Commercial segment premiums represented 33.6%, 34.4% and 35.0% of total net premiums earned in 1996, 1995 and 1994, respectively.
The Company's investment policy is structured with emphasis on maximizing after tax income while providing liquidity and preserving asset quality. The portfolio is dominated by fixed income securities. The fixed income portfolio maintains a laddered maturity structure with a duration of 5.74 years. The Company continually evaluates credit quality throughout the investment holding period. The Company's investment portfolio increased $114.4 million to $1,605.2 million at December 31, 1996, from $1,490.8 million at December 31, 1995, primarily attributable to the investment of cash provided by operations of $73.5 million. Approximately 87.1% of the portfolio was invested in debt securities at December 31, 1996, compared to 86.5% at December 31, 1995.
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of business operations. As a holding company, Citizens' primary source of cash for payment of dividends to its shareholders is dividends from its insurance subsidiaries, which are subject to limitations imposed by state regulators. Such limitations require that dividends be paid only out of statutory earned surplus (unassigned funds) and impose a restriction on the payment of "extraordinary" dividends without prior approval of the state authorities. The maximum dividend that may be paid to Citizens Corporation at January 1, 1997, without prior approval from the Michigan Commissioner of Insurance, is $39.9 million.
The Company maintains a reinsurance program designed to protect against large or unusual losses and allocated LAE activity. This includes both pro rata excess of loss reinsurance and catastrophe reinsurance. Catastrophe reinsurance serves to protect the ceding insurer from significant aggregate losses arising from a single event such as windstorm, hail, hurricane, tornado, riot or other extraordinary events. Most reinsurance treaties are negotiated by the Company's parent through a broker and provide coverage for all of the subsidiaries of Allmerica Property & Casualty Companies, Inc., including the Company. The Company remains contingently liable in the event that a reinsurer is unable to meet the obligations assumed under the reinsurance agreements.
This favorable development reflects the Company's reserving philosophy consistently applied over these periods. Conditions and trends that have affected development of the loss and LAE reserves in the past may not necessarily occur in the future.
The Company also has a 401(k) Matched Savings Plan, a defined contribution plan. Effective with the 1995 plan year, the Company began matching employee elective 401(k) contributions, up to a maximum percentage determined annually by the Board of Directors. During both 1996 and 1995, the Company matched 50% of employees' contributions up to 6% of eligible compensation. Prior to January 1, 1995, a profit sharing formula was used under which the Company's contributions to the plan were determined by a formula based upon the statutory combined ratio, including policyholders' dividends, and were subject to certain limitations. The total expenses related to these plans were $1.8 million, $1.4 million and $1.9 million, in 1996, 1995, and 1994, respectively.