The key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect historical changes, current trends and other factors observed. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s estimate. The following table reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity, relative to our assumptions, on our loss estimate for claims occurring in 2014:
Common Stocks - At December 31, 2014, there were two common stocks in an unrealized loss position with an aggregate fair value of $15.9 million and a gross unrealized loss of $5.5 million. Based on management's view of the underlying securities, the Company does not consider the common stocks to be OTTI.
Premiums earned increased 10% to $5,744 million in 2014 from $5,227 million in 2013. Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term, and accordingly we expect recent rate increases will be earned over the upcoming quarters. Premiums earned in 2014 are related to business written during both 2014 and 2013. Audit premiums were $118 million in 2014 compared with $120 million in 2013.
Interest Expense. Interest expense was $128 million in 2014 compared with $123 million in 2013. In May 2013, the Company issued $350 million of 5.625% subordinated debentures due 2053 and prepaid $250 million of 6.750% subordinated debentures that were due in 2045. In August 2014, the Company issued $350 million of 4.75% senior notes due 2044. A portion of the proceeds will be used to repay $200 million of 5.60% senior notes that are due on May 15, 2015. In addition, the Company assumed $71 million of debt in conjunction with the acquisition of an office building in West Palm Beach, Florida, that matures in August 2015.
Investment Funds. At December 31, 2014, the carrying value of investment funds was $1,211 million, including investments in real estate funds of $467 million, hedged equity funds of $282 million and investments in energy funds of $152 million. Investment funds are primarily reported on a one-quarter lag.
Total Capital. Total capitalization (equity, senior notes and other debt and subordinated debentures) was $7 billion at December 31, 2014. The percentage of the Company’s capital attributable to senior notes, subordinated debentures and other debt was 35% at December 31, 2014 and 32% at December 31, 2013.
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 $68 million and $72 million at December 31, 2014 and 2013, respectively.
The costs resulting from all share-based payment transactions with employees are recognized in the consolidated financial statements using a fair-value-based measurement method.
At December 31, 2014 and 2013, investments in equity securities available for sale were as follows:
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, 2014 is presented in the table below:
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.