Two of the key financial measures that we use to evaluate our performance are return on average equity and growth in book value per share adjusted for dividends paid to shareholders. We calculate return on average equity by dividing annual net income by the average of annual shareholders’ equity. Our return on average equity was 17.1% in 2016, 15.6% in 2015 and 12.4% in 2014. We calculate book value per share by dividing ending shareholders’ equity by the number of common shares outstanding. Our book value per share was $23.72 at December 31, 2016, $23.73 at December 31, 2015 and $23.65 at December 31, 2014. We paid cash dividends of $3.97 per share in 2016, $3.60 per share in 2015 and $1.98 per share in 2014.
Income tax expense. Income tax expense for 2015 was $30.5 million, compared to $20.1 million for 2014. The increase was primarily attributable to an increase in pre-tax income, from $73.7 million for 2014 to $101.0 million for 2015. The effective tax rate also increased to 30.2% for 2015, compared to 27.2% for 2014. This increase is due to the changing mix of taxable income versus non-taxable investment income.
In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-07, Fair Value Measurements (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The amendments in this update change the disclosure requirements for investments in certain entities that calculate net asset value (NAV) per share. Under current accounting standards entities are permitted to estimate the fair value of certain investments using the investment’s NAV as a practical expedient. The disclosure guidance also permits entities to disclose the investment at NAV in the fair value hierarchy table as either Level 2 or Level 3, based upon certain criteria. The measurement basis utilizing NAV is different than the measurement criteria of all other investments which utilize inputs to calculate fair value. Due to this inconsistency, the FASB issued this ASU which requires entities to remove investments measured at NAV from the fair value hierarchy table. Other than the change in presentation, the adoption of this new guidance in interim periods beginning in 2016 did not have an impact on our consolidated financial statements.
Basic EPS is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. The diluted EPS calculation includes potential common shares assumed issued under the treasury stock method, which reflects the potential dilution that would occur if any outstanding options or warrants were exercised or restricted stock becomes vested, and includes the “if converted” method for participating securities if the effect is dilutive. Prior to 2014, we determined diluted EPS as the more dilutive result of either the treasury method or the two-class method.
The Company received reinsurance recoveries of $0.5 million in 2016, $1.0 million in 2015 and $ 1.5 million in 2014.
The AMERISAFE Non-Employee Director Restricted Stock Plan (the “Restricted Stock Plan”) is administered by the Compensation Committee of the Board and provides for the automatic grant of restricted stock awards to non-employee directors of the Company. Awards to non-employee directors are generally subject to terms including non-transferability, immediate vesting upon death or total disability of a director, forfeiture of unvested shares upon termination of service by a director and acceleration of vesting upon a change of control of the Company. The maximum number of shares of common stock that may be issued pursuant to restricted stock awards under the Restricted Stock Plan is 100,000 shares, subject to the authority of the Board to adjust this amount in the event of a merger, consolidation, reorganization, stock split, combination of shares, recapitalization or similar transaction affecting the common stock. At December 31, 2016, there were 20,122 shares of common stock available for future awards under the Restricted Stock Plan.