The principal executive offices of Alleghany, Alleghany Capital and Roundwood are located in leased office space in New York, New York. TransRe leases office space in New York, New York for its headquarters and office space in almost all of its locations around the world. RSUI leases office space in Atlanta, Georgia for its headquarters and office space in Sherman Oaks, California. CapSpecialty leases office space in Middleton, Wisconsin for its headquarters and office space in its other locations throughout the U.S. PacificComp leases office space in Westlake Village, California. Bourn & Koch owns its principal offices and manufacturing facilities, which are located in Rockford, Illinois and leases certain offices and manufacturing facilities, which are located in Olympia, Washington. Kentucky Trailer owns its principal offices and manufacturing facilities, which are located in Louisville, Kentucky. SORC leases office space in Golden, Colorado for its headquarters and owns facilities, mineral rights and land in other locations in the Midwestern and Southeastern U.S. IPS leases office space in Blue Bell, Pennsylvania for its headquarters and office space in its locations around the world. Jazwares leases office space in Sunrise, Florida for its headquarters and office space in its locations around the world. Alleghany Properties leases office space in Sacramento, California. Management considers its facilities suitable and adequate for the current level of operations. See Note 12(b) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K for further information on our leases.
Casualty & other. The increase in net loss and LAE in 2016 from 2015 primarily reflects the impact of higher net premiums earned and higher losses in the current accident year related to the Quota Share Treaty, partially offset by the impact of increases in favorable prior accident year loss reserve development. The modest catastrophe losses in 2016 relate primarily to earthquake losses in Ecuador in the second quarter of 2016. The catastrophe losses for 2015 relate to the chemical explosion in Tianjin, China in August 2015.
RSUI. The decrease in gross premiums written in 2016 from 2015 primarily reflects declines in the property lines of business and, to a lesser extent, declines in RSUI’s other lines of business, all due to an increase in competition and a reduction in pricing. The decrease in gross premiums written in 2015 from 2014 primarily reflects declines in the property lines of business and, to a lesser extent, declines in the directors’ and officers’ liability, umbrella/excess and general liability lines of business, all due to an increase in competition.
With respect to goodwill, a qualitative assessment is first made to determine whether it is necessary to perform quantitative testing. This initial assessment includes, among other factors, consideration of: (i) past, current and projected future earnings and equity; (ii) recent trends and market conditions; and (iii) valuation metrics involving similar companies that are publicly-traded and acquisitions of similar companies, if available. If this initial qualitative assessment indicates that the fair value of an operating subsidiary of ours may be less than its carrying amount, a second step is taken, involving a comparison between the estimated fair values of our operating subsidiary with its respective carrying amount including goodwill. Under GAAP, fair value refers to the amount for which the entire operating subsidiary may be bought or sold. The methods for estimating the fair value of an operating subsidiary values include asset and liability fair values and other valuation techniques, such as discounted cash flows and multiples of earnings or revenues. All of these methods involve significant estimates and assumptions. If the carrying value exceeds estimated fair value, there is an indication of potential impairment, and a third step is performed to measure the amount of impairment. The third step involves calculating an implied fair value of goodwill by measuring the excess of the estimated fair value of the operating subsidiary over the aggregate estimated fair value of the individual assets less liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess.
Dividends from Subsidiaries. As of December 31, 2016, approximately $6.6 billion of our total equity of $7.9 billion was unavailable for dividends or advances to us from our subsidiaries. The remaining $1.3 billion was available for dividends or advances to us from our subsidiaries, or was retained at the Alleghany parent level and, as such, was available to pay dividends to Alleghany’s stockholders as of December 31, 2016.
On a consolidated basis, our invested assets increased to approximately $18.1 billion as of December 31, 2016 from approximately $17.8 billion as of December 31, 2015, primarily reflecting cash flows from operating activities, partially offset by our acquisition of Jazwares, the impact of repurchases of our common stock, capital contributions to SORC and the impact of a decrease in unrealized appreciation on our debt securities portfolio. The decrease in unrealized appreciation on our debt securities portfolio is due to an increase in longer-term interest rates that occurred in 2016.
(2) Includes $903.8 million and $946.7 million of collateralized loan obligations as of December 31, 2016 and 2015, respectively.
In January 2017, the FASB issued guidance that simplifies the subsequent measurement of goodwill. Under this guidance, if an initial qualitative assessment indicates that the fair value of an operating subsidiary may be less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount of the operating subsidiary exceeds its estimated fair value. Any resulting impairment loss recognized cannot exceed the total amount of goodwill associated with the operating subsidiary. This guidance is effective in the first quarter of 2020 for public entities. We will adopt this guidance in the first quarter of 2020 and do not currently believe that the implementation will have a material impact on our results of operations and financial condition.
In July 2013, AIHL invested $250.0 million in Ares Management LLC (“Ares”), an asset manager, in exchange for a 6.25 percent equity stake in Ares, with an agreement to engage Ares to manage up to $1.0 billion in certain investment strategies. In May 2014, Ares completed an initial public offering of its common units. Upon completion of the initial public offering, Alleghany’s equity investment in Ares converted to limited partner interests in certain Ares subsidiaries that are convertible into an aggregate 5.9 percent interest in Ares common units. These interests may be converted at any time at Alleghany’s discretion. Until Alleghany determines to convert its limited partner interests into Ares common units, Alleghany classifies its investment in Ares as a component of other invested assets and accounts for its investment using the equity method of accounting. As of December 31, 2016, AIHL’s carrying value in Ares was $224.0 million, which is net of returns of capital received from Ares.
Alleghany’s reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite in order to reduce the effect of individual or aggregate exposure to losses, manage capacity, protect capital resources, reduce volatility in specific lines of business, improve risk-adjusted portfolio returns and enable them to increase gross premium writings and risk capacity without requiring additional capital. Alleghany’s reinsurance and insurance subsidiaries purchase reinsurance and retrocessional coverages from highly-rated third-party reinsurers. If the assuming reinsurers are unable or unwilling to meet the obligations assumed under the applicable reinsurance agreements, Alleghany’s reinsurance and insurance subsidiaries would remain liable for such reinsurance portion not paid by these reinsurers. As such, funds, trust agreements and letters of credit are held to collateralize a portion of Alleghany’s reinsurance recoverables and Alleghany’s reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite or assume with multiple reinsurance programs.
(8) Represents unfavorable prior accident year loss reserve development related to a commutation and release agreement entered into on November 30, 2015 by TransRe with AIG Property Casualty, Inc., National Indemnity Company and Resolute Management, Inc. with respect to certain reinsurance contracts (the “Commutation Agreement”), including contracts covering asbestos-related illness and environmental impairment liabilities for 1986 and prior years (the “Commuted A&E Liabilities”).