Low interest rates have driven an increase in prepayments in our investment portfolio and related income that we receive (primarily make-whole payments on bonds). This income provides a boost to current period yields, but the accelerated investment cash flows are reinvested at current interest rates, producing lower yields in future periods. Prepayment activity in 2014 was consistent with 2013, which remains elevated compared to historical levels.
Premiums increased $3.9 primarily from a $22.1 increase in group life and DI premiums, as this line of business grows, offset by a $17.4 decrease in medical stop-loss premiums. In 2014, our medical stop-loss policy lapses outpaced premiums from sales and renewals.
Sales increased $108.3 due to higher sales of SPIAs, which were $318.8 in 2014 compared to $203.0 in 2013. The increase resulted from continued success of our sales strategies to help customers maximize retirement income and from increased sales through BGAs.
BOLI ROA is a measure of the gross margin on our BOLI book of business. This metric is calculated as the difference between our BOLI revenue earnings rate and our BOLI policy benefits rate. The revenue earnings rate is calculated as revenues divided by average invested assets. The policy benefits rate is calculated as total policy benefits divided by average account values. The policy benefits used in this metric do not include expenses.
Other underwriting and operating expenses increased $9.5, which reflects higher expenses to acquire new business and service growth in this line of business, $1.3 of expense primarily related to prior years' sales and use tax, and higher professional services expenses on growth initiatives and expenses associated with our national brand campaign.
Our investment portfolio is intended to support the expected cash flows of our liabilities and produce stable returns over the long term. The composition of our portfolio reflects our asset management philosophy of protecting principal and receiving appropriate reward for risk. Our investment portfolio as of December 31, 2014 consisted in large part of high quality fixed maturities and commercial mortgage loans we originated, as well as a smaller allocation of high-yield fixed maturities, marketable equity securities, investments in limited partnerships (primarily tax credit investments and alternative investments, which include private equity and hedge funds) and other investments. Our equity investments primarily consist of common stock and exchange-traded funds (ETFs) and mainly support asset and liability matching strategies for long-duration insurance products in our Income Annuities segment. We believe that prudent levels of equity investments offer enhanced long-term, after-tax total returns.
foreign issuers had an S&P rating at or above BBB+ and a Moody's rating at or above Baa2. As of December 31, 2014, the securities we held from our largest single foreign issuer, a Canadian company, had a fair value of $124.9, or 0.5% of the portfolio and had an S&P rating of A- and a Moody's rating of A3. As of December 31, 2013, the securities we held from our single largest foreign issuer, a Netherlands company, had a fair value of $150.6, or 0.6% of the portfolio.
Our fixed maturity portfolio included $4.26 billion of residential and commercial mortgage-backed securities at fair value as of December 31, 2014, of which 64.2% were agency securities. Additionally, 26.1% of our mortgage-backed securities are AAA-rated non-agency securities in the most senior tranche of the structure type.
The following table sets forth the total fair value, and amortized cost of our non-agency RMBS by year of origination (vintage) and credit quality, based on the highest rating by Moody’s, S&P, or Fitch. There were three securities with a total amortized cost and fair value of $16.5 and $16.6, respectively, that were rated below investment grade by either Moody’s, S&P or Fitch, while at least one other agency rated them investment grade.
We believe we have maintained our disciplined underwriting approach as we increased our mortgage loan portfolio. The following table presents information about our mortgage loan originations:
The following table provides the future estimated impact to net income based on tax credit investments held and agreements in process as of December 31, 2014:
Additionally, during 2014, we performed cash flow testing to assess statutory reserve adequacy and, as a result, we did not increase our existing cash flow testing reserves of $25.0. However, we increased our temporary statutory reserves by $41.0
On October 10, 2007, we issued $150.0 aggregate principal amount CENts with a scheduled maturity date of October 15, 2037 and, subject to certain limitations, with a final maturity date of October 15, 2067. We issued the CENts at a discount yielding $149.8. For the initial ten-year period following the original issuance date the CENts carry a fixed interest rate of 8.300% payable semi-annually. From October 15, 2017 until the final maturity date of October 15, 2067, interest on the CENts will accrue at a variable annual rate equal to the three-month LIBOR plus 4.177%, payable quarterly.
Our fixed-maturity portfolio is sensitive to changes in interest rates, including risk-free rates and credit spreads, and changes can have a significant effect on our portfolio valuation. Additionally, the values of our fixed maturities can also be affected by illiquidity in the financial markets, which could contribute to widening spreads and may result in unrealized losses.
These liabilities are contingent upon the death of the insured while the policy is in force. We derive mortality assumptions from both company-specific and industry statistics. We discount future benefits at interest rates that vary by year of policy issue. These interest rates are set initially at a rate consistent with investment rates at the time of issue, and grade to a lower rate, such as the statutory valuation interest rate, over time. Assumptions are made at the time each policy is issued, and do not change over time unless the liability amount is determined to be inadequate to cover expected future policy benefits.
We believe investors find it useful if we present them with a financial measure excluding these temporary and unrealized changes in the fair values of our investments, and the related effects on AOCI. By evaluating our adjusted book value, an investor can assess our financial condition based on our general practice of holding our fixed maturities to maturity. Additionally, by translating this measure into adjusted book value per common share, we allow the investor to assess its proportional stake in our adjusted book value as of the dates presented, and the change in such measures over time.
Notes to Consolidated Financial Statements for the years ended December 31, 2014, 2013 and 2012
method and recorded at amortized cost. Amortization is based on the expected performance of the underlying partnership, with amortization recorded as a reduction to net investment income. When the carrying value of an investment exceeds the total amount of remaining tax benefits, the Company records an impairment loss, which is included in other net realized gains (losses) in the consolidated statements of income. For certain partnerships, the Company provides its investment over time, and the present value of any unfunded commitments is included in the asset balance and recorded in other liabilities.
The Company reports interest and dividends earned, including prepayment fees or interest-related make whole payments, in net investment income. Interest income for fixed maturities is recognized using the effective yield method. For mortgage-backed securities, the Company recognizes income using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. Quarterly, the Company compares actual prepayments to anticipated prepayments and recalculates the effective yield to reflect actual payments plus anticipated future payments. The Company includes any resulting adjustment in net investment income in the current period.
The following table sets forth the Company’s mortgage loans by risk category:
The following table summarizes the activity in the Company’s allowance for mortgage loan losses, which includes portfolio and specific reserves:
The Company uses derivative financial instruments to hedge certain portions of its exposure to equity market risk, interest rate risk and foreign currency exchange risk. Derivative financial instruments currently held consist primarily of Standard & Poor’s 500 Index® (S&P 500) options, interest rate swaps, foreign currency swaps and foreign currency forwards. Derivative instruments may be exchange-traded or contracted in the over-the-counter (OTC) market. The Company has established policies for managing its derivatives, including prohibitions on derivatives market-making and other speculative derivatives activities. All of the Company’s derivative financial instruments are individually recognized at fair value as either assets within other invested assets, or liabilities within other liabilities in the consolidated balance sheets.
Level 3 - Fair value estimates whose significant inputs are unobservable. This includes financial instruments for which fair value is estimated based on industry-standard pricing methodologies and internally developed models utilizing significant inputs not based on or corroborated by readily available market information. In limited circumstances, this may also utilize estimates based on non-binding broker quotes. This category primarily consists of funds held under deposit contracts and mortgage loans.
The Company’s Level 2 CMBS securities were primarily non-agency securities, which comprised 87.8% and 83.3% of Level 2 CMBS as of December 31, 2014 and 2013, respectively. The non-agency Level 2 CMBS had an estimated weighted-average credit enhancement of 32.8% and 31.4% as of December 31, 2014 and 2013, respectively, and 96.8% and 98.7% were in the most senior tranche as of December 31, 2014 and 2013, respectively.
As of December 31, 2014, unrecognized compensation cost for restricted shares was $3.8 and is expected to be recognized over the weighted average of 1.4 years.
Liabilities for policy and contract claims, which primarily represent liabilities for claims under medical stop-loss and individual life policies, are established on the basis of reported losses. The Company also provides for claims incurred but not reported (IBNR). For medical stop-loss policies, this is based on expected loss ratios, claims paying completion patterns and historical experience. If expected loss ratios increase or expected claims paying completion patterns extend, the IBNR claim liability increases. The Company reviews estimates for reported but unpaid claims and IBNR claims quarterly. Any necessary adjustments are reflected in earnings.
In connection with the offering of the CENts, the Company entered into a replacement capital covenant (RCC) for the benefit of the holders of the senior notes due 2016. Under the terms of the RCC, the Company may not redeem or repay the CENts prior to October 15, 2047 unless the redemption or repayment is financed from the offering of replacement capital securities, as specified in the covenant. The senior notes due 2024 are not entitled to benefit from or otherwise acquire any rights or claims by virtue of the RCC.
The Company's operations are managed separately as three divisions, consisting of four business segments based on product groupings, and a fifth reportable segment consisting primarily of unallocated corporate items and surplus investment income. The five segments are Benefits, Deferred Annuities, Income Annuities, Individual Life and Other, described further below.