Revenues for the year ended December 31, 1996 amounted to $157.7 million, a 24% increase from the 1995 amount of $127.5 million which in turn was a 4% decrease from $133.0 million in 1994. Revenue is not considered to be a good measure of the Company's performance since it includes Premiums earned which historically have been closely matched by Total insurance costs and should not have a material impact on Net income. Excluding Premiums earned, revenues increased in 1996 by 28% over 1995 which in turn was a 22% increase over 1994. Set forth in Table I is an analysis of the components of the Company's revenues for each of the last three years.
Corporate Risk Management, the Company's original business segment, involves providing services to businesses and associations seeking to insure a portion of their risk in a loss sensitive Alternative Market structure. This business segment, which accounted for 61% of total Fee income for 1996 compared to 75% in 1995 and 83% in 1994, has been the most affected by the extremely soft insurance market cycle for commercial risks. Corporate Risk Management fees increased by 3% in 1996 to $49.5 million and 7% in 1995 to $48.1 million from $45.1 million in 1994. Profit margins declined slightly to 43% in 1996 compared to 45% in 1995 and 47% in 1994 reflecting decreasing premium rates and increases in related Operating expenses.
Program Business, the fastest growing segment of the Company's business, involves replacing traditional insurers as the conduit between producers of specialty books of business and reinsurers wishing to write that business. Program Business accounted for 24% of total Fee income for 1996 compared to 11% in 1995 and 6% in 1994. Program Business fees increased by 169% in 1996 to $19.6 million and 123% in 1995 to $7.3 million from $3.3 million in 1994. Program Business fee growth was assisted by the acquisition of PUC in 1996. If PUC's results were included in 1995 and 1994 comparatives, Program Business fee growth would have been 64% in 1996 and 54% in 1995. Profit margins excluding the underwriting management business of PUC were 45% for 1996, 48% for 1995 and 50% for 1994. Including PUC's underwriting management business profit margins were 38% for 1996.
California compared to 6 in 1995 and 5 in 1994. The California renewal rate was 77% in 1996 compared to 74% in 1995 and 78% in 1994. There were 27 California accounts at the end of 1996 compared to 25 in 1995 and 26 in 1994. The percentage of the Company's fee income generated from workers' compensation accounts decreased from over 80% at December 31, 1994 to approximately 71% at December 31, 1995 to 60% a year later as a result of the Company writing accounts which comprise of other lines of coverage such as multi peril and auto liability.
The Company generally requires each client to indemnify them against an underwriting loss and generally the client provides collateral for at least the difference between the funds available in that client's Program and the level of expected losses as actuarially determined by the Company, although in certain circumstances the collateral level is below the level of expected losses. The Company faces a credit exposure in the event that losses exceed their expected level and the client is unable or unwilling to honor its indemnity to the Company or fails to pay the premium due.
Financial Services is the Company's newest business segment and will be built on the acquisition of Hemisphere which took place during 1996. Hemisphere provides administrative services to offshore mutual funds and other companies. Financial Services fees accounted for 8% of total Fee income for 1996, and 7% for 1995 and 1994. Fees from Financial Services increased in 1996 by 40% to $6.1 million compared to 18% for 1995 to $4.3 million from $3.7 million in 1994 primarily as a result of an increase in the number of mutual funds under management from 42 in 1994, to 60 in 1995 and 85 in 1996. Renewal rates remained high in this business segment at 80% for 1996 compared to 98% in 1995 and 90% in 1994. Profit margins improved somewhat in 1996 to 20% as opposed to 14% in 1995 but down from 23% in 1994.
Gross investment income increased by $7.2 million or 35.3% to $27.5 million in 1996 and by $5.0 million or 32.8% to $20.3 million in 1995 from $15.3 million in 1994 as a result of increases in gross invested assets. Net investment income after adjusting for investment income which is payable to others increased by 38.8% to $22.5 million in 1996 from $16.2 million in 1995 which was a 41.4% increase from $11.4 million in 1994. Net invested assets increased $42.2 million or 12.2% to $387.3 million in 1996 from $345.1 million in 1995 which was a 64.9% increase from $209.7 million in 1994. The lower increase in Net invested assets from 1995 to 1996 as compared to the increase in investment income is due to the timing of the $112.0 million net proceeds of the Zero Coupon Convertible Debenture offering which was completed in October 1995. Investment income on these funds is included for the whole of 1996 and only two months of 1995. The yield on these assets decreased to 6.1% from 6.3% in 1995 up from 6.1% in 1994. The Company's investment income is produced through the investment of its capital funds, long term debt, other funds held representing amounts due others and reserves held by the Company for unearned premiums and unpaid losses. The Company carries $45.7 million at December 31, 1996 and $71.8 million at December 31, 1995 on its Consolidated Balance Sheets as Claims deposit liabilities. These liabilities relate to loss obligations which, under SFAS 113, are not classified as insurance. Investment income on these funds is credited directly to the claims deposit liability account.
Pre-tax realized capital losses of $2.0 million in 1996, $1.1 million in 1995 and $.9 million in 1994 consisted of losses and gains primarily realized from the sale of investments as detailed in Note 5B(ii) to the Consolidated Financial Statements. There were also gross unrealized gains of $3.8 million and $6.8 million and gross unrealized losses of $3.5 million and $5.4 million on investments held at December 31, 1996 and 1995 respectively, as a result of changes in the market for fixed income securities.
Total expenses increased 28% in 1996 to $112.1 million from $87.8 million in 1995 which was a 12% decrease from $99.6 million in 1994. The breakdown of expenses for each of 1996, 1995 and 1994 is set forth in Table V.
The increase in interest expense was attributable to the Convertible Debentures issued on October 30, 1995.
The provision for Income taxes was $8.1 million in 1996, $8.9 million in 1995 and $8.0 million in 1994, representing effective tax rates of 17.9%, 22.3% and 24.0% respectively. The decrease to 17.9% in 1996 from 22.3% in 1995 was primarily due to increased earnings outside of the United States and the tax benefit derived from the exercise of employee stock options. These factors plus the Company's investment in tax-exempt municipal securities, offset by state income taxes, are the major causes of the difference between the expected federal income tax rate in the United States of 35% plus state income taxes and the Company's effective rates in each year. The Legion Companies, as insurance companies in the United States, are subject to income tax on an accelerated basis and, as a result, a deferred tax benefit was carried on the Consolidated Balance Sheets of $3.4 million in 1996, $6.2 million in 1995 and $9.5 million in 1994.
At the end of 1996 and 1995, 68% and 64% respectively, of the Company's Total marketable investments were held by the Legion Companies. The Legion Companies are restricted by regulation in the amount of dividends they can pay without prior regulatory approval to $21.2 million in 1997 (based on 1996 results) and will continue to face these restrictions in the future. During 1996 Legion Insurance paid a dividend of $8 million. The Legion Companies are required to maintain certain deposits with or supply letters of credit to regulatory authorities which totaled $126.0 million at December 31, 1996 ($43.8 million of deposits and $82.2 million of letters of credit) as compared to $133.4 million at December 31, 1995 ($32.4 million of deposits and $101.0 million of letters of credit).
A widely accepted factor used by regulators and rating agencies in evaluating insurance companies is the ratio of net premiums written to policyholders' surplus which is an indication of the degree to which an insurer is leveraged. Because of the low level of net premiums written, the Legion Companies have produced a relatively low ratio on this basis of approximately 0.3:1 in 1996 and 0.5:1 in 1995 and should continue to produce relatively low ratios in the future. The accepted industry standard for this ratio is below 3:1. Due to the nature of Legion's operations, the Company believes that a more appropriate indication of Legion's leverage is the ratio of gross premium written to policyholders' surplus, which amounted to 2.4:1 in 1996 and 2.6:1 in 1995. The National Association of Insurance Commissioners ("NAIC") has established that an "unusual value" for this ratio would be 9:1 or higher. The Company has adopted a policy that this ratio should not exceed 4:1. Commencing in 1994 Legion's statutory surplus was affected by a Schedule P reserve adjustment. This adjustment was a $10.1 million increase to statutory surplus in 1996, a $.7 million increase in 1995 and a $10.8 million reduction in 1994 as a result of applying the minimum reserving requirements of Schedule P to the non-risk associated premium on large deductible programs. As at December 31, 1996 there is no longer a surplus charge for the Schedule P reserve adjustment due to the decreased use of large deductible programs and increased Program Business which has higher premium and loss retentions and corresponding higher loss ratios, as well as reinsurance that was put in place in 1995 to minimize the effect of large deductible business on Schedule P reserving requirements. The GAAP reserves of Legion were unaffected as GAAP accounting rules do not apply such a minimum reserving requirement. The Company, in consultation with its outside consulting actuaries, believes that Legion's GAAP reserves are adequate and feel that Legion had approximately $3.8 million and $12.9 million in statutory reserves beyond what is required on an actuarial basis at December 31, 1996 and 1995 respectively. Management believes that the statutory surplus of Legion of $150.9 million (1995--$106.5 million) is adequate in the light of their current business.