W. R. Berkley and its subsidiaries own or lease office buildings or office space suitable to conduct their operations. At December 31, 2013, the Company had aggregate office space of 3,886,500 square feet, of which 1,121,546 were owned and 2,764,954 were leased.
From 2005 through 2010, the property casualty insurance market was very competitive and insurance rates decreased across most business lines. Although prices have generally increased since the beginning of 2011, current market price levels for certain lines of business remain below the prices required for the Company to achieve its long-term return objectives. Part of the Company's strategy is to selectively reduce its business in areas where it believes returns are not adequate. Price changes are reflected in the Company’s results over time as premiums are earned.
The Company also invests in equity securities, merger arbitrage, private equity investments, investment funds, loans receivable and real estate. The Company's investments in investment funds have experienced, and the Company expects to continue to experience, greater fluctuations in investment income.
Our net reserves for losses and loss expenses of approximately $8.7 billion as of December 31, 2013 relate to multiple accident years. Therefore, the impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above.
Following is a summary of the Company’s net reserves for losses and loss expenses by major line of business as of December 31, 2013 and 2012:
(1) Reserves for excess and assumed workers’ compensation business are net of an aggregate net discount of $837 million and $867 million as of December 31, 2013 and 2012, respectively.
The 2013 favorable development was partially offset by unfavorable development of $23 million for commercial automobile business and $14 million for products liability business. Commercial automobile development was driven by large losses for long-haul trucking business in 2011 and 2012. Product liability development stemmed from completed operations losses associated with construction projects in accident years prior to 2009.
Favorable reserve development in 2012 was primarily attributable improved claim frequency (i.e., number of reported claims per unit of exposure), especially in the for excess and surplus casualty business. In addition, standard commercial lines business and reinsurance business experienced better than expected reported losses. The improvement was related primarily to accident years 2008 through 2010.
Reserve Discount - The Company discounts its liabilities for excess and assumed workers’ compensation business because of the long period of time over which losses are paid. Discounting is intended to appropriately match losses and loss expenses to income earned on investment securities supporting the liabilities. The expected losses and loss expense payout pattern subject to discounting was derived from the Company’s loss payout experience. For non-proportional business, reserves for losses and loss expenses have been discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. For proportional business, reserves for losses and loss expenses have been discounted at the statutory rate of 2.2%. As of December 31, 2013, the aggregate blended discount rates ranged from 2.1% to 6.5%, with a weighted average discount rate of 4.1%. The aggregate net discount, after reflecting the effects of ceded reinsurance, was $837 million and $867 million as of December 31, 2013 and December 31, 2012, respectively.
Assumed Reinsurance Premiums. The Company estimates the amount of assumed reinsurance premiums that it will receive under treaty reinsurance agreements at the inception of the contracts. These premium estimates are revised as the actual amount of assumed premiums is reported to the Company by the ceding companies. As estimates of assumed premiums are made or revised, the related amount of earned premiums, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately $57 million and $73 million at December 31, 2013 and December 31, 2012, respectively. The assumed premium estimates are based upon terms set forth in reinsurance agreements, information received from ceding companies during the underwriting and negotiation of agreements, reports received from ceding companies and discussions and correspondence with reinsurance intermediaries. The Company also considers its own view of market conditions, economic trends and experience with similar lines of business. These premium estimates represent management’s best estimate of the ultimate amount of premiums to be received under its assumed reinsurance agreements.
Preferred Stocks - At December 31, 2013, there were three preferred stocks in an unrealized loss position, with an aggregate fair value of $33 million and a gross unrealized loss of $6 million. None of these preferred stocks are rated non-investment grade and none are delinquent or in default. Management believes the unrealized losses are due primarily to market and sector related factors and does not consider these to be OTTI.
Common Stocks - At December 31, 2013, there were no common stocks in an unrealized loss position.
Loans Receivable - The Company monitors the performance of its loans receivable, including current market conditions for each loan and the ability to collect principal and interest. For loans where the Company determines it is probable that the contractual terms will not be met, an analysis is performed and a valuation reserve is established, if necessary, with a charge to earnings. Loans receivable are reported net of a valuation reserve of $2 million and $6 million at December 31, 2013 and 2012, respectively.
Independent pricing services - The vast majority of the Company’s fixed maturity securities available for sale were priced by independent pricing services (generally one U.S. pricing service plus additional pricing services with respect to a limited number of foreign securities held by the Company). The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities). The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness based upon current trading levels for similar securities. If the prices appear unusual to the Company, they are re-examined and the value is either confirmed or revised. In addition, the Company periodically performs independent price tests of a sample of securities to ensure proper valuation and to verify our understanding of how securities are priced. As of December 31, 2013, the Company did not make any adjustments to the prices provided by the pricing services. Based upon the Company’s review of the methodologies used by the independent pricing services, these securities were classified as Level 2.
Following is a summary of gross and net premiums written, net premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of net premiums earned), expense ratios (underwriting expenses expressed as a percentage of net premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the years ended December 31, 2013 and 2012. The GAAP combined ratio represents a measure of underwriting profitability, excluding investment income. A GAAP combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.
Reinsurance-Global gross premiums increased 13% to $809 million in 2013 from $717 million in 2012. Gross premiums written increased $51 million (11%) for casualty lines and $41 million (17%) for property lines.
Net premiums written were $5,500 million in 2013, an increase of 12% from $4,899 million in 2012. Ceded reinsurance premiums as a percentage of gross written premiums were 16% in 2013 and 15% in 2012. The increase in the percentage of business ceded was due to changes in the reinsurance terms and costs.
Net investment income decreased 7% to $544 million in 2013 from $587 million in 2012 primarily due to a decrease in income from fixed maturity securities. The average annualized yield for fixed maturity securities declined from 3.7% to 3.5% due to lower long-term reinvestment yields available in the market and to a shortening of the average duration of the fixed maturity portfolio from 3.4 years at December 31, 2012 to 3.3 years at December 31, 2013. Average invested assets, at cost (including cash and cash equivalents) were $14.8 billion in 2013 and $14.5 billion in 2012.
Insurance Service Fees. The Company is a servicing carrier of workers' compensation assigned risk plans for 20 states and provides insurance program management services to self-insureds, captives, governmental entities, risk retention groups, and insurance companies. Service fees were $108 million in 2013, up from $103 million in 2012, primarily as a result of an increase in fees from assigned risk plans.
Insurance-International - The loss ratio of 59.4% in 2013 was 0.3 points lower than the loss ratio of 59.7% in 2012. Catastrophe losses were $11 million in 2013 compared with $14 million in 2012, a decrease of 0.6 loss ratio points. Adverse prior year reserve development was $12 million in 2013 compared with none in 2012, a difference of 1.7 loss ratio points. The loss ratio excluding catastrophe losses and prior year reserve development decreased 1.4 points to 56.1% in 2013 from 57.5% in 2012.
Service expenses, which represent the costs associated with the fee-based businesses, increased 4% to $89 million. The increase was due to an increase in general and administrative expenses related to fee-based business.
Premiums. Gross premiums written were $5,780 million in 2012, an increase of 14% from $5,077 million in 2011. The growth was due to a combination of rate increases and increased exposures, including expansion into new geographic and product markets. Approximately 78.3% of policies expiring in 2012 were renewed, compared with a 80.1% renewal retention rate for policies expiring in 2011. The average rate (i.e., average premium adjusted for change in exposures) for policies that renewed in 2012 increased 6.4%. Audit premiums were $89 million in 2012 compared with $53 million in 2011.
Net premiums written were $4,899 million in 2012, an increase of 12% from $4,357 million in 2011. Ceded reinsurance premiums as a percentage of gross written premiums were 15% in 2012 and 14% in 2011. The increase in the percentage of business ceded was due to changes in the reinsurance terms and costs.
Net investment income increased 12% to $587 million in 2012 from $526 million in 2011. The increase in investment income was primarily due to an increase in income from energy and real estate funds (investment funds are reported on a one quarter lag). The average annualized yield for fixed maturity securities declined from 4.0% to 3.7% due to lower long-term reinvestment yields available in the market. Average invested assets, at cost (including cash and cash equivalents) were $14.5 billion in 2012 and $13.6 billion in 2011.
Insurance Service Fees. The Company is a servicing carrier of workers' compensation assigned risk plans for 20 states and provides insurance program management services to self-insureds, captives, governmental entities, risk retention groups, and insurance companies. Service fees were $103 million in 2012, up from $93 million in 2011, primarily as a result of an increase in fees from assigned risk plans.
Losses and Loss Expenses. Losses and loss expenses increased to $2,948 million in 2012 from $2,658 million in 2011. The consolidated loss ratio was 63.1% in 2012 and 63.9% in 2011. Catastrophe losses, net of reinsurance recoveries and reinstatement premiums, were $80 million in 2012 compared with $153 million in 2011, a decrease of 2.0 loss ratio points. Favorable prior year reserve development was $103 million in 2012 compared with $182 million in 2011, a difference of 2.2 loss ratio points. The loss ratio excluding catastrophe losses and prior year reserve development decreased 1.0 point to 63.6% in 2012 from 64.6% in 2011. A summary of loss ratios in 2012 compared with 2011 by business segment follows:
Insurance-Domestic - The loss ratio of 63.5% in 2012 was 1.4 points lower than the loss ratio of 64.9% in 2011. Catastrophe losses were $43 million in 2012 compared with $104 million in 2011, a decrease of 2.1 loss ratio points. Favorable prior year reserve development was $66 million in 2012 compared with $146 million in 2011, a difference of 2.7 loss ratio points. The loss ratio excluding catastrophe losses and prior year reserve development decreased 2.0 points to 64.2% in 2012 from 66.2% in 2011.
Reinsurance-Global - The loss ratio was 64.3% in 2012 and 2011. Catastrophe losses were $23 million in 2012 compared with $35 million in 2011, a decrease of 2.9 loss ratio points. Favorable prior year reserve development was $37 million in 2012 compared with $26 million in 2011, a difference of 1.0 loss ratio point. The loss ratio excluding catastrophe losses and prior year reserve development increased 3.9 points to 66.5% in 2012 from 62.6% in 2011.
Other Operating Costs and Expenses. Following is a summary of other operating costs and expenses:
Other costs and expenses were $128 million in 2012 compared with $115 million in 2011. Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans.
Loans Receivable. Loans receivable, which are carried at amortized cost, have an aggregate cost of $344 million and an aggregate fair value of $347 million at December 31, 2013. Amortized cost of these loans is net of a valuation allowance of $2 million as of December 31, 2013. The real estate loans earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through August 2025. These loans are secured by commercial real estate primarily located in Arizona, California, Hawaii, Illinois, New York and Texas. The commercial loans are with small business owners who have secured the related financing with the assets of the business. These loans generally earn interest on a fixed basis and have varying maturities not exceeding ten years.
Cash Flow. Cash flow provided from operating activities increased to $820 million in 2013 from $675 million in 2012. The increase in cash flow was due primarily to an increase in cash flow from underwriting activities (premiums collected less losses, loss expenses and underwriting expenses paid) partially offset by an increase in income taxes paid. and a decrease in investment income received. Paid losses as a percent of earned premiums were 55% in 2013 compared with 58.0% in 2012.
The Company's insurance subsidiaries' principal sources of cash are premiums, investment income, service fees and proceeds from sales and maturities of portfolio investments. The principal uses of cash are payments for claims, taxes, operating expenses and dividends. The Company expects its insurance subsidiaries to fund the payment of losses with cash received from premiums, investment income and fees. The Company generally has targeted an average duration for its investment portfolio that is within one year of the average duration of its liabilities so that portions of its investment portfolio mature throughout the claim cycle and are available for the payment of claims if necessary. In the event operating cash flow and proceeds from maturities and prepayments of fixed income securities are not sufficient to fund claim payments and other cash requirements, the remainder of the Company's cash and investments is available to pay claims and other obligations as they become due. The Company's investment portfolio is highly liquid, with approximately 80% invested in cash, cash equivalents and marketable fixed income securities as of December 31, 2013. If the sale of fixed maturity securities were to become necessary, a realized gain or loss equal to the difference between the cost and sales price of securities sold would be recognized.
The Company issued $350 million of 4.625% senior notes in March 2012 and repaid $200 million of 5.875% senior notes that matured in February 2013. In May 2013, the Company issued $350 million of 5.625% subordinated debentures due 2053 and prepaid $250 million of 6.75% subordinated debentures that were due in 2045.
Equity. The Company repurchased shares 3,924,355, 3,428,175 and 5,218,097 shares of its common stock in 2013, 2012 and 2011, respectively. The aggregate cost of the repurchases was $127 million in 2013, $128 million in 2012 and $157 million in 2011. At December 31, 2013, total common stockholders’ equity was $4.3 billion, common shares outstanding were 132,233,167, and stockholders’ equity per outstanding share was $32.79.
Total Capital. Total capitalization (equity, senior notes and other debt and junior subordinated debentures) was $6.4 billion at December 31, 2013. The percentage of the Company’s capital attributable to senior notes, junior subordinated debentures and other debt was 32% at December 31, 2013 and 33% at December 31, 2012.
Property reinsurance treaties - The Company purchases property reinsurance to reduce its exposure to large individual property losses and catastrophe events. Following is a summary of significant property reinsurance treaties in effect as of January 1, 2014: The Company’s property per risk reinsurance generally covers losses between $2 million and $50 million. The Company’s catastrophe excess of loss reinsurance program provides protection for net losses between $30 million and $205 million for the majority of primary business written by its U.S. companies. The Company has separate catastrophe excess of loss reinsurance for business written through Lloyd’s that provides protection for losses between $20 million and $95 million for events in North America. The Company does not generally purchase significant catastrophe reinsurance for its assumed reinsurance business. The Company’s catastrophe reinsurance agreements are subject to certain limits, exclusions and reinstatement premiums.
The following table presents the credit quality of amounts due from reinsurers as of December 31, 2013. Amounts due
Following is a summary of the Company's contractual obligations as of December 31, 2013:
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of W. R. Berkley Corporation and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), W. R. Berkley Corporation's internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2014 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
The consolidated financial statements, which include the accounts of W. R. Berkley Corporation and its subsidiaries (the "Company"), have been prepared on the basis of U.S. generally accepted accounting principles ("GAAP"). All significant intercompany transactions and balances have been eliminated. Reclassifications have been made in the 2012 and 2011 financial statements to conform to the presentation of the 2013 financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the revenues and expenses reflected during the reporting period. The most significant items on our balance sheet that involve a greater degree of accounting estimates that are subject to change in the future are the valuation of investments, other-than-temporary impairments, loss and loss adjustment expense reserves and premium estimates. Actual results could differ from those estimates.
Audit premiums are recognized when they are reliably determinable. The change in accruals for earned but unbilled audit premiums increased net premiums written and premiums earned by $12 million, $7 million and $1 million in 2013, 2012 and 2011, respectively.
Contracts that do not meet the risk transfer requirements of GAAP are accounted for using the deposit accounting method. Under this method, an asset or liability is recognized at the inception of the contract based on consideration paid or received. The amount of the deposit asset or liability is adjusted at subsequent reporting dates using the interest method with a corresponding credit or charge to interest income or expense. Deposit liabilities for assumed reinsurance contracts were $72 million and $75 million at December 31, 2013 and 2012, respectively.
The Company believes there are no tax positions that would require disclosure under GAAP. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or a portion of the deferred tax assets will not be realized.
In February 2013, the Financial Accounting Standards Board (FASB) issued guidance relating to disclosures about items reclassified out of accumulated other comprehensive income ("AOCI"). The Company’s adoption of the updated guidance effective January 1, 2013 resulted in a change in the disclosures for AOCI in the Company’s consolidated financial statements but did not have any impact on the Company’s results of operations, financial position or liquidity.
In January 2014, the FASB issued ASU 2014-01 relating to Accounting for Investments in Qualified Affordable Housing Projects. The guidance must be applied retrospectively for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted and can be applied retrospectively in reporting periods for which financial statements have not yet been issued. The Company is currently evaluating the impact of this guidance on the Company’s results of operations, financial position and liquidity, which is not expected to be material.
The following table summarizes the estimated fair value of net assets acquired and liabilities assumed at the date of acquisition:
At December 31, 2013 and 2012, there were no investments, other than investments in United States government and government agency securities, which exceeded 10% of common stockholders’ equity. At December 31, 2013, investments with a carrying value of $1,017 million were on deposit in custodial or trust accounts, of which $745 million was on deposit with state insurance departments, $211 million was on deposit in support of the Company’s underwriting activities at Lloyd’s, $48 million was on deposit as security for reinsurance clients and $13 million was on deposit as security for letters of credit issued in support of the Company’s reinsurance operations.
At December 31, 2013 and 2012, investments in equity securities available for sale were as follows:
Properties under development represent the following: an office building in London, a mixed-use project in Washington D.C. and an office complex in New York City. The Company expects to fund further development costs for these projects with a combination of its own funds and external financing.
The real estate loans are secured by commercial real estate primarily located in Arizona, California, Hawaii, Illinois, New York and Texas. These loans generally earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through August 2025. The commercial loans are with small business owners who have secured the related financing with the assets of the business. These loans generally earn interest on a fixed basis and have varying maturities not exceeding 10 years.
The Company utilizes an internal risk rating system to assign a risk to each of its real estate loans. The loan rating system takes into consideration credit quality indicators including loan to value ratios, which compare the outstanding loan amount to the estimated value of the property, the borrower’s financial condition and performance with respect to loan terms, the Company’s position in the capital structure, and the overall leverage in the capital structure. Based on this rating system, none of the real estate loans were considered to be impaired at December 31, 2013, and accordingly, the Company determined that a specific valuation allowance was not required.
Fixed Maturity Securities - A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at December 31, 2013 is presented in the table below:
Preferred Stocks - At December 31, 2013, there were three preferred stocks in an unrealized loss position, with an aggregate fair value of $33 million and a gross unrealized loss of $6 million. None of those preferred stocks are rated non-investment grade, and none are delinquent or in default. Management believes the unrealized losses are due primarily to market and sector related factors and does not consider these to be OTTI.
The Company’s fixed maturity, equity securities available for sale and its trading account securities are carried at fair value. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for similar assets in active markets. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs may only be used to measure fair value to the extent that observable inputs are not available.
The following tables summarize changes in Level 3 assets and liabilities for the years ended December 31, 2013 and 2012:
The decrease in estimates for claims occurring in prior years is net of loss reserve discount. On an undiscounted basis, the estimates for claims occurring in prior years decreased by $77,430,000, $100,667,000 and $182,937,000 in 2013, 2012 and 2011, respectively.
For certain retrospectively rated insurance polices and reinsurance agreements, reserve development is offset by additional or return premiums. Favorable reserve development, net of additional and return premiums, was $98 million, $103 million and $182 million in 2013, 2012 and 2011, respectively.
The Company’s net reserves for losses and loss adjustment expenses relating to asbestos and environmental claims were $36 million and $34 million at December 31, 2013 and 2012, respectively. The Company’s gross reserves for losses and loss adjustment expenses relating to asbestos and environmental claims were $59 million and $56 million at December 31, 2013 and 2012, respectively. Increases in net incurred losses and loss expenses for reported asbestos and environmental claims were approximately $5 million, $2 million and $1 million in 2013, 2012 and 2011, respectively. Net paid losses and loss expenses for asbestos and environmental claims were approximately $3 million in 2013, $2 million in 2012 and $3 million in 2011. The estimation of these liabilities is subject to significantly greater than normal variation and uncertainty because it is difficult to make an actuarial estimate of these liabilities due to the absence of a generally accepted actuarial methodology for these exposures and the potential effect of significant unresolved legal matters, including coverage issues, as well as the cost of litigating the legal issues. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties are highly uncertain.
Senior notes and other debt consist of the following as of December 31, 2013 (the difference between the face value and the carrying value is unamortized discount):
(1) Subsidiary debt is due as follows: $5 million in 2014, $40 million in 2015, $30 million in 2016 and $2 million thereafter.
Income before income taxes from domestic operations was $598 million, $624 million and $469 million for the years ended December 31, 2013, 2012 and 2011, respectively. Income before income taxes from foreign operations was $101 million, $78 million and $49 million for the years ended December 31, 2013, 2012 and 2011, respectively.
At December 31, 2013 and 2012, the tax effects of differences that give rise to significant portions of the deferred tax asset and deferred tax liability are as follows:
The Company had current tax receivables of $24,737,000 and a current tax payables of $22,546,000 at December 31, 2013 and 2012, respectively. at December 31, 2013, the Company had foreign net operating loss carryforwards of $870,000, which expire beginning in 2014. The Company had provided a valuation allowance against the unutilized foreign tax credits which were fully utilized in the 2010 federal tax return. The reduction in the valuation relates primarily to the full utilization of the foreign tax credit carryforward. At December 31, 2013 and 2012, the Company had no deferred tax assets for which a valuation allowance is required. The statute of limitations has closed for the Company’s tax returns through December 31, 2009.
Changes in shares of common stock outstanding, net of treasury shares, are presented below. Shares of common stock issued and outstanding do not include shares related to unissued restricted stock units and unexercised stock options.
At December 31, 2013, the Company had commitments to invest up to $249 million in certain investment funds.
The Company has not issued any stock options under its stock incentive plans since 2004. The following table summarizes stock option information:
Pursuant to the stock incentive plan, the Company may also issue restricted stock units (RSUs) to officers of the Company and its subsidiaries. The RSUs generally vest five years from the award date and are subject to other vesting and forfeiture provisions contained in the award agreement. The following table summarizes RSU information for the three years ended December 31, 2013:
The fair value of RSUs at the date of grant are recorded as unearned compensation, a component of stockholders’ equity, and expensed over the vesting period. Following is a summary of changes in unearned compensation for the three years ended December 31, 2013:
The Company has a Long-Term Incentive Compensation Plan (“LTIP”) that provides for incentive compensation to key executives based on the growth in the Company’s book value per share over a five year period. There are 211,250 units outstanding from the 2013 grant with a maximum value of $52.8 million, of which $7.4 million was earned by December 31, 2013. There are 183,100 units outstanding from the 2011 grant with a maximum value of $45.8 million, of which $19.7 million was earned by December 31, 2013. The 2008 grant, which earned $23.0 million during the five years ended December 31, 2012, was paid in 2013.
The Company has an unfunded noncontributory defined benefit plan that covers its chief executive officer and chairman of the board. The discount rate used to derive the projected benefit obligation and related retirement expense was 0% in 2013 and 3.39% in 2012. The discount rate assumption used to determine the benefit obligation is based on a yield curve approach. Under this approach, a weighted average yield is determined from a hypothetical portfolio of AA rated bonds. A summary of the change in benefit obligation, which is required to be distributed on or before March 28, 2015, is as follows:
Following is a summary of the amounts recognized in accumulated other comprehensive income as of December 31, 2013 and 2012:
During the first quarter of 2013, the Company changed the aggregation of its business segments. The Company’s reportable segments include the following three business segments, plus a corporate segment:
Reinsurance-Global - reinsurance business on a facultative and treaty basis, primarily in the United States, United Kingdom, Continental Europe, Australia, and the Asia-Pacific Region.
Net income per share (“EPS”) in each quarter is computed using the weighted-average number of shares outstanding during that quarter, while EPS for the full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters EPS does not necessarily equal the full-year EPS.