Profitability of our insurance operations depends heavily upon the Company’s underwriting discipline, as we seek to manage exposure to loss through favorable risk selection and diversification, management of claims, use of reinsurance, sizing of our in force block, careful monitoring of our mortality and morbidity experience, and management our expense ratio, which we accomplish through economies of scale and management of acquisition costs and other underwriting expenses.
million, net of tax as of December 31, 2016 for probable liabilities and expenses. The probability weighted range of financial estimates relative to this issue is $7.5 million to $44.8 million, net of tax. This estimated range includes projected toll charges and fees payable to the IRS, as well as estimated increased payout obligations to current and former holders of non-compliant domestic life insurance policies expected to result from remediation of those policies. The amount of our liabilities and expenses depends on a number of uncertainties, including the number of prior tax years for which we may be liable to the IRS, the number of domestic life insurance policies we will be required to remediate, the methodology applicable to the calculation of taxable benefits under non-compliant policies and the amount of time and resources we will require from external advisors who are assisting us with resolving these issues. Given the range of potential outcomes and the significant variables assumed in establishing our estimates, actual amounts incurred may exceed our reserve and also could exceed the high end of our estimated range of liabilities and expenses. To the extent the amount reserved is insufficient to meet the actual amount of our liabilities and expenses, or if our estimates of those liabilities and expenses change in the future, our financial condition and results of operations may be materially adversely affected.
Realized net investment losses resulted from other-than-temporary impairments ("OTTI") on investment securities which were recorded totaling $4.3 million and $5.4 million, in 2016 and 2015, respectively, and are reported as realized losses. The OTTI in 2016 was somewhat offset by realized investment gains on sales of fixed maturity securities in our available-for-sale portfolio and sales of equity securities.
Life Insurance. For over thirty-seven years, CICA and its predecessors have accepted policy applications from foreign nationals for U.S. Dollar-denominated ordinary whole life insurance and endowment policies. We make our insurance products available using third-party marketing organizations and independent marketing consultants.
Home Service Insurance. We provide final expense ordinary and industrial life insurance to middle and lower income individuals in Louisiana, Mississippi and Arkansas. Our policies in this segment are sold and serviced through a home service marketing distribution system utilizing employee-agents who work on a route system to collect premiums and service policyholders, and through networks of funeral homes that collect premiums and provide personal policyholder service.
As an increasing percentage of the world population reaches retirement age, we believe we will benefit from increased demand for living benefit products rather than death products, as customers will require cash accumulation to pay expenses to meet their lifetime income needs. Our ordinary life products are designed to accumulate cash values to provide for living expenses in a policy owner's later years, while continuously providing a death benefit.
On March 7, 2014, the Company acquired Magnolia Guaranty Life Insurance Company ("MGLIC") in the amount of $5.2 million. MGLIC is a Mississippi domiciled company that began writing business in 1992 and issues primarily industrial life policies through independent funeral homes in the state of Mississippi. We recorded $0.1 million of goodwill as a result of this transaction. MGLIC is reported in our home service segment.
Premium Income. Premium income derived from life, accident and health, and property insurance sales, increased 1.7% during 2016. The increase resulted primarily from renewal premiums, which increased 2.7% and 5.1% in the life segment for 2016 and 2015 and totaled $168.3 million, $164.4 million and $157.8 million on the consolidated level in 2016, 2015 and 2014, respectively. New sales, termed as first year premiums, decreased 0.5% and 2.7%, and increased 13.2% in the life segment in 2016, 2015 and 2014, respectively.
Endowment benefits decreased slightly in 2016 compared to 2015 amounts. We have a series of international policies that carry an immediate endowment benefit of an amount selected by the policy owner. These benefits have been popular in the Pacific Rim and Latin America, where the Company has experienced increased interest in our guaranteed products in recent years. Annual guaranteed endowments are factored into the premium and, as such, the increase or decrease is expected to have little impact on expected profitability.
Property claims increased 15% to approximately $1.9 million in 2016 compared with the amount reported for 2015 due to a slight increase in weather related claims.
Commissions. Commission expense fluctuates in a direct relationship to new and renewal insurance premiums and has increased 2.3% in 2016 compared to 2015 as first year premium revenues, on which higher commission rates are paid, remained relatively flat while renewal premiums were up 2.7% .
Federal Income Tax. Federal income tax expense (benefit) was $3.5 million, $1.2 million and $4.0 million in 2016, 2015 and 2014, respectively, resulting in effective tax rates of 64.1%, (61.8)% and (206.2)%, respectively. The significant changes in rates noted are the result of the tax compliance issue we identified in 2014 which impacted our effective tax rates in each year as these costs are not deductible for tax. Additionally, the Company recorded a tax expense in each year for an uncertain tax position that is affecting the tax rates. Differences between our effective tax rate and the statutory tax rate result from income and expense items that are treated differently for financial reporting and tax purposes.
Our Life Insurance segment primarily issues ordinary whole life insurance and endowment policies in U.S. Dollar-denominated amounts to foreign residents in approximately 30 countries through approximately 1,525 independent marketing consultants, and domestically through over 60 independent marketing firms and consultants throughout the United States.
Endowment sales represent a significant portion of new business sales internationally, as these products continue to exceed our whole life sales in the current markets. In addition, most of our life insurance policies contain a policy loan provision, which allows the policyholder to use cash value of a policy to pay premiums. The policy loan asset balance increased 10.8% year over year.
We continue to report strong first year and renewal premiums in our top producing countries as noted above, however this business is dependent on our clients having access to U.S. dollars. Our international business and premium collections could be impacted by our inability to comply with current or future foreign laws or regulations applicable to the Company or our independent consultants in the countries from which we accept applications as well as by marketing or operational changes made by the Company to comply with those laws or regulations. Our international business may also be affected by economic or other events in foreign countries in which our policies are marketed. Venezuela, for example, is continuing to experience civil unrest due to local demonstrations against crime, corruption and soaring inflation. See "Item 1A. Risk Factors" on pages 10 and 17 for additional information.
Net Investment Income. Net investment income has increased due to continued growth in average invested assets even though the annual yield has decreased 13 basis points in this segment from 2015, as discussed in the Consolidated Results of Operations above.
Endowment sales totaled approximately $16.5 million, $16.4 million and $16.1 million, representing approximately 77.0%, 76.1% and 72.7% of total new first year premiums in 2016, 2015, and 2014, respectively.
Capitalization and Amortization of Deferred Policy Acquisition Costs. Capitalized costs increased, as commission-related costs have increased in the current year compared to 2015. Amortization of DAC increased in the current year by 22.0% from 2015 as we experienced increased surrender activity in the current year, including early duration elections to convert to reduced paid up ("RPU") or extended term insurance ("ETI") in 2016. There are higher deferred acquisition costs associated with early duration conversions to RPU or ETI, which, when converted, increases amortization expense. Amortization of deferred policy acquisition costs is impacted by persistency and the higher level of surrenders is impacting our amortization.
Our Home Service Insurance segment provides pre-need and final expense ordinary life insurance and annuities to middle and lower income individuals primarily in Louisiana, Mississippi and Arkansas. Our policies in this segment are sold and serviced through funeral homes and a home service marketing distribution system utilizing over 730 employees and independent agents.
Premiums. The premiums in this segment increased slightly in 2016 compared to 2015, as renewal premiums increased while first year premiums decreased slightly as the Home Service business is a mature business. This is the same trend we saw in 2015 compared to 2014.
Death claims expense decreased in 2016 compared to 2015, after increasing in 2015 from 2014. Death claims can fluctuate from year to year. Mortality experience is closely monitored by the Company as a key performance indicator and these amounts were within expected levels.
Increase in Future Policy Benefit Reserves. The change in reserves includes estimated reserve changes related to the IRC 7702 tax compliance issue of a decrease of $0.5 million and $0.5 million in 2016 and 2015, respectively. These reserves decreased in both periods due to a more refined estimate. Reserves increased $1.4 million in 2014 related to the tax compliance issue. Absent the change in reserves related to the IRC tax issue, the change in reserves between the periods was minimal, as premiums were relatively flat and lapse experience was comparable for all three periods presented.
Commissions. Commission expense was comparable for all three periods presented based upon premiums collected.
Other General Expenses. These expenses are allocated by segment based upon an annual expense study performed by the Company. The 2016 expenses related to the IRC tax compliance issue for life and annuity insurance remediation expense remained flat compared to the 2015 expense, while in 2015 the expense decreased $1.7 million due to further refinement of our estimates. Both 2016 and 2015 include higher expenses related to actuarial, tax, audit and legal services related to tax compliance and business analysis initiatives, although those costs are even greater in 2016 than in 2015.
Capitalization and Amortization of Deferred Policy Acquisition Costs ("DAC"). DAC capitalization is directly correlated to fluctuations in first year commissions. Amortization of DAC was relatively level, between 2015 and 2014, but increased by 21.1% in 2016 from 2015. This increase was primarily due to an increase in surrenders and the impact of updated annual GAAP assumptions. We monitor lapse rates as a key component of our insurance operations.
Financial stability and the prevention of capital erosion are important investment considerations for the Company. A primary investment goal is the conservation of assets due to the long-term nature of a significant portion of our liabilities. The administration
(1) Includes $2.2 million and $2.6 million of U.S. Government agencies and government-sponsored enterprise for the years ended December 31, 2016 and 2015, respectively.
As of December 31, 2016, the Company held municipal securities that include third party guarantees. Detailed below is a presentation by NRSRO rating of our municipal holdings by funding type.
The Company held investments in special revenue bonds that were greater than 10% of fair value based upon activity as of December 31, 2016, as shown in the table below.
The tables below represent the Company’s detailed exposure of municipal holdings in Louisiana, Texas and Florida, which comprise the most significant state concentrations of the total municipal portfolio as of December 31, 2016.
The Company also holds 11.4% of its municipal holdings in Florida issuers.
There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal portfolio as of December 31, 2016.
Gross unrealized losses on fixed maturities available-for-sale amounted to $9.2 million as of December 31, 2016 and $7.9 million as of December 31, 2015. This increase in gross unrealized losses was due to an increase in the interest rate environment in the fourth quarter of 2016, following a fairly significant drop in rates during the first three quarters of 2016. There were $0.1 million and $0.6 million of gross unrealized losses on equity securities as of December 31, 2016 and 2015. Information on unrealized gains and losses by category is set forth in our consolidated financial statements, Note 2 - Investments, in the "Notes to the Consolidated Financial Statements."
SPFIC has first and second event catastrophe reinsurance coverage of $10.0 million per event and a retention level of $500,000 per event. Thus, the first $500,000 of incurred claims and any claims in excess of $10.0 million are SPFIC's responsibility. The reinsurance premium for first event catastrophe reinsurance was $828,000, $873,000 and $967,000 in 2016, 2015 and 2014, respectively.
At December 31, 2016, all of our insurance subsidiaries were above the required minimum RBC levels.
As of December 31, 2016, Citizens had fixed maturities available for sale of $51.4 million and cash of $14.7 million, which represents additional liquidity for future acquisitions, liquidity support for the life insurance companies and for general corporate purposes.
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) it requires assumptions to be made that were uncertain at the time the estimate was made; and (2) changes in the estimate, or different estimates that could have been selected, could have a material effect on our consolidated results of operations or financial condition. While we believe that our estimates, assumptions and judgments are reasonable, they are based on information presently available. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our financial position or results of operations.
We continue to use the original assumptions (including a provision for the risk of adverse deviation) in subsequent periods to determine the changes in the liability for future policy benefits (the "lock-in concept”) unless a premium deficiency exists. Management monitors these assumptions and has determined that a premium deficiency did not exist as of December 31, 2016. Management believes that our policy liabilities and increase in future policy benefit reserves as of the years ended December 31, 2016, 2015 and 2014 are based upon assumptions, including a provision for the risk of adverse deviation, that do not warrant revision.
Inherent in the capitalization and amortization of deferred policy acquisition costs are certain management judgments about what acquisition costs are deferred, the ending asset balance and the annual amortization. Approximately 94.0% of our capitalized deferred acquisition costs are attributed to first year excess commissions. The remaining 6.0% are attributed to costs that vary with and are directly related to the successful acquisition of new insurance business. Those costs generally include costs related to the production, underwriting and issuance of new business.
Current accounting guidance requires that goodwill balances be reviewed for impairment at least annually or more frequently if events occur or circumstances change that would indicate that a triggering event has occurred. A reporting unit is defined as an operating segment on one level below an operating segment. Most of the Company's reporting units, for which goodwill has been allocated, are equivalent to the Company's operating segment, as there is no discrete financial information reviewed and analyzed by management for the separate components of the segment or all of the components of the segment have similar economic characteristics.
The goodwill impairment test follows a multi-step process as defined under current accounting guidance. An initial review may be performed whereby the assessment is based upon qualitative factors before performing the first test step. In the first step, the