Our leases expire from 2016 through 2026 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 $42.9 million in 2015.
Charges recorded in the mortgage services segment of $3.7 million, primarily related to our previously announced plan to exit the delinquent loan servicing operations,
$1.8 million recorded in the title segment primarily for severance and intangible asset impairment,
$1.7 million recorded in the corporate segment related primarily to severance and residual contracts resulting from our previously reported cost management program,
$2.2 million, or $0.09 per diluted share, of income tax benefits, including $1.4 million for state tax loss carryforwards and $0.8 million for a deferred tax asset valuation allowance release.
Aggregate costs of $5.1 million recorded in the corporate and mortgage services segments related to the integration of acquisitions and the cost management program,
$5.5 million, or $0.23 per diluted share, of income tax benefits primarily from the partial release of a deferred tax asset valuation allowance.
Revenues from direct title operations for the fourth quarter 2015 increased by about 1.0% compared to the same quarter last year, but, following the usual pattern, were down 9.1% from the third quarter 2015. International revenues grew on a local currency basis; however, the strengthening of the U.S. dollar resulted in a net decline in international non-commercial revenues. Revenues from independent agency operations decreased by about 1.0% in the fourth quarter 2015 compared to the fourth quarter 2014 and decreased 10.7% from the third quarter 2015. Net of agency retention, the fourth quarter 2015 independent agency revenues increased 1.5% compared to the fourth quarter 2014, and declined sequentially 8.8% compared to the third quarter 2015. Total orders closed in the fourth quarter 2015 decreased slightly (1.5%) compared to the fourth quarter 2014.
During the fourth quarter 2015, we declared and paid a dividend of $0.30 per common share in connection with the announced increase in our annual dividend to $1.20 per common share starting in the fourth quarter. We remain committed to returning capital to stockholders on a regular basis while maintaining our ratings and a capital base that supports the growth in our business and our obligations to our policyholders.
Actual results can differ from our accounting estimates. While we do not anticipate significant changes in our estimates, there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods.
Large claims (those exceeding $1.0 million on a single claim), including large title losses due to independent agency defalcations, are analyzed and reserved for separately due to the higher dollar amount of loss, lower volume of claims reported and sporadic reporting of such claims. Large title losses due to independent agency defalcations typically occur when the independent agency misappropriates funds from escrow accounts under its control. Such losses are usually discovered when the independent agency fails to pay off an outstanding mortgage loan at closing (or immediately thereafter) from the proceeds of the new loan. Once the previous lender determines that its loan has not been paid off timely, it will file a claim against the title insurer. It is at this point that the title insurance underwriter is alerted to the potential theft and begins its investigation. As is industry practice, these claims are considered a claim on the newly issued title insurance policy since such policy insures the holder (in this case, the new lender) that all previous liens on the property have been satisfied. Accordingly, these claim payments are charged to policy loss expense. These incurred losses are typically more severe in terms of dollar value compared with traditional title policy claims since the independent agency is often able, over time, to conceal misappropriation of escrow funds relating to more than one transaction through the constant volume of funds moving through its escrow accounts. As long as new funds continue to flow into escrow accounts, an independent agency can mask one or more defalcations. In declining real estate markets, lower transaction volumes result in a lower incoming volume of funds, making it more difficult to cover up the misappropriation with incoming funds. Thus, when the defalcation is discovered, it often relates to several transactions. In addition, the overall decline in an independent agency’s revenues, profits and cash flows increases the agency’s incentive to improperly utilize the escrow funds from real estate transactions.
Internal controls relating to independent agencies include, but are not limited to, pre-signing and periodic audits, site visits and reconciliations of policy inventories and premiums. The audits and site visits cover examination of the escrow account bank reconciliations and an examination of a sample of closed transactions. In some instances, the scope of our review is limited by attorney agencies that cite client confidentiality. Certain states have mandated annual reviews of all agencies by their underwriter. We also determine whether our independent agencies have appropriate internal controls as defined by the American Land Title Association and us. However, even with adequate internal controls in place, their effectiveness can be circumvented by collusion or improper override of the controls by management at the independent agencies. To aid in the selection of independent agencies to review, we have developed an agency risk model that aggregates data from different areas to identify possible problems. This is not a guarantee that all independent agencies with deficiencies will be identified. In addition, we are typically not the only underwriter for which an independent agency issues policies, and independent agencies may not always provide complete financial records for our review. Due to improved agency internal controls as well as better overall economic conditions, we did not experience any significant agency defalcation losses during the three years ended December 31, 2015.
In performing the step two analysis, the implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In this method, the estimated fair value of the reporting unit is allocated to all the assets and liabilities of that reporting unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the estimated fair value is the purchase price paid. Any impairment of goodwill is treated as the difference between the implied fair value and the carrying amount of the goodwill and is charged to current operations.
While we are responsible for assessing whether an impairment of goodwill exists, we utilize inputs from third-party appraisers in performing the quantitative analysis for our impairment review. We evaluate goodwill based on four reporting units with goodwill balances (direct operations, agency operations, international operations and mortgage services). 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.
In 2015 and 2014, we utilized the qualitative assessment for the title reporting units to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount, including goodwill. Based on that analysis, management concluded that the goodwill related to the reporting units within the title segment was not impaired.
In 2014, the Company performed a quantitative assessment of the mortgage services segment's goodwill and determined that there was no impairment of goodwill. In July 2015, the Company made the decision to exit the delinquent loan servicing activities included in the mortgage services segment. The Company based its decision to exit these activities on rapidly falling revenues, declining profit margins and the likelihood that future market demand for the related services would continue to diminish. This decision resulted in a review of the recoverability of goodwill related to the mortgage services segment. Accordingly, the Company performed the two-step quantitative assessment for mortgage services' goodwill. Based on its impairment analysis, the Company recorded a $35.7 million impairment of mortgage services' goodwill for 2015, which is presented as Impairment of goodwill in the 2015 consolidated statement of operations and comprehensive (loss) income.
We also evaluate the carrying values of title plants, other intangible assets and other long-lived assets when events occur that may indicate impairment. The process of determining impairment for such assets involves determining whether the carrying amount of the asset is recoverable using the undiscounted cash flows expected from the use and eventual disposition of the asset. If the carrying amount is determined not to be recoverable, we estimate the fair value of the asset using projections of future cash flows, operating results, discount rates and overall market conditions. Any excess of the carrying amount over the fair value is considered as an impairment of the asset. 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. As a result of our impairment analysis on our other intangible assets, we recorded impairment charges of $1.8 million and $1.7 million for the years ended December 31, 2015 and 2014, respectively. No impairment loss was recognized during the year ended December 31, 2013.
Operations. Our business has three operating segments: title insurance and related services (title), mortgage services and corporate.
Our primary business is title insurance and settlement-related services. We close transactions and issue title policies on homes, commercial and other real properties located in all 50 states, the District of Columbia and international markets through policy-issuing offices, agencies and centralized title services centers. Our mortgage services segment provides loan origination and servicing support; loan review services; real estate valuation services; REO asset management; home and personal insurance services; loan due diligence; compliance solutions; service performance management; and technology to streamline the real estate process.
government or regulatory initiatives, including tax incentives, and, for 2015, implementation of new CFPB regulations;
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 3.7% increase in net 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.
For the three years ended December 31, 2015, mortgage interest rates (30-year, fixed-rate) have fluctuated from a monthly low of 3.41% in January 2013 to a monthly high of 4.49% in September 2013. In 2015, total mortgage originations and refinancing mortgage originations increased 28.6% and 50.2%, respectively, from 2014. During 2015, sales of new and existing homes increased 13.5% and 5.3%, respectively, from 2014. During 2014, sales of new and existing homes increased 1.9% and decreased 2.9%, respectively, from 2013.
A comparison of our consolidated results of operations for 2015 to 2014 and 2014 to 2013 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.
Mortgage services revenues. Mortgage services revenues decreased $2.9 million, or 2.2%, in 2015 compared to 2014 and increased $29.4 million, or 28.4%, in 2014 compared to 2013. The revenue reduction in 2015 was primarily due to decreased demand within our delinquent loan servicing activities as the overall inventory of defaulted and distressed loans across the lending industry continues to fall as well as pricing pressures relating to certain contracts within those activities. The revenue increase in 2014 was driven by the acquisitions completed in mid-2014. Revenues from the acquisitions pertaining to centralized title operations are included in the mortgage services segment revenues in accordance with applicable segment accounting rules.
In 2014, investment and other gains (losses) - net included realized gains of $5.6 million from the reduction in the fair value of a contingent consideration liability, $3.8 million from the sale of a business and $1.1 million from the sale of debt and equity investments available-for-sale, partially offset by charges of $1.9 million relating to office closure costs and $1.0 million relating to the impairment of a cost-basis investment.
In 2013, investment and other (losses) gains - net included a $5.4 million non-cash charge relating to the early retirement of $37.8 million of Convertible Senior Notes (Notes), a $1.5 million loss on the sale of an equity investment and $1.0 million for the impairment of cost-basis investments offset by realized gains of $2.7 million from the sale of debt and equity investments available-for-sale, $2.3 million from non-title-related insurance policy proceeds and $1.9 million from the sale of real estate.
Retention by agencies. Amounts retained by title agencies are based on agreements between the agencies and our title underwriters. On average, amounts retained by independent agencies, as a percentage of revenues generated by them, were 81.7%, 81.5% and 81.1% in the years 2015, 2014 and 2013, respectively. The average retention percentage may vary from year-to-year due to the geographical mix of agency operations, the volume of title revenues and, in some states, laws or regulations. Due to the variety of such laws or regulations, as well as competitive factors, the average retention rate can differ significantly from state to state. In addition, a high proportion of our independent agencies are in states with retention rates greater than 80%. Consequently, we expect our average annual retention percentage to remain in the 81% - 82% range over the near to medium term.
Employee costs. Employee costs for the combined business segments increased $33.9 million, or 5.4%, in 2015 compared to 2014 and $53.3 million, or 9.3%, in 2014 compared to 2013. As a percentage of total operating revenues, employee costs were 32.6%, 33.8% and 29.8% in 2015, 2014 and 2013, respectively. The higher employee cost ratios in 2015 and 2014 as compared to 2013 were primarily due to our acquisitions in the mortgage services segment in 2014. Our total employee count at December 31, 2015, 2014 and 2013 was approximately 6,900, 7,400 and 6,600, respectively.
In 2014, total employee count increased by approximately 770 employees, or 11.7%. We experienced an increase of approximately 890 employees due to the previously described acquisitions and 370 employees related to a new service offering and contract, partially offset by subsequent reductions of approximately 120 employees at these acquired operations and reductions of approximately 370 employees at existing operations. The title segment had a net reduction of 35 employees in 2014.
Employee costs in the title segment increased $19.3 million, or 4.9%, and $8.9 million, or 2.3%, in 2015 and 2014, respectively, as the result of increased commissions and incentive compensation on higher revenues primarily from direct title operations. Mortgage services' employee costs increased $16.5 million, or 13.9%, and $39.9 million, or 50.3%, in 2015 and 2014, respectively, primarily due to the acquisitions and the new service offering and contract in 2014. The lower increase in mortgage services' employee costs in 2015 was due to our exiting of the delinquent loan servicing activities starting in the second half of 2015. As a percentage of operating revenues, employee costs for mortgage services were 63.3% and 63.5% in 2015 and 2014, respectively.
In 2014, excluding the nonrecurring costs above, costs fixed in nature increased $14.7 million, or 12.1%, primarily due to $16.9 million of fixed other operating costs of the mid-year acquisitions partially offset by $2.2 million of decreased costs incurred by existing operations. These acquisition-related increases were 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 mortgage services expenses (resulting from increased mortgage service revenues related to the acquisitions) and fee attorney splits. Lastly, costs that fluctuate independently of revenues decreased $0.3 million, or less than 1%.
For the year ended December 31, 2013, title losses decreased $33.7 million, or 24.1%, in connection with the 3.8% increase in the title operating revenues when compared to the same period in 2012. We recorded policy loss reserve reductions relating to non-large losses on prior policy years aggregating approximately $22.1 million. However, these reductions were partially offset by increases in reserves relating to new and existing large losses aggregating approximately $19.3 million.
Title claims are generally incurred three to five years after policy issuance and the timing of payments on these claims can significantly impact the balance of known claims, since in many cases claims may be open for several years before resolution and payment occur. As a result, the estimate of ultimate amount to be paid on any claim may be modified over that time period.
Depreciation and amortization expense increased $6.3 million, or 35.2%, in 2014 compared to 2013. The increase is primarily due to $3.3 million of amortization expense on acquired intangible assets of the mortgage services segment, $1.6 million of amortization expense relating to an underwriter production system placed into service in the second half of 2014 and $0.7 million of additional depreciation expense on the fixed assets of the acquisitions.
Income taxes. Our effective tax rates were (1,019.4)%, 31.2% and 31.1% for 2015, 2014 and 2013, respectively, based on (loss) income before taxes, after deducting noncontrolling interests, of $(0.6) million, $43.3 million and $91.5 million in 2015, 2014 and 2013, respectively. Our 2015 effective tax rate resulted principally from the $35.7 million goodwill impairment recorded during the year, of which $20.3 million was not subject to tax benefits, combined with the effects of a small pretax loss for the year.
Contractual obligations. Our material contractual obligations at December 31, 2015 were:
The ability of Guaranty to pay dividends to its parent is governed by Texas insurance law. The TDI must be notified of any dividend declared, and any dividend in excess of a statutory maximum (20% of surplus, which approximated $100.4 million as of December 31, 2015) would be by regulation considered extraordinary and subject to preapproval by the Department. Also, the Texas Insurance Commissioner may raise an objection to a planned distribution during the notification period. However, Guaranty’s actual ability or intent to pay dividends to its parent may be constrained by business and regulatory considerations, such as the impact of dividends on surplus and the liquidity ratio, which could affect its ratings and competitive position, the amount of insurance it can write and its ability to pay future dividends. As of December 31, 2015, our statutory liquidity ratio for our principal underwriter was 1.03 to 1. Our internal objective is to achieve and maintain a ratio of at least 1:1, as we believe that ratio is crucial from both a ratings agency and competitive perspective. On an ongoing basis, this ratio will largely guide our decisions as to frequency and magnitude of dividends from the underwriter to the parent company. Further, depending on business and regulatory conditions, we may in the future need to retain cash in Guaranty or even raise cash in the capital markets to contribute to it in order to maintain its ratings or statutory capital position. Such a requirement could be the result of investment losses, reserve charges, adverse operating conditions in the current economic environment or changes in interpretation of statutory accounting requirements by regulators. Guaranty paid $15.0 million and $25.0 million in dividends to its parent in 2015 and 2014, respectively.
Cash used by investing activities was primarily driven by purchases of investments, capital expenditures and acquisition of subsidiaries, offset by proceeds from matured and sold available-for-sale investments. Total proceeds from available-for-sale investments matured and sold amounted to $111.5 million, $106.6 million and $93.8 million in 2015, 2014 and 2013, respectively. We used cash for the purchases of available-for-sale investments in the amounts of $147.7 million, $147.4 million and $148.5 million in 2015, 2014 and 2013, respectively. Cash (used) provided by net (purchases) sale of short-term investments amounted to $(14.7) million, $13.3 million and $(1.3) million in 2015, 2014 and 2013, respectively.
Capital expenditures were $19.7 million, $17.5 million, and $12.5 million in 2015, 2014 and 2013, respectively. We maintain investment in capital expenditures at a level that enables us to implement technologies for increasing our operational and back-office efficiencies and paid cash for acquisitions of $4.0 million, $40.0 million and $14.9 million in 2015, 2014 and 2013, respectively.
In October 2014, we exchanged the remaining $27.2 million of our Notes, at maturity, for an aggregate of 2,111,017 shares of Common Stock. In October 2014, we replaced our $75.0 million unsecured line of credit with a $125.0 million unsecured line of credit, which expires October 2019. Amounts outstanding under this line of credit at December 31, 2015 were $98.0 million and were used principally to fund acquisitions and related working capital needs, as well as to strengthen the statutory liquidity of Guaranty and to partially fund the 2014 and 2015 stock repurchases. In February 2016, we entered into an amendment agreement, effective December 31, 2015, relating to our unsecured line of credit. The amendment primarily provided revisions to the limitations on restricted payments, as stipulated in the original line of credit agreement, provided for an exclusion from the calculation of EBITDA (as defined in the credit agreement) of the non-cash goodwill impairment charge in the third quarter 2015 and increased the permitted capital expenditures for any calendar year from $20.0 million to $25.0 million. Refer to Note 10 to the consolidated financial statement for details of the amendment.
In November 2015, we announced a new stock repurchase program which may return up to $50.0 million to stockholders over a three-year period. Under the stock repurchase program, we have the ability to purchase shares of our outstanding Common Stock in both open market and privately negotiated transactions as we deem appropriate. The timing, form and amount of share repurchases under the program will depend on a variety of factors, including market conditions, share price, our capital and liquidity position relative to internal and rating agency targets, legal requirements, including approval of the release of cash from the regulated underwriter by the insurance regulators and corporate and other considerations.
The effect of changes in foreign currency rates on the consolidated statements of cash flows was a net decrease in cash and cash equivalents of $7.7 million, $5.2 million and $4.9 million in 2015, 2014 and 2013, respectively. Our principal foreign operating unit is in Canada, and, on average, the value of the Canadian dollar relative to the U.S. dollar decreased during 2015.
Other-than-temporary impairments of investments. We recorded other-than-temporary impairments on cost-basis investments of approximately $0.6 million, $1.0 million and $1.0 million in 2015, 2014 and 2013, respectively. Additionally, during 2015, we recognized a $2.7 million other-than-temporary impairment on certain equity securities available-for-sale.
Other comprehensive (loss) income. Unrealized gains and losses on investments and changes in foreign currency exchange rates are reported net of deferred taxes in accumulated other comprehensive (loss) income, a component of stockholders’ equity, until realized. In 2015, net unrealized investment losses of $5.4 million, which increased our other comprehensive loss, were primarily related to temporary decreases in fair values of corporate and government bond investments and equity securities, partially offset by the increase in fair values of municipal bond investments. Changes in foreign currency exchange rates, primarily related to our Canadian operations, increased other comprehensive loss by $11.1 million, net of taxes, in 2015.
In 2014, net unrealized investment gains of $9.2 million, which increased our other comprehensive income, were primarily related to increases in fair values of corporate, municipal and government bond investments, partially offset by temporary decreases in fair values of equity securities and deferred taxes. Changes in foreign currency exchange rates, primarily related to our Canadian operations, decreased other comprehensive income by $7.6 million, net of taxes, in 2014.
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 audited consolidated financial statements included in Item 15 of Part IV of this report.
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, challenging 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; our exit of the delinquent loan servicing business lines and the wind down of these operations; the impact of vetting our agency operations for quality and profitability; changes to the participants in the secondary mortgage market and the rate of refinancing that affects 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.