W. R. Berkley and its subsidiaries own or lease office buildings or office space suitable to conduct their operations. At December 31, 2016, the Company had aggregate office space of 3,840,380 square feet, of which 1,096,329 were owned and 2,744,051 were leased.
An important part of our strategy is to form new operating units to capitalize on various business opportunities. Over the years, the Company has formed numerous new operating units that are focused on important parts of the economy in the U.S., including healthcare, cyber security, energy and agriculture, and on growing international markets, including Scandinavia, Australia, the Asia-Pacific region, South America and Mexico.
Debt. At December 31, 2016, the Company had senior notes, subordinated debentures and other debt outstanding with a carrying value of $2,488 million and a face amount of $2,523 million. The maturities of the outstanding debt are $4 million in 2017, $443 million in 2019, $300 million in 2020, $427 million in 2022, $250 million in 2037, $350 million in 2044, $350 million in 2053 and $400 million in 2056.
The Company places most of its significant casualty treaties on a “risk attaching” basis. Under risk attaching treaties, all claims from policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. If the Company is unable to renew or replace its existing reinsurance coverage, protection for unexpired policies would remain in place until their expiration. In such case, the Company could revise its underwriting strategy for new business to reflect the absence of reinsurance protection. Property catastrophe and workers’ compensation catastrophe reinsurance is generally placed on a “losses occurring basis,” whereby only claims occurring during the period are covered. If the Company is unable to renew or replace this reinsurance coverage, unexpired policies would not be protected, though we frequently have the option to purchase run-off coverage in our treaties.
The Company utilizes letters of credit to back certain reinsurance payments and obligations. Outstanding letters of credit were $18 million as of December 31, 2016. The Company has made certain guarantees to state regulators that the statutory capital of certain subsidiaries will be maintained above certain minimum levels.
Audit premiums are recognized when they are reliably determinable. The change in accruals for earned but unbilled audit premiums increased net premiums written and premiums earned by $8 million, $3 million and $9 million in 2016, 2015 and 2014, respectively.
During the year ended December 31, 2016, there were no securities transferred out of Level 3. During the year ended
December 31, 2015, five securities were transferred out of Level 3 as an observable price was available.
(1) Subsidiary debt is due as follows: $4 million in 2017 and $2 million in 2019.
Income before income taxes from domestic operations was $837 million, $689 million and $910 million for the years ended December 31, 2016, 2015 and 2014, respectively. Income before income taxes from foreign operations was $59 million, $43 million and $42 million for the years ended December 31, 2016, 2015 and 2014, respectively.
The National Association of Insurance Commissioners (“NAIC”) has risk-based capital (“RBC”) requirements that require insurance companies to calculate and report information under a risk-based formula which measures statutory capital and surplus needs based on a regulatory definition of risk in a company’s mix of products and its balance sheet. This guidance is used to calculate two capital measurements: Total Adjusted Capital and RBC Authorized Control Level. Total Adjusted Capital is equal to the Company’s statutory capital and surplus excluding capital and surplus derived from the use of permitted practices that differ from statutory accounting practices. RBC Authorized Control Level is the capital level used by regulatory authorities to determine whether remedial action is required. Generally, no remedial action is required if Total Adjusted Capital is 200% or more of the RBC Authorized Control Level. At December 31, 2016, BIC’s Total Adjusted Capital of $5.262 billion was 422% of its RBC Authorized Control Level.