(2) The current accident year loss ratio is calculated by dividing loss and loss adjustment expenses incurred for the current accident year by the current year’s net premiums earned.
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 income.
Audited Financial Statements as of December 31, 2015 and 2014 and for the three years in the period ended December 31, 2015:
Insurance-related assessments are accrued in the period in which they have been incurred. The Company is subject to a variety of assessments related to insurance commerce, including those by state guaranty funds and workers’ compensation second-injury funds. State guaranty fund assessments are used by state insurance oversight agencies to cover losses of policyholders of insolvent or rehabilitated insurance companies and for the operating expenses of such agencies. The Company has a premium tax benefit accrued of $3.8 million and $4.0 million as of December 31, 2015 and 2014, respectively, for mandatory assessments that may be recovered through a reduction in future premium taxes in certain states. Assessments based on premiums are generally paid one year after the calendar year in which the premium is written, while assessments based on losses are generally paid within one year of the calendar year in which the loss is paid.
The Company reviewed all securities with unrealized losses in accordance with the impairment policy described above. With the exception of four securities deemed to be other-than-temporarily impaired, the Company determined that the unrealized losses in the fixed maturity securities portfolio related primarily to changes in market interest rates since the date of purchase, current conditions in the capital markets and the impact of those conditions on market liquidity and prices generally, and the transfer of the investments from the available-for-sale classification to the held-to-maturity classification in January 2004. We expect to recover the carrying value of these securities as it is not more likely than not that we will be required to sell the security before the recovery of its amortized cost basis.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2015, 2014 and 2013.
The foregoing reconciliation reflects favorable development of the net reserves at December 31, 2015, 2014, and 2013. The favorable development reduced loss and loss adjustment expense incurred by $47.8 million in 2015 driven primarily by accident years 2012, 2013 and 2008 of $19.2 million, $8.2 million and $7.2 million, respectively. In 2014 and 2013, the Company recorded favorable development of $23.7 million and $12.6 million, respectively. The revisions to the Company’s reserves reflect new information gained by claims adjusters in the normal course of adjusting claims and is reflected in the financial statements when the information becomes available. It is typical for more serious claims to take several years or longer to settle and the Company continually revises estimates as more information about claimants’ medical conditions and potential disability becomes known and the claims get closer to being settled.
On February 23, 2016 the Company declared a regular quarterly cash dividend of $0.18 per share payable on March 28, 2016 to shareholders of record on March 14, 2016. In 2015, the Company paid a quarterly cash dividend of $0.15 per share.