We believe the increases in property/casualty rates experienced in 2020, will continue in 2021; however, loss trends could deteriorate, leading to a more difficult environment and, in certain lines and geographies, a hard market. The economies of the U.S. and other countries around the world contracted during 2020 as a result of COVID-19 and have yet to rebound to pre-pandemic levels. Weaker economic activity is leading to, and is likely to continue to lead to, reduced exposure units and elevated unemployment. We expect that our history of strong new business generation, solid retentions and enhanced value-added services for our carrier partners should help offset, to a degree, softer global economic conditions. Overall, we believe that in a positive rate environment with reduced exposure units, our professionals can demonstrate their expertise and high-quality, value-added capabilities by strengthening our clients’ insurance portfolios and delivering insurance and risk management solutions within our clients’ budget. Based on our experience, there is adequate capacity in the insurance market for most lines of coverage, terms and conditions are tightening, most insurance carriers appear to be making rational pricing decisions and clients can broadly still obtain coverage.
Our current estimate of the 2021 annual net after tax earnings, including IRC Section 45 tax credits, which will be produced from all of our clean energy investments in 2020, is $60.0 million to $75.0 million.
EBITDAC and EBITDAC Margin - EBITDAC is net earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables and EBITDAC margin is EBITDAC divided by total revenues (for the brokerage segment) and revenues before reimbursements (for the risk management segment). These measures for the brokerage and risk management segments provide a meaningful representation of our operating performance for the overall business and provide a meaningful way to measure its financial performance on an ongoing basis.
Royalty income from clean coal licenses represents revenues related to Chem-Mod LLC. We hold a 46.5% controlling interest in Chem-Mod LLC. As Chem-Mod LLC’s manager, we are required to consolidate its operations.
Compensation expense - Compensation expense for 2020 and 2019, respectively, was $66.5 million and $77.9 million. The $11.4 million decrease in 2020 compensation expense compared to 2019 was primarily due to lower clean energy results in 2020.
Corporate - Consists of overhead allocations mostly related to corporate staff compensation and other corporate level activities, costs related to biennial company-wide award event, cross-selling and motivational meetings for our production staff and field management, expenses related to our new corporate headquarters, corporate related data and branding initiatives, expenses for systems and consulting related to the implementation of the new revenue recognition accounting and tax reform rules and the impact of foreign currency translation.
Clean Energy Investments - During the period from 2009 through 2020, we have made significant investments in clean energy operations capable of producing refined coal that we believe qualifies for tax credits under IRC Section 45. Our current estimate of the 2021 annual net after-tax earnings, including IRC Section 45 tax credits, which will be produced from all of our clean energy investments in 2020, is $60.0 million to $75.0 million. The IRC Section 45 tax credits generate positive cash flow by reducing the amount of federal income taxes we pay, which is offset by the operating expenses of the plants, by any capital expenditures related to the redeployment, and in some cases the relocation of refined coal plants. We anticipate positive net cash flow related to IRC Section 45 activity in 2021. However, there are several variables that can impact net cash flow from clean energy investments in any given year. Therefore, accurately predicting positive or negative cash flow in particular future periods is not possible at this time. Nonetheless, if current ownership interests remain the same, if capital expenditures related to redeployment and relocation of refined
Commissions are fixed at the contract effective date and generally are based on a percentage of premiums for insurance coverage or employee headcount for employer sponsored benefit plans. Commissions depend upon a large number of factors, including the type of risk being placed, the particular underwriting enterprise’s demand, the expected loss experience of the particular risk of coverage, and historical benchmarks surrounding the level of effort necessary for us to place and service the insurance contract. Rather than being tied to the amount of premiums, fees are most often based on an expected level of effort to provide our services.
Certain underwriting enterprises may pay us additional revenues for the volume of premium placed with them and for insights into our sales pipeline, our sales capabilities or our risk selection knowledge. These amounts are in excess of the commission and fee revenues discussed above, and not all business we place with underwriting enterprises is eligible for supplemental revenues. Unlike contingent revenues, discussed below, these revenues are primarily a fixed amount or fixed percentage of premium of the underlying eligible insurance contracts. For supplemental revenue contracts based on a fixed percentage of premium, our obligation to the underwriting enterprise is substantially completed upon the effective date of the underlying insurance contract and revenue is fully earned at that time. For supplemental revenue contracts based on a fixed amount, revenue is recognized ratably over the contract period consistent with the performance of our obligations, almost always over an annual term. We receive these revenues on a quarterly or annual basis.
Reimbursements represent amounts received from clients reimbursing us for certain third-party costs associated with providing our claims management services. In certain service partner relationships, we are considered a principal because we direct the third party, control the specified service and combine the services provided into an integrated solution. Given this principal relationship, we are required to recognize revenue gross and service partner vendor fees in the operating expense in our consolidated statement of earnings.
Short-term investments, consisting principally of cash and money market accounts that have average maturities of 90 days or less, are considered cash equivalents.
We adopted both of the standards effective January 1, 2020. The adoption did not have any impact on our consolidated financial statements.
based on a risk-adjusted rate that takes into consideration market-based rates of return and reflects the risk of the asset relative to the acquired business. These discount rates generally ranged from 9.0% to 13.5% for our 2020 and 2019 acquisitions, for which valuations were performed in 2020. The fair value of non-compete agreements was established using the profit differential method, which is an income approach based on estimated financial projections developed by management for the acquired company using market participant assumptions and various non-compete scenarios.
Expiration lists, non-compete agreements and trade names related to our acquisitions are amortized using the straight-line method over their estimated useful lives (two to fifteen years for expiration lists, two to six years for non-compete agreements and two to fifteen years for trade names), while goodwill is not subject to amortization. We use the straight-line method to amortize these intangible assets because the pattern of their economic benefits cannot be reasonably determined with any certainty. We review all of our identifiable intangible assets for impairment periodically (at least annually) and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. In reviewing identifiable intangible assets, if the undiscounted future cash flows were less than the carrying amount of the respective (or underlying) asset, an indicator of impairment would exist and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings as a component of amortization expense. Based on the results of impairment reviews in 2020, 2019 and 2018, we wrote off $51.7 million, $0.1 million and $10.6 million, respectively, of amortizable intangible assets related to the brokerage and risk management segments.
In 2020, 2019 and 2018, we granted 422,610, 414,700 and 439,100 restricted stock units, respectively, to employees under the LTIP and 2014 LTIP, with an aggregate fair value of $34.9 million, $31.8 million and $28.7 million, respectively, at the date of grant.
The following weighted average assumptions were used at December 31 in determining the plan’s pension benefit obligation:
Other Investments - At December 31, 2020, we owned a non-controlling, minority interest in four venture capital funds totaling $3.9 million and eight certified low-income housing developments with zero carrying value. The low-income housing developments and real estate entities have been determined to be VIEs, but are not required to be consolidated due to our lack of control over their respective operations. At December 31, 2020, total assets and total liabilities of these VIEs were approximately $4.8 million and $0.5 million, respectively.
We adopted ASU 2017-12 on January 1, 2019. Among other provisions, the new standard required modification to existing presentation and disclosure requirements on a prospective basis. As such, certain disclosures below conform to the disclosure requirements prior to the adoption of ASU 2017-12.
Total rent expense, including rent relating to cancelable leases and leases with initial terms of less than one year, amounted to $154.0 million in 2020, $148.1 million in 2019 and $140.0 million in 2018.
The following is a reconciliation of our end of period cash, cash equivalents and restricted cash balances as presented in the consolidated statement of cash flows for the years ended December 31, 2020, 2019 and 2018 (in millions):
Auditing the accounting for revenue recognition involved subjectivity and complexity in evaluating management's estimates, specifically, the impact of significant assumptions, including revenue deferral rates, on the timing of revenue recognition for Gallagher’s brokerage revenue. These revenue deferral rates are used to estimate future service obligations and contain significant subjectivity and variability.
We obtained an understanding of Gallagher’s key revenue recognition processes and tested the design and operating effectiveness of revenue recognition controls, including controls over management’s review of the significant revenue deferral assumptions. We also tested controls over the completeness and accuracy of the inputs used to estimate the deferred revenue, including reconciliation controls.