For the quarter ended December 31, 2015, net income attributable to Stewart was $2.6 million, or $0.11 per diluted share, compared to net income attributable to Stewart of $11.9 million, or $0.49 per diluted share, for the same period in 2014. Pretax income for the fourth quarter 2015 was $3.1 million, compared to pretax income of $16.0 million for the same period in 2014.
Non-operating realized losses of $2.7 million recorded in the corporate segment, and
Non-operating net realized gains of $5.2 million recorded in the corporate and mortgage services segments, and
Our title segment revenues for the fourth quarter 2015 were $453.3 million, an increase of about 1.0% from the fourth quarter 2014 and a decrease of 9.8% from the third quarter 2015. In the fourth quarter 2015, the title segment generated pretax income of $54.9 million (12.1% margin), compared to the fourth quarter 2014 pretax income of $45.6 million (10.2% margin). The fourth quarter 2015 results included $1.8 million of severance and asset impairment charges, while the fourth quarter 2014 results included the $3.5 million litigation-related accruals mentioned above. Following the seasonal pattern, fourth quarter 2015 pretax income decreased sequentially from $77.9 million (15.5% margin) in the third quarter 2015.
The mortgage services segment reported a pretax loss of $12.5 million in the fourth quarter 2015 compared to pretax income of $7.4 million in the fourth quarter 2014 and a pretax loss of $43.4 million in the third quarter 2015 (which included a goodwill impairment charge of $35.0 million). Fourth quarter 2015 results for the segment include the additional $0.7 million goodwill impairment charge and $3.0 million of other non-operating charges, primarily relating to exiting the delinquent loan servicing operations, while fourth quarter 2014 results included $6.2 million of net realized gains, partially offset by $0.6 million of aggregate charges relating to integration of acquisitions and the cost management program. These items represent approximately $9.3 million of the $19.9 million overall decline in pretax income relative to the prior year quarter, with the remainder of the decline due to decreased revenues.
Our most critical accounting estimate is providing for title loss reserves.
Provisions for title losses, as a percentage of title operating revenues, were 5.6%, 4.7% and 5.9% for the years ended December 31, 2015, 2014 and 2013, respectively. We recorded an increase related to large claims of $22.1 million in 2015 as compared with an $8.0 million decrease in 2014, which included a policy loss reserve reduction in third quarter 2014 relating to a partial recovery on a large claim recorded in prior years. Actual loss payment experience, including the impact of large losses, is the primary reason for increases or decreases in our loss provision. A change of 100 basis points in the loss provisioning percentage, a reasonably likely scenario based on our historical loss experience, would have increased or decreased our provision for title losses and pretax operating results approximately $18.9 million for the year ended December 31, 2015.
Known claims provisions increased for the year ended December 31, 2015 to $95.1 million from $66.7 million in 2014, primarily as a result of adjustments to existing claims on policies issued in previous years. Additionally, the provision in 2014 included a large reduction related to a partial recovery for a large claim originally provided for in years prior to 2014. Current year provisions - IBNR are recorded on policies issued in the current year as a percentage of premiums realized (provisioning rate). For the year ended December 31, 2015, current year provisions - IBNR increased $7.8 million to $54.0 million compared to 2014. As a percentage of title operating revenues, provisions - IBNR for the current policy year increased from 2.7% in 2014 to 2.9% in 2015 due to an increase in the provisions for large claims beginning in the second quarter 2015. Provisions - IBNR relating to prior policy years increased due to the adverse development relating to certain older policy years with higher than normal claims.
In addition to title policy claims, we incur losses in our direct operations from escrow, closing and disbursement functions. These escrow losses typically relate to errors or other miscalculations of amounts to be paid at closing, including timing or amount of a mortgage payoff, payment of property or other taxes and payment of homeowners’ association fees. Escrow losses also arise in cases of mortgage fraud, and in those cases the title insurer incurs the loss under its obligation to ensure that an unencumbered title is conveyed. Escrow losses are recognized as expense when discovered and are typically paid less than 12 months after the loss is discovered. For the years ended December 31, 2015 and 2014, we accrued approximately $1.0 million and $4.5 million, respectively, for policy loss reserves relating to legacy escrow losses arising principally from mortgage fraud.
Our accruals for revenues on unreported policies from agencies were not material to our consolidated assets or stockholders’ equity as of December 31, 2015 and 2014. The differences between the amounts our agencies have subsequently reported to us compared to our estimated accruals are substantially offset by any differences arising from prior years’ accruals and have been immaterial to consolidated assets and stockholders’ equity during each of the three prior years. We believe our process provides the most reliable estimate of the unreported revenues on policies and appropriately reflects the trends in agency policy activity.
Goodwill is not amortized, but is reviewed annually, normally completed in the third quarter using June 30 balances, or whenever occurrences of events indicate a potential impairment at the reporting unit level. We have an option to assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we decide not to use a qualitative assessment or if the reporting unit fails the qualitative assessment, then we perform a two-step quantitative analysis.
The step one analysis is performed, using a combination of the income approach (discounted cash flow (DCF) technique) and the market approach (guideline company and precedent transaction analyses), to determine if the carrying value of the goodwill exceeds its fair value, which would indicate a potential impairment. The DCF model utilizes historical and projected operating results and cash flows, initially driven by estimates of changes in future revenue levels, and risk-adjusted discount rates. Our projected operating results are primarily driven by anticipated mortgage originations, which we obtain from projections by industry experts, for our title reporting units and forecasted contractual revenues for our mortgage services reporting unit. Fluctuations in revenues, followed by our ability to appropriately adjust our employee count and other operating expenses, or large and unanticipated adjustments to title loss reserves, are the primary reasons for increases or decreases in our projected operating results. Our market-based valuation methodologies utilize (i) market multiples of earnings and/or other operating metrics of comparable companies and (ii) our market capitalization and a control premium based on market data and factors specific to our ownership and corporate governance structure (such as our Class B Common Stock). If we determine that the carrying value of the reporting unit's goodwill is greater than its fair value, we then perform the step two analysis to determine the implied fair value of the goodwill and calculate the amount of impairment.
Industry data. Published mortgage interest rates and other selected residential housing data for the years ended December 31, 2015, 2014 and 2013 follow (amounts shown for 2015 are preliminary and subject to revision). The amounts below may not relate directly to or provide accurate data for forecasting our operating revenues or order counts.
The real estate market remained strong in 2015 and mortgage rates remain low, although Fannie Mae is forecasting the 30-year rate to increase to around 4.2% by the end of 2016. Further, Fannie Mae expects total home sales to grow moderately by about 4.0% in 2016. It is expected the rising share of new home sales will lead to a healthy increase in single-family construction of about 17.0%, or 827,000 units.
Order counts. The following open and closed order information for 2015 and 2014 is based on more detailed reporting information that became available beginning in the fourth quarter 2014. Due to system constraints, we are unable to provide comparable data for 2013. The new reporting is more comprehensive than in prior quarters, as it now includes orders through our centralized title operations.
Title revenues. Revenues from direct title operations increased $88.8 million, or 11.0%, and $44.7 million, or 5.9%, in 2015 and 2014, respectively. Revenues in 2015 increased primarily due to higher refinancing and residential resale closed orders, driven by the rise in new and existing home sales, and contribution from our centralized title operations acquired in mid-2014. Revenues in 2014 increased relative to 2013 primarily due to our 2014 acquisitions and a continued shift in mix to more residential resale and commercial orders, partially offset by a decline in refinance transaction volume. International revenues (including foreign-sourced commercial revenues of $19.8 million and $25.4 million for 2015 and 2014, respectively) decreased $10.6 million, or 9.1%, in 2015 compared to 2014 and increased $3.8 million, or 3.4%, in 2014 compared to 2013. International revenues in 2015 grew on a local currency basis, however, the strengthening of the U.S. dollar, primarily against the Canadian dollar and British pound, was the principal cause of the reported net revenues decline. Total commercial revenues increased $15.8 million, or 9.3%, and $18.4 million, or 13.4%, in 2015 compared to 2014 and in 2014 compared to 2013, respectively. While year-to-year results for commercial business can fluctuate considerably due to timing of when large transactions close, our commercial operation continued to improve its position in the marketplace.
During 2014, we completed acquisitions of three companies that provide collateral valuation, settlement services, title and closing services and loan quality control and due diligence services. These acquisitions expanded our offerings to mortgage lenders and are meeting our expectations. However, as announced in July 2015, we are exiting the delinquent loan servicing activities within our mortgage services segment. We anticipate the orderly wind-down and final exit of these operations will occur by the end of first quarter 2016. We will continue to operate the business in a phased exit process until then. These activities were profitable in 2014, but became less so in the first half of 2015 and turned unprofitable in the second half of 2015, contributing significantly to the segment’s operating losses. We expect the wind-down of these activities to continue to negatively impact the segment's revenues and profitability in the first quarter 2016. We believe this decision, while significant to historic segment revenues, will focus our capital and resources on our business units that have the strongest future for ongoing, stable growth, including centralized title, loan origination and capital markets offerings.
In 2015, investment and other (losses) gains - net included realized losses of $2.7 million relating to other-than-temporary impairment of investments in equity securities available-for-sale, a $1.8 million impairment of other intangible assets and $1.4 million relating to office closure costs, partially offset by realized gains of $2.4 million from the sale of debt and equity investments available-for-sale and $1.5 million from the sale of office buildings.
Selected cost ratios (by segment). The following table shows employee costs and other operating expenses as a percentage of related title insurance and mortgage services operating revenues.
In 2015, total employee count decreased by approximately 490 employees, or 6.4%. This decrease was mainly the result of our previously announced cost management program as well as reduction in force tied to volume declines, primarily in mortgage services. Mortgage services' employee count decreased by about 190 employees in 2015 as we continued to wind down our delinquent loan servicing activities. We also reduced headcount in the corporate and title segments by approximately 270 and 30 employees, respectively, in relation to our cost management program which we completed in 2015.
In 2013, total employee count increased by approximately 350, or 5.6%, as a result of increased business activity and acquisitions.
Other operating expenses. Other operating expenses include costs that are fixed in nature, costs that follow, to varying degrees, changes in transaction volumes and revenues and costs that fluctuate independently of revenues. Costs that are fixed in nature include attorney and professional fees, third-party outsourcing provider fees, equipment rental, insurance, rent and other occupancy expenses, repairs and maintenance, technology costs, telephone and title plant expenses. Costs that follow, to varying degrees, changes in transaction volumes and revenues include fee attorney splits, bad debt expenses, certain mortgage services expenses, copy supplies, delivery fees, outside search fees, postage, premium taxes and title plant maintenance expenses. Costs that fluctuate independently of revenues include general supplies, litigation defense, business promotion and marketing and travel.
Other operating expenses for the combined business segments increased $34.7 million, or 10.0%, and $67.0 million, or 23.9%, in 2015 and 2014, respectively. As a percentage of total operating revenues, other operating costs were 18.9%, 18.8% and 14.6% in 2015, 2014 and 2013, respectively. In 2015, other operating expenses included approximately $6.0 million for litigation-related accruals and $19.5 million of aggregate costs related to our cost management program (consisting of consulting and third party service provider transition costs), costs associated with a shareholder settlement announced in the first quarter 2015, and CFPB integrated disclosure preparations. In 2014, other operating expenses included an aggregate of $18.3 million for litigation-related accruals and approximately $11.6 million related to costs incurred for acquisition integration, the cost management program and a shareholder settlement announced in the first quarter 2014. Excluding the impact of these non-operating charges, other operating expenses as a percentage of total operating revenues would have been 17.7% and 17.2% in 2015 and 2014, respectively.
In 2015, excluding the costs listed above, costs fixed in nature increased $10.1 million, or 7.4%, primarily due to $10.8 million of additional professional and consulting fees and third-party outsourcing provider fees. Costs that follow, to varying degrees, changes in transaction volumes and revenues increased $29.6 million, or 23.3%, mainly due to increases in mortgage services expenses resulting from increased mortgage service revenues during the first through third quarters of 2015 and fee attorney splits driven by increased title revenues. Excluding the non-operating litigation-related costs, costs that fluctuate independently of revenues in 2015 were comparable to 2014.
For the year ended December 31, 2015, we recorded $22.1 million of increases to existing large losses relating to prior policy years, partially offset by a $17.5 million policy loss reserve reduction relating to non-large policy losses as a result of favorable loss development experience. For the year ended December 31, 2015, title losses increased $25.0 million, or 30.7%, when compared to the same period in 2014.
For the year ended December 31, 2014, we recorded a reduction of $14.8 million to our policy loss provision due to a bond claim which resulted in a partial recovery on a large claim recorded in the prior years. We also recorded a reduction of $6.5 million during 2014 relating to non-large incurred losses. In 2014, title losses decreased $25.0 million, or 23.5%, when compared to the same period in 2013.
Excluding the impact of the reserve reductions and large losses (net of recoveries), title losses as a percent of title operating revenues were 5.4%, 5.6% and 6.0% in 2015, 2014 and 2013, respectively. Cash claim payments in 2015 increased 42.6%, mainly due to a $22.5 million payment for a large, previously reserved, claim, as compared with the 25.1% decrease in cash claim payments in 2014, primarily due to the partial recovery of $14.8 million for the large claim described above.
Our liability for estimated title losses as of December 31, 2015 and 2014 comprises both known claims and our estimate of claims that may be reported in the future (IBNR). Known claims reserves are reserves related to actual losses reported to us. Our reserve for known claims comprises both claims related to title insurance policies as well as losses arising from escrow, closing and funding operations due to fraud or error (which are recognized as expense when discovered). The amount of the reserve represents the aggregate, non-discounted future payments (net of recoveries) that we expect to incur on policy and escrow losses and in costs to settle claims.
Depreciation and amortization. Depreciation and amortization expense increased $6.1 million, or 25.1%, in 2015 compared to 2014. The increase in 2015 was driven by $1.5 million of accelerated amortization of assets used in the delinquent loan servicing activities that we are exiting. In addition, approximately $2.7 million of amortization expense relating to 2014 acquired intangible assets of the mortgage services segment and $1.5 million of amortization expense relating to an underwriter production system placed into service in July 2014 contributed to the increase during 2015.
During 2014 and 2013, we released $5.0 million and $6.6 million, respectively, of our deferred tax assets valuation allowance relating to foreign tax credit carryforwards. As of December 31, 2015, our remaining valuation allowance relating principally to certain state and foreign net operating loss carryforwards was $2.2 million. The Company believes it is more-likely-than-not it will be able to utilize its net deferred tax assets.
Material contractual obligations consist primarily of amounts drawn on our line of credit facility which expires October 2019, other notes payable, operating leases and estimated title losses. The timing above for payments of notes payable is based upon contractually stated payment terms of each debt agreement. Operating leases are primarily for office space and expire over the next ten years. The timing shown above for the payments of estimated title losses is not set by contract. Rather, it is projected based on historical payment patterns. The actual timing of estimated title loss payments may vary materially from the above projection since claims, by their nature, are complex and paid over long periods of time. Title losses paid were $123.6 million, $86.7 million and $115.7 million in 2015, 2014 and 2013, respectively
Our liquidity and capital resources reflect our ability to generate cash flow to meet our obligations to shareholders, customers (payments to satisfy claims on title policies), vendors, employees, lenders and others. As of December 31, 2015, our cash and investments, including amounts reserved pursuant to statutory requirements, aggregated $798.6 million ($298.1 million net of statutory reserves). Of our total cash and investments at December 31, 2015, $601.0 million was held in the United States and the rest internationally, principally in Canada.
Cash held at the parent company totaled $0.8 million at December 31, 2015. As a holding company, the parent company is funded principally by cash from its subsidiaries in the form of dividends, operating and other administrative expense reimbursements, and pursuant to intercompany tax sharing agreements. The expense reimbursements are paid in accordance with management agreements, approved by the Texas Department of Insurance (TDI), among the parent company, the underwriter and its subsidiaries. In addition to funding operating expenses, cash held at the parent company is used for dividend payments to common shareholders and our stock repurchase program. To the extent such uses exceed cash available, the parent company is dependent on distributions from its regulated title insurance underwriter, Stewart Title Guaranty Company (Guaranty).
A substantial majority of our consolidated cash and investments as of December 31, 2015 was held by Guaranty and its subsidiaries. The use and investment of these funds, dividends to the parent company, and cash transfers between Guaranty and its subsidiaries and the parent company are subject to certain legal and regulatory restrictions. In general, Guaranty may use its cash and investments in excess of its legally-mandated statutory premium reserve (established in accordance with requirements under Texas law) to fund its insurance operations, including claims payments. Guaranty may also, subject to certain limitations, provide funds to its subsidiaries (whose operations consist principally of field title offices and entities comprising the mortgage services segment) for their operating and debt service needs.
All of our international operations are conducted by Guaranty or its subsidiaries. Cash and investments held by our international operations are also subject to regulatory minimums, and thus the distribution of those funds to Guaranty is limited.
We maintain investments in accordance with certain statutory requirements in the states of domicile of our underwriters for the funding of statutory premium reserves. Statutory premium reserves, which approximated $483.3 million and $438.5 million at December 31, 2015 and 2014, respectively, are required to be fully funded and invested in high-quality securities and short-term investments. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $17.2 million and $57.4 million at December 31, 2015 and 2014, respectively. These cash statutory reserve funds are not restricted or segregated in depository accounts. If the Company fails to maintain minimum investments or cash and cash equivalents to meet statutory requirements, the Company may be subject to fines or other penalties, including potential revocation of its business license. As of December 31, 2015, our known claims reserve totaled $83.2 million and our statutory estimate of claims that may be reported in the future totaled $379.4 million. In addition to this, we had cash and investments (excluding equity method investments) of $160.2 million which are available for underwriter operations, including claims payments.
During the second and third quarters of 2015, the Board of Directors declared quarterly cash dividends of $0.25 per share to Common stockholders. On November 16, 2015, the Board of Directors announced a 20% increase, to $1.20 per share, in the Company's annual cash dividend payable to Common stockholders and declared a quarterly dividend of $0.30 per share which was paid in December 2015. During 2014, the Board of Directors declared an annual cash dividend of $0.10 per Common share. Total dividends paid in 2015 and 2014 were approximately $18.0 million and $2.3 million, respectively.
In 2013, net unrealized investment losses of $8.9 million, which increased our other comprehensive loss, were primarily related to temporary decreases in fair values of corporate, municipal and government bond investments, partially offset by increases in fair values of equity securities and deferred taxes. Changes in foreign currency exchange rates, primarily related to our Canadian operations, increased other comprehensive loss by $6.8 million, net of taxes, in 2013.