Genworth Financial Mortgage Insurance Limited and Genworth Financial Mortgage Services Limited (collectively, "Genworth")
We evaluate our operations by monitoring key measures of growth and profitability, including return on equity and net combined ratio. Our return on equity was 15.8%, 21.8% and 28.3% for the years ended December 31, 2016, 2015 and 2014, respectively. Our overall financial objective is to produce a return on equity of 15.0% or more over the long term. In addition, we target a net combined ratio of 95.0% or lower over the long term, while seeking to maintain optimal operating leverage in our insurance subsidiaries commensurate with our A.M. Best rating objectives. Our net combined ratio was 93.7%, 91.6% and 91.3% for the years ended December 31, 2016, 2015 and 2014, respectively. A key factor in achieving our targeted net combined ratio is a continuous focus on our net expense ratio. Our strategy across our segments is to maintain premium rates, deploy capital judiciously, manage our expenses and focus on the businesses in which we have expertise, which we believe should provide opportunities for greater returns.
On September 25, 2015, we completed the acquisition of Warranty Solutions, a Wells Fargo business ("Warranty Solutions") for approximately $156.2 million in cash. Warranty Solutions designs, markets, administers and underwrites vehicle service contracts for new and used automobiles through a national network of more than 70 active agencies and 1,500 franchised and independent dealers. Warranty Solutions' results of operations are included as a component of the Specialty Risk and Extended Warranty segment. As a result of this acquisition, we recorded approximately $87.8 million and $22.8 million of gross written premium for the years ended December 31, 2016 and 2015, respectively, and $85.8 million and $24.3 million of service and fee income for the years ended December 31, 2016 and 2015, respectively.
On January 6, 2015, we completed the acquisition of TMI Solutions, LLC ("TMIS") for approximately $29.5 million in cash and a contingent earn-out provision valued at $32.0 million. TMIS offers monthly billed warranty solutions for a variety of consumer electronics as well as consumer protection services. TMIS's warranties are primarily distributed in conjunction with large telecommunication monthly customer billing services and their customers include various Fortune 500 companies. TMIS's results of operations are included as a component of the Specialty Risk and Extended Warranty segment. As a result of this acquisition, we recorded approximately $12.3 million and $13.7 million of service and fee income during the years ended December 31, 2016 and 2015, respectively.
Net Combined Ratio. The net combined ratio is a measure of an insurance company’s overall underwriting profit. This is the sum of the net loss and net expense ratios. If the net combined ratio is at or above 100 percent, an insurance company cannot be profitable without investment income, and may not be profitable if investment income is insufficient.
Notwithstanding the inherent uncertainty, we have not observed material variability in our loss development factors for our largest books of business. We believe that it is reasonably likely that we could experience a 5% deviation in our loss and loss adjustment expense reserves due to changes in the elements that underlie loss development, such as claims frequency or severity. For example, as of December 31, 2016, the average cost per workers’ compensation claim was $13,606, which was a 3.7% increase over the claims severity from 2001 - 2015 of $13,115. In 2016, claims frequency (number of claims per $1.0 million of payroll) decreased to .982 from .998, a decrease of 1.55%, for the period between 2001 and 2016.
stated at estimated fair market value. Gains and losses, both realized and unrealized, are included in the net realized gain or loss on investment on the consolidated statement of income. For both available-for-sale and trading securities, we determine realized gains and losses on the specific identification method.
Goodwill and Intangible Assets. We account for goodwill and intangible assets in accordance with ASC 820, Business Combinations and ASC 350, Intangibles - Goodwill and Other. We record an acquisition price paid that is in excess of net assets (“goodwill”) arising from a business combination as an asset, and it is not amortized. We amortize intangible assets with a finite life over the estimated useful life of the asset. We do not amortize intangible assets with an indefinite useful life. We review our finite-lived intangible assets for impairment when events or change in circumstances indicate that the carrying value of such intangible assets may not be recoverable from estimated cash flows. We test goodwill and intangible assets with indefinite lives for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may
Service and Fee Income. Service and fee income increased $109.8 million, or 25.7%, to $538.0 million from $428.1 million for the years ended December 31, 2016 and 2015, respectively. The increase related primarily to the acquisition of Warranty Solutions, which generated fees of approximately $86 million, and higher fees for services provided to Maiden, NGHC and ACP Re of approximately $11 million.
Net Written Premium. Net written premium increased $138.5 million, or 18.7%, to $879.0 million for the year ended December 31, 2015 from $740.5 million for the year ended December 31, 2014. The increase in net written premium resulted from an increase of gross written premium for the year ended December 31, 2015 compared to the year ended December 31, 2014, partially offset by a lower retention of gross written premium during 2015 compared to 2014. Our overall retention of gross written premium for the segment was 66.5% and 67.0% for the years ended December 31, 2015 and 2014, respectively. The decrease in the retention of gross written premium in 2015 related to an increase in business written that is covered under the Maiden Quota Share.
We have an outstanding principal balance of $215.4 million of Convertible Senior Notes due 2044 (“2044 Notes”), with a carrying value of $166.4 million, that bear interest at a rate equal to 2.75% per year, payable semiannually in arrears on June 15th and December 15th of each year. Additionally, we have an outstanding principal balance of $6.0 million of Convertible Senior Notes due 2021 (“2021 Notes”), with a carrying value of $5.2 million, that bear interest at a rate equal to 5.50% per year, payable semiannually in arrears on June 15th and December 15th of each year. Interest expense recognized on the 2044 Notes was $12.6 million, $12.2 million and $0.5 million for the years ended December 31, 2016, 2015, and 2014, respectively. Interest expense recognized on the 2021 Notes was $0.5 million, $0.8 million, and $13.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. For further information on the 2044 Notes and the 2021 Notes, including contingent interest on the 2044 Notes, conversion triggers, redemption and repurchase features and the exchange of 2021 Notes for 2044 Notes, see Note 15. “Debt” in the audited consolidated financial statements included elsewhere in this report.