The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included below in Item 8 of this report and the Risk Factors included above in Part I, Item 1A of this report. In addition, investors should review the "Cautionary Note Regarding Forward Looking Statements" above.
We provide MI through our insurance subsidiaries. Our primary insurance subsidiary, NMIC, is a qualified MI provider on loans purchased by the GSEs and is licensed in all 50 states and D.C. to issue MI. Our reinsurance subsidiary, Re One, solely provides reinsurance to NMIC on certain loans insured by NMIC to meet state statutory coverage limits. Our subsidiary, NMIS, provides outsourced loan review services on a limited basis to mortgage loan originators. Our stock trades on the NASDAQ under the symbol "NMIH."
Claims incurred is the expense that is booked within a particular period to reflect actual and estimated claim payments that we believe will ultimately be made as a result of insured loans that are in default. We do not recognize an estimate of claim expense for loans that are not in default. As of December 31, 2016, we have established reserves for insurance claims of $3.0 million for 179 primary loans in default, compared to a reserve of $679 thousand for 36 primary loans in default as of December 31, 2015 and a reserve of $83 thousand for six primary loans in default as of December 31, 2014. We also establish reserves for the related claims expenses, which are the estimated costs to adjust and settle claims. We have not established any pool reserves for claims or IBNR to date. For additional discussion of our reserves, see, Part II., Item 8, "Financial Statements and Supplementary Data - Notes to Condensed Consolidated Financial Statements - Note 7. Reserves for Insurance Claims and Claim Expenses."
We developed our estimates of the expected frequency and severity of claims based on statutory filings by many of our competitors, which contain historical book year performance, as well as an industry dataset which consists of nearly 150 million mortgages and 80 data fields per mortgage, gathered over the past 17 years. As state-regulated entities, mortgage insurers are required to file actuarial justifications for premium rate changes in many states, many of which are publicly available and include historical information on claim frequency and severity. Historical performance data from similar underwriting, house price, and interest rate periods were compared to today to determine a range of expected performance. To date, our loss experience is developing at a slower pace than historical trends have shown, as a result of high quality underwriting and a favorable housing market.
(1)Severity represents the total amount of claims paid divided by the related RIF on the loans.
For the year ended December 31, 2014, default and claims activity in our insured book were not significant. As of December 31, 2014, we had established loss reserves of $83,000 for 6 loans in default.
Our prepaid reinsurance balance was $37.9 million as of December 31, 2016, which reflects the ceded unearned premium balance related to the 2016 QSR Transaction entered into during the third quarter of 2016.
There were no stock options granted in 2016. The estimated grant date fair values of the stock options granted during 2015 and 2014 were calculated using the Black-Scholes valuation model. See Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 10, Share-Based Compensation."
For the year ended December 31, 2016, one customer represented a material portion of our revenues. At December 31, 2016, approximately 14% of our total risk-in-force (RIF) was concentrated in California. We expect our RIF and state concentrations to lessen and align to industry averages as our insurance portfolio matures.
The following is a list of those assets and liabilities that are measured at fair value by hierarchy level as of December 31, 2016 and December 31, 2015:
change in fair value is primarily attributable to an increase in the price of our common stock during the year ended December 31, 2016.
Debt issuance costs totaling $4.4 million and a 1% debt discount are being amortized to interest expense, using the effective interest method, over the contractual life of the Term Loan. Effective interest rate for the Term Loan includes interest, amortization of issuance cost and the discount. For the year ended December 31, 2016, the Company recorded $14.8 million of interest expense, including amortization of the issuance cost and discount.
Future principal payments for the Company's Term Loan as of December 31, 2016 are as follows:
In September 2016, in order to continue to grow our business and manage insurance risk and our minimum required assets under PMIERs financial requirements, the Company entered into a quota-share reinsurance transaction with a panel of third-party reinsurers, subject to certain conditions (2016 QSR Transaction). Each of the third-party reinsurers has an insurer financial strength rating of A- or better by S&P, A.M. Best or both. The GSEs and the Wisconsin OCI approved the 2016 QSR Transaction (subject to certain conditions), giving full capital credit under PMIERs and statutory accounting principles, respectively, for the risk ceded under the agreement. The credit that we receive under PMIERs is subject to periodic review by the GSEs.
Amortization and depreciation expense for software, equipment, and leasehold improvements for the years ended December 31, 2016, 2015, and 2014 was $4.9 million, $3.2 million, and $5.8 million, respectively.