The increase in consolidated gross written premiums for the year ended December 31, 2016 as compared to the same periods ended in 2015 and 2014 was primarily the result of increased premiums in all segments with the exception of International Specialty as our property reinsurance book was adversely impacted by increased competition and declining rates. All segments were impacted to some degree by increasing competition and, in some cases, declining rates, with our International Specialty and Syndicate 1200 segments being the most impacted by this competition. Net written premiums increased within our Excess and Surplus Lines and Commercial Specialty segments due to the increases in gross written premiums and increased risk retention. Net written premiums for our International Specialty segment declined in 2016 due to the reduction in gross written premiums, partially offset by increased risk retention. Net written premiums for the Syndicate 1200 segment declined in 2016 as compared to 2015 and 2014 due to reductions in our participation percentages, partially offset by increased risk retention. The increase in consolidated earned premiums for the year ended December 31, 2016 as compared to 2015 and 2014 was due to the increase in gross and net written premiums.
The increase in consolidated net investment income for the year ended December 31, 2016 as compared to the same period ended 2015 was primarily attributable to a $20.9 million increase in the return on our alternative investment portfolio, from $3.0 million for the year ended December 31, 2015 to $23.9 million for the same period ended 2016. During the first quarter of 2016, we evaluated our accounting for income from our alternative investment portfolio and determined that as we manage these investments to appreciate in value on a quarter to quarter basis, it is more appropriate to classify the change in value as net investment income as opposed to realized investment gains (losses). All prior periods have been reclassified to conform to the current presentation. Absent the results of the alternative investments, consolidated net investment income increased $5.6 million from $85.6 million for the year ended December 31, 2015 to $91.2 million for the same period ended 2016, primarily attributable to an increase in income on our fixed maturity portfolio, partially offset by increased investment related expenses. The decline in consolidated net investment income for the year ended December 31, 2015 as compared to the same period ended 2014 was primarily attributable to a $16.5 million decrease in the return on our alternative investment portfolio, from $19.5 million for the year ended December 31, 2014 to $3.0 million for the same period ended 2015. Absent the results of the alternative investments, consolidated net investment income was comparable at $85.6 million and $86.6 million for the years ended December 31, 2015 and 2014, respectively. Total invested assets at December 31, 2016 were $4,192.4 million, net of $131.9 million of invested assets attributable to Syndicate 1200’s trade capital providers. Total invested assets at December 31, 2015 were $4,020.4 million, net of $95.3 million of invested assets attributable to Syndicate 1200’s trade capital providers. Total invested assets at December 31, 2014 were $4,022.7 million, net of $75.2 million of invested assets attributable to Syndicate 1200’s trade capital providers.
Included in losses and loss adjustment expenses for 2014 was $18.7 million in catastrophe losses resulting from storm activity in the United States, various hailstorms, Typhoon Rammasum and Hurricane Odile. Partially offsetting these 2014 accident year losses was $37.7 million of net favorable development on prior accident year loss reserves, primarily attributable to favorable development in our general liability line and our Syndicate 1200 liability and property lines, partially offset by unfavorable development in the commercial multi-peril and commercial automobile lines.
date based on current known facts and circumstances. Due to the significant uncertainties inherent in the estimation of loss reserves, there can be no assurance that future loss development, favorable or unfavorable, will not occur.
The increase in the loss ratio for the year ended December 31, 2016 as compared to the same periods in 2015 and 2014 was primarily attributable to reduced net favorable loss reserve development on prior accident years coupled with increased catastrophe losses.
The increase in gross written premiums for the year ended December 31, 2016 as compared to the same periods ended 2015 and 2014 was primarily attributable to growth in our public entity, professional liability and surety units. Partially offsetting these increases was reduced underwriting in our grocery and retail business units due to planned reductions as we exited unprofitable accounts and implemented underwriting initiatives. Additionally, gross written premiums increased $68.1 million for the year ended December 31, 2016 due to increased premium writings in our fronting programs. The fronting programs do not impact earned premiums, but result in ceding commissions received. The increase in earned premiums was primarily attributable to the increase in gross written premiums coupled with a reduction in ceding percentages for certain lines of business.
Included in losses and loss adjustment expense for the year ended December 31, 2016 was $2.6 million in catastrophe losses, including $2.1 million for storm activity in the United States and $0.5 million for Hurricane Matthew. Included in losses and loss adjustment expenses was $22.7 million in net favorable loss reserve development on prior accident years, primarily attributable to $9.0 million favorable development in the workers compensation lines, $7.0 million in the surety lines, $6.2 million in automobile liability lines and $2.0 million in the property lines. Partially offsetting this favorable development was $1.5 million of unfavorable development in the other liability lines.
Included in losses and loss adjustment expense for the year ended December 31, 2014 was $5.7 million in catastrophe losses for storm activity in the United States. Included in losses and loss adjustment expenses was $1.7 million in net favorable loss reserve development on prior accident years, primarily attributable to $19.5 million of unfavorable development in general liability due to increases in claim severity, offset by favorable development of $8.5 million in errors and ommissions lines, $7.9 million in short-tail lines and $5.8 million in workers compensation.
The decline in gross written premiums for the year ended December 31, 2016 as compared to the same periods in 2015 and 2014 was primarily attributable to declines in our property reinsurance unit due to increased competition, changes in terms and conditions and declining rates. Partially offsetting this decline was increased gross written premiums in our casualty and professional liability units which was the result of new business submissions partially offset by declining rates and increased competition. Gross written premiums for our Brazilian unit was favorably impacted by currency gains, as the Brazilian Real strengthened against the U.S Dollar. The increase in earned premiums for the year ended December 31, 2016 as compared to the same periods in 2015 and 2014 was primarily due to a reduction in our ceding percentages, coupled with a change in business mix.
Included in losses and loss adjustment expenses for the year ended December 31, 2015 was $5.0 million of catastrophe losses resulting from the Tianjin explosion and various storms. Offsetting the catastrophe losses was $10.3 million in net favorable loss reserve development on prior accident years primarily attributable to $5.5 million favorable development in various property classes, $6.2 million favorable development in the liability lines and $2.4 million favorable development in the energy lines, partially offset by $2.5 million of unfavorable development in the Specialty lines.
Included in losses and loss adjustment expenses for the year ended December 31, 2014 was $2.4 million of catastrophe losses resulting from Hurricane Odile. Offsetting the catastrophe losses was $21.1 million in net favorable loss reserve development on prior accident years primarily attributable to $14.7 favorable development in various property classes, $3.3 million favorable development in the liability lines and $3.9 million favorable development in the marine and energy, aerospace and specialty lines.
Losses and loss adjustment expenses for the year ended December 31, 2015 included $8.6 million of net unfavorable loss reserve development on prior accident years primarily driven by $5.9 million of unfavorable development in our run-off workers compensation lines due to increasing medical costs on older claims and the unwind of reserve discount, $4.2 million of unfavorable development in our asbestos and environmental exposures driven by increased defense costs in our primary asbestos exposure and
$1.2 million of unfavorable development in our other assumed business. Partially offsetting this unfavorable development was $2.7 million of net favorable development in our run-off property catastrophe reinsurance lines.
Underwriting, acquisition and insurance expenses for the Run-off Lines segment consists primarily of administrative expenses. Underwriting expense for the year ended December 31, 2016 was favorably impacted by reduced policyholder dividends and outside services fees. Underwriting expense for the year ended December 31, 2015 was favorably impacted by a $2.3 million reduction in the premiums and insolvency assessment accruals. Underwriting expense for the year ended December 31, 2014 was favorably impacted by a $1.1 million recovery of a policyholder dividend in the run-off risk management lines, offset by $1.8 million in higher fee and bad debt expenses.
For the years ended December 31, 2016, 2015 and 2014, net cash used in investing activities was $145.1 million, $193.6 million and $121.3 million, respectively. The decrease in cash flows used in investing activities from 2015 to 2016 was mainly the result of maturities and sales of fixed maturity investments and equity securities, partially offset by an increase in cash used to purchase fixed maturities and short-term investments. Included in purchases of fixed assets for the year ended December 31, 2015 was $42.0 million associated with the acquisition of real estate holdings, which were purchased on our behalf by a third-party intermediary using funds held in escrow from the fourth quarter 2014 sale of the Torrance, California real estate holdings, as previously disclosed in our December 31, 2014 Form 10-K. The increase in cash flows used in investing activities from 2014 to 2015 was mainly the result of purchases of fixed maturities, partially offset by the inflow of cash from maturities and sales of fixed maturity investments. As of December 31, 2016, 2015 and 2014, $405.5 million, $210.8 million, and $258.3 million, respectively, of the investment portfolio were invested in short-term investments.
For the years ended December 31, 2016, 2015 and 2014, net cash used in financing activities was $72.1 million, $50.0 million, and $82.4 million, respectively. During 2016, 2015 and 2014, we repurchased approximately 0.8 million, 0.6 million and 1.0 million shares, respectively, of our common shares for a total cost of $47.1 million, $29.7 million and $50.8 million, respectively. We paid dividends to our shareholders totaling $26.6 million, $22.7 million and $18.2 million during the years ended December 31, 2016, 2015 and 2014, respectively. During 2014, we paid $18.0 million for the extinguishment of one of our fixed rate trust preferred securities.
During 2017, Argo Group US, Inc. may be permitted to receive dividends from its subsidiaries as follows: Argonaut Insurance Company - $80.0 million and Rockwood - $11.3 million. Business and regulatory considerations may impact the amount of dividends actually paid and prior approval of dividend payments may be required.
The Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the Borrowers could be required to repay all amounts outstanding under the Credit Agreement. Lenders holding at least a majority of the loans and commitments under the Credit Agreement may elect to accelerate the maturity of the loans and/or terminate the commitments under the Credit Agreement upon the occurrence and during the continuation of an event of default. No defaults or events of defaults have occurred as of the date of this filing.
Included in the Credit Agreement is a provision that allows up to $17.5 million of the revolving credit facility to be used for letters of credit (“LOCs”), subject to availability. As of December 31, 2016, there were no borrowings outstanding and $0.2 million in LOCs against the Credit Facility.
On July 16, 2014, Argo Group US, Inc. purchased the outstanding PXRE Capital Trust V $20,000,000 Junior Subordinated Debt Securities (“Capital Trust V”) at a price equal to 90.0% of the principal amount plus accrued and unpaid interest through the date of purchase for a total price of $18.2 million, resulting in the recognition of a $2.0 million pre-tax realized gain.
We assumed debt through the acquisition of Syndicate 1200. These notes are unsecured. All are redeemable subject to certain terms and conditions at a price up to 100% of the principal plus accrued and unpaid interest. Interest on the U.S. Dollar and Euro notes is due semiannually and quarterly, respectively. A summary of the notes outstanding at December 31, 2016 is presented below:
On February 17, 2015, our Board of Directors declared a 10% stock dividend, payable on March 16, 2015, to shareholders of record at the close of business on March 2, 2015. Shareholders received cash in lieu of fractional shares.
Our estimated contractual obligations and commitments as of December 31, 2016 were as follows:
Interest only on Junior Subordinated Debentures through 2033. Interest calculated based on the rate in effect at December 31, 2016. Principal due beginning May 2033.
Multi-year contract’s base terms, as reflected in the above table, include premium per annum of $27.5 million during the coverage period of January 1, 2017 to December 31, 2020. The contract contains an early termination clause whereby we may terminate the contract at December 31, 2017, subject to meeting certain contractual stipulations.
Major factors contributing to uncertainty in loss reserve estimates for general liability include reporting lags (i.e., the length of time between the event triggering coverage and the actual reporting of the claim), the number of parties involved in the underlying tort action, events triggering coverage that are spread over multiple time periods, the inability to know in advance what actual indemnity
Workers compensation is generally considered a long-tail coverage as it takes a relatively long period of time to finalize claims from a given accident year. Certain payments, such as initial medical treatment or temporary wage replacement for the injured worker, are generally disbursed quickly. Other payments may be made over the course of several years, such as awards for permanent partial injuries. Some payments continue to take place throughout the injured worker’s life, such as permanent disability benefits and on-going medical care. Although long-tail in nature, claims generally are not subject to long reporting lags, settlements are generally not complex and most of the liability exposure is characterized by high frequency and moderate severity. The largest reserve risks are generally associated with low frequency, high severity claims that require lifetime coverage for medical expense arising from a worker’s injury.
The commercial automobile liability product line is a long-tail coverage, mainly due to exposures arising out of bodily injury claims. Losses in this line associated with bodily injury claims generally are more difficult to accurately estimate and take longer to resolve.
The loss estimation process often begins with the identification of events with characteristics similar to the recent catastrophe (geographic location, wind speed, damageability, etc.), which then results in a list of the expected losses by contract from our proprietary risk management system. Third-party modeling software is embedded in our proprietary risk management system.
Similar to general liability, commercial multiple peril reserves are affected by reported loss development pattern assumptions. Recorded gross reserves for commercial multiple peril business were $270.6 million as of December 31, 2016. If the development patterns underlying our net reserves for this line of business change by 10%, the estimated net reserve could change by $10.0 million, in either direction.
Recorded gross reserves for workers compensation were $571.3 million as of December 31, 2016. The two most important assumptions for workers compensation reserves are loss development factors and loss cost trends, particularly medical cost inflation. Loss development patterns are dependent on medical cost inflation. Approximately 60% of the workers compensation net reserves are related to future medical costs. A review of National Council on Compensation Insurance data suggests that the annual growth in industry medical claim costs has varied from -2% to +13% since 1991. Across the entire reserve base, a 1% change in calendar year medical inflation could change the estimated net reserve by $15.0 million, in either direction.
Recorded gross reserves for commercial auto liability were $123.7 million as of December 31, 2016. A key assumption for commercial lines auto liability is the annual loss cost trend, particularly the severity trend component of loss costs. A 3% change in assumed annual severity is within the range of our historical experience and which management considers possible. A 3% change in assumed annual severity could change the estimated net reserve by $10.0 million, in either direction.
In the case of the reserves for environmental exposures, factors contributing to the high degree of uncertainty include expanding theories of liability and damages, the risks inherent in major litigation, inconsistent decisions concerning the existence and scope of coverage for environmental claims and uncertainty as to the monetary amount being sought by the claimant from the insured.
Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of Argo Group’s United States, Brazil, Ireland, Switzerland, Belgium, Malta and United Kingdom subsidiaries’ assets and liabilities. Deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years. Deferred tax assets are recognized for deductible temporary differences and tax operating loss and tax credit carryforwards. The deferred tax assets and liabilities are measured by applying the enacted tax rates and laws in effect for the years in which such differences are expected to reverse. The components of our deferred tax asset are temporary differences primarily attributable to loss reserve discounting and unearned premium reserves. Our deferred tax liabilities resulted primarily from unrealized gains in the investment portfolio, deferred acquisition costs and depreciable fixed assets.
For the years ended December 31, 2016, 2015 and 2014, all of our reporting units passed Step 1 of the goodwill impairment analysis as the fair value of each reporting unit was in excess of their carrying values. Therefore, Step 2 of the goodwill impairment analysis was not required. Any decline in the fair value of these reporting units could result in the carrying value of the reporting unit being in excess of fair value, triggering Step 2 of the impairment testing model, which could result in an impairment of goodwill.
We evaluated our definite lived intangibles for indicators of impairment. If indicators of impairment had been identified, we would have been required to test definite lived intangible assets for impairment. As of October 1, 2016, the testing date, no indicators of impairment were identified. Therefore, we were not required to test for impairment. As with the indefinite-lived intangible assets, we will continue to monitor for indicators of impairment and test as required.