The increase in gross written and earned premiums for the year ended December 31, 2013 as compared to the same periods in 2012 and 2011 was primarily attributable to increased underwriting activity and rate increases in virtually all lines. Gross written premiums for our casualty unit increased to $199.2 million for the year ended December 31, 2013 from $158.9 million for 2012 and $149.1 million for 2011. Gross written premiums for our contract unit increased to $138.0 million for the year ended December 31, 2013 from $121.7 million for 2012 and $116.7 million for 2011. Gross written premiums for our property unit increased to $67.8 million for the year ended December 31, 2013 from $48.6 million for 2012 and $35.7 million for 2011. Partially offsetting these increases were reduced writings in the transportation unit, as we continued to exit unprofitable accounts.
Included in losses and loss adjustment expense for the year ended December 31, 2013 was $4.1 million in catastrophe losses from storm activity in the United States. Included in losses and loss adjustment expense for the year ended December 31, 2013 was $5.0 million related to current accident year large property losses. Offsetting these catastrophe losses was $43.9 million of net favorable loss reserve development on prior accident years primarily due to $55.8 million of favorable development in the general and products liability lines of business. Partially offsetting this net favorable development was $11.9 million of unfavorable development in commercial automobile lines.
(1) Interest only on Junior Subordinated Debentures through 2033. Interest calculated based on the rate in effect at December 31, 2013. Principal due beginning May 2033.
The process for estimating our loss reserves begins with the collection and analysis of claim data. The data collected for actuarial analyses includes reported claims sorted by the year the loss occurred, paid losses, also sorted by year of loss occurrence, and case reserve estimates. The data sets are sorted into homogeneous groupings, exhibiting similar loss and exposure characteristics. We primarily use internal data in the analysis but also consider industry data in developing factors and estimates. We analyze loss reserves on a quarterly basis.
We underwrite environmental and pollution coverages on a limited number of policies and underground storage tanks. We establish loss reserves to the extent that, in the judgment of management, the facts and prevailing law reflect an exposure for us.
In addition to the indications of the actuarial methods, we consider additional analytic measures based upon the Claims and Book of Business workers compensation risk factors noted above in deriving our loss reserve estimate.
For the long-tail lines underwritten by Syndicate 1200, such as professional indemnity and general liability, it may be several years before claims are fully advised and settled. The large time lag involved for reporting and settling claims introduces a large amount of uncertainty into the loss estimation process. Loss experience is not deemed fully credible for several years. Until the time that an underwriting year of account is closed, we utilize an expected loss ratio method to determine ultimate losses, supplemented by paid and incurred BF loss development methods, to the extent that the reported loss data matures and is considered credible.
With respect to asbestos and environmental general liability losses, we wrote several different categories of insurance contracts that may cover asbestos and environmental claims. First, we wrote primary policies providing the first layer of coverage in an insured’s general liability insurance program. Second, we wrote excess policies providing higher layers of general liability insurance coverage for losses that exhaust the limits of underlying coverage. Third, we acted as a reinsurer assuming a portion of those risks from other insurers writing primary, excess and reinsurance coverages. Fourth, we participated in the London Market, writing both direct insurance and assumed reinsurance business. With regard to both environmental and asbestos claims, significant uncertainty limits the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses. Traditional actuarial reserving techniques cannot reasonably estimate the ultimate cost of these claims, particularly during periods where theories of law are in a state of continued uncertainty. The degree of variability of reserve estimates for these types of exposures is significantly greater than for other more traditional general liability exposures. In particular, we believe there is a high degree of uncertainty inherent in the estimation of asbestos and environmental loss reserves.
A number of factors affect the variability of estimates for asbestos and environmental reserves including assumptions with respect to the frequency of claims, average severity of those claims settled with payment, dismissal rate of claims with no payment and expense to indemnity ratio. The uncertainty with respect to the underlying reserve assumptions for asbestos and environmental adds a greater degree of variability to these reserve estimates than reserve estimates for more traditional exposures. While this variability is reflected in part in the size of the range of reserves we have developed, that range may still not be indicative of the potential variance between the ultimate outcome and the recorded reserves. The process of estimating asbestos and environmental reserves, which is detailed in Note 17, “Run-off Lines,” of Notes to Consolidated Financial Statements, remains subject to a wide variety of uncertainties. Due to these uncertainties, further developments could cause us to change our estimates and ranges of our asbestos and environmental reserves, and the effect of these changes could be material to our consolidated operating results, financial condition and liquidity.
We regularly monitor the difference between the estimated fair values of our investments and their cost or book values to identify underperforming investments and whether declines in value are temporary in nature or “other-than-temporary.” If a decline in the value of a particular investment is believed to be temporary, the decline is recorded as an unrealized loss, net of tax, in other comprehensive income as a separate component of shareholders’ equity. If the decline is believed to be “other-than-temporary,” the carrying value of the investment is written down and recorded as a realized loss in our Consolidated Statements of Income (Loss). We evaluate our investments for impairment. For fixed maturities securities, the evaluation for a credit loss is generally based on the present value of expected cash flows of the security as compared to the amortized book value. For mortgage-backed securities, frequency and severity inputs are used in projecting future cash flows of the securities. Loss frequency is measured as the credit default rate, which includes such factors as loan-to-value ratios and credit scores of borrowers. Loss severity includes such factors as trends in overall housing prices and house prices that are obtained at foreclosure. For equity securities, the length of time and the amount of decline in fair value are the principal factors in determining other-than-temporary impairment. For the years ended December 31, 2013 and 2012, we recorded $7.8 million and $3.7 million, respectively, of realized losses due to the recognition of other-than-temporary impairments.
Indefinite-Lived Intangible Assets, including Goodwill. We perform annual impairment tests of our indefinite-lived intangible assets, including goodwill, or more frequently when impairment indicators exist. We have elected to perform our goodwill impairment test on the first day of the fourth quarter of each year. The goodwill impairment test is determined using a two-step process. The first step is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill (‘Step 1”). If the fair value of a reporting unit exceeds its carrying value amount, goodwill of the reporting unit is not considered to have a potential impairment and the second step is not necessary. However, if the carrying amount of the reporting unit exceeds its fair value, the second step (“Step 2”) is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any. Step 2 compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied value of goodwill is less than the carrying amount of goodwill, then a charge is recorded to reduce goodwill to the implied goodwill. The implied goodwill is calculated based on a hypothetical purchase price allocation, similar to the requirements in the accounting guidance for business combinations, whereby the implied fair value of the reporting unit is allocated to the fair value of the assets and liabilities of the reporting unit.
At December 31, 2013, we had goodwill of $153.8 million assigned to the following reporting units: Excess and Surplus lines-$76.4 million, Commercial Specialty-$48.7 million and Syndicate 1200-$28.7 million. Additionally, at December 31, 2013, we had intangible assets totaling $86.0 million, including indefinite-lived intangible assets of $60.5 million and $1.8 million within the Syndicate 1200 and Commercial Specialty reporting units, respectively. Due to the nature of the Syndicate 1200 business, for purposes of the annual impairment evaluation, management has aggregated the fair values between the indefinite-lived intangible asset and goodwill.