A net reduction in prior year reserve development of $84.2 million. We recognized net unfavorable prior year reserve development of $12.5 million during the three months ended December 31, 2015 compared to net favorable prior year reserve development of $71.7 million during the three months ended December 31, 2014.
non-recurring items. We exclude net realized investment gains or losses, net foreign exchange gain or loss and other non-recurring items from our calculation of operating income because these amounts are heavily influenced by and fluctuate in part according to the availability of market opportunities and other factors. In addition to presenting net income determined in accordance with U.S. GAAP, we believe that showing operating income enables investors, analysts, rating agencies and other users of our financial information to more easily analyze our results of operations and our underlying business performance. Operating income should not be viewed as a substitute for U.S. GAAP net income. The following is a reconciliation of operating income to its most closely related U.S. GAAP measure, net income.
Reserves for losses and loss expenses by segment as of December 31, 2015 and 2014 were comprised of the following:
Our casualty insurance and casualty reinsurance lines of business include general liability risks, healthcare, professional liability and other specialty risks. Claims may be reported or settled several years after the coverage period has terminated for these lines of business (“long-tail lines”), which increases uncertainties of our reserve estimates in such lines. In addition, our attachment points for these long-tail lines can be relatively high, making reserving for these lines of business more difficult than short-tail lines due to having to estimate whether the severity of the estimated losses will exceed our attachment point. We establish a case reserve when sufficient information is gathered to make a reasonable estimate of the liability, which often requires a significant amount of information and time. Due to the lengthy reporting pattern of these casualty lines, reliance is placed on industry benchmarks supplemented by our own experience. For expected loss ratio selections, we consider our existing experience supplemented with analysis of loss trends, rate changes and experience of peer companies.
Professional Liability: For professional liability policies, including healthcare, our reinsurance varied by writing office and by policy type. We utilize both excess-of-loss and quota share reinsurance across our offices.
Premiums are recognized as written on the inception date of a policy. For certain types of business written by us, notably reinsurance, premium income may not be known at the contract inception date. In the case of quota share reinsurance assumed by us, the underwriter makes an estimate of premium income at inception as the premium income is typically derived as a percentage of the underlying policies written by the cedents. The underwriter’s estimate is based on statistical data provided by reinsureds and the underwriter’s judgment and experience. Such estimations are refined over the reporting period of each treaty as actual written premium information is reported by ceding companies and intermediaries. Management reviews estimated premiums at least quarterly and any adjustments are recorded in the period in which they become known.
We have determined that the goodwill arising from the acquisition of AW Underwriters and the claims administration services company should be allocated to the U.S. insurance operations reporting unit of the North American Insurance segment as the assets employed and the liabilities relate to the U.S. insurance operations. All the insurance operations of AW Underwriters and the claims administration services company are included in the North American Insurance segment.
Reinsurance Segment. Our Reinsurance segment has operations in Bermuda, Labuan, London, Singapore, the United States and Zug. This segment includes the reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by insurance companies. We presently write reinsurance on both a treaty and a facultative basis, targeting several niche reinsurance markets.
(1) Represents our trade credit line of business which is currently written primarily out of our London office.
We do not currently anticipate that the restrictions on liquidity resulting from restrictions on the payment of dividends by our subsidiary companies or from assets committed in trust accounts or to collateralize the letter of credit facilities will have a
In conjunction with the above referenced mortgage commitment, Allied World Assurance Company, AG entered into a three year credit facility with a Swiss bank that provided us $5.1 million (CHF 5.0 million) for general corporate purposes, however we used the proceeds from the credit facility to fund the purchase of the office building in Zug, Switzerland. The interest rate for the credit facility is 2.5%.
The following table shows our aggregate contractual obligations by time period remaining until due date as of December 31, 2015: