Interest expense. The decrease in interest expense in 2016 from 2015 primarily reflects lower interest expense at our reinsurance segment resulting from the maturity and repayment of the 2015 Senior Notes on December 14, 2015. The increase in interest expense in 2015 from 2014 primarily reflects higher interest expense at the Alleghany parent company arising from the issuance on September 9, 2014 of the 2044 Senior Notes (as defined on page 107 of this Form 10-K), partially offset by lower interest expense at TransRe resulting from the redemption on October 15, 2014 of a portion of the 2015 Senior Notes and the maturity and repayment of the remainder of the 2015 Senior Notes on December 14, 2015. See Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K for further information on the 2015 Senior Notes and 2044 Senior Notes.
The favorable prior accident year loss reserve development in 2016, 2015 and 2014 reflects favorable loss emergence compared with loss emergence patterns assumed in earlier periods. The favorable prior accident year loss reserve development in 2016 did not impact assumptions used in estimating TransRe’s loss and LAE liabilities for business earned in 2016.
Casualty & other. The increase in commissions, brokerage and other underwriting expenses in 2016 from 2015 primarily reflects the impact of higher net premiums earned, partially offset by a slight decrease in employee-related overhead expenses. The increase in commissions, brokerage and other underwriting expenses in 2015 from 2014 primarily reflects an increase in commission rates being required by cedants, partially offset by the impact of lower net premiums earned.
The favorable prior accident year loss reserve development in 2016, 2015 and 2014 reflects favorable loss emergence compared with loss emergence patterns assumed in earlier periods. The favorable prior accident year loss reserve development in 2016 did not impact assumptions used in estimating RSUI’s loss and LAE liabilities for business earned in 2016.
PacificComp. PacificComp reported underwriting losses in 2016, 2015 and 2014 primarily as a result of its ongoing expenses relative to comparatively low premiums earned. The decrease in underwriting losses in 2016 from 2015 primarily reflects the
Net Realized Capital Gains. The decrease in net realized capital gains in 2016 from 2015 primarily reflects lower gains from the sales of equity securities. Realized capital gains in 2015 include the sales of certain equity securities resulting from a partial restructuring of the equity securities portfolio, as well as the sales of certain equity securities which had their cost basis reduced in earlier periods for the recognition of OTTI losses.
The changes in Alleghany Capital’s equity for 2016, 2015 and 2014 are summarized as follows:
In addition, the estimation of unpaid loss and LAE, including IBNR, for our reinsurance operations also takes into account assumptions with respect to many factors that will affect ultimate loss costs but are not yet known. The process by which actual carried reserves are determined considers not only actuarial estimates but a myriad of other factors. Such factors, both internal and
external, which contribute to the variability and unpredictability of loss costs, include trends relating to jury awards, social trends, medical inflation, worldwide economic conditions, tort reforms, judicial interpretations of coverages, the regulatory environment, underlying policy pricing, terms and conditions and claims handling, among others. In addition, information gathered through underwriting and claims audits is also considered. We assess the reasonableness of our unpaid loss and LAE for our reinsurance operations using various actuarial methodologies, principally the paid development method, the reported loss development method and the Bornhuetter-Ferguson method as described below.
There were no borrowings under the Credit Agreement in 2016 and there were no outstanding borrowings under the Credit Agreement as of December 31, 2016. In 2015, we borrowed and repaid $60.0 million under the Credit Agreement.
Common Stock Repurchases. In October 2012, our Board of Directors authorized the repurchase of shares of common stock at such times and at prices as management determines to be advisable, up to an aggregate of $300.0 million, or the “2012 Repurchase
Capital Contributions. From time to time, we make capital contributions to our subsidiaries. In 2016, we made capital contributions of $24.0 million to PacificComp to provide additional capital support and an aggregate of $147.4 million to Alleghany Capital to: (i) acquire an additional 50 percent of Jazwares outstanding equity for $122.1 million (excluding amounts for transaction costs and estimates of future amounts payable); and (ii) make $25.3 million of capital contributions to SORC for purposes of ongoing operations. In 2015, we made an aggregate of $178.1 million capital contributions to Alleghany Capital to: (i) make $88.2 million of capital contributions to SORC for purposes of funding an acquisition and ongoing operations; and (ii) make an $89.9 million investment in IPS (excluding amounts for transaction costs and estimates of future amounts payable). In 2014, we made a $297.3 million capital contribution to TransRe to redeem $300 million par value of the 2015 Senior Notes, as described above. In 2014, we also made capital contributions an aggregate of $171.9 million to Alleghany Capital to: (i) make $96.6 million of capital contributions to SORC; (ii) exercise an option to increase its ownership in Kentucky Trailer by $15.0 million; and (iii) make a $60.3 million investment in Jazwares. We expect that we will continue to make capital contributions to our subsidiaries from time to time in the future for similar or other purposes.
IPS-Integrated Project Services, LLC (“IPS”), a technical engineering-focused service provider focused on the global pharmaceutical and biotechnology industries, headquartered in Blue Bell, Pennsylvania; and
The portion of stockholders’ equity, net earnings and accumulated other comprehensive income that is not attributable to Alleghany stockholders is presented on the Consolidated Balance Sheets, the Consolidated Statements of Earnings and Comprehensive Income and the Consolidated Statements of Changes in Stockholders’ Equity as noncontrolling interest. Because all noncontrolling interests have the option to sell their ownership interests to Alleghany in the future (generally through 2023), the portion of stockholders’ equity that is not attributable to Alleghany stockholders is presented on the Consolidated Balance Sheets as redeemable noncontrolling interest for all periods presented. During 2016 and 2015, Bourn & Koch had approximately 11 percent and 12 percent, respectively, noncontrolling interests outstanding, Kentucky Trailer had approximately 20 percent noncontrolling interests outstanding, IPS had approximately 16 percent noncontrolling interests outstanding beginning October 31, 2015 and Jazwares had approximately 20 percent noncontrolling interests outstanding beginning April 15, 2016.
future projected cash flows of the underlying collateral, as well as other inputs described below. A few Level 3 valuations are based entirely on non-binding broker quotes. These securities consist primarily of mortgage-backed and asset-backed securities where reliable pool and loan level collateral information cannot be reasonably obtained, and as such, an income approach is not feasible.
In addition to such procedures, Alleghany reviews the reasonableness of its classification of securities within the three-tiered hierarchy to ensure that the classification is consistent with GAAP.
Net investment income for 2016, 2015 and 2014 was as follows:
As of December 31, 2016, non-income producing invested assets were insignificant.
Alleghany holds its equity and debt securities as AFS and, as such, these securities are recorded at fair value. Alleghany continually monitors the difference between cost and the estimated fair value of its equity and debt investments, which involves uncertainty as to whether declines in value are temporary in nature. The analysis of a security’s decline in value is performed in its functional currency. If the decline is deemed temporary, Alleghany records the decline as an unrealized loss in stockholders’ equity. If the decline is deemed to be other than temporary, Alleghany writes its cost-basis or amortized cost-basis down to the fair value of the security and records an OTTI loss on its statement of earnings. In addition, any portion of such decline related to a debt security that is believed to arise from factors other than credit is recorded as a component of other comprehensive income rather than charged against earnings.
Debt securities in an unrealized loss position are evaluated for OTTI if they meet any of the following criteria: (i) they are trading at a discount of at least 20 percent to amortized cost for an extended period of time (nine consecutive months or more); (ii) there has been a negative credit or news event with respect to the issuer that could indicate the existence of an OTTI; or (iii) Alleghany intends to sell, or it is more likely than not that Alleghany will sell, the debt security before recovery of its amortized cost basis.
(4) Approximately 94 percent of our reinsurance recoverables balance as of December 31, 2016 was due from reinsurers having an A.M. Best financial strength rating of A (Excellent) or higher.
The following table presents property and casualty premiums written and earned for 2016, 2015 and 2014:
The (favorable) unfavorable prior accident year loss reserve development for 2016, 2015 and 2014 is summarized as follows: