(2) For 1995 and subsequent, includes 13,340,000 shares issued in conjunction with the Company's November 28, 1995 initial public offering and also includes 2,250,068 shares, as of the date of such offering, out of a total of 11,000,000 shares that were previously excluded from weighted average shares. Such shares were subject to contingent recall provisions and the conditions required for the removal of recall provisions on the 11,000,000 shares had not been met. The Company's initial public offering removed the recall provisions on 2,250,068 of the shares and resulted in the cancellation of the remaining 8,749,932 common shares.
(3) The 13.5% Convertible Preferred Stock was redeemed on December 1, 1995 at a redemption price of $46.0 million.
New insurance written in 1998 was $15.2 billion, compared to $7.8 billion in 1997. The dramatic growth in new insurance written is due to the increase in the Company's market share from 6.5% in 1997 to 8.1% in 1998 and the record volume of originations due to the heavy refinance environment. As of December 31, 1998, Amerin's primary insurance in force was $28.1 billion as compared with $20.4 billion as of December 31, 1997, which represents a 38% increase.
Net premiums written for 1998 were $125.4 million compared to $94.7 million for 1997, which represents a 32% increase. The increase was primarily attributable to a 95% increase in Amerin Guaranty's new insurance written which resulted in the growth in insurance in force and related premium revenue which was partially offset by the reduced persistency rate which decreased to 69.3% at December 31, 1998 from 87.2% at December 31, 1997. The decline in the persistency rate was due to the increased level of refinance activity in 1998.
Net investment income of $21.3 million for 1998 increased by $2.7 million (or 15%) over 1997, due primarily to Amerin's net operating cash flows over the course of 1998, which resulted in an increase in the average amount of invested assets. Realized investment gains for 1998 were $1.5 million compared to realized investment gains of $1.2 million for 1997. As of December 31, 1998 and 1997, the yields to maturity on the investment portfolio were 5.5% and 5.6%, respectively, and the average durations of the investment portfolio remained constant at 6.3 years.
The Company's expense ratio increased from 26.6% for 1997 to 30.6% in 1998. The significant increase in expenses is due to the increase in contract underwriting expenses associated with the 95% increase in new insurance written in 1998.
The Company's effective tax rate was 29.0% in 1998. The effective tax rate for 1998 was below the statutory rate of 35%, principally reflecting the benefits of tax-exempt investment income.
As a result of the foregoing factors, the Company had net income of $51.2 million for 1998, or $1.92 per share on a diluted basis compared to net income of $40.8 for 1997 or $1.54 per share on a diluted basis.
New insurance written in 1997 was $7.8 billion, compared to $7.7 billion in 1996. Amerin's primary insurance in force was $20.4 billion as compared with $14.8 billion as of December 31, 1996, which represents a 38% increase.
Net investment income of $18.6 million for 1997 increased by $1.7 million (or 10.3%) over 1996, due primarily to investment of Amerin's net operating cash flows over the course of 1997, which resulted in an increase of 16.1% in the monthly average amount of invested assets. Realized investment gains for 1997 were $1.2 million compared to realized investment gains of $.2 million for 1996. This increase reflected higher sales activity within the portfolio due to the Company's desire to maintain a certain duration of the investment portfolio. As of December 31, 1997 and 1996, the yields to maturity on the investment portfolio were 5.6% and 5.8%, respectively, and the average durations of the investment portfolio were 6.3 years and 6.4 years, respectively.
The Company's effective tax rate was 28.1% in 1997. The effective tax rate for 1997 was below the statutory rate of 35%, principally reflecting the benefits of tax-exempt investment income.
The Company's consolidated total investments were $439.1 million at December 31, 1998, compared with $377.7 million at December 31, 1997. The Company generated consolidated cash flows from operating activities of $57.8 million during 1998, compared to $54.6 million generated during 1997. All of the Company's fixed maturity securities at December 31, 1998 are rated "investment grade," which is defined by the Company as a security having a National Association of Insurance Commissioners ("NAIC") rating of 1 or 2 or an S&P rating ranging from "AAA" to "BBB-."
Consolidated common stockholders' equity increased to $409.2 million at December 31, 1998, from $350.2 million at December 31, 1997, an increase of 17%. This increase resulted primarily from the results of 1998 operations.
THE FOLLOWING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE EFFECTS OF THE PENDING MERGER BETWEEN THE COMPANY AND CMAC INVESTMENT CORPORATION ON THE OVERALL LIQUIDITY AND CAPITAL RESOURCES OF THE RESULTING COMBINED COMPANY. SEE "BUSINESS - PENDING MERGER."
In connection with the merger of CMAC Investment Corporation, the Company expects to incur investment banking, legal, accounting and other related cash transaction costs and fees. Additionally, the Company expects to incur merger related employee severance associated with the integration of the separate companies. The merger related cash expenses, estimated to be approximately $15 million in 1999, will be charged to expense in the period incurred and funded from current operations of Amerin Guaranty. A majority of the expenditures will be incurred in the second and third quarters of 1999.
The payment of dividends from unassigned surplus by the insurance subsidiaries without prior approval of the Illinois Insurance Department is subject to certain restrictions principally including those relating to the greater of 10% of the prior year's statutory basis surplus or net income. The total amount of dividends that could be paid in 1999 without regulatory approval is approximately $8.5 million.
Amerin Guaranty is the principal insurance subsidiary of the Company. Amerin Guaranty's risk-to-capital ratio was 18.3:1 at December 31, 1998, compared to 16.1:1 at December 31, 1997. This increase was due to the growth in Amerin Guaranty's risk in force during 1998.
The Company's comprehensive Year 2000 initiative is being managed by a team of internal staff and outside consultants. The team's activities are designed to ensure that there is no adverse effect on the Company's core business operations and that transactions with customers are fully supported. The Company is well underway with these efforts, which are scheduled to be completed in early 1999.