premiums (except for the run-off of the retained business as described below). In many cases, we hold significant collateral to secure the associated reinsurance recoverables. Furthermore, to the extent funds related to settling balances (premiums, commissions and losses) between the GAs and the reinsurers are not the obligation of the Company, no receivables or payables are reflected in the Company’s financial statements for these amounts. In exchange for providing our insurance capacity, licensing and rating to our GA and insurer clients, we receive ceding fees averaging in excess of 5% of gross written premiums.
Run-off of the Retained Business. In the past, the Company has participated to a limited extent on a quota share basis in certain programs in the Program Services segment. From 2007 until 2011, California had required USIC to retain 10% of the risks written. After this requirement was lifted in early 2012, the Company reinsured to inception the retained business under most of the active contracts, but others continue to run-off. The Company has no active retained contracts and has no present intention of participating in future contracts. We refer to this business as “the run-off of the retained business.” As of December 31, 2016, we had net reserves of $3.5 million related to this business.
Founder Special Compensation. Prior to the completion of the private placement in 2014, we paid special compensation to our co-founders in recognition of their service to our Company. We refer to these payments as “founder special compensation.” Founder special compensation payments were discretionary and determined by the Company’s owners in the first or second quarter of the year in which they were made, based on current period considerations including capital position, estimated capital needs and liquidity, and earnings for the prior year. We paid founder special compensation in the aggregate amount of $17.9 million for the year ended December 31, 2014. Following the completion of the private placement in 2014, we ceased paying founder special compensation.
Ceding fees. Ceding fees are fees we receive in the Program Services segment in exchange for providing access to the U.S. property and casualty insurance market and are based on the gross premiums we write on behalf of our GA and capacity provider clients. We earn ceding fees in a manner consistent with the recognition of the gross premiums earned on the underlying insurance policies, generally on a pro-rata basis over the terms of the policies reinsured, which policies often have a one year term.
At the end of each quarter during the program contract year, we adjust the capacity fee based upon the re-estimated or actual amount of gross premiums that we expect will be written or that were written for that program for the full contract year. If the estimated annual gross written premiums fall below the minimum contract level in a given period, capacity fees associated with the estimated premium shortfall for that period are earned in that period. If the estimated annual gross written premiums equal or exceed the required minimum level for a given period, no capacity fees are recognized for that period, and the premium-related fees are earned as the associated gross written premium is earned. In connection with our re-estimation process, if in a subsequent period we increase our estimate of the amount of gross premiums that we expect will be written under a program for the full contract year, we will reverse a portion of the capacity fees earned in a prior period. Conversely, to the extent that we decrease our estimate of gross premiums, we will recognize capacity fees associated with the additional shortfall in the current period.
An allowance for policy cancellations is provided for the estimated amount of return premiums and policy fees, net of commission expense and premium taxes that will be incurred on expected future policy cancellations associated with the Company’s business. Premiums and cancellation data are accumulated by accounting month (month in which the premium was written/collected). The estimation methodology utilizes actual cancellation rates (premium refunds divided by premiums written by accounting month) to determine expected future cancellations for that accounting month. The balance for each accounting month decreases each subsequent month as actual refunds emerge.
Premiums earned. Premiums earned increased by $21.4 million, or 22.2%, from $96.7 million for the year ended December 31, 2014 to $118.1 million for the year ended December 31, 2015. This increase was due to an increase in Lender Services premiums earned, $10.4 million of which is related to the amendment of the CUNA Mutual alliance agreement. Factors contributing to this increase in premiums earned are new sales and growth in the loan portfolios of existing accounts driven by rising automobile sales and higher average auto loan sizes.
Losses and loss adjustment expenses. Losses and LAE incurred in the run-off of the retained business decreased by $1.0 million from $2.0 million for the year ended December 31, 2015 to $1.0 million for the year ended December 31, 2016, which is due to less adverse development than in prior year on the run-off of the retained business.
Losses and loss adjustment expenses. Losses and LAE increased by $3.9 million, or 7.3%, from $53.8 million for the year ended December 31, 2015 to $57.7 million for the year ended December 31, 2016, primarily as a result of increased exposure due to higher earned premiums. A strengthening economy, an aging automobile fleet, and easier access to credit have contributed to an increase in vehicle sales, resulting in higher loan balances which are the bases upon which we pay claims.
Offering-related expenses are non-recurring expenses related to the Company’s private placement of common stock.
Realized net investment gains. Realized net investment gains increased by $0.8 million, or 44.9%, from a gain of $1.9 million for the year ended December 31, 2015 to a gain of $2.7 million for the year ended December 31, 2016. This increase was partially the result of the liquidation of fixed maturity securities for the purchase of CNIC in September 2016 and acquisition of ISIC in January 2017, and was partially offset by a decrease in the change in fair value of embedded derivatives on the Company’s convertible securities.