Our objective is to generate superior returns on capital that appropriately reward our common shareholders for the risks we assume and to grow revenue only when we expect the returns will meet or exceed our requirements. We recognize that the nature of underwriting cycles and the frequency or severity of large loss events in any one year may make it difficult to achieve a profitability target in any specific period and, therefore our goal is to achieve top-quintile industry ROACE and growth in book value per share adjusted for dividends, with volatility consistent with the industry average. Our average annual ROACE since inception was approximately 13.7%, while our compound annual growth rate in book value adjusted for dividends was approximately 12.5%.
Underwriting-related general and administrative expenses is a non-GAAP measure as defined in SEC Regulation G. Our total general and administrative expenses also included $109,910, $135,675 and $90,256 of corporate expenses for 2015, 2014 and 2013, respectively; refer to 'Other Expenses, Net' for additional information related to these corporate expenses. Also, refer to 'Non-GAAP Financial Measures' for further information.
The increase in our reinsurance segment of 2%, was significantly impacted by the number of treaties written on a multi-year basis in the liability, property, catastrophe and motor lines. After adjusting for the impact of the multi-year contracts, the decline in gross written premiums was primarily driven by professional, property and catastrophe lines, partially offset by increases in liability, motor and agriculture lines. The decrease in professional lines was primarily driven by timing differences, non-renewals and decreased treaty participations. The decreases in property and catastrophe were primarily driven by variances in premium adjustments, reduced participations and non-renewals. The increase in liability primarily reflected increased treaty participations and new business. The motor lines increase was primarily driven by increased treaty participations, while the agriculture increase reflected our growth initiatives in this line of business.
In 2013, the Company obtained catastrophe protection for both our segments through a reinsurance agreement with Northshore Re Limited ("Northshore"). The Company performed an accounting evaluation of Northshore and concluded that while Northshore is a variable interest entity, AXIS does not have a variable interest in this entity. Accordingly, Northshore is not consolidated in the Company's consolidated financial statements. The premium ceded to Northshore during 2015, 2014 and 2013 was $16 million, $16 million and $14 million, respectively.
$38 million of net favorable prior year reserve development on professional lines business, primarily related to the 2009 and 2010 accident years, reflecting increased weight being given to experience-based actuarial methods in selecting our ultimate loss estimates for accident years 2010 and prior.
$85 million of net favorable prior year reserve development on liability business for the reasons discussed in the overview.
The general and administrative expenses increase during 2014 compared to 2013 was primarily driven by an increase in personnel costs, professional fees, information technology costs and other related expenses associated with the continued build-out of the Company's global platforms and certain operational excellence initiatives. These initiatives are aimed at improving the effectiveness and efficiency of our operations and are expected to result in a reduction of expenses in future periods. The impact on the general and administrative expense ratio was partially offset by growth in net earned premiums.
The decrease in gross written premiums was also significantly impacted by foreign exchange movements in 2015, compared to 2014, as the strengthening of the U.S. dollar drove comparative premium decreases in the treaties denominated in foreign currencies. Foreign exchange movements resulted in a decrease of $74 million in gross premiums written in 2015 compared to 2014.
The other insurance related loss in 2015 primarily related to realized losses and mark-to-market adjustments on our weather and commodity derivatives portfolio following unseasonably warm weather conditions in Europe during the fourth quarter of 2015. Other insurance related income in 2014 primarily related to realized gains on economic hedges purchased to protect our agriculture line of business against fluctuations in commodity prices, which were largely offset by realized and mark-to-market losses on our weather and commodity derivative business. Other insurance related income in 2013 reflected the net results of our weather and commodity business.
The tax rate in 2015 decreased compared to 2014. The decrease was primarily driven by the geographic distribution of underwriting income and investment gains (losses). While we generated consolidated pre-tax net income in 2015, the majority of our operating income as well as the PartnerRe merger termination fees received were recognized in Bermuda. The tax expense was further impacted by realized losses on investments in our European entities during 2015.
Our RMBS portfolio consists primarily of AAA rated U.S. agency issues and is supported by loans that are diversified across geographical areas. Due to a change in prepayment speed assumptions caused by rising interest rates, the duration of our agency MBS holdings increased from 4.0 years at December 31, 2014 to 4.2 years at December 31, 2015.
primarily driven by an increase in net paid losses as we settled losses incurred in prior years. In 2015, the increase in net paid losses was primarily attributable to increased loss payments in insurance professional and agriculture lines, while in 2014, the increase was driven by increased loss payments in the professional, liability and motor lines. In 2015 operating cash flows were also reduced by increased purchases of reinsurance protection and retrocessional coverage, the settlement of reorganization expenses as well as an increase in general and administrative expenses paid, partially offset by the termination fee received by PartnerRe and increased reinsurance recoveries related to the increase in claims paid.
A limited portion of our insurance business is written on a line slip or proportional basis, under which we assume a fixed percentage of the premiums and losses on a particular risk or group of risks along with numerous other unrelated insurers. Although premiums on this business are not contractually stated, we recognize gross premiums written based on an estimate provided by the client via the broker. For further details on the estimation process, see the discussion provided for the reinsurance segment below. We review these estimates on a quarterly basis and record significant adjustments in premium estimates when identified. Gross premiums written on a line slip/proportional basis comprised 10%, 9% and 10% of the segment’s total for the years ended December 31, 2015, 2014 and 2013, respectively, and therefore the associated impact of these estimates on our pre-tax net income was immaterial. The increase in 2015 compared to 2014 and decrease in 2014 compared to 2013 was driven by variability in the amount of proportional business written in our accident and health lines.
As a result of this review process, any adjustments to estimates are recognized in gross premiums written during the period they are determined. Such changes in premium estimates could be material to gross premiums written and the resulting adjustments may directly and significantly impact net premiums earned favorably or unfavorably in the period they are determined because the adjustment may be substantially or fully earned. Gross premiums written for proportional contracts, including amounts related to the adjustment of premium estimates established in prior years, accounted for 62%, 62% and 58% of our reinsurance segment’s gross premiums written for the years ended December 31, 2015, 2014 and 2013, respectively.
A security is “impaired” when its fair value is below its amortized cost (for fixed maturities) or cost (for equities). On a quarterly basis, we review all impaired AFS securities to determine if the impairment is other-than-temporary. The OTTI assessment is inherently judgmental, especially where securities have experienced severe declines in fair value in a short period. Our review process begins with a quantitative analysis to identify securities to be further evaluated for potential OTTI. For all identified securities, further fundamental analysis is performed that considers the following quantitative and qualitative factors:
In January 2016, the FASB issued new guidance making targeted amendments to guidance on classifying and measuring financial instruments. The guidance requires that equity investments (except those accounted for under the equity method of accounting, investments that are consolidated or those that meet a practicability exception) are measured at fair value with changes in fair value recognized in net income.
Two common redemption restrictions which may impact our ability to redeem our hedge funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the fund’s net assets which may otherwise hinder the general partner or investment manager’s ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. During 2015 and 2014, neither of these restrictions impacted our redemption requests. At December 31, 2015, $66 million (2014: $87 million), representing 10% (2014: 11%) of our total hedge funds, relate to holdings where we are still within the lockup period. The expiry of these lockup periods range from March, 2016 to April, 2018.
Our provision for unrecoverable reinsurance was $18 million at December 31, 2015 (2014: $18 million). At December 31, 2015, 96.2% (2014: 98.5%) of our gross reinsurance recoverables were collectible from reinsurers rated A- or better by A.M. Best.
We monitor and manage the aggregation of credit risk on a group-wide basis allowing us to consider exposure management strategies for individual companies, countries, regions, sectors and any other relevant inter-dependencies. Our credit exposures are aggregated based on the origin of risk. As part of our credit aggregation framework, we also assign aggregate credit limits by single counterparty (a group of companies or country). These limits are based and adjusted on a variety of factors including the prevailing economic environment and the nature of the underlying credit exposures. Our credit aggregation measurement and reporting process is facilitated by our credit risk exposure database, which contains relevant information on counterparty details and credit risk exposures; we also license third party tools to provide credit risk assessments.
Our investment portfolio is managed by external investment managers in accordance with our investment guidelines. We limit such credit risk through diversification, issuer exposure limitation graded by ratings and, with respect to custodians, through contractual and other legal remedies. Excluding U.S. Treasury and Agency securities, we limit our concentration of credit risk to any single corporate issuer to 2% or less of our investment grade fixed maturities portfolio for securities rated A- or above and 1% or less of our investment grade fixed maturities portfolio for securities rated below A-. No more than 1.5% of total cash and invested assets can be invested in any single corporate issuer.
The three largest balances by reinsurer accounted for 11%, 11% and 11% of total reinsurance recoverable on unpaid and paid losses at December 31, 2015 (2014: 13%, 11% and 11%). Amounts related to our reinsurers with the ten largest balances comprised 72% of December 31, 2015 balance (2014: 77%) and had a weighted average A.M. Best rating of A+ (2014: A+).
On August 17, 2015, the Company entered into an Accelerated Share Repurchase (“ASR”) agreement (refer to Note 13 'Shareholders' Equity' for additional detail). The weighted-average number of shares outstanding used in the computation of basic and diluted earnings per share reflects the Company’s receipt of 4,149,378 shares delivered to the Company on August 20, 2015 under the Company's ASR agreement.
Represents privately negotiated repurchases of 3,000,000 of our common shares from Trident II, L.P and affiliated entities in 2013.
During August 2015, under the terms of this agreement, the Company paid $300 million to Goldman Sachs and initially repurchased 4,149,378 common shares. The initial shares acquired represented 80% of the $300 million total paid to Goldman Sachs and were calculated using the Company’s stock price at activation of the program. The ASR program is accounted for as an equity transaction. Accordingly, $240 million of shares repurchased are included as treasury shares in the Consolidated Balance Sheets with the remaining $60 million included as a reduction to additional paid-in capital until the completion of the ASR agreement.
In 2013, the total dividends declared on Series A preferred shares were $0.9063 per share. In 2013, dividends of $1.3594 per share were paid, of which $0.4531 had been declared in 2012.
In 2015 and 2014, total dividends declared and paid on Series D preferred shares were $1.3750 per share. In 2013 the total dividends declared on Series D preferred shares were $0.6875 per share. Of this amount, $0.3438 was paid in 2013 and the remaining $0.3438 was subsequently paid in 2014.
The following table provides a reconciliation of the beginning and ending balance of nonvested restricted stock (including restricted stock units) for the year ended December 31, 2015: