DCLIC also maintains an office at 107 W. Main Avenue, Suite 325, Bismarck, North Dakota, 58501. The lease for the Bismarck office expired on September 30, 2018 and was renewed for an additional two year term. The lease rate for this location is $920 per month for the first year of the renewal. The Company paid $11,114 and $12,166 in rent for this location in 2019 and 2018, respectively.
Our accounting and reporting policies are in accordance with GAAP. Preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is an explanation of our accounting policies and the estimates considered most significant by management. These accounting policies inherently require significant judgment and assumptions and actual operating results could differ significantly from management’s estimates determined using these policies. We believe the following accounting policies, judgments and estimates are the most critical to the understanding of our results of operations and financial position. A detailed discussion of significant accounting policies is provided in this report in the Notes to Consolidated Financial Statements included with this annual report.
The Company's principal investments are in fixed maturity and equity securities. Fixed maturity and equity securities, classified as available for sale, are carried at their fair value in the consolidated balance sheets, with unrealized gains or losses recorded in comprehensive income (loss). Our fixed income investment manager utilizes external independent third-party pricing services to determine the fair values of investment securities available for sale.
Revenues. Insurance revenues are primarily generated from premium revenues and investment income. Insurance revenues for the years ended December 31, 2019 and 2018 are summarized in the table below.
*2017 revenue includes one-time revenue of $3.9 million from the ALSC reinsurance transaction.
Direct, assumed and ceded premiums for the years ended December 31, 2019 and 2018 are summarized in the following table.
Investment income, net of expenses: The components of net investment income for the years ended December 31, 2019 and 2018 are as follows:
Net investment income for the years ended December 31, 2019 was $1,790,601, compared to $1,477,403 in 2018, an increase of $313,198 or 21%. This increase in investment income is primarily a result of increased invested assets as a result of our premium income and an improvement in our book yield.
Other income: Other income for the year ended December 31, 2019 was $57,146 compared to $37,608 in 2018, an increase of $19,538. The increase is driven by an increase in commission income.
* 2017 Increase in Reserves includes a one-time $3.9 million reserve increase from the ALSC transaction
Increases in policyholder reserves represents funds that we maintain and invest for the future benefit of our policyholders. Other policy-related expenses represent the other expenses associated with fulfilling our obligations to our policyholders and producers. Operating expenses represent the costs to operate the company. It is important to note that our 2017 operating expense ratio is impacted by the one-time reserve increase which resulted from our transaction with ALSC. Absent this transaction, our 2017 ratio would have been 25%.
Increase in policyholder reserves: Policyholder reserves increased $2,599,575 in the year ended December 31, 2019, compared to $2,766,169 in 2018, a decrease of $165,594. The decrease is driven reserves released in support of claim payments.
Net Income: Our net income was $599,208 in the year ended December 31, 2019 compared to net loss of $456,136 in the same period of 2018, an increase of $1,055,344. Our net income per share increased to $0.08 from a net loss per share of $0.06 in 2018, basic and diluted. This increase is primarily attributable to income from unrealized gains on our equity securities and the recognition of a deferred tax asset.
Goodwill: As of December 31, 2019 and 2018, our goodwill was $277,542. Goodwill was established as a result of our merger with Northern Plains and we had no previous goodwill balances. We have determined that there has been no impairment to our goodwill balance.
Policy liabilities: Our total policy liabilities as of December 31, 2019 were $36,924,885 compared to $31,556,529 as of December 31, 2018, an increase of $5,368,356 or 17%. This increase is the result new policy sales and the growth of our in-force policies.
Federal Home Loan Bank advance: In October of 2019, the Company took an advance of $1,000,000 from the Federal Home Loan Bank of Topeka (“FHLB”) which was outstanding as of December 31, 2019. The Company did not have any FHLB advances in 2018.
The total value of our investments and cash and cash equivalents increased to $49,973,200 as of December 31, 2019 from $39,947,424 at December 31, 2018, an increase of $10,025,776. Increases in investments are primarily attributable to premiums and annuity deposits received by USALSC and DCLIC.
The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of December 31, 2019 and 2018.
Reflecting the high quality of securities maintained by us, 94.6% of all fixed maturity securities were investment grade as of December 31, 2019. As of December 31, 2018, 97.7% of all fixed maturity securities were investment grade.
The amortized cost and fair value of debt securities as of December 31, 2019 and 2018, by contractual maturity, are shown below. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Our operations have generated operating losses since we were incorporated in 2009. In 2019, USAC has been profitable.
Net cash provided by operating activities was $2,270,041 for the year ended December 31, 2019. The primary sources of cash from operating activities were premiums and deposits received from policyholders. The primary uses of cash for operating activities were for payments of commissions to agents and settlement of policy liabilities. Net cash used in investing activities was $1,074,643. The primary source of cash was from sales of available for sale securities and our FHLB advance. Offsetting this source of cash was our purchases of investments in available-for-sale securities. Cash provided by financing activities was $3,405,761. The primary sources of cash were receipts on deposit-type contracts and issuance of USAC Common Stock.
At December 31, 2019, we had cash and cash equivalents totaling $6,678,805. We believe that our existing cash and cash equivalents will be sufficient to fund the anticipated operating expenses and capital expenditures for the foreseeable future. We have based this estimate upon assumptions that may prove to be wrong and we could use our capital resources sooner than we currently expect. The growth of USALSC and DCLIC, our insurance subsidiaries, is uncertain and will require additional capital if they continue to grow.
Insurance premiums are established before the amount of losses, or the extent to which inflation may affect such losses and expenses, are known. We attempt, in establishing premiums, to anticipate the potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost would be absorbed by us. Inflation also affects the rate of investment return on the investment portfolio with a corresponding effect on investment income.