The following table sets forth our selected historical consolidated statement of income data for the fiscal years ended December 31, 2014, 2013, 2012, 2011 and 2010, as well as our selected historical consolidated balance sheet data as of December 31, 2014, 2013, 2012, 2011 and 2010, which are derived from our audited consolidated financial statements. The audited consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been audited by BDO USA, LLP, an independent registered public accounting firm.
These historic results are not necessarily indicative of results for any future period. You should read the following selected financial data in conjunction with our consolidated financial statements and related notes thereto contained in "Item 8. Financial Statements and Supplementary Data" and "
The following is a discussion and analysis of our results of operations for the years ended December 31, 2014, 2013 and 2012 and financial condition as of December 31, 2014 and 2013. The following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes, which appear elsewhere in this filing.
One component of our underwriting strategy is to identify and partner with companies that have suffered dislocation. Accordingly, as the market suffers, we believe we may have increased underwriting opportunities, which we will pursue if we believe pricing is economically rational. Conversely, if the reinsurance market continues to soften, we anticipate that we will seek to maintain or even reduce premium writings rather than accept mispriced risk in order to conserve our capital for a more opportune environment. We believe that significant price increases could occur if financial and credit markets experience adverse shocks that result in the loss of capital of insurers and reinsurers, or if there are major catastrophic events, especially in North America. The persistent low interest rate environment has reduced the earnings of many insurance and reinsurance companies with traditional fixed income investment strategies and we believe that the continuation of low interest rates, coupled with the reduction of prior years' reserve redundancies, could cause the industry to adopt overall higher pricing.
As of December 31, 2014, our reinsurance portfolio was principally concentrated in four areas: Florida homeowners; U.S. employer health stop loss; catastrophe retrocession and non-standard private passenger automobile. While each of these areas is competitive, we believe we are supporting programs with good risk adjusted returns. We believe that, in general, the Florida homeowners, U.S. employer health stop loss and non-standard private passenger automobile sectors are stable and priced at profitable levels. However, we have observed significant flexible capital from non-traditional sources being deployed mainly in peak zone catastrophe excess of loss business, which has put downward pressure on rates. We renewed certain of our existing catastrophe retrocession relationships at January 1, 2015 and also wrote some new catastrophe retrocession deals with new partners. We have repositioned our catastrophe retrocession book of business from predominantly excess of loss contracts to quota share contracts. We have found there to be less available capacity from alternative capital providers for quota share contracts in this area and as such terms and pricing are more favorable. Additionally, we have recently secured new contracts with larger, syndicated reinsurance placements for general casualty and professional liability business which have a longer duration of claim payments than the business we have written in the past.
While the competitive market conditions have made finding new business that meets our return hurdles challenging, we believe that we have a strong pipeline of attractive opportunities with counterparties that seek highly customized structures, terms and conditions, which aligns well with our underwriting strategy. Further, we intend to continue to monitor market conditions and pursue multiple opportunities to best position ourselves to participate in future under-served or capacity-constrained markets as they arise and intend to offer products that we believe will generate favorable returns on equity over the long term. Accordingly, our underlying results and product line concentrations in any given period may vary, perhaps significantly, and are not necessarily indicative of our future results of operations.
Our investment portfolio had a net long exposure of 38.9% as of December 31, 2014. Our goal for 2015 continues to be 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. Equity market valuations are stretched while monetary policy remains very accommodative globally. Given the current investment environment, we anticipate, for the foreseeable future, to continue holding a combination of a significant position in gold, macro positions in the form of options on foreign exchange rates, short positions in sovereign debt and sovereign credit default swaps.
Acquisition costs primarily consist of brokerage fees, ceding commissions, premium taxes, profit commissions, letters of credit fees, federal excise tax, and other direct expenses we incur that are directly related to underwriting reinsurance contracts. We amortize deferred acquisition costs over the related contract term.
For stock option expenses, we calculate compensation cost using the Black-Scholes option pricing model and expense stock options over their vesting period, which is typically three years. For restricted stock awards and restricted stock units, we calculate compensation cost using the grant date fair value of each award and expense the stock awards over their vesting period, which is typically three years.
For natural peril exposed business, we generally establish loss reserves based on loss payments and case reserves reported by our clients when, and if, received. We then add our estimates for IBNR losses to the case reserves. To establish our IBNR loss estimates, in addition to the loss information and estimates communicated by ceding companies, we use industry information, knowledge of the business written and management’s judgment.
For each contract, we utilize each reserving methodology that our actuaries deem appropriate in order to calculate a best estimate, or point estimate, of reserves. We use various actuarial methods to provide data point estimates to aid us in our estimation of reasonable and adequate loss reserves. In setting our reserves, we do not select a range of estimates that may be subject to adjustment. We analyze reserves on a contract by contract basis and do not reserve based on aggregated product lines. Whether we use one methodology, a combination of methodologies or all methodologies depends upon the contract and the judgment of the actuaries responsible for the contract. We do not have a set weighting of the various methods we use. Certain of the methods we consider are more appropriate depending on the type and structure of the contract, how mature is the contract, and the duration of the expected paid losses on the contract. For example, the data estimation for contracts that are relatively new and therefore have little paid loss development is more appropriately considered using the Bornhuetter-Ferguson Reported Loss Method than a paid loss development method.
Our aggregate reserves are the sum of the point estimate of all contracts. We perform a quarterly loss reserve analysis on each contract regardless of the line of business. This analysis may incorporate some or all of the information described above, using some or all of the methodologies described above. We generally calculate IBNR loss reserves for each contract by estimating the ultimate incurred losses at any point in time and subtracting cumulative paid claims and case reserves, which incorporate specific exposures, loss payment and reporting patterns and other relevant factors. Each quarter, our reserving committee, which is comprised of our Chief Executive Officer, Chief Financial Officer, Chief Actuarial Officer, Assistant Controller and Reserving Actuary, meets to assess the adequacy of our loss reserves based on the reserve analysis and recommendations prepared by the Company’s actuaries. The reserving committee discusses each contract individually and approves or revises the stated 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.
Prior to 2014, our shares had not been publicly traded for a sufficient length of time to reasonably estimate the expected volatility. Therefore, for share purchase options granted prior to 2014, we determined the expected volatility based primarily on the historical volatility of a peer group of companies in the reinsurance industry while also considering our own historical volatility in determining the expected volatility. We typically considered factors such as an entity's industry, stage of life cycle, size and financial leverage when selecting the peer group. Additionally, we used the full life of the option, ten years, as the estimated term of the option, and we have assumed that dividends will not be paid.
For the year ended December 31, 2014, we reported net income of $109.6 million, compared to net income of $225.7 million reported for the year ended December 31, 2013. Our investment portfolio reported net income of $122.6 million, or a return of 8.7%, for the year ended December 31, 2014, compared to net investment income of $218.1 million, or a return of 19.6%, for the same period in 2013. The underwriting income before general and administrative expenses for the year ended December 31, 2014 was $11.6 million, compared to underwriting income of $37.5 million reported for the year ended December 31, 2013. The decrease in underwriting income was driven by adverse loss development on prior year contracts and to a lesser extent by lower volume of premiums earned during 2014 compared to 2013. By comparison, the 2013 underwriting income included a reversal of $12.4 million of loss reserves (net of reinstatement premiums) relating to super-storm Sandy due to revised loss estimates recorded during 2013. For the year ended December 31, 2014, our overall composite ratio was 96.7% compared to 93.2% for the year ended December 31, 2013. General and administrative expenses increased slightly for the year ended December 31, 2014 to $21.9 million from $21.7 million for the year ended December 31, 2013, primarily as a result of higher quantitative bonuses accrued relating to the 2012, 2013 and 2014 underwriting years which was partially offset by a gain on foreign exchange.
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. During the year ended December 31, 2013, basic adjusted book value per share increased by $6.00 per share, or 26.8%, to $28.39 per share from $22.39 per share at December 31, 2012.
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
For the year ended December 31, 2014, the increase in severity gross premiums written of $4.6 million, or 19.3%, compared to the same period in 2013 was primarily due to new and renewed severity contracts written during 2014, including excess of loss and multi-line property and casualty retrocession contracts.
The increase of $57.9 million in the frequency gross premiums written in our personal property line was entirely related to the Florida homeowners' contracts. During 2013, we added a new relationship to our existing portfolio of Florida homeowners' business which accounted for nearly half of the increase, while the remainder of the increase resulted from higher volume of written premiums assumed from our existing relationships.
For the year ended December 31, 2013, the increases in frequency gross premiums written were offset by decreases in our workers' compensation and general liability lines, which decreased by $21.2 million and $23.6 million, respectively, primarily relating to the commutation of a multi-line contract and the termination of another multi-line contract, both of which included coverages for workers' compensation and general liability.
For the year ended December 31, 2013, the increase in severity gross premiums written of $1.2 million, or 5.6%, compared to the same period in 2012 was primarily due to new severity contracts written during 2013. This increase was partially offset by the reversal of reinstatement premiums written of $3.5 million in conjunction with the reversal of loss reserves relating to super-storm Sandy during the first quarter of 2013. Reinstatement premiums and additional premiums based on contractual terms are recognized as written premiums at the time losses are recorded, and, if required, adjusted in the period in which changes in loss estimates are recorded.
For the years ended December 31, 2014, 2013 and 2012, retrocessional premiums ceded were $13.5 million, $2.8 million and $(24.3) million, respectively. For the year ended December 31, 2014, our ceded premiums increased by $10.7 million partially relating to a retrocession contract purchased during 2014 in order to reduce our net exposure to natural peril catastrophe events, and partially relating to higher premiums on the inward contracts which are proportionally retroceded to entities affiliated with the ceding insurers.
Details of net premiums written are provided in the following table:
For the year ended December 31, 2014, the frequency net premiums earned decreased by $199.2 million, or 37.6%, compared to the same period in 2013. The decrease was primarily attributed to a private passenger motor contract terminated at the end of 2013 which accounted for $159.5 million of the decrease. Additionally, the volume of premiums earned on other private passenger motor contracts decreased by $13.9 million compared to the same period in 2013. This decrease was due to a reduction in earned premiums reported during 2014 resulting from competitive pricing pressure on the underlying premiums written by the insurers. The personal line premiums earned decreased by $40.1 million during 2014 compared to the same period in 2013 primarily due to the explanation provided above under Gross Premiums Written. Other decreases in net premiums earned related to the workers' compensation line and the general liability line which decreased by $11.1 million and $2.4 million, respectively, primarily as a result of certain multi-line contracts terminated during 2013. The decreases in frequency net premiums earned were partially offset by net premiums earned on new contracts and increases in the volume of underlying business in other lines including $10.3 million relating to professional liability contracts and $3.0 million relating to employer health stop-loss contracts.
For the year ended December 31, 2013, the frequency net premiums earned increased by $85.3 million, or 19.2%, compared to the same period in 2012 primarily as a result of our motor liability, motor physical damage and personal property contracts, which increased net premiums earned by $89.9 million, $12.7 million and $16.6 million, respectively. The increase in
motor liability line includes an increase of $101.7 million in private automobile premiums earned as a result of increased premium volume on the underlying business. The increase was partially offset by a decrease of $11.8 million in commercial motor premiums earned primarily due to a multi-line contract that was commuted during 2013. The increase in motor physical damage premiums earned was entirely related to the corresponding increase in the non-standard automobile contracts. The increase in personal property premiums earned related to Florida homeowners' insurance contracts for the same reasons discussed above for increase in premiums written.
Losses incurred include losses paid and changes in loss reserves, including reserves for IBNR, net of actual and estimated loss recoverables. Details of net losses incurred are provided in the following table:
Net losses incurred as a percentage of net premiums earned (i.e. the loss ratio) fluctuates based on the mix of business, and the favorable or adverse development of our larger contracts. For the years ended December 31, 2014 and 2013, the overall 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. 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.
For the year ended December 31, 2014, the change in ceded loss reserves of $5.3 million was primarily a result of a decrease in loss reserves recoverable driven by losses reported on retroceded contracts. For the year ended December 31, 2013, the change in ceded reserves of $17.6 million was primarily related to a commuted multi-line frequency contract and its related retroceded contract, which was also commuted simultaneously. For the year ended December 31, 2012, the increase in ceded reserves of $4.9 million was primarily related to the retrocession of multi-line frequency casualty contracts, which experienced adverse loss development during 2012.
For the year ended December 31, 2014, our net loss reserves on prior period contracts increased by $18.2 million, which primarily related to adverse loss development on general liability, commercial motor, solicitors' professional liability and employers' medical stop-loss businesses, partially offset by favorable loss development on private passenger automobile business. For the year ended December 31, 2013, our net loss reserves on prior period contracts decreased by $6.1 million, which primarily related to elimination of reserves relating to super-storm Sandy, favorable loss development on the private passenger automobile, commercial motor and personal property businesses, which was partially offset by adverse loss development on the general liability and casualty clash businesses. For the year ended December 31, 2012, our net loss reserves on prior period contracts increased by $56.9 million, which primarily related to the 2010 New Zealand earthquake losses and adverse loss development on the commercial motor, and personal property businesses. For further details on prior period loss developments please refer to Note 7 of the consolidated financial statements.
We expect that acquisition costs will be higher for frequency business than for severity business. Since acquisition costs directly relate to the premiums acquired, the volume of acquisition expenses generally vary in accordance with the amount of premiums earned. For the year ended December 31, 2014, our total acquisition costs decreased by 37.4% while our net earned premiums decreased by 35.3%. Since our acquisition costs decreased by a greater percentage than our earned premiums, it caused our reported total acquisition cost ratio to also decrease. Overall, our total acquisition cost ratios were 30.4%, 31.4%, and 30.6% for the years ended December 31, 2014, 2013 and 2012, respectively.
For the years ended December 31, 2013 and 2012, the acquisition cost ratios for frequency business were 31.7% and 31.4%, respectively. The slightly higher frequency acquisition cost ratio in 2013 was primarily related to higher commissions on private passenger automobile contracts that contain a sliding-scale commission structure which increases (or decreases) when the loss ratio decreases (or increases). Since we commuted a contract at a lower loss ratio, the commission was adjusted higher accordingly. To a lesser extent, the acquisition cost ratio for personal lines increased due to a new Florida homeowners' contract entered into during 2013, which is recorded at the higher end of the sliding scale commission rate due to a lower loss ratio estimate than our other personal lines contracts.
For the year ended December 31, 2013, the increase in internal expenses was primarily related to an increase of $3.9 million in personnel costs (including share based compensation) due to an increase in head-count from the comparative period in 2012 and higher accruals for underwriting related bonuses.
For the year ended December 31, 2014, corporate expenses included non-investment related foreign exchange gains of $2.6 million (2013: loss of $0.8 million, 2012: loss of $0.8 million).
For the year ended December 31, 2013, included in the above table under interest, dividend and other expenses, was an impairment charge of $6.0 million related to a note receivable that was subsequently sold in 2014 at a gain of $4.5 million. The gain was included in the above table under realized gains for the year ended December 31, 2014.
For the years ended December 31, 2014, 2013 and 2012, the gross investment returns on our investment portfolio managed by DME Advisors (excluding investment advisor performance allocation) were 10.8%, 24.6% and 9.0%, respectively, and were comprised of the following:
For the year ended December 31, 2014, included in investment advisor compensation was $20.6 million (2013: $18.3 million, 2012: $16.9 million) relating to management fees paid to DME Advisors and $28.5 million (2013: $54.2 million, 2012: $18.8 million) relating to performance allocation to DME in accordance with the investment advisory agreement.
The loss ratio is calculated by dividing net loss and loss adjustment expenses incurred by net premiums earned. We expect that the loss ratio will be volatile for our severity business and may exceed that of our frequency business in certain periods. Given that we opportunistically underwrite a concentrated portfolio across several lines of business that have varying expected loss ratios, we can expect there to be significant annual variations in the loss ratios reported from our frequency business. In addition, the loss ratios for both frequency and severity business can vary depending on the mix of the lines of business written.
The combined ratio is the sum of the composite ratio, the internal expense ratio and the corporate expense ratio. The combined ratio measures the total profitability of our underwriting operations and does not take net investment income or loss into account. Given the nature of our opportunistic underwriting strategy, we expect that our combined ratio may also be volatile from period to period.
Our long investments and financial contracts receivable reported in the consolidated balance sheets as of December 31, 2014, were $1,478.1 million compared to $1,497.7 million as of December 31, 2013, a decrease of $19.6 million, or 1.3%. The decrease primarily related to financial contracts receivable, partially offset by the purchases of gold bullion and corporate and sovereign debt securities during the year ended December 31, 2014. Financial contracts receivable as of December 31, 2014 decreased by $56.9 million, or 54.7%, compared to December 31, 2013, primarily related to decreases in the total return equity swaps, as certain equity swaps were disposed during 2014, and partially due to decreases in the market prices of the underlying equities during 2014. As of December 31, 2014, our exposure to long investments decreased to 105.8%, compared to 123.7% as of December 31, 2013, while our exposure to short investments decreased to 66.9%, compared to 69.8% as of December 31, 2013, as we decreased our margin leverage and reduced the number and size of short positions in our portfolio. This exposure analysis is conducted on a notional basis and does not include gold, CDS, sovereign debt, cash, foreign currency positions, interest rate options and other macro positions.
Financial contracts payable as of December 31, 2014 increased by $25.7 million, or 136.5%, compared to December 31, 2013, primarily due to an increase in total return equity swaps payable resulting from decreases in the market prices of the underlying equities during 2014.
From time to time, we incur indebtedness to our prime brokers to implement our investment strategy in accordance with our investment guidelines. As of December 31, 2014, we had borrowed $76.1 million (2013: $112.5 million) from our prime brokers in order to purchase investment securities. In accordance with our current investment guidelines, DME Advisors may use margin leverage up to 15% for Greenlight Re and up to 5% for GRIL for extended time periods and an aggregate of 30% for Greenlight Re and 20% for GRIL for periods not exceeding 30 days. At December 31, 2014, the margin borrowing from prime brokers for our investment portfolio was within these guidelines. The decrease in amounts borrowed from prime brokers for investing was consistent with the decrease in our exposure to long and short investments during the year ended December 31, 2014. In addition, as of December 31, 2014, we had borrowed $135.0 million (2013: $202.2 million) under term margin agreements from prime brokers to provide collateral for some of our letters of credit outstanding whereby we pledge certain investment securities to borrow cash from the prime brokers.
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, 2014, $316.4 million (2013: $222.6 million) of our investments
(longs, shorts and derivatives) were valued based on broker quotes, of which $315.7 million (2013: $218.8 million) were based on broker quotes that utilized observable market information and classified as Level 2 fair value measurements, and $0.7 million (2013: $3.8 million) were based on broker quotes that utilized non-observable inputs and classified as Level 3 fair value measurements.
During the year ended December 31, 2014, equity securities with a fair value of $4.0 million, on the date of transfer, were transferred out of Level 3 classification. During the year ended December 31, 2014, $14.4 million of securities at fair value based on the date of transfer were transferred from Level 2 to Level 1 classification. Details regarding the transfers and reconciliation of Level 3 investments are presented in Note 3 of the accompanying consolidated financial statements. No other transfers into or out of Level 3 took place during the year ended December 31, 2014.
At December 31, 2014, deferred acquisition costs (net of retrocession) decreased by $17.4 million, or 33.5%, compared to December 31, 2013. The decrease was primarily due to the corresponding decrease in unearned premium reserves which decreased by $44.3 million, or 25.6%, 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, 2014, we believe that the deferred acquisition costs were fully recoverable and no premium deficiency loss was recorded.
For the year ended December 31, 2014, loss and loss adjustment expenses recoverable decreased by $5.3 million, or 31.5%, principally due to the losses recovered on retrocession contracts exceeding the loss reserves added on retrocession contracts during the year ended 2014.
For the year ended December 31, 2014, funds withheld decreased by $3.6 million, or 35.2%, primarily as a result of funds withheld relating to a retroceded contract that were offset against the losses recoverable on that contract.
For the years ended December 31, 2014, 2013 and 2012, the net cash used in operating activities was $133.7 million, $92.7 million and $50.6 million, respectively. Included in the net cash used in operating activities were investment related expenses (such as investment advisor compensation, and net interest and dividend expenses) of $56.6 million, $97.9 million and $53.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. Excluding the investment related expenses from the net cash used in our operating activities, results in net cash primarily provided by (used in) our underwriting activities of $(77.1) million, $5.2 million and $2.5 million for the years ended December 31, 2014, 2013 and 2012, respectively. During the 2014 year, the use of cash for underwriting activities was primarily a result of losses paid in excess of the premiums collected (net of acquisition costs) due to decrease in premiums written during the year. Generally, in a given period if the premiums collected are sufficient to cover claim payments, we would generate cash from our underwriting activities. During the year ended December 31, 2014, we had a decrease in premiums written (and collected) while at the same time we continued to pay losses on contracts written in prior years. Due to the inherent nature of our underwriting portfolio, claims are often paid several months or even years after the premiums are collected. The cash generated from (used in) our underwriting activities, however, may be volatile from period to period depending on the underwriting opportunities available.
We generated $142.0 million (2013: $74.0 million) from investing activities for the year ended December 31, 2014, mainly from the net sale of investments, partially offset by a decrease in funds borrowed from our prime brokers as we reduced our margin leverage. There were no significant cash flows related to financing activities during the year ended December 31, 2014 and 2013.
Although GLRE is not subject to any significant legal prohibitions on the payment of dividends, Greenlight Re and GRIL are each subject to regulatory minimum capital requirements and regulatory constraints that affect their ability to pay dividends to us. In addition, any dividend payment would have to be approved by the relevant regulatory authorities prior to payment. As of December 31, 2014, Greenlight Re and GRIL both exceeded the regulatory minimum capital requirements.
As of December 31, 2014, 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.
As of December 31, 2014, we had four letter of credit facilities with an aggregate capacity of $760.0 million (2013: $760.0 million) with various financial institutions. See Note 8 of the accompanying consolidated financial statements for details on each of these facilities. As of December 31, 2014, an aggregate amount of $273.7 million (2013: $379.1 million) in letters of credit was issued under these facilities. Under these facilities, we provide collateral that may consist of equity securities or cash and cash equivalents. At December 31, 2014, total equity securities and cash and cash equivalents with a fair value in the aggregate of $302.6 million (2013: $410.3 million) were pledged as security against the letters of credit issued.
Each of the facilities contain customary events of default and restrictive covenants, including but not limited to, limitations on liens on collateral, transactions with affiliates, mergers and sales of assets, as well as solvency and maintenance of certain minimum pledged equity requirements, and restricts issuance of any debt without the consent of the letter of credit provider. Additionally, if an event of default exists, as defined in the letter of credit facilities, Greenlight Re would be prohibited from paying dividends to its parent company. The Company was in compliance with all the covenants of each of these facilities as of December 31, 2014.
Our Board of Directors has adopted a share repurchase plan authorizing the Company to repurchase up to 2.0 million Class A ordinary shares or securities convertible into Class A ordinary shares in the open market or through privately negotiated transactions. The current share repurchase plan expires on June 30, 2015 unless renewed by the Board of Directors. The Company is not required to repurchase any of the Class A ordinary shares and the repurchase plan may be modified, suspended or terminated at the election of our Board of Directors at any time without prior notice. No Class A ordinary shares were repurchased by the Company during the year ended December 31, 2014.
The following table shows our aggregate contractual obligations as of December 31, 2014 by time period remaining:
(2) As of December 31, 2014, we had made total commitments of $22.9 million in private investments of which we had invested $14.0 million, and our remaining commitments to these investments total $8.9 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.
As of December 31, 2014, $1,090.7 million of securities sold, not yet purchased, were secured by $1,090.7 million of restricted cash held by prime brokers to cover obligations relating to securities sold, not yet purchased. These amounts are not included in the contractual obligations table above because there is no maturity date for securities sold, not yet purchased, and their maturities are not set by any contract and as such their due dates cannot be estimated.
GRIL has entered into a lease agreement for office space in Dublin, Ireland. Under the terms of this lease agreement, GRIL is committed to average annual rent payments denominated in Euros approximating €0.1 million until May 2016 (net of rent inducements), and adjusted to the prevailing market rates for each of the three subsequent five-year terms. GRIL has the option to terminate the lease agreement in 2016 and 2021. The minimum lease payment obligations are included in the above table under operating lease obligations and in Note 8 to the accompanying consolidated financial statements.
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, 2014, performance allocation of $28.5 million, was recorded in net investment income. For the year ended December 31, 2014, management fees of $20.6 million, were recorded in net investment income.
In February 2007, we entered into a service agreement with DME Advisors pursuant to which DME Advisors provides investor relations services to us for compensation of $5,000 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.