The following table presents the impact of our catastrophe losses, net of reinsurance, for 2017:
2017 vs 2016. The underwriting loss in 2017 compared with the underwriting profit in 2016 primarily reflects significant catastrophe losses from Hurricanes Harvey, Irma and Maria at our reinsurance and insurance segments, as discussed above.
Insurance Segment: Premiums. The following table presents premiums for the insurance segment.
Catastrophe losses in 2017 include $86.6 million related to Hurricane Harvey in August 2017, $97.6 million related to Hurricane Irma in September 2017 and $20.1 million related to Hurricane Maria in September 2017. Catastrophe losses in 2017 also reflect losses from flooding in the State of California and severe weather primarily in the Southeastern and Midwestern U.S. Catastrophe losses in 2016 primarily reflect losses from flooding and severe weather primarily in the State of Texas in April and May, losses from wildfires in Alberta, Canada in May, losses from flooding and severe weather primarily in the State of Louisiana and the Midwestern U.S. in the third quarter, losses from wildfires in the State of Tennessee in November and $26.8 million of losses from Hurricane Matthew, which caused property damage and flooding in the Southeast Coast of the U.S. in October. Catastrophe losses in 2015 primarily reflect several occurrences of severe weather in the Southeastern and Midwestern U.S.
Other Than Temporary Impairment Losses. OTTI losses in 2017 reflect $16.9 million of unrealized losses that were deemed to be other than temporary and, as such, were required to be charged against earnings. Of the $16.9 million of OTTI losses, $15.1 million related to equity securities, primarily in the retail sector, and $1.8 million related to debt securities. The determination that unrealized losses on equity and debt securities were other than temporary was primarily due to the duration of the decline in the fair value of equity and debt securities relative to their costs.
Upon the ultimate disposition of the securities for which OTTI losses have been recorded, a portion of the loss may be recoverable depending on market conditions at the time of disposition. After adjusting the cost basis of securities for the recognition of OTTI losses, the remaining gross unrealized investment losses for debt and equity securities as of December 31, 2017 were deemed to be temporary, based on, among other factors: (i) the duration of time and the relative magnitude to which the fair values of these securities had been below cost were not indicative of an OTTI loss; (ii) the
Dividends. From 1999 through 2011, we declared stock dividends in lieu of cash dividends every year. Our Board of Directors determined not to declare a dividend, cash or stock, for 2012 through 2017.
Capital Contributions. From time to time, we make capital contributions to our subsidiaries. In 2017, we made a $4.0 million contribution to PacificComp prior to its sale on December 31, 2017, and we also made aggregate capital contributions of $248.7 million to Alleghany Capital to: (i) acquire approximately 80 percent of the equity in W&W|AFCO Steel for $163.9 million (excluding amounts for transaction costs and estimates of future amounts payable); (ii) acquire a 45 percent equity interest in Wilbert for $72.3 million; and (iii) contribute $12.5 million to SORC for purposes of ongoing operations. In 2016, we made capital contributions of $24.0 million to PacificComp to provide additional capital support and an aggregate of $147.4 million to Alleghany Capital to: (i) acquire an additional 50 percent of Jazwares outstanding equity for $122.1 million (excluding amounts for transaction costs and estimates of future amounts payable); and (ii) make $25.3 million of capital contributions to SORC for purposes of ongoing operations. In 2015, we made an aggregate of $178.1 million capital contributions to Alleghany Capital to: (i) make $88.2 million of capital contributions to SORC for purposes of funding an acquisition and ongoing operations; and (ii) make an $89.9 million investment in IPS (excluding amounts for transaction costs and estimates of future amounts payable). We expect that we will continue to make capital contributions to our subsidiaries from time to time in the future for similar or other purposes.
Effective duration measures a portfolio’s sensitivity to changes in interest rates. In this regard, as of December 31, 2017, our debt securities portfolio had an effective duration of approximately 4.4 years compared with 4.5 years as of December 31, 2016. As of December 31, 2017, approximately $3.5 billion, or 27.3 percent, of our debt securities portfolio represented securities with maturities of five years or less. See Note 4(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 additional detail on the contractual maturities of our consolidated debt securities portfolio. We may increase the proportion of our debt securities portfolio held in securities with maturities of more than five years should the yields of these securities provide, in our judgment, sufficient compensation for their increased risk. We do not believe that this strategy would reduce our ability to meet ongoing claim payments or to respond to significant catastrophe losses.
Our Level 3 liabilities consist of the debt of Alleghany Capital’s operating subsidiaries.
(3) Includes partnership and non-marketable equity investments accounted for on an AFS basis, and excludes investments accounted for using the equity method.
In June 2016, the FASB issued guidance on credit losses. Under this guidance, a company is required to measure all expected credit losses on loans, reinsurance recoverables and other financial assets accounted for at cost or amortized cost, as applicable. Estimates of expected credit losses are to be based on historical experience, current conditions and reasonable and supportable forecasts. Credit losses for securities accounted for on an AFS basis are to be measured in a manner similar to GAAP as currently applied and cannot exceed the amount by which the fair value is less than the amortized cost. Credit losses for all financial assets are to be recorded through an allowance for credit losses. Subsequent reversals in credit loss estimates are permitted and are to be recognized in earnings. This guidance also requires new disclosures about the significant estimates and judgments used in estimating credit losses, as well as the credit quality of financial assets. This guidance is effective in the first quarter of 2020 for public entities, with early adoption permitted. 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 February 2016, the FASB issued guidance on leases. Under this guidance, a lessee is required to recognize lease liabilities and corresponding right-of-use assets for leases with terms of more than one year, whereas under current guidance, a lessee is only required to recognize assets and liabilities for those leases qualifying as capital leases. This guidance also requires new disclosures about the amount, timing and uncertainty of cash flows arising from leases. The accounting by lessors is to remain largely unchanged. This guidance is effective in the first quarter of 2019 for public entities, with early adoption permitted. A modified retrospective transition approach is required for all leases in existence as of, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Alleghany will adopt this guidance in the first quarter of 2019 and does not currently believe that the implementation will have a material impact on its results of operations and financial condition. See Note 12(b) for further information on Alleghany’s leases.
(1) See Note 4(h) for discussion of the Pillar Investments and the investment in Ares, each as defined therein.
OTTI losses in 2016 reflect $45.2 million of unrealized losses that were deemed to be other than temporary and, as such, were required to be charged against earnings. Of the $45.2 million of OTTI losses, $23.3 million related to equity securities, primarily in the retail, financial service, technology, chemical and entertainment sectors, and $21.9 million related to debt securities, primarily in the energy sector. The determination that unrealized losses on equity and debt securities were other than temporary was primarily due to the severity and duration of the decline in the fair value of equity and debt securities relative to their costs.
As of December 31, 2017, the carrying value of Alleghany’s commercial mortgage loan portfolio was $658.4 million, representing the unpaid principal balance on the loans. As of December 31, 2017, there was no allowance for loan losses. The commercial mortgage loan portfolio consists primarily of first mortgages on commercial properties in major metropolitan areas in the U.S. The loans earn interest at fixed- and floating-rates, mature in two to ten years from loan origination and the principal amounts of the loans were no more than approximately two-thirds of the property’s appraised value at the time the loans were made.
(3) In July 2017, Fairfax Financial Holdings Ltd acquired Allied World Assurance Company Holdings, AG.
(1) For 2017, excludes an $8.4 million pre-tax gain from the sale of PacificComp, a $20.9 million realized gain on bulk settlement of certain contingent liabilities by Alleghany Capital, a ($4.8) million loss realized from the sale of a SORC legacy oil field on December 29, 2017 and a ($7.9) million write-down of certain Reinsurance Segment assets. For 2016, excludes a ($98.8) million impairment charge from a write-down of certain SORC assets and the Jazwares Remeasurement Gain of $13.2 million.
In February 2017, Alleghany adopted the 2017 Long-Term Incentive Plan (the “2017 LTIP”), which was approved by Alleghany stockholders in April 2017. The 2017 LTIP replaced the 2012 Long-Term Incentive Plan, which terminated on April 28, 2017. Awards under the 2017 LTIP may include, but are not limited to, cash and/or shares of Common Stock, rights to receive cash and/or shares of Common Stock and options to purchase shares of Common Stock, including options intended to qualify as incentive stock options under the Internal Revenue Code, and options not intended to so qualify.