The reserve for losses and loss adjustment expenses represents our estimated ultimate cost of all reported and unreported losses and loss adjustment expenses incurred and unpaid at the balance sheet date. We do not discount this reserve. We estimate the reserve using individual case-basis valuations of reported claims and statistical analyses. We believe that the use of judgment is necessary to arrive at a best estimate for the reserve for losses and loss adjustment expenses given the long-tailed nature of the business we write and the limited operating experience of the Casualty Reinsurance segment and of the program and fronting business in the Specialty Admitted Insurance segment. In applying this judgement, we generally establish reserves that are above our actuaries’ estimate. As such, we seek to establish reserves that will ultimately prove to be adequate. If we have indications that claims frequency or severity exceeds our initial
Of our total cash and invested assets of  $1,310.6 million at December 31, 2014, $73.4 million represents the cash and cash equivalents portion of the portfolio. The majority of the portfolio, or $824.9 million, is comprised of fixed maturity and equity securities that are classified as available-for-sale and carried at fair value with unrealized gains and losses on these securities reported, net of applicable taxes, as a separate component of accumulated comprehensive income or loss. Also included in our investments is $131.9 million of short-term investments, $33.6 million of other invested assets and $7.4 million of fixed maturity securities classified as trading and held at the U.S. holding company. Our trading portfolio is carried at fair value with changes to the value reported as net investment income in our consolidated income statement.
Loss Ratio. The loss ratio of 40.4% for the year ended December 31, 2013 includes $40.7 million, or 28.7 percentage points, of net favorable development in our loss estimates for prior accident years. The significant favorable reserve development in this segment reflects benign loss activity and continuing positive loss trends.
Net investment income for the years ended December 31, 2013 and 2012 were $45.4 million and $44.3 million, respectively. Included in net investment income for these years is $14.4 million and $13.7 million, respectively, of income from bank loan participations. The increase in net investment income despite the lower interest rate environment is primarily attributable to $4.3 million of income recognized on the Company’s renewable energy investments in 2013. These investments are interests in certain limited liability companies that are managed by an affiliate of one of our largest shareholders and have a total carrying value of  $26.8 million at December 31, 2013. The Company’s interests in these companies are classified as “other invested assets” and accounted for using the equity method. Losses of  $637,000 were recognized on these renewable energy investments for the year ended December 31, 2012. See “Certain Relationships and Related Party Transactions - Related Party Transactions - Investments with Affiliates of the D. E. Shaw Affiliates.”
For the year ended December 31, 2012, the Company recognized net realized investment gains of  $8.9 million. This amount included $3.6 million of net realized gains on fixed maturity securities and $4.1 million of gains on equity securities and $1.3 million of gains on bank loan participations.
retains the first $675,000 per occurrence in losses on workers’ compensation policies and are reinsured above that level to $20.0 million per occurrence, with a maximum reinsured recovery of $10.0 million for any one life;
The increase in cash provided by operating activities for 2013 over 2012 reflects a $55.6 million increase in underwriting profits for 2013 compared to the prior year.
The change in cash and cash equivalents from investing activities reflects the direction of the Investment Committee of the Board of Directors that the Company reduce its cash and cash equivalent balances during the year ended December 31, 2012. Cash and cash equivalents comprised 7.8% of total cash and invested assets at December 31, 2012.
For the years ended December 31, 2014, 2013 and 2012, the Company recognized $589,000, $647,000 and $1.0 million, respectively, of share-based compensation expense. The amount of unrecognized share-based compensation expense to be recognized over the remaining weighted-average service period of 3.2 years at December 31, 2014 is $11.2 million. There were no option exercises during the years ended December 31, 2014, 2013 or 2012. The Company granted 993,518 non-qualified share options during the year ended December 31, 2014, each with an exercise price of  $21.00 per option. The Company also granted 340,474 restricted share units (“RSUs”) in December 2014. The RSUs vest over one to five years, and accordingly, none were vested at December 31, 2014. The Company granted 50,000 non-qualified share options during the year ended December 31, 2013 at exercise prices ranging from $15.65 to $18.01 per option. The Company granted 595,000 non-qualified share options during the year ended December 31, 2012 at exercise prices ranging from $13.99 to $15.65 per option. The options have a seven-year life and vest ratably over three to four years. In addition, 55,000, 171,250 and 637,500 fully vested options with exercise prices of  $15.65 lapsed or were forfeited during 2014, 2013, and 2012, respectively.