Everest Re’s corporate offices are located in approximately 230,500 square feet of leased office space in Liberty Corner, New Jersey. The Company’s other sixteen locations occupy a total of approximately 130,400 square feet, all of which are leased. Management believes that the above described office space is adequate for its current and anticipated needs.
We compete in the U.S. and international reinsurance and insurance markets with numerous global competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd’s and certain government sponsored risk transfer vehicles. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.
Premiums. Gross written premiums increased by 11.9% to $4,965.3 million in 2014, compared to $4,437.5 million in 2013, reflecting a $588.3 million, or 18.4%, increase in our reinsurance business, partially offset by a $60.4 million, or 4.9%, decrease in our insurance business. The increase in reinsurance premiums was mainly due to new business: quota share contracts and contracts with catastrophe exposed risks, partially offset by a negative impact of approximately $50.0 million from the movement in foreign exchange rates. The decrease in insurance premiums was primarily due to lower crop premiums, partially offset by an increase in non-standard auto business. Net written premiums decreased by 0.5% to $2,107.0 million in 2014 compared to $2,117.4 million in 2013. The variances of the changes in gross written premiums compared to the changes in net written premiums is primarily due to a higher utilization of reinsurance related to the new quota share contracts. Premiums earned increased by 5.4% to $2,113.7 million in 2014, compared to $2,006.4 million in 2013. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Net Investment Income. Net investment income decreased by 2.3% to $290.3 million in 2014, compared with net investment income of $297.0 million in 2013. Net pre-tax investment income, as a percentage of average invested assets, was 3.5% in 2014 compared to 3.6% in 2013. The decline in income and yield in 2014 compared to 2013 was primarily the result of a decrease in our limited partnership income and lower reinvestment rates for the fixed income portfolios, partially offset by an increase in dividends from shares held of the parent.
Incurred losses and LAE increased by 1.8% to $1,272.2 million for the year ended December 31, 2013 compared to $1,249.7 million for the year ended December 31, 2012, primarily due to increases in current year attritional losses and unfavorable development on prior year catastrophe losses in 2013 compared to 2012, partially offset by the decline in current year catastrophe losses. The increase in current year attritional losses of $176.0 million is primarily due to the impact of the increase in premiums earned. Unfavorable development on prior years’ catastrophe losses of $16.7 million related mainly to Superstorm Sandy ($13.4 million). Current year 2013 catastrophe losses (discussed above) were lower by $186.0 million, or 10.9 points, period over period. The $245.9 million of current year catastrophe losses for 2012 represented 13.9 points and related to Superstorm Sandy ($203.4 million), U.S. storms ($30.0 million) and Hurricane Isaac ($12.6 million).
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased by 15.5% to $339.4 million in 2014 compared to $293.9 million in 2013. These changes were primarily due to the impact of the increase in premiums earned, higher contingent commissions and changes in the mix of business.
Income Tax Expense (Benefit). Income tax expenses was $203.6 million, $407.2 million and $173.0 million in 2014, 2013 and 2012, respectively. Income tax expense is primarily a function of the geographic location of the Company’s pre-tax income and the statutory tax rates in those jurisdictions, as affected by tax-exempt investment income. Variations in the income tax expense generally result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses), among jurisdictions with different tax rates. The decrease in income tax expense in 2014 compared 2013 is primarily due to lower net realized capital gains and the realization of additional foreign tax credits. The increase in tax expense between 2013 and 2012 is primarily due to higher taxable income from improved underwriting margins and capital gains.
Net realized capital gains were $206.7 million, $723.1 million and $391.7 million in 2014, 2013 and 2012, respectively. In 2014, we recorded $251.8 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets, partially offset by $38.9 million of other-than-temporary impairments and $6.2 million of net realized capital losses from sales of fixed maturity and equity securities. The fixed maturity and equity sales in 2014 related primarily to adjusting the portfolios for overall market changes and individual credit shifts along with maintaining a balanced foreign currency exposure. In 2013, we recorded $687.6 million of gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets and $35.6 million of net realized capital gains from sales of fixed maturity and equity securities. The fixed maturity and equity sales in 2013 related primarily to adjusting the portfolios for overall market changes and individual credit shifts. In 2012, we recorded $364.5 million of gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets and $33.9 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $6.6 million of other-than-temporary impairments on fixed maturity securities. The fixed maturity sales in 2012 related primarily to maintaining a balanced foreign currency exposure and the equity sales related primarily to reducing our equity exposure.
Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses. We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.
Premiums. Gross written premiums increased by 18.0% to $2,154.5 million in 2014 from $1,826.0 million in 2013, primarily due to new business opportunities, particularly for contracts with catastrophe exposed risks. Net written premiums increased by 7.5% to $977.9 million in 2014 compared to $909.6 million in 2013, which is in line with the increase in gross written premiums combined with a higher use of reinsurance for catastrophe exposures. Premiums earned increased 17.3% to $988.3 million in 2014 compared to $842.3 million in 2013. The change in premiums earned relative to net written premiums is primarily the
result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Incurred losses increased by 28.7% to $545.9 million in 2014 compared to $424.2 million in 2013, primarily due to the increase in current year attritional losses of $95.3 million resulting primarily from the impact of the increase in premiums earned and less favorable development of $80.2 million on prior years’ attritional losses in 2014 compared to 2013, mainly related to an increase in A&E reserves. This increase was partially offset by a favorable development of $34.2 million on prior year catastrophe losses in 2014 compared to 2013, mainly related to Superstorm Sandy, and a decrease of $19.6 million in current year catastrophe losses. The $6.3 million of current year catastrophe losses in 2014 related to the Japan snowstorm ($3.9 million) and Hurricane Odile ($2.4 million). The $25.9 million of current year catastrophe losses in 2013 were mainly due to U.S. Storms ($22.4 million), the European floods ($2.5 million) and the Canadian Floods ($1.0 million).
Incurred losses decreased by 27.2% to $424.2 million in 2013 compared to $582.4 million in 2012, primarily due to the decrease in current year catastrophe losses, partially offset by an increase of $50.9 million in current year attritional losses due to the impact of the increase in premiums earned. Current year 2013 catastrophe losses (discussed above) were lower by $209.4 million, or 29.5 points, period over period. The $235.3 million of current year catastrophe losses for 2012 related to Superstorm Sandy ($193.5 million), U.S. storms ($29.9 million) and Hurricane Isaac ($11.9 million). Despite the increase in current year attritional losses, the current year attritional loss ratio decreased 0.8 points due to the continued shift in business to excess of loss contracts which generally have lower attritional losses than pro rata contracts.
Commission and brokerage decreased 5.3% to $159.7 million in 2013 compared to $168.6 million in 2012. The year over year change was primarily due to the impact from the large Florida quota share reinsurance contract as well as the adoption of new accounting standards concerning the accounting for acquisition costs, which increased expenses in 2012, partially offset by the impact of the increase in premiums earned. Segment other underwriting expenses increased to $47.2 million in 2013 from $44.8 million in 2012, primarily due to increased compensation expenses and higher premiums earned.
Incurred losses and LAE increased by 20.8% to $315.9 million in 2013 compared to $261.5 million in 2012, representing 7.7 loss ratio points, due to increases in current year attritional losses and current year catastrophe losses in 2013 (discussed above). The current year catastrophe losses of $6.0 million in 2012 related primarily to Superstorm Sandy ($5.9 million). The current year attritional losses increased by $36.9 million primarily due to the impact of the increase in premiums earned.
Segment Expenses. Commission and brokerage increased 4.7% to $119.7 million in 2014 compared to $114.3 million in 2013. This increase was primarily due to the impact of the increase in premiums earned. Segment other underwriting expenses slightly increased to $34.6 million in 2014 compared to $33.9 million in 2013.
Commission and brokerage decreased 8.2% to $114.3 million in 2013 compared to $124.6 million in 2012. This decrease was primarily due to the shift in the mix of business towards property catastrophe and excess of loss business, which have lower commission rates, partially offset by the impact of the increase in premiums earned. Segment other underwriting expenses increased to $33.9 million in 2013 compared to $29.3 million in 2012. These increases related primarily to the impact of higher premiums earned and higher compensation costs
Premiums. Gross written premiums decreased by 4.9% to $1,180.4 million in 2014 compared to $1,240.8 million in 2013. This decrease was primarily driven by a decline in crop business, partially offset by an increase in the non-standard auto business. Net written premiums decreased by 13.5% to $516.9 million in 2014 compared to $597.7 million in 2013. The variance of the change in gross written premiums compared to the change in net written premiums is due to changes in the utilization of reinsurance, particularly on the crop business. Premiums earned decreased 8.4% to $524.4 million in 2014 compared to $572.3 million in 2013. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Incurred losses and LAE increased by 31.1% to $532.0 million in 2013 compared to $405.8 million in 2012 mainly due to increases in current year attritional losses and higher unfavorable prior year development on attritional losses in 2013 compared to 2012. The current year attritional losses increased by $88.2 million primarily due to the impact of higher premiums earned and a higher current year attritional loss ratio on the crop book, which was impacted by a decline in corn commodity prices and lower yields in several of our key states. The prior year development on attritional losses was primarily related to workers’ compensation, construction liability and umbrella business. The construction liability and umbrella development related to programs that were discontinued several years ago. Current year catastrophe losses were $0.5 million in 2013, due to Canadian floods. The $4.6 million of current year catastrophe losses for 2012 were primarily due to Superstorm Sandy ($4.0 million).
Commission and brokerage increased 13.1% to $19.8 million in 2013 compared to $17.5 million in 2012. The increase was primarily due to the impact of higher premiums earned, partially offset by the impact of the adoption of new accounting standards concerning the accounting for acquisition costs, which had the impact of increasing expenses in 2012. Segment other underwriting expenses increased to $112.4 million in 2013 compared to $96.5 million in 2012. These increases were primarily the result of increased premiums earned and higher compensation costs.