our ability to retain existing business and attract new business at acceptable rates;
the effects of disclosures by, and investigations of, companies we insure, particularly with respect to our lines of business that have a longer time span, or tail, between the incidence of a loss and the settlement of the claim;
our ability and the ability of our third party vendors to maintain the availability of systems and safeguard the security of our data in the event of a disaster or other information security incident;
Chubb assumes no obligation to update any forward-looking statement set forth in this document, which speak as of the date hereof.
Net income was $2.1 billion in 2014, $2.3 billion in 2013 and $1.5 billion in 2012. The lower net income in 2014 compared with 2013 was due to lower operating income, which we define as net income excluding realized investment gains and losses after tax. The higher net income in 2013 compared with 2012 was due to higher operating income and, to a lesser extent, higher net realized investment gains.
Total net premiums written increased by 3% in both 2014 and 2013. Total net premiums written excluding the effect of foreign currency translation increased by 4% in 2014 and 3% in 2013. Net premiums written in the United States increased by 4% in both 2014 and 2013. Net premiums written outside the United States decreased by 1% in 2014 and were flat in 2013, when measured in U.S. dollars. Excluding the effect of foreign currency translation, such premiums increased by 2% in both 2014 and 2013. Management uses growth in net premiums written excluding the effect of foreign currency translation, a non-GAAP financial measure, to evaluate the trends in net premiums written, exclusive of the effect of fluctuations in exchange rates between the U.S. dollar and the foreign currencies in which business is transacted. The impact of foreign currency translation is excluded as exchange rates may fluctuate significantly and the effect of fluctuations could distort the analysis of trends. When excluding the effect of foreign currency translation on growth, management uses the current period average exchange rates to translate both the current period and the prior period foreign currency denominated net premiums written amounts.
Property and casualty income before tax was lower in 2014 compared with 2013, due to lower underwriting income and, to a lesser extent, a decrease in investment income. The decrease in underwriting income in 2014 compared with 2013 was primarily attributable to a higher current accident year loss ratio excluding catastrophes. Property and casualty income before tax was higher in 2013 compared with 2012, due to substantially higher underwriting income, offset in part by a decline in investment income. The increase in underwriting income in 2013 was primarily attributable to a substantially lower impact of catastrophes and a lower current accident year loss ratio excluding catastrophes. The decrease in investment income in 2014 and 2013, compared with the respective prior year, was due to a decline in the average yield on our investment portfolio.
Net premiums written increased by 3% in both 2014 and 2013 compared with the respective prior year as a result of growth in premiums written in the United States. Net premiums written excluding the effect of foreign currency translation increased by 4% in 2014 and 3% in 2013. Net premiums written in the United States, which in 2014 represented 76% of our total net premiums, increased by 4% in both 2014 and 2013 compared with the respective prior year. Net premiums written outside the United States decreased by 1% in 2014 and were flat in 2013, when measured in U.S. dollars. Excluding the effect of foreign currency translation, net premiums written outside the United States grew by 2% in both 2014 and 2013. In both 2014 and 2013, foreign currency translation had a negative effect on growth of net premiums written outside the United States, reflecting the impact of the stronger U.S. dollar relative to several currencies in which we wrote business in each year compared to the respective prior year.
The countries outside the United States that were significant contributors to net premiums written in each of the past three years were the United Kingdom, Canada, Brazil, Australia and Germany.
We classify business as written inside or outside the United States based on the location of the risks associated with the underlying policies. The method of determining location of risk varies by class of business. Location of risk for property classes is typically based on the physical location of the covered property, while location of risk for liability classes may be based on the main location of the insured, or in the case of the workers’ compensation class, the primary work location of the covered employee.
Net premiums written in the United States also grew in each segment of our insurance business in 2013. The most significant growth occurred in our personal insurance segment. Growth in our personal insurance segment was attributable to higher rates upon renewal, higher insured exposures, strong
Average renewal rates in the United States in our personal insurance segment were up modestly in both 2014 and 2013 compared with expiring rates. The most significant rate increases in 2014 occurred in the homeowners and excess liability classes of business. In 2013, the most significant rate increases occurred in the homeowners class, although rate increases also occurred in the excess liability and automobile classes. The amounts of coverage purchased or the insured exposures, both of which are bases on which we calculate the premiums we charge, were up modestly in the United States in both years. The level of new business in the United States in our personal insurance segment was up in both 2014 and 2013 compared with the respective prior year, but more so in 2013. We continued to retain a high percentage of our customers in both years.
The decrease in net premiums written outside the United States in 2014 compared with 2013 reflected a modest decrease in our personal insurance segment and a slight decrease in our specialty insurance segment, which were partially offset by a modest increase in our commercial insurance segment. Net premiums written outside the United States excluding the effect of foreign currency translation increased by 2% in 2014, with growth occurring in our commercial insurance segment and, to a lesser extent, in our personal insurance segment.
Average renewal rates in our personal insurance segment outside the United States were modestly higher in both 2014 and 2013 compared with expiring rates.
Our reinsurance assumed business has been in runoff since its sale in 2005. In our insurance business, most of our premiums written relate to insurance policies that are issued on a direct basis to our personal, commercial and specialty insurance customers, but we do opportunistically participate in the business of other insurance carriers for some lines of business. The business that is assumed from other insurance carriers is included in our insurance operations within the personal, commercial and specialty insurance segment results. Information regarding the amount of premiums written on a direct and assumed basis is presented in Note (8) of the Notes to Consolidated Financial Statements.
Our premiums written are net of amounts ceded to reinsurers who assume a portion of the risk under the insurance policies we write that are subject to reinsurance. Most of our ceded reinsurance arrangements consist of excess of loss and catastrophe contracts that protect against a specified part or all of certain types of losses over stipulated amounts arising from any one occurrence or event. Therefore, unless we incur losses that exceed our initial retention under these contracts, we do not receive any loss recoveries. As a result, in some years, we cede premiums to reinsurers and receive few, if any, loss recoveries related to these contracts. However, in a year in which there is a significant catastrophic event, such as Storm Sandy in 2012, or a series of large individual losses, we may receive substantial loss recoveries. The impact of ceded reinsurance on net premiums written and net premiums earned and on net losses and loss expenses incurred for the three years ended December 31, 2014 is presented in Note (8) of the Notes to Consolidated Financial Statements.
The North American catastrophe treaty has an initial retention of $500 million and provides coverage for exposures in the United States and Canada of approximately 34% of losses (net of
recoveries from other available reinsurance) between $500 million and $900 million and approximately 75% of losses (net of recoveries from other available reinsurance) between $900 million and $1.75 billion. For certain catastrophic events in the northeast United States or along the southern U.S. coastline, the combination of the North American catastrophe treaty, supplemental catastrophe reinsurance and/or the catastrophe bond arrangements provide additional coverages as discussed below.
For hurricane events in Florida, in addition to the coverage provided by the North American catastrophe treaty and the $150 million catastrophe bond arrangement discussed above, we have reinsurance from the Florida Hurricane Catastrophe Fund, which is a state-mandated fund designed to reimburse insurers for a portion of their residential catastrophic hurricane losses. Our participation in this program, for which the most recent annual period began on June 1, 2014, provides coverage of 90% of homeowners-related hurricane losses in Florida in excess of our initial retention of $160 million per event. Under the terms of the program, our aggregate recoveries during the annual coverage period are limited to approximately $380 million, based on our current level of participation.
The 2.7 percentage point increase in the loss ratio in 2014 compared with 2013 was due primarily to a higher current accident year loss ratio excluding catastrophes. The current accident year loss ratio excluding catastrophes was modestly higher in 2014 in our personal insurance segment, slightly higher in our commercial insurance segment and similar in our specialty insurance segment compared to 2013. The 9.4 percentage point decrease in the loss ratio in 2013 compared with 2012 was due primarily to a substantially lower impact of catastrophes and a lower current accident year loss ratio excluding catastrophes. The current accident year loss ratio excluding catastrophes was lower in 2013 for each of our insurance segments compared to 2012.
While the loss ratio in each of the past three years included an impact from catastrophes, which was particularly significant in 2012, it also reflected favorable loss experience excluding catastrophes that we believe resulted from our disciplined underwriting in recent years. The loss ratio in each of the past three years also benefited from relatively moderate loss trends and the positive impact of rate increases on premiums earned in most classes of business. Results in all three years also benefited from favorable prior year loss development. For more information on prior year loss development, see “Property and Casualty Insurance - Loss Reserves, Prior Year Loss Development.”
The net impact of catastrophes in 2014 was $444 million, which represented 3.6 percentage points of the combined ratio. Most of the catastrophe losses in 2014 related to weather-related events in the United States, including a severe winter freeze event that affected a widespread area of the United States. In 2013, the net impact of catastrophes was $412 million, which represented 3.4 percentage points of the combined ratio. A significant portion of the catastrophe losses in 2013 related to flooding in Alberta, Canada, as well as several severe storms in the central United States and flooding in Ontario, Canada. In 2012, the net impact of catastrophes was $1.1 billion, which represented 9.6 percentage points of the combined ratio. We incurred just under $1.1 billion of catastrophe losses and $53 million of related reinsurance reinstatement premium costs. Most of the impact of catastrophes in 2012 was due to Storm Sandy, but there were also catastrophe losses related to other events, including several severe hail and wind storms in the United States.
The net impact of catastrophes in 2014 reflected $11 million of unfavorable prior year loss development. This compares with $24 million and $37 million of favorable prior year loss development in 2013 and 2012, respectively.
At the end of 2012, we estimated that net losses from Storm Sandy were $829 million and our reinsurance reinstatement premium costs related to the storm were $53 million. Our estimated gross losses from Storm Sandy were about $1.1 billion, with almost all of the losses from property claims, both commercial and homeowners, and only a modest impact from automobile and other claims. Our net losses of $829 million were lower than the gross amount due primarily to our traditional property catastrophe treaty and, to a much lesser extent, per risk and quota share reinsurance treaties as well as facultative reinsurance placed on an individual risk basis. At December 31, 2014, only a small percentage of our claims related to Storm Sandy remained unsettled. Our overall estimate of net losses related to Storm Sandy did not change significantly during 2013 or 2014. We do not expect that any change to our estimate of ultimate net losses related to Storm Sandy in the future would have a material effect on the Corporation’s consolidated financial condition or liquidity.
The expense ratio decreased by 0.5 of a percentage point in 2014 compared with 2013, due primarily to growth in net premiums written and a slight decrease in overhead expenses, offset in part by a slight increase in commission expense. The expense ratio increased by 0.2 of a percentage point in 2013 compared with 2012.
Growth in net premiums written in our personal insurance segment in both 2014 and 2013 compared with the respective prior year occurred in all classes of this business, driven by growth in the United States. Net premiums written outside the United States decreased modestly in 2014 and slightly in 2013, due to the negative effect of foreign currency translation. The overall growth in our personal insurance segment in both years was attributable to higher rates upon renewal, higher insured exposures, strong retention of existing business, and new business.
The 3.9 percentage point increase in the combined loss and expense ratio for our personal insurance segment in 2014 compared with 2013 was driven mainly by deterioration in the results in our homeowners business, due to a higher impact of fire losses and non-catastrophe weather-related losses. The 7.4 percentage point decrease in the combined loss and expense ratio in 2013 compared with 2012 was due to better results in our homeowners business, driven primarily by a lower impact of catastrophes. The impact of catastrophes accounted for 5.5 percentage points of the combined loss and expense ratio for our personal insurance segment in 2014, compared with 7.2 percentage points in 2013 and 13.7 percentage points in 2012. A significant portion of the catastrophe losses in 2014 related to weather-related events in the United States, including the severe winter freeze event. A significant portion of the catastrophe losses in 2013 related to water damage associated with flooding in Alberta and Ontario, Canada as well as several severe storms in the central United States. Most of the catastrophe losses in 2012 related to storms in the United States, particularly Storm Sandy.
for this component of our other personal business benefited from favorable prior year loss development in each year, partly as a result of better than expected claim severity. The accident and health component of our other personal business produced slightly unprofitable results in 2014 compared with slightly profitable results in 2013 and 2012. The yacht component of this business was highly profitable in each of the past three years, but more so in 2014.
Our commercial insurance segment produced profitable underwriting results in each of the past three years, but less so in 2012. The combined loss and expense ratios for the classes of business within the commercial insurance segment were as follows:
The 3.4 percentage point increase in the combined loss and expense ratio for our commercial insurance segment in 2014 compared with 2013 was due to a higher impact of catastrophes, a lower amount of favorable prior year loss development as well as a higher current accident year loss ratio excluding catastrophes. The 12.5 percentage point decrease in the combined ratio in 2013 compared with 2012 was due in large part to a lower impact of catastrophes and, to a lesser extent, a lower current accident year loss ratio excluding catastrophes and a higher amount of favorable prior year loss development. The impact of catastrophes accounted for 3.8 percentage points of the combined loss and expense ratio for our commercial insurance segment in 2014, compared with 2.1 percentage points in 2013 and 11.4 percentage points in 2012.
Workers’ compensation results were profitable in each of the past three years, more so in each successive year. The 6.5 and 4.1 percentage point decreases in the combined ratio in 2014 and 2013, respectively, compared with the respective prior year were due to increasingly better current accident year results and more favorable prior year loss development. Results in each year reflected improved pricing and our disciplined risk selection during the past several years.
Property and marine results were profitable in 2014 and 2013, but less so in 2014, compared with unprofitable results in 2012. The 19.4 percentage point increase in the combined ratio in 2014 compared with 2013 reflected a higher current accident year loss ratio excluding catastrophes, a lower amount of favorable prior year loss development and a higher impact of catastrophes. The 40.4 percentage point decrease in the combined ratio in 2013 compared with 2012 was primarily due to a significantly lower impact of catastrophes. The lower combined ratio in 2013 also reflected a lower current accident year loss ratio excluding catastrophes, partly due to improved pricing and a lower impact from large losses, as well as a significant amount of favorable prior year loss development. The impact of catastrophes accounted for 9.6 percentage points of the combined loss and expense ratio in 2014 compared with 4.3 percentage points in 2013 and 31.6 percentage points in 2012.
The 3.8 percentage point decrease in the combined loss and expense ratio for our specialty insurance segment in 2014 and the 7.0 percentage point decrease in 2013, compared with the respective prior year, were both driven mainly by more profitable results in our professional liability business.
Net premiums written in our runoff reinsurance assumed business were not significant during the past three years. Results for this business were breakeven in 2014 compared with profitable results in 2013 and 2012. The profitable results in 2013 and 2012 were due to favorable prior year loss development.
Actual results may differ materially from those suggested by the model. The risk concentration management tool referred to above also enables us to identify locations and geographic areas that are exposed to risk accumulations. The information provided by the terrorism model and the risk concentration management tool has resulted in our non-renewing or reducing our exposure on some accounts, subject to regulatory constraints, and refraining from writing others.
The Terrorism Risk Insurance Act of 2002, as amended (TRIA), is a limited duration program under which the U.S. federal government shares the risk of loss arising from certain acts of terrorism with the insurance industry. In January 2015, the federal government amended and reauthorized TRIA through December 31, 2020. TRIA is applicable only to select lines of commercial business and excludes, among others, commercial automobile, surety and professional liability insurance, other than directors and officers liability. The program applies to both foreign and domestic acts of terrorism.
As a precondition to recovery under TRIA, insurance companies with direct commercial insurance exposure in the United States for TRIA lines of business are required to make insurance for covered acts of terrorism available under their policies. In the event of an act of terrorism, each insurer has a separate deductible that it must meet before federal assistance becomes available. The deductible is based on a percentage of direct U.S. premiums earned for the covered lines of business in the previous calendar year. For 2015, that deductible is 20% of direct premiums earned in 2014 for these lines of business. For losses above the deductible, the federal government will pay for 85% of covered losses, while the insurer retains 15%. Under the 2015 reauthorization, the insurer share of losses in excess of the deductible will increase by 1% each year, beginning in 2016, until it reaches 20% in 2020. There is a combined annual aggregate limit for the federal government and all insurers of $100 billion. If acts of terrorism result in covered losses exceeding the $100 billion annual limit, insurers are not liable for additional losses. While we expect the provisions of TRIA will mitigate our exposure in the event of a large-scale terrorist attack, our deductible is substantial, approximating $1.0 billion in 2015.
Loss reserves, net of reinsurance recoverable, decreased by $305 million or 1% in 2014. Loss reserves related to our insurance business decreased by $268 million, including $260 million related to the effect of foreign currency translation, due to a stronger U.S. dollar relative to the currencies in which our loss reserves were held at December 31, 2014 compared with December 31, 2013, and $33 million related to catastrophe losses. Loss reserves related to our runoff reinsurance assumed business decreased by $37 million.
Given the inherent complexity of the loss reserving process and the potential variability of the assumptions used, the actual emergence of losses could vary, perhaps substantially, from the estimate of losses included in our financial statements, particularly in those instances where settlements do not occur until well into the future. Our net loss reserves at December 31, 2014 were $21.0 billion. Therefore, a relatively small percentage change in the estimate of net loss reserves would have a material effect on the Corporation’s results of operations.
Most of our runoff reinsurance assumed business is long tail casualty reinsurance. Reserve estimates for this business are therefore subject to the variability caused by extended loss emergence periods. The estimation of loss reserves for this business is further complicated by delays between the time the claim is reported to the ceding insurer and when it is reported by the ceding insurer to us and by our dependence on the quality and consistency of the loss reporting by the ceding company.
For short tail classes, the emergence of paid and incurred losses generally exhibits a reasonably stable pattern of loss development on average over time. For these classes, the loss development factor method is generally relatively straightforward to apply and usually requires only modest extrapolation. For long tail classes, applying the loss development factor method often requires more judgment in selecting development factors as well as more significant extrapolation. For those long tail classes with high frequency and relatively low per-loss severity (e.g., workers’ compensation), volatility will often be sufficiently modest for the loss development factor method to be given significant weight, except in the most recent accident years.
method is determinative in the reserve analysis for a class of business. Consequently, changes in our loss reserve estimates generally are not the result of changes in any one assumption. Instead, the variability will be affected by the interplay of changes in numerous assumptions, many of which are implicit to the approaches used.
Reserves for the professional liability classes other than fidelity were $6.0 billion, net of reinsurance, at December 31, 2014. Based on a review of our loss experience, if the loss development factor for each accident year changed incrementally such that the cumulative loss development factor for the most recent accident year changed by 10%, we estimate that the net reserves for the professional liability classes other than fidelity would change by approximately $575 million, in either direction. This degree of change in the reported loss development pattern is within the historical variation around the averages in our data.
Reserves for the commercial excess liability class (excluding asbestos and toxic waste claims) were $3.0 billion, net of reinsurance, at December 31, 2014. These reserves are included within commercial casualty. Based on a review of our loss experience, if the loss development factor for each accident year changed incrementally such that the cumulative loss development factor for the most recent accident year changed by 20%, we estimate that the net reserves for the commercial excess liability class would change by approximately $375 million, in either direction. This degree of change in the reported loss development pattern is within the historical variation around the averages in our data.
Reserves Relating to Asbestos and Toxic Waste Claims. The estimation of loss reserves relating to asbestos and toxic waste claims on insurance policies written many years ago is subject to greater uncertainty than other types of claims due to inconsistent court decisions as well as judicial interpretations and legislative actions that in some instances have tended to broaden coverage beyond the original intent of such policies and in others have expanded theories of liability. The insurance industry as a whole remains engaged in extensive litigation over coverage, accident year allocation and liability issues and is thus confronted with a continuing uncertainty in its efforts to quantify these exposures.
Approximately 110 manufacturers and distributors of asbestos products have filed for bankruptcy protection as a result of asbestos related liabilities. A bankruptcy sometimes involves an agreement to a plan between the debtor and its creditors, including the creation of a trust to pay current and future asbestos claimants for their injuries. Although the debtor is negotiating in part with its insurers’ money, insurers are generally given only limited opportunity to be heard. In addition to contributing to the overall number of claims, bankruptcy proceedings not only result in increased settlement demands against remaining solvent defendants, but also create the potential for recoveries from multiple trusts by the same claimant for the same alleged injuries.
Various challenges to the mass screening of claimants have occurred, which have led to higher medical evidentiary standards for asbestos and other exposure-type claims.
Our most significant individual asbestos exposures involve products liability on the part of “traditional” defendants who were engaged in the manufacture, distribution or installation of asbestos products. We wrote primary general liability and/or excess liability coverages for these insureds. While these insureds are relatively few in number, their exposure has been substantial due to the high volume of claims, the erosion of the underlying limits and the bankruptcies of target defendants.
Various U.S. federal proposals to solve the ongoing asbestos litigation crisis have been considered by the U.S. Congress over the years, but none have yet been enacted. The prospect of federal asbestos reform legislation remains uncertain. As a result, in establishing our asbestos reserves, we have assumed a continuation of the current legal environment with no benefit from any federal asbestos reform legislation.
A reconciliation of the beginning and ending loss reserves related to asbestos claims is as follows:
These significant uncertainties are not likely to be resolved in the near future.
Toxic Waste Reserves. Toxic waste claims relate primarily to pollution and associated cleanup costs. Our insureds have two potential areas of exposure-hazardous waste dump sites and pollution at the insured site primarily from underground storage tanks and manufacturing processes.
A reconciliation of the beginning and ending loss reserves, net of reinsurance recoverable, related to toxic waste claims is as follows:
Reinsurance recoverable related to these claims is minimal. At December 31, 2014, $269 million of the net loss reserves related to toxic waste claims were IBNR reserves.
Reinsurance Recoverable. Reinsurance recoverable is the estimated amount recoverable from reinsurers related to the losses we have incurred. At December 31, 2014, reinsurance recoverable included $116 million recoverable with respect to paid losses and loss expenses, which is included in other assets, and $1.6 billion recoverable on unpaid losses and loss expenses, including reinsurance losses incurred but not reported. None of the reinsurance recoverable on unpaid losses and loss expenses is currently due for collection from reinsurers.
We are selective in regard to our reinsurers, placing reinsurance with only those reinsurers that we believe have strong balance sheets and superior underwriting ability. We monitor the financial strength of our reinsurers and our concentration of risk with reinsurers on an ongoing basis. We obtain collateral from certain of our reinsurers in the form of letters of credit, trust agreements and cash advances, in order to mitigate potential collectibility exposure. The total amount of collateral held at December 31, 2014 related to reinsurance recoverable on paid and unpaid losses and loss expenses was $533 million. As of December 31, 2014, the largest amount of reinsurance recoverable on paid and unpaid losses and loss expenses from any individual reinsurer represented one percent of shareholders’ equity. Nevertheless, in recent years, certain of our reinsurers have experienced financial difficulties or exited the reinsurance business. In addition, we may become involved in coverage disputes with our reinsurers. A provision for estimated uncollectible reinsurance is recorded based on periodic evaluations of balances due from reinsurers, the financial condition of the reinsurers, coverage disputes and other relevant factors, including collateral held.
A reconciliation of the beginning and ending loss reserves, net of reinsurance, is as follows:
During 2014, we experienced overall favorable prior year development of $636 million, which represented 3.0% of the net loss reserves as of December 31, 2013. This compares with favorable prior year development of $712 million during 2013, which represented 3.2% of the net loss reserves at December 31, 2012, and favorable prior year development of $614 million during 2012, which represented 2.9% of the net loss reserves at December 31, 2011. Such favorable development was reflected in operating results in these respective years.
We experienced overall favorable development of about $320 million in the professional liability classes other than fidelity. This favorable development was driven mainly by the directors and officers liability and fiduciary liability classes. Overall, the reported loss activity for these classes was less than expected, mostly in terms of claim severity. The aggregate favorable emergence was
We experienced favorable development of about $205 million in the aggregate in the personal and commercial liability classes. The most significant favorable development occurred in the excess liability classes, particularly in accident years 2011 and prior. This was partially offset by adverse development in other liability classes, most notably due to $100 million of incurred losses related to asbestos and toxic waste claims in older accident years. Overall, prior accident year claim activity for the personal and commercial liability classes was less severe than expected. These factors were reflected in the determination of the carried loss reserves for these classes at December 31, 2014.
We experienced favorable development of about $50 million in the workers’ compensation class, with favorable development occurring in most accident years. The severity of prior accident year claim activity for this class was lower than expected overall. This factor was reflected in the determination of carried loss reserves for this class at December 31, 2014.
The classes of business having the most significant impact on prior year loss development in 2013 were as follows:
We experienced unfavorable development of about $50 million in the fidelity class due to higher than expected reported loss emergence, related mostly to accident years subsequent to 2007.
We experienced favorable development of about $35 million in the personal automobile business due primarily to more favorable case reserve development and lower severity of prior period claims than expected.
The classes of business having the most significant impact on prior year loss development in 2012 were as follows:
We experienced overall favorable development of about $200 million in the professional liability classes other than fidelity. This favorable development was driven by the directors and officers liability and fiduciary liability classes, partially offset by adverse development in the errors and omissions liability and employment practices liability classes. Overall, the reported loss activity was less than expected, with aggregate favorable emergence from accident years 2008 and prior partly offset by some adverse emergence in the more recent accident years.
We experienced favorable development of about $125 million, including $50 million related to catastrophes, in the aggregate in the personal and commercial property classes, mostly related to the 2007 through 2011 accident years. The severity and frequency of late developing property claims that emerged during 2012 were lower than expected, including those related to catastrophes, and the development of existing case reserves was more favorable than expected.
The effective tax rate on our investment income was 18.1% in 2014 compared with 18.2% in 2013 and 18.8% in 2012. The effective tax rate on our investment income is lower than the U.S. statutory tax rate since a portion of our investment income is tax exempt interest income. The effective tax rate fluctuates as the proportion of tax exempt investment income relative to total investment income changes from period to period.
On an after-tax basis, property and casualty investment income decreased by 4% in 2014 compared with 2013 and decreased by 5% in 2013 compared with 2012.
Our ability to grow our property and casualty investment income is a function of several variables, including investable cash flows, available reinvestment rates and foreign currency to U.S. dollar exchange rates. The property and casualty subsidiaries’ investable cash flows are impacted by many factors, including operating activities, the payment of dividends to Chubb and the timing of maturities, calls and redemptions of fixed maturities. Economic conditions and national monetary policies both inside and outside the United States have resulted in a low interest rate environment in recent years that is expected to continue to adversely affect our ability to increase our investment income.
Corporate and other produced a loss before taxes of $235 million in 2014 compared with a loss of $237 million in both 2013 and 2012.
The net realized gains and losses of other invested assets primarily include the aggregate of realized gain distributions to us from the private equity limited partnerships in which we have an interest and changes in our equity in the net assets of those partnerships based on valuations provided to us by the manager of each partnership. Due to the timing of our receipt of valuation data from the investment managers, the value of these investments and any related realized gains and losses are generally reported on a one quarter lag.
Chubb has outstanding $600 million of 5.75% notes and $100 million of 6.6% debentures due in 2018, $200 million of 6.8% debentures due in 2031, $800 million of 6% notes due in 2037, and $600 million of 6.5% notes due in 2038, all of which are unsecured.
Chubb also has outstanding $1.0 billion of unsecured junior subordinated capital securities that will become due on April 15, 2037, the scheduled maturity date, but only to the extent that Chubb has received sufficient net proceeds from the sale of certain qualifying capital securities. Chubb must use its commercially reasonable efforts, subject to certain market disruption events, to sell enough qualifying capital securities to permit repayment of the capital securities on the scheduled maturity date or as soon thereafter as possible. Any remaining outstanding principal amount will be due on March 29, 2067, the final maturity date. The capital securities bear interest at a fixed rate of 6.375% through April 14, 2017. Thereafter, the capital securities will bear interest at a rate equal to the three-month LIBOR rate plus
In December 2010, the Board of Directors authorized the repurchase of up to 30,000,000 shares of common stock. In January 2012, the Board of Directors authorized the repurchase of up to $1.2 billion of Chubb’s common stock. In January 2013, the Board of Directors authorized the repurchase of up to $1.3 billion of Chubb’s common stock, which authorization replaced the January 2012 authorization. In January 2014, the Board of Directors authorized the repurchase of up to $1.5 billion of Chubb’s common stock.
As of December 31, 2014, $52 million remained under the January 2014 share repurchase authorization. In January 2015, Chubb repurchased $52 million of its common stock under this authorization.
Chubb and its property and casualty insurance subsidiaries are rated by major rating agencies. These ratings reflect the rating agency’s opinion of our financial strength, operating performance, strategic position and ability to meet our obligations to policyholders.
Financial strength ratings assess an insurer’s ability to meet its financial obligations to policyholders. The following table presents our property and casualty subsidiaries’ financial strength ratings as determined by the major independent rating organizations as of February 26, 2015.
It is possible that one or more of the rating agencies may raise or lower our existing ratings in the future. If our credit ratings were downgraded, we might incur higher borrowing costs and might have more limited means to access capital. A downgrade in our financial strength ratings could adversely affect the competitive position of our insurance operations, including a possible reduction in demand for our products in certain markets.
Our property and casualty subsidiaries maintain substantial investments in highly liquid, short term marketable securities. Accordingly, we do not anticipate selling long term fixed maturities to meet any liquidity needs.
Nevertheless, the dividends paid in 2012 included two interim payments totaling $830 million that were deemed to be extraordinary under applicable insurance regulations due to the limitation on the amount of dividends that may be paid within twelve consecutive months. Regulatory approval was required and obtained for the payment of these dividends. Whether any dividends the property and casualty subsidiaries may pay in 2015 require regulatory approval will depend on the amount and timing of the dividend payments. The maximum aggregate dividend distribution that may be made by the subsidiaries to Chubb during 2015 without prior regulatory approval is approximately $1.9 billion.
Chubb has a revolving credit agreement with a syndicate of banks that provides for up to $500 million of unsecured borrowings. The revolving credit facility is available for general corporate purposes. The agreement has a maturity date of September 24, 2017. Various interest rate options are available to Chubb, all of which are based on market interest rates. The agreement contains customary restrictive covenants, including a covenant to maintain a minimum adjusted consolidated shareholders’ equity. At December 31, 2014, Chubb was in compliance with all such covenants. Chubb is permitted to request an increase in the credit available under the agreement, no more than two times per year, up to a maximum facility amount of $750 million. Chubb is permitted to request on two occasions, at any time during the term of the agreement, an extension of the maturity date for an additional one year period. There have been no borrowings under this agreement. On the maturity date of the agreement, any borrowings then outstanding become payable.
(a) Junior subordinated capital securities of $1 billion bear interest at a fixed rate of 6.375% through April 14, 2017 and at a rate equal to the three-month LIBOR rate plus 2.25% thereafter. For purposes of the above table, interest after April 14, 2017 was calculated using the three-month LIBOR rate as of December 31, 2014. The table includes future interest payments through the scheduled maturity date, April 15, 2037. Interest payments for the period from the scheduled maturity date through the final maturity date, March 29, 2067, would increase the contractual obligation by $751 million. It is our expectation that the capital securities will be redeemed at the end of the fixed interest rate period.
The above table excludes certain commitments totaling approximately $860 million at December 31, 2014 to fund limited partnership investments. These commitments can be called by the partnerships (generally over a period of five years or less), if and when needed by the partnerships to fund certain partnership expenses or the purchase of investments. It is uncertain whether and, if so, when we will be required to fund these commitments. There is no predetermined payment schedule.
Limited partnership investments by their nature are less liquid and may involve more risk than other investments. We actively manage our risk through diversification of asset class and geographic location. At December 31, 2014, we had investments in about 95 separate partnerships. We review the performance of these investments on a quarterly basis and we obtain audited financial statements annually.
We classify our fixed maturities, which may be sold prior to maturity to support our investment strategies, such as in response to changes in interest rates and the yield curve or to maximize after-tax returns, as available-for-sale. Fixed maturities classified as available-for-sale are carried at fair value.
The net unrealized appreciation before tax of our fixed maturities and equity securities carried at fair value was $2.7 billion at December 31, 2014, $1.9 billion at December 31, 2013 and $3.1 billion at December 31, 2012. Such unrealized appreciation is reflected in accumulated other comprehensive income, net of applicable deferred income taxes.
In 2014 and 2012, market yields on fixed maturities declined, resulting in an increase in the fair value of many of our fixed maturities. In 2013, market yields on fixed maturities increased, resulting in a decrease in the fair value of many of our fixed maturities.
The methods and assumptions used to estimate the fair value of the Corporation’s pension plan and other postretirement benefit plan assets, other than assets invested in pooled funds, are similar to the methods and assumptions used for our other financial instruments. The fair value of pooled funds is based on the net asset value of the funds. At December 31, 2014 and 2013, approximately 99% of the pension plan and other postretirement benefit plan assets were categorized as Level 1 or Level 2 in the fair value hierarchy.
In 2014, the liability related to our pension and other postretirement benefit plans increased, primarily as a result of actuarial losses attributable to the decrease in the discount rates used to value our pension and other postretirement obligations and, to a lesser extent, a change in our mortality assumption. The change in our mortality assumption reflects the consideration given to the October 2014 revision of the Society of Actuaries’ mortality tables. Postretirement benefit costs not recognized in net income increased by $515 million before tax, which was reflected in other comprehensive income, net of applicable deferred income taxes.
In 2013, the liability related to our pension and other postretirement benefit plans decreased, primarily as a result of actuarial gains attributable to the increase in the discount rates used to value our pension and other postretirement obligations and an increase in the fair value of the assets held by our pension and other postretirement benefit plans in excess of the expected return on plan assets. In 2012, the liability related to our pension and other postretirement benefit plans increased, primarily as a result of actuarial losses attributable to the decrease in the discount rates used to value our pension and other postretirement obligations, partially offset by an increase in the fair value of the assets held by our pension and other postretirement benefit plans in excess of the expected return on plan assets. Postretirement benefit costs not recognized in net income decreased by $715 million before tax in 2013 and increased by $45 million before tax in 2012, which were reflected in other comprehensive income, net of applicable deferred income taxes.
Consolidated financial statements of the Corporation at December 31, 2014 and 2013 and for each of the three years in the period ended December 31, 2014 and the report thereon of our independent registered public accounting firm, and the Corporation’s unaudited quarterly financial data for the two-year period ended December 31, 2014 are listed in Item 15(a) of this report.