While management believes that the assumptions underlying the amounts recorded for the reserves for unpaid losses and LAE as of December 31, 2008 are reasonable, the ultimate net liability may differ materially from the amount recorded.
The 2008 long-term disability loss ratio reflects a net reduction in open claims, which reduced claim reserves by $557,000, compared to a net reduction in claim reserves of $992,000 for the same period in 2007.
The increase in other expenses from 2007 to 2008 primarily reflects an increase in consulting costs related to actuarial services and costs associated with the acquisition of software. In addition, the 2007 expenses include a reduction of $384,000 related to the defined benefit plan settlement gain.
Total liabilities were $239.2 million as of December 31, 2008, compared to $207.7 million as of December 31, 2007. The acquisition of ESHC resulted in an increase to consolidated liabilities of $18.7 million. In addition to the acquired ESHC liabilities, reserves for losses and LAE increased primarily as a result of the unfavorable loss reserve development in the run-off specialty reinsurance segment. These increases were partially offset by the repayment of the junior subordinated debentures.
As a result of the significant losses in the run-off specialty reinsurance segment for the year ended December 31, 2008, Eastern Re’s shareholder’s equity was reduced to $(2.6) million as of December 31, 2008. On March 6, 2009, EIHI made a capital contribution of $23.0 million to improve Eastern Re’s capital position and to maintain Eastern Re’s current A.M. Best financial strength rating of “A-” (Excellent).
The Company discounts its reserves for unpaid losses and LAE for workers’ compensation claims on a non-tabular basis, using a discount rate of 3.0%, based upon regulatory guidelines. The reserves for unpaid losses and LAE have been reduced for the effects of discounting by approximately $4,145 and $3,474 as of December 31, 2008 and 2007, respectively.
The following is a description of the Company’s categorization of the inputs used in the recurring fair value measurements of its financial assets included in its consolidated balance sheet as of December 31, 2008:
The activity in the Company’s limited partnership investments for the years ended December 31, 2008 and 2007 was as follows (in thousands):
The Company accounts for its limited partnership investments under the equity method and reports changes in its interest in the limited partnerships in the change in equity interest in other long-term investments in the consolidated statements of operations. The change in equity interest of the Company’s limited partnership investments totaled $(3,970), $759 and $314 for the years ended December 31, 2008, 2007 and 2006, respectively. The Company’s investment in the municipal bond arbitrage fund and the multi-strategy fund of funds contributed $(2,019) and $(1,387), respectively, to the total change in equity interest for the year ended December 31, 2008. As of December 31, 2008, the Company’s ownership percentage in the municipal bond arbitrage fund and the multi-strategy fund of funds was approximately 2.95% and 0.71%, respectively.
The following table provides a summary of the Company’s losses and loss adjustment expenses incurred on a direct, assumed, ceded and net basis for the years ended December 31, 2008, 2007, and 2006 (in thousands):
The accumulated benefit obligation of the pension plan at December 31, 2008 and 2007 was $5,673 and $5,065, respectively, and the accumulated benefit obligation of the postretirement plan was $312 and $334, respectively.