Non-GAAP operating income of $410 million, or $4.48 per diluted common share(1)
On December 9, 2016, our Board of Directors authorized a new share repurchase plan for up to $1 billion of our common shares effective January 1, 2017 through December 31, 2017
Common shareholders’ equity of $5.1 billion; diluted book value per common share of $58.27
During the second quarter of 2015, the Company early adopted ASU 2015-02, "Amendments to the Consolidation Analysis" issued by the FASB. Following the adoption of this ASU, effective as of January 1, 2015, the Company no longer consolidates the results of Ventures Re, a variable interest entity, in its Consolidated Financial Statements. Refer to Item 8, Note 14 to the Consolidated Financial Statements 'Noncontrolling Interests' for additional information.
The increase in the insurance segment's gross premiums written of $137 million or 5% was negatively impacted by our exit from retail insurance operations in Australia and foreign exchange movements. After adjusting for our exit from retail insurance operations in Australia and foreign exchange movements, gross premiums written increased by $200 million. The increase was driven by growth in our accident and health, property, professional, and liability lines. These increases were partially offset by decreases in our marine and credit and political risk lines.
$27 million of net adverse prior year reserve development on liability business, related to strengthening of specific individual claim reserves and a higher frequency of large auto liability claims in accident year 2014.
After adjusting for the impact of the catastrophe and weather-related losses, our current accident year loss ratio decreased from 62.5% in 2015 to 60.6% in 2016. The decrease in the current accident year loss ratios after adjusting for the impact of the catastrophe and weather-related losses was driven by a decrease in mid-size loss experience in our marine and property lines, partially offset by the adverse impact of rate and trend, an increase in loss experience in our credit and political risk lines as well as changes in business mix.
2015 versus 2014: Premiums ceded in 2015 were $105 million, or 5% of gross premiums written, compared to $49 million or 2% in 2014. The comparative increase was driven by new retrocessional treaties primarily covering our catastrophe business.
2015 versus 2014: The decline in pre-tax return on our other investments portfolio was due to lower returns on our hedge funds during 2015, reflective of lower returns from the global equity markets during 2015. The loss from CLO-Equities was a result of a decline in the valuation of the underlying collateral balances which have declined in value along with other risk assets.
Municipals comprise revenue and general obligation bonds issued by U.S. domiciled state and municipal entities and are primarily held within the taxable portfolios of our U.S. subsidiaries. The following table provides a breakdown of the fair value of our municipal debt portfolio by state and between Revenue and General Obligation (“G.O.”) bonds:
The following table provides a breakdown of our contractual obligations and commitments at December 31, 2016 by period due:
Non-GAAP operating income represents after-tax operational results without consideration of after-tax net realized investment gains (losses), foreign exchange (losses) gains, termination fee received, reorganization and related expenses and losses on repurchase of preferred shares. We also present diluted non-GAAP operating income per common share and non-GAAP operating ROACE, which are derived from the non-GAAP operating income measure.
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") and include the accounts of AXIS Capital, its wholly-owned subsidiaries, and variable interest entities (“VIEs”) in which the Company is considered to be the primary beneficiary.
Includes $376 million (2015: $232 million) of fixed income securities and equities deposited directly with Lloyd's to support the underwriting capacity of the Company's Lloyd's Syndicate, AXIS Syndicate 1686.
U.S. government and agency securities consist primarily of bonds issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. As the fair values of our U.S. Treasury securities are based on unadjusted market prices in active markets, the fair values of these securities are classified as Level 1. The fair values of U.S. government agency securities are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads are observable market inputs, the fair values of U.S. government agency securities are classified as Level 2.
Other privately held securities include convertible preferred shares, convertible notes and notes payable. These securities are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of these securities are determined using an internally developed discounted cash flow model. As the significant inputs used to price these securities are unobservable, the fair values of these securities are classified as Level 3.
December 31, 2016 for investments classified as Level 3 in the fair value hierarchy.
Due to the diversity of the portfolio, the range of unobservable inputs is wide; therefore, presentation of a weighted average is not useful. Weather parameters may include various temperature and/or precipitation measures that will naturally vary by geographic location of each counterparty's operations.
Gains and losses included in earnings on fixed maturities are included in net realized investment gains (losses). Gains and (losses) included in earnings on other investments are included in net investment income. Gains (losses) on weather derivatives included in earnings are included in other insurance-related income.
As part of our loss reserve review process, our actuaries employ the estimation method(s) that they believe will produce the most reliable estimate of ultimate losses, at that particular evaluation date, for each reserving class and accident year or underwriting year combination. Often, this is a blend (i.e. weighted average) of the results of two or more appropriate actuarial methods. These ultimate loss estimates are generally utilized to evaluate the adequacy of our ultimate loss estimates for previous accident or underwriting years, as established in the prior reporting period. For the initial estimate of the current accident or underwriting year, the available claim data is typically insufficient to produce a reliable estimate of ultimate losses. As a result, our initial estimate for an accident or underwriting year is generally based on the ELR Method for longer tailed lines and a BF Method for shorter tailed lines. The initial ELR for each reserving class is established collaboratively by our actuaries, underwriters and management at the start of the year as part of the planning process, taking into consideration prior accident years’ or underwriting years' experience and industry benchmarks, adjusted after considering factors such as exposure trends, rate differences, changes in contract terms and conditions, business mix changes and other known differences between the current year and prior accident or underwriting years. The initial expected loss ratios for a given accident or underwriting year may be modified over time if the underlying assumptions, such as loss development or premium rate changes, differ from the original assumptions.
claim reserves as well as a higher frequency of large auto liability claims which impacted the adverse reserve development in
This reserve class is comprised of our professional line of business and covers directors' and officers' liability, employment practices liability, medical malpractice, professional indemnity, environmental liability and miscellaneous errors and omissions insurance risks. The underlying business is predominantly written on a claims-made basis. Business is written on both a proportional and excess of loss basis. Claim payment and reporting patterns on an accident year basis are typically medium to long tail in nature.
During October and November 2016, we repurchased 1,957,045 Series C preferred shares at an average purchase price of $25.67 per share for $50 million. In connection with the repurchase of these shares, we recognized a $1 million loss on redemption (calculated as the difference between the redemption price and the carrying value), which was recognized as a reduction in determining our net income available to common shareholders. At December 31, 2016, 14,042,955 Series C preferred shares, representing $351 million in aggregate liquidation preference, remain outstanding.