We lease office space in Bermuda, where our principal executive offices are located. Argo Group US, Inc. leases office space in San Antonio, Texas, for its U.S. headquarters, Commercial Specialty segment and for certain support functions. We also lease space in the following locations:
The following discussion should be read in conjunction with the consolidated financial statements and related notes beginning on page. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward looking statements as a result of various factors described in this report.
For the year ended December 31, 2016, we reported net income of $146.7 million, or $4.75 per fully diluted share. For the year ended December 31, 2015, we reported net income of $163.2 million, or $5.20 per fully diluted share. For the year ended December 31, 2014, we reported net income of $183.2 million, or $5.70 per fully diluted share.
Consolidated net realized investment and other gains for the year ended December 31, 2016 consisted of $62.0 million in realized gains primarily from the sale of equity and fixed maturity securities. Partially offsetting these realized gains was $25.7 million of realized foreign currency exchange losses, primarily from our fixed maturity portfolio. Additionally, for the year ended December 31, 2016, we recognized a $10.2 million other-than-temporary impairment loss within our equity and fixed maturity portfolios. Consolidated net realized investment and other gains for the year ended December 31, 2015 consisted of $38.9 million in realized gains from the sale of equity and fixed maturity securities. Partially offsetting these realized gains was $3.1 million of realized foreign currency exchange losses, primarily from our fixed maturity portfolio. For the year ended December 31, 2015, we recognized an $11.9 million other-than-temporary impairment loss within our equity and fixed maturity portfolios. Consolidated net realized investment and other gains for the year ended December 31, 2014 consisted of $34.3 million in realized gains from the sale of equity and fixed maturity securities and a $43.3 million gain from the sale of an investment property. Partially offsetting these realized gains was a
Consolidated losses and loss adjustment expenses were $810.1 million, $766.1 million and $747.4 million for the years ended December 31, 2016, 2015 and 2014, respectively. The increase in the consolidated loss ratio for the year ended December 31, 2016 as compared to the same period ended 2015 was attributable to increased catastrophe losses. The consolidated loss ratios were comparable for the years ended December 31, 2015 and 2014 primarily due to improved current accident year losses in 2015, partially offset by increased catastrophe losses and reduced net favorable reserve development on prior accident years.
Included in losses and loss adjustment expenses for 2016 were $63.9 million in catastrophe losses resulting from storm activity in the United States, including Hurricane Matthew and the Louisiana floods, the Alberta wildfires and the Taiwan and New Zealand earthquakes. Partially offsetting these current accident year losses was $33.3 million of net favorable development on prior accident year loss reserves, which is presented in the table below.
The following table summarizes the above referenced loss reserve development as respects prior year loss reserves by line of business for the year ended December 31, 2016:
In determining appropriate reserve levels for the year ended December 31, 2016, we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates. No significant changes in methodologies were made to estimate the reserves since the last reporting date; however, at each reporting date we reassess the actuarial estimate of the reserve for loss and loss adjustment expenses and record our best estimate. Consistent with prior reserve valuations, as claims data becomes more mature for prior accident years, actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data. While prior accident years’ net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years, this does not imply that more recent accident years’ reserves also will develop favorably; pricing, reinsurance costs, legal environment, general economic conditions including changes in inflation and many other factors impact our ultimate loss estimates.
Consolidated gross reserves for loss and loss adjustment expenses were $3,350.8 million (including $156.1 million of reserves attributable to Syndicate 1200’s trade capital providers), $3,123.6 million (including $102.3 million of reserves attributable to Syndicate 1200’s trade capital providers), and $3,042.4 million (including $80.3 million of reserves attributable to the trade capital providers) as of December 31, 2016, 2015 and 2014, respectively. Management has recorded its best estimate of loss reserves at each
Consolidated underwriting, acquisition and insurance expenses were $547.0 million, $536.7 million and $537.0 million for the years ended December 31, 2016, 2015 and 2014, respectively. The decline in the expense ratio for 2016 as compared to 2015 was primarily attributable to increased ceding commissions received, reduced contingent commissions payable and lower equity stock compensation expenses, partially offset by increased premium taxes and assessment expenses. The decline in the consolidated expense ratio for 2015 as compared to 2014 was due to lower acquisition cost primarily attributable to lower premium taxes, fees and assessments coupled with increased ceding commissions received. Non-acquisition cost increased due to higher compensation and information technology costs, partially offset by lower outside services expense.
Consolidated interest expense was $19.6 million, $19.0 million and $19.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. The increase in consolidated interest expense in 2016 as compared to 2015 was the result of slightly higher interest rates on our variable rate debt instruments. The decline in consolidated interest expense in 2015 as compared to 2014 was the result of slightly reduced interest rates on our variable rate debt instruments.
Consolidated foreign currency exchange gains were $4.5 million $18.3 million and $7.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. The changes in the foreign currency exchange gains were due to fluctuations of the U.S Dollar, on a weighted average basis, against the currencies in which we transact our business.
The consolidated provisions for income taxes were $35.2 million, $14.3 million and $32.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. The consolidated income tax provision represents the income tax expense associated with our operations based on the tax laws of the jurisdictions in which we operate. Therefore, the consolidated provision for income taxes represents taxes on net income for our United States, Ireland, Belgium, Brazil, Switzerland and United Kingdom operations. The consolidated effective tax rates were 19.4%, 8.1% and 15.2% for the years ended December 31, 2016, 2015 and 2014, respectively. The increase in the effective tax rate for the year ended December 31, 2016 as compared to the same period ended 2015 was primarily attributable to an increase in pretax income in the United States. Pretax income for our United States operations increased to $115.2 million for the year ended December 31, 2016 from $64.8 million for the same period ended 2015. The decline in the consolidated effective tax rate for the year ended December 31, 2015 as compared to 2014 was primarily attributable to reduced taxable pretax income in the United States while permanent tax differences remained consistent. Pretax income was higher in 2014, due to the recognition in 2014 of a $43.3 million realized gain from the sale of property. Additionally, our United Kingdom operations reported a tax benefit for 2015, primarily due to the effects of foreign currency exchange rates.
Included in losses and loss adjustment expense for the year ended December 31, 2016 was $11.6 million in catastrophe losses consisting of $5.5 million from various storm activity in the United States, $4.2 million from the Louisiana floods and $1.9 million from Hurricane Matthew. Partially offsetting the catastrophe losses was $13.2 million of net favorable loss reserve development on prior accident years primarily attributable to $8.2 million of favorable development in our commercial automobile lines and $4.0 million of favorable development in our property lines.
Included in losses and loss adjustment expense for the year ended December 31, 2015 was $5.5 million in catastrophe losses from storm activity in the United States. Offsetting these current accident year losses was $25.5 million of net favorable loss reserve development on prior accident years primarily due to $23.5 million of favorable development in the general and products liability lines and $5.2 million in our commercial automobile lines. Partially offsetting this net favorable development was $3.6 million of unfavorable development in the property lines.
Included in losses and loss adjustment expense for the year ended December 31, 2014 was $2.3 million in catastrophe losses from storm activity in the United States. Offsetting the catastrophe losses was $38.9 million of net favorable loss reserve development on prior accident years primarily due to $54.7 million of favorable development in the general and products liability lines of business. Partially offsetting this net favorable development was $12.5 million of unfavorable development in commercial automobile lines and $3.3 million in the property lines.
The decline in the loss ratio for the year ended December 31, 2016 as compared to the same period in 2015 was primarily attributable to increased net favorable loss reserve development on prior accident years coupled with reduced catastrophe losses. The decline in the loss ratio for the year ended December 31, 2015 as compared to the same period in 2014 was primarily attributable to improved current accident year results.
The increase in the expense ratio for the year ended December 31, 2016 as compared to the same period ended 2015 was primarily attributable to a $13.9 million favorable adjustment to the premium taxes and assessments accrual recorded in 2015. Partially offsetting the increased premium taxes and assessments was increased fronting fees received and an increase of claims related
expenses reclassified to unallocated loss adjustment expenses. The decline in the expense ratio for the year ended December 31, 2015 as compared to the same period ended 2014 was primarily attributable to the favorable change in estimate of the premium taxes and assessments accrual.
Fee and other income increased for the year ended December 31, 2016 as compared to the same period ended 2015 due to the recognition of a $1.7 million gain on the sale of certain business units. The decline in fee and other expenses was primarily attributable to certain programs that were previously non-risk bearing converting to risk bearing programs.
As a result of our annual evaluation of goodwill and other intangible assets, we determined that the goodwill and intangible asset which resulted from a 2010 acquisition were impaired and therefore, we wrote-off $3.4 million during the fourth quarter of 2014.
The increase in the loss ratio for the year ended December 31, 2016 as compared to the same period in 2015 was primarily attributable to increased catastrophe losses partially offset by increased net favorable loss reserve development on prior accident years. The decline in the loss ratio for the year ended December 31, 2015 as compared to the same period in 2014 was primarily attributable to increased net favorable loss reserve development on prior accident years partially offset by a slight increase in catastrophe losses.
Losses and loss adjustment expenses for the year ended December 31, 2016 included $19.6 million in catastrophe losses including $11.2 million from the Alberta wildfires, $3.5 million from the Taiwan and New Zealand earthquakes, $2.8 million from various storm activity and $2.1 million from Hurricane Matthew. Partially offsetting these catastrophe losses was $11.0 million of net favorable loss reserve development on prior accident years primarily attributable to $8.8 million of favorable development on the property reinsurance lines and $2.1 million of favorable development for our Brazil unit.
Losses and loss adjustment expenses for the year ended December 31, 2015 included $9.2 million in catastrophe losses resulting from the Tianjin explosion and various storms. Partially offsetting the catastrophe losses was $7.7 million of net favorable loss reserve development on prior accident years primarily attributable to $5.7 million of favorable development on the casualty and professional lines and $2.4 million of favorable development on the property reinsurance lines.
The decline in the expense ratio for the year ended December 31, 2016 was primarily attributable to decreased commission expense, an increase of claims related expenses transferred to unallocated loss adjustment expenses, lower contingent commissions payable and lower assessments payable. The decline in the expense ratio for the year ended December 31, 2015 was primarily due to increased ceding commission received on our professional lines and casualty business, coupled with reduced fixed costs for our Brazil unit.
For 2016, we reduced our participation percentage on the Syndicate to 62%, down from 68% for 2015 and 75% for 2014. The balance of the capital supporting the Syndicate is made up primarily by trade and other capital providers. The increase in gross written premiums for the year ended December 31, 2016 as compared to the same period in 2015 was primarily attributable to increases in the property, marine and energy and specialty lines divisions due to a change in business mix within these lines, focusing on lines which result in profitable growth. Partially offsetting the increased gross written premiums within these divisions were declines in the liability lines and aerospace divisions due to reduced profitability over the past years. The increase in gross written premiums for the year ended December 31, 2015 as compared to the same period in 2014 was primarily attributable to increases in all divisions, excluding marine and energy, as we continued to establish new products, entered the Asian market and expanded profitable lines. The Syndicate 1200 segment has been adversely impacted by increased competition beginning in 2014 and continuing into 2015 and 2016. The decline in earned premiums for the year ended December 31, 2016 as compared to the same periods ended 2015 and 2014 was primarily due to the reduction in our participation percentage, partially offset by a reduction in our ceding percentages
The increase in the loss ratio for the year ended December 31, 2016 as compared to the same period in 2015 was primarily attributable to increased catastrophe losses combined with reduced net favorable loss reserve development on prior accident years. The increase in the loss ratio for the year ended December 31, 2015 as compared to the same period in 2014 was primarily attributable to reduced net favorable loss reserve development on prior accident years partially offset by current accident year results.
Losses and loss adjustment expenses are reported net of losses ceded to the trade capital providers. Included in losses and loss adjustment expenses for the year ended December 31, 2016 was $30.1 million of catastrophe losses including $12.0 million for Hurricane Matthew, $9.0 million for other storm activity in the United States and $8.1 million for the Louisiana floods. Partially offsetting the catastrophe losses was $5.0 million in net favorable loss reserve development on prior accident years primarily attributable to $4.8 favorable development in the marine and energy lines, $3.3 million favorable development in the general liability lines and $1.6 million favorable development in the property lines. Partially offsetting this favorable development was $5.0 million of unfavorable development in the specialty lines, primarily in the accident and health and political risk lines.
The decline in the expense ratio for the year ended December 31, 2016 as compared to the same period in 2015 was primarily attributable to reduced compensation related expenses partially offset by increased acquisition costs resulting from higher broker expenses due to the current competitive market. The increase in the expense ratio for the year ended December 31, 2015 as compared to the same period in 2014 was primarily attributable to increased acquisition costs resulting from higher broker expenses due to the current competitive market.
Fee and other income represents fees and profit commission derived from the management of third party capital for our underwriting syndicate at Lloyd’s. Fee and other income is comparable for the three years. Fee and other expenses have declined due to reduced profit commissions payable to the third party capital providers due to reduced profitability.
Cash provided by (used in) operating activities can fluctuate due to timing difference in the collection of premiums and reinsurance recoveries and the payment of losses and expenses. For the years ended December 31, 2016, 2015 and 2014, cash provided by operating activities was $181.4 million, $282.6 million and $130.5 million, respectively. The decrease in cash flows provided by operating activities in 2016 compared to 2015 was driven by the timing of reinsurance recoveries and premium cash receipts in the respective periods. The increase in cash flows provided by operating activities in 2015 compared to 2014 was driven by the timing of reinsurance payments primarily concentrated in the Syndicate 1200 segment, partially offset by the first quarter 2014 partial settlement of a whole account quota share contract covering the Syndicate 1200 segment loss reserves for the 2009 and prior years of account.
Argo Group and its other holding company subsidiaries are largely dependent on dividends and other permitted payments from their insurance and reinsurance subsidiaries to pay cash dividends to their shareholders, for debt service and for their operating expenses. The ability of our insurance and reinsurance subsidiaries to pay dividends to us is subject to certain restrictions imposed by the jurisdictions of domicile that regulate our immediate insurance and reinsurance subsidiaries and each jurisdiction has calculations for the amount of dividends that an insurance and reinsurance company can pay without the approval of the insurance regulator.
The payment of dividends by Argo Re is limited under Bermuda insurance laws which require Argo Re to maintain certain measures of solvency and liquidity. As of December 31, 2016, the unaudited statutory capital and surplus of Argo Re was estimated to be $1,510.8 million and the amount required to be maintained was estimated to be $362.1 million, thereby allowing Argo Re the potential to pay dividends or capital distributions within the parameters of the solvency and liquidity margins. We believe that the dividend and capital distribution capacity of Argo Re will provide us with sufficient liquidity to meet the operating and debt service commitments, as well as other obligations.
On March 7, 2014, each of Argo Group, Argo Group US, Inc., Argo International Holdings Limited, and Argo Underwriting Agency Limited (the “Borrowers”) entered into a $175 million credit agreement (“Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent. The Credit Agreement provides for a $175.0 million revolving credit facility with a maturity date of March 7, 2018 unless extended in accordance with the terms of the Credit Agreement. Borrowings under the Credit Agreement may be used for general corporate purposes, including working capital and permitted acquisitions, and each of the Borrowers has agreed to be jointly and severally liable for the obligations of the other Borrowers under the Credit Agreement.
Under certain insurance programs (i.e., large deductible programs and surety bonds) and various reinsurance agreements, collateral and LOCs are held for our benefit to secure performance of insureds and reinsurers in meeting their obligations. At December 31, 2016, the amount of such collateral and LOCs held under insurance and reinsurance agreements were $839.7 million and $492.6 million, respectively. Collateral can be provided in the form of trust accounts. As we are the beneficiary of these trust accounts only to secure future performance, these amounts are not reflected in our Consolidated Balance Sheets. Collateral provided by an insured or reinsurer may exceed or fall below their total outstanding obligation.
A summary of our outstanding junior subordinated debentures at December 31, 2016 is presented below:
Throughout 2016, 2015 and 2014, we had no preferred shares outstanding.
On May 3, 2016, our Board authorized the repurchase of up to $150.0 million of our common shares (“2016 Repurchase Authorization”). The 2016 Repurchase Authorization supersedes all the previous repurchase authorizations. As of December 31, 2016, availability under the 2016 Repurchase Authorization for future repurchases of our common shares was $130.3 million.
We invest excess cash in a variety of investment securities. As of December 31, 2016, our investment portfolio consisted of 67.8% fixed maturities, 10.3% equity securities, 12.5% other investments and 9.4% short-term investments (based on fair value) compared to 71.1% fixed maturities, 11.3% equity securities, 12.5% other investments and 5.1% short-term investments as of December 31, 2015. We classify the majority of our investment portfolio as available-for-sale; resulting in these investments being reported at fair market value with unrealized gains and losses, net of tax, being reported as a component of shareholders’ equity. At December 31, 2016, no investments were designated as trading. No issuer (excluding United States Government and United States Governmental agencies) of fixed maturity or equity securities represents more than 4.7% of shareholders’ equity at December 31, 2016.
Our insurance and reinsurance subsidiaries require liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and fund operating expenses. During the year ended December 31, 2016, cash flow provided by operations was $181.4 million. Based on current premium volumes and other measures of capital deployed in our business, we determined we had excess capital and, therefore, returned capital to our shareholders through the share buy-back program and through dividend payments to our shareholders. We believe our liquidity generated from operations and, if required, from our investment portfolio, will be sufficient to meet our obligations for the foreseeable future. We believe we have access to various sources of liquidity including cash, investments and the ability to borrow under our revolving credit facility. Additionally, we continue to have access to the debt and equity markets, though we currently do not foresee needing access to these sources of capital.
We have committed to invest up to a total of $433.7 million in a series of hedge funds, private equity and long only funds, of which $340.3 million was funded and included in Other invested assets in our consolidated balance sheet. As of December 31, 2016, we have a remaining obligation to the private equity partnerships to invest up to an additional $93.4 million, which can be called at any time. We have not recorded this commitment in our consolidated financial statements. The investment will be recorded at such time as the capital partnership requires the additional investment. Additionally, we have not recorded the liabilities for our operating leases in our consolidated financial statements.
Other than as described in the immediately preceding paragraph, we have not entered into any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K at December 31, 2016.
Interest only on Senior Unsecured Fixed Rate Notes through 2042. Interest calculated based on the rate in effect at December 31, 2016. Principal due September 2042.
Interest only on Floating Rate Loan Stock through 2034. Interest calculated based on the rate in effect at December 31, 2016. Principal due beginning November 2034.
The relevant factors and methodologies used to estimate loss reserves vary significantly by product line due to differences in loss exposure and claim complexity. Much of our business is underwritten on an occurrence basis, which can lead to a significant time lag between the event that gives rise to a claim and the date on which the claim is reported to us. Additional time may be required to resolve the claim once it is reported to us. During these time lags, which can span several years for complex claims, new facts and information specific to the claim become known to us. In addition, general econometric and societal trends including inflation may change. Any one of these factors may require us to refine our loss reserve estimates on a regular basis. We apply a strict regimen to assure that review of these facts and trends occurs on a timely basis so that this information can be factored into our estimate of future liabilities. However, due to the number and potential magnitude of these variables, actual paid losses in future periods may differ materially from our estimates as reflected in current reserves. These differences can be favorable or unfavorable. A more precise estimation of loss reserves is also hindered by the effects of growth in a line of business and uncertainty as to how new business performs in relation to expectations established through analysis of the existing portfolio. In addition to reserving for known claim events, we also establish loss reserves for IBNR. Loss reserves for IBNR are set using our actuarial estimates for events that have occurred as of the balance sheet date but have yet been reported to us. Estimation of IBNR loss reserves is subject to significant uncertainty.
When we initially establish IBNR reserves at the beginning of an accident year for each line of business, we often use the expected loss ratio method. This method is based upon our analyses of historical loss ratios incorporating adjustments for pricing changes, anticipated loss ratio trends, changes in mix of business and any other factors that may impact loss ratio expectations. At the end of each quarter, we review the loss ratio selections and the emerged loss experience to determine if deviating from the loss ratio method is appropriate. In general, we continue to use the loss ratio method until we deem it appropriate to begin to rely on the experience of the accident year (“AY”) being evaluated. This weighing in of the AY experience is typically done by employing the Bornhuetter-Ferguson (“BF”) reserving methodology. The BF methods compute IBNR through a blend of the expected loss ratio method and traditional loss development methods. The BF methods estimate IBNR for an accident year as the product of expected losses (earned premium multiplied by an expected loss ratio) plus an expected percentage of unreported losses. The expected percentage of unreported losses is derived from age-to-ultimate loss development factors that result from our analyses of loss development triangles.
As accident years mature to the point at which the reported loss experience is more credible, we assign increasing weight to the paid and incurred loss development methods.
Workers compensation is also a long-tail line of business, and is reserved for in keeping with other long-tailed business. However, a portion of the outstanding reserves correspond to scheduled indemnity payments and are not subject to extreme volatility. The portion of reserves that is not scheduled or annuitized is subject to potentially large variations in ultimate loss cost due to the uncertainty of medical cost inflation. Sources of medical cost inflation include increased utilization, new and more expensive medical testing procedures and prescription drugs costs.
Each business segment is analyzed individually, with development characteristics for each short-tail and long-tail line of business identified and applied accordingly. In comparing loss reserve methods and assumptions used at December 31, 2016 as compared with methods and assumptions used at December 31, 2015, management has not changed or adjusted methodologies or assumptions in any significant manner.
In all lines, final claim payments may differ from the established loss reserve. Due to the uncertainties discussed above, the ultimate losses may vary materially from current loss reserves and could have a material adverse or beneficial effect on our future financial condition, results of operations and cash flows. Any adjustments to loss reserves are reflected in the results for the year during which the adjustments are made.
Loss adjustment expenses used in connection with our loss reserves are comprised of both allocated and unallocated expenses. Allocated loss adjustment expenses generally relate to specific claim files. We often combine allocated loss adjustment expenses with losses for purposes of projecting ultimate liabilities. For some types of claims, such as asbestos, environmental and professional liability, allocated loss adjustment expenses consisting primarily of legal defense costs may be significant, sometimes exceeding the liability to indemnify claimants for losses. Unallocated loss adjustment expenses generally relate to the administration and handling of claims in the ordinary course of business. We typically calculate unallocated loss adjustment expense reserves using a percentage of unpaid losses for each line of business.
costs will be associated with an individual claim, the potential for disputes over whether claims were reasonably foreseeable and intended to be covered at the time the contracts were underwritten and the potential for mass tort claims and class actions. Generally, claims with a longer reporting lag time are characterized by greater inherent risk of uncertainty.
Claim reporting lags also can occur. Examples of loss and LAE risk factors that can change over time and result in adjustments to commercial automobile liability loss reserves include, but are not limited to, the following:
Recorded gross reserves for the Syndicate 1200 segment were $657.5 million as of December 31, 2016. Estimation of our international liability reserves are subject to late emergence and mix shifts between smaller, more routine claims and larger, more complex claims. Our international property reserves are analyzed by the characteristics of the underlying exposures. Property loss reserves are characterized by relatively short periods between occurrence, reporting, determination of coverage and ultimate claims settlement. These property loss reserves tend to be the most predictable. Catastrophic loss reserves tend to exhibit more volatility due to the nature of the underlying loss event which may cause delays and complexity in estimating ultimate loss exposure.
After reviewing the output from various loss reserving methodologies, we select our best estimate of reserves. We believe that the aggregate loss reserves at December 31, 2016 were adequate to cover claims for losses that have occurred, including both known claims and claims yet to be reported. As of December 31, 2016, we recorded gross loss reserves of $3,350.8 million and loss reserves net of reinsurance of $2,180.2 million. Although our financial reports reflect our best estimate of reserves, it is unlikely that the final amount paid will exactly equal our best estimate. In order to provide an indication of the variability in loss reserve estimates, we develop reserve ranges by evaluating the variability implied by the results of the various methods and impact of changing the assumptions and factors used in the loss reserving process.
We estimate our range of reserves, net of reinsurance, at approximately $2,000 million to $2,420 million as of December 31, 2016. In determining this range, we evaluated the variability of the loss reserves for each of our major operating segments, comprising both ongoing operations and run-off businesses. Our estimated range does not make a specific provision for sources of unknown or unanticipated correlated events such as potential sources of liability not anticipated at the time coverage was afforded, such as asbestos. These events in combination with other events which may not be contemplated by management in developing our range may cause reserves to develop either more or less favorably than indicated by assumptions that we consider reasonable. This means that the range of reserve values does not represent the range of all possible favorable or unfavorable reserve outcomes, and actual ultimate paid losses may fall outside this range. No one risk factor has been isolated for the purpose of performing a sensitivity or variability analysis on that particular risk factor.
We regularly monitor the difference between the estimated fair values of our investments and their cost or book values to identify underperforming investments and whether declines in value are temporary in nature or “other-than-temporary.” If a decline in the value of a particular investment is believed to be temporary, the decline is recorded as an unrealized loss, net of tax, in other comprehensive income as a separate component of shareholders’ equity. If the decline is believed to be “other-than-temporary,” the carrying value of the investment is written down and recorded as a realized loss in our Consolidated Statements of Income. We evaluate our investments for impairment. For fixed maturities securities, the evaluation for a credit loss is generally based on the present value of expected cash flows of the security as compared to the amortized book value. For mortgage-backed securities, frequency and severity inputs are used in projecting future cash flows of the securities. Loss frequency is measured as the credit default rate, which includes such factors as loan-to-value ratios and credit scores of borrowers. Loss severity includes such factors as trends in overall housing prices and house prices that are obtained at foreclosure. For equity securities, the length of time and the amount of decline in fair value are the principal factors in determining other-than-temporary impairment. For the years ended December 31, 2016, 2015, and 2014, we recorded $10.2 million, $11.9 million and $2.3 million, respectively, of realized losses due to the recognition of other-than-temporary impairments.
At December 31, 2016, we had goodwill of $152.2 million assigned to the following reporting units: Excess and Surplus lines - $68.4 million, Commercial Specialty - $55.1 million and Syndicate 1200 - $28.7 million. Additionally, at December 31, 2016, we had other intangible assets totaling $67.7 million, including indefinite-lived intangible assets of $60.5 million in the Syndicate 1200 segment. Due to the nature of the Syndicate 1200 segment’s business, for purposes of the annual impairment evaluation, we have aggregated the fair values between the indefinite-lived intangible asset and goodwill.
Our market capitalization has increased in 2016, as our stock has traded at or above book value in the fourth quarter of 2016. We considered the market capitalization as one of the data points in performing our annual impairment test. We consider the changes in our market capitalization to be primarily attributable to global financial market conditions, as well as current trends within the insurance industry. The valuation analysis discussed above supports our view that goodwill and other indefinite-lived intangible assets are not impaired at October 1, 2016. Through December 31, 2016, there have been no indicators of impairment of goodwill and other indefinite-lived intangible assets. During 2017, we will monitor relevant internal and external factors and their potential impact on the fair value of our reporting segments, and if required, we will update our impairment analysis.