Book value of $1.0 billion, an increase of 13.9% over prior year
The numerous factors that contribute to the inherent uncertainty in the process of establishing loss reserves include: interpreting loss development activity, emerging economic and social trends, inflation, changes in the regulatory and judicial environment and changes in our operations, including changes in underwriting standards and claims handling procedures. The process of establishing loss reserves is complex and imprecise, as it must take into account many variables that are subject to the outcome of future events. As a result, informed subjective judgments as to our ultimate exposure to losses are an integral component of our loss reserving process.
The Lloyd’s Operations products also include Property coverages for engineering and construction projects and Onshore Energy business, which are substantially reinsured. Losses from engineering and construction projects tend to result from loss of use due to construction delays while losses from Onshore Energy business are usually caused by fires or explosions. Large losses tend to be catastrophic in nature and are heavily reinsured. IBNR loss reserves for attritional losses are established based on the Syndicate’s extensive loss experience.
(1) - The totals for each segment are adjusted for portfolio effect. The portfolio effect is the reduction in risk arises out of diversification in the portfolio.
Cash flow from operations was $222.5 million, $136.9 million and $96.7 million for the years ended December 31, 2014, 2013 and 2012. The increase in cash flow from operations for 2014 is largely attributable to a reduction in net losses paid, and to a lesser extent, a decrease in tax payments due to the use of prior year overpayments in the current year, partially offset by higher operating expenses resulting from increased headcount associated with growth in our business. The increase in cash flow from operations for 2013 is largely attributable to the growth of our business as well as improved collections on premiums receivable.
The following table presents our consolidated underwriting results and provides a reconciliation of our underwriting profit or loss to GAAP net income or loss for the years ended December 31, 2014, 2013 and 2012:
The 2.4% annualized pre-tax yields for the year ended December 31, 2012, included investment expenses of $4.5 of interest expense related to the settlement of a dispute with Equitas over foregone interest on amounts that were due on certain reinsurance contracts. In the dispute Equitas alleged that we failed to make timely payments to them under certain reinsurance agreements in connection with subrogation recoveries received by us with respect to several catastrophe losses that occurred in the late 1980’s and early 1990’s. In addition, investment expenses for the year ended December 31, 2012 includes a $2.8 million investment performance fee. Excluding the impact of the aforementioned interest expense and investment performance fee, the annualized pre-tax yield for the year ended December 31, 2012 would have been 2.7%, reflective of the general decline in market yield.
The aforementioned net prior period reserve strengthening from our Insurance Companies Property Casualty and Professional Liability were partially offset by $15.2 million of net reserve releases from our Insurance Companies Marine business in connection with favorable emergence from our Marine Liability lines for UWYs 2012 and prior.
The following table sets forth the results of operations of the Lloyd’s Operations for the years ended December 31, 2014, 2013 and 2012:
On November 24, 2014, our Company entered into a $175 million credit facility agreement with ING Bank N.V., London Branch, individually and as Administrative Agent, and a syndicate of lenders. The new credit facility amended and restated a $165 million letter of credit facility entered into by the parties on November 21, 2012. The credit facility, which is denominated in U.S. dollars, is utilized to fund participation in Syndicate 1221 through letters of credit for the 2016 and 2015 UWYs, as well as open prior years. The letters of credit issued under the facility can be denominated in British pounds and their aggregate face amount will fluctuate based on exchange rates. If any letters of credit remain outstanding under the facility after December 31, 2016, our Company would be required to post additional collateral to secure the remaining letters of credit. As of December 31, 2014, letters of credit with an aggregate face amount of $149.4 million were outstanding under the credit facility and our Company had $1.0 million of cash collateral posted.
Cash flow from operations was $222.5 million, $136.9 million and $96.7 million for the years ended December 31, 2014, 2013 and 2012. The increase in cash flow from operations for 2014 is largely attributable to a reduction in net losses paid, and to a lesser extent, a decrease in tax payments due to utilization of prior year tax overpayments, partially, offset by higher operating expenses resulting from increased headcount associated with growth in our business. The increase in cash flow from operations for 2013 is largely attributable to the growth of our business as well as improved collections on premiums receivable.
The following table sets forth the amount and percentage of our fixed maturities as of December 31, 2014 by S&P credit rating or, if an S&P rating is not available, the equivalent Moody’s rating. The table includes fixed maturities at fair value, and the total rating is the weighted average quality rating.
The following table sets forth the composition of the investments categorized as corporate bonds in our portfolio by generally equivalent S&P and Moody’s ratings (not all securities in our portfolio are rated by both S&P and Moody’s) as of December 31, 2014: