Net loss and LAE include (favorable) unfavorable prior accident year development on loss reserves as shown in the table below:
The insurance segment is comprised of AIHL’s RSUI, CapSpecialty and PacificComp operating subsidiaries. RSUI also writes a modest amount of assumed reinsurance business, which is included in the insurance segment. For a more detailed description of our insurance segment, see Part I, Item 1, “Business-Segment Information-Insurance Segment” of this Form 10-K.
Net Realized Capital Gains. Net realized capital gains in 2014 generally reflect sales of equity securities. In addition, net realized capital gains include a realized capital gain of $34.0 million from the sales of long-dated U.S. Treasury Strip debt securities in April 2014, some additional realized capital gains taken on debt securities and a $9.4 million realized capital loss from the redemption of $300 million par value of the TransRe 5.75% senior notes due on December 14, 2015, or the “2015 Senior Notes.” Net realized capital gains in 2013 relate primarily to sales of equity securities. In addition, net realized capital gains in 2013 includes a realized capital loss of $5.0 million relating to a non-cash impairment charge for certain finite-lived intangible assets at CapSpecialty. Net realized capital gains in 2012 relate primarily to sales of equity securities in the energy sector, including a gain from the sale in January 2012 of shares of common stock of Exxon Mobil held at the insurance segment level.
Other Than Temporary Impairment Losses. OTTI losses in 2014 reflect $36.3 million of unrealized losses that were deemed to be other than temporary and, as such, were required to be charged against earnings. Upon the ultimate disposition of the securities for which OTTI losses have been recorded, a portion of the loss may be
Other income and Other operating expenses. The increases in other income and other operating expenses in 2014 from 2013 and 2013 from 2012 primarily reflect the acquisition of Kentucky Trailer on August 30, 2013 and Bourn & Koch on April 26, 2012 and, to a lesser extent, increased expenses at SORC.
The Homesite results for 2013 primarily reflect favorable development on its loss and LAE reserves and favorable levels of weather-related claims. The Homesite losses in 2012 reflect the impact of increased homeowners insurance claims from severe weather during the year, and $13.2 million of losses representing our share of Homesite’s loss from Super Storm Sandy in October 2012, partially offset by the favorable impact of higher premium rates. The higher interest, dividends and other - net in 2014 from 2013, and in 2013 from 2012, primarily reflects higher income from other invested assets.
(3) Approximately 96 percent of our reinsurance recoverables balance as of December 31, 2014 was due from reinsurers having an A.M. Best Company, Inc. financial strength rating of A (Excellent) or higher.
(3) Includes favorable development of $73.7 million from Super Storm Sandy in 2012 and $35.6 million of favorable development from other catastrophe losses, principally flooding that took place in Thailand in 2011 and the Tohoku earthquake in Japan in 2011, partially offset by unfavorable development from the New Zealand earthquake in 2010.
Pursuant to the terms of the Merger Agreement, on the TransRe Acquisition Date, stockholders of Old TransRe were entitled to receive, in exchange for each share of Old TransRe common stock held, either shares of Common Stock or cash consideration with a value equal to approximately $61.14 (the “Per Share Consideration”), which was the sum of (i) 0.145 multiplied by the average of the closing sales prices on the New York Stock Exchange for Common Stock during the five trading days ending the day before the TransRe Acquisition Date (the “Average Closing Price”) and (ii) $14.22, as more fully described in the Merger Agreement. In total, Alleghany paid to the stockholders of Old TransRe consideration of approximately $3.5 billion, consisting of cash consideration of $816.0 million and stock consideration of 8,360,959 shares of Common Stock. The stock consideration was tax free to Old TransRe stockholders.
(3) For 2013, $250.0 million of other invested assets is due to an investment in Ares. See Note 4(h) for a more detailed description of this investment.
The proceeds from sales of AFS securities were $6.6 billion, $8.6 billion and $3.0 billion in 2014, 2013 and 2012, respectively.
Debt securities in an unrealized loss position are evaluated for OTTI if they meet any of the following criteria: (i) they are trading at a 20 percent discount to amortized cost for an extended period of time (nine consecutive months or longer); (ii) there has been a negative credit or news event with respect to the issuer that could indicate the existence of an OTTI; or (iii) Alleghany intends to sell, or it is more likely than not that Alleghany will sell, the debt security before recovery of its amortized cost basis.
Alleghany had no allowance for uncollectible reinsurance as of December 31, 2014 and 2013.
Reinsured loss and LAE ceded included in Alleghany’s consolidated statements of earnings were $250.3 million, $263.0 million and $290.4 million for 2014, 2013 and 2012, respectively.
RSUI reinsures its property lines of business through a program consisting of surplus share treaties, facultative placements, per risk, and catastrophe excess-of-loss treaties. RSUI’s catastrophe reinsurance program (which covers catastrophe risks including, among others, windstorms and earthquakes) and property per risk reinsurance program run on an annual basis from May 1 to the following April 30 and thus expired on April 30, 2014.
(2) Includes favorable development of $1.6 million from Super Storm Sandy in 2012 and $15.7 million of net favorable development from other catastrophes. The $15.7 million primarily reflects favorable development from several catastrophes that occurred primarily in the 2013 and 2011 accident years, partially offset by unfavorable development from the New Zealand earthquake in 2010.
On November 23, 2009, TransRe completed a public offering of $350.0 million aggregate principal amount of its 8.00% senior notes due on November 30, 2039 (the “2039 Senior Notes”). The TransRe Senior Notes, consisting of the 2015 Senior Notes and the 2039 Senior Notes, are unsecured and unsubordinated general obligations of TransRe and are not guaranteed by Alleghany. Interest on each issuance of TransRe Senior Notes is payable semi-annually. The terms of the TransRe Senior Notes permit redemption prior to their maturity. The indentures under which the TransRe Senior Notes were issued contain covenants that impose conditions on TransRe’s ability to create liens on, or engage in sales of, the capital stock of certain of its subsidiaries, including Transatlantic Reinsurance Company, TransRe Zurich Ltd. or Fair American Insurance and Reinsurance Company. As of the TransRe Acquisition Date, the TransRe Senior Notes were recorded at their estimated fair value of $1.1 billion, and resulted in an effective yield of approximately 3.0 percent for the 2015 Senior Notes and 6.9 percent for the 2039 Senior Notes. See Note 2 for additional information on TransRe and Note 3 for fair value information.
The primary components of corporate activities are Alleghany Properties, SORC, Alleghany’s investments in Homesite (prior to its sale on December 31, 2013) and ORX and other activities at the parent level. Beginning April 26, 2012, August 30, 2013 and July 31, 2014, corporate activities also includes the operating results of Bourn & Koch, Kentucky Trailer and Alleghany’s investment in Jazwares, respectively.