As of December 31, 2015, we owned approximately 2.3 million square feet of office space, with approximately 0.9 million square feet in Chattanooga, Tennessee, approximately 0.8 million square feet in Portland, Maine, approximately 0.5 million square feet in Columbia, South Carolina, and approximately 0.1 million square feet in Dorking in the United Kingdom. In addition, as of December 31, 2015, we leased approximately 0.2 million square feet in Worcester, Massachusetts, approximately 0.5 million square feet at various locations throughout the United States, and approximately 0.1 million square feet at various locations in the United Kingdom and in Ireland. All of the properties owned or leased are used by one or more of all five reporting segments, depending on the location. We believe our properties and facilities are suitable and adequate for current operations.
(1) Effective January 1, 2015, we adopted an accounting standards update for tax credit partnership investments in qualified affordable housing projects and applied the amendments retrospectively, adjusting all prior periods presented. See Note 1 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion.
Operating revenue, which excludes net realized investment gains and losses, increased 2.5 percent in 2015 relative to the prior year, driven by combined premium income growth of approximately 5 percent in our principal operating business segments. Net investment income, while a significant source of revenue for us, was slightly below the level of the prior year. Before-tax operating income, which excludes net realized investment gains and losses and non-operating retirement-related gains or losses, as well as the 2014 long-term care reserve increase and the 2014 costs related to the early retirement of debt, declined 1.0 percent compared to 2014, primarily as the result of a higher operating loss in our Corporate segment and the impact on reported financial results of our U.K. subsidiaries from a lower foreign currency exchange rate in 2015.
Our Unum UK segment reported an increase in operating income, as measured in Unum UK's local currency, of 2.4 percent in 2015 compared to 2014, with an increase in premium income and overall favorable benefits experience partially offset by lower net investment income. Premium income in local currency increased 2.3 percent in 2015 relative to 2014. The benefit ratio for Unum UK was 68.5 percent in 2015 compared to 70.9 percent in 2014. Unum UK sales in local currency increased 6.2 percent in 2015 compared to 2014. Persistency remains within our range of expectations.
Our Colonial Life segment reported an increase in operating income of 3.4 percent in 2015 compared to 2014, with growth in premium income and favorable benefits experience. Premium income grew 5.1 percent in 2015 compared to 2014. The 2015 benefit ratio for Colonial Life was 51.0 percent compared to 51.9 percent in 2014. Colonial Life sales increased 6.9 percent in 2015 compared to 2014. Persistency is slightly below the level of the prior year but remains within our range of expectations.
Although our profit margins continue to be pressured by the impact of the low interest rate environment on our net investment income yields, our invested asset quality remains strong. The net unrealized gain on our fixed maturity securities was $3.7 billion at December 31, 2015 compared to $6.3 billion at December 31, 2014, with the decrease due to an increase in both U.S.
Included in our fourth quarter of 2014 review was an analysis of our reserve assumptions, including those for the discount rate, mortality and morbidity rates, persistency, and premium rate increases. Our analysis of reserve discount rate assumptions considered the continued historic low interest rate environment, future market expectations, and our view of future portfolio yields. The assumptions we established in 2011 were set at a level that we estimated would be sustainable in a low interest rate environment for three to five years, with improvements in market yields beginning after the third year. Since that time, however, interest rates continued to hover near historic lows, and credit spreads tightened. Our assumption update for mortality incorporated the last three years of Company-specific experience and emerging trends as well as industry data, where available and appropriate, and reflected improvements in life expectancies beyond what was initially anticipated in 2011. Our morbidity assumptions were updated to reflect trends from our own emerging Company experience in claim incidence and terminations, as well as trends based on available and appropriate industry data and studies. Our premium rate increase assumptions were updated to reflect progress-to-date and our on-going rate increase strategy.
applicable portion of the unrecognized actuarial loss which had previously been included in accumulated other comprehensive income and which pertained to the settled benefit obligation.
We analyze our performance using non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures of "operating revenue," "before-tax operating income" or "before-tax operating loss," and "after-tax operating income" differ from total revenue, income before income tax, and net income as presented in our consolidated operating results and income statements prepared in accordance with GAAP due to the exclusion of net realized investment gains and losses, non-operating retirement-related gains or losses, and certain other items as specified in the reconciliations below. We believe operating revenue and operating income or loss are better performance measures and better indicators of the revenue and profitability and underlying trends in our business.
The amortization of prior period actuarial gains or losses, a component of the net periodic benefit cost for our pensions and other postretirement benefit plans, is driven by market performance as well as plan amendments and is not indicative of the operational results of our businesses. We believe that excluding the amortization of prior period gains or losses, as well as the 2014 settlement loss from our pension plan amendment, from operating income or loss provides investors with additional information for comparison and analysis of our operating results. Although we manage our non-operating retirement-related gains or losses separately from the operational performance of our business, these gains or losses impact the overall profitability of our company and have historically increased or decreased over time, depending on plan amendments and market conditions and the resulting impact on the actuarial gains or losses in our pensions and other postretirement benefit plans.
We may at other times exclude certain other items from our discussion of financial ratios and metrics in order to enhance the understanding and comparability of our operational performance and the underlying fundamentals, but this exclusion is not an indication that similar items may not recur and does not replace net income or net loss as a measure of our overall profitability.
Reserves for policy and contract benefits are our largest liabilities and represent claims that we estimate we will eventually pay to our policyholders. The two primary categories of reserves are policy reserves for claims not yet incurred and claim reserves for claims that have been incurred or are estimated to have been incurred but not yet reported to us. Reserves for policy and
Claim reserves supporting our Unum UK segment are calculated using generally the same methodology that we use for Unum US disability and group life reserves. The assumptions used in calculating claim reserves for this line of business are based on standard United Kingdom industry experience, adjusted for Unum UK's own experience.
Our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the life of the block of business and will vary from actual experience in any one period, both favorably and unfavorably. Claim resolution rates are very sensitive to operational and environmental changes and have a greater chance of significant variability in a shorter period of time than our other reserve assumptions. These rates are reviewed on a quarterly basis for the death and recovery components separately. Claim resolution rates in our Unum US group and individual long-term disability product lines and our Closed Block individual disability product line have over the last several years exhibited some variability. Relative to the resolution rate we expect to experience over the life of the block of business, actual quarterly rates during 2014 and 2015 have varied by +3 and -3 percent in our Unum US group long-term disability line of business, between -10 and +5 percent in our Unum US individual disability line of business, and between -4 and +4 percent in our Closed Block individual disability line of business. During 2015, claim resolution rates pertaining to life expectancy exhibited an increase in the number of deaths, although overall mortality experience in 2015 was relatively consistent with the levels of 2014 and 2013. On an annual basis for the years 2013 to 2015, our overall claim resolution rates were fairly consistent with or slightly favorable to our long-term assumptions.
In addition, we consider variability in our reserve assumptions related to long-term care policy reserves. These reserves are held under the gross premium valuation method with assumptions established as of December 31, 2014, the date of loss recognition. Assumptions for policy reserves do not change after the date of loss recognition unless reserves are again determined to be deficient. As such, positive developments will result in the accumulation of reserve margin, while adverse developments would result in an additional reserve charge. Policy reserves for long-term care are based upon a number of key assumptions, and each assumption has various factors which may impact the long-term outcome. Key assumptions with respect to morbidity, mortality, persistency, interest rates, and future premium rate increases must incorporate extended views of expectations for many years into the future. Reserves are highly sensitive to these estimates. For example, a 25 basis point change in the assumed discount rate over the lifetime of our long-term care business would impact reserves by approximately $430 million, assuming all other factors held constant.
Approximately 85.2 percent of our DAC relates to non-interest sensitive products, and we amortize DAC for these products in proportion to the premium income we expect to receive over the life of the policies. DAC related to interest sensitive policies is amortized over the lives of the policies in relation to the present value of estimated gross profits from surrender charges, mortality margins, investment returns, and expense margins. Key assumptions used in developing the future amortization of DAC are persistency, premium income, and for our interest sensitive products, mortality margins and investment returns. We use our own historical experience and expectation of the future performance of our businesses in determining our assumptions. For non-interest sensitive products, the estimated premium income in the early years of the amortization period is generally higher than in the later years due to the anticipated cumulative effect of policy persistency in the early years, which results in a greater proportion of the costs being amortized in the early years of the life of the policy. During 2015, our key assumptions used to develop the future amortization of acquisition costs deferred during 2015 did not change materially from those used in 2014. Generally, we do not expect our key assumptions to change significantly in the short-term, and to the extent that these trends do change, we expect those changes to be gradual over a longer period of time.
The following are our current assumptions regarding the length of our amortization periods, the approximate DAC balance that remains at the end of years 3, 10, and 15 as a percentage of the cost initially deferred, and our DAC balances as of December 31, 2015 and 2014.
As of December 31, 2015, the key assumptions we generally used to estimate the fair value of these types of securities included those listed below. Where appropriate, we have noted the assumption used for the prior period as well as the reason for the change.
Baa corporate bond spread adjustments ranging from 1.60 percent to 3.30 percent were added to the risk-free rate to reflect additional credit risk and the lack of liquidity. We used spread adjustments ranging from 1.21 percent to 2.54 percent at December 31, 2014. The changes were based on observable market spreads. Newly issued private placement securities have historically offered yield premiums higher than a similar interest rate spread on comparable newly issued public securities.
During 2013, our U.S. defined benefit pension plans were closed to new entrants and were amended to freeze participation and benefit accruals as of December 31, 2013. In 2014, we amended our U.S. qualified defined benefit pension plan to allow a limited-time offer of benefit payouts to eligible former employees with a vested right to a pension benefit. The offer provided eligible former employees, regardless of age, with an option to elect to receive a lump-sum settlement of his or her entire accrued pension benefit in December 2014 or to elect receipt of monthly pension benefits commencing in January 2015. In 2015, we further amended our U.S. qualified defined benefit pension plan to increase the eligibility limit from $10,000 to $100,000 for a participant who terminates from the plan after December 31, 2015 and elects to receive a one-time lump sum settlement of his or her entire accrued pension benefit.
The OPEB plan was closed to new entrants effective December 31, 2012.
Long-term rate of return - This assumption is selected from a range of probable return outcomes generated by statistical analysis of the asset portfolio. The market-related value as it relates to our estimate of long-term rate of return equals the fair value of plan assets, determined as of the measurement date. The return on plan assets recognizes all asset gains and losses, including changes in fair value, through the measurement date. Our expectations for the future investment returns of the asset categories are based on a combination of historical market performance, evaluations of investment forecasts obtained from external consultants and economists, and current market yields. The expected return for the total portfolio is calculated based on the plan's current asset holdings. The actual rate of return on plan assets is determined based on the fair value of the plan assets at the beginning and the end of the period, adjusted for contributions and benefit payments. A lower long-term rate of return on plan assets increases our net periodic benefit cost.
As of December 31, 2015, our pension and OPEB plans have an aggregate unrecognized net actuarial loss of $626.1 million and an unrecognized prior service credit of $7.9 million, which together represent the cumulative liability and asset gains and losses as well as the portion of prior service credits that have not been recognized in pension expense. The unrecognized net actuarial loss for our pension plans, which is $632.3 million at December 31, 2015, will be amortized over the average remaining life expectancy of the plan, which is approximately 25 years for the U.S. plan and 34 years for the U.K. plan, to the extent that it exceeds the 10 percent corridor, as described below. The decrease in the average remaining life expectancy of the
The amortization of the unrecognized actuarial gain or loss and the unrecognized prior service credit is a component of our net periodic benefit cost and equaled $11.6 million, $3.9 million, and $27.9 million in 2015, 2014, and 2013, respectively.
We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. In evaluating the ability to recover deferred tax assets, we have considered all available positive and negative evidence including past operating results, the existence of cumulative losses in the most recent years, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. In the event we determine that we most likely would not be able to realize all or part of our deferred tax assets in the future, an increase to the valuation allowance would be charged to earnings in the period such determination is made. Likewise, if it is later determined that it is more likely than not that those deferred tax assets would be realized, the previously provided valuation allowance would be reversed. During 2015, we recorded a valuation allowance of $1.3 million related to unrealized tax losses on buildings which we own and occupy in the U.K. We had no valuation allowance as of December 31, 2014.
For information on new accounting standards and the impact, if any, on our financial position or results of operations, see Note 1 of the "Notes to Consolidated Financial Statements" contained herein in Item 8.
In describing our results, we may at times note certain items and exclude the impact on financial ratios and metrics to enhance the understanding and comparability of our operational performance and the underlying fundamentals, but this exclusion is not an indication that similar items may not recur. See "Reconciliation of Non-GAAP Financial Measures" contained in this Item 7 for additional discussion of these items.
We continued to report year over year premium growth in each of our principal operating business segments in 2015 and in 2014 due to increased sales, premium rate increases, and favorable persistency in most of our product lines. Premium income continues to decline year over year, as expected, in our Closed Block segment.
Our effective income tax rate for 2015 was 30.0 percent, compared to 25.8 percent in 2014 and 30.6 percent in 2013. Our effective tax rate differs from the U.S. statutory rate of 35 percent primarily due to tax credits and foreign earnings taxed at lower rates than the U.S. statutory rate. Our effective tax rates for 2015 and 2013 were both favorably impacted by the enactment of income tax rate reductions by the U.K government. The enactments reduced the net deferred tax liability related to our U.K. operations by $6.5 million in 2015 and $6.3 million in 2013. Our 2015 income tax also includes a reduction in federal income taxes of $6.8 million related to our resolution with the Internal Revenue Service of certain outstanding issues. In 2014, our U.S. earnings included a long-term care reserve charge that resulted in a larger proportion of our 2014 earnings derived from our foreign operations and taxed at the lower rate, therefore reducing our overall effective tax rate. See Note 7 in the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further information on our income tax.
The Unum US segment includes group long-term and short-term disability insurance, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business, which are comprised of individual disability and voluntary benefits products.
Premium income increased in 2014 compared to 2013, driven by favorable persistency, premium rate increases, and sales growth for both group long-term and group short-term disability. Net investment income declined in 2014 relative to 2013 due to a decrease in the level of invested assets and a decline in yield. Other income declined in 2014 relative to 2013 due primarily to the 2013 gain of $4.0 million on the purchase and retirement of the debt issued by Tailwind Holdings.
Benefits experience was favorable in 2014 compared to 2013 due primarily to favorable claim recovery experience, partially offset by slightly higher claim incidence rates and the 50 basis point decrease in the discount rate which we implemented during the fourth quarter of 2014 for group long-term disability new claim incurrals.
Premium income increased in 2015 compared to 2014 primarily due to an increase in the in-force block resulting from prior year sales growth, partially offset by lower persistency. Net investment income was generally consistent in 2015 relative to the prior year, with an increase in the level of invested assets offset by a decline in yield.
Benefits experience was unfavorable in 2015 compared to 2014 due to a higher average paid claim size in both group life and accidental death and dismemberment.
Premium income increased in 2014 compared to 2013 primarily due to continued growth in the block of business resulting from sales and favorable persistency. Net investment income was lower in 2014 relative to 2013 due to a decrease in the yield on invested assets and lower miscellaneous investment income, partially offset by an increase in the level of invested assets.
Premium income was higher in 2015 compared to 2014 due to sales growth, partially offset by a decline in persistency in the voluntary benefits product line. Net investment income was higher in 2015 relative to 2014 due to growth in the level of invested assets and higher miscellaneous investment income, partially offset by a decrease in yield on invested assets. Other income decreased in 2015 relative to 2014 due primarily to an expected decline in surrender fees as our interest sensitive products mature.
Premium income was higher in 2014 compared to 2013, driven primarily by higher sales and stable to favorable persistency. Net investment income was lower in 2014 relative to 2013 due to decrease in yield on invested assets and lower miscellaneous investment income, partially offset by an increase in the level of invested assets.
Benefits experience for the individual disability product line was slightly less favorable during 2014 compared to 2013 due to lower claim recoveries and higher claim incidence rates. Benefits experience for voluntary benefits was favorable during 2014 compared to 2013 due to the 2013 reserve increase for unclaimed death benefits. Excluding this reserve increase, benefits experience was favorable due to improved claim experience in the disability and life product lines.
Sales in our individual disability line of business increased in 2014 due to a favorable mix of sales in the core and large case market segments. Sales of voluntary benefits were higher in 2014 compared to 2013, with increases in both core and large case market sales.
During 2016, we expect to achieve year over year premium growth resulting from stable persistency and disciplined sales growth. We believe additional improvement in our premium and sales growth rates may occur if the overall economic recovery further accelerates. Our net investment income may be impacted, either favorably or unfavorably, by fluctuations in miscellaneous investment income. The low interest rate environment continues to place pressure on our profit margins by impacting net investment income yields and claim reserve discount rates. As part of our continued pricing discipline and our reserving strategy, we continuously monitor emerging interest rate experience and adjust our pricing and reserve discount rates, as appropriate. The implementation of premium rate increases could unfavorably impact persistency in certain of our product lines. We expect our group disability benefit ratio for full year 2016 to be generally consistent with the level of 2015. Our amortization of deferred acquisition costs may be unfavorably impacted, particularly in our supplemental and voluntary product line, by higher than expected policy terminations.
Certain risks and uncertainties are inherent in the disability insurance business. Components of claims experience, such as incidence and recovery rates, may be worse than we expect. Disability claim incidence and claim recovery rates may be influenced by, among other factors, the rate of unemployment and consumer confidence. Within the group disability market, pricing and renewal actions can be taken to react to higher claim rates or lower discount rates, but these actions take time to implement, and there is a risk that the market will not sustain increased prices. In addition, changes in economic and external conditions may not manifest themselves in claims experience for an extended period of time. Unfavorable economic conditions may lead to a higher rate of claim incidence, lower levels of claim recoveries, or lower claim discount rates. Claim incidence levels may fluctuate due to the normal volatility that occurs in group disability business or may be related to economic conditions. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.
We remain confident in our strategy of providing consumers with valuable financial protection benefits, broadening our employer client relationships, and building collaborative partnerships with complementary product manufacturers, technology firms, and distributors. Our continued investment in our franchise includes active client management and a differentiated integrated experience across our product lines. There are significant growth opportunities in each of our markets and within our existing client base, and we continue to invest in the people, processes, and technologies that will allow us to enhance our ability to grow the market over the long term. We believe future profit margin improvement is achievable, driven primarily by our continued product mix shift, expense efficiencies, and consistent operating effectiveness. Underpinning our strategy is our continued commitment to risk management discipline, talent development, and our core values.
Shown below are financial results and key performance indicators for the Unum UK segment.
The functional currency of Unum UK is the British pound sterling. Unum UK's premium income, net investment income, claims, and expenses are received or paid in pounds, and we hold pound-denominated assets to support Unum UK's pound-denominated policy reserves and liabilities. We translate Unum UK's pound-denominated financial statement items into dollars for our consolidated financial reporting. We translate income statement items using an average exchange rate for the reporting period, and we translate balance sheet items using the exchange rate at the end of the period. We report unrealized foreign currency translation gains and losses in accumulated other comprehensive income in our consolidated balance sheets.
Net investment income declined in 2015 compared to 2014 due primarily to lower income from inflation index-linked bonds which we invest in to support the claim reserves associated with certain of our group policies that provide for inflation-linked increases in benefits. The year over year decrease in net investment income attributable to these index-linked bonds was largely offset by a more favorable year over year change in the reserves for future claims payments related to the inflation index-linked group long-term disability and group life policies.
Benefits experience was favorable in 2015 compared to 2014 due as a result of favorable experience in both the group long-term disability and group life product lines. The favorable group long-term disability benefits experience was due primarily to favorable claim recoveries, partially offset by unfavorable mortality experience. The favorable group life experience was due to a lower claim incidence rate and a lower average claim size.
Commissions were higher in 2014 compared to 2013 due primarily to the increased retention level in our group life reinsurance program. The amortization of deferred acquisition costs was lower in 2014 compared to 2013 due primarily to a decrease in the level of the deferred asset. The other expense ratio was higher in 2014 compared to 2013 due primarily to an increase in operational investments in our business and a lower comparative expense ratio in 2013 as a result of expense allowances related to the reinsurance agreements in our group life product line.
Sales in group long-term disability were generally consistent in 2015 compared to 2014. In the group long-term disability core market, or employee groups with fewer than 500 lives, sales increased in 2015 relative to the prior year due primarily to sales to new customers. Sales in the group long-term disability large case market were lower due to a decline in sales to existing customers partially offset by higher sales to new customers.
Group life sales increased in 2015 compared to 2014 due to higher sales to new customers in both the core and large case markets, partially offset by a decline in sales to existing customers.
Our primary focus during 2016 remains building on the key capabilities that we believe will enable us to deliver future growth. We expect to further improve our profitability through an increased focus on new to market sales, our shift in business mix, premium rate increases, and continued pursuit of efficiency opportunities.
We remain committed to driving growth in the U.K. market. We will continue to follow a disciplined approach to new sales activity in the competitive pricing environment. We do, however, see genuine opportunities to grow the market in the U.K. through establishing new relationships with employers, deepening the level of coverage with our existing corporate clients, and through new offerings such as the dental product resulting from our acquisition of National Dental. We anticipate returning to more normal levels of premium growth as our rate increases continue to be placed in the market and as we continue to increase sales to new and existing customers. We have seen some positive results in terms of new to market sales and increased coverage in existing cases. We believe the outlook for higher levels of employment, increases in corporate payrolls, and expansion of benefit spending is beginning to improve and will positively impact our sales and operating results. In addition, we continue to focus on new market opportunities by raising awareness of the need for income protection. Expanding group long-term disability market penetration remains a significant opportunity and priority.
Commissions and the deferral of acquisition costs were higher in 2015 relative to 2014 due to an increase in deferrable expenses related to sales growth. The amortization of deferred acquisition costs increased in 2015 compared to the prior year due primarily to growth in the level of the deferred asset. The other expense ratio was slightly higher in 2015 compared to 2014 due primarily to continued investment in our business.
Sales were higher in 2015 compared to 2014 due to growth in new and existing customer account sales. Commercial market sales increased in 2015 compared to 2014 due to higher new and existing customer account sales in the core market, which we define as accounts with fewer than 1,000 lives, and higher existing customer account sales in the large case market. The growth in our public sector market for 2015 was attributable to new and existing customer account sales. The number of new accounts increased 10.0 percent in 2015 compared to 2014, and the average new case size decreased 7.5 percent.
We believe our success will be driven primarily by execution in the core commercial and public sector segments and through expansion of the overall market. We believe the current market environment offers considerable opportunities to meet the emerging needs of employers, brokers, and consumers. We intend to continue to focus on growth, the customer experience, productivity, and talent development. Key drivers in our 2016 plan include a focus on strategic growth markets, distribution expansion, third-party connectivity, enrollment solutions, service capabilities, and operational excellence.
Shown below are financial results and key performance indicators for the Closed Block segment.
Premium income for individual disability decreased in 2015 compared to 2014 due to expected policy terminations and maturities. Premium income for long-term care increased slightly due to rate increases and stable persistency. We continue to file requests with various state insurance departments for premium rate increases on certain of our individual and group long-term care policies. The rate increases reflect current interest rates and claim experience, higher expected future claims, longevity, persistency, and other factors related to pricing long-term care coverage. In states for which a rate increase is submitted and approved, we routinely provide customers options for coverage changes or other approaches that might fit their current financial and insurance needs.
Net investment income was higher in 2015 relative to 2014 due to increased invested asset levels and higher miscellaneous investment income, partially offset by a decrease in yield on invested assets. Other income, which includes the underlying results of certain blocks of individual disability reinsured business and the net investment income of portfolios held by those ceding companies to support the block we have reinsured, was lower in 2015 compared to 2014 primarily due to lower investment income on those investment portfolios.
Individual disability benefits experience for 2015 was favorable relative to 2014 primarily due to favorable mortality. Long-term care benefits experience was favorable in 2015 relative to the prior year due to the 2014 reserve increase, as previously discussed. Excluding this reserve increase, long-term care benefits experience was unfavorable compared to 2014 due to less favorable development in active life reserves as a result of higher persistency.
Interest and debt expense in 2015 was lower than 2014 due to principal repayments on the outstanding debt issued by Northwind Holdings, LLC (Northwind Holdings). The other expense ratio in 2015 was generally consistent with the same period of 2014.
Individual disability benefits experience for 2014 was unfavorable relative to 2013 due primarily to higher claim incidence rates. Long-term care benefits experience was unfavorable in 2014 relative to 2013 due to the 2014 reserve increase. Excluding this reserve increase, long-term care benefits experience was favorable compared to 2013 due to lower claim incidence rates.
Commissions decreased in 2014 compared to 2013 due to a lower level of accrued commissions in 2014 as well as the expected run-off of these blocks of business. Interest and debt expense in 2014 was lower than 2013 due to principal repayments on the outstanding debt issued by Northwind Holdings and a decrease in the floating rate of interest. The other expense ratio was higher in 2014 compared to 2013 due to lower premium income and an increase in expenses attributable to our long-term care product line.
Profitability of our long-tailed products is affected by claims experience related to mortality and morbidity, investment returns, premium rate increases, and persistency. We believe that the interest adjusted loss ratios for the individual disability and long-term care lines of business will be relatively flat over the long term, but these product lines may continue to experience quarterly volatility, particularly in the near term for our long-term care product lines as our claim block matures. Claim resolution rates, which measure the resolution of claims from recovery, deaths, settlements, and benefit expirations, are very sensitive to operational and external factors and can be volatile. Our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the life of the block of business and will vary from actual experience in any one period. It is possible that variability in any of our reserve assumptions, including, but not limited to, interest rates, mortality, morbidity, premium rate increases, benefit change elections, and persistency, could result in a material impact on the adequacy of our reserves, including adjustments to reserves established under loss recognition.
Net investment income was lower in 2015 relative to 2014 due primarily to lower levels of invested assets.
Interest and other expenses decreased in 2015 relative to 2014 due to $13.2 million of costs incurred in 2014 related to the early retirement of a portion of the debt issued by one of our U.K. subsidiaries. The remaining balance on the debt matured in 2015. Partially offsetting this favorable year over year comparison were higher legal expenses incurred during 2015.
Net investment income increased in 2014 relative to 2013 due to higher levels of invested assets, partially offset by a decrease in yield on invested assets. Other income declined in 2014 relative to 2013 due primarily to the recognition of income in 2013 related to a settlement of an appeal to the IRS for tax years 2005 to 2006.
Our investment portfolio is well diversified by type of investment and industry sector. We have established an investment strategy that we believe will provide for adequate cash flows from operations and allow us to hold our securities through periods where significant decreases in fair value occur. We believe our emphasis on risk management in our investment portfolio, including credit and interest rate management, has positioned us well and generally reduced the volatility in our results.
The weighted average credit quality rating of the portfolio should be Baa1 or higher.
The maximum investment per issuer group is limited based on internal limits reviewed by the risk and finance committee of Unum Group's board of directors and approved by the boards of directors of our insurance subsidiaries and is more restrictive than the five percent limit generally allowed by the state insurance departments which regulate the type of investments our insurance subsidiaries are allowed to own. These internal limits are as follows:
The portfolio is to be diversified across industry classification and geographic lines.
The following two tables show the length of time our investment-grade and below-investment-grade fixed maturity securities had been in a gross unrealized loss position as of December 31, 2015 and at the end of the prior four quarters. The relationships of the current fair value to amortized cost are not necessarily indicative of the fair value to amortized cost relationships for the securities throughout the entire time that the securities have been in an unrealized loss position nor are they necessarily indicative of the relationships after December 31, 2015. The increase in the unrealized loss on fixed maturity securities during 2015 was due primarily to an increase in both U.S. Treasury rates and credit spreads which occurred during the period.
The following table shows our fixed maturity securities with a gross unrealized loss of $10.0 million or greater, by industry type. We held no securities at December 31, 2015 with a gross unrealized loss of $20.0 million or greater.
Gross Unrealized Losses $10.0 Million or Greater on Fixed Maturity Securities
During 2014, we recognized an other-than-temporary impairment loss of $13.5 million on fixed maturity securities issued by a U.S.-based oil and natural gas exploration and production company. At the time of the impairment loss, the company had a high debt-to-equity ratio, and its projected liquidity had decreased significantly as a result of the declines in oil and natural gas prices. At the time of the impairment loss, these securities had been in an unrealized loss position for a period of greater than 90 days but less than 180 days.
At December 31, 2015, we had minimal exposure to investments for which the payment of interest and principal is guaranteed under a financial guaranty insurance policy, and the securities in aggregate have a weighted average credit rating of investment-grade absent the guaranty insurance policy. At December 31, 2015, we held $142.5 million fair value ($129.3 million amortized cost) of perpetual debentures, or "hybrid" securities, that generally have no fixed maturity date. Interest on these securities due on any payment date may be deferred by the issuer. The interest payments are generally deferrable only to the extent that the issuer has suspended dividends or other distributions or payments to any of its shareholders or any other perpetual debt instrument.
As of December 31, 2015, the amortized cost and fair value of our below-investment-grade fixed maturity securities was $3,506.4 million and $3,298.1 million, respectively. Below-investment-grade securities are inherently more risky than investment-grade securities since the risk of default by the issuer, by definition and as exhibited by bond rating, is higher. Also, the secondary market for certain below-investment-grade issues can be highly illiquid. Additional downgrades may occur, but we do not anticipate any liquidity problems resulting from our investments in below-investment-grade securities, nor do we expect these investments to adversely affect our ability to hold our other investments to maturity.
investment risk exposure. Our monitoring is heightened for investments in certain countries due to our concerns over the current economic and political environments, and we believe these investments are more vulnerable to potential credit problems. At December 31, 2015, we had minimal exposure in those countries and had no direct exposure to financial institutions of those countries.
Our investment portfolio has exposure to companies whose businesses are negatively impacted by lower oil and natural gas prices. These include exploration and production companies, refineries, midstream and pipeline companies, and oilfield service businesses. The sharp drop in the price of oil is putting pressure on the earnings and cash flows of some of these businesses. The degree to which a business is affected by oil and gas prices can vary greatly depending on, among other things, its energy subsector, exposure to different types of oil and gas within a subsector, geographic locations, cost structure flexibility, capital structure, and hedging policies. At December 31, 2015, approximately one-third of our exposure to the energy sector was represented by the independent and oilfield subsectors where demand for products is highly correlated with oil and gas prices. The remaining two-thirds of our exposure to the energy sector was represented by the midstream, integrated, refining, and other energy subsectors, which tend to be more correlated to product volume sales as opposed to the commodity price. The majority of our energy sector holdings are investment-grade fixed maturity securities. At December 31, 2015, the fair value of investment-grade fixed maturity securities in the energy sector was $4,486.4 million, with a gross unrealized gain of $321.2 million and a gross unrealized loss of $182.9 million. The fair value of below-investment-grade fixed maturity securities in the energy sector was $525.1 million, with a gross unrealized loss of $189.7 million.
We held no impaired mortgage loans at December 31, 2015. We held one impaired mortgage loan at December 31, 2014 that was carried at the estimated net realizable value of $13.1 million, net of a valuation allowance of $1.5 million.
We use derivative financial instruments primarily to manage reinvestment, duration, foreign currency, and credit risks. Historically, we have utilized current and forward interest rate swaps and options on forward interest rate swaps and U.S. Treasury rates, current and forward currency swaps, forward treasury locks, currency forward contracts, forward contracts on specific fixed income securities, and credit default swaps. Our current credit exposure on derivatives, which is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held, was $8.5 million at December 31, 2015. We held $36.4 million of cash collateral from our counterparties at December 31, 2015. The carrying value of fixed maturity securities posted as collateral to our counterparties was $27.3 million at December 31, 2015. We had no cash collateral posted to our counterparties at December 31, 2015. We believe that our credit risk is mitigated by our use of multiple counterparties, all of which have an investment-grade credit rating, and by our use of cross-collateralization agreements.
Cash equivalents and marketable securities held at Unum Group and our intermediate holding companies are a significant source of liquidity for us and were approximately $475 million and $575 million at December 31, 2015 and 2014, respectively. The December 31, 2015 balance, of which approximately $16.8 million was held in certain of our foreign subsidiaries in the U.K., was comprised primarily of commercial paper, fixed maturity securities with a current average maturity of 5.7 years, and various money-market funds. No significant restrictions exist on our ability to use or access these funds. We currently have no intent, nor do we foresee a need, to repatriate funds from our foreign subsidiaries in the U.K. We believe we hold domestic resources sufficient to fund our liquidity requirements for the next 12 months. If we repatriate additional funds from our subsidiaries in the U.K., the amounts repatriated would be subject to repatriation tax effects which generally equal the difference in the U.S. tax rate and the U.K. tax rate.
During 2015, Tailwind Reinsurance Company (Tailwind Re), an affiliated captive reinsurance subsidiary domiciled in the United States, merged with Unum Life Insurance Company of America (Unum America), a domestic insurance subsidiary of Unum Group, with Unum America remaining as the surviving company. Following the merger, the majority of the block of group long-term disability business written by Unum America and previously ceded to Tailwind Re was ceded to an unaffiliated reinsurer. Unum America's capital adequacy and ability to pay dividends to Unum Group were not materially impacted by this transaction.
Unum Group and/or certain of its intermediate holding company subsidiaries may also receive dividends from our U.K. subsidiaries, the payment of which may be subject to applicable insurance company regulations and capital guidance in the U.K. As of January 1, 2016, Solvency II, a European Union directive that prescribes new capital requirements and risk management standards for the European insurance industry, replaced the previous capital requirements for Unum Limited. Our European holding company is also subject to the Solvency II requirements relevant to insurance holding companies, while its subsidiaries (the Unum European Economic Area (EEA) Group), which includes Unum Limited, are subject to group supervision under Solvency II. The Unum EEA Group received approval from the U.K. PRA to use its own internal model for calculating regulatory capital and also received approval for certain associated regulatory permissions including transitional relief as the Solvency II capital regime is implemented. As a result there is no material change to capital requirements or to solvency ratios for the Unum EEA Group. There remains some uncertainty regarding how Solvency II may impact dividend approvals.
The amount available during 2015 for the payment of ordinary dividends from Unum Group's traditional U.S. insurance subsidiaries, which excludes our captive reinsurers, was approximately $605 million, of which $594.6 million was declared and paid. The amount available during 2015 from Unum Limited was approximately £167 million, of which £30.0 million was declared and paid to one of our U.K. holding companies. During 2015, Northwind Re paid dividends of $79.0 million to Northwind Holdings. Fairwind paid no dividends during 2015.
During 2016, we intend to maintain a level of capital in our U.S. and U.K. insurance subsidiaries above the applicable capital adequacy requirements and minimum solvency margins. Although we may not utilize the entire amount of available dividends, based on applicable restrictions under current law, approximately $664 million is available, without prior approval by regulatory authorities, during 2016 for the payment of dividends from our traditional U.S. insurance subsidiaries, which excludes our captive reinsurers. Approximately £148 million is available for the payment of dividends from Unum Limited during 2016, subject to regulatory approval.
We made contributions of $69.8 million and £3.7 million to our U.S. and U.K. defined contribution plans, respectively, in 2015 and expect to make contributions of approximately $70 million and £4 million during 2016. We made no contributions to our U.S. qualified defined benefit pension plan or our U.K. defined benefit pension plan during 2015, nor do we expect to make any contributions to either plan during 2016. We have met all minimum pension funding requirements set forth by the Employee Retirement Income Security Act. We have estimated our future funding requirements under the Pension Protection Act of 2006 and under applicable U.K. law and do not believe that any future funding requirements will cause a material adverse effect on our liquidity. See Note 9 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion of our employee benefit plans.
In 2014, we purchased and retired $145.0 million principal of the 6.85% notes, including a make-whole amount of $13.2 million, for a total cost of $158.2 million.
In 2013, we purchased and retired the outstanding principal of $62.5 million on the floating rate, senior secured non-recourse notes issued by Tailwind Holdings, resulting in a before-tax gain of $4.0 million.
Northwind Holdings made principal payments on its floating rate, senior secured notes of $74.4 million, $41.6 million, and $60.0 million in 2015, 2014, and 2013, respectively.
In 2015, we issued $275.0 million of unsecured senior notes in a public offering. These notes, due 2025, bear interest at a fixed rate of 3.875% and are payable semi-annually. The notes are callable at or above par and rank equally in right of payment with all of our other unsecured and unsubordinated debt.
In 2014, we issued $350.0 million of unsecured senior notes in a public offering. These notes, due 2024, bear interest at a fixed rate of 4.00% and are payable semi-annually. The notes are callable at or above par and rank equally in right of payment with all of our other unsecured and unsubordinated debt.
Operating leases include noncancelable obligations on certain office space, equipment, and software. Purchase obligations include commitments of $291.5 million to fund certain of our investments. These are included in the preceding table based on the expiration date of the commitments. The funds are due upon satisfaction of contractual notice from appropriate external parties and may or may not be funded. Also included are obligations with outside parties for computer data processing services, software maintenance agreements, and consulting services. The aggregate obligation remaining under these agreements was $14.3 million at December 31, 2015.
We had no repurchase agreements outstanding at December 31, 2015. The average balance during the year ended December 31, 2015 was $1.4 million, and the maximum amount outstanding at any month end was $12.3 million. Our use of repurchase agreements and securities lending agreements can fluctuate during any given period and will depend on our liquidity position, the availability of long-term investments that meet our purchasing criteria, and our general business needs.
Certain of our U.S. insurance subsidiaries are members of regional FHLBs. During 2015, we made initial common stock membership purchases and obtained funding advances of $350.0 million for the purpose of purchasing fixed maturity securities.
The variance in the change in insurance reserves and liabilities to reconcile net income to net cash provided by operating activities as reported in our consolidated statements of cash flows for 2014 was due primarily to the 2014 reserve increase for our long-term care line of business.
During 2015, we issued $275.0 million of 3.875% unsecured 10-year senior notes in a public offering and received proceeds of $271.4 million, excluding the associated debt issuance costs and discounts. During 2014, we issued $350.0 million of 4.00% unsecured 10-year senior notes in a public offering and received proceeds of $347.2 million, excluding the associated debt issuance costs and discounts.
Cash used to repurchase shares of Unum Group's common stock during 2015, 2014, and 2013 was $417.9 million, $306.0 million, and $317.2 million, respectively. During 2015, 2014, and 2013 we paid dividends of $174.2 million, $159.4 million, and $146.5 million, respectively, to holders of Unum Group's common stock.
Moody's, Fitch, and S&P affirmed their ratings for our domestic insurance subsidiaries and issuer credit rating for Unum Group during 2015. AM Best affirmed its ratings during 2014. There were no changes in any of the rating agencies' outlook statements or ratings during 2015 or in 2016 prior to the date of this filing.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Unum Group and subsidiaries at December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
Interest income is recorded as part of net investment income when earned, using an effective yield method giving effect to amortization of premium and accretion of discount. Included within fixed maturity securities are mortgage-backed and asset-backed securities. We recognize investment income on these securities using a constant effective yield based on projected prepayments of the underlying loans and the estimated economic life of the securities. Actual prepayment experience is reviewed periodically, and effective yields are recalculated when differences arise between prepayments originally projected and the actual prepayments received and currently projected. The effective yield is recalculated on a retrospective basis, and the adjustment is reflected in net investment income. For fixed maturity securities on which collection of investment income is uncertain, we discontinue the accrual of investment income and recognize investment income when interest and dividends are received. Payment terms specified for fixed maturity securities may include a prepayment penalty for unscheduled payoff of the investment. Prepayment penalties are recognized as investment income when received.
If we determine that the decline in value of an investment is other than temporary, the investment is written down to fair value, and an impairment loss is recognized in the current period, either in earnings or in both earnings and other comprehensive income, as applicable. Other-than-temporary impairment losses on fixed maturity securities which we intend to sell or more likely than not will be required to sell before recovery in value are recognized in earnings and equal the entire difference between the security's amortized cost basis and its fair value. For securities which we do not intend to sell and it is not more likely than not that we will be required to sell before recovery in value, other-than-temporary impairment losses recognized in earnings generally represent the difference between the amortized cost of the security and the present value of our best estimate of cash flows expected to be collected, discounted using the effective interest rate implicit in the security at the date of
acquisition. For fixed maturity securities for which we have recognized an other-than-temporary impairment loss through earnings, if through subsequent evaluation there is a significant increase in expected cash flows, the difference between the new amortized cost basis and the cash flows expected to be collected is accreted as net investment income over the remaining life of the investment. See Notes 2 and 3.
Short-term Investments: Short-term investments are carried at cost. Short-term investments include investments maturing within one year, such as corporate commercial paper and U.S. Treasury bills, bank term deposits, and other cash accounts and cash equivalents earning interest. See Note 2.
Changes in the fair value of a derivative designated as a fair value hedge, including amounts measured as ineffectiveness, and changes in the fair value of the hedged item attributable to the risk being hedged are recognized in earnings as a component of net realized investment gain or loss during the period of change in fair value. The gain or loss on the termination of a fair value hedge is recognized in earnings as a component of net realized investment gain or loss during the period in which the termination occurs. When interest rate swaps are used in hedge accounting relationships, periodic settlements are recorded in the same income statement line as the related settlements of the hedged items.
Property and Equipment: Property and equipment is reported at cost less accumulated depreciation, which is calculated on the straight-line method over the estimated useful life. The accumulated depreciation for property and equipment was $902.6 million and $823.3 million as of December 31, 2015 and 2014, respectively.
Value of Business Acquired: Value of business acquired represents the present value of future profits recorded in connection with the acquisition of a block of insurance policies. The asset is amortized based upon expected future premium income for non-interest sensitive insurance policies and estimated future gross profits from surrender charges, mortality margins, investment returns, and expense margins for interest sensitive insurance policies. The value of business acquired, which is included in other assets in our consolidated balance sheets, was $24.0 million and $15.2 million at December 31, 2015 and 2014, respectively. The accumulated amortization for value of business acquired was $133.1 million and $134.7 million as of December 31, 2015 and 2014, respectively.
Policy reserves require ongoing loss recognition testing. We perform loss recognition tests on our policy reserves annually, or more frequently if appropriate, using best estimate assumptions as of the date of the test, without a provision for adverse deviation. We group the policy reserves for each major product line within a segment when we perform the loss recognition tests. If the policy reserves determined using these best estimate assumptions are higher than our existing policy reserves net of any deferred acquisition cost balance, the existing policy reserves are increased or deferred acquisition costs are reduced to immediately recognize the deficiency. This becomes the new basis for policy reserves going forward, subject to future loss recognition testing.
Where applicable, gains or losses on reinsurance transactions are deferred and amortized into earnings based upon expected future premium income for non-interest sensitive insurance policies and estimated future gross profits for interest sensitive insurance policies. The deferred gain on reinsurance included in other liabilities in our consolidated balance sheets at December 31, 2015 and 2014 was $31.9 million and $41.7 million, respectively.
Stock-Based Compensation: The cost of stock-based compensation is generally measured based on the grant-date fair value of the award. The Black-Scholes options valuation model is used for estimating the fair value of stock options, and the Monte-Carlo valuation model is used for estimating the fair value of performance share units. Restricted stock units are valued based on the fair value of common stock at the grant date, and cash-settled awards are measured each reporting period based on the current stock price. Stock-based awards are expensed over the requisite service period, or for performance share units over the requisite service period, or remaining service period, if and when it becomes probable that the performance conditions will be satisfied, with an offsetting increase to additional paid-in capital in stockholders' equity. See Note 11.
This update changed the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The update also required disclosures for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions.
This update permitted entities to make an accounting policy election to account for investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). Additional disclosures concerning investments in qualified affordable housing projects were also required. We elected to adopt this guidance and applied the amendments in the update retrospectively, adjusting all prior periods in our consolidated financial statements and accompanying notes.
The cumulative effect at January 1, 2013, was an $8.1 million reduction in stockholders' equity. The following table summarizes the effects of our retrospective adoption on periods reported herein.
This update supersedes virtually all existing guidance regarding the recognition of revenue from customers. Specifically excluded from the scope of this update are insurance contracts, although our fee-based service products are included within the scope. The core principle of this guidance is that revenue recognition should depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance is to be applied retrospectively.
The adoption of this update will result in reclassification adjustments to our consolidated balance sheets but will not have an effect on our financial position or results of operations.
Miscellaneous Long-term Investments: Carrying amounts for tax credit partnerships equal the unamortized balance of our contractual commitments and approximate fair value. Fair values for private equity partnerships are primarily derived from net asset values provided by the general partner in the partnerships' financial statements. Our private equity partnerships represent funds that are primarily invested in railcar leasing, the financial services industry, mezzanine debt, and bank loans. Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments. As of December 31, 2015, we estimate that the underlying assets of the funds will be liquidated over the next one
to twelve years. These financial instruments are assigned a Level 3 within the fair value hierarchy. Our shares of FHLB common stock are carried at cost, which approximates fair value. These financial instruments are considered restricted investments and are assigned a Level 2 within the fair value hierarchy.
Unfunded Commitments to Investment Partnerships: Unfunded equity commitments represent amounts that we have committed to fund certain investment partnerships. These commitments are legally binding, subject to the partnerships meeting specified conditions. Carrying amounts approximate fair value and are assigned a Level 2 within the fair value hierarchy.
The selection of the valuation method(s) to apply considers the definition of an exit price and depends on the nature of the asset or liability being valued. For assets and liabilities accounted for at fair value, we generally use valuation techniques consistent with the market approach, and to a lesser extent, the income approach. We believe the market approach valuation technique provides more observable data than the income approach, considering the type of investments we hold. Our fair value measurements could differ significantly based on the valuation technique and available inputs. When using a pricing service, we obtain the vendor's pricing documentation to ensure we understand their methodologies. We periodically review and approve the selection of our pricing vendors to ensure we are in agreement with their current methodologies. When markets are less active, brokers may rely more on models with inputs based on the information available only to the broker. Our internal investment management professionals, which include portfolio managers and analysts, monitor securities priced by brokers and evaluate their prices for reasonableness based on benchmarking to available primary and secondary market information. In weighing a broker quote as an input to fair value, we place less reliance on quotes that do not reflect the result of market transactions. We also consider the nature of the quote, particularly whether the quote is a binding offer. If prices in an inactive market do not reflect current prices for the same or similar assets, adjustments may be necessary to arrive at fair value. When relevant market data is unavailable, which may be the case during periods of market uncertainty, the income approach can, in suitable circumstances, provide a more appropriate fair value. During 2015, we have applied valuation techniques on a consistent basis to similar assets and liabilities and consistent with those techniques used at year end 2014.
an actual trade. We also review all price changes from the prior month which fall outside a predetermined corridor. The overall valuation process for determining fair values may include adjustments to valuations obtained from our pricing sources when they do not represent a valid exit price. These adjustments may be made when, in our judgment and considering our knowledge of the financial conditions and industry in which the issuer operates, certain features of the financial instrument require that an adjustment be made to the value originally obtained from our pricing sources. These features may include the complexity of the financial instrument, the market in which the financial instrument is traded, counterparty credit risk, credit structure, concentration, or liquidity. Additionally, an adjustment to the price derived from a model typically reflects our judgment of the inputs that other participants in the market for the financial instrument being measured at fair value would consider in pricing that same financial instrument. In the event an asset is sold, we test the validity of the fair value determined by our valuation techniques by comparing the selling price to the fair value determined for the asset in the immediately preceding month end reporting period.
At December 31, 2015, approximately 6.8 percent of our fixed maturity securities were valued using active trades from TRACE pricing or broker market maker prices for which there was current market activity in that specific security (comparable to receiving one binding quote). The prices obtained were not adjusted, and the assets were classified as Level 1, the highest category of the three-level fair value hierarchy classification wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities.
The remaining 93.2 percent of our fixed maturity securities were valued based on non-binding quotes or other observable and unobservable inputs, as discussed below.
Approximately 3.4 percent of our fixed maturity securities were valued based on one or more non-binding broker quotes, if validated by observable market data, or on TRACE prices for identical or similar assets absent current market activity. When only one price is available, it is used if observable inputs and analysis confirms that it is appropriate. These assets, for which we were able to validate the price using other observable market data, were classified as Level 2.
Isolated increases in unobservable inputs other than market convention will result in a lower fair value measurement, whereas isolated decreases will result in a higher fair value measurement. The unobservable input for market convention is not sensitive to input movements. The projected liability cash flows used in the fair value measurement of our Level 3 embedded derivative are based on expected claim payments. If claim payments increase, the projected liability cash flows will increase, resulting in a decrease in the fair value of the embedded derivative. Decreases in projected liability cash flows will result in an increase in the fair value of the embedded derivative.
The amortized cost and fair values of securities by security type are shown as follows:
spreads in certain industries or sectors and, to a lesser extent, credit concerns related to specific securities. For each specific security in an unrealized loss position, we believe that there are positive factors which mitigate credit concerns and that the securities for which we have not recorded an other-than-temporary impairment will recover in value.
We held no fixed maturity securities as of December 31, 2015 and 2014, for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income.
At December 31, 2015, we had commitments of $56.0 million to fund private placement fixed maturity securities, the amount of which may or may not be funded.
Although all available and applicable factors are considered in our analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining whether we will initially issue the loan and also in assigning values and determining impairment. We assign an overall rating to each loan using an internal rating scale of Aa (highest quality) to B (lowest quality). We review and adjust, as needed, our internal credit quality ratings on an annual basis. This review process is performed more frequently for mortgage loans deemed to have a higher risk of delinquency.
We had no realized losses on loan foreclosures for the years ended December 31, 2015, 2014, and 2013 other than the initial impairment losses recognized prior to foreclosure. During 2014, we modified the terms of a mortgage loan with a carrying value of $18.1 million, recognized a $3.0 million realized loss on the troubled debt restructuring, and foreclosed on the property in a subsequent quarter of 2014.
At December 31, 2014, we held one impaired mortgage loan with an unpaid principal balance of $14.6 million, a related allowance for credit losses of $1.5 million, and a carrying value of $13.1 million. During 2015, we increased the allowance for credit losses for the impaired loan by $0.5 million and recognized a corresponding investment loss. The loan was repaid in a subsequent quarter of 2015, with an additional de minimis loss recognized at repayment.
Our average investment in impaired mortgage loans was $8.6 million, $26.7 million, and $14.9 million for the years ended December 31, 2015, 2014, and 2013, respectively. Interest income recognized on mortgage loans subsequent to impairment was $0.6 million, $1.0 million, and $0.8 million, for the years ended December 31, 2015, 2014, and 2013, respectively.
As of December 31, 2015, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $181.6 million, for which we received collateral in the form of cash and securities of $29.0 million and $159.3 million, respectively. As of December 31, 2014, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $176.5 million, for which we received collateral in the form of cash and securities of $58.4 million and $128.5 million, respectively. We had no outstanding repurchase agreements at December 31, 2015 or 2014.
Interest rate swaps are used to effectively convert certain of our fixed rate securities into floating rate securities which are used to fund our floating rate long-term debt. Under these swap agreements, we receive a variable rate of interest and pay a fixed rate of interest. Additionally, we use interest rate swaps to effectively convert certain fixed rate, long-term debt into floating rate long-term debt. Under these swap agreements, we receive a fixed rate of interest and pay a variable rate of interest.
Foreign currency interest rate swaps have historically been used to hedge the currency risk of certain foreign currency-denominated fixed maturity securities owned for portfolio diversification and to hedge the currency risk associated with certain of the principal and interest payments of the U.S. dollar-denominated debt issued by one of our U.K. subsidiaries. For hedges of fixed maturity securities, we agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment. For hedges of debt issued, we paid, at specified intervals, fixed rate foreign currency-denominated principal and interest payments to the counterparty in exchange for fixed rate U.S. dollar-denominated principal and interest payments.
The majority of our derivative instruments contain provisions that require us to maintain specified issuer credit ratings and financial strength ratings. Should our ratings fall below these specified levels, we would be in violation of the provisions, and our derivatives counterparties could terminate our contracts and request immediate payment. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a liability position was $50.2 million and $92.9 million at December 31, 2015 and 2014, respectively.
As of December 31, 2015 and 2014, we had $427.9 million and $618.0 million, respectively, notional amount of receive fixed, pay fixed, open current and forward foreign currency interest rate swaps to hedge fixed income foreign currency-denominated securities and U.S. dollar-denominated debt issued by one of our U.K. subsidiaries.
As of December 31, 2015, we expect to amortize approximately $53.6 million of net deferred gains on derivative instruments during the next twelve months. This amount will be reclassified from accumulated other comprehensive income into earnings and reported on the same income statement line item as the hedged item. The income statement line items that will be affected by this amortization are net investment income and interest and debt expense. Additional amounts that may be reclassified from accumulated other comprehensive income into earnings to offset the earnings impact of foreign currency translation of hedged items are not estimable.
We have an embedded derivative in a modified coinsurance arrangement for which we include in our realized investment gains and losses a calculation intended to estimate the value of the option of our reinsurance counterparty to cancel the reinsurance contract with us. However, neither party can unilaterally terminate the reinsurance agreement except in extreme circumstances resulting from regulatory supervision, delinquency proceedings, or other direct regulatory action. Cash settlements or collateral related to this embedded derivative are not required at any time during the reinsurance contract or at termination of the reinsurance contract. There are no credit-related counterparty triggers, and any accumulated embedded derivative gain or loss reduces to zero over time as the reinsured business winds down.
The majority of the net balances are related to disability claims with long-tail payouts on which interest earned on assets backing liabilities is an integral part of pricing and reserving. Interest accrued on prior year reserves has been calculated on the opening reserve balance less one-half year's cash payments at our average reserve discount rate used during 2015, 2014, and 2013.
During 2013, we completed our assessment of benefits which we estimated would be paid under this initiative, and as such, established $95.5 million of additional claim reserves for payment of these benefits. Claim reserves were increased $49.1 million for Unum US group life, $26.3 million for Unum US voluntary life, and $20.1 million for Colonial Life voluntary life. The reserves established were attributed to prior year incurred claims, thereby impacting the results shown in the preceding chart.
We have not provided U.S. deferred taxes on the cumulative earnings of our non-U.S. subsidiaries. We consider these unremitted earnings to be permanently invested as they relate to ongoing operations of our non-U.S. subsidiaries. We do not intend to repatriate these earnings to fund our U.S. operations as we expect that future domestic cash flow generation will be sufficient to meet future domestic cash needs. As of December 31, 2015, we had not recorded a deferred tax liability on approximately $1 billion of the excess of the carrying amount for financial reporting over the tax basis of investments in non-U.S. subsidiaries that is considered permanent in duration. This amount becomes taxable upon repatriation of assets from a foreign subsidiary or a sale or liquidation of foreign subsidiaries. Should we sell the stock in our non-U.S. subsidiaries for an amount equal to the carrying amount for financial reporting, we would recognize tax expense of approximately $200 million, assuming our ability to fully utilize foreign tax credits.
The aggregate contractual principal maturities are $350.0 million in 2016, $200.0 million in 2018, $400.0 million in 2020, and $1,881.6 million thereafter.
Recourse for the payment of principal, interest, and other amounts due on the Northwind notes is limited to the collateral for the Northwind notes and the other assets, if any, of Northwind Holdings. The collateral consists of a first priority, perfected security interest in (a) the debt service coverage account (DSCA) that Northwind Holdings is required to maintain in accordance with the indenture pursuant to which the Northwind notes were issued (the Northwind indenture), (b) the capital stock of Northwind Re and the dividends and distributions on such capital stock, and (c) Northwind Holdings' rights under the transaction documents related to the Northwind notes to which Northwind Holdings is a party. At December 31, 2015, the amount in the DSCA was $5.4 million. None of Unum Group, the ceding insurers, Northwind Re, or any other affiliate of Northwind Holdings is an obligor or guarantor with respect to the Northwind notes.
In August 2013, we entered into a five-year, $400.0 million unsecured revolving credit facility. Under the terms of the agreement, we may request that the credit facility be increased up to $600.0 million. Borrowings under the credit facility are for general corporate uses and are subject to financial covenants, negative covenants, and events of default that are customary. The credit facility provides for borrowing at an interest rate based either on the prime rate or LIBOR. In addition, the credit facility provides for the issuance of letters of credit subject to certain terms and limitations. At December 31, 2015 and 2014, letters of credit totaling $2.1 million had been issued from the credit facility, but there were no borrowed amounts outstanding.
The amounts recognized in our consolidated balance sheets for our pension and OPEB plans at December 31, 2015 and 2014 are as follows.
The objective of our U.S. pension and OPEB plans is to maximize long-term return, within acceptable risk levels, in a manner that is consistent with the fiduciary standards of the Employee Retirement Income Security Act (ERISA), while maintaining sufficient liquidity to pay current benefits and expenses.
Our U.S. qualified defined benefit pension plan assets include a diversified blend of domestic and international equity securities, fixed income securities, opportunistic credit securities, real estate investments, alternative investments, and cash equivalents. Equity securities are comprised of funds and individual securities that are designed to track the respective indices specified below. International equity funds may allocate a certain percentage of assets to forward currency contracts. Fixed income securities include U.S. government and agency asset-backed securities, corporate investment-grade bonds, private placement securities, and bonds issued by states or other municipalities. Opportunistic credits consist of investments in funds that hold varied fixed income investments purchased at depressed values with the intention to later sell those investments for a gain. Real estate investments consist primarily of commercial real estate investments. Alternative investments, which include private equity direct investments, private equity funds of funds, and hedge funds of funds, utilize proprietary strategies that are intended to have a low correlation to the U.S. stock market. Prohibited investments include, but are not limited to, unlisted securities, futures contracts, options, short sales, and investments in securities issued by Unum Group or its affiliates. The invested asset classes, asset types, and benchmark indices for our U.S. qualified defined benefit pension plan is as follows. We target approximately 35 percent to equity securities, 40 percent to fixed income securities, and 25 percent to opportunistic credits, alternative, and real estate investments.
Assets for our U.K. pension plan are primarily invested in a pooled diversified growth fund. This fund invests in assets such as global equities, hedge funds, commodities, below-investment-grade fixed income securities, and currencies. The objectives of the fund are to generate capital appreciation over the course of a complete economic and market cycle and to deliver equity-like returns in the medium-to-long term while maintaining approximately two thirds of the volatility of equity markets. Performance of this fund is measured against the U.K. inflation rate plus four percent. The remaining assets in the U.K. plan are invested in leveraged interest rate and inflation swap and gilt funds of varying durations designed to broadly match the interest rate and inflation sensitivities of the plan's liabilities. The current target allocation for the assets is 70 percent diversified growth assets and 30 percent interest rate and inflation swap funds. There are no categories of investments that are specifically prohibited by the U.K. plan, but there are general guidelines that ensure prudent investment action is taken. Such guidelines include the prevention of the plan from using derivatives for speculative purposes and limiting the concentration of risk in any one type of investment.
The categorization of fair value measurements by input level for the assets in our U.K. pension plan is as follows.
Level 1 fixed interest and index-linked securities consist of individual funds that are valued based on unadjusted quoted prices from active markets for identical securities. Level 2 investments consist of funds that are valued based on the NAV of the underlying holdings. These investments have no unfunded commitments and no specific redemption restrictions.
Changes in our OPEB plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2015 and 2014 are as follows:
For the years ended December 31, 2015 and 2014, the actual return on plan assets relates solely to investments still held at the reporting date. There were no transfers into or out of Level 3 during 2015 or 2014.
A one percent increase or decrease in the assumed health care cost trend rate at December 31, 2015 would have increased (decreased) the service cost and interest cost by $0.2 million and $(0.1) million, respectively, and the postretirement benefit obligation by $4.3 million and $(3.2) million, respectively.
The unrecognized net actuarial loss and the prior service credit included in accumulated other comprehensive income and expected to be amortized and included in net periodic pension cost during 2016 is $16.5 million and $0.5 million before tax, respectively.
The May 2015 share repurchase program has an expiration date of November 21, 2016.
(1) Includes commissions of $0.3 million, $0.1 million, and $0.2 million for the years ended December 31, 2015, 2014, and 2013, respectively.
Under the Stock Incentive Plan of 2012 (the 2012 Plan), up to 20 million shares of common stock are available for awards to our employees, officers, consultants, and directors. Awards may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units, and other stock-based awards. Each full-value award, defined as any award other than a stock option or stock appreciation right, is counted as 1.76 shares. The exercise price for stock options issued cannot be less than the fair value of the underlying common stock as of the grant date. Stock options generally have a term of eight years after the date of grant and fully vest after three years. At December 31, 2015, approximately 15.67 million shares were available for future grants under the 2012 Plan.
During 2015, 2014, and 2013, we issued PSUs with a weighted average grant date fair value per share of $35.13, $34.72, and $25.26, respectively. Vesting for the PSUs occurs at the end of a three-year period and is contingent upon our achievement of prospective company performance goals and our total shareholder return relative to a particular peer group during the three-year period. Actual performance, including modification for relative total shareholder return, may result in the ultimate award of 40 to 180 percent of the initial number of PSUs issued, with the potential for no award if company performance goals are not achieved during the three-year period. Forfeitable dividend equivalents on PSUs are accrued in the form of additional PSUs.
The fair value of PSUs is estimated on the date of initial grant using the Monte-Carlo simulation model. The assumptions used to value PSUs granted during the years shown are as follows:
During 2015, 2014, and 2013, we issued RSUs with a weighted average grant date fair value per share of $34.08, $33.77, and $24.68, respectively. RSUs vest over a one to three-year service period, beginning at the date of grant, and the compensation cost is recognized ratably during the vesting period. Forfeitable dividend equivalents on RSUs are accrued in the form of additional RSUs. Compensation cost for RSUs subject to accelerated vesting at the date of retirement eligibility is recognized over the implicit service period.
The total fair value of shares vested during 2015, 2014, and 2013 was $21.4 million, $19.8 million, and $18.3 million, respectively. At December 31, 2015, we had $12.0 million of unrecognized compensation cost related to RSUs that will be recognized over a weighted average period of 0.9 years.
At December 31, 2015, we had a de minimis amount of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 0.1 years.
The fair value of stock options is estimated on the date of initial grant using the Black-Scholes valuation model. The grant date fair value and the assumptions used to value stock options granted during 2013 are as follows. There were no stock options granted in 2015 or 2014.
We have three principal operating business segments: Unum US, Unum UK, and Colonial Life. Our other segments are Closed Block and Corporate.
The Unum US segment includes group long-term and short-term disability insurance, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business. The supplemental and voluntary lines of business are comprised of individual disability and voluntary benefits products. These products are marketed through our field sales personnel who work in conjunction with independent brokers and consultants.
In September 2015, we acquired 100 percent of the common shares and voting interests in National Dental Plan Limited and associated companies (National Dental) for a total cash purchase price of £35.9 million or $54.3 million. National Dental, a provider of dental insurance in the U.K. workplace, is reported in our Unum UK segment as part of our supplemental product line. The acquisition of National Dental extends our market reach, broadening our employee benefit offerings in the U.K. National Dental's revenues totaled £14.7 million, or $24.2 million, in 2014. Total assets were £18.6 million, or $28.1 million at the acquisition date, and were primarily comprised of short-term investments, accounts receivable, and intangible assets attributable to benefits derived from National Dental's customer relationships and dental provider network. Total liabilities were £5.0 million, or $7.5 million at the acquisition date, and were primarily comprised of outstanding claims liabilities, unearned premiums, and a deferred tax liability. The purchase price exceeded the fair value of the identifiable net assets by £22.3 million, or $33.7 million, and has been identified as goodwill, primarily attributable to the value of adding dental to our current employee benefit offerings. The goodwill is not deductible for income tax purposes except upon disposition of the acquired entity. This acquisition, the results of which are included in our consolidated financial statements for the period subsequent to the date of acquisition, did not have a material impact on revenue or operating results for 2015.
We measure and analyze our segment performance using non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures of "operating revenue" and "operating income" or "operating loss" differ from total revenue and income before income tax as presented in our consolidated statements of income due to the exclusion of net realized investment gains and losses, non-operating retirement-related gains or losses, and certain other items as specified in the reconciliations below. We believe operating revenue and operating income or loss are better performance measures and better indicators of the revenue and profitability and underlying trends in our business.
At December 31, 2015, we had unfunded commitments of $291.5 million for certain of our investments, the amount of which may or may not be funded.
In December 2012, State of West Virginia ex rel. John D. Perdue v. Provident Life and Accident Insurance Company and State of West Virginia ex rel. John D. Perdue v. Colonial Life & Accident Insurance Company were filed in the Circuit Court of Putnam County, West Virginia. These two separate complaints alleged violations of the West Virginia Uniform Unclaimed Property Act by failing to identify and report all unclaimed insurance policy proceeds due to be escheated to West Virginia. The complaints sought to examine company records and assess penalties and costs in an undetermined amount. In December 2013, the court dismissed both complaints, holding that the West Virginia Uniform Unclaimed Property Act does not require insurance companies to periodically search the Social Security Administrations' Death Master File or escheat unclaimed life insurance benefits until a claim has been submitted. In January 2014, the plaintiff appealed the dismissal of both complaints. In June 2015, the appellate court reinstated the case, holding that the West Virginia Uniform Unclaimed Property Act requires insurers to make reasonable efforts to determine whether their insureds are still living. The case was remanded to the trial court where we answered the complaints.
Certain of our traditional U.S. life insurance subsidiaries cede blocks of business to Northwind Re and Fairwind Insurance Company (Fairwind), both of which are affiliated captive reinsurance subsidiaries (captive reinsurers) domiciled in the United States, with Unum Group as the ultimate parent. These captive reinsurers were established for the limited purpose of reinsuring risks attributable to specified policies issued or reinsured by our life insurance subsidiaries. During 2015, Tailwind Reinsurance Company (Tailwind Re), also an affiliated captive reinsurance subsidiary domiciled in the United States, merged with one of our traditional U.S. life insurance subsidiaries, with the traditional U.S. life insurance subsidiary remaining as the surviving company. Following the merger, the majority of the block of business previously ceded to Tailwind Re was ceded to an unaffiliated reinsurer. These two transactions did not materially impact the statutory results of operations, capital adequacy, or ability of our insurance subsidiaries to pay dividends to Unum Group.
Risk-based capital (RBC) standards for U.S. life insurance companies are prescribed by the NAIC. The domiciliary states of our U.S. insurance subsidiaries have all adopted a version of the RBC model formula of the NAIC, which prescribes a system for assessing the adequacy of statutory capital and surplus for all life and health insurers. The basis of the system is a risk-based formula that applies prescribed factors to the various risk elements in a life and health insurer's business to report a minimum capital requirement proportional to the amount of risk assumed by the insurer. The life and health RBC formula is designed to measure annually (i) the risk of loss from asset defaults and asset value fluctuations, (ii) the risk of loss from adverse mortality and morbidity experience, (iii) the risk of loss from mismatching of asset and liability cash flow due to changing interest rates, and (iv) business risks. The formula is used as an early warning tool to identify companies that are potentially inadequately capitalized. State insurance laws grant insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital does not meet or exceed certain RBC levels. The total adjusted capital of each of our U.S. insurance subsidiaries at December 31, 2015 is in excess of those RBC levels.
We also have the ability to receive dividends from Unum Limited, subject to applicable insurance company regulations and capital guidance in the United Kingdom. As of January 1, 2016, Solvency II, a European Union directive that prescribes new capital requirements and risk management standards for the European insurance industry, replaced the previous capital requirements for Unum Limited. There was no material change to capital requirements or to solvency ratios. We have £147.8 million available for the payment of dividends from Unum Limited during 2016, subject to regulatory approval.
At December 31, 2015 and 2014, our U.S. insurance subsidiaries had on deposit with U.S. regulatory authorities securities with a book value of $284.1 million and $279.1 million, respectively, held for the protection of policyholders.
See Notes 6 and 9 for further discussion of the above items.