The effective tax rate differs from the U.S. Federal statutory rate of 35% in 2015 and 2014, primarily due to the separate account dividends received deduction. The Company recorded benefits of $152 and $109 related to the separate account DRD for the years ended December 31, 2015 and 2014, respectively. Income tax expense decreased by $154 for year ended December 31, 2015, as compared to the prior year, due to a decrease in income before income taxes and a $36 net reduction in the provision for income taxes from intercompany tax settlements. For a reconciliation of the income tax provision at the U.S. Federal statutory rate to the provision for income taxes, see Note 8 - Income Taxes of Notes to Consolidated Financial Statements.
Primarily consists of changes in value of non-qualifying derivatives and the yen denominated fixed payout annuity hedge. Also includes for the year ended December 31, 2014 a loss related to the recapture of the GMIB/GMAB/GMWB reinsurance contracts, which is offset by gains on the termination of the reinsurance derivative reflected in the GMIB/GMAB/GMWB reinsurance line.
For the year ended December 31, 2014, the gain related to the combined GMWB derivatives, net, which include the GMWB product, reinsurance, and hedging derivatives, was primarily driven by gains of $25 on liability/model assumption updates and gains of $15 due to increased volatility, partially offset by a loss of $26 resulting from policyholder behavior primarily related to increased surrenders. The loss on the macro hedge program for the year ended December 31, 2014, was primarily due to a loss of $25 driven by an improvement in the domestic equity markets, partially offset by a gain of $17 related to a decrease in interest rates. The loss on the international program for the year ended December 31, 2014, was primarily driven by an improvement in global equity markets and depreciation of the Japanese yen in relation to the euro.
The Company’s issued investment contracts and certain insurance product liabilities, other than non-guaranteed separate accounts, include asset accumulation vehicles such as fixed annuities, guaranteed investment contracts, and other investment and universal life-type contracts.
The Company cedes insurance to affiliated and unaffiliated insurers to enable the Company to manage capital and risk exposure. Such arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company has ceded reinsurance to MassMutual and Prudential, respectively, in connection with the sales of its Retirement Plans and Individual Life businesses in 2013. For further discussion of these transactions, see Note 12 - Discontinued Operations and Business Dispositions of Notes to the Consolidated Financial Statements.
As of December 31, 2015, the largest issuer concentrations were the state of California, the Oregon School Boards Association, and Ohio American Municipal Power, Inc., which each comprised less than 6% of the municipal bond portfolio and were comprised of general obligation and revenue bonds. As of December 31, 2014, the largest issuer concentrations were the states of Illinois and California, as well as the Commonwealth of Massachusetts, which each comprised less than 3% of the municipal bond portfolio, and were primarily comprised of general obligation and taxable bonds.
In the event customers elect to surrender separate account assets, the Company will use the proceeds from the sale of the assets to fund the surrender, and the Company’s liquidity position will not be impacted. In many instances the Company will receive a percentage of the surrender charge, increasing the Company’s liquidity position. In addition, a surrender of variable annuity separate account or general account assets will decrease the Company’s obligation for payments on guaranteed living and death benefits.