For the year ended December 31, 2016, catastrophe reinsurance was on a “net” basis. For the year ended December 31, 2015, catastrophe reinsurance was on a “gross” basis through June 30, 2015, and on a “net” basis from July 1, 2015 through December 31, 2015. As a result of the 2015 mid-year change from “gross” to “net”, comparison between periods in 2016 and 2015 are separated between the six month periods ended June 30 and the six month periods ended December 31. Ceded catastrophe premiums from January 1, 2016 through June 30, 2016 increased by $2,496,000, or 120.1%, to $4,575,000 for the six months ended June 30, 2016 from $2,079,000 for the six months ended June 30, 2015. The increase was primarily due the change from “gross” to “net”. Ceded catastrophe premiums from July 1, 2016 through December 31, 2016 increased by $485,000, or 10.9%, to $4,954,000 for the six months ended December 31, 2016 from $4,469,000 for the six months ended December 31, 2015. The increase was primarily due to an increase in premiums subject to catastrophe reinsurance.
The following table details the quota share provisional ceding commission rates in effect during 2016 and 2015. This table should be referred to in conjunction with the discussion for ceding commission revenue that follows.
Ceding commission revenue was $11,268,000 in 2016 compared to $11,473,000 in 2015. The decrease of $205,000, or 1.8%, was due to a decrease in contingent ceding commissions earned, partially offset by an increase in provisional ceding commissions earned.
The $1,077,000 increase in provisional ceding commissions earned is due to: (1) an increase in personal lines direct written premiums subject to the quota share and (2) an increase in the weighted average provisional ceding commission rates as discussed above, partially offset by (1) a decrease in the amount of premiums subject to provisional ceding commissions due to the reduction in quota share rates to 40% beginning July 1, 2015 and (2) a decrease in the percentage of ceded premiums subject to quota share under the “net” quota share treaties in effect beginning July 1, 2015 compared to the “gross” 2014/2015 Treaty that expired on June 30, 2015.
Net investment income was $3,116,000 in 2016 compared to $2,564,000 in 2015. The increase of $552,000, or 21.5%, was due to an increase in average invested assets in 2016. The increase in cash and invested assets resulted primarily from increased operating cash flows for the period after June 30, 2015. The increase in operating cash flows is due in part from the reduction in quota share rates on July 1, 2015. The reduction in quota share rates results in a decline in ceded premiums, which leads to more cash flow and more invested funds. The pre-tax equivalent investment yield on estimated annual income, excluding cash, was 4.26% and 4.77% as of December 31, 2016 and 2015, respectively. The decrease in the pre-tax equivalent investment yield is due to a shift toward shorter duration investments, which inherently have a lower yield. A reduction in interest rates resulted in an increase to unrealized gains on our portfolio, which in turn reduced the pre-tax equivalent investment yield.
During 2016, the net loss ratio decreased compared to 2015 due to a combination of several factors. First, there was a reduction in the impact of severe winter weather, defined as the losses incurred above those expected in an average winter. In 2016 we recorded 2.3 points of impact from severe winter weather, compared to 4.3 points in 2015, or a decrease of 2.0 points. In addition, the core loss ratio excluding the impact of severe winter weather and prior year development decreased to 43.1% in 2016 from 44.4% in 2015, or a decrease of 1.3 points. Partially offsetting these declines, we recorded 0.1 points of favorable prior year loss development in 2016 compared to 1.0 point of favorable prior year development in 2015, or a decrease in the favorable impact of 0.9 points year-over-year. The decrease in the core net loss ratio is driven by reduced claim frequency in both our personal and commercial lines business. See table below under “Additional Financial Information” summarizing net loss ratios by line of business.
Commercial auto liability loss and LAE reserves account for a rapidly decreasing percentage of our total loss and LAE reserves, and as of December 31, 2016 comprise 5.8% of our total loss and LAE reserves. This line of business was historically subject to a high level of uncertainty and volatility in claim emergence and loss development. The exit from this line therefore significantly decreases the uncertainty surrounding our overall reserve levels and reduces the associated volatility in financial results.
As more fully described in Note 3 to our Consolidated Financial Statements, “Investments-Impairment Review,” we completed a detailed review of all our securities in a continuous loss position as of December 31, 2016 and December 31, 2015. As of December 31, 2016 our held-to-maturity debt securities included an investment in one bond issued by the Commonwealth of Puerto Rico (“PR”). In July 2016, PR defaulted on its interest payment to bondholders. Due to the credit deterioration of PR, we recorded a credit loss component of other-than-temporary impairment (“OTTI”) on this investment as of June 30, 2016. For the year ended December 31, 2016, the full amount of the write-down was recognized as a credit component of OTTI in the amount of $69,911 and is included as a reduction to net realized gains in the consolidated statements of income and comprehensive income. We concluded that the other unrealized losses in these asset classes are temporary in nature and the result of a decrease in value due to technical spread widening and broader market sentiment, rather than fundamental collateral deterioration.