Everest Re's corporate offices are located in approximately 230,500 square feet of leased office space in Liberty Corner, New Jersey. The Company's other fifteen locations occupy a total of approximately 137,856 square feet, all of which are leased. Management believes that the above described office space is adequate for its current and anticipated needs.
The following is a discussion and analysis of our results of operations and financial condition. It should be read in conjunction with the Consolidated Financial Statements and accompanying notes thereto presented under ITEM 8, "Financial Statements and Supplementary Data".
We compete in the U.S. and international reinsurance and insurance markets with numerous global competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd's of London and certain government sponsored risk transfer vehicles. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.
premiums compared to the increase in gross written premiums is primarily due to a higher level of reinsurance purchased on the insurance business. Premiums earned decreased by 2.3% to $2,094.0 million in 2016, compared to $2,143.8 million in 2015. The change in premiums earned is consistent with the change in net written premiums.
Gross written premiums increased by 0.6% to $4,995.6 million in 2015, compared to $4,965.3 million in 2014, reflecting a $293.4 million, or 24.9%, increase in our insurance business, partially offset by a $263.0 million, or 6.9%, decrease in our reinsurance business. The rise in insurance premiums was primarily due to increases in most lines of business, as we have focused on expanding the insurance operations. The decline in reinsurance premiums were due mainly to decreases in treaty casualty business, reductions in quota share agreements and a negative impact of approximately $91.9 million from the year over year movement in foreign exchange rates. Net written premiums decreased by 0.6% to $2,093.3 million in 2015 compared to $2,107.0 million in 2014. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to varying utilization of reinsurance mainly related to quota share contracts. Premiums earned increased by 1.4% to $2,143.8 million in 2015, compared to $2,113.7 million in 2014. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Net Investment Income. Net investment income decreased by 3.1% to $264.8 million in 2016 compared with net investment income of $273.3 million in 2015. Net pre-tax investment income as a percentage of average invested assets, was 2.8% in 2016 compared to 3.1% in 2015. The decline in income and yield in 2016 compared to the prior year was primarily the result of dividends from affiliated investments. In December 2015, the Company exchanged its investment in Parent's shares to convertible preferred stock of Everest Preferred International Holdings, Ltd. ("Preferred Holdings"), another affiliated entity. Dividends from the convertible preferred stock in 2016 were $31.0 million compared to $38.9 million of dividends received from the Parent's shares in 2015. In addition, there were lower reinvestment rates for the fixed income portfolios and lower dividends from equity securities, partially offset by higher income from our limited partnerships.
Net investment income decreased by 5.9% to $273.3 million in 2015, compared with net investment income of $290.3 million in 2014. Net pre-tax investment income, as a percentage of average invested assets, was 3.1% in 2015 compared to 3.5% in 2014. The decline in income and yield was primarily the result of lower reinvestment rates for the fixed income portfolios and a decrease in our limited partnership income.
Net Realized Capital Gains (Losses). Net realized capital losses were $28.9 million in 2016 and net realized capital gains were $50.3 million and $206.7 million in 2015 and 2014, respectively. The net realized capital losses of $28.9 million were comprised of a realized capital loss of $28.0 million from the sale of our Heartland subsidiary, $25.7 million of other-than-temporary impairments and $21.1 million of losses from sales on our fixed maturity and equity securities, partially offset by $45.9 million of gains from fair value re-measurements on fixed maturity securities, equity securities and other invested assets. Comprising the $50.3 million of net realized capital gains in 2015 was a $94.7 million gain on the sale of a subsidiary and $44.1 million of net gains from sales on our fixed maturity and equity securities, partially offset by $78.8 million of other-than-temporary impairments and $9.6 million of losses from fair value re-measurements on equity securities and other invested assets. The net realized capital gains of $206.7 million in 2014 were the result of $251.8 million of gains from fair value re-measurements on fixed maturity, equity securities and other invested assets, partially offset by $38.9 million of other-than-temporary impairments and $6.2 million of losses from sales on our fixed maturity and equity securities.
Incurred losses and LAE decreased by 2.6% to $1,319.6 million in 2015 compared to $1,354.1 million in 2014, primarily due to a decrease in prior years attritional losses of $58.1 million. The $4.7 million of prior years losses was comprised of $79.8 million of losses from the insurance segment, partially offset by $75.1 million of favorable development from the reinsurance segments. This $79.8 million of loss development in the insurance segment largely related to umbrella business and construction liability on run-off programs non-renewed by the Company several years ago. The $75.1 million of favorable development related
Other Underwriting Expenses. Other underwriting expenses were $245.0 million, $214.8 million and $192.0 million in 2016, 2015 and 2014, respectively. The increase in other underwriting expenses for 2016 compared to 2015 was mainly due to costs incurred related to the expansion of the insurance business. The increase in other underwriting expenses for 2015 compared to 2014 was mainly due to the impact of the increase in premiums earned and higher compensation expenses.
Interest, fees and other bond amortization expense was $35.4 million and $38.0 million in 2015 and 2014, respectively. The decrease was primarily due to the combination of the maturity of $250.0 million of senior notes in October 2014 and the issuance of $400.0 million of senior notes in June 2014.
Our net income was $295.8 million, $412.7 million and $454.1 million in 2016, 2015 and 2014, respectively. The changes were primarily driven by the financial component fluctuations explained above.
Our combined ratio decreased by 2.9 points to 86.3% in 2015 compared to 89.2% in 2014. The loss ratio component decreased 2.5 points in 2015 over the same period last year, primarily due to the decrease in current years attritional losses. The commission and brokerage ratio components decreased 1.4 points in 2015 over the same period last year primarily due to changes in the mix of business and the impact of the affiliated quota shares. The other underwriting expense ratio components were comparable at 10.0% in 2015 and 9.0% in 2014.
Net investment income decreased by 5.9 % to $273.3 million in 2015 compared to $290.3 million 2014. These decreases were primarily due to a decrease in income on the fixed income portfolio and income from our limited partnership investments, partially offset by an increase in dividends from Parent's shares and interest income received from the Parent on the affiliated note receivable.
The following table presents the composition of our net realized capital gains (losses) for the periods indicated:
equity securities and other invested assets. In 2015, we recorded a $94.7 million gain on the sale of a subsidiary and $44.1 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $78.8 million of other-than-temporary impairments and $9.6 million of net realized capital losses due to fair value re-measurements on equity securities and other invested assets. The fixed maturity and equity sales in 2016 and 2015 related primarily to adjusting the portfolios for overall market changes and individual credit shifts. In 2014, we recorded $251.8 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets, partially offset by $38.9 million of other-than-temporary impairments and $6.2 million of net realized capital losses from sales of fixed maturity and equity securities.
Commission and brokerage decreased by 1.4% to $199.0 million in 2015 compared to $201.9 million in 2014. This decrease was primarily due to the impact of the decrease in premiums earned and changes related to the affiliated quota share contracts. Segment other underwriting expenses increased to $50.1 million in 2015 from $45.6 million in 2014. The increase was primarily due to the impact of changes in the mix of business and higher employee benefit costs.
The following table presents the underwriting results and ratios for the International segment for the periods indicated.
Premiums. Gross written premiums decreased by 7.6% to $1,269.1 million in 2016 compared to $1,374.0 million in 2015, primarily due to declines in Latin American, Middle East and Asian business and the negative impact of $40.7 million from the movement of foreign exchange rates. Net written premiums decreased by 11.6% to $497.6 million in 2016 compared to $562.7 million in 2015. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to varying utilization of reinsurance related to the quota share contracts. Premiums earned decreased 12.1% to $510.9 million in 2016 compared to $581.2 million in 2015. The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Incurred losses and LAE decreased by 47.4% to $207.6 million in 2016 compared to $394.8 million in 2015, primarily due to a decrease in current year attritional losses of $116.6 million, more favorable development on prior year attritional losses of $82.2 million and more favorable development of prior year catastrophe losses of $19.2 million, partially offset by an increase of $30.8 million in current year catastrophe losses. The decrease in attritional losses related to lower losses on Canadian, Latin American, Middle Eastern and African business in 2016 and the impact of the decrease in premiums earned. The $93.6 million of favorable development on prior years attritional losses was mainly related to property business. The $65.5 million of current year catastrophe losses in 2016 were due to the Fort McMurray Canada wildfire ($24.9 million), Hurricane Matthew ($13.7 million), the Ecuador earthquake ($11.8 million), the 2016 Taiwan earthquake ($7.6 million) and the New Zealand earthquake ($6.9 million). The $34.7 million of current year catastrophe losses in 2015 were due to the 2015 Chilean earthquake ($17.4 million), Northern Chile storms ($9.6 million) and the New South Wales storms ($7.8 million).
Incurred losses and LAE increased by 10.3% to $394.8 million in 2015 compared to $358.0 million in 2014, primarily due to the increase in current year attritional losses of $39.7 million, mainly related to $14.9 million of losses from the explosion at the Chinese port of Tianjin. The $34.7 million of current year catastrophe losses in 2015 were due to the 2015 Chilean earthquake ($17.4 million), Northern Chile storms ($9.6 million) and the New South Wales storms ($7.8 million). The $35.5 million of current year catastrophe losses for 2014 were due to the Chilean earthquake ($10.4 million), Japan snowstorm ($10.0 million), Hurricane Odile ($7.7 million) and Brisbane hailstorm ($7.5 million).
Commission and brokerage increased 1.3% to $121.2 million in 2015 compared to $119.7 million in 2014. The variances were primarily due to the impact of changes in the mix of business and changes in affiliated quota share contracts. Segment other underwriting expenses decreased slightly to $34.3 million in 2015 compared to $34.6 million in 2014.
The following table presents the underwriting results and ratios for the Insurance segment for the periods indicated.
Premiums. Gross written premiums increased by 13.2% to $1,668.8 million in 2016 compared to $1,473.8 million in 2015. This increase was primarily driven by expansion of various insurance lines of business and an increase in accident and health business. Net written premiums decreased by 1.6% to $620.3 million in 2016 compared to $630.7 million in 2015. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the transfer of the crop business to the U.S. Reinsurance segment as a result of the Heartland sale. Premiums earned decreased 2.9% to $593.1 million in 2016 compared to $611.1 million in 2015. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Gross written premiums increased by 24.9% to $1,473.8 million in 2015 compared to $1,180.4 million in 2014. This increase was primarily driven by an increase in various lines of business as the company focused on expanding its insurance operations. Net written premiums increased by 22.0% to $630.7 million in 2015 compared to $516.9 million in 2014, which is consistent with the change in gross written premiums. Premiums earned increased 16.5% to $611.1 million in 2015 compared to $524.4 million in 2014. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Commission and brokerage decreased by 128.7% to ($5.1) million in 2015 compared to $17.8 million of expense in 2014. The decrease was primarily driven by changes in the mix of business and impacts from affiliated quota share agreements. Segment other underwriting expenses increased to $130.4 million in 2015 compared to $111.8 million in 2014. The increase was primarily due to the impact of the increase in premiums earned and increased focus on insurance operations resulting in increased operating expenses, including new hires.
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as "may", "will", "should", "could", "anticipate", "estimate", "expect", "plan", "believe", "predict", "potential" and "intend". Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic events on our financial statements and the ability of our subsidiaries to pay dividends. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause our actual events or results to be materially different from our expectations include those discussed under the caption ITEM 1A, "Risk Factors". We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.