Additional information regarding our segments is included in Note 16 of the Notes to Consolidated Financial Statements, Part I and in the Segment Results sections that follow.
•The investment income ratio which is calculated as net investment income divided by net premiums earned and measures the contribution investment earnings provide to our overall profitability.
We evaluate our available-for-sale investment securities, which at December 31, 2020 and December 31, 2019 consisted entirely of fixed maturity securities, on at least a quarterly basis for the purpose of determining whether declines in fair value below recorded cost basis represent an impairment loss. We consider a credit-related impairment loss to have occurred:
•if the entire amortized basis of the security is not expected to be recovered.
If deemed appropriate and necessary, a discounted cash flow analysis is performed to confirm whether a credit loss exists and, if so, the amount of the credit loss. We use the single best estimate approach for available-for-sale debt securities and consider all reasonably available data points, including industry analyses, credit ratings, expected defaults and the remaining payment terms of the debt security. For fixed rate available-for-sale debt securities, cash flows are discounted at the security's effective interest rate implicit in the security at the date of acquisition. If the available-for-sale debt security’s contractual interest rate varies based on subsequent changes in an independent factor, such as an index or rate, for example, the prime rate, the LIBOR, or the U.S. Treasury bill weekly average, that security’s effective interest rate is calculated based on the factor as it changes over the life of the security. If we intend to sell a debt security or believe we will more likely than not be required to sell a debt security before the amortized cost basis is recovered, any existing allowance will be written off against the security's amortized cost basis, with any remaining difference between the debt security's amortized cost basis and fair value recognized as an impairment loss in earnings.
As disclosed in our June 30, 2020 report on Form 10-Q, COVID-19 has caused significant market volatility impacting our actual and projected results along with a decline in our stock price; and we performed a quantitative assessment on the Specialty P&C and Workers' Compensation Insurance reporting units. As a result of the interim goodwill impairment assessment in the second quarter of 2020, management concluded that the fair value of each of the Specialty P&C and Workers' Compensation Insurance reporting units were greater than their carrying value as of the testing date; therefore, goodwill was not impaired and no further impairment testing was required at that time.
We are involved in a number of leases, primarily for office facilities. We determine if an arrangement is a lease at the inception date of the contract and classify all leases as either financing or operating. As of December 31, 2020, all of our leases were classified as operating. Operating lease ROU assets and operating lease liabilities are recognized as of the lease commencement date based on the present value of the remaining lease payments, discounted over the term of the lease using a discount rate determined based on information available as of the commencement date. The ROU asset represents the right to use the underlying asset (office space) for the lease term. As the majority of our lessors do not provide an implicit discount rate, we use our collateralized incremental borrowing rate in determining the present value of remaining lease payments. For leases entered into or reassessed after the adoption of ASU 2016-02 on January 1, 2019, we account for lease and non-lease components of a contract as a single lease component.
•A general decline in claims frequency has also been a contributor to favorable loss development. A significant portion of our policies through 2003 were issued on an occurrence basis, and a smaller portion of our ongoing business results from the issuance of extended reporting endorsements which have occurrence-like exposure. As claims frequency declined, the number of reported claims related to these coverages was less than originally expected.
The decrease in our consolidated net investment result for the year ended December 31, 2020 as compared to 2019 was driven by a decrease in our allocation to equities and lower yields on our short-term investments and corporate debt securities given the actions taken by the Federal Reserve to aggressively reduce interest rates in response to COVID-19. Equity in earnings (loss) of unconsolidated subsidiaries includes our share of the operating results of interests we hold in certain LPs/LLCs as well as operating losses associated with our tax credit partnership investments, which are designed to generate returns in the form of tax credits and tax-deductible project operating losses. The decrease in our equity in earnings (loss) of unconsolidated subsidiaries in 2020 as compared to 2019 was due to lower reported earnings from several LPs/LLCs driven by
(8)Our Medical Technology Liability business is marketed throughout the U.S.; coverage is typically offered on a primary basis, within specified limits, to manufacturers and distributors of medical technology and life sciences products including entities conducting human clinical trials. In addition to the previously listed factors that affect our premium volume, our Medical Technology Liability premium is impacted by the sales volume of insureds. Our Medical Technology Liability premium remained relatively unchanged in 2020 as compared to 2019 as retention losses and renewal pricing decreases were offset by new business written. New business written in 2020 reflects the addition of a few COVID-19 related policies. Retention losses in 2020 are primarily attributable to an increase in competition on terms and pricing. Renewal pricing decreases in 2020 are primarily due to changes in the sales volume of certain insureds, including changes in COVID-19 related exposure on several renewing policies.
Net premiums earned consist of gross premiums earned less the portion of earned premiums that the Syndicates cede to reinsurers for their assumption of a portion of losses. Premiums written through open-market channels are generally earned pro rata over the entire policy period, which is predominately twelve months, whereas premiums written through delegated underwriting authority arrangements are earned over twenty-four months. Therefore, net premiums earned is affected by shifts in the mix of policies written between the open-market and delegated underwriting authority arrangements. Additionally, net premiums earned consists of a mix of policies earned from different open underwriting years. As previously discussed, we participate to a varying degree in each open underwriting year which may cause fluctuations in premiums earned. Furthermore, fluctuations in premiums earned tend to lag those of premiums written. Premiums for certain policies and assumed reinsurance contracts are reported subsequent to the coverage period and/or may be subject to adjustment based on loss experience. These premium adjustments are earned when reported, which can result in further fluctuation in earned premium.
(1) Includes tax-exempt interest, dividends received deduction and change in cash surrender value of BOLI.
(8)Our Medical Technology Liability is marketed throughout the U.S.; coverage is typically offered on a primary basis, within specified limits, to manufacturers and distributors of medical technology and life sciences products including entities conducting human clinical trials. In addition to the previously listed factors that affect our premium volume, our medical technology liability premium is impacted by the sales volume of insureds. The increase in 2019 was primarily due to new business written and, to a lesser extent, an increase in renewal pricing, largely offset by retention losses. Renewal pricing increases primarily reflect increases in the sales volume and exposure of certain insureds. Retention losses in 2019 are primarily attributable to an increase in competition on terms and pricing.
Consolidated Statements of Changes in Capital - Years Ended December 31, 2020, 2019 and 2018