equity increased by $1,141.4 million to $6,101.7 million at December 31, 2009 from $4,960.4 million at December 31, 2008, principally as a result of $807.0 million of net income, $529.9 million of unrealized appreciation on investments, net of tax, $83.8 million of foreign currency translation adjustments and share-based compensation transactions of $22.5 million, partially offset by 2.4 million common share repurchases for $190.6 million and $116.9 million of shareholder dividends.
Gross written premiums decreased by 19.7% to $957.9 million in 2008 from $1,193.5 million in 2007, primarily due to a $104.9 million (14.7%) decrease in treaty property volume, a $71.7 million (21.6%) decrease in treaty casualty volume and a $57.9 million (39.9%) decrease in facultative volume. Property premiums were lower due to increased common account reinsurance protections, particularly on one Florida quota share account and two quota share non-renewals. Our treaty casualty premium was lower than last year as we reduced this book to a group of core accounts in response to the softer market conditions. Facultative volume decreased due to ceding companies retaining a greater portion of gross premiums and a marketplace that remains competitive. Net written premiums decreased 19.8% to $948.8 million in 2008 compared to $1,183.1 million in 2007, primarily due to the decrease in gross written premiums. Net premiums earned correspondingly decreased 18.1% to $1,050.3 million in 2008 compared to $1,282.9 million in 2007, consistent with the change in net written premiums.
Premiums. Gross written premiums increased by 9.2% to $842.6 million in 2009 compared to $771.8 million for 2008. Most of the new premium was derived from our entry into the financial institution D&O and E&O market and additional property insurance written in Florida, where rates to exposure remain attractive. Net written premiums increased by 6.4% to $656.2 million in 2009 compared to $617.0 million in 2008, as the increase in gross written premiums was partially offset by the increase in ceded written premiums. Premiums earned decreased 4.9% to $671.1 million in 2009 compared to $705.5 million in 2008. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Commission and brokerage increased 3.4% to $70.8 million in 2008 compared to $68.5 million in 2007 due primarily to the combined impacts of an increase in proportional premiums written, which generate higher ceding commissions, on the marine business and an increase in contingent commission on the aviation business. Segment other underwriting expenses decreased slightly to $8.1 million in 2008 as compared to $8.5 million in 2008.
Our shareholders’ equity decreased to $4,960.4 million as of December 31, 2008 from $5,684.8 million as of December 31, 2007. This decrease was the result of unrealized depreciation on investments, net of tax, of $236.6 million, $193.3 million of foreign currency translation adjustments, the repurchase of 1.6 million common shares for $150.7 million, $118.6 million of shareholder dividends and a net loss of $18.8 million, partially offset by $18.7 million of share-based compensation transactions.
Our liquidity requirements are generally met from positive cash flow from operations. Positive cash flow results from reinsurance and insurance premiums being collected prior to disbursements for claims, which disbursements generally take place over an extended period after the collection of premiums, sometimes a period of many years. Collected premiums are generally invested, prior to their use in such disbursements, and investment income provides additional funding for loss payments. Our net cash flows from operating activities were $784.7 million, $663.0 million and $854.4 million for the years ended December 31, 2009, 2008 and 2007, respectively. Additionally, these cash flows reflected net tax payments of $111.8 million, $11.0 million and $282.6 million for the years ended December 31, 2009, 2008 and 2007, respectively; net catastrophe loss payments of $235.3 million, $290.5 million and $443.1 million for the years ended December 31, 2009, 2008 and 2007, respectively; and net A&E payments of $136.4 million, $78.3 million and $71.6 million for the years ended December 31, 2009, 2008 and 2007, respectively.
inflows from investment maturities and dispositions, both short-term investments and longer term maturities are available to supplement other operating cash flows.
As the timing of payments for claims and benefits cannot be predicted with certainty, we maintain portfolios of long term invested assets with varying maturities, along with short-term investments that provide additional liquidity for payment of claims. At December 31, 2009 and 2008, we held cash and short-term investments of $920.7 million and $2,095.5 million, respectively. All of our short-term investments are readily marketable and can be converted to cash. In addition to these cash and short-term investments, at December 31, 2009, we had $652.5 million of available for sale fixed maturity securities maturing within one year or less, $3,151.8 million maturing within one to five years and $5,916.3 million maturing after five years. Our $396.3 million of equity securities are comprised primarily of publicly traded securities that can be easily liquidated. We believe that these fixed maturity and equity securities, in conjunction with the short-term investments and positive cash flow from operations, provide ample sources of liquidity for the expected payment of losses in the near future. We do not anticipate selling securities or using available credit facilities to pay losses and LAE but have the ability to do so. Sales of securities might result in realized capital gains or losses. At December 31, 2009 we had $392.7 million of net pre-tax unrealized appreciation, comprised of $559.1 million of pre-tax unrealized appreciation and $166.4 million of pre-tax unrealized depreciation.
The Holdings Credit Facility requires Holdings to maintain a debt to capital ratio of not greater than 0.35 to 1 and Everest Re to maintain its statutory surplus at $1.5 billion plus 25% of future aggregate net income and 25% of future aggregate capital contributions after December 31, 2005, which at December 2009, was $1,933.2 million. As of December 31, 2009, Holdings was in compliance with all Holdings Credit Facility covenants.
Revisions to Earnings per Share Calculation. In June 2008, the FASB revised the authoritative guidance for earnings per share for determining whether instruments granted in share-based payment transactions are participating securities. This new guidance requires unvested share-based payment awards that contain non-forfeitable rights to dividends be considered as a separate class of common stock and included in the earnings per share calculation using the two-class method. The Company’s restricted share awards meet this definition and are therefore included in the basic earnings per share calculation. All prior period earnings per share data presented have been adjusted retrospectively.
We had $8,937.9 million and $8,840.7 million of gross reserves for losses and LAE as of December 31, 2009 and 2008, respectively. These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations have an expected duration of approximately 4.1 years, which is reasonably consistent with our fixed income portfolio. If we were to discount our loss and LAE reserves, net of $0.6 billion of reinsurance receivables on unpaid losses, the discount would be approximately $1.5 billion resulting in a discounted reserve balance of approximately $6.8 billion, representing approximately 49.7% of the market value of the fixed maturity investment portfolio funds.
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”. Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic events on our financial statements, the ability of Everest Re, Holdings, Holdings Ireland and Bermuda Re to pay dividends and the settlement costs of our specialized equity index put option contracts. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause our actual events or results to be materially different from our expectations include those discussed under the caption ITEM 1A, “Risk Factors”. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.