In November 1996, the Company sold the renewal book of business of its assumed reinsurance operation to concentrate on businesses where the Company can better service its specialized niche markets. Excluding premiums from this operation, the Company's net premiums written increased by 8.1% in 1997. The consolidation of Guaranty National increased the Company's 1996 net premiums written by $491,232,000. Excluding Guaranty National, the Company's net premiums written increased by 11.3% in 1996.
The Company monitors the financial condition of the issuers of securities that it owns. When conditions are deemed appropriate, the Company ceases to accrete discounts, or accrue interest and dividends and, in cases where the value of such investments is deemed to be other than temporarily impaired, recognizes losses. The Company's non-investment grade securities are highly diversified, with an average investment per issuer of approximately $1,740,000 at December 31, 1997. The largest non-investment grade security had a carrying value of $13,159,000 at December 31, 1997.
The ratio of policy acquisition costs and other insurance expenses to premiums earned (the "expense ratio") is 31.2%, 30.1% and 29.0% in 1997, 1996 and 1995, respectively. Policy acquisition costs include direct costs, such as commissions, premium taxes, and salaries, that relate to and vary with the production of new and renewal business. These costs are deferred and amortized as the related premiums are earned, subject to a periodic test for recoverability. The increases in the expense ratio are attributable to the Company's continued investment in building its loss prevention competencies and the costs of expanding in new territories and changing the EBI office operations. Additionally, the increases are the result of higher commissions for EBI and Connecticut Specialty, including a change in reinsurance in 1996 which provides for lower ceding commissions. The increase for 1996 also reflects the consolidation of Guaranty National. The ratio of policyholders' dividends to premiums earned (the "dividend ratio") is 1.8%, 1.8% and 2.9% in 1997, 1996 and 1995, respectively. The decrease in the dividend ratio for 1996 results from the consolidation of premiums from Guaranty National, which does not have participating policies. The Company's consolidated combined ratio is 99.7% in 1997, 99.8% in 1996 and 100.3% in 1995.
Cash provided by financing activities is $105,078,000 for 1997 and $37,814,000 for 1995. Cash used in financing activities is $27,349,000 for 1996. The net proceeds from the issuance of trust preferred securities by the Company in January 1997 provided $123,026,000 of cash in 1997. Orion borrowed $12,000,000 under its bank line of credit in June 1995 to finance part of the McGee acquisition. In July 1995 Orion issued $100,000,000 of senior debt and repaid all of its outstanding bank debt. Cash used in financing activities includes dividend payments, debt repayments and payments related to the Company's common stock repurchase program. Orion has increased the quarterly dividend rate on its common stock by 15.0% in the third quarter of 1995, by an additional 8.7% and 12.0% in the first and fourth quarters of 1996, respectively, and by 14.3% in the second quarter of 1997.
ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)