We lease under a non-cancelable operating lease expiring in 2019 approximately 249,000 square feet in an office building in Houston, Texas, which is used for our corporate offices and for offices of several of our subsidiaries. In addition, we lease offices at approximately 570 additional locations for title office operations, production, administrative and technology centers. These additional locations include significant leased facilities in Austin, Denver, Wilmington, Toronto, Dallas and San Antonio.
Our leases expire from 2015 through 2024 and have an average term of four years, although our typical lease term ranges from three to five years. We believe we will not have any difficulty obtaining renewals of leases as they expire or, alternatively, leasing comparable properties. The aggregate annual rent expense under all leases was approximately $42.6 million in 2014.
We also own office buildings in Arizona, Texas, New York and Colorado. These owned properties are not material to our consolidated financial condition. We consider all buildings and equipment that we own or lease to be well maintained, adequately insured and generally sufficient for our purposes.
For the year ended December 31, 2014, net earnings attributable to Stewart were $29.8 million, or $1.24 per diluted share, compared to $63.0 million, or $2.60 per diluted share, for the same period in 2013. Pretax earnings for the year ended December 31, 2014 were $51.8 million, compared to pretax earnings of $101.1 million for the same period in 2013. Results for the year ended December 31, 2014 include an aggregate of $19.2 million for litigation-related matters, approximately $15.8 million related to costs incurred for a shareholder settlement, including related advisory expenses, acquisition integration, projects related to the cost management program and $2.7 million of impairment charges. Partially offsetting these charges was a credit relating to a recovery of a portion of a large title loss and realized gains of $9.1 million.
Our 2014 financial results reflect the continuing implementation of both our strategic plan and our value-creation strategies which were announced early in 2014. We are making significant progress in the transformation of our mortgage services operations with the acquisitions completed in the second and third quarters 2014. Our title operations performed solidly in a generally lackluster housing environment, and title losses were within their historic range, although quarter to quarter volatility remains.
We remain committed to our stated goal of achieving a minimum of $25.0 million of annualized structural cost savings exclusive of market conditions by the end of 2015. Activity around the cost management program intensified during the quarter in accordance with the underlying project plans. Although this level of work and related expenses will continue through 2015, we have already achieved approximately $10.0 million of annualized savings.
During the fourth quarter 2014, we acquired approximately 0.2 million shares of our Common Stock for an aggregate purchase price of $5.8 million pursuant to the previously announced $70 million stock repurchase program and, since the inception of the program, have acquired 0.7 million shares for an aggregate purchase price of $22.0 million.
The Consumer Financial Protection Bureau’s mortgage disclosure rules become effective August 1, 2015. While we and the entire industry are working diligently to provide the necessary changes in technology, processes and training, there is a potential industry-wide slowdown in transactions in the third quarter 2015 as the industry works
through the implementation of these rules. We have a significant team dedicated to technology and process changes as well as training to implement the mortgage disclosure rules.
Provisions for known claims arise primarily from prior policy years as claims are not typically reported until several years after policies are issued. Provisions - Incurred But Not Reported (IBNR) are estimates of claims expected to be incurred over the next 20 years; therefore, it is not unusual or unexpected to experience adjustments to the provisions in both current and prior policy years as new loss development of policy years occurs. This loss experience may result in changes to our estimate of total ultimate losses expected (i.e., the IBNR policy loss reserve). As claims become known, provisions are reclassified from IBNR to known claims. Adjustments relating to large losses may impact provisions for either known claims or for IBNR.
At each quarter end, our recorded reserve for title losses begins with the prior period’s reserve balance for claim losses, adds the current period provision to that balance and subtracts actual paid claims, resulting in an amount that our management compares to its actuarially-based calculation of the ending reserve balance necessary to provide for future title losses. The actuarially-based calculation is a paid loss experience calculation where loss experience factors are selected based on company data and input from our third-party actuaries. We also obtain input from third-party actuaries in the form of a reserve analysis utilizing generally accepted actuarial methods. While we are responsible for determining our loss reserves, we utilize this actuarial input to assess the overall reasonableness of our reserve estimation. If our recorded reserve amount is not at the actuary’s point estimate but is within a reasonable range (+/- 4.0%) of our actuarially-based reserve calculation and the actuary’s point estimate, our management assesses the major factors contributing to the different reserve estimates in order to determine the overall reasonableness of our recorded reserve, as well as the position of the recorded reserves relative to the point estimate and the estimated range of reserves. The major factors considered can change from period to period and include items such as current trends in the real estate industry (which management can assess although there is a time lag in the development of this data for use by the actuary), the size and types of claims reported and changes in our claims management process. If the recorded amount is not within a reasonable range of our third-party actuary’s point estimate, we will adjust the recorded reserves in the current period and reassess the provision rate on a prospective basis. Once our reserve for title losses is recorded, it is reduced in future periods as a result of claims payments and may be increased or reduced by revisions to our estimate of the overall level of required reserves.
We recognize revenues on title insurance policies written by independent agencies (agencies) when the policies are reported to us. In addition, where reasonable estimates can be made, we accrue for revenues on policies issued but not reported until after period end. We believe that reasonable estimates can be made when recent and consistent policy issuance information is available. Our estimates are based on historical reporting patterns and other information about our agencies. We also consider current trends in our direct operations and in the title industry. In this accrual, we are not estimating future transactions; we are estimating revenues on policies that have already been issued by agencies but not yet reported to or received by us. We have consistently followed the same basic method of estimating unreported policy revenues for more than 10 years.
Our accruals for revenues on unreported policies from agencies were not material to our consolidated assets or stockholders’ equity as of December 31, 2014 and 2013. The differences between the amounts our agencies have subsequently reported to us compared to our estimated accruals are substantially offset by any differences arising from prior years’ accruals and have been immaterial to consolidated assets and stockholders’ equity during each of the three prior years. We believe our process provides the most reliable estimate of the unreported revenues on policies and appropriately reflects the trends in agency policy activity.
We evaluate goodwill based on five reporting units (direct operations, agency operations, international operations, mortgage services and corporate). Goodwill is assigned to these reporting units at the time the goodwill is initially recorded. Once assigned to a reporting unit, the goodwill is pooled and no longer attributable to a specific acquisition. All activities within a reporting unit are available to support the carrying value of the goodwill.
We also evaluate the carrying values of title plants and other long-lived assets when events occur that may indicate impairment. The process of determining impairment for our goodwill and other long-lived assets relies on projections of future cash flows, operating results, discount rates and overall market conditions, including our market capitalization. Uncertainties exist in these projections and they are subject to changes relating to factors such as interest rates and overall real estate and financial market conditions, our market capitalization and overall stock market performance. Actual market conditions and operating results may vary materially from our projections.
Goodwill is not amortized, but is reviewed annually and upon the occurrence of an event indicating impairment may have occurred. If determined to be impaired, the impaired portion is expensed to current operations. The process of determining impairment relies on projections of future cash flows, operating results and market conditions. Uncertainties exist in these projections and are subject to changes relating to factors such as interest rates and overall real estate market conditions. As part of this process, we have an option to assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we decide not to use a qualitative assessment or if the reporting unit fails the qualitative assessment, then we would obtain input from third-party appraisers regarding the fair value of its reporting units. While we are responsible for assessing whether an impairment of goodwill exists, we utilize the input from third-party appraisers to assess the overall reasonableness of our conclusions. We utilized a qualitative assessment for our annual 2014 goodwill impairment test for each of our reporting units, except for mortgage services for which we performed a quantitative assessment utilizing our third-party appraiser to determine the fair value of the reporting unit. Based on our analysis, we determined it was not likely that the fair value of the reporting units was less than their carrying amounts as of June 30, 2014. There were no impairment charges for goodwill during the three years ended December 31, 2014. We recorded a $1.6 million impairment of an intangible asset in 2014.
Premiums are determined in part by the values of the transactions we handle. To the extent inflation or market conditions cause increases in the prices of homes and other real estate, premium revenues are also increased. Conversely, falling home prices cause premium revenues to decline. As an overall guideline, a 5% increase in home prices results in an approximate 3.6% increase in title premiums. Home price changes may override the seasonal nature of the title insurance business. Historically, our first quarter is the least active in terms of title insurance revenues as home buying is generally depressed during winter months. Our second and third quarters are the most active as the summer is the traditional home buying season, and while commercial transaction closings are skewed to the end of the year, individually large commercial transactions can occur any time of year.
The real estate market experienced increasing home prices in 2014 and is expected to see some continued improvement in 2015. Mortgage rates remain historically low and lending standards continue to become less stringent. Fannie Mae is forecasting a 5.8% increase in total home sales for 2015, most of which is likely to come from growth in existing home sales. It is expected the rising share of new home sales will lead to a healthy increase in single-family construction of about 19%, or 765,000 units.
A comparison of our results of operations for 2014 to 2013 and 2013 to 2012 follows. Factors contributing to fluctuations in results of operations are presented in the order of their monetary significance, and we have quantified, when necessary, significant changes. Results from our mortgage services and corporate segments are included in year-to-year discussions and, when relevant, are discussed separately. Our employee costs and certain other operating expenses are sensitive to inflation.
Title revenues. Revenues from direct title operations increased $44.7 million, or 5.9%, and $25.5 million, or 3.5%, in 2014 and 2013, respectively. Revenues in 2014 increased primarily due to the title-related component of the acquisitions closed in the second quarter 2014 and a continued shift in mix to more residential resale and commercial orders, partially offset by declining refinance transaction volume. International revenues (including foreign-sourced commercial revenues of $13.2 million) increased $3.8 million, or 3.4%, and decreased $1.7 million, or 1.5%, respectively, in 2014 compared to 2013 and in 2013 compared to 2012. Revenues from U.S. and Canadian commercial and other large transactions increased $18.4 million, or 13.4%, and increased $16.1 million, or 13.3%, respectively, in 2014 compared to 2013 and in 2013 compared to 2012. While year-to-year results for commercial business can fluctuate considerably due to timing of when large transactions close, our commercial operation continued to improve its position in the marketplace.
Mortgage services revenues. Mortgage services operating revenues increased $29.4 million, or 28.4%, in 2014 and decreased $40.1 million, or 27.9%, in 2013. The increase in revenues in 2014 is largely due to the acquisitions closed in the second and third quarters of 2014 as well as the stabilization of the legacy mortgage services business. The decline in 2013 was largely due to the nature of the contracts, which were primarily project-based. Mortgage services segment revenues increased $72.1 million, or 59.1%, in 2014 and decreased $36.7 million, or 23.1% in 2013. Revenues from the acquisitions pertaining to centralized title operations are included in the mortgage services segment revenues in accordance with applicable segment accounting rules.
With the acquisitions completed during 2014, we are making significant progress towards achieving the transformation of this segment from its historical service offerings for the management of defaulted and distressed loans to a more sustainable suite of service offerings that support the ongoing loan origination and servicing support needs of lenders. We will, however, maintain our default services expertise so that this segment will have products that move in concert with traditional mortgage origination cycles and products that will provide revenue in down markets.
Investment income. Investment income increased $1.3 million, or 8.5%, and $1.7 million, or 12.2%, in 2014 and 2013, respectively. The increase in 2014 was primarily due to increases in average balances invested. Certain investment gains and losses, which are included in our results of operations in investment and other gains (losses) - net, were realized as part of the ongoing management of our investment portfolio for the purpose of improving performance. The increase in 2013 was primarily due to increases in average balances invested.
In 2012, investment and other gains (losses) - net included realized gains of $8.0 million from the sale of debt and equity investments available-for-sale and sale of fixed assets, partially offset by realized losses of $0.8 million for the impairment of cost-basis investments.
In 2013, we increased our employee count company-wide by approximately 351, or 5.6%, including acquisitions. The increase in employee count other than relating to acquisitions was largely driven to handle increased business activity. In addition, employee costs were influenced by higher incentive compensation due to the improved operating results, partially offset by lower contract labor.
In 2012, we increased our employee count company-wide by approximately 691, or 12.3% including acquisitions. The increase in employee count was largely driven by new mortgage services contracts (see discussion below). Employee costs were also influenced by increased contract labor for the aforementioned mortgage services contracts as well as higher incentive compensation expense driven by the improvement in pretax earnings before noncontrolling interest.
Other operating expenses. Other operating expenses include costs that are fixed in nature, costs that follow, to varying degrees, changes in transaction volumes and revenues and costs that fluctuate independently of revenues. Costs that are fixed in nature include attorney and professional fees, equipment rental, insurance, rent and other
In 2014, other operating expenses for the combined business segments increased $67.0 million, or 23.9%. In 2014, other operating expenses include an aggregate of $19.2 million for litigation-related matters and approximately $11.6 million related to costs incurred for a shareholder settlement, including related advisory expense, acquisition integration and projects related to the cost management program. Excluding the impact of these non-recurring costs, other operating costs for the combined business segments would have increased $36.2 million, or 12.9%.
Excluding the costs listed above, in 2014, costs fixed in nature increased $14.7 million, or 12.1%, primarily due to $16.9 million of fixed other operating costs of the recent acquisitions partially offset by $2.2 million of decreased costs incurred by existing operations. These increases are primarily due to increased technology costs, rent and other occupancy expenses. Costs that follow, to varying degrees, changes in transaction volumes and revenues increased $21.9 million, or 21.8%, in 2014, primarily due to increases in certain mortgage services expenses (resulting from increased mortgage service revenues related to the acquisitions) and fee attorney splits. Excluding the non-recurring litigation-related costs, costs that fluctuate independently of revenues decreased $0.3 million, or less than 1%.
Title losses. Provisions for title losses, as a percentage of title operating revenues, were 4.7%, 5.9% and 8.1% in 2014, 2013 and 2012, respectively, including adjustments to certain large claims and escrow losses.
In addition to our normal title loss provision, we incurred $6.9 million in the fourth quarter 2014 relating to new large claims and adjustments to existing large claims. In the third quarter 2014, we recovered a portion of a large title loss incurred in prior years (legal agreements associated with this recovery preclude additional disclosure). In the second quarter 2014, we reduced our policy loss reserves by $6.5 million due to the results of our semi-annual actuarial analysis. As there was no adverse policy loss development on non-large claims in 2014, we lowered our overall loss provisioning rate in the third quarter 2014. The provisioning rate was previously lowered at the beginning of the second quarter 2013.
Cash claim payments decreased 25.1% in 2014 and 6.7% in 2013.
For the year ended December 31, 2013, title losses decreased 24.1% in connection with the 3.8% increase in the title operating revenues when compared to the same period in 2012. Losses incurred on known claims for the year 2013 decreased 15.5% compared to the year 2012.
Excluding the impact of the reserve reductions, large losses, and defalcations (net of recoveries), title losses as a percent of title operating revenues were 5.6%, 6.0% and 7.1% in 2014, 2013 and 2012, respectively.
Income taxes. Our effective tax rates were 31.2%, 31.1% and (37.3)% for 2014, 2013 and 2012, respectively, based on earnings before taxes and after deducting noncontrolling interests of $43.3 million, $91.5 million and $79.5 million in 2014, 2013 and 2012, respectively. In the fourth quarter 2014, we released $5.0 million of our deferred tax assets valuation allowance relating to foreign tax credit carryforwards that we believe will more-likely-than-not be utilized prior to expiration. As of December 31, 2014, our remaining deferred tax assets valuation allowance was $2.6 million, relating to certain state and foreign net operating loss carryforwards.
Material contractual obligations consist primarily of amounts drawn on our line of credit facility which expires October 2019, notes payable, operating leases and estimated title losses. The timing above for payments of notes payable is based upon contractually stated payment terms of each debt agreement. Operating leases are primarily for office space and expire over the next ten years. The timing shown above for the payments of estimated title losses is not set by contract. Rather, it is projected based on historical payment patterns. The actual timing of estimated title loss payments may vary materially from the above projection since claims, by their nature, are complex and paid over long periods of time. Title losses paid were $86.7 million, $115.7 million and $124.0 million in 2014, 2013 and 2012, respectively
Our liquidity and capital resources reflect our ability to generate cash flow to meet our obligations to shareholders, customers (payments to satisfy claims on title policies), vendors, employees, lenders and others. As of December 31, 2014, our cash and investments, including amounts reserved pursuant to statutory requirements, aggregated $805.7 million ($309.8 million net of statutory reserves).
Cash held at the parent company totaled $15.2 million at December 31, 2014. As a holding company, the parent company is funded principally by cash from its subsidiaries in the form of dividends, operating and other administrative expense reimbursements, and pursuant to intercompany tax sharing agreements. The expense reimbursements are paid in accordance with management agreements, approved by the Texas Department of Insurance, among us and our subsidiaries. In addition to funding operating expenses, cash held at the parent company is used for dividend payments to common shareholders and our stock repurchase program. To the extent such uses exceed cash available, the parent company is dependent on distributions from its regulated title insurance underwriter, Stewart Title Guaranty Company (Guaranty).
During 2014, we acquired approximately 685,000 shares of our Common Stock for an aggregate purchase price of approximately $22.0 million, pursuant to the previously announced $70 million stock repurchase program. Although we expect the substantial majority of our stock repurchase program to be completed in 2015, we will monitor share price and operating cash flow on an ongoing basis and evaluate the timing for further share repurchases accordingly. Key considerations regarding the timing of future share repurchases include achievement and maintenance of key underwriter financial strength ratios, including the liquidity ratio, maintenance of our underwriter insurer financial strength ratings and our parent company investment grade ratings at their present level and utilization of cash balances to fund growth initiatives.
We paid $2.3 million, $2.2 million and $1.8 million, respectively, in cash dividends to our shareholders representing $0.10 per share of Common Stock outstanding in 2014, 2013 and 2012. The declaration of any future dividend is at the discretion of our Board of Directors. On February 25, 2015, we announced that the board of directors approved an increase of our dividend payable to common shareholders from $0.10 per share annually to $1.00 per share to be paid quarterly at a rate of $0.25 per share beginning in the second quarter 2015.
We believe we have sufficient liquidity and capital resources to meet the cash needs of our ongoing operations. However, we may determine that additional supplemental debt or equity funding is warranted to provide liquidity for achievement of strategic goals or acquisitions or for unforeseen circumstances. Other than scheduled maturities of debt, operating lease payments and anticipated claims payments, we have no material contractual commitments. We expect that cash flows from operations and cash available from our underwriters, subject to regulatory restrictions, will be sufficient to fund our operations, including claims payments. However, to the extent that these funds are not sufficient, we may be required to borrow funds on terms less favorable than we currently have or seek funding from the equity market, which may not be successful or may be on terms that are dilutive to existing shareholders.
Other-than-temporary impairments of investments. We recorded other-than-temporary impairments of $1.0 million in each of 2014 and 2013, relating to cost-basis investments.
Off-balance sheet arrangements. We do not have any material source of liquidity or financing that involves off-balance sheet arrangements, other than our contractual obligations under operating leases. We also routinely hold funds in segregated escrow accounts pending the closing of real estate transactions and have qualified intermediaries in tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue Code. The Company holds the proceeds from these transactions until a qualifying exchange can occur. In accordance with industry practice, these segregated accounts are not included on the balance sheet. See Note 17 to our accompanying consolidated financial statements.
Forward-looking statements. Certain statements in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “will,” “foresee” or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, tenuous economic conditions; adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses or the need to strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the impact of vetting our agency operations for quality and profitability; changes to the participants in the secondary mortgage market and the rate of refinancings that affect the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of pending litigation; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; the continued realization of expense savings from our cost management program; our ability to successfully integrate acquired businesses; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; and our ability to respond to the actions of our competitors. We expressly disclaim any obligation to update any forward-looking statements contained in this report to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.