As of December 31, 1999, the Company leases office space in its Winston-Salem headquarters and its ten underwriting offices located throughout the country comprising approximately 41,593 square feet under leases expiring between 2000 and 2002 and which require annual lease payments of $643,542 in 2000. With respect to all facilities, the Company has, or believes it will be able to obtain, lease renewals on satisfactory terms. The Company believes its existing properties are well utilized and are suitable and adequate for its present circumstances.
Total direct premiums written were $65.4 million for 1999, an increase of 23.4% compared to $53.0 million for 1998. Net premiums written increased by 22.8% to $63.7 million in 1999 compared to $51.9 million for 1998. Earned premiums increased 21.1% to $64.0 million for 1999 from $52.8 million for 1998. This growth in written and earned premium resulted from both new insurance production in 1999 and an improvement in the Company's persistency. Approximately 22.9% of new insurance written in 1999 was subject to captive mortgage reinsurance and similar arrangements compared to 6.6% of new insurance written in 1998. Ceded premiums for 1999, which includes third party reinsurance arrangements as well as captive reinsurance agreements, increased 53% over 1998. Management anticipates ceded premiums will continue to increase as a result of the expected increase in risk-sharing programs.
Refinance activity was 25.0% (11.5% in fourth quarter) of new insurance written in 1999 compared to 31.7% (34.3% in fourth quarter) of insurance written in 1998, reflecting the rise in interest rates during the year. Persistency, or the amount of insurance in force remaining from one year prior, was 77.1% at December 31, 1999, compared to 70.0% at December 31, 1998. Persistency for the fourth quarter of 1999 improved to an annualized rate of 83.6% reflecting the trend of rising interest rates and declining cancellations. Sales under the Company's monthly premium plan represented 96.4% of new insurance written in 1999 compared to 97.3% in the same period of 1998.
The effective tax rate for 1999 and 1998 was 30.5%. Management expects the Company's effective tax rate to remain about the same as long as yields from new funds invested in tax-preferred securities remain favorable in relation to fully taxable securities.
Net income for 1998 increased 41.4% to $24.4 million compared to $17.2 million in 1997. This improvement was attributable to a 37.1% increase in earned premiums, a 49.0% increase in net investment income, and an improved combined loss and expense ratio.
insurance written increased to 2.6% for all of 1998 and to 2.8% for the fourth quarter as compared to 2.4% reported for all of 1997.
Net investment income for 1998 was $9.3 million, a 49.0% increase over $6.2 million in 1997. This increase in investment income is the result of growth in the average book value of invested assets by $47.9 million to $151.7 million at December 31, 1998, from $103.8 million at December 31, 1997. The growth in invested assets is attributable to the investment of the proceeds of the Company's $35.0 million debt offering, completed in late January 1998, as well as the increase in invested assets due to normal operating cash flow. The yield on average invested assets was 6.1% for 1998 compared to 6.0% for 1997. The portfolio's tax-equivalent yield was 7.9% for 1998 versus 8.0% for 1997. Approximately 70%, or $107.5 million of the Company's fixed maturity portfolio at December 31, 1998, was composed of state and municipal tax-preferred securities as compared to 72%, or $68.7 million, at December 31, 1997.
and the resulting recognition of a greater amount of insurance in force reaching its higher claim frequency years.
Other operating expenses increased 21.2% to $12.4 million for 1998 compared to $10.3 million for 1997. This increase in expenses was primarily attributable to advertising, personnel, and facilities and equipment costs required to support the Company's product development, technology enhancements, geographic expansion, and increased production.
The parent company's cash flow is dependent on interest income and payments from Triad including cash dividends, management fees, and interest payments under surplus notes. The insurance laws of the State of Illinois impose certain restrictions on dividends from Triad. These restrictions, based on statutory accounting practices, include requirements that dividends may be paid only out of statutory earned surplus as of the end of the preceding fiscal year and limit the amount of dividends that may be paid without prior approval of the Illinois Insurance Department. The Illinois Insurance Department permits expenses of the parent company to be reimbursed by Triad in the form of management fees.
Consolidated invested assets were $191.6 million at December 31, 1999, compared to $177.3 million at December 31, 1998. Fixed maturity securities and equity securities classified as available-for-sale totaled $177.7 million at the end of 1999. Net unrealized investment gains were $2.1 million on equity securities, and net unrealized investment losses were $9.4 million on fixed maturity securities at December 31, 1999. The fixed maturity portfolio consisted of approximately 71% municipal securities, 24% corporate securities, 4% U.S. government obligations, and 1% mortgage-backed bonds at December 31, 1999.
Fixed maturity securities represent approximately 86% of the Company's invested assets at December 31, 1999, and the fair value of these fixed rate securities generally bears an inverse relationship to changes in prevailing market interest rates. The Company's long-term debt bears interest at a fixed rate of 7.9% per annum, and as a result, the fair value of this debt is sensitive to changes in prevailing interest rates. A 10% relative increase or decrease in market interest rates that affect the Company's financial instruments would not have a material impact on earnings during the next fiscal year, and would not materially affect the fair value of the Company's financial instruments.
The Company's loss reserves increased to $14.8 million at December 31, 1999, compared to $12.1 million at December 31, 1998. This growth is the result of the increases in new insurance written and the maturing of the Company's risk in force. Consistent with industry practices, the Company does not establish loss reserves for future claims on insured loans which are not currently in default. The Company's reserves per delinquent loan were $21,400 at December 31, 1999, compared to $23,400 at December 31, 1998. The Company's delinquency ratio, the ratio of delinquent insured loans to total insured loans, was 0.64% at December 31, 1999, compared to 0.53% at December 31, 1998.
Total stockholders' equity increased to $157.1 million at December 31, 1999, from $137.5 million at December 31, 1998. This increase resulted primarily from net income of $30.4 million for 1999 offset by the change in net unrealized gains and losses on invested assets classified as available-for-sale of $8.6 million (net of income tax) and the retirement of 146,000 shares of the Company's stock purchased for $2.6 million.
Triad's total statutory policyholders' surplus increased to $94.6 million at December 31, 1999, from $89.5 million at December 31, 1998. This increase resulted primarily from statutory net income of $40.0 million offset by an increase in the statutory contingency reserve of $32.2 million. Triad's statutory earned surplus was $10.9 million at December 31, 1999, compared to $5.8 million at December 31, 1998, reflecting, primarily, growth in statutory net income greater than the increase in the statutory contingency reserve. Approximately $1.0 and $1.9 million of the statutory earned surplus for December 31, 1999, and December 31, 1998, respectively, was attributable to unrealized gains. The balance in the statutory contingency reserve was $113.8 million at December 31, 1999, compared to $81.6 million at December 31, 1998.
Management's Discussion and Analysis and this Report contain forward looking statements relating to future plans, expectations, and performance which involve various risks and uncertainties, including but not limited to the following: interest rates may increase from their current levels; housing transactions and mortgage issuance may decrease for many reasons including changes in interest rates or economic conditions; the Company's market share may change as a result of changes in underwriting criteria or competitive products or rates; the amount of new insurance written could be affected by changes in federal housing legislation, including changes in the Federal Housing Administration loan limits and coverage requirements of Freddie Mac and Fannie Mae; the Company's financial condition and competitive position could be affected by legislation impacting the mortgage guaranty industry specifically and the financial services industry in general; rating agencies may revise methodologies for determining the Company's claims-paying ability ratings and may revise or withdraw the assigned ratings at any time; decreases in persistency, which are affected by loan refinancings in periods of low interest rates, may have an adverse effect on earnings; the amount of new insurance written and the growth of insurance in force or risk in force as well as the performance of the Company may be adversely impacted by the competitive environment in the private mortgage industry, including the type, structure, and pricing of products and services offered by the Company and its competitors; the Company's performance may be impacted by changes in the performance of the financial markets and general economic conditions. Economic downturns in regions where Triad's risk is more concentrated could have a particularly adverse effect on Triad's financial condition and loss development. Accordingly, actual results may differ from those set forth in the forward- looking statements. Attention is also directed to other risk factors set forth in documents filed by the Company with the Securities and Exchange Commission.
The Financial Statements and Supplementary Data are presented in a separate section of this report.