We are a Cayman Islands headquartered global specialty property and casualty reinsurer with a reinsurance and investment strategy that we believe differentiates us from most of our competitors. Our goal is to build long-term shareholder value by selectively offering customized reinsurance solutions, in markets where capacity and alternatives are limited, which we believe will yield favorable long-term returns on equity.
During 2015, we experienced more success in closing targeted new business opportunities, especially new transactions with existing partners, than we have experienced in the prior two fiscal years. For specific information regarding our gross written premium by area of business as at December 31, 2015, 2014 and 2013, please refer to the table in Note 15 of the consolidated financial statements. Additionally, several of our renewal clients experienced growth in their portfolios, which, in turn, resulted in growth of the premium ceded under our transactions with these clients in 2015. In particular:
We observed stability and favorable trends in our underlying rates and profitability for our non-standard automobile business. We continue to believe we are achieving acceptable risk adjusted returns on this business and expect to have a high concentration of premium in this line for the foreseeable future.
We observed an increase in the size of the U.S. health stop loss market as employers seek to control their health care costs by moving from first dollar health care plans subject to the Affordable Care Act. We believe that the majority of this growth has been absorbed by large carriers that elect to not purchase reinsurance. However, we have seen growth in the portion of the market controlled by managing general underwriters that rely heavily on quota share reinsurance and we expect to modestly increase our market share in this line for the foreseeable future.
We note that pricing for property catastrophe retro and other property catastrophe business is under severe competitive pressure and we believe much of the business in the market is being priced below the expected losses. As such, in 2015 we have decreased, and expect to continue to decrease, our focus in this line of business unless there is a market changing event that improves expected profitability.
We also observed a decrease in the underlying rates and profitability for Florida Homeowners business. If rates and expected profitability continue to decline, we would expect to further decrease the premiums written in this line.
Our investment portfolio had a net long exposure of 15.5% as of December 31, 2015. Our goal for 2016 is to protect capital in an uncertain environment and to find investment opportunities on both our long and short portfolios that we believe will generate positive returns. Despite a Federal Reserve interest rate increase in December, monetary policy remains very accommodative globally. Additionally, there are many global economic and political risks that are coming to the forefront. Global equity markets have had a difficult start in 2016 with many global market indices falling, and volatility rising. Given the current investment environment, we judge it appropriate to maintain comparatively lower gross and net equity exposures and to hold a significant position in gold and other macro positions.
We manage our business on the basis of one operating segment, property and casualty reinsurance, in accordance with the qualitative and quantitative criteria established by U.S. GAAP. Within the property and casualty reinsurance segment, we analyze our underwriting operations using two categories:
Severity business is generally characterized as contracts with the potential for significant losses emanating from one event or multiple events. Clients generally buy this protection to remove volatility from their balance sheets, and accordingly, we expect the results of severity business to be volatile from period to period. However, over the long term, we also expect that our severity business will generate higher profit margins and return on equity than those of our frequency business.
In addition, we may from time to time derive other income from gains on deposit accounted contracts, fees generated from advisory services provided by Verdant and fees relating to overrides, profit commissions and early termination of contracts.
For all non-natural peril business, we initially reserve every individual contract to the expected loss and loss expense ratio that we calculated when we originally priced the business. In our pricing analysis, we typically utilize a significant amount of information both from the individual client and from industry data. Where practical, we compare historic reserving data that
Generally, we obtain regular updates of premium and loss related information for the current period and historical periods, which we utilize to update our initial expected loss and loss expense ratio. There may be a time lag from when claims are reported to our client and when our client reports the claims to us. This time lag may impact our loss reserve estimates from period to period. Client reports, whether due monthly or quarterly, have set reporting dates of when they are due to us (for example, fifteen days after month end). As such, the time lag in the client’s reporting depends upon the terms of the specific contract. The timing of the reporting requirements is designed so that we receive premium and loss information as soon as practicable once the client has closed its books. Accordingly, there should be a short lag in such reporting. Additionally, most of our contracts that have the potential for large single event losses have provisions that such loss notification needs to be received immediately upon the occurrence of an event. Once we receive this updated information, we use a variety of standard actuarial methods in our analysis each quarter. Such methods may include:
Bornhuetter-Ferguson Paid Loss Method. We estimate ultimate losses by modifying expected loss ratios to the extent paid losses experienced to date differ from what would have been expected to have been paid based upon the selected paid loss development pattern. This method avoids some of the distortions that could result from a large development factor being applied to a small base of paid losses to calculate ultimate losses. We generally use this method for lines of business and contracts where there are limited historical paid losses.
Bornhuetter-Ferguson Reported Loss Method. We estimate ultimate losses by modifying expected loss ratios to the extent reported losses experienced to date differ from what would have been expected to have been reported based upon the selected reported loss development pattern. This method avoids some of the distortions that could result from a large development factor being applied to a small base of reported losses to calculate ultimate losses. We generally use this method for lines of business and contracts where there are limited historical reported losses.
Frequency / Severity Method. We estimate ultimate losses under this method by multiplying the ultimate number of claims (i.e. the frequency), by the estimated ultimate average cost per claim (i.e. the severity). By analyzing claims experience by its frequency and severity components, we are able to examine trends and patterns in the rates of claims emergence (i.e. reporting) and settlement (i.e. closure) as well as in the average cost of claims. The approach is valuable because sometimes there is more inherent stability in the frequency and severity data when viewed separately rather than in the total losses.
Additionally, we contract with a third-party actuarial firm to perform a quarterly reserve review and to annually opine on the reasonableness and adequacy of our aggregate loss reserves. We provide our external actuary with our pricing models, reserving analysis and any other data they may request. Additionally, the actuarial firm may inquire as to the various assumptions and estimates that we may use in our reserving analysis. The external actuarial firm independently creates its own reserving models based on industry loss information, augmented by specific client loss information that we may be asked to provide as well as its own independent assumptions and estimates. Based on various reserving methodologies that the actuarial firm considers appropriate, it creates a reserve estimate for each contract in our portfolio and provides us with an aggregate recommended loss reserve, including IBNR. If there are material differences between our aggregate booked reserves and the actuarial firm’s recommended reserves, we review the differences and make any necessary adjustments to the booked reserves. To date there have been no material differences resulting from the external actuary's reviews requiring adjustments to our booked reserves.
Bonus Accruals. Under the Company's bonus program, each employee’s target bonus consists of two components: a discretionary component based on a qualitative assessment of each employee’s performance and a quantitative component based on the return on deployed equity ("RODE") for each underwriting year relating to reinsurance operations. The qualitative portion of an employee’s annual bonus is accrued at each employee's target amount, which may differ significantly from the actual amount awarded. The quantitative portion of each employee’s annual bonus is accrued based on the expected RODE for each underwriting year and adjusted for changes in the expected RODE and actual investment return each quarter until all losses are settled and the underwriting year is declared closed. The quantitative bonus is calculated and paid in annual installments between two to five years from the end of the fiscal year in which the business was underwritten. Any subsequent changes to the quantitative bonus are incorporated into the following open underwriting year. The Compensation Committee of our Board of Directors approves all quantitative bonuses prior to being paid. The expected RODE calculation utilizes proprietary models which require significant estimation and judgment. Actual RODE may vary significantly from the expected RODE and any adjustments to the quantitative bonus estimates, which may be material, are recorded in the period in which they are determined.
For the year ended December 31, 2014, the fully diluted adjusted book value per share increased by $2.85 per share, or 10.2%, to $30.76 per share from $27.91 per share at December 31, 2013. For the year ended December 31, 2014, the basic adjusted book value per share increased by $2.78 per share, or 9.8%, to $31.17 per share from $28.39 per share at December 31, 2013.
Basic adjusted book value per share is a non-GAAP measure as it excludes the non-controlling interest in a joint venture from total equity. In addition, fully diluted adjusted book value per share is also a non-GAAP measure and represents basic adjusted book value per share combined with the impact from dilution of all in-the-money stock options and RSUs issued and outstanding as of any period end. We believe that long-term growth in fully diluted adjusted book value per share is the most relevant measure of our financial performance. In addition, fully diluted adjusted book value per share may be of benefit to our investors, shareholders and other interested parties to form a basis of comparison with other companies within the property and casualty reinsurance industry.
The following table presents a reconciliation of the non-GAAP basic adjusted and fully diluted adjusted book value per share to the most comparable GAAP measure.
As a result of our opportunistic underwriting philosophy, our reported quarterly premiums written may be volatile. Additionally, the composition of premiums written between frequency and severity business may vary from period to period depending on the specific market opportunities that we pursue.
For the year ended December 31, 2015, severity premiums written increased by $9.6 million, or 34.0%, compared to the same period in 2014, primarily due to new severity contracts written during 2015 which accounted for a $14.7 million increase in severity gross premiums written. Additionally, a multi-year severity quota share contract written during the second half of 2014 contributed $7.6 million of the increase in severity premiums written for the year ended December 31, 2015. The increases were partially offset by a net decrease of $10.1 million relating to property catastrophe contracts that expired and were not renewed or were renewed at a lower premium volume during 2015. For the year ended December 31, 2015, the severity premiums reported were net of return premiums of $2.5 million relating to an excess of loss catastrophe contract. This contract was previously expected to incur a loss and we had recorded a loss reserve which had triggered an additional premium. During the year ended December 31, 2015, we were informed that losses incurred by the cedent on this contract would not breach into our layer and as a result the additional premium was reversed along with the loss reserve, and a corresponding profit commission expense was recorded during 2015.
During 2014, our gross premiums written decreased by $211.7 million, or 39.5%, primarily due to a private passenger motor contract that we terminated at the end of 2013 and due to some of our personal property contracts renewed during 2014 at a smaller share ceded to us. However, during the second half of 2014, we entered into several new relationships which offset some of the decrease in gross premiums written during 2014.
For the year ended December 31, 2014, the frequency gross premiums written decreased by $216.2 million, or 42.2%, primarily relating to the motor line (physical damage and liability) and personal property line. The motor line gross premiums written decreased by $137.0 million relating to a private passenger motor contract that we terminated at the end of 2013 on a run-off basis. Additionally, our remaining private passenger motor contracts reported a decrease of $24.3 million in gross premiums written during 2014, compared to the same period in 2013, due to competitive pricing pressure on the underlying premiums written by the insurers. The personal property line frequency gross premiums written decreased by $78.3 million, primarily relating to a decrease in our share of the Florida homeowners' contracts which renewed during 2014, with the cedents choosing to retain a larger share on the renewed contracts compared to the expiring contracts. The decrease in frequency gross premiums written was partially offset by a number of new contracts entered into relating to the general liability, specialty health and workers' compensation lines of business.
For the years ended December 31, 2015, 2014 and 2013, retrocessional premiums ceded were $9.0 million, $13.5 million and $2.8 million, respectively. For the year ended December 31, 2015, the decrease in ceded premiums compared to the same period in 2014 was partially due to a retroceded contract for catastrophic risk protection that expired at the end of 2014 and was not renewed. However, in the first quarter of 2015, we purchased an industry loss warranty derivative contract ("ILW") to reduce our net exposure to natural peril catastrophe events. In accordance with U.S. GAAP, the ILW is recorded as a weather derivative
For the year ended December 31, 2015, the severity net premiums earned increased by $4.2 million, or 17.8%, compared to the same period in 2014. The increase was a net impact of new and renewed severity quota share contracts entered into during 2015 and the latter half of 2014, partially offset by severity contracts that expired and were not renewed or renewed with a smaller share during 2015. For the year ended December 31, 2015, the reported severity premiums earned were net of $2.5 million of return premiums relating to an excess of loss catastrophe contract. This contract was previously expected to incur a loss into our layer, resulting in an additional premium being recorded. During the year ended December 31, 2015, we were informed by the client that the loss will not breach into our layer. As a result, we reversed the additional premium along with the loss reserve and recorded a profit commission expense. Additionally, the severity premiums earned for the year ended December 31, 2015 appear higher than the comparable period in 2014 because the 2014 earned premiums were net of $3.8 million expense relating to a retroceded contract for catastrophic risk protection which was not renewed in 2015. Instead during 2015, we purchased an ILW contract which, in accordance with U.S. GAAP, was recorded as a weather derivative swap and the cost of the ILW was recorded in the consolidated statements of income as "other income (expense), net". For the year ended December 31, 2015, the ILW amortization expense was $2.3 million.
We establish reserves for each contract based on estimates of the ultimate cost of all losses, including losses incurred but not reported. These estimated ultimate reserves are based on reports received from ceding companies, industry data and historical experience as well as our own actuarial estimates. Quarterly, we review these estimates on a contract by contract basis and adjust them as we deem appropriate to reflect our best estimates based on updated information and our internal actuarial estimates. We expect losses incurred on our severity business to be volatile depending on the frequency and magnitude of catastrophic events from year to year.
For the year ended December 31, 2015, the total net losses incurred on frequency contracts increased by $83.3 million, or 36.0%, compared to the same period in 2014. The increase was driven primarily by $51.6 million of additional loss reserves recorded during the year ended December 31, 2015 on two legacy general liability contracts that are currently in run-off. One of the general liability contracts, which was in effect from 2008 to 2011, included general contractors' liability with the majority of exposure relating to single-family homes. During 2015, we completed an in-depth analysis, with the assistance of a third party expert, of the construction defect claims reported and the potential for claims not yet reported on this contract. Based on this assessment, we revised the actuarial methodology used for reserving these claims, which resulted in an increase in IBNR reserves of $36.9 million recorded in the third quarter of 2015. The other general liability contract, which was written in 2010, included general contractors' liability with the majority of exposure relating to construction defect claims in the western United States. During the second quarter of 2015, we experienced adverse development on known claims, which caused us to re-evaluate the expected value of known claims as well as the value of claims still to be filed. Additionally, we re-evaluated the claims handling costs associated with this contract and increased our provision for case reserves, IBNR reserves and the cost of claims handling by $14.7 million during the second quarter of 2015. We have reviewed all other contracts and do not believe that any other contract has similar exposure. Some of our prior years' Florida homeowners' contracts also contributed to the increase in losses incurred due to unfavorable loss development of $9.3 million (see Note 7 of the consolidated financial statements for details). The remainder of the increase in incurred losses related primarily to the higher earned premiums recorded for the year ended December 31, 2015 compared to the same period in 2014.
Losses incurred as a percentage of premiums earned (referred to as the loss ratio) fluctuates based on the mix of business, and any favorable or adverse loss development on our larger contracts. The loss ratios for the years ended December 31, 2015, 2014 and 2013, were as follows:
The severity loss ratio for the year ended December 31, 2015 reflects the elimination of $5.1 million of loss reserves on an excess of loss contract entered into in 2008. Excluding this contract, the severity loss ratio for the year ended December 31, 2015 was 25.4% compared to 16.1% for the same period in 2014. This increase in severity loss ratio was due to the change in mix of severity business with a higher proportion of quota share severity contracts in effect during the year ended December 31, 2015 compared to the same period in 2014.
For the year ended December 31, 2014, the net losses incurred on frequency contracts decreased by $116.0 million, or 33.4%. This decrease was primarily the net result of the 37.6% decrease in net premiums earned relating to a private passenger motor contract terminated at the end of 2013 and Florida homeowners' personal property contracts renewed at a lower assigned share. Additionally, the multi-line contracts terminated and commuted during 2013 also contributed to the decrease in incurred losses for the year ended December 31, 2014. The decreases were partially offset by an increase in losses incurred relating to adverse loss development on general liability, commercial motor, solicitors' professional liability and employers' medical stop-loss contracts (see Note 7 of the consolidated financial statements for details).
For the years ended December 31, 2014 and 2013, the loss ratios for our frequency business were 69.9% and 65.5%, respectively. The higher loss ratio for the year ended December 31, 2014 was due to adverse loss development relating to prior period general liability, commercial motor, solicitors' professional liability and employers' medical stop-loss contracts. Additionally, the loss ratio on the motor line was also higher primarily due to current year private passenger motor contracts reporting higher expected loss ratios compared to the prior year contracts. The increase in the loss ratio for the year ended December 31, 2014 was partially offset by a lower loss ratio for the general liability line due to a decrease in the amount of adverse loss development during 2014, compared to the adverse loss development during 2013.
The decrease in the frequency acquisition cost ratio for the year ended December 31, 2015, compared to the same period in 2014, was primarily due to Florida homeowners' insurance contracts that contain sliding scale ceding commissions which decreased during the year ended December 31, 2015 as a result of adverse loss development on those contracts. Additionally, the private passenger motor contracts in force during 2015 reported lower ceding commissions than the prior year which also contributed to a lower frequency acquisition cost ratio for the year ended December 31, 2015. The decrease in acquisition cost ratio was partially offset by the change in mix of professional liability contracts which carry higher ceding commission rates than the predominantly solicitors' professional indemnity contracts in force during the year ended 2014.
The higher severity acquisition cost ratio for the year ended December 31, 2015, compared to the same period in 2014, was primarily due to profit commissions of $3.4 million recorded on an excess of loss contract during 2015. These profit commissions were triggered by the elimination of loss reserves on this contract based on updated information received from the insurer. There were no other significant changes in acquisition costs during the year ended December 31, 2015.
For the year ended December 31, 2014, the acquisition cost ratios for severity business was slightly lower than the same period in 2013 due to the impact of reinstatement premiums reversed during 2013 relating to super-storm Sandy with no corresponding reversal of commissions. Excluding the impact of this reversal, the 2013 severity acquisition cost ratio was 18.0%. The acquisition cost ratio on the new severity contracts written during 2014 was higher due to a change in mix of business. During the year ended 2014, we wrote several new severity quota share contracts which had higher ceding commissions than the catastrophe excess of loss contracts written during 2013.
Details of general and administrative expenses are provided in the following table:
For the year ended December 31, 2015, internal expenses decreased primarily due to a decrease in bonuses relating to prior underwriting years. The increase in corporate expenses for the year ended December 31, 2015, compared to the same period in 2014, was mainly due to non-recurring professional fees incurred during 2015.
For the years ended December 31, 2015, 2014 and 2013, the gross investment returns on our investment portfolio managed by DME Advisors (excluding investment performance compensation) were (20.2)%, 10.8% and 24.6%, respectively, and were comprised of the following:
For the year ended December 31, 2015, included in "other income and expenses" was $19.2 million (2014: $20.6 million, 2013: $18.3 million) relating to management fees paid to DME Advisors. For the year ended December 31, 2015, no performance compensation was recorded due to the negative investment returns for this period (2014: $28.5 million, 2013: $54.2 million). Due to the investment loss for the year ended December 31, 2015, based on the advisory agreement, the performance compensation for the subsequent years will be reduced to 10% of investment income until all the investment losses have been recouped and an additional amount equal to 150% of the investment loss is earned.
Verdant is incorporated in Delaware and, therefore, is subject to taxes in accordance with the U.S. federal rates and regulations prescribed by the Internal Revenue Service. Verdant’s taxable income is expected to be taxed at a rate of 35%.
As of December 31, 2015, a deferred tax asset of $1.8 million (2014: $33.4 thousand) was included in other assets on the consolidated balance sheets. The increase in deferred tax asset during the year ended December 31, 2015, primarily resulted from the operating losses carried forward relating to GRIL and to a lesser extent from the temporary differences in recognition of expenses for tax purposes. As of December 31, 2015, an accrual for current taxes recoverable of $0.5 million (2014: $0.8 million)
The internal expense ratio is the ratio of general and administrative expenses, excluding any corporate expenses, to net premiums earned.
Our long investments and financial contracts receivable reported in the consolidated balance sheets as of December 31, 2015 were $1,077.4 million, compared to $1,478.1 million as of December 31, 2014, a decrease of $400.7 million, or 27.1%, primarily due to the loss on long investments. As of December 31, 2015, our exposure to long investments decreased to 89.5%, compared to 105.8% as of December 31, 2014. This exposure analysis is conducted on a delta-adjusted basis and excludes macro positions which consist of CDS, interest rate swaps, sovereign debt, currencies, commodities, volatility indexes and derivatives on any of these instruments.
Financial contracts receivable as of December 31, 2015 decreased by $34.0 million, or 72.0%, compared to December 31, 2014, partially due to a decrease in the fair value of equity based total return swaps and partially due to put options exited during 2015. As of December 31, 2015, financial contracts payable decreased by $16.3 million, or 36.7%, compared to December 31, 2014, primarily due to a decrease in total return swaps that were in payable position and to a lesser extent due to the expiration of certain credit default swaps during the period.
In determining whether a market for a financial instrument is active or inactive, we obtain information from DME Advisors, based on feedback it receives from executing brokers, market makers, analysts and traders, to assess the level of market activity and available liquidity for any given financial instrument. Where a financial instrument is valued based on broker quotes, DME Advisors requests multiple quotes. The ultimate value is based on an average of the quotes obtained. Broker quoted prices are generally not adjusted in determining the ultimate values and are obtained with the expectation of the quotes being binding. As of December 31, 2015, $129.8 million (2014: $316.4 million) of our investments (longs, shorts and derivatives) were valued based on broker quotes, of which $128.0 million (2014: $315.7 million) were based on broker quotes that utilized observable market information and classified as Level 2 fair value measurements, and $1.8 million (2014: $0.7 million) were based on broker quotes that utilized non-observable inputs and classified as Level 3 fair value measurements.
Fluctuations in the share price due to an overall positive investment market;
Given the various scenarios under which a loss may occur on a short sale, it is not possible to quantify the risk and uncertainty of loss relating to short sales. However, DME Advisors typically performs a detailed analysis prior to entering into a short sale. Thereafter, the investment is routinely monitored by DME Advisors. As of December 31, 2015, Greenlight Re's investment guidelines limit any single investment from constituting more than 20% of the portfolio (10% for GRIL's portfolio) at any given time, which limits the potential adverse impact on our results of operations and financial position from any one position.
At December 31, 2015, deferred acquisition costs (net of retrocession) increased by $25.4 million, or 73.8%, compared to December 31, 2014. The increase was closely related to the corresponding increase in unearned premium reserves which increased by $83.2 million, or 64.6%, during the same period. We evaluate the recoverability of deferred acquisition costs by determining if the sum of future earned premiums and anticipated investment income is greater than the expected future claims and expenses. If a loss is probable on the unexpired portion of policies in force, a premium deficiency loss is recognized. As of December 31, 2015, we believe that the deferred acquisition costs were fully recoverable and no premium deficiency loss was recorded.
Loss and Loss Adjustment Expense Reserves; Loss and Loss Adjustment Expenses Recoverable
The severity loss reserves decreased by $0.2 million, or 0.5%. The increase in the severity IBNR was due to new severity quota share contracts written during 2015 and in the latter half of 2014. The decrease in the severity case reserves related to the elimination of $5.1 million case reserves on an excess of loss contract based on updated loss information received from the insurer indicating that the losses would not breach into our layer of coverage.
The PML estimate includes all significant exposure from our reinsurance operations. This includes coverage for property, motor, marine, energy, aviation and workers’ compensation.
As of January 1, 2016, our estimated net PML exposure (net of retrocession and reinstatement premiums) at a 1-in-250 year return period for a single event and in aggregate, was $113.0 million and $143.9 million, respectively. The following table provides the PML for single event loss exposure and aggregate loss exposure to natural peril losses for each of the peak zones as of January 1, 2016:
As of December 31, 2015, we believe we have sufficient cash flow from operating and investing activities to meet our foreseeable liquidity requirements. We expect that our operational needs for liquidity will be met by cash, funds generated from underwriting activities and investment income, including realized gains and the disposition of investment securities. As of December 31, 2015, we had no plans to issue debt and expect to fund our operations for the next twelve months from operating cash flow. However, we cannot provide assurances that in the future we will not incur indebtedness to implement our business strategy, pay claims or make acquisitions.
As of December 31, 2015, neither Greenlight Re nor GRIL was licensed or admitted as a reinsurer in any jurisdiction other than the Cayman Islands and the European Economic Area, respectively. Because many jurisdictions do not permit domestic insurance companies to take credit on their statutory financial statements for loss recoveries or ceded unearned premiums unless appropriate measures are in place for reinsurance obtained from unlicensed or non-admitted insurers, we anticipate that all of our U.S. clients and some of our non-U.S. clients will require us to provide collateral through funds withheld, trust arrangements, letters of credit or a combination thereof.
Our capital structure currently consists entirely of equity issued in two separate classes of ordinary shares. We expect that the existing capital base and internally generated funds will be sufficient to implement our business strategy for the foreseeable future. Consequently, we do not presently anticipate that we will incur any material indebtedness in the ordinary course of our business other than temporary borrowing directly related to the management of our investment portfolio. However, in order to provide us with flexibility and timely access to public capital markets should we require additional capital for working capital, capital expenditures, acquisitions or other general corporate purposes, we have filed a Form S-3 registration statement, which expires in June 2018 unless renewed. We did not make any significant commitments for capital expenditures during the year ended December 31, 2015.
On April 28, 2010, our shareholders approved an amendment to our stock incentive plan to increase the number of Class A ordinary shares available for issuance from 2.0 million to 3.5 million. As of December 31, 2015, there were 658,775 Class A ordinary shares available for future issuance.
(2) As of December 31, 2015, we had made total commitments of $20.1 million in private investments of which we had invested $14.0 million, and our remaining commitments to these investments total $6.1 million. Given the nature of the private equity investments, we are unable to determine with any degree of accuracy as to when the commitments will be called. As such, for the purposes of the above table, we have assumed that all commitments with no fixed payment schedule will be made within one year. Under our investment guidelines, in effect as of the date hereof, no more than 10% of the assets in the investment portfolio may be held in private equity securities without specific approval from the Board of Directors.
GRIL has entered into a lease agreement for office space in Dublin, Ireland. Under the terms of this lease agreement, GRIL is committed to minimum annual rent payments denominated in Euros approximating €0.1 million until May 2021, and adjusted to the prevailing market rates for each of the two subsequent five-year terms. GRIL has the option to terminate the lease agreement in 2021. The minimum lease payment obligations are included in the above table under operating lease obligations and in Note 14 to the accompanying consolidated financial statements.
The Company and its reinsurance subsidiaries have entered into a joint venture agreement with DME Advisors under which the Company, its reinsurance subsidiaries and DME are participants of a joint venture for the purpose of managing certain jointly held assets (the "venture agreement"). In addition, the Company, its reinsurance subsidiaries and DME have entered into a separate investment advisory agreement with DME Advisors (the "advisory agreement"). The term of each of the venture agreement and the advisory agreement is January 1, 2014 through December 31, 2016, with automatic three-year renewals, unless 90 days prior to the end of the then current term, either DME notifies the other participants of its desire to terminate the venture agreement or any other participant notifies DME of its desire to withdraw from the venture agreement.
Pursuant to the venture agreement, we pay DME Advisors a monthly management fee of 0.125% on our share of the assets managed by DME Advisors and we provide DME a performance allocation equal to 20% of the net profit, calculated per annum, of the Company’s share of the capital account managed by DME Advisors, subject to a loss carry forward provision. The loss carry forward provision allows DME to earn a reduced performance allocation of 10% of profits in any year subsequent to the year in which the investment account incurs a loss, until all the losses are recouped and an additional amount equal to 150% of the aggregate investment loss is earned. DME is not entitled to earn a performance allocation in a year in which the investment portfolio incurs a loss. For the year ended December 31, 2015, no performance allocation was recorded due to the net investment loss for the year. For the year ended December 31, 2015, management fees of $19.2 million was included in the net investment loss.
In February 2007, we entered into a service agreement with DME Advisors pursuant to which DME Advisors will provide investor relations services to us for compensation of five thousand dollars per month plus expenses. The service agreement had an initial term of one year, and continues for sequential one-year periods until terminated by us or DME Advisors. Either party may terminate the service agreement for any reason with 30 days prior written notice to the other party.