Although we are authorized to underwrite the various lines described above, our business is primarily underwriting homeowners’ policies. During 2014, 91.4%, 3.3%, 2.0% and 3.3% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and personal automobile insurance, respectively. During 2014, $39.6 million or 11.0% of the $344.9 million of homeowners’ premiums we underwrote were produced under an agency agreement with Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate Insurance Company, that grants Allstate agents the authority to offer certain FNU products. The $39.6 million of homeowners’ premiums produced under this agreement with ISA represents 31.0% of the total increase in the sale of homeowners’ policies during 2014, compared with 2013. This network of agents began writing for FNIC in March 2013. During 2013, 89.6%, 4.3%, 2.6% and 3.5% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and personal automobile insurance, respectively.
Our commercial general liability insurance premiums receivable decreased $0.1 million, or 29.8%, to $0.2 million as of December 31, 2014, compared with $0.3 million as of December 31, 2013.
Our earnings can also be impacted by our ratings, such as the rating of FNIC by Demotech, Inc. (“Demotech”). FNIC’s rating as of December 31, 2014 was "A" ("Exceptional"). For more information regarding our rating and the impact of a change or withdrawal of our rating, please see “Business-Regulation-Industry Rating Services.”
Our loss ratio is computed as losses and LAE divided by net premiums earned. A lower loss ratio generally results in higher operating income. Our loss ratio for 2014 was 47.4% compared with 54.0% for the same period in 2013. The decrease to our loss ratio is due to the $24.6 million increase in losses and LAE measured against the $66.5 million increase in net premium earned during 2014 as compared with the same period in 2013.
Amortization of DPAC increased $6.1 million, or 28.1%, to $27.5 million for 2014, compared with $21.4 million for 2013, which corresponds to the increase in net premiums earned during this same period. Amortization of DPAC consists of the actual policy acquisition costs, including commissions, payroll and premium taxes, less commissions earned on reinsurance ceded and policy fees earned.
Our investment yield, net of and including investment expenses measured against debt securities, excluding equities and cash, was 2.4% and 2.7%, respectively, for 2013. Our investment yield, net of and including investment expenses measured against debt securities, excluding equities and cash, was 2.6% and 2.9%, respectively, for 2012.
The 2013 investment yields have been recalculated in conformity with the 2014 computations which are on a taxable equivalent basis and more adequately distinguish between taxable and non-taxable income. The 2012 investment yields have not been recalculated in conformity with the 2014 computations because the distinction between taxable and non-taxable income was immaterial.
Amortization of DPAC, consists of the actual policy acquisition costs, including commissions, payroll and premium taxes, less commissions earned on reinsurance ceded and policy fees earned.
In 2014, 2013 and 2012, net cash provided by operating activities was $63.1 million, $79.7 million and $1.5 million, respectively.
In 2014, net cash provided by financing activities was $43.5 million. In 2013 and 2012, net cash provided by financing activities was $27.7 million and less than $0.1 million, respectively. In 2014, the sources of cash in connection with financing activities included $43.1 million from issuance of common stock, $1.6 million from exercised stock options and a $0.5 million tax benefit related to non-cash compensation. In 2014, the use of cash in connection with financing activities was $1.7 million of dividends paid.
The consolidated financial statements and related data presented in this Annual Report have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or with the same magnitude as the inflationary effect on the cost of paying losses and LAE.
FNU acts as FNIC’s exclusive managing general agent in Florida and is also licensed as a managing general agent in the States of Alabama, Georgia, Louisiana, Mississippi, Nevada, South Carolina and Texas. FNU has contracted with other unaffiliated insurance companies to sell personal umbrella through FNU’s existing network of agents.
In July 2013, the FASB issued Accounting Standard Update (“ASU”) No. 2013-11: Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Topic 740, Income Taxes, does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, and there is diversity in practice in the presentation of unrecognized tax benefit in those instances. The objective of the amendments in this ASU is to eliminate that diversity in practice. The ASU applies to all entities that have unrecognized tax benefits when a net operating loss carry forward, a similar tax loss, or a tax credit carryforward exists at the operating date. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and early adoption is permitted. The amendments in this ASU should be applied prospectively to all unrecognized tax benefits that exist at the effective date and retrospective application is permitted. The adoption of the amendments in this ASU did not have a material impact on our financial condition, results of operations or cash flows.
· Our financial condition could be adversely affected by the occurrence of natural and man-made disasters.
· Our controls and procedures may fail or be circumvented which could have a material adverse effect on our business, results of operations and financial condition.
At December 31, 2014, the Company purchased an intangible asset totaling $0.5 million. In accordance with FASB issued guidance, the accounting for the recognized intangible asset will be based on its useful life to the Company. The useful life of the intangible asset is the period over which it is expected to contribute directly or indirectly to the future cash flows of the Company. The intangible asset has a definite finite life of twelve months, and will be amortized accordingly during 2015.
To retain our certificate of authority, the Florida Insurance Code (the "Code") requires FNIC to maintain capital and surplus equal to the greater of 10% of its’ liabilities or a statutory minimum capital and surplus as defined in the Code. FNIC is required to have a minimum capital surplus of $5.0 million.
Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the Florida OIR (i) if the dividend is equal to or less than the greater of (a) 10.0% of the insurer’s capital surplus as regards policyholders derived from realized net operating profits on its business and net realized capital gains or (b) the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, (ii) the insurer will have policy holder capital surplus equal to or exceeding 115.0% of the minimum required statutory capital surplus after the dividend or distribution, (iii) the insurer files a notice of the dividend or distribution with the Florida OIR at least ten business days prior to the dividend payment or distribution and (iv) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115.0% of required statutory capital surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (i) subject to prior approval by the Florida OIR or (ii) 30 days after the Florida OIR has received notice of such dividend or distribution and has not disapproved it within such time.
Operating segments that are not reportable should be combined and disclosed in the ‘‘all other’’ category. Disclosure should be made of the sources of revenue for these segments. Accordingly, we have no segment information to report.
We implemented a stock option plan in 1998 (the “1998 Plan”), which expired in September 2008. Under this plan, we were authorized to grant options to purchase up to 900,000 common shares, and as of December 31, 2014 and December 31, 2013, we had outstanding exercisable options to purchase none and 3,000 shares, respectively.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB issued guidance using the modified-prospective-transition method. Under that transition method, compensation costs recognized during 2014 and 2013 include the following.