Segment pre-tax adjusted operating income increased $25.7, primarily driven by an improved loss ratio for medical stop-loss. The loss ratio decreased to 61.5% for the year ended December 31, 2014, compared to 66.5% for the same period in 2013.
Amortization of deferred policy acquisition costs increased $6.6 driven by higher fixed indexed account values.
Deferred Annuities’ sales increased to $2,679.4 for 2014 compared to $2,243.5 for 2013, with significant increases in sales of FIA and traditional fixed annuity products. Sales benefited from an improved interest rate environment in the first half of the year compared to 2013. Ongoing expansion of our FIA and traditional fixed annuity products on bank and broker-dealer distribution platforms contributed to strong sales in the second half of 2014, even as interest rates declined.
The following table sets forth selected historical operating metrics relating to our Individual Life segment as of, or for the years ended:
Benefit-related expenses (policyholder benefits and claims, and interest credited) increased $15.8, driven by a $9.2 increase related to higher UL reserves from strong sales and a $5.4 increase in interest credited on higher BOLI and UL account values. Additionally, claims on our individual insurance products increased $2.9.
Policy fees, contract charges, and other increased $6.7, primarily due to higher COI and administrative fees on our BOLI and UL businesses.
Benefit-related expenses (policyholder benefits and claims, and interest credited) decreased $4.6, driven by lower claims on our UL business and lower crediting rates on our BOLI business. These were partially offset by higher BOLI claims and growth in account values.
Represents the changes in fair value of embedded derivative liabilities associated with our FIA products sold in 2011 and beyond, netted with changes in fair value of index options purchased to economically hedge this business.
For the year ended December 31, 2013, our equity portfolio produced net realized gains of $66.0, compared to gains of $36.7 for the same period in 2012. For further discussion, see "- Return on Equity Investments."
We regularly monitor our investments for indicators of impairment. When evaluating a security for possible impairment, we consider many factors, which are described in more detail in Note 4 to the accompanying consolidated financial statements.
Fixed maturities represented approximately 83% and 84% of invested assets as of December 31, 2014 and 2013, respectively. The majority of our fixed maturities are invested in highly marketable or publicly traded securities. We invest in a small amount of privately placed fixed maturities to enhance the overall value of the portfolio and obtain higher yields than can ordinarily be obtained with comparable securities available in public markets. As of December 31, 2014 and 2013, privately placed fixed maturities represented 3.7% and 2.8%, respectively, of our total fixed maturity portfolio at fair value.
On August 4, 2014, we issued $250.0 of 4.25% senior notes due on July 15, 2024, which were issued at a discount yielding $249.0. Interest on the notes is payable semi-annually, beginning on January 15, 2015. These notes were issued pursuant to a shelf registration statement filed with the SEC in July 2014. Under this registration, we may offer and sell debt securities from time to time as separate series, the amounts, prices, and terms of which will be determined at the time of sale.
For further description and additional terms of our debt facilities, see Note 12 of the consolidated financial statements.
Years Ended December 31, 2014 compared with 2013. Net cash provided by operating activities for the year ended December 31, 2014 decreased $41.3 over 2013. This decrease was primarily the result of timing differences in the settlement of federal income tax liabilities and increased policy acquisition-related expenses associated with strong sales. These were partially offset by higher net investment income, driven by higher average assets, as well as lower medical stop-loss paid claims.
Includes estimated claims and benefits; policy surrenders; reinsurance premiums, net of reinsurance recoveries; and commissions on in force insurance policies and deposit contracts. Estimated claims and benefits are based on mortality, morbidity and lapse assumptions comparable with our historical experience and consider estimated future premium receipts on in force policies. In contrast to this table, our obligations recorded in our consolidated balance sheets generally represent the present value of these cash flows and do not incorporate future credited interest for annuity and BOLI contracts. Therefore, the estimated obligations for insurance liabilities presented in this table significantly exceed the liabilities recorded in reserves for future annuity and contract benefits and the liability for policy and contract claims. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. We have not included the variable separate account obligations as these obligations are legally insulated from general account obligations and will be fully funded by cash flows from separate account assets.
In connection with our recoverability analyses, we perform sensitivity analyses on our most significant DAC and DSI asset balances to capture the effect that changes in certain key assumptions have on DAC asset balances. The sensitivity tests are performed independently, without consideration for any correlation among the key assumptions. The following depicts the sensitivities for our deferred annuity, UL, and BOLI DAC asset balances as of December 31, 2014:
Premiums consist primarily of premiums from our medical stop-loss, limited benefit medical, group life and DI, individual term and whole life insurance products, net of reinsurance premiums paid.
Net investment income represents the income earned on our investments, net of investment expenses, including prepayment-related income such as bond make-whole payments. Net investment income also includes gains or losses from changes in the fair value of our alternative investments and expense from amortization of tax credit investments.
Policy fees, contract charges and other includes cost of insurance (COI) charges primarily on our UL and BOLI policies, surrender and other administrative charges to policyholders, revenues from our non-insurance businesses, and reinsurance allowance fees.
Adjusted book value consists of stockholders’ equity, less AOCI. Adjusted book value per common share is calculated as adjusted book value, divided by outstanding common shares. This measure does not include shares subject to warrants in the periods they were outstanding, because the warrant holders only participated in dividends and would not have been entitled to proceeds in the event of a liquidation or winding down of our company should such event have preceded the exercise of the outstanding warrants.
The following tables present the fair value of the Company’s financial instruments classified by the valuation hierarchy described above. The financial instruments are separated between those measured at fair value on a recurring basis and those not carried at fair value, but for which disclosure of fair value is required.
Cash and cash equivalents consist of demand bank deposits and short-term highly liquid investments with original maturities of three months or less at the time of purchase. Cash equivalents, which are reported at cost and approximate fair value, were $16.6 and $37.8 as of December 31, 2014 and 2013, respectively. These are classified as a Level 1 measurement.
The fair value of the Company’s notes payable is determined by an independent pricing service utilizing evaluated pricing models, consistent with how fair value was determined for the majority of its corporate securities. The use of observable inputs resulted in the classification of notes payable as a Level 2 measurement.
The Company accounts for stock-based compensation based on the grant-date fair value of the awards. Compensation expense for these awards is recognized over the requisite service period, using the straight-line method.
The Company measures compensation cost for stock awards at fair value on the grant date and recognizes such cost, net of estimated forfeitures, over the requisite service period (generally seven years). Stock options are valued using the Black-Scholes valuation model. Stock-based compensation expense for stock options was $1.0, $0.9 and $0.5 for the years ended December 31, 2014, 2013 and 2012 respectively, and the related tax benefit was $0.4, $0.3 and $0.2.
On March 30, 2006, the Company issued $300.0 of 6.125% senior notes due on April 1, 2016, which were issued at a discount yielding $298.7. Interest on the senior notes is payable semi-annually. The effective interest rate on the senior notes is 6.11%, including the impact of a related terminated cash flow hedge.
The senior notes are unsecured senior obligations and are equal in right of payment to all existing and future unsecured senior indebtedness. These notes are redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to the greater of: (1) 100% of the aggregate principal amount of the notes to be redeemed or (2) the sum of the present value of the remaining scheduled payments of principal and interest on the senior notes, discounted to the redemption date on a semi-annual basis at a prevailing U.S. Treasury rate plus 25 basis points, together in each case with accrued interest payments to the redemption date.
On August 4, 2014, the Company issued $250.0 of 4.25% senior notes due on July 15, 2024, which were issued at a discount yielding $249.0. Interest on the notes is payable semi-annually and the effective interest rate of the notes is 4.44%. The notes are general unsecured obligations of the Company and rank equally in right of payment with all existing and future senior
The notes are redeemable, in whole or in part, at the option of the Company on at least 30 but not more than 60 days prior notice, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes or (ii) the present value of the remaining scheduled payments on the redemption date, discounted to the date of redemption using the yield to maturity of a comparable treasury issue plus 30 basis points; plus, in each case, any accrued and unpaid interest.
On August 28, 2014, the Company entered into a $400.0 senior unsecured revolving credit facility with a syndicate of lending institutions. The facility also provides access to up to an additional $100.0 of financing, subject to the availability of additional commitments from lenders. The facility is set to mature on August 28, 2019 and is available to provide support for working capital, capital expenditures, and other general corporate purposes.
Deferred tax assets are recognized only to the extent that it is more likely than not that future taxable profits will be available, and a valuation allowance is established where deferred tax assets cannot be recognized. Based on an analysis of the Company’s tax position, management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to enable the Company to utilize all of its deferred tax assets. Accordingly, no valuation allowance for deferred tax assets has been established as of December 31, 2014 and 2013.