Everest Re’s corporate offices are located in approximately 230,500 square feet of leased office space in Liberty Corner, New Jersey. Bermuda Re’s corporate offices are located in approximately 3,600 total square feet of leased office space in Hamilton, Bermuda. The Company’s other twenty one locations occupy a total of approximately 158,500 square feet, all of which are leased. Management believes that the above-described office space is adequate for its current and anticipated needs.
The following selected consolidated GAAP financial data of the Company as of and for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, were derived from the audited consolidated financial statements of the Company. The following financial data should be read in conjunction with the Consolidated Financial Statements and accompanying notes.
Based on weighted average basic common shares outstanding of 45.4 million, 48.6 million, 51.9 million, 53.8 million and 56.6 million for 2014, 2013, 2012, 2011 and 2010, respectively.
Based on weighted average diluted common shares outstanding of 45.8 million, 49.1 million, 52.1 million and 56.8 million for 2014, 2013, 2012 and 2010, respectively. Diluted calculation was not applicable for 2011.
We compete in the U.S., Bermuda 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.
Gross written premiums increased by 21.1% to $5,218.6 million in 2013, compared to $4,310.5 million in 2012, reflecting a $692.3 million, or 21.4%, increase in our reinsurance business, a $195.6 million, or 18.2%, increase in our insurance business and $20.2 million from our new Mt. Logan Re segment. The increase in reinsurance premiums was mainly due to the impact of a Florida quota share reinsurance contract as well as new business, increased participations on existing business, and higher original rates on subject business. Excluding the year over year impact of the large Florida quota share reinsurance contract, gross written premiums increased 15.0% and reinsurance premiums increased 13.4%, compared to the prior year. The increase in insurance premiums was primarily due to the growth in California workers’ compensation, crop and non-standard auto business. Net written premiums increased by 22.6% to $5,004.8 million in 2013 compared to $4,081.1 million in 2012, which is consistent with the increase in gross written premiums. Premiums earned increased by 14.1% to $4,753.5 million in 2013, compared to $4,164.6 million in 2012. Unlike written premiums, premiums earned were minimally impacted by the Florida quota share reinsurance contract. The change in premiums earned was comparable to net written premiums, excluding the impact of the Florida quota share reinsurance contract.
Net Investment Income. Net investment income decreased by 3.3% to $530.6 million in 2014 compared with net investment income of $548.5 million in 2013. Net pre-tax investment income, as a percentage of average invested assets, was 3.2% in 2014 compared to 3.5% in 2013. The decline in income and yield in 2014 compared to 2013 was primarily the result of lower reinvestment rates for the fixed income portfolios and a decrease in our limited partnership income.
Net Realized Capital Gains (Losses). Net realized capital gains were $84.0 million, $300.2 million and $164.4 million in 2014, 2013 and 2012, respectively. The $84.0 million was comprised of $121.7 million of net gains from fair value re-measurements and $1.9 million of net realized capital gains from sales on our fixed maturity and equity securities, which were partially offset by $39.5 million of other-than-temporary impairments. The net realized capital gains of $300.2 million in 2013 were the result of $258.9 million of gains from fair value re-measurements and $42.4 million of net realized capital gains from sales on our fixed maturity and equity securities, which were partially offset by $1.1 million of other-than-temporary impairments. The net realized capital gains of $164.4 million in 2012 were the result of $118.1 million of gains from fair value re-measurements and $56.3 million of net realized capital gains from sales on our fixed maturity and equity securities, which were partially offset by $10.0 million of other-than-temporary impairments.
Net Derivative Gain (Loss). In 2005 and prior, we sold seven equity index put option contracts, which remain outstanding. These contracts meet the definition of a derivative in accordance with FASB guidance and as such, are fair valued each quarter with the change recorded as net derivative gain or loss in the consolidated statements of operations and comprehensive income (loss). As a result of these adjustments in value, we recognized net derivative losses of $11.6 million in 2014, net derivative gains of $44.0 million in 2013 and net derivative losses of $9.7 million in 2012. The change in the fair value of these equity index put option contracts is indicative of the change in the equity markets and interest rates over the same periods.
Incurred losses and LAE increased by 3.8% to $2,906.5 million for the year ended December 31, 2014 compared to $2,800.3 million for the year ended December 31, 2013, primarily due to increases in current year attritional losses, partially offset by a reduction in current year catastrophe losses. The increase in current year attritional losses of $232.9 million is primarily due to the impact of the increase in premiums earned. The $12.1 million of favorable prior years development for 2014 is a combination of $174.7 million of favorable development in the reinsurance segments, related primarily to treaty casualty and treaty property reserves, partially offset by $137.8 million of development on A&E reserves and $24.9 million of development on insurance reserves, primarily related to construction liability and umbrella business. The $90.0 million of current year catastrophe losses for the year ended December 31, 2014 represented 1.7 points and related to the Japan snowstorm ($31.5 million), Hurricane Odile ($22.0 million), the Chilean earthquake ($21.5 million) and the Brisbane hailstorm ($15.0 million). The $195.0 million of current year catastrophe losses for the year ended December 31, 2013 related to Canadian floods ($79.7 million), U.S. storms ($44.8 million), Typhoon Fitow ($30.0 million), German hailstorms ($20.5 million) and European floods ($20.0 million).
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, were comparable at $23.4 million, $24.8 million and $24.0 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Our combined ratio decreased by 9.3 points to 84.5% in 2013 compared to 93.8% in 2012. The loss ratio component decreased 7.0 points in 2013, over the same period last year primarily due to the $215.0 million decrease in current year catastrophe losses, which lowered the loss ratio by 5.7 points. The commission and brokerage ratio components decreased 2.3 points in 2013 due to the one time impact of the termination of the Florida quota share contract in 2012 and the increase in excess of loss business which carries a lower commission than pro rata business. The other underwriting expense ratio components remained flat in 2013 over the same period in 2012.
Shareholders’ equity increased by $482.8 million to $7,451.1 million at December 31, 2014 from $6,968.3 million at December 31, 2013, principally as a result of $1,199.2 million of net income attributable to Everest Re Group, share-based compensation transactions of $39.0 million and $22.1 million of unrealized appreciation on investments, net of tax, partially offset by repurchases of 3.2 million common shares for $500.0 million, $145.9 million of shareholder dividend, $95.4 million of net foreign currency translation adjustments and $36.1 million of net benefit plan obligation adjustments.
The pre-tax equivalent total return for the bond portfolio was approximately 3.6%, 0.6% and 5.0%, respectively, in 2014, 2013 and 2012. The pre-tax equivalent return adjusts the yield on tax-exempt bonds to the fully taxable equivalent.
Net realized capital gains were $84.0 million, $300.2 million and $164.4 million in 2014, 2013 and 2012, respectively. In 2014, we recorded $121.7 million of net realized capital gains due to fair value re-measurements on fixed maturity and equity securities and $1.9 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $39.5 million of other-than-temporary impairments. 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 $258.9 million of net realized capital gains due to fair value re-measurements on fixed maturity and equity securities and $42.4 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $1.1 million of other-than-temporary impairments. The fixed maturity and equity sales in 2013 related primarily to adjusting the portfolios for overall market changes and individual credit shifts along with maintaining a balanced foreign currency exposure. In 2012, we recorded $118.1 million of net realized capital gains due to fair value re-measurements on fixed maturity and equity securities and $56.3 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $10.0 million of other-than-temporary impairments. 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.
Mt. Logan Re’s business is sourced through operating subsidiaries of the Company; however, the activity is only reflected in the Mt. Logan Re segment. For other inter-affiliate reinsurance, business is generally reported within the segment in which the business was first produced, consistent with how the business is managed.
The following table presents the underwriting results and ratios for the U.S. Reinsurance segment for the periods indicated
Premiums. Gross written premiums increased by 12.7% to $2,039.6 million in 2014 from $1,809.7 million in 2013, primarily due to new business opportunities, particularly for contracts with catastrophe exposed risks. Net written premiums increased by 9.8% to $1,983.8 million in 2014 compared to $1,807.1 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 18.9% to $1,986.8 million in 2014 compared to $1,671.5 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.
Gross written premiums increased by 38.1% to $1,809.7 million in 2013 from $1,310.7 million in 2012, primarily due to the impact of a large Florida quota share reinsurance contract, new business opportunities, particularly for contracts with catastrophe exposed risks and higher subject premium on casualty quota share business as rates began to rise in these markets. Excluding the impact of the Florida quota share reinsurance contract, gross written premiums increased 17.8%. Net written premiums increased by 38.3% to $1,807.1 million in 2013 compared to $1,306.5 million in 2012, which is in line with the increase in gross written premiums. Premiums earned increased 18.0% to $1,671.5 million in 2013 compared to $1,416.4 million in 2012. Premiums earned were only minimally impacted by the Florida quota share reinsurance contract that affected written premiums. The change in premiums earned was relatively comparable to net written premiums, excluding the Florida quota share reinsurance contract.
Segment Expenses. Commission and brokerage expenses increased by 27.1% to $466.3 million in 2014 compared to $366.9 million in 2013. The variance was due to the impact of the increase in premiums earned, change in the mix of business and higher contingent commissions. Segment other underwriting expenses decreased slightly to $45.6 million in 2014 from $47.2 million in 2013.
Gross written premiums increased by 12.9% to $1,345.8 million in 2013 compared to $1,192.3 million in 2012, primarily due to growth in Latin and South America business. Net written premiums increased by 11.7% to $1,327.4 million compared to $1,188.7 million in 2012, which is consistent with the increase in gross written premiums. Premiums earned increased 6.1% to $1,289.3 million in 2013 compared to $1,214.8 million in 2012. 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 and LAE increased by 10.8% to $748.2 million in 2014 compared to $675.4 million in 2013, due to the increase in current year attritional losses of $77.9 million, primarily due to increased losses in the Middle East, Africa and Latin America, partially offset by the decrease in current year catastrophe losses of $33.3 million. The $71.1 million of current year catastrophe losses in 2014 were due to the 2014 Chilean earthquake ($20.7 million), Japan snowstorm ($20.0 million), Hurricane Odile ($15.4 million) and the Brisbane hailstorm ($14.9 million). The $104.4 million of current year catastrophe losses in 2013 were due to the Canadian floods ($75.2 million) and Typhoon Fitow ($29.2 million).
Incurred losses and LAE increased by 15.2% to $675.4 million in 2013 compared to $586.3 million in 2012, representing 4.1 loss ratio points, primarily due to current year catastrophe for 2013 (outlined above). The current year catastrophe losses of $16.6 million in 2012 related primarily to Superstorm Sandy ($16.5 million). The current year attritional losses increased by $42.6 million primarily due to the increase in premiums earned as the current year attritional loss ratio was relatively flat period over period.
Commission and brokerage decreased 1.4% to $295.9 million in 2013 compared to $300.1 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 relate to higher compensation expenses.
Premiums. Gross written premiums decreased by 0.5% to $770.2 million in 2014 compared to $774.3 million in 2013, primarily due to the non-renewal of a casualty quota share contract. Net written premiums decreased by 2.7% to $744.7 million in 2014 compared to $765.7 million in 2013. The variance of the change in gross written premiums compared to the change in net written premiums is due to a higher utilization of reinsurance including cessions to Mt. Logan. Premiums earned decreased 3.0% to $715.7 million in 2014 compared to $738.0 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.
Gross written premiums increased by 5.4% to $774.3 million in 2013 compared to $734.4 million in 2012, primarily due to continued growth of new business and increased premium on existing business written in our Bermuda and Ireland offices. Net written premiums increased by 4.3% to $765.7 million in 2013 compared to $733.8 million in 2012, which is consistent with the change in gross written premiums. Premiums earned increased 8.4% to $738.0 million in 2013 compared to $680.9 million in 2012. 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 decreased by 8.3% to $374.4 million in 2013 compared to $408.2 million in 2012 primarily due to favorable prior year development in 2013 compared to 2012 for both attritional and catastrophe losses, partially offset by increases in current year catastrophe losses (outlined above) and current year attritional losses. The favorable prior year development on attritional losses was primarily related to the outcome of reserve studies on property business. The $14.1 million of current year catastrophe losses for 2012 related primarily to Superstorm Sandy ($14.0 million). The current year attritional losses increased by $5.1 million due to the impact of higher premiums earned, but the current year attritional loss ratio declined by 3.9 points. This is primarily due to a shift in the mix of business to excess of loss contracts which generally results in lower loss ratios.
Commission and brokerage decreased by 2.8% to $179.1 million in 2013 compared to $184.4 million in 2012 reflecting the impact from the change in the mix of business to contracts with lower commission rates and higher contingent commission payouts in 2012, mitigated by the impact of higher premiums earned. Segment other underwriting expenses increased to $34.7 million in 2013 compared to $30.6 million for the same period in 2012. The year over year increase was primarily attributable to higher premiums earned in 2013.
Gross written premiums increased by 18.2% to $1,268.7 million in 2013 compared to $1,073.1 million in 2012. This increase was primarily driven by California workers’ compensation, crop and non-standard auto business. Net written premiums increased by 27.5% to $1,086.2 million in 2013 compared to $852.1 million in 2012. The larger increase in net written premiums compared to gross written premiums is mainly due to less use of reinsurance, particularly on the crop business. Premiums earned increased 21.7% to $1,037.4 million in 2013 compared to $852.4 million in 2012. 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 33.0% to $931.5 million in 2013 compared to $700.3 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 $158.5 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. The $6.7 million of current year catastrophe losses for 2012 were primarily due to Superstorm Sandy ($5.5 million).
Segment Expenses. Commission and brokerage increased by 12.0% to $149.8 million in 2014 compared to $133.7 million in 2013. The increase was primarily driven by the shift in the mix of premium away from crop business, which carries a lower commission rate than other insurance lines. Segment other underwriting expenses decreased slightly to $118.0 million in 2014 compared to $119.3 million in 2013.
The following table presents the underwriting results and ratios for the Mt. Logan Re segment for the year ended 2013. The initial reporting period for this segment began in the third quarter of 2013.
Premiums. Gross written premiums increased to $138.4 million in 2014 compared to $20.2 million in 2013, as this segment continues to expand from its initial start-up in the third quarter of 2013. Net written premiums increased to $124.5 million in 2014 compared to $18.4 million in 2013, which is consistent with the change in gross written premiums. Premiums earned increased to $125.4 million in 2014 compared to $17.3 million in 2013. The change in premiums earned is comparable to the change in net written premiums.
Segment Expenses. Commission and brokerage increased to $14.4 million in 2014 compared to $2.0 million in 2013. The increase was primarily due to the impact of the increase in premiums earned. Segment other underwriting expenses increased to $7.3 million in 2014 compared to $2.1 million in 2013. The increase was primarily due to the impact of the increase in premiums earned and increased operations.
Loss and LAE Reserves. Our most critical accounting policy is the determination of our loss and LAE reserves. We maintain reserves equal to our estimated ultimate liability for losses and LAE for reported and unreported claims for our insurance and reinsurance businesses. Because reserves are based on estimates of ultimate losses and LAE by underwriting or accident year, we use a variety of statistical and actuarial techniques to monitor reserve adequacy over time, evaluate new information as it becomes known and adjust reserves whenever an adjustment appears warranted. We consider many factors when setting reserves including: (1) our exposure base and projected ultimate premiums earned; (2) our expected loss ratios by product and class of business, which are developed collaboratively by underwriters and actuaries; (3) actuarial methodologies which analyze our loss reporting and payment experience, reports from ceding companies and historical trends, such as reserving patterns, loss payments and product mix; (4) current legal interpretations of coverage and liability; (5) economic conditions; and (6) uncertainties discussed below regarding our liability for A&E claims. Our insurance and reinsurance loss and LAE reserves represent our
best estimate of our ultimate liability. Actual losses and LAE ultimately paid may deviate, perhaps substantially, from such reserves. Our net income (loss) will be impacted in a period in which the change in estimated ultimate losses and LAE is recorded. See also ITEM 8, “Financial Statements and Supplementary Data” - Note 1 of Notes to the Consolidated Financial Statements.
It is more difficult to accurately estimate loss reserves for reinsurance liabilities than for insurance liabilities. At December 31, 2014, we had reinsurance reserves of $7,299.3 million and insurance loss reserves of $2,421.5 million, of which $368.8 million and $107.4 million, respectively, were loss reserves for A&E liabilities. A detailed discussion of additional considerations related to A&E exposures follows later in this section.
Asbestos and Environmental Exposures. We continue to receive claims under expired insurance and reinsurance contracts asserting injuries and/or damages relating to or resulting from environmental pollution and hazardous substances, including asbestos. Environmental claims typically assert liability for (a) the mitigation or remediation of environmental contamination or (b) bodily injury or property damage caused by the release of hazardous substances into the land, air or water. Asbestos claims typically assert liability for bodily injury from exposure to asbestos or for property damage resulting from asbestos or products containing asbestos.
Reinsurance Receivables. We have purchased reinsurance to reduce our exposure to adverse claim experience, large claims and catastrophic loss occurrences. Our ceded reinsurance provides for recovery from reinsurers of a portion of losses and loss expenses under certain circumstances. Such reinsurance does not relieve us of our obligation to our policyholders. In the event our reinsurers are unable to meet their obligations under these agreements or are able to successfully challenge losses ceded by us under the contracts, we will not be able to realize the full value of the reinsurance receivable balance. To minimize exposure from uncollectible reinsurance receivables, we have a reinsurance security committee that evaluates the financial strength of each reinsurer prior to our entering into a reinsurance arrangement. In some cases, we may hold full or partial collateral for the receivable, including letters of credit, trust assets and cash. Additionally, creditworthy foreign reinsurers of business written in the U.S., as well as capital markets’ reinsurance mechanisms, are generally required to secure their obligations. We have established reserves for uncollectible balances based on our assessment of the collectability of the outstanding balances. As of December 31, 2014 and 2013, the reserve for uncollectible balances was $21.6 million. Actual uncollectible amounts may vary, perhaps substantially, from such reserves, impacting income (loss) in the period in which the change in reserves is made. See also ITEM 8, “Financial Statements and Supplementary Data” - Note 13 of Notes to the Consolidated Financial Statements and “Financial Condition - Reinsurance Receivables” below.
At December 31, 2014, we had net unrealized gains, net of tax, of $223.2 million compared to $201.2 million at December 31, 2013. Gains and losses from market fluctuations for investments held at market value are reflected as comprehensive income (loss) in the consolidated balance sheets. Gains and losses from market fluctuations for investments held at fair value are reflected as net realized capital gains and losses in the consolidated statements of operations and comprehensive income (loss). Market value declines for the fixed income portfolio, which are considered credit other-than-temporary impairments, are reflected in our consolidated statements of operations and comprehensive income (loss), as realized capital losses. We consider many factors when determining whether a market value decline is other-than-temporary, including: (1) we have no intent to sell and, more likely than not, will not be required to sell prior to recovery, (2) the length of time the market value has been below book value, (3) the credit strength of the issuer, (4) the issuer’s market sector, (5) the length of time to maturity and (6) for asset-backed securities, changes in prepayments, credit enhancements and underlying default rates. If management’s assessments change in the future, we may ultimately record a realized loss after management originally concluded that the decline in value was temporary. See also ITEM 8, “Financial Statements and Supplementary Data” - Note 1 of Notes to the Consolidated Financial Statements.
Cash and Invested Assets. Aggregate invested assets, including cash and short-term investments, were $17,435.9 million at December 31, 2014, an increase of $839.5 million compared to $16,596.5 million at December 31, 2013. This increase was primarily the result of $1,313.8 million of cash flows from operations, $400.0 million from issuance of senior notes, $136.2 million from external third party net capital investment into Mt. Logan Re, $121.7 million in fair value re-measurements, $40.0 million of subscription advances for third party investment into Mt. Logan Re, $39.5 million in equity adjustments of our limited partnership investments, $20.3 million of pre-tax unrealized appreciation, and $17.8 million from common share issuance under share based compensation plans, net of expense incurred, partially offset by $500.0 million paid for share repurchases, $250.0 million in net cost of senior notes maturing, $201.2 million due to fluctuations in foreign currencies, $145.9 million paid out in dividends to shareholders, $49.2 million of amortization bond premium, $10.3 million paid out in dividends to third party investors in redeemable noncontrolling interests and $4.4 million of unsettled securities.
Over the past several years, we have expanded the allocation of our investments funded by shareholders’ equity to include: 1) a greater percentage of publicly traded equity securities, 2) emerging market fixed maturities through mutual fund structures, as well as individual holdings, 3) high yield fixed maturities, 4) bank loan securities and 5) private equity limited partnership investments. The objective of this portfolio diversification is to enhance the risk-adjusted total return of the investment portfolio by allocating a prudent portion of the portfolio to higher return asset classes, which are also less subject to changes in value with movements in interest rates. We limit our allocation to these asset classes because of 1) the potential for volatility in their values and 2) the impact of these investments on regulatory and rating agency capital adequacy models. We use investment managers experienced in these markets and adjust our allocation to these investments based upon market conditions. At December 31, 2014, the market value of investments in these investment market sectors, carried at both market and fair value, approximated 59% of shareholders’ equity.
The Company’s limited partnership investments are comprised of limited partnerships that invest in private equities. Generally, the limited partnerships are reported on a quarter lag. We receive annual audited financial statements for all of the limited partnerships which are prepared using fair value accounting in accordance with FASB guidance. For the quarterly reports, the Company’s staff performs reviews of the financial reports for any unusual changes in carrying value. If the Company becomes aware of a significant decline in value during the lag reporting period, the loss will be recorded in the period in which the Company identifies the decline.
Reinsurance receivables for both paid and recoverable on unpaid losses totaled $670.9 million and $540.9 million at December 31, 2014 and 2013, respectively. At December 31, 2014, $102.3 million, or 15.2%, was receivable from C.V. Starr; $75.0 million, or 11.2%, was receivable from Resolution Group; $64.6 million, or 9.6%, was receivable from FCIC; $60.7 million, or 9.0%, was receivable from Zurich; $39.5 million, or 5.9%, was receivable from Transatlantic; $37.2 million, or 5.5%, was receivable from Hannover; $35.2 million, or 5.2%, was receivable from Axis and $33.9 million, or 5.1%, was receivable from Axa Seguros. The receivables from C.V. Starr and Resolution Group are fully collateralized by individual trust agreements. No other retrocessionaire accounted for more than 5% of our receivables.
Loss and LAE Reserves. Gross loss and LAE reserves totaled $9,720.8 million and $9,673.2 million at December 31, 2014 and 2013, respectively.
Capital. Shareholders’ equity at December 31, 2014 and December 31, 2013 was $7,451.1 million and $6,968.3 million, respectively. Management’s objective in managing capital is to ensure its overall capital level, as well as the capital levels of its operating subsidiaries, exceed the amounts required by regulators, the amount needed to support our current financial strength ratings from rating agencies and our own economic capital models. The Company’s capital has historically exceeded these benchmark levels.
Our two main operating companies Bermuda Re and Everest Re are regulated by the Bermuda Monetary Authority (“BMA”) and the State of Delaware, Department of Insurance, respectively. Both regulatory bodies have their own capital adequacy models based on statutory capital as opposed to GAAP basis equity. Failure to meet the required statutory capital levels could result in various regulatory restrictions, including business activity and the payment of dividends to their parent companies. See also Item 8, Financial Statements and Supplementary Data, Footnote 16, Dividend Restrictions and Statutory Financial Information.
Our financial strength ratings as determined by A.M. Best, Standard & Poor’s and Moody’s are important as they provide our customers and investors with an independent assessment of our financial strength using a rating scale that provides for relative comparisons. We continue to possess significant financial flexibility and access to debt and equity markets as a result of our financial strength, as evidenced by the financial strength ratings as assigned by independent rating agencies. See also Item 1, Business, Financial Strength Ratings.
Liquidity. Our liquidity requirements are generally met from positive cash flow from operations. Positive cash flow results from reinsurance and insurance premiums being collected prior to disbursements for claims, which disbursements generally take place over an extended period after the collection of premiums, sometimes a period of many years. Collected premiums are generally invested, prior to their use in such disbursements, and investment income provides additional funding for loss payments. Our net cash flows from operating activities were $1,313.8 million, $1,098.3 million and $694.6 million for the years ended December 31, 2014, 2013 and 2012, respectively. Additionally, these cash flows reflected net tax payments of $153.5 million, $69.3 million and $59.8 million for years ended December 31, 2014, 2013 and 2012, respectively, and net catastrophe loss payments of $320.0 million, $490.7 million and $551.3 million for the years ended December 31, 2014, 2013 and 2012, respectively.
In addition to our cash flows from operations and liquid investments, we also have a credit facility that provides up to $200.0 million of unsecured revolving credit for liquidity but more importantly provides for up to $600.0 million of collateralized standby letters of credit to support business written by our Bermuda operating subsidiaries.
Treatment of Insurance Contract Acquisition Costs. In October 2010, the FASB issued authoritative guidance for the accounting for costs associated with acquiring or renewing insurance contracts. The guidance identifies the incremental direct costs of contract acquisition and costs directly related to acquisition activities that should be capitalized. This guidance is effective for reporting periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012 and determined that $13.5 million of previously deferrable acquisition costs would be expensed, including $10.9 million and $2.6 million expensed in the years ended December 31, 2012 and 2013, respectively. No additional expense will be incurred related to this guidance implementation in future periods.
The overall investment strategy considers the scope of present and anticipated Company operations. In particular, estimates of the financial impact resulting from non-investment asset and liability transactions, together with our capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated payout characteristics for which our investments provide liquidity. This analysis is considered in the development of specific investment strategies for asset allocation, duration and credit
quality. The change in overall market sensitive risk exposure principally reflects the asset changes that took place during the period.
Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the $2,427.6 million of mortgage-backed securities in the $13,102.6 million fixed maturity portfolio. Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.
We had $9,720.8 million and $9,673.2 million of gross reserves for losses and LAE as of December 31, 2014 and 2013, respectively. These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations have an expected duration of approximately 3.9 years, which is reasonably consistent with our fixed income portfolio. If we were to discount our loss and LAE reserves, net of ceded reserves, the discount would be approximately $1.1 billion resulting in a discounted reserve balance of approximately $8.0 billion, representing approximately 54.0% of the value of the fixed maturity investment portfolio funds.
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”. Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the adequacy of capital in relation to regulatory required capital, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic events on our financial statements, the ability of Everest Re, Holdings, Holdings Ireland and Bermuda Re to pay dividends and the settlement costs of our specialized equity index put option contracts. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause our actual events or results to be materially different from our expectations include those discussed under the caption ITEM 1A, “Risk Factors”. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.