On November 20, 2013, the CFPB, which enforces the Real Estate Settlement Procedures Act (“RESPA”), the primary federal regulatory guidance covering the real estate settlement industry, released a final rule to integrate mortgage disclosures under the RESPA and the Truth in Lending Act (“TILA”). The final rule went into effect on October 3, 2015. Under this rule, the early disclosure forms required by TILA and the good faith estimate required by RESPA have been combined into one form, titled the Loan Estimate. The final disclosure required by TILA and the HUD-1 settlement statement required by RESPA have been combined into one form, titled the Closing Disclosure. The Company actively prepared for any anticipated effect this rule would have on both its direct and agency operations, with respect to its processes and procedures, systems and compliance costs. The measures adopted by the Company to comply with the final rule did not have a material impact on the Company's financial position and results of operations.
Real estate activity, home sales and mortgage lending are cyclical in nature. Title insurance premiums are closely related to the level of real estate activity and the average price of real estate sales. The availability of funds to finance purchases directly affects real estate sales. Other factors include mortgage interest rates, consumer confidence, economic conditions, supply and demand and family income levels. The Company’s premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s control.
The Company derives a substantial portion of its income from investments in municipal and corporate bonds and equity securities. The Company's title insurance subsidiaries are required by statute to maintain minimum levels of investments in order to protect the interests of policyholders. The Company’s investment policy is designed to comply with regulatory requirements and to balance the competing objectives of asset quality and investment returns. The Company’s title insurance subsidiaries are required by statute to maintain minimum levels of investments in order to protect the interests of policyholders. Bonds totaling approximately $7,159,000 and $7,060,000 at December 31, 2015 and 2014, respectively, are deposited with the insurance departments of the states in which business is conducted.
In formulating its investment strategy, the Company has emphasized after-tax income and principal preservation. The Company’s investments are primarily in bonds and, to a lesser extent, equity securities. The effective maturity of the majority of the bonds is within 10 years. The Company’s invested assets are managed to fund its obligations and evaluated to ensure long term stability of capital accounts.
Provision (Benefit) for Claims: The provision (benefit) for claims as a percentage of net premiums written was 4.0%, 4.8% and (0.5%) in 2015, 2014 and 2013, respectively. The decrease in 2015 compared with 2014 was primarily attributable to fewer new claim filings and favorable claims experience. The increase in 2014 compared with 2013 was primarily due to a change in estimate that occurred during 2013 related to changes in certain actuarial assumptions stemming from improved claims experience in recent policy years. A more detailed discussion related to the change in actuarial assumptions can be found in the Critical Accounting Estimates and Policies section of this Management’s Discussion and Analysis. The Company continues to benefit from the absence of large claims related to defalcations in recent policy years.
In January 2016, the FASB updated guidance to enhance the reporting model for financial instruments. Among the main principles of the guidance applicable to the Company are provisions to require equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income; simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, noting that when a qualitative assessment indicates that impairment exists that an entity is required to measure the investment at fair value; eliminate the requirement to disclose methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost; require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; require separate presentation of financial assets and financial liabilities by measuring category and form of financial asset on the balance sheet or accompanying notes to the financial statements; and clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments of this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will be required to apply the amendments of this update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with the amendments related to equity securities without readily determinable fair values being applied prospectively to equity investments that exist as of the date of adoption. The guidance is expected to have a material impact on the Company’s financial condition and results of operations once effective, primarily resulting from fluctuations in security exchanges or markets.
Certain cost-basis investments are measured at estimated fair value on a non-recurring basis, such as investments that are determined to be other-than temporarily impaired during the period and recorded at estimated fair value in the Consolidated Financial Statements as of December 31, 2015 and 2014. The following table summarizes the corresponding estimated fair value hierarchy of such investments at December 31, 2015 and 2014 and the related impairments recognized:
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock at December 31, 2015. The intrinsic values of options exercised during 2015, 2014 and 2013 were approximately $104,000, $82,000 and $3,486,000, respectively.