Net premiums written in the personal automobile line of business for the year ended December 31, 2014 were $884.1 million compared to $890.3 million for the year ended December 31, 2013, a decrease of $6.2 million. This decrease was primarily due to a decline in policies in force of 3.5%, primarily from ongoing exposure management actions and actions to improve underwriting results, partially offset by rate increases. Net premiums written in the homeowners line of business for the year ended December 31, 2014 were $499.0 million, compared to $496.7 million for the year ended December 31, 2013, an increase of $2.3 million. This is primarily due to rate increases, partially offset by decline in policies in force of 5.3%, principally as a result of the aforementioned exposure management actions.
For each line of business and coverage, we regularly adjust the assumptions and methods used in the estimation of loss reserves in response to our actual loss experience, as well as our judgments regarding changes in trends and/or emerging patterns. In those instances where we primarily utilize analyses of historical patterns of the development of paid and reported losses, this may be reflected, for example, in the selection of revised loss development factors. In longer-tailed classes of business and for which loss experience is less predictable due to potential changes in judicial interpretations, potential legislative actions, the cost of litigation or determining liability and the ultimate loss, inflation and potential claims issues, this may be reflected in a judgmental change in our estimate of ultimate losses for particular accident years.
Higher than expected losses within our personal automobile line, due to severity in bodily injury coverage for accident years 2010 through 2012.
Higher than expected large losses within our commercial automobile line, primarily related to liability coverage in accident years 2009 through 2011.
In 2013, through several transactions, we repurchased senior debentures with a net carrying value of $73.8 million at a cost of $93.7 million, resulting in a loss of $19.9 million. Additionally in 2013, we repaid $46.3 million of our FHLBB advances plus prepayment fees of $7.8 million for a total payment of $54.1 million. In 2012, we repurchased $65.4 million of our subordinated unsecured notes related to Chaucer at a par value. These notes had a carrying value of $60.3 million, resulting in a net loss of $5.1 million on the repurchases. In addition, we repurchased $7.0 million of capital securities related to AIX at par value.
The provision for income taxes from continuing operations was an expense of $95.7 million in 2014 and $83.4 million in 2013, compared to a benefit of $17.4 million in 2012. These amounts resulted in consolidated effective tax rates of 25.3% on pre-tax income for 2014 and 2013, and a benefit of 60.6% on pre-tax income for 2012. These provisions reflect benefits related to tax planning strategies implemented in prior years of $16.2 million, $17.5 million and $14.3 million in 2014, 2013 and 2012, respectively. The provision for 2014 also included a benefit related to the reduction of a valuation allowance of $2.9 million, and a $6.9 million benefit related to foreign exchange loss deductions on our 2013 and 2014 U.S. tax returns. Additionally, the provision in 2012 reflects a decrease in our valuation allowance related to capital loss carryforwards of $7.7 million. Absent these benefits, the provision for income taxes for 2014, 2013, and 2012 would have been expenses of $121.7 million or 32.2%, $100.9 million, or 30.7%, and $4.6 million, or 16.0%, respectively. This increase in the 2014 effective tax rate is primarily due to a modest decrease in the proportion of our income from foreign operations not subject to U.S. taxes and thus taxed at the lower U.K. rate. The increase in the 2013 effective tax rate is primarily due to higher underwriting income.
Holding all other assumptions constant (using the December 31, 2014 GBP to U.S. dollar conversion rate of 1.56), sensitivity to changes in our key assumptions related to our Chaucer pension plan is as follows:
The Company tests for the recoverability of goodwill and intangible assets with indefinite lives annually or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company recognizes impairment losses only to the extent that the carrying amounts of reporting units with goodwill exceed the fair value. The amount of the impairment loss that is recognized is determined based upon the excess of the carrying value of goodwill compared to the implied fair value of the goodwill, as determined with respect to all assets and liabilities of the reporting unit. The Company has performed its annual review of goodwill and intangible assets with indefinite lives for impairment in the fourth quarters of 2014 and 2013 with no impairments recognized. At December 31, 2014 and 2013, Chaucer held intangible assets with indefinite lives of $76.5 million and $81.3 million, respectively, which represents approximately 80% of the Company’s balance. In addition, at December 31, 2014 and 2013, goodwill held by Chaucer was $5.8 million and $6.3 million, respectively. The remaining balance relates to the U.S. Companies. Changes in the value of goodwill and intangible assets with indefinite lives from December 31, 2013 represent foreign exchange differences arising during 2014.
The expected rates of return were determined by using historical mean returns for each asset class, adjusted for certain factors believed to have an impact on future returns. These returns are generally weighted to the plan’s actual asset allocation. For the U.S. defined benefit plans, expectations with respect to the interest rate market resulted in a slight increase in the expected return on plan assets for 2014 to 5.50%. Regarding the Chaucer defined benefit plan, because the Company began shifting the allocation of assets between equities and fixed maturities, the historical mean returns were adjusted downward slightly to reflect the plan’s asset mix. Due to the shift in asset composition, the adjusted mean returns were weighted to the plan’s expected target asset allocation at December 31, 2014, resulting in an expected rate of return on plan assets for 2014 of 6.55%. The Company reviews and updates, at least annually, its expected return on plan assets based on changes in the actual assets held by the plans.
The benefit payments are based on the same assumptions used to measure the Company’s benefit obligation at the end of 2014 and reflect benefits attributable to estimated future service.
The Company estimates its ultimate liability for asbestos, environmental and toxic tort liability claims, whether resulting from direct business, or assumed reinsurance and pool business, based upon currently known facts, reasonable assumptions where the facts are not known, current law and methodologies currently available. Although these outstanding claims are not significant, their existence gives rise to uncertainty and are discussed because of the possibility that they may become significant. The Company believes that, notwithstanding the evolution of case law expanding liability in asbestos and environmental claims, recorded reserves related to these claims are adequate. The asbestos, environmental and toxic tort liability could be revised in the near term if the estimates used in determining the liability are revised, and any such revisions could have a material adverse effect on the Company’s results of operations for a particular quarterly or annual period or its financial position.
The plaintiff filed an Amended Complaint adding two new named plaintiffs and additional claims on December 11, 2009. In response, the Company filed a Motion to Dismiss on January 30, 2010. In addition to the pending claim challenging the calculation of lump sum distributions, the Amended Complaint included: (a) a claim that the Plan failed to calculate participants’ account balances and lump sum payments properly because interest credits were based solely upon the performance of each participant’s selection from among various hypothetical investment options (as the Plan provided) rather than crediting the greater of that performance or the 30 year Treasury rate; (b) a claim that the 2004 Plan amendment, which changed interest crediting for all participants from the performance of participant’s investment selections to the 30 year Treasury rate, reduced benefits in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”) for participants who had account balances as of the amendment date by not continuing to provide them performance-based interest crediting on those balances; and (c) claims against the Company for breach of fiduciary duty and ERISA notice requirements arising from the various interest crediting and lump sum distribution matters of which plaintiffs complain. On March 31, 2011, the District Court granted the Company and the Plan’s Motion to Dismiss on statute of limitations grounds the additional claims set forth in (a) and (b) above, however, in response to a motion for reconsideration, the Court allowed the new breach of fiduciary duty claim to stand, but only as to plaintiffs’ “whipsaw” claim that remained in the case. On June 22, 2012, the Company and the Plan filed a Partial Motion for Summary Judgment to dismiss the “whipsaw” claim of one of the named plaintiffs who received his lump sum distribution after December 31, 2003. On October 2, 2013, the Court granted the Company and the Plan’s Partial Motion for Summary Judgment and dismissed with prejudice the “whipsaw” claim of the named plaintiff who received a lump sum distribution after December 31, 2003 and the similar claims of the putative class members he sought to represent. On December 17, 2013, the Court entered an order certifying a class to bring “whipsaw” and related breach of fiduciary duty claims consisting of all persons who received a lump sum distribution between March 1, 1997 and December 31, 2003, and a subclass to bring such claims consisting of all persons who received lump sum distributions between March 1, 1997 and March 12, 2002. On December 17, 2013, the Court also granted plaintiffs’ motion for entry of a final order allowing an immediate appeal by the two named plaintiffs added in the Amended Complaint of their dismissed claims that the 2004 Plan amendment reduced benefits in violation of ERISA, and for one of them, that his post-2003 lump sum distribution should have been greater. On January 14, 2014, the Company filed a Motion to Alter or Amend the Court’s December 17, 2013 Order requesting that the Court reverse its order making the dismissed claims final and appealable or, in the alternative, stay merits discovery on the claims remaining in the district court pending resolution of the dismissed plaintiffs’ appeal. The Court denied this motion on April 30, 2014. The appeal of the dismissal of the claims of the two named plaintiffs added in the Amended Complaint was filed on May 30, 2014 and is pending. The Company recently filed a Summary Judgment motion to dismiss another class of plaintiffs that were added with the Amended Complaint. Plaintiffs have objected to this motion pending the outcome of the foregoing appeal.
The Company is required to participate in residual markets in various states, which generally pertain to high risk insureds, disrupted markets or lines of business or geographic areas where rates are regarded as excessive. The results of the residual markets are not subject to the predictability associated with the Company’s own managed business, and are significant to both the personal and commercial automobile lines of business, the workers’ compensation line of business, and the homeowners line of business.
The Company’s U.S. insurance subsidiaries are required to file annual statements with state regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis), as codified by the National Association of Insurance Commissioners. Permitted statutory accounting practices encompass all accounting practices that are not prescribed; such practices differ from state to state, may differ from company to company within a state, and may change in the future. The Company’s U.S. insurance subsidiaries did not have any permitted practices as of or for the years ended December 31, 2014, 2013 and 2012.