The following selected consolidated GAAP financial data of the Company as of and for the years ended December 31, 2015, 2014, 2013, 2012 and 2011, were derived from the audited consolidated financial statements of the Company. The following financial data should be read in conjunction with the Consolidated Financial Statements and accompanying notes.
Based on weighted average basic common shares outstanding of 43.4 million, 45.4 million, 48.6 million, 51.9 million and 53.8 million for 2015, 2014, 2013, 2012 and 2011, respectively.
Based on weighted average diluted common shares outstanding of 43.8 million, 45.8 million, 49.1 million and 52.1 million for 2015, 2014, 2013 and 2012, respectively. Diluted calculation was not applicable for 2011.
In 2005 and prior, we sold seven equity index put option contracts, which remain outstanding. These contracts meet the definition of a derivative in accordance with FASB guidance and as such, are fair valued each quarter with the change recorded as net derivative gain or loss in the consolidated statements of operations and comprehensive income (loss). As a result of these adjustments in value, we recognized a net derivative gain of $6.3 million in 2015, a net derivative loss of $11.6 million in 2014, and a net derivative gain of $44.0 million in 2013. The change in the fair value of these equity index put option contracts is indicative of the change in the equity markets and interest rates over the same periods.
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased by 5.9% to $1,202.0 million for the year ended December 31, 2015 compared to $1,135.6 million for the year ended December 31, 2014. These changes were primarily due to the impact of the increase in premiums earned and changes in the mix of business.
Commission, brokerage, taxes and fees increased by 16.2% to $1,135.6 million for the year ended December 31, 2014 compared to $977.6 million for the year ended December 31, 2013. These changes were primarily due to the impact of the increase in premiums earned, changes in the mix of business and higher contingent commissions.
Other Underwriting Expenses. Other underwriting expenses were $266.0 million, $240.4 million and $237.1 million in 2015, 2014 and 2013, respectively. The increase in other underwriting expenses for 2015 compared to 2014 was mainly due to the impact of the increase in premiums earned and changes in the mix of business. The increase in other underwriting expenses for 2014 compared to 2013 was mainly due to the impact of the increase in premiums earned.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, were comparable at $23.3 million, $23.4 million and $24.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Income Tax Expense (Benefit). We had income tax expenses of $134.0 million, $187.7 million and $289.7 million in 2015, 2014 and 2013, respectively. Income tax expense is primarily a function of the geographic location of the Company's pre-tax income and the statutory tax rates in those jurisdictions, as affected by tax-exempt investment income. Variations in the tax expense generally result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses), among jurisdictions with different tax rates. The decrease in income tax expense for 2015 compared to 2014 was due to lower realized capital gains in the U.S. The decrease in income tax expense for 2014 compared to 2013 is primarily due to lower net realized capital gains in the U.S. and the realization of additional foreign tax credits.
Our combined ratio increased by 0.6 points to 83.4% in 2015, compared to 82.8% in 2014. The loss ratio components increased 0.4 points in 2015 over the same periods last year primarily due to $60.0 million of losses from the explosion at the Chinese port of Tianjin and numerous weather-related losses that did not meet our $10 million catastrophe threshold. The commission and brokerage ratio components were comparable at 21.9% in 2015 and 22.0% in 2014. The other underwriting expense ratio components increased by 0.3 points in 2015 over the same period last year due primarily to the increased focus on the expansion of the insurance business.
Our combined ratio decreased by 1.7 points to 82.8% in 2014 compared to 84.5% in 2013. The loss ratio component decreased 2.7 points in 2014, over the same period last year primarily due to the $105.0 million decrease in current year catastrophe losses, which lowered the loss ratio by 2.4 points. The commission and brokerage ratio components increased 1.4 points in 2014 primarily due to changes in the mix of business and higher contingent commissions. The other underwriting expense ratio components decreased by 0.4 points in 2014 over the same period last year primarily due to higher premiums earned.
Net investment income decreased by 10.7% to $473.8 million in 2015 compared to $530.6 million in 2014, primarily due to a decline in income from our fixed maturities, reflective of lower reinvestment rates and a decrease in limited partnership income.
The following table shows the components of net investment income for the periods indicated.
The pre-tax equivalent total return for the bond portfolio was approximately 1.4%, 3.6% and 0.6%, respectively, in 2015, 2014 and 2013. The pre-tax equivalent return adjusts the yield on tax-exempt bonds to the fully taxable equivalent.
Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses. We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.
Our loss and LAE reserves are management's best estimate of our ultimate liability for unpaid claims. We re-evaluate our estimates on an ongoing basis, including all prior period reserves, taking into consideration all available information and, in particular, recently reported loss claim experience and trends related to prior periods. Such re-evaluations are recorded in incurred losses in the period in which re-evaluation is made.
Incurred losses decreased by 13.6% to $825.1 million in 2015 compared to $954.5 million in 2014, primarily due to an increase in favorable development of $147.6 million on prior year attritional losses in 2015 compared to 2014 related to treaty property, treaty casualty, marine lines of business and less year over year development on A&E reserves. This favorable development was partially offset by the increase in current year attritional losses of $7.3 million resulting primarily from $14.2 million related to the explosion at the Chinese port of Tianjin. Current year catastrophe losses were $16.7 million in 2015 mainly due to the US storms ($16.2 million). The $12.5 million of current year catastrophe losses in 2014 related to the Japan snowstorm ($7.8 million) and Hurricane Odile ($4.7 million).
Premiums. Gross written premiums decreased by 18.2% to $1,294.0 million in 2015 compared to $1,582.4 million in 2014, primarily due to declines in Latin American and Asian business, reductions in premiums related to quota share agreements and the negative impact of $86.8 million from the movement of foreign exchange rates. Net written premiums decreased by 9.6% to $1,209.0 million in 2015 compared to $1,336.6 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 related to the quota share contracts. Premiums earned decreased 4.6% to $1,251.1 million in 2015 compared to $1,310.9 million in 2014. 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.
Gross written premiums increased by 17.6% to $1,582.4 million in 2014 compared to $1,345.8 million in 2013, primarily due to new quota share contracts, partially offset by the negative impact of $47.9 million from the movement of foreign exchange rates. Net written premiums increased by 0.7% to $1,336.6 million in 2014 compared to $1,327.4 million in 2013. The variance of the change in gross written premiums compared to the change in net written premiums is due to a higher utilization of reinsurance related to the new quota share contracts. Premiums earned increased 1.7% to $1,310.9 million in 2014 compared to $1,289.3 million in 2013. 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 increased by 10.8% to $748.2 million in 2014 compared to $675.4 million in 2013, due to the increase in current year attritional losses of $77.9 million, primarily due to increased losses in the Middle East, Africa and Latin America, partially offset by the decrease in current year catastrophe losses (outlined above). The $104.4 million of current year catastrophe losses in 2013 were due to the Canadian floods ($75.2 million) and Typhoon Fitow ($29.2 million).
Commission and brokerage increased 3.5% to $306.2 million in 2014 compared to $295.9 million in 2013. This increase was primarily due to the impact of the increase in premiums earned. Segment other underwriting expenses increased slightly to $34.6 million in 2014 compared to $33.9 million in 2013.
Incurred losses and LAE decreased by 3.4% to $361.8 million in 2014 compared to $374.4 million in 2013 primarily due to a decrease in current year catastrophe losses (outlined above), partially offset by $14.9 million of less favorable prior years' attritional losses and $13.3 million of less favorable prior year catastrophe development in 2014 compared to 2013, which mainly related to the 2011 Japan earthquake. The $35.5 million of current year catastrophe losses in 2013 were due to the German hailstorms ($20.5 million) and the European floods ($15.0 million).
Commission and brokerage increased by 11.0% to $198.8 million in 2014 compared to $179.1 million in 2013. The increase was primarily due to higher commissions on business written through the U.K. branch of the Bermuda office and higher contingent commissions. Segment other underwriting expenses increased slightly to $34.9 million in 2014 compared to $34.7 million for the same period in 2013.
Premiums. Gross written premiums increased by 25.8% to $1,532.3 million in 2015 compared to $1,218.4 million in 2014. This increase was primarily driven by an increase in various lines of business, as the Company looked to expand its insurance operations. Net written premiums increased by 24.2% to $1,325.9 million in 2015 compared to $1,067.3 million in 2014, which is consistent with the change in gross written premiums. Premiums earned increased 22.9% to $1,266.7 million in 2015 compared to $1,030.3 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.
Incurred losses and LAE increased by 27.3% to $1,033.3 million in 2015 compared to $811.4 million in 2014, mainly due to an increase of $127.2 million in prior years' attritional losses related to run-off umbrella and construction liability business and an increase of $94.7 million in current year attritional losses related primarily to the impact of the increase in premiums earned. There were no current year catastrophe losses in 2015 and 2014.
Incurred losses and LAE decreased by 12.9% to $811.4 million in 2014 compared to $931.5 million in 2013, mainly due to a decrease of $107.0 million in prior years' attritional losses, which was mainly related to development on workers' compensation, construction liability and umbrella business in 2013 which did not recur to the same extent in 2014. There were no current year catastrophe losses in 2014. The $2.3 million of current year catastrophe losses for 2013 were due to Canadian floods.
Incurred losses and LAE increased to $30.6 million in 2014 compared to $4.4 million in 2013, mainly due to the increase in current year attritional losses of $21.4 million, resulting from the impact of the increase in premiums earned, and an increase in current year catastrophes (outlined above). The $1.0 million of current year catastrophe losses in 2013 were due to Typhoon Fitow ($0.8 million) and the Canadian floods ($0.2 million).
Our carried reserves at each reporting date are management's best estimate of ultimate unpaid losses and LAE at that date. We complete detailed reserve studies for each exposure group annually for our reinsurance and insurance operations. The completed annual reinsurance reserve studies are "rolled forward" for each accounting period until the subsequent reserve study is completed. Analyzing the roll-forward process involves comparing actual reported losses to expected losses based on the most recent reserve study. We analyze significant variances between actual and expected losses and also consider recent market, underwriting and management criteria to determine management's best estimate of ultimate unpaid losses and LAE. As a result of these additional factors, in some instances the selected reserve level may be higher or lower than the actuarial indicated estimate.
Given the inherent variability in our loss reserves, we have developed an estimated range of possible gross reserve levels. A table of ranges by segment, accompanied by commentary on potential and historical variability, is included in "Financial Condition - Loss and LAE Reserves". The ranges are statistically developed using the exposure groups used in the reserve estimation process and aggregated to the segment level. For each exposure group, our actuaries calculate a range for each accident year based principally on two variables. The first is the historical changes in losses and LAE incurred but not reported ("IBNR") for each accident year over time; the second is volatility of each accident year's held reserves related to estimated ultimate losses, also over time. Both are measured at various ages from the end of the accident year through the final payout of the year's losses. Ranges are developed for the exposure groups using statistical methods to adjust for diversification; the ranges for the exposure groups are aggregated to the segment level, likewise, with an adjustment for diversification. Our estimates of our reserve variability may not be comparable to those of other companies because there are no consistently applied actuarial or accounting standards governing such presentations. Our recorded reserves reflect our best point estimate of our liabilities and our actuarial methodologies focus on developing such point estimates. We calculate the ranges subsequently, based on the historical variability of such reserves.
The following table displays the estimated components of net earned but not reported premiums by segment for the periods indicated.
At December 31, 2015, we had net unrealized gains, net of tax, of $42.8 million compared to $223.2 million at December 31, 2014. Gains and losses from market fluctuations for investments held at market value are reflected as comprehensive income (loss) in the consolidated balance sheets. Gains and losses from market fluctuations for investments held at fair value are reflected as net realized capital gains and losses in the consolidated statements of operations and comprehensive income (loss). Market value declines for the fixed income portfolio, which are considered credit other-than-temporary impairments, are reflected in our consolidated statements of operations and comprehensive income (loss), as realized capital losses. We consider many factors when determining whether a market value decline is other-than-temporary, including: (1) we have no intent to sell and, more likely than not, will not be required to sell prior to recovery, (2) the length of time the market value has been below book value, (3) the credit strength of the issuer, (4) the issuer's market sector, (5) the length of time to maturity and (6) for asset-backed securities, changes in prepayments, credit enhancements and underlying default rates. If management's assessments change in the future, we may ultimately record a realized loss after management originally concluded that the decline in value was temporary. See also ITEM 8, "Financial Statements and Supplementary Data" - Note 1 of Notes to the Consolidated Financial Statements.
Loss and LAE Reserves. Gross loss and LAE reserves totaled $9,951.8 million and $9,720.8 million at December 31, 2015 and 2014, respectively.
There can be no assurance that reserves for, and losses from, claim obligations will not increase in the future, possibly by a material amount. However, we believe that our existing reserves and reserving methodologies lessen the probability that any such increase would have a material adverse effect on our financial condition, results of operations or cash flows. In this context, we note that over the past 10 years, our calendar year operations have been affected by effects from prior period reserve re-estimates, ranging from a favorable $68.6 million in 2015, representing 0.7% of the net prior period reserves for the year in which the adjustment was made, to an unfavorable $206.5 million in 2007, representing 2.6% of the net prior period reserves for the year in which the adjustment was made.
With respect to asbestos only, at December 31, 2015, we had net asbestos loss reserves of $303.7 million, or 95.0%, of total net A&E reserves, all of which was for assumed business.
Our shareholders' equity increased to $7,451.1 million as of December 31, 2014 from $6,968.3 million as of December 31, 2013. This increase was result of $1,199.2 million of net income attributable to Everest Re Group, share-based compensation transactions of $39.0 million and $22.1 million of unrealized appreciation on investments, net of tax, partially offset by repurchases of 3.2 million common shares for $500.0 million, $145.9 million of shareholder dividends, $95.4 million of net foreign currency translation adjustments and $36.1 million of net benefit plan obligation adjustments.
Capital. Shareholders' equity at December 31, 2015 and December 31, 2014 was $7,608.6 million and $7,451.1 million, respectively. Management's objective in managing capital is to ensure its overall capital level, as well as the capital levels of its operating subsidiaries, exceed the amounts required by regulators, the amount needed to support our current financial strength ratings from rating agencies and our own economic capital models. The Company's capital has historically exceeded these benchmark levels.
Our two main operating companies Bermuda Re and Everest Re are regulated by the Bermuda Monetary Authority ("BMA") and the State of Delaware, Department of Insurance, respectively. Both regulatory bodies have their own capital adequacy models based on statutory capital as opposed to GAAP basis equity. Failure to meet the required statutory capital levels could result in various regulatory restrictions, including business activity and the payment of dividends to their parent companies. See also Item 8, Financial Statements and Supplementary Data, Footnote 16, Dividend Restrictions and Statutory Financial Information.
During 2015, we repurchased 2.3 million shares for $400.1 million in the open market and paid $175.1 million in dividends to adjust our capital position and enhance long term expected returns to our shareholders. On November 19, 2014, our existing Board authorization to purchase up to 25 million of our shares was amended to authorize the purchase of up to 30 million shares. As of December 31, 2015, we had repurchased 25.9 million shares under this authorization.
Effective June 22, 2012, Group, Bermuda Re and Everest International entered into a four year, $800.0 million senior credit facility with a syndicate of lenders, which amended and restated in its entirety the July 27, 2007, five year, $850.0 million senior credit facility. Both the June 22, 2012 and July 27, 2007 senior credit facilities, which have similar terms, are referred to as the "Group Credit Facility". Wells Fargo Corporation ("Wells Fargo Bank") is the administrative agent for the Group Credit Facility, which consists of two tranches. Tranche one provides up to $200.0 million of unsecured revolving credit for liquidity and general corporate purposes, and for the issuance of unsecured standby letters of credit. The interest on the revolving loans shall, at the Company's option, be either (1) the Base Rate (as defined below) or (2) an adjusted London Interbank Offered Rate ("LIBOR") plus a margin. The Base Rate is the higher of (a) the prime commercial lending rate established by Wells Fargo Bank, (b) the Federal Funds Rate plus 0.5% per annum or (c) the one month LIBOR Rate plus 1.0% per annum. The amount of margin and the fees payable for the Group Credit Facility depends on Group's senior unsecured debt rating. Tranche two exclusively provides up to $600.0 million for the issuance of standby letters of credit on a collateralized basis.
The Group Credit Facility requires Group to maintain a debt to capital ratio of not greater than 0.35 to 1 and to maintain a minimum net worth. Minimum net worth is an amount equal to the sum of $4,250.0 million plus 25% of consolidated net income for each of Group's fiscal quarters, for which statements are available ending on or after January 1, 2012 and for which consolidated net income is positive, plus 25% of any increase in consolidated net worth during such period attributable to the issuance of ordinary and preferred shares, which at December 31, 2015, was $5,369.0 million. As of December 31, 2015, the Company was in compliance with all Group Credit Facility covenants.
Effective August 15, 2011, the Company entered into a three year, $150.0 million unsecured revolving credit facility, referred to as the "Holdings Credit Facility", which expired on August 15, 2014. The Company decided not to renew the Holdings Credit Facility at expiration. There were no short-term borrowings outstanding during 2014.
We focus on potential losses that could result from any single event, or series of events as part of our evaluation and monitoring of our aggregate exposures to catastrophic events. Accordingly, we employ various techniques to estimate the amount of loss we could sustain from any single catastrophic event or series of events in various geographic areas. These techniques range from deterministic approaches, such as tracking aggregate limits exposed in catastrophe-prone zones and applying reasonable damage factors, to modeled approaches that attempt to scientifically measure catastrophe loss exposure using sophisticated Monte Carlo simulation techniques that forecast frequency and severity of potential losses on a probabilistic basis.
We believe that our greatest worldwide 1 in 100 year exposure to a single catastrophic event is to a hurricane affecting the U.S. southeast coast, where we estimate we have a PML exposure, net of third party reinsurance and the noncontrolling interests of Mt. Logan Re, of $1,540.0 million. See also table under ITEM 1, "Business - Risk Management of Underwriting and Retrocession Arrangements".
Our business operations depend on the proper functioning and availability of our information technology platform, which includes data processing and related electronic communications. We communicate electronically internally and with our brokers, program managers and third party vendors. Some of these electronic communications involve personal, confidential and proprietary information. We seek to ensure that all of our systems, data and electronic transmissions are appropriately protected from cybersecurity attacks with the latest technology safeguards. These include, but are not limited to, requiring an independent assessment of outside vendor's computing environment relative to the services they are providing us.
During 2015, 2014 and 2013, we declared and paid common shareholder dividends of $175.1 million, $145.9 million and $106.7 million, respectively. As an insurance holding company, we are partially dependent on dividends and other permitted payments from our subsidiaries to pay cash dividends to our shareholders. The payment of dividends to Group by Holdings Ireland is subject to Irish corporate and regulatory restrictions; the payment of dividends to Holdings Ireland by Holdings and to Holdings by Everest Re is subject to Delaware regulatory restrictions; and the payment of dividends to Group by either Bermuda Re or Everest International is subject to Bermuda insurance regulatory restrictions. Management expects that, absent extraordinary catastrophe losses, such restrictions should not affect Everest Re's ability to declare and pay dividends sufficient to support Holdings' general corporate needs and that Holdings Ireland, Bermuda Re and Everest International will have the ability to declare and pay dividends sufficient to support Group's general corporate needs. For the years ended December 31, 2015, 2014 and 2013, Everest Re paid dividends to Holdings of $0 million, $155.0 million and $359.0 million, respectively. For the years ended December 31, 2015, 2014 and 2013, Bermuda Re paid dividends to Group of $575.0 million, $645.0 million and $575.0 million, respectively, and Everest International paid dividends to Group of $15.0 million, $45.0 million and $90.0 million respectively. See ITEM 1, "Business - Regulatory Matters - Dividends" and ITEM 8, "Financial Statements and Supplementary Data" - Note 16 of Notes to Consolidated Financial Statements.
Debt Issuance Costs. In April 2015, The FASB issued ASU 2015-03, authoritative guidance on the presentation of debt issuance costs. This guidance requires that debt issuance costs be presented within the balance sheet as a reduction of the carrying value of the debt liability, rather than as a separate asset. This guidance is effective for annual reporting periods beginning after December 15, 2015 and interim reporting periods beginning after December 15, 2016. The Company has chosen not to early adopt and will implement this guidance as of January 1, 2016. The Company is still evaluating the impact of the implementation of this guidance but does not anticipate that it will have a significant impact on its financial statements.
Treatment of Insurance Contract Acquisition Costs. In October 2010, the FASB issued authoritative guidance for the accounting for costs associated with acquiring or renewing insurance contracts. The guidance identifies the incremental direct costs of contract acquisition and costs directly related to acquisition activities that should be capitalized. This guidance is effective for reporting periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012 and determined that $13,492 thousand of previously deferrable acquisition costs would be expensed, including $10,876 thousand and $2,616 thousand expensed in the years ended December 31, 2012 and 2013, respectively. No additional expense will be incurred related to this guidance implementation in future periods.
The SEC's Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial statement disclosure requirements for derivative financial instruments, derivative commodity instruments and other financial instruments (collectively, "market sensitive instruments"). We do not generally enter into market sensitive instruments for trading purposes.
Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the $2,587.7 million of mortgage-backed securities in the $13,359.4 million fixed maturity portfolio. Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.
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 capital in relation to regulatory required capital, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic events on our financial statements, the ability of Everest Re, Holdings, Holdings Ireland and Bermuda Re to pay dividends and the settlement costs of our specialized equity index put option contracts. 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.