The 2010 first quarter loss and LAE ratio was 61.4%, reflecting both frequency and severity within the normal ranges. The 2010 first quarter expenses were up slightly, in part due to the mix of business written which can cause variances in the quarter to quarter underwriting expenses. In addition, first quarter expenses were higher due to legal and professional costs associated with the Vanliner acquisition and other product development efforts.
Net investment income, the other component of operating earnings was in line for the 2010 first quarter in comparison to the first quarter of 2009. Like other investors, one of our major challenges in 2010 related to investment income would be to maintain yield without sacrificing quality or extending the portfolio as we invest maturing fixed holdings and operating cash flows.
To help maintain yield and diversify the portfolio during the quarter we focused our purchases in corporate debt which now comprises approximately 12% of the portfolio. Also contributing to the net income for the 2010 first quarter was the elimination of the remaining valuation allowance on our deferred tax assets related to the net capital losses. The tax valuation allowance was recorded in 2008 during the financial crisis when the investment portfolio value dropped and impairment charged occurred.
Throughout 2009 and into the 2010 first quarter, as the portfolio recovered, the valuation allowance decreased, lowering the effective tax rate for those quarters. We do not expect further impacted related to the valuation allowance which was reduced to zero at quarter end. Also throughout 2009 and continuing into 2010, we have been successful in generating net realized gains from our investments. We will continue to respond to market opportunities to generate capital gains to supplement recurring investment income.Read the rest of this transcript for free on seekingalpha.com