Other operating expenses for 2013, before credits for ceding allowances from reinsurers, increased $13.6 million (15%) to $106.2 million. This increase is due primarily to an increase in salary and salary related expenses, reflective of the Company’s growing workforce in response to the continued expansion of the Company’s products and services and to an increase in commission expenses, representing an increase in average commission rates from 15.4% to 16.4% due to higher profit commissions on favorable property reinsurance results.
The selection of loss development factors in the establishment of bulk reserves for incurred but reported losses and loss expenses
Under reasonably possible scenarios, it is conceivable that the Company’s selected loss reserve estimates could be 10%, or more, redundant or deficient. The majority of the Company’s reserves for losses and loss expenses, on either a gross or a net of reinsurance basis, relates to its fleet transportation products. Perhaps the most significant example of sensitivity to variation in the key assumptions is the loss ratio selection for the Company’s fleet transportation products for policies subject to certain major reinsurance treaties (approximately $152.5 million, or approximately 34% of carried direct reserves for directly produced property and casualty business). The following table presents the approximate impacts on gross and net loss reserves of both a 10 percentage point and 20 percentage point increase or decrease in the loss factors actually utilized in the Company’s reserve determination at December 31, 2014. The Company’s selection of the range of values presented should not be construed as the Company’s prediction of future events, but rather simply an illustration of the impact of such events, should they occur:
We have audited the accompanying consolidated balance sheets of Baldwin & Lyons, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
Shareholders' equity includes approximately $28,596, net of deferred federal income taxes, of undistributed earnings from limited partnerships as of December 31, 2014.
Gain and loss activity for fixed maturity and equity security investments, as shown in the previous table, include adjustments for other-than-temporary impairment for the years ended December 31 summarized as follows:
The Company has invested a total of $23,000 in two limited partnerships, with an aggregate estimated value of $46,987 at December 31, 2014, that are managed by organizations in which four directors of the Company are executive officers, directors or owners. The Company’s ownership interest in these limited partnerships ranges from 5% to 16%. These limited partnerships added $7,088, $1,154 and $2,485, net of fees, to investment gains in 2014, 2013 and 2012, respectively. During 2014, 2013 and 2012, the Company has recorded management fees of $697, $640 and $650, respectively, and performance-based fees of $0, $18 and $0, respectively, to these organizations for management of these limited partnerships. The Company has been informed that the fee rates applied to its investments in these limited partnerships are the same as, or lower than, the fee rates charged to unaffiliated customers for similar investments.
Approximately $66,817 of fixed maturity investments (8.8% of total invested assets) consists of bonds rated as less than investment grade at year end. These investments include a diversified portfolio of over 40 investments and have a $3,188 net unrealized loss position at December 31, 2014.
The Company's Class A and Class B common stock has a stated value of approximately $.04 per share. The Company paid a total of $14,947, $14,943 and $14,886, or $1.00 per share, in dividends for the years 2014, 2013 and 2012, respectively.
The Company writes policies of excess insurance attaching above self-insured retentions ("SIR") and also writes policies that contain per-claim deductibles. Those losses and claims that fall within the SIR limits are obligations of the insured; however, the Company writes surety bonds in favor of various regulatory agencies guaranteeing the insureds’ payment of claims within the SIR. Further, specified portions of losses and claims incurred under large deductible policies, while obligations of the Company, are contractually reimbursable to the Company from the insureds. The Company requires collateral from its insureds to serve as a source of reimbursement if the Company is obligated to pay claims within the SIR by reason of an insured’s default or if the insured fails to reimburse the Company for deductible amounts paid by the Company.
The Company leases certain computer and related equipment using noncancelable operating leases. Lease expense for 2014, 2013 and 2012 was $330, $1,324 and $1,506, respectively. At December 31, 2014, future lease payments for operating leases with initial or remaining noncancelable terms of one year or more consisted of the following: