Sales under the Company's monthly premium plan represented approximately 93.0% of new insurance written in 1996 compared to 82.6% in 1995. The monthly product spreads the collection of premiums over 12 equal monthly payments, rather than one payment received in advance as on annual premium plans. However, renewal premiums on monthly premium plans are greater than the renewal premiums
Net premiums written increased by 59.7% to $24.0 million for 1996 compared to $15.0 million for 1995. Earned premiums increased 59.8% to $24.7 million in 1996. This increase in written and earned premium is attributable to the increase in new insurance written, continued strong persistency and a change in the Company's reinsurance program for 1996.
The Company's delegated underwriting program accounted for 38.0% (37.4% in the fourth quarter) of commitments received in 1996 compared to 25.1% (33.7% in the fourth quarter) in 1995. This program has allowed the Company to serve a greater number of the larger, well established mortgage originators. Mortgage originators who participate in the Company's delegated program are allowed to issue a certificate of insurance on the loans they underwrite but must follow
Net investment income for 1996 was $5.4 million, a 12.6% increase over $4.8 million in 1995. This increase resulted from the growth in average invested assets of $10.3 million to $89.6 million at December 31, 1996. The yield on average invested assets was 6.1% for both 1996 and 1995. The portfolio's tax- equivalent yield was 7.7% in 1996 and 7.5% in 1995. This yield reflects the Company's investment strategy to emphasize tax-preferred securities which yield lower pre-tax rates than similar fully-taxable securities. Approximately 53% or $46 million of the Company's fixed maturity portfolio at December 31, 1996 was comprised of state and municipal tax-preferred securities.
During periods of significant refinancing activity, it is possible that policies on stronger loans may lapse and that weaker loans may remain in force,
thus potentially increasing the loss ratio on older business. Substantial increases in production of new business during these periods can offset the increased loss ratio on the older business.
Net income for 1995 increased 34.2% to $7.8 million compared to $5.8 million in 1994. This improvement was attributable to a 40.7% increase in earned premiums, a 15.7% increase in net investment income, a continuing low loss ratio and $173,000 in realized investment gains, offset by a slightly higher expense ratio in 1995.
Net income per share on a fully diluted basis was $1.15 for 1995, compared to $0.87 per share in 1994. The Company's operating earnings per share on a fully diluted basis were $1.13 for 1995 and $0.89 for 1994. Operating earnings per share exclude realized investment gains of approximately $173,000 in 1995 and realized investment losses of $163,000 in 1994.
New insurance written was $1.6 million for both 1995 and 1994. New insurance written in 1995 was driven by new home sales as refinance activity declined. Refinance activity accounted for 9.3% of new insurance written in 1995 compared to 14.6% in 1994.
The rising interest rates experienced in the first half of 1995 resulted in increased sales of higher premium products, such as coverages for adjustable rate mortgages, higher loan-to-value mortgages and longer term mortgages. The result was a greater level of written premium for the amount of new insurance written, partially offset by the effects of increasing production of monthly premium plans. Sales under the Company's monthly premium plan represented 82.6% of new insurance written in 1995 compared to 34.8% in 1994.
Net premiums written increased by 23.2% to $15.0 million for 1995 compared to $12.2 million for 1994. Continued improvement in persistency, the Company's continued geographic expansion and a reduction in the reinsurance cede rate all contributed to this growth, which was offset somewhat by the increase in production of the Company's monthly premium plan. Earned premiums increased 40.7% to $15.5 million in 1995. Total direct insurance in force reached $5.1 billion at December 31, 1995 compared to $4.1 billion the previous year, an increase of 23.6%.
Net investment income for 1995 was $4.8 million, a 15.7% increase over $4.2 million in 1994. This increase resulted from average invested assets increasing by $6.1 million to $79.3 million at December 31, 1995. The yield on average invested assets increased to 6.1% for 1995 compared to 5.7% for 1994 reflecting the Company's investments in higher yielding intermediate term investments.
Amortization of deferred policy acquisition costs increased by 32.6% to $2.3 million in 1995 compared to $1.7 million for 1994. The increase in amortization reflects a growing balance of deferred policy acquisition costs to amortize as the Company builds its total insurance in force.
The expense ratio for 1995 was 46.9% compared to 44.2% for 1994. Factors contributing to this increase include the growth in costs associated with the Company's expansion into new territories, an increase in personnel and the effects of the monthly premium product in 1995.
The Company's sources of operating funds consist primarily of premiums written and investment income. Operating funds are applied primarily to the payment of claims and expenses.
Consolidated invested assets were $98.0 million at December 31, 1996, including a total of $94.7 million in fixed maturity securities and equity securities classified as available-for-sale. Net unrealized investment gains totaled $2.4 million at December 31, 1996, $1.2 million on both fixed maturity securities and equity securities.
Approximately 18.6% or $16.2 million of the Company's fixed maturity portfolio at December 31, 1996 was composed of mortgage-backed securities, substantially all of which are guaranteed by U.S. Government Agencies. Certain mortgage-backed securities are subject to significant prepayment risk due to the fact that, in periods of declining interest rates, mortgages may be repaid more rapidly than scheduled as borrowers refinance higher rate mortgages to take advantage of lower rates. As a result, holders of mortgage-backed securities may receive large prepayments on their investments which must be reinvested at then current rates.
As part of the Company's efforts to increase its focus on larger national lenders, Triad is currently developing a mortgage insurance program that would enable the Company to better meet the needs and requirements of the larger national lenders. The program, which will be marketed beginning in the first quarter of 1997, increases the lender's share of the risk of loss on an insured book of business and provides for a fee to the lender for this increased risk. While the impact of this product to Triad cannot be predicted with certainty, management believes that successful marketing and acceptance of this product by national lenders could provide significant growth opportunities for Triad in 1997. Loans insured under this program must meet Triad's underwriting and credit standards.
In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", which provides an alternative to APB Opinion No. 25, "Accounting for Stock Issued to Employees", in accounting for stock-based compensation issued to employees. The statement encourages but does not require the recognition of compensation expense for stock-based awards based on the award's fair value. The Company has chosen to continue to account for stock-based awards in accordance with APB Opinion No. 25.
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 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 particular adverse affect 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 .