In our insurance segment, we continued the roll out of our global insurance product lines. In addition, our new insurance leadership team completed a thorough review of our insurance portfolio and identified the best opportunities for long-term profitable growth. Gross written premium for the insurance segment in 2016 decreased by 0.8% compared to 2015. Our combined ratio in insurance was 99.6% in 2016 compared to 96.1% in 2015. We expect to see continuing good performance and increased growth in areas such as Professional Lines, U.K. Property and Casualty, Crisis Management, Credit and Political Risk and Surety.
In our reinsurance segment, we have also diversified by product line through the acquisition of AgriLogic, significantly increasing our exposure to U.S. agriculture business. Our Aspen Capital Markets team continued to effectively leverage Aspen Re’s underwriting expertise to continue to provide investors with access to diversified catastrophe risk backed by Aspen Re’s existing underwriting franchise. Silverton, our sidecar, likewise continued to provide quota share support to Aspen Re’s global property catastrophe excess of loss reinsurance business and increased the amount of capital raised from $65.0 million at its inception in 2013 to $130.0 million (of which $105.0 million was raised by third parties) in 2017. Gross written premium for the reinsurance segment for 2016 was $1.41 billion, an increase of 13.2% from 2015, with growth primarily in specialty and casualty lines. The combined ratio was 90.0% in 2016 compared to 80.4% in 2015.
Investment Management. We follow an investment strategy designed to emphasize the preservation of capital and provide sufficient liquidity for the prompt payment of claims. As of December 31, 2016, our investments consisted of a diversified portfolio of fixed income securities including U.S. Dollar BBB Emerging Market Debt, global equities and money market funds. Our overall portfolio strategy remains focused on high quality fixed income investments. As at December 31, 2016, approximately 10.8% of our total cash and investments, excluding catastrophe bonds and funds held by variable interest entities (the “Managed Portfolio”), was invested in equities and U.S. Dollar BBB Emerging Market Debt (2015 - 12.6%). In November 2016 we reduced our holdings in our global equity strategy and received net proceeds of $200.0 million. Proceeds from the sales were reinvested into a core fixed income strategy. As at December 31, 2016, we had a 6.8% (2015 - 8.7%) position in equities, a 3.8% (2015 - 3.5%) position in U.S. Dollar BBB Emerging Market Debt and 0.2% (2015 - 0.4%) in risk asset portfolio cash.
The following overview of our 2016, 2015 and 2014 operating results and financial condition is intended to identify important themes and should be read in conjunction with the more detailed discussion further below.
Combined ratio of 98.5% for 2016, including $164.4 million, or 6.3 percentage points of pre-tax catastrophe losses, net of reinsurance and reinstatements, compared with 91.9% for 2015, which included $90.5 million or 3.7 percentage points of pre-tax catastrophe losses, net of reinsurance and reinstatements, and 91.7% for 2014, which included $65.5 million or 2.7 percentage points of pre-tax catastrophe losses, net of reinsurance and reinstatements.
Gross written premiums. Gross written premiums increased by 5.0% in 2016 when compared to 2015 predominantly due to our reinsurance lines. The changes in our segments’ gross written premiums for the twelve months ended December 31, 2016, 2015 and 2014 were as follows:
The combined ratio for 2016 increased by 6.6 percentage points compared to 2015 due to a 4.6 percentage point increase in the loss ratio and a 2.0% percentage point increase in the expense ratio. The loss ratio increase was due primarily to a $75.9 million increase in catastrophe losses and a $27.2 million reduction in the level of prior year reserve releases. The increase in expense ratio is due to higher acquisition and general administrative and corporate expenses. The increase in acquisition expenses is due to higher profit commission accruals and lower ceding commissions in the insurance segment and changes in business mix in the reinsurance segment. The increase in general, administrative and corporate expenses was due to costs associated with AgriLogic which we acquired in January 2016 and growth in our insurance and reinsurance business and reorganization costs.
In each of the years ended December 31, 2016, 2015 and 2014, we recorded a reduction in the level of reserves for prior years. In 2016, we reported net favorable development on prior year loss reserves of $129.3 million, or 4.9 combined ratio points, compared with $156.5 million, or 6.3 combined ratio points, for 2015, and $104.1 million, or 4.3 combined ratio points, for 2014.
Net income. We reported income after taxes of $203.4 million in 2016 compared to $323.1 million in 2015 and $355.8 million in 2014. The decrease in net income in 2016 compared to 2015 was primarily due to the $137.7 million decrease in underwriting income resulting from higher catastrophe losses, lower reserve releases and increased expenses offset by growth in premiums earned. The decrease in income after tax in 2015 compared to 2014 was due primarily to the $31.3 million decrease in underwriting income resulting from higher catastrophe losses offset by growth in premiums earned.
Other comprehensive income. Total other comprehensive income decreased by $64.7 million (2015 - $174.7 million increase), net of taxes, for the twelve months ended December 31, 2016. This consists of a decrease in net unrealized gains of $28.8 million in the available for sale investment portfolio (2015 - $68.5 million unrealized gain) largely attributable to the impact of rising interest rates on our bond portfolios, an $8.9 million reclassification of net realized gains to net income (2015 - $36.7 million reclassified realized gains), a $0.7 million unrealized gain (2015 - $2.6 million unrealized loss) on the hedged derivative contracts and an unrealized loss in foreign currency translation of $27.7 million (2015 -$72.1 million unrealized loss) largely attributable to the impact from the continued strengthening of the U.S. dollar.
Dividends. In April 2016, the Board approved an increase in the quarterly dividend on our ordinary shares from $0.21 per ordinary share to $0.22 per ordinary share (2015 - $0.21 quarterly dividend; 2014 - $0.20 quarterly dividend). This resulted in total ordinary dividends for 2016 of $52.7 million (2015 - $50.9 million; 2014 - $50.3 million). Dividends paid on the preference shares in 2016 were $41.8 million (2015 - $37.8 million; 2014 - $37.8 million).
the repurchase of 1,595,076 ordinary shares for $75.0 million through open market and other repurchases.
Our senior notes were the only material debt issued by Aspen Holdings as at December 31, 2016 and 2015 totaling $549.3 million and $549.2 million, respectively. In addition to the senior notes issued by Aspen Holdings, we have also reported $223.4 million of debt issued by Silverton. For further information relating to Silverton, refer to Note 7 of our consolidated financial statements, “Variable Interest Entities.”
Diluted book value per ordinary share as at December 31, 2016 was $46.72, an increase of 1.6% compared to $46.00 as at December 31, 2015. Book value per ordinary share is based on total shareholders’ equity, less preference shares (liquidation preference less issue expenses) and non-controlling interests, divided by the number of ordinary shares in issue at the end of the period.
Market Conditions, Rate Trends and Developments in 2016 and Early 2017
Overall. The rate environment continues to pose challenges in both our reinsurance and insurance segments.
On January 3, 2017, we elected to mandatorily redeem all of the outstanding 7.401% Preference Shares. Each holder of a 7.401% Preference Share received $25 per 7.401% Preference Share, plus any declared and unpaid dividends.
Our consolidated financial statements contain certain amounts that are inherently subjective in nature and require management to make assumptions and best estimates to determine the reported values. We believe that the following critical accounting policies affect the more significant estimates used in the preparation of our consolidated financial statements. A statement of all the significant accounting policies we use to prepare our financial statements is included in the Notes to the consolidated financial statements. If factors such as those described in Part I, Item 1A, “Risk Factors” cause actual events to differ from the assumptions used in applying the accounting policy and calculating financial results, there could be a material adverse effect on our operating results, financial condition and liquidity.
differences between the pattern of inception dates assumed in our estimate and the actual pattern of inception dates.
We anticipate that ultimate premiums might reasonably be expected to vary by up to 5% as a result of variations in one or more of the assumptions described above, although larger variations are possible. Based on gross written premiums of $226.7 million (2015 - $240.0 million) in our property reinsurance treaty pro rata account as at December 31, 2016, a variation of 5% could increase or reduce net income before tax by approximately $0.5 million (2015 - $0.2 million).
IBNR reserves to cover the anticipated cost of claims incurred but not reported and potential development of reported claims; and
There are no differences between our year-end and our quarterly internal reserving procedures and processes because our actuaries perform the basic projections and analyses described above for each class of business quarterly.
Net reserve for losses and loss expenses as at December 31, 2016 - Sensitivity to loss emergence patterns
Net reserve for losses and loss expenses as at December 31, 2016 - Sensitivity to expected loss ratios
The fair value for mortgage-backed and other asset-backed debt securities includes estimates regarding prepayment assumptions, which are based on current market conditions. Amortized cost in relation to these securities is calculated using a constant effective yield based on anticipated prepayments and estimated economic lives of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date. Changes in estimated yield are recorded on a retrospective basis, which result in future cash flows being used to determine current book value.
Other-than-temporary Impairment of Investments. A security is impaired when its fair value is below its cost or amortized cost. We review our available for sale investment portfolio on an individual security basis for potential other-than-temporary impairment (“OTTI”) each quarter based on criteria including issuer-specific circumstances, credit ratings actions and general macro-economic conditions. There were no OTTI charges for the twelve months ended December 31, 2016 (2015 -$Nil). For further discussion see Note 2(c) of our consolidated financial statements, “Basis of Preparation and Significant Accounting Policies - Accounting for Investments, Cash and Cash Equivalents.”
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The discussions that follow include tables and discussions relating to our consolidated income statement and our segmental operating results for the twelve months ended December 31, 2016, 2015 and 2014.
Total gross written premiums increased by 5.0% in 2016 compared to 2015 predominantly due to our reinsurance lines. Premiums from our insurance segment reduced slightly due to reductions in our property and casualty and marine, aviation and energy business lines offset by growth in financial and professional lines.
In 2016, gross written premiums in our reinsurance segment increased by 13.2% compared to 2015 due to growth in our specialty reinsurance and casualty reinsurance business lines. The increase in our specialty reinsurance business is largely due to growth in agriculture business written following our acquisition of AgriLogic in January 2016 and growth in specialty marine business. The increase in our casualty reinsurance lines of business is largely due to growth in our U.S. casualty treaty and international casualty business lines.
Overall gross written premiums in 2015 increased by 3.3% compared to 2014 due primarily to our reinsurance lines, with growth from our other property and specialty reinsurance business lines offsetting planned reductions in property catastrophe lines. Premiums from our insurance segment in 2015 increased due to growth principally in our property and casualty business lines and financial and professional lines offset by reductions in our marine, aviation and energy lines.
Ceded written premiums. The following table analyzes the overall change in ceded written premiums for our two business segments in the twelve months ended December 31, 2016, 2015 and 2014:
Total ceded written premiums in 2016 increased by $202.2 million compared to 2015. Ceded reinsurance costs increased for our reinsurance segment due to increased ceded reinsurance for our property catastrophe business line for new business opportunities written in conjunction with an increase in retrocession costs and due to our agriculture business reported in our specialty reinsurance business line. Ceded reinsurance costs increased for our insurance segment because we restructured our ceded reinsurance arrangements as we aim to reduce earnings volatility and benefit the expense ratio. In addition, we purchased an adverse development cover in the fourth quarter of 2016 for certain casualty business which we have ceased to underwrite. Due to these changes, the retention ratio, which is defined as net written premium as a percentage of gross written premium, decreased from 88.3% in 2015 to 82.4% in 2016.
Net premiums earned. The following table analyzes the overall change in net premiums earned for our two business segments in the twelve months ended December 31, 2016, 2015 and 2014:
The loss ratio for 2015 of 55.2% increased by 0.8 percentage points compared to 2014. Losses and loss adjustment expenses increased from $1,307.5 million in 2014 to $1,366.2 million in 2015 due to increases in large and catastrophe losses partially offset by an increase in reserve releases. In 2015, net losses from major catastrophes increased by $25.0 million to $90.5 million compared with $65.5 million in 2014. Large losses in 2015 included $26.0 million due to the port explosion in Tianjin, China, $37.6 million of energy losses, and $17.0 million of losses associated with the collapse of the Samarco dam in Brazil. In 2014 the severity and frequency of large losses was significantly lower than in 2015. Reserve releases increased from $104.1 million in 2014 to $156.5 million in 2015.
In the reinsurance segment, the loss ratio for 2016 was 55.7% compared to 45.8% in 2015. The increase in the loss ratio was mainly due to a $65.2 million increase in catastrophe losses, changes in business mix towards lines which have higher non-catastrophe loss ratios, such as Agrilogic, and a $3.8 million decrease in prior year reserve releases. In 2016, our reinsurance segment experienced $114.8 million of catastrophe losses largely consisting of $35.4 million associated with wildfires in Canada, $10.5 million from an earthquake in New Zealand, $9.3 million from Hurricane Matthew, $8.5 million from earthquakes in Japan, $9.2 million from U.S. wildfires, $5.0 million from a hailstorm in the Netherlands, $2.3 million from an earthquake in Taiwan and $31.2 million from weather-related events in the U.S. The loss ratio in 2015 was 45.8% a marginal increase compared to 45.7% in 2014 mainly due to an increase in catastrophe losses of $6.7 million and an $8.2 million decrease in prior year reserve releases, partially offset by lower attritional losses. In 2015, our reinsurance segment experienced $49.6 million of catastrophe losses largely consisting $7.0 million associated with U.K. floods, $7.0 million from the Washington wildfires, and $35.6 million of losses associated with the Chilean earthquake and weather-related events in Europe, the U.S. and Australasia. In addition, we experienced a loss in the amount of $23.0 million due to a port explosion in Tianjin, China and $7.0 million associated with a dam collapse in Brazil.
In the insurance segment, the loss ratio for 2016 was 63.1% compared to 62.4% in 2015. The increase in the loss ratio in 2016 was mainly due to a decrease of $23.4 million in prior year reserve releases partially offset by a $10.7 million increase in catastrophe losses and a greater frequency of catastrophes and large losses. In 2016, the insurance segment experienced $51.6 million of catastrophe losses, consisting of $39.9 million associated with U.S. weather related events and $11.7 million associated with Hurricane Matthew. Large losses experienced during 2016 included $32.7 million of energy-related losses, $11.8 million of fire-related losses and a $4.2 million aviation loss. The loss ratio for 2015 was 62.4% compared to 61.5% for 2014. The increase in the loss ratio in 2015 was due to an $18.3 million increase in catastrophe losses and a greater frequency of large losses offset by a $60.6 million increase in prior year reserve releases. In 2015, the insurance segment experienced $40.9 million of catastrophe losses comprising $25.7 million associated with the U.K. floods and $15.2 million associated with the U.S. storms while in 2014, we recognized $22.6 million of catastrophe losses associated with U.S. and U.K storms. Large losses experienced during 2015 included $37.6 million of energy losses, $10.0 million associated with a dam collapse in Brazil and $3.0 million associated with the port explosion in Tianjin, China.
Overall, prior year reserve releases reduced by $27.2 million from $156.5 million in 2015 to $129.3 million in 2016. The reserve releases from reinsurance were across all business lines, totaling $87.0 million. The insurance segment had reserve releases
of $42.3 million compared to $65.7 million of reserve releases in 2015. The reserve releases from insurance were from the marine, energy and aviation and financial and professional lines.
The total group general and administrative expense ratio includes corporate expenses. In 2014, corporate expenses included $28.5 million of costs associated with the unsolicited approach and an inadequate offer by Endurance.
Policy acquisition expenses increased by $45.3 million in 2016 compared to 2015 primarily due to growth in written premiums and higher profit commission accruals. Policy acquisition expenses increased by $32.4 million in 2015 compared to 2014 due to growth in written premiums and changes in business mix.
As at December 31, 2016, we held foreign exchange contracts that were not designated as hedging under ASC 815 with a notional amount of $665.6 million (2015 - $379.9 million). The foreign exchange contracts are recorded as derivatives at fair value in the balance sheet with changes recorded as a change in fair value of derivatives in the statement of operations. For the twelve months ended December 31, 2016, the impact of foreign exchange contracts on net income was a loss of $21.5 million (December 31, 2015 - gain of $11.6 million).
As the foreign exchange contracts settle, the realized gain or loss is reclassified from other comprehensive income into general, administration and corporate expenses of the statement of operations and other comprehensive income. For the twelve
As at December 31, 2016, we no longer had outstanding interest rate swaps. As at December 31, 2015, the Company had a total notional of interest rate swaps of $756.3 million. For the twelve months ended December 31, 2016, there was a loss of $3.1 million (December 31, 2015 - loss of $4.8 million).
Interest on long-term debt. Interest on long-term debt is the interest due on our senior notes.
The increase in corporate expenses in 2016 compared to 2015 was due to higher salary costs due to increased headcount as a result of growth in our insurance and reinsurance business and reorganization costs. Corporate expenses in 2014 included $28.5 million in non-recurring corporate expenses associated with the cost of defending the unsolicited approach and an inadequate offer by Endurance.
The change in fair value of loan notes issued by variable interest entities represents the proportion of profit or loss generated by Silverton attributable to third-party investors.
Income tax expense. There was an income tax expense for the twelve months ended December 31, 2016 of $6.1 million compared to $14.4 million and $12.1 million in the comparative periods of 2015 and 2014 respectively. The effective tax rate for the twelve months ended December 31, 2016 was 2.9% (2015 - 4.3%; 2014 - 3.3%) and is representative of the geographic spread of our business between taxable and non-taxable jurisdictions.
Net income after tax. In 2016, we had net income after tax of $203.4 million, equivalent to $2.67 basic earnings per ordinary share and fully diluted earnings per ordinary share of $2.61 based on the weighted average number of ordinary shares in issue during the period. In 2015, we had net income after tax of $323.1 million, equivalent to $4.64 basic earnings per ordinary share and fully diluted earnings per ordinary share of $4.54 based on the weighted average number of ordinary shares in issue during the period. In 2014, we had net income after tax of $355.8 million, equivalent to fully diluted earnings per ordinary share of $4.82 based on the weighted average number of ordinary shares in issue during the period. For a more detailed description of basic and diluted earnings per ordinary share, see Note 4 of our consolidated financial statements, “Earnings per Ordinary Share.”
We are organized into two business segments: reinsurance and insurance. In addition to the way we manage our business, we have considered similarities in economic characteristics, products, customers, distribution, the regulatory environment of our operating segments and quantitative thresholds in determining our reportable segments.
The total group general and administrative expense ratio includes the impact from corporate expenses, amortization and non-recurring corporate expenses.
The 13.2% increase in gross written premiums for the twelve months ended December 31, 2016 compared to the equivalent period in 2015 was mainly attributable to increased business written in our specialty reinsurance and casualty reinsurance business lines. The increase in our specialty reinsurance business in 2016 was mainly due to growth in agriculture business written following our acquisition of AgriLogic. The increase in our casualty reinsurance lines of business in 2016 was largely due to growth in our U.S. casualty treaty and international casualty business lines. The slight decrease in property catastrophe reinsurance was largely due to reductions in business written due to challenging market conditions, partially offset by new business opportunities which were written in conjunction with an increase in retrocession costs. The decrease in other property reinsurance was largely due to challenging market conditions and adjustments in prior year premium estimates on proportional contracts.
Losses and loss adjustment expenses. The loss ratio in 2016 of 55.7% increased by 9.9 percentage points compared to 45.8% in 2015. The increase in the loss ratio is mainly due to a $65.2 million increase in catastrophe losses, changes in business mix towards lines which have higher non-catastrophe loss ratios and a $3.8 million decrease in prior year reserve releases. In 2016, our reinsurance segment experienced $114.8 million of catastrophe losses largely comprising of $35.4 million associated with wildfires in Canada, $10.5 million from an earthquake in New Zealand, $9.3 million from Hurricane Matthew, $8.5 million from earthquakes in Japan, $9.2 million from U.S wildfires, $5.0 million from a hailstorm in the Netherlands, $2.3 million from an earthquake in Taiwan and $31.2 million associated with other weather-related events in the U.S. The loss ratio in 2015 of 45.8% increased marginally compared to 45.7% in 2014 mainly due to an increase in catastrophe losses of $6.7 million, an $8.2 million decrease in prior year reserve releases, partially offset by lower attritional losses. In 2015, our reinsurance segment experienced $49.6 million of catastrophe losses largely comprising $7.0 million associated with U.K. floods, $7.0 million from the Washington wildfires, and $35.6 million of losses associated with the Chilean earthquake and weather-related events in Europe, the U.S. and Australasia. In addition, we experienced a loss in the amount of $23.0 million due to a port explosion in Tianjin, China and $7.0 million associated with a dam collapse in Brazil. In 2014, our reinsurance segment experienced $42.9 million of catastrophe losses associated with North American weather-related events and Australian, European and Asian storms.
Our general and administrative expenses increased by $31.7 million from $146.5 million in 2015 to $178.2 million in 2016. Our general and administrative expense ratio was 15.1% in 2016 compared to 13.7% in 2015 due predominantly to costs associated with AgriLogic which we acquired in January 2016. Our general and administrative expense ratio of 13.7% in 2015 increased from 13.5% in 2014 due to the impact from lower premium retention rates on net premiums earned.
Gross written premiums. The table below shows our gross written premiums for each line of business for the twelve months ended December 31, 2016, 2015 and 2014 and the percentage change in gross written premiums for each line:
The increase in gross written premium in 2015 compared to 2014 in property and casualty insurance was due to continued higher contribution from all our teams in this line of business. The decrease in gross written premium in marine, aviation and energy insurance lines was largely due to lower production in our marine, energy and construction liability and energy property damage accounts due to the repositioning of certain accounts and difficult market conditions, including increased competition combined with favorable prior-year premium adjustments in the comparative period. The increase in gross written premiums in financial and professional insurance in 2015 was largely attributable to growth in our U.S. lines with increases in some international classes.
Ceded written premiums. Total ceded written premiums for 2016 was $409.3 million, an increase of $153.6 million from $255.7 million in 2015. Ceded reinsurance increased across all our business lines because we restructured our ceded reinsurance arrangements to reduce volatility and benefit the expense ratio. In addition, we purchased an adverse development cover in the fourth quarter of 2016 for certain casualty business which we ceased to underwrite.
Our general and administrative expenses increased by $14.8 million to $228.4 million in 2016 from $213.6 million in 2015. Our general and administrative expense ratio was 15.7% in 2016 compared to 15.2% in 2015 due predominantly to costs associated with growth in the business. General and administrative expenses of $213.6 million in 2015 increased from $205.5 million in 2014 largely due to growth in our U.S. business and reorganization and integration costs.
was “AA-,” with 88.8% of the portfolio being rated “A” or higher. Where the credit ratings were split between the two main rating agencies, S&P and Moody’s, the lowest rating was used.
We manage our European fixed income exposures by proactively adapting our investment guidelines to our views on the European debt market. We previously amended our investment guidelines to prohibit purchases of sovereign or guaranteed debt of Greece, Ireland, Italy, Portugal or Spain (“GIIPS”) and Belgium in addition to also prohibiting purchases of corporate bonds issued by companies domiciled in any of the GIIPS countries. We have investment guidelines to prohibit purchases of debt issued by certain European and U.K. corporate financial institutions including covered bonds. We do not actively hedge any of our European exposures.
The tables below summarize our European holdings by country (Eurozone and non-Eurozone), rating and sector as at December 31, 2016. Equity investments included in the table below are not rated (“NR”). Where the credit ratings were split between the two main rating agencies, S&P and Moody’s, the lowest rating was used.
Provision is made at the end of each year for the estimated ultimate cost of claims incurred but not settled at the balance sheet date, including the cost of IBNR claims and development of existing reported claims. The estimated cost of claims includes expenses to be incurred in settling claims and a deduction for the expected value of salvage and other recoveries. Estimated amounts recoverable from reinsurers on unpaid losses and loss adjustment expenses are calculated to arrive at a net claims reserve.
The increase in reinsurance recoverables in 2016 was due predominantly to additional reinsurance purchased to reduce earnings volatility in addition to the impact from a loss portfolio transfer described in Note 12 of our consolidated financial statements, “Reserves for Losses and Loss Adjustment Expenses.” The recoveries in the reinsurance segment are generally associated with catastrophes and recoveries fluctuate based on the level of this type of event.
The gross reserves may be further analyzed between outstanding claims and IBNR as at December 31, 2016 and 2015, as follows:
Insurance. Net reserve releases of $65.7 million in 2015 were largely attributable to net reserve releases of $53.7 million from property and casualty lines and $8.8 million from financial and professional lines. The most significant factor affecting the level of release in 2015 was the release of a small number of case reserves where we saw favorable claims development.
Reinsurance. Net reserve releases of $99.0 million in 2014 were attributable to all lines of business. The most significant releases were $48.6 million from our specialty lines due to a combination of a reduction in credit and surety estimates, a reduction in 2011 prior claim estimates, mainly from short-tail lines, and the final settlement of a large contract; $18.9 million from other property lines, $17.5 million from casualty lines due to better than expected development; and $14.4 million from property catastrophe lines due primarily to a reduction in reserving margins held against 2012 and prior catastrophe events and better than planned experience.
The following table shows our capital structures at December 31, 2016 compared to December 31, 2015:
On September 20, 2016, we issued 10,000,000 shares of 5.625% Perpetual Non-Cumulative Preference Shares with a liquidation preference of $25 per share (the “5.625% Preference Shares”). Net proceeds were $241.3 million, comprising $250.0 million of
total liquidation preference less $8.7 million of issue expenses. The 5.625% Preference Shares have no stated maturity but are callable at our option on or after the 10 year anniversary of the date of issuance.
Our preference shares are classified in our balance sheet as equity but may receive a different treatment in some cases under the capital adequacy assessments made by certain rating agencies. Such securities are often referred to as “hybrids” as they have certain attributes of both debt and equity. We also monitor the ratio of the total of debt and hybrids to total capital which was 35.5% as of December 31, 2016 (December 31, 2015 - 31.1%).
Our senior notes were the only material debt issued by Aspen Holdings as at December 31, 2016 and 2015 of $549.3 million and $549.2 million, respectively.
Management monitors the ratio of debt to total capital, with total capital being defined as shareholders’ equity plus outstanding debt, which was 17.5% as at December 31, 2016 (December 31, 2015 - 17.8%).
The principal capital management transactions during 2015 and 2016 were as follows:
On April 21, 2016, we announced a 5.0% increase in our quarterly dividend to our ordinary shareholders from $0.21 to $0.22 per ordinary share.
For the twelve months ended December 31, 2016, we repurchased of 1,595,076 ordinary shares in open market repurchases for a total consideration of $75.0 million at an average price of $47.02 per ordinary share. As at December 31, 2016, we had $341.3 million remaining under our then existing $500.0 million share repurchase authorization program.
On February 8, 2017, our Board of Directors authorized a new share repurchase program of $250.0 million. The total share repurchase authorization, which was effective immediately through February 8, 2019, permits us to effect the repurchases of our shares from time to time through a combination of transactions, including open market purchases, privately negotiated transactions and accelerated share repurchase transactions.
Operating Subsidiaries. As at December 31, 2016, the Operating Subsidiaries held $1,409.3 million (December 31, 2015 - $1,136.4 million) in cash and short-term investments that are readily realizable securities. Management monitors the value, currency and duration of cash and investments held by its Operating Subsidiaries to ensure they are able to meet their insurance and other liabilities as they become due and was satisfied that there was a comfortable margin of liquidity as at December 31, 2016 and for the foreseeable future.
For all material currencies in which our underwriting activities are written we ensure that sufficient cash and short-term investments are held in such currencies to enable us to meet potential claims without liquidating long-term investments and adversely affecting our investment return. This follows the matching principle which matches our assets and liabilities in currency to mitigate foreign currency risk whenever possible.
The liquidity of our Operating Subsidiaries is also affected by the terms of our contractual obligations to policyholders and by undertakings to certain regulatory authorities to facilitate the issue of letters of credit or maintain certain balances in trust funds for the benefit of policyholders. The following table shows the forms of collateral or other security provided in respect of these obligations and undertakings as at December 31, 2016 and December 31, 2015:
Consolidated cash flows for the twelve months ended December 31, 2016. Total net cash flow from operations for the twelve months ended December 31, 2016 was $453.2 million, a decrease of $121.0 million from the equivalent period in 2015. For the twelve months ended December 31, 2016, our cash flows from operations provided us with sufficient liquidity to meet our operating requirements. We paid net claims of $1,222.8 million in 2016, and used $350.9 million in investing and net purchases and sales of equipment during the period. We paid ordinary share and preference share dividends of $94.5 million, and $75.0 million was used to repurchase ordinary shares. At December 31, 2016, we had a balance of cash and cash equivalents of $1,273.8 million.
On June 12, 2013, Aspen Holdings and several of its wholly-owned subsidiaries (collectively, the “Borrowers”) entered into an amended and restated credit agreement (the “Credit Agreement”) with various lenders and Barclays Bank PLC (“Barclays”), as administrative agent, which amends and restates the credit agreement, dated as of July 30, 2010, among Aspen Holdings, the Borrowers, various lenders and Barclays. The credit facility is used to finance our working capital needs and those of our subsidiaries for letters of credit in connection with our insurance and reinsurance businesses and for other general corporate purposes. Initial availability under the credit facility is $200.0 million and we have the option (subject to obtaining commitments from acceptable lenders) to increase the facility by up to $100.0 million. The facility will expire on June 12, 2017. As at December 31, 2016, no borrowings were outstanding under the credit facility.
The terms of a pledge agreement between Aspen Bermuda and Citi Europe (pursuant to an assignment agreement dated October 11, 2006) dated January 17, 2006, as amended, were also amended on June 30, 2014 to change the types of securities or other assets that are acceptable as collateral under the New LOC Facility. All other agreements relating to Aspen Bermuda’s LOC Facility, which now apply to the New LOC Facility with Citi Europe, as previously filed with the United States Securities and Exchange Commission, remain in full force and effect. As at December 31, 2016, we had $449.4 million of outstanding collateralized letters of credit under the New LOC Facility (December 31, 2015 - $463.6 million under the LOC Facility).
As at December 31, 2016, we were not party to any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K, to which an entity unconsolidated with us is a party that management believes is reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe is material to investors.
In November 2016, Peregrine, a subsidiary of the Company, was registered as a segregated accounts company under the Bermuda Segregated Accounts Companies Act 2000, as amended. As at December 31, 2016, Peregrine had formed three segregated accounts which were funded by a third party investor. The segregated accounts have not been consolidated as part of the Company's consolidated financial statements.
Operating income, a non-U.S. GAAP financial measure, is an internal performance measure used by us in the management of our operations and represents after-tax operational results excluding, as applicable, after-tax net realized and unrealized capital gains or losses, including net realized and unrealized gains and losses on interest rate swaps, after-tax net foreign exchange gains or losses, including net realized and unrealized gains and losses on foreign exchange contracts, changes in the fair value of derivatives, the amount attributable to non-controlling interest and certain non-recurring items. In 2016, the non-operating income and expenses relate to amortization of intangible assets and other corporate activities. We exclude after-tax net realized and unrealized capital gains or losses, after-tax net foreign exchange gains or losses and changes in the fair value of derivatives from
our calculation of operating income because the amount of these gains or losses is heavily influenced by, and fluctuates in part, according to the availability of market opportunities. We believe these amounts are largely independent of our business and underwriting process and including them distorts the analysis of trends in its operations. In addition to presenting net income determined in accordance with U.S. GAAP, we believe that showing operating income enables investors, analysts, rating agencies and other users of our financial information to more easily analyze our results of operations in a manner similar to how management analyzes our underlying business performance. Operating income should not be viewed as a substitute for U.S. GAAP net income.