W. R. Berkley and its subsidiaries own or lease office buildings or office space suitable to conduct their operations. At December 31, 2015, the Company had aggregate office space of 3,892,994 square feet, of which 1,066,705 were owned and 2,826,288 were leased.
W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates in three business segments: Insurance-Domestic, Insurance-International and Reinsurance-Global. Our decentralized structure provides us with the flexibility to respond quickly and efficiently to local or specific market conditions and to pursue specialty business niches. It also allows us to be closer to our customers in order to better understand their individual needs and risk characteristics. While providing our business units with certain operating autonomy, our structure allows us to capitalize on the benefits of economies of scale through centralized capital, investment, reinsurance and enterprise risk management, and actuarial, financial and corporate legal staff support. Our primary sources of revenues and earnings are its insurance operations and its investments.
Although insurance prices have generally increased for most lines of business since 2011, the rate of increase has declined in more recent years. Loss costs have also increased over that period of time. With the low level of interest rates available, current price levels for certain lines of business remain below the prices required for the Company to achieve its long-term return objectives. Part of the Company's strategy is to selectively reduce its business in areas where it believes returns are not adequate. Price changes are reflected in the Company’s results over time as premiums are earned.
The Company’s profitability is also affected by its investment income and investment gains. The Company’s invested assets are invested principally in fixed maturity securities. The return on fixed maturity securities is affected primarily by general interest rates, as well as the credit quality and duration of the securities. Returns available on fixed maturity investments are at historically low levels. The Company's investment income has been negatively impacted by the low fixed maturity investment returns, and will be further impacted if investment returns remain at this level.
The Company invests in equity securities, merger arbitrage securities, investment funds (including energy related funds), private equity, loans and real estate related assets. The Company's investments in investment funds and its other alternative investments have experienced, and the Company expects to continue to experience, greater fluctuations in investment income.
Approximately $1.4 billion, or 15%, of the Company’s net loss reserves as of December 31, 2015 relate to the Reinsurance-Global segment. There is a higher degree of uncertainty and greater variability regarding estimates of assumed loss reserves because those estimates are based, in part, upon information received from ceding companies. If information received from ceding companies is not timely or correct, the Company’s estimate of ultimate losses may not be accurate. Furthermore, due to delayed reporting of claim information by ceding companies, the claim settlement tail for assumed reinsurance is extended. Management considers the impact of delayed reporting in its selection of assumed loss development factors.
Following is a summary of the Company’s reserves for losses and loss expenses by business segment as of December 31, 2015 and 2014:
Following is a summary of the Company’s net reserves for losses and loss expenses by major line of business as of December 31, 2015 and 2014:
(1) Reserves for excess and assumed workers’ compensation business are net of an aggregate net discount of $699 million and $746 million as of December 31, 2015 and 2014, respectively.
Reinsurance-Global - Reserves for the Reinsurance-Global segment developed favorably by $11 million in 2015. The favorable development was primarily related to direct facultative reinsurance business and to accident years 2005 through 2013. Loss reserves developed favorably for umbrella business and for other liability coverage for contractors.
Substantially all of discounted workers’ compensation reserves (98% of total discounted reserves at December 31, 2015) are excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience.
A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at December 31, 2015 is presented in the table below.
The Company has evaluated its fixed maturity securities in an unrealized loss position and believes the unrealized loss is due primarily to temporary market and sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default under financial covenants. Based on its assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due and does not consider any of these securities to be OTTI. For the year ended December 31, 2015, OTTI for fixed maturities recognized in earnings were $9.0 million, all of
Preferred Stocks - At December 31, 2015, there was 1 preferred stock in an unrealized loss position, with an aggregate fair value of $22.3 million and a gross unrealized loss of $3.4 million. The preferred stock is rated investment grade. Management believes the unrealized loss is due primarily to market and sector related factors and does not consider it to be OTTI. For the year ended December 31, 2015, OTTI for preferred stocks were $13.4 million. There were no OTTI for preferred stocks for the year ended December 31, 2014.
Independent pricing services - Substantially all of the Company’s fixed maturity securities available for sale were priced by independent pricing services (generally one U.S. pricing service plus additional pricing services with respect to a limited number of foreign securities held by the Company). The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities). The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness based upon current trading levels for similar securities. If the prices appear unusual to the Company, they are re-examined and the value is either confirmed or revised. In addition, the Company periodically performs independent price tests of a sample of securities to ensure proper valuation and to verify our understanding of how securities are priced. As of December 31, 2015, the Company did not make any adjustments to the prices provided by the pricing services. Based upon the Company’s review of the methodologies used by the independent pricing services, these securities were classified as Level 2.
Net Income to Common Stockholders. The following table presents the Company’s net income to common stockholders and net income per diluted share for the years ended December 31, 2015 and 2014.
Insurance-Domestic gross premiums increased 6% to $5,684 million in 2015 from $5,384 million in 2014. Gross premiums increased $120 million (8%) for workers' compensation, $86 million (5%) for other liability, $70 million (15%) for professional liability and $29 million (2%) for short-tail lines and decreased $5 million (1%) for commercial auto.
Insurance-International gross premiums decreased 6% to $923 million in 2015 from $984 million in 2014. Gross premiums decreased $81 million (15%) for short-tail lines and $38 million (30%) for professional liability and increased $26 million (23%) for other liability, $22 million (31%) for workers' compensation and $10 million (7%) for commercial auto. In local currency terms, gross premiums increased 4%.
Premiums earned increased 5% to $6,041 million in 2015 from $5,744 million in 2014. Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term, and accordingly recent rate increases will be earned over the upcoming quarters. Premiums earned in 2015 are related to business written during both 2015 and 2014. Audit premiums were $153 million in 2015 compared with $118 million in 2014.
Net Realized Gains on Investment Sales. The Company buys and sells securities on a regular basis in order to maximize its total return on investments. Decisions to sell securities are based on management’s view of the underlying fundamentals of specific securities as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions. Net realized gains on investment sales were $126 million in 2015 compared with $255 million in 2014. In 2015, realized gains were primarily related to sales of some shares of a publicly traded common stock held by one of the
Insurance-Domestic - The loss ratio of 61.2% in 2015 was 1.0 point higher than the loss ratio of 60.2% in 2014. Catastrophe losses were $50 million in 2015 compared with $65 million in 2014, a decrease of 0.4 loss ratio points. Favorable prior year reserve development was $47 million in 2015 compared with $92 million in 2014, a difference of 1.1 loss ratio points. The loss ratio excluding catastrophe losses and prior year reserve development increased 0.3 points to 61.1% in 2015 from 60.8% in 2014.
Expenses from Wholly-Owned Investees. Expenses from wholly-owned investees represent costs associated with aviation-related businesses that include (i) cost of goods sold related to aircraft and products sold and services provided, and (ii) general and administrative expenses. Expenses from wholly-owned investees were $397 million in 2015 compared to $401 million in 2014.
Interest Expense. Interest expense was $131 million in 2015 compared with $128 million in 2014. In August 2014, the Company issued $350 million of 4.75% senior notes due 2044. A portion of the proceeds was used to repay $200 million of 5.60% senior notes on May 15, 2015.
Insurance-Domestic gross premiums increased 12% to $5,384 million in 2014 from $4,804 million in 2013. Gross premiums increased $169 million (13%) for workers' compensation, $160 million (10%) for other liability, $120 million (11%) for short-tail lines, $85 million (22%) for professional liability and $46 million (9%) for commercial auto.
Net Realized Gains on Investment Sales. The Company buys and sells securities on a regular basis in order to maximize its total return on investments. Decisions to sell securities are based on management’s view of the underlying fundamentals of specific securities as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions. Net realized gains on investment sales were $255 million in 2014 compared with $128 million in 2013. Realized gains in 2014 were related primarily to the sale of real estate, investment funds and fixed income and equity securities
and included an $86 million gain from the sale of a commercial office building in London, England and a gain of $39 million resulting from an initial public offering by one of the Company's private equity investees.
Interest Expense. Interest expense was $128 million in 2014 compared with $123 million in 2013. In May 2013, the Company issued $350 million of 5.625% subordinated debentures due 2053 and prepaid $250 million of 6.750% subordinated debentures that were due in 2045. In August 2014, the Company issued $350 million of 4.75% senior notes due 2044. A portion of the proceeds was used to repay $200 million of 5.60% senior notes on May 15, 2015. In addition, the Company assumed $71 million of debt in conjunction with the acquisition of an office building in West Palm Beach, Florida, that matured in August 2015.
Income Taxes. The effective income tax rate was 32% in 2014 compared to 28% in 2013. The lower tax rate in 2013 was due, in part, to the utilization of foreign tax credits. The effective income tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income. Tax exempt investment income comprised a lower portion of the 2014 pre-tax income and as such had a lesser impact on the effective tax rate for 2014 compared with 2013.
The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $58 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. However, in the future, if such earnings were distributed to the Company, taxes of approximately $3.1 million, assuming all tax credits are realized, would be payable on such undistributed earnings and would be reflected in the tax provision for the year in which these earnings are no longer intended to be permanently reinvested in the foreign subsidiary.
Real Estate. Real estate is directly owned property held for investment. At December 31, 2015, real estate properties in operation included a long-term ground lease in Washington D.C. and office buildings in West Palm Beach and Palm Beach, Florida. In addition, there are three properties under development: an office building in London, a mixed-use project in Washington D.C. and an office complex in New York City. The Company expects to fund further development costs for these projects with a combination of its own funds and external financing.
Equity. The Company repurchased 4,502,025, 5,816,468, and 3,924,355 shares of its common stock in 2015, 2014 and 2013, respectively. The aggregate cost of the repurchases was $224 million in 2015, $239 million in 2014, and $166 million in 2013. At December 31, 2015, total common stockholders’ equity was $4.6 billion, common shares outstanding were 123,307,837 and stockholders’ equity per outstanding share was $37.31.
The Company files a consolidated income tax return in the U.S. and foreign tax returns in each of the countries in which it has overseas operations. At December 31, 2015, the Company had a deferred gross tax asset (net of valuation allowance) of $452 million (which primarily relates to loss and loss expense reserves and unearned premium reserves) and a gross deferred tax liability of $459 million (which primarily relates to deferred policy acquisition costs and unrealized investment gains). The realization of the deferred tax asset is dependent upon the Company's ability to generate sufficient taxable income in future periods. Based on historical results and the prospects for future operations, management anticipates that it is more likely than not that future taxable income will be sufficient for the realization of this asset.
The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $79 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. However, in the future, if such earnings were distributed to the Company, taxes of approximately $9.8 million, assuming all tax credits are realized, would be payable on such undistributed earnings and would be reflected in the tax provision for the year in which these earnings are no longer intended to be permanently reinvested in the foreign subsidiary.
Casualty reinsurance treaties - The Company purchases casualty reinsurance to reduce its exposure to large individual casualty losses, workers’ compensation catastrophe losses and casualty losses involving multiple claimants or insureds for the majority of business written by its U.S. companies. A significant casualty treaty in effect as of January 1, 2016 provides protection for losses between $2.5 million and $70 million from single events with claims involving two or more claimants or insureds. The treaty also covers casualty contingency losses in excess of $5 million and up to $70 million. For losses involving two or more claimants for primary workers’ compensation business, coverage is generally in place for losses between $5 million and $170 million. For excess workers’ compensation business, such coverage is generally in place for losses between $25 million and $245 million.
Following is a summary of earned premiums and loss and loss expenses ceded to reinsurers for each of the three years ended December 31, 2015:
The following table presents the credit quality of amounts due from reinsurers as of December 31, 2015. Amounts due
The estimated payments for reserves for losses and loss expenses in the above table represent the projected (undiscounted) payments for gross loss and loss expense reserves related to losses incurred as of December 31, 2015. The estimated payments in the above table do not consider payments for losses to be incurred in future periods. These amounts include reserves for reported losses and reserves for incurred but not reported losses. Estimated amounts recoverable from reinsurers are not reflected. The estimated payments by year are based on historical loss payment patterns. The actual payments may differ from the estimated amounts due to changes in ultimate loss reserves and in the timing of the settlement of those reserves. In addition, at December 31, 2015, the Company had commitments to invest up to $117 million and $485 million in certain investment funds and real estate construction projects, respectively. These amounts are not included in the above table.
The Company utilizes letters of credit to back certain reinsurance payments and obligations. Outstanding letters of credit were $15 million as of December 31, 2015. The Company has made certain guarantees to state regulators that the statutory capital of certain subsidiaries will be maintained above certain minimum levels.
The consolidated financial statements, which include the accounts of W. R. Berkley Corporation and its subsidiaries (the "Company"), have been prepared on the basis of U.S. generally accepted accounting principles ("GAAP"). All significant intercompany transactions and balances have been eliminated. Reclassifications have been made in the 2014 and 2013 financial statements to conform to the presentation of the 2015 financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the revenues and expenses reflected during the reporting period. The most significant items on our balance sheet that involve a greater degree of accounting estimates that are subject to change in the future are the valuation of investments, other-than-temporary impairments, loss and loss expense reserves and premium estimates. Actual results could differ from those estimates.
Equity securities classified as available for sale are carried at estimated fair value, with unrealized gains and losses, net of applicable income taxes, excluded from earnings and reported as a component of comprehensive income and a separate component of stockholders' equity.
Equity and fixed maturity securities that the Company purchased with the intent to sell in the near-term are classified as trading account securities and are reported at estimated fair value. Realized and unrealized gains and losses from trading activity are reported as net investment income and are recorded at the trade date. Short sales and short call options are presented as trading securities sold but not yet purchased. Unsettled trades and the net margin balances held by the clearing broker are presented as a trading account receivable from brokers and clearing organizations.
Realized gains or losses represent the difference between the cost of securities sold and the proceeds realized upon sale and are recorded at the trade date. The Company uses primarily the first-in, first-out method to determine the cost of securities sold.
Acquisition costs associated with the successful acquisition of new and renewed insurance and reinsurance contracts are deferred and amortized ratably over the terms of the related contracts. Ceding commissions received on reinsurance contracts are netted against acquisition costs and are recognized ratably over the life of the contract. Deferred policy acquisition costs are presented net of unearned ceding commissions. Deferred policy acquisition costs are comprised primarily of commissions, as well as employment-related underwriting costs and premium taxes. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income and, if not, are charged to expense. The recoverability of deferred policy acquisition costs is evaluated separately by each of our operating companies for each of their major lines of business. Future investment income is taken into account in measuring the recoverability of deferred policy acquisition costs.
Reserves for losses and loss expenses are an accumulation of amounts determined on the basis of (1) evaluation of claims for business written directly by the Company; (2) estimates received from other companies for reinsurance assumed by the Company; and (3) estimates for losses incurred but not reported (based on Company and industry experience). These estimates are periodically reviewed and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments are reflected in the statements of income in the period in which they are determined. The Company discounts its reserves for excess and assumed workers' compensation claims using a risk-free or statutory rate. (See Note 14 of Notes to Consolidated Financial Statements.)
Property, furniture and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the estimated useful lives of the respective assets. Depreciation expense was $45 million, $44 million and $38 million for 2015, 2014 and 2013, respectively.
Interest payments were $130 million, $120 million and $125 million in 2015, 2014 and 2013, respectively. Income taxes paid were $165 million, $314 million and $186 million in 2015, 2014 and 2013, respectively. Other non-cash items include acquisitions, unrealized investment gains and losses and pension expense. (See Note 2, Note 11 and Note 25 of Notes to Consolidated Financial Statements.)
The accounting and reporting standards that became effective in 2015 were either not applicable to the Company or their adoption did not have a material impact on the Company.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments. ASU 2016-01 amends the accounting guidance for financial instruments to require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The updated guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017 and interim periods within those years. The adoption of this guidance is not expected to have a material effect on the Company’s financial condition upon adoption, but will impact results of operations after adoption of this guidance as unrealized gains and losses on equity securities will no longer be reported directly in AOCI, but will instead be reported in net income.
In 2015, the Company acquired an aviation systems company for $8 million.
In 2014, the Company sold an aviation-related business for $16 million. The business had a net carrying value of $15 million, comprised of $7 million of goodwill, $6 million of other assets, $4 million of furniture and equipment and $2 million of liabilities.
The following table summarizes the estimated fair value of net assets acquired and liabilities assumed for the business combination completed in 2014:
The following table presents the components of the changes in accumulated other comprehensive income (loss) (AOCI) as of and for the year ended December 31, 2015:
Gross unrealized losses for mortgage-backed securities include $1,269,491 and $1,095,671, as of December 31, 2015 and 2014, respectively, related to the non-credit portion of OTTI recognized in other comprehensive income.
The amortized cost and fair value of fixed maturity securities at December 31, 2015, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay obligations.
At December 31, 2015 and 2014, investments in equity securities available for sale were as follows:
The Company uses put options, call options and swap contracts in order to mitigate the impact of potential changes in market conditions on the merger arbitrage trading account. These options and contracts are reported at fair value. As of December 31, 2015, the fair value of long option contracts outstanding was $3 million (notional amount of $52 million) and the fair value of short option contracts outstanding was $1 million (notional amount of $62 million). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives.
Other funds include private equity investments carried on the equity method of accounting, which includes a publicly traded common stock investment in HealthEquity, Inc. (HQY). Our ownership interest in HQY as of December 31, 2015 is approximately 21% with a fair value of $300.1 million and a carrying value of $45.4 million.
Loans receivable in non-accrual status were $3.1 million and $14.2 million as of December 31, 2015 and 2014, respectively, primarily resulting from the sale of such loans.
The real estate loans are secured by commercial real estate primarily located in Arizona, Maryland, New York and Tennessee. These loans generally earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through August 2025. The commercial loans are with small business owners who have secured the related financing with the assets of the business. These loans generally earn interest on a fixed basis and have varying maturities not exceeding 10 years.
The Company utilizes a risk rating system to assign a risk to each of its real estate loans. The loan rating system takes into consideration credit quality indicators including loan to value ratios, which compare the outstanding loan amount to the estimated value of the property, the borrower’s financial condition and performance with respect to loan terms, the Company’s position in the capital structure, and the overall leverage in the capital structure. Based on this rating system, none of the real estate loans were considered to be impaired at December 31, 2015, and accordingly, the Company determined that a specific valuation allowance was not required.
OTTI recognized in earnings were $33.3 million and $6 million for the years ended December 31, 2015 and December 31, 2013, respectively. There were no OTTI for the year ended December 31, 2014. For the year ended December 31, 2015, OTTI related to equity securities were $24.3 million and related to fixed maturity securities were $9 million. For the year ended December 31, 2013, OTTI related to equity securities.
The following table summarizes all securities in an unrealized loss position at December 31, 2015 and 2014 by the length of time those securities have been continuously in an unrealized loss position.
Preferred Stocks - At December 31, 2015, there was one preferred stock in an unrealized loss position, with an aggregate fair value of $22.3 million and a gross unrealized loss of $3.4 million. The preferred stock is rated investment grade. Management believes the unrealized loss is due primarily to market and sector related factors and does not consider it to be OTTI. For the year ended December 31, 2015, OTTI for preferred stocks were $13.4 million. There were no OTTI of preferred stocks for the year ended December 31, 2014.
Common Stocks - At December 31, 2015, there were two common stocks in an unrealized loss position, with an aggregate fair value of $26.5 million and a gross unrealized loss of $19.2 million. Based on management's view on the underlying securities, the Company does not consider the common stocks to be OTTI. For the year ended December 31, 2015, OTTI for common stocks were $10.9 million. There were no OTTI of common stocks for the year ended December 31, 2014.
There were no significant transfers between Levels 1 and 2 for the years ended December 31, 2015 and 2014.
The following tables summarize changes in Level 3 assets and liabilities for the years ended December 31, 2015 and 2014:
During the year ended December 31, 2015, five securities were transferred out of Level 3 as an observable price was available. During the year ended December 31, 2014, two securities were transferred into Level 3 as quoted prices were no longer available.
Insurance-Domestic - Reserves for the Insurance-Domestic segment developed favorably by $47 million in 2015. The favorable development was primarily related to workers' compensation and other liability business, and was partially offset by unfavorable development for commercial automobile liability business.
Insurance-International - Reserves for the Insurance-International segment developed favorably by $5 million in 2015. The favorable development was related primarily to commercial property. The favorable commercial property development was attributable to accident years 2012 through 2014 and was driven by favorable frequency and severity trends on property business written in Lloyd's. The favorable property development was partially offset by unfavorable development for professional indemnity business in the U.K., primarily for accident years 2006 through 2013.
Discounting - The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was $2,308 million and $2,187 million at December 31, 2015 and
December 31, 2014, respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was $699 million and $746 million at December 31, 2015 and December 31, 2014, respectively. At December 31, 2015, discount rates by year ranged from 2.0% to 6.5%, with a weighted average discount rate of 3.9%.
The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 2% of total discounted reserves at December 31, 2015), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware.
The Company reinsures a portion of its exposures principally to reduce its net liability on individual risks and to protect against catastrophic losses. Estimated amounts due from reinsurers are reported net of reserves for uncollectible reinsurance of $1,020,000, $1,144,000 and $1,385,000 as of December 31, 2015, 2014 and 2013, respectively.
The following table presents the amounts due from reinsurers as of December 31, 2015:
(1) Subsidiary debt is due as follows: $43 million in 2016, $37 million in 2017 and $2 million thereafter.
See Note 4, Investments in Fixed Maturity Securities, for a description of assets held on deposit as security.
The amount of dividends paid is dependent upon factors such as the receipt of dividends from our subsidiaries, our results of operations, cash flow, financial condition and business needs, the capital and surplus requirements of our subsidiaries, and applicable insurance regulations that limit the amount of dividends that may be paid by our regulated insurance subsidiaries.
The Company and its subsidiaries use office space and equipment under leases expiring at various dates. These leases are considered operating leases for financial reporting purposes. Some of these leases have options to extend the length of the leases and contain clauses for cost of living, operating expense and real estate tax adjustments. Future minimum lease payments, without provision for sublease income, are: $42,470,000 in 2016; $39,443,000 in 2017; $35,286,000 in 2018; $30,941,000 in 2019; $28,584,000 in 2020 and $105,825,000 thereafter. Rental expense was $46,271,000, $45,198,000 and $44,752,000 for 2015, 2014 and 2013, respectively.
At December 31, 2015, the Company had commitments to invest up to $117 million and $485 million in certain investment funds and real estate construction projects, respectively.
The Company has not issued any stock options under its stock incentive plans since 2004, and there were no outstanding options at December 31, 2015 and December 31, 2014.
Pursuant to the stock incentive plan, the Company may issue restricted stock units (RSUs) to employees of the Company and its subsidiaries. The RSUs generally vest three to five years from the award date and are subject to other vesting and forfeiture provisions contained in the award agreement. The following table summarizes RSU information for the three years ended December 31, 2015:
The Company and its subsidiaries have profit sharing plans in which substantially all employees participate. The plans provide for minimum annual contributions of 5% of eligible compensation; contributions above the minimum are discretionary and vary with each participating subsidiary’s profitability. Employees will become eligible to participate in the plan on the first day of the calendar quarter following the first full calendar quarter after the employee's date of hire provided the employee has completed 250 hours of service during the calendar quarter. The plans provide that 40% of the contributions vest immediately and that the remaining 60% vest at varying percentages based upon years of service. Profit sharing expense was $42 million, $38 million, and $34 million in 2015, 2014 and 2013, respectively.
The following table summarizes the outstanding LTIP awards as of December 31, 2015:
The following table summarizes the LTIP expense for each of the three years ended December 31, 2015:
The Company and its executive chairman of the board entered into an unfunded supplemental benefit agreement (SBA) in 2004. On March 28, 2013, the Company agreed to terminate and distribute the retirement benefit of the SBA. As a result, the Company distributed retirement benefits of $0.3 million and $4.6 million in 2013 and 2014, respectively. The final retirement benefit of $59.4 million, which was fully accrued at December 31, 2014, was distributed in 2015. Net retirement benefit expense was $13,357,000, $9,994,000 and none in 2013, 2014, and 2015 respectively.
The Company’s reportable segments include the following three business segments, plus a corporate segment:
Insurance-Domestic - commercial insurance business, including excess and surplus lines and admitted lines, primarily throughout the United States;