The decrease in net realized capital gains in 2015 from 2014 primarily reflects lower gains from the debt securities portfolio and a $25.8 million realized capital loss related to a non-cash impairment charge related to a write-off of our investment in ORX, partially offset by higher gains for the equity securities portfolio. Realized capital gains in 2015 include the sales of certain equity securities resulting from a modification of our equity investment strategy and the sales of certain equity securities which had their cost basis reduced in earlier periods for the recognition of OTTI losses. Realized capital gains in 2014 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 on the early redemption of $300 million par value of TransRe’s 5.75% senior notes due on December 14, 2015, or the “2015 Senior Notes.”
The increase in net realized capital gains in 2014 from 2013 primarily reflects higher gains for the debt securities portfolio, partially offset by a $46.8 million realized capital gain from the sale of Homesite in 2013 and a $9.4 million realized capital loss on the early redemption of $300 million par value of the 2015 Senior Notes in 2014.
(4) Primarily reflects favorable prior accident year development of ($4.1) million from Super Storm Sandy in 2012, net of reinsurance, and favorable prior accident year development on loss reserves related to unallocated LAE reserves.
(5) Primarily reflects favorable prior accident year development on unallocated LAE reserves and prior year catastrophe loss reserves from recent accident years.
PacificComp. The increases in commissions, brokerage and other underwriting expenses in 2015 from 2014 and in 2014 from 2013 primarily reflect the impact of growth in net premiums earned.
Information regarding concentration of our reinsurance recoverables and the ratings profile of our reinsurers as of December 31, 2015 is as follows:
(19) Primarily reflects unfavorable prior accident year development on loss reserves from workers’ compensation and certain other casualty lines of business, and related primarily to unfavorable loss emergence on a few individual claims, partially offset by favorable prior accident year development on loss reserves on surety and property lines of business.
proceeds after underwriting discount, commissions and other expenses of $294.3 million, and an effective yield of approximately 5.0 percent. Approximately $3.6 million of underwriting discount, commissions and other expenses were recorded as deferred charges, which are amortized over the life of the 2044 Senior Notes.
In July 2013, AIHL invested $250.0 million in Ares, an asset manager, in exchange for a 6.25 percent equity stake in Ares, with an agreement to engage Ares to manage up to $1.0 billion in certain investment strategies. In May 2014, Ares completed an initial public offering of its common units. Upon completion of the initial public offering, Alleghany’s equity investment in Ares converted to limited partner interests in certain Ares subsidiaries that are convertible into an aggregate 5.9 percent interest in Ares common units. As of December 31, 2015, at our discretion, half of these interests may be converted at any time, and the remaining half may be converted in May 2016. Until we determine to convert our limited partner interests into Ares common units, we classify our investment in Ares as a component of other invested assets, and we account for our investment using the equity method of accounting. As of December 31, 2015, AIHL’s carrying value in Ares was $224.7 million, which is net of returns of capital received from Ares.
Municipal Bonds. The following table provides the fair value of our municipal bonds as of December 31, 2015, categorized by state and revenue source. Special revenue bonds are debt securities for which the payment of principal and interest is available solely from the cash flows of the related projects. As issuers of revenue bonds do not have the ability to draw from tax revenues or levy taxes to fund obligations, revenue bonds may carry a greater risk of default than general obligation bonds.
In February 2015, the FASB issued guidance that amended the analysis that must be performed to determine whether an entity should consolidate certain types of legal entities. Under the new guidance, the evaluation of whether limited partnerships and similar entities are variable interest entities or voting interest entities is modified, the presumption that general partners should consolidate limited partnerships is eliminated and the process to determine the primary beneficiary of a variable interest entity is modified. This guidance is effective in the first quarter of 2016 for public entities, with early adoption permitted. We will adopt this guidance in the first quarter of 2016 and do not currently believe that the implementation will have a material impact on our results of operations and financial condition.
In April 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance that changed the criteria for reporting discontinued operations. Under the new guidance, only disposals that represent a strategic shift in operations qualify as discontinued operations. In addition, the new guidance requires expanded disclosure about discontinued operations. This guidance was effective in the first quarter of 2015. Alleghany adopted this guidance in the first quarter of 2015 and the implementation did not have an impact on its results of operations and financial condition.
(1) This table includes AFS investments (debt and equity securities as well as partnership and non-marketable equity investments carried at fair value that are included in other invested assets). This table excludes investments accounted for using the equity method and commercial mortgage loans that are carried at unpaid principal balance. The fair value of short-term investments approximates amortized cost. The fair value of all other categories of investments is discussed in Note 1(c).
In December 2012, TransRe obtained an ownership interest in Pillar Capital Holdings Limited (“Pillar Holdings”), a Bermuda-based insurance asset manager focused on collateralized reinsurance and catastrophe insurance-linked securities. Additionally, TransRe invested $175.0 million and AIHL invested $25.0 million in limited partnership funds managed by Pillar Holdings (the “Funds”). The objective of the Funds is to create portfolios with attractive risk-reward characteristics and low correlation with other asset classes, using the
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 per risk reinsurance program run on an annual basis from May 1 to the following April 30 and portions expired on April 30, 2015.
Borrowings under the Credit Agreement bear a floating rate of interest based in part on Alleghany’s credit rating, among other factors. The Credit Agreement requires that all loans be repaid in full no later than October 15, 2017. The Credit Agreement also requires Alleghany to pay a commitment fee each quarter in a range of between 0.125 and 0.30 percent per annum, based upon Alleghany’s credit rating, on the daily unused amount of the commitments. The Credit Agreement contains representations, warranties and covenants customary for bank loan facilities of this nature.
The primary components of corporate activities are Alleghany Properties, SORC, Bourn & Koch, Alleghany’s investments in Homesite (prior to its sale on December 31, 2013) and ORX and other activities at the parent level. Beginning August 30, 2013, July 31, 2014 and October 31, 2015, corporate activities also includes the operating results of Kentucky Trailer, Alleghany’s investment in Jazwares, and IPS, respectively.
As of December 31, 2015, Alleghany had long-term compensation plans for parent company level employees and directors. Parent company level, long-term compensation plans to current employees do not include stock options but consist only of restricted stock awards, including restricted stock units and performance share awards. Parent company level, long-term compensation payments to non-employee directors consist of annual awards of restricted stock and restricted stock units.
Alleghany has an unfunded, noncontributory defined benefit pension plan for parent company level executives and a funded, noncontributory defined benefit pension plan for parent company level employees. Prior to September 30, 2013, Alleghany also had two unfunded retiree health plans, one for parent company level executives and one for parent company level employees. On July 16, 2013, the Alleghany Board of Directors