Net earnings and diluted earnings per share for the year ended December 31, 2016, were $43.1 million and $3.88, respectively, compared with $51.5 million and $4.51, respectively, for 2015. The decrease in net earnings and diluted earnings per share for the year ended December 31, 2016, was primarily due to a decrease in underwriting income as the result of an increase in the accident year combined ratio from 97.8% at December 31, 2015, to 98.4% at December 31, 2016, and a decrease in favorable development on prior accident year loss and LAE reserves.
Insurance reserves, or unpaid losses and LAE, are our best estimate of the ultimate amounts that will be paid for (i) all claims that have been reported up to the date of the current accounting period but have not yet been paid; (ii) all claims that have occurred but have not yet been reported to us (“incurred but not reported” or IBNR); and (iii) unpaid claim settlement expenses.
We review loss reserve adequacy quarterly by accident year at a state, product and coverage level. We adjust reserves as additional information becomes known and reflect such adjustments in current year operations.
We believe that our relatively low average policy limit and concentration on the nonstandard auto driver classification generally help stabilize fluctuations in frequency and severity. For example, approximately 90% of our policies include only the state-mandated minimum policy limits for bodily injury, which somewhat mitigates the challenge of estimating average severity. These low limits tend to reduce the exposure of the loss reserves on this coverage to medical cost inflation on severe injuries since the minimum policy limits will limit the total payout.
As noted above, the highest degree of uncertainty is associated with reserves in the first 12 to 18 months. The following table displays the accident year combined ratios developed through December 31, 2016, for the four most recent accident years along with the potential combined ratios based on the low and high outcomes of the loss and LAE tests utilized:
We find it useful to evaluate accident year loss and LAE ratios by calendar year to monitor reserve development. The following table presents, by accident year, loss and LAE ratios (including IBNR):
of the amortized cost over the present value of the expected cash flows determines the credit loss component of an impairment charge on a fixed maturity security. The present value is determined using the best estimate of cash flows discounted at (i) the effective interest rate implicit at the date of acquisition for non-structured securities; or (ii) the book yield for structured securities. The techniques and assumptions for determining the best estimate of cash flows vary depending on the type of security. We recognize the credit loss component of an impairment charge in net earnings and the non-credit component in accumulated other comprehensive income. If we intend to sell or will, more likely than not, be required to sell a security, the entire amount of the impairment is treated as a credit loss.
We performed this test as of October 1, 2016, using a variety of methods, including estimates of future discounted cash flows and comparisons of our market value to that of our major competitors. Our cash flow projections rely on assumptions that are subject to uncertainty, including premium growth, loss and LAE ratios, interest rates and capital requirements.
The October 1, 2016, test results indicated that the fair value of our goodwill exceeded our carrying value and therefore no impairment charge was required at that date. Additionally, there was no indication of impairment at December 31, 2016.
As of December 31, 2016, the holding company had $156.5 million of cash and investments. In 2017, our insurance subsidiaries may pay us up to $59.3 million in ordinary dividends without prior regulatory approval. Rating agency capital requirements, among other factors, will be considered when determining the actual amount of dividends paid in 2017.
At December 31, 2016, we had $275 million principal outstanding of 5.0% senior notes due September 2022 (the "5.0% Senior Notes"). The 5.0% Senior Notes accrue interest at 5.0%, payable semiannually each March and September. Refer to Note 4 - Long-Term Debt to the Consolidated Financial Statements for more information on our long-term debt.
In August 2014 we renewed our agreement for a $50 million three-year revolving credit facility (the “Credit Agreement”) that requires us to meet certain financial and other covenants. We are currently in compliance with all covenants under the Credit Agreement, and as of December 31, 2016, there were no borrowings outstanding against it.
In February 2017 we increased our quarterly dividend to $0.58 per share from $0.52 per share. At this current amount, our 2017 annualized dividend payments will be approximately $25.6 million.
Because we carry all of these securities at fair value in the Consolidated Balance Sheets, there is virtually no effect on liquidity or financial condition upon the sale and ultimate realization of unrealized gains and losses. The average duration of our fixed maturity portfolio was 3.3 years at December 31, 2016.
Summarized information for our investment portfolio at December 31, 2016, follows ($ in thousands):
The $0.8 million balance in receivable for securities sold at December 31, 2016, represents fixed income securities sold in the normal course of business that had not settled prior to the end of the year.
The following table presents the credit rating and fair value of our fixed maturity portfolio by major security type at December 31, 2016, ($ in thousands):
The increase in Personal Auto gross written premium was primarily due to growth in California, which grew 9.4%, compared with the prior year. California's premium growth, most of which occurred during the first half of 2015, was primarily due to an increase in both new and renewal business as a result of an improving economy and higher average written premiums. The growth in California was partially offset by declining gross written premium in Georgia, Nevada and Pennsylvania as we discontinued writing new business effective January 1, 2015.
The gross written premium growth in our Commercial Vehicle product was primarily due to renewal business growth and higher average premiums.
The discussion of underwriting results that follows focuses on statutory ratios and the components thereof, unless otherwise indicated.
The 2.8 points decline in the Commercial Vehicle product combined ratio during the twelve months ended December 31, 2016, was due to an improvement in the current accident year loss and LAE ratio primarily due to an increase in average earned premium.
The statutory combined ratio for the twelve months ended December 31, 2015, increased by 0.5 point from the same period of 2014. The twelve months ended December 31, 2015, included $28.9 million of favorable development on prior year loss and LAE reserves compared with $17.4 million of favorable development on prior year loss and LAE reserves in 2014. Excluding the effect
Losses from catastrophes totaled $1.8 million during 2015, compared with $2.5 million in 2014.
Pre-tax net investment income declined from $36.8 million in 2015 to $35.5 million in 2016 primarily due to a decline of $0.9 million in make whole proceeds and a decrease in book yield caused by continued low reinvestment yields.
At December 31, 2016, we had $275 million principal outstanding of senior notes. These notes carry a coupon rate of 5.0% and require no principal payment until maturity in September 2022. Refer to Note 4 - Long-Term Debt to the Consolidated Financial Statements for additional information on the 5.0% Senior Notes.
The following table reconciles our U.S. statutory rate and effective tax rate for the periods ended December 31, 2016, 2015 and 2014: