Gross premiums written of $586.1 million and total revenue of $394.8 million
Our ceded premium ratio was relatively unchanged at 28.2% for the year ended December 31, 2014 compared to 28.3% for the year ended December 31, 2015.
Our net expense ratio decreased from 31.3% for the year ended December 31, 2014 to 27.5% for the year ended December 31, 2015, primarily as a result of general and administration expenses increasing at significantly slower pace than gross premiums earned.
Our combined ratio on a gross basis decreased from 79.4% for the year ended December 31, 2014 to 74.9% for the year ended December 31, 2015. Our combined ratio on a net basis decreased from 71.4% for the year ended December 31, 2014 to 65.0% for the
Ratios - Year Ended December 31, 2013 Compared to Year Ended December 31, 2014
Net cash used in investing activities for the year ended December 31, 2014 was $200.0 million as compared to $86.9 million for the year ended December 31, 2015, reflecting the investment of funds provided by operating activities.
Fair Value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price). When reporting the fair values of the Company’s financial instruments, the Company prioritizes those fair value measurements into one of three levels based on the nature of the inputs, as follows:
The Company classifies all of its investments in fixed maturity securities and equity securities as available-for-sale, and reports them at fair value. The Company’s investment in a mortgage loan was classified as held to maturity and reported at amortized cost. Subsequent to its acquisition of available-for-sale securities, the Company records changes in value through the date of disposition as unrealized holding gains and losses, net of tax effects, and includes them as a component of other comprehensive income. The Company includes realized gains and losses, which it calculates using the specific-identification method for determining the cost of securities sold, in net income. The Company amortizes any premium or discount on fixed maturities over the remaining maturity period of the related securities using the effective interest method, and reports the amortization in net investment income. The Company recognizes dividends and interest income when earned.
The Company estimates the fair value of its investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the NYSE, NASDAQ and NYSE MKT. For securities for which quoted prices in active markets are unavailable, the Company uses observable inputs such as quoted prices in inactive markets, quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs. The Company does not have any investments in its portfolio which require the use of unobservable inputs. The Company’s estimate of fair value reflects the interest rate environment that existed as of the close of business on December 31, 2015. Changes in interest rates subsequent to December 31, 2015 may affect the fair value of the Company’s investments.
CAT Bond Layer alongside the FHCF. During April 2015 Heritage P&C entered into three catastrophe reinsurance agreements with Citrus Re Ltd. The agreements provide for three years of coverage from catastrophic losses caused by named storms, including hurricanes, beginning on June 1, 2015. Heritage P&C pays a periodic premium to Citrus Re Ltd during this three-year risk period. Citrus Re Ltd issued in aggregate of $277.5 million of principal-at-risk variable notes due April 2017 to fund the reinsurance trust account and its obligations to Heritage P&C under the reinsurance agreements. These notes were issued in three classes. The Class A notes provide $150 million of coverage for the layer immediately above the FHCF. The Class B notes provide $97.5 million of coverage, and the Class C notes provide $30 million of coverage. The Class B and Class C notes provide reinsurance coverage for a sliver of the catastrophe coverage that had previously been provided by the FHCF. The limit of coverage is fully collateralized by a reinsurance trust account for the benefit of Heritage P&C. The maturity date of the notes may be extended up to two additional years to satisfy claims for catastrophic events occurring during the three-year term of the reinsurance agreements.
CAT Bond Layer above the FHCF. Immediately above the FHCF layer is the coverage provided by the 2015 reinsurance agreement entered into with Citrus Re as described above in this footnote. The Citrus Re 2015 Class A notes provide up to $150 million of coverage immediately above the FHCF layer. Coverage immediately above the 2015 Class A notes is provided by the 2014 reinsurance agreements entered into with Citrus Re Ltd, as described above in this footnote. The first contract with Citrus Re Ltd provides $150 million of coverage and the second contract provides an additional $50 million of coverage.
There were no amounts receivable with respect to reinsurers at December 31, 2015, 2014 or 2013. Thus, there were no concentrations of credit risk associated with reinsurance receivables as of December 31, 2015, 2014 and 2013. The percentages of assumed premiums earned to net premiums earned for the periods ended December 31, 2015, 2014 and 2013 were 37.3%, 48.7% and 98.6%, respectively.
The Company has been party to various related party transactions involving certain of its officers, directors and significant stockholders as set forth below. The Company has entered into these arrangements without obligation to continue its effect in the future and the associated expense was immaterial to its results of operations or financial position as of December 31, 2015 and December 31, 2014.