USAC and its subsidiaries share offices located at 4123 SW Gage Center Drive, Suite 240, Topeka, Kansas 66604. Effective January 1, 2015, the lease rate was $2,250 per month for three years with a one-year option under the same rate, terms, and conditions Total rent expense was $27,000 and $27,000 for the years ended December 31, 2016 and 2015.
USAC was formed as a Kansas corporation on April 24, 2009 for the purpose of raising capital to form a new Kansas-based life insurance company. We presently conduct our business through our three wholly-owned subsidiaries: USALSC, a life insurance corporation; USAMC, an insurance marketing corporation; and USAIC, an investment management corporation
The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If we intend to sell a security or it is more likely than not that we would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the income statement as an other-than-temporary impairment. As it relates to debt securities, if we do not expect to recover the amortized basis, do not plan to sell the security and if it is not more likely than not that we would be required to sell a security before the recovery of its amortized cost, the other-than-temporary impairment would be recognized. We would recognize the credit loss portion through earnings in the income statement and the noncredit loss portion in accumulated other comprehensive loss. The Company had one investment security that was evaluated to be other than temporarily impaired as of June 30, 2016. The Company subsequently sold this security in July 2016. No securities were determined to be other than temporarily impaired as of December 31, 2016.
Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. We have no uncertain tax positions that we believe are more-likely-than-not that the benefit will not to be realized.
Amounts received as payment for annuities are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of investment earnings of the deposits, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the Consolidated Statements of Cash Flows.
The Company is pursuing new product and distribution opportunities to increase premium production.
Other income: Other income for the year ended December 31, 2016 was $87,566 compared to $34,101 in 2015, an increase of $53,465. This increase is due to the growth of our third party administration business.
Commissions, net of deferrals: The Company pays commissions to the ceding company on a block of assumed policies. Commissions were $457,671 in the year ended December 31, 2016, compared to $361,943 in 2015, an increase of $95,728. This increase is due to an increase in assumed premiums.
Amortization of deferred acquisition costs: The amortization of deferred acquisition costs was $153,671 in the year ended December 31, 2016, compared to $113,294 in 2015, an increase of $40,377. This increase is due to a corresponding increase in our deferred acquisition cost asset as a result of our growing block of in-force policies.
Salaries and benefits: Salaries and benefits were $752,534 for the year ended December 31, 2016, compared to $683,383 in 2015, an increase of $69,151. The increase is attributable to service team training, increased staffing in our service team to meet the increased volume of our group products, as well as the payment of incentive compensation. More than a third of the increased expense is attributable to staffing for our group products and increased health insurance costs.
Other expenses: Other operating expenses were $1,209,115 in the year ended December 31, 2016, compared to $901,208 in 2015, an increase of $307,907. This increase is driven by higher regulatory compliance costs associated with becoming a Securities and Exchange Commission registrant. We have had over $150,000 in increased regulatory costs, the bulk of which fall into this category. Additionally, we incurred additional expenses associated with new product development and systems enhancements.
Cash and cash equivalents: As of December 31, 2016, we had cash and cash equivalent assets of $3,145,745, an increase of $679,219 from the December 31, 2015 balance of $2,466,526. This growth is driven by our premium income and our warrant exercise offering.
Investment income due and accrued: As of December 31, 2016, our investment income due and accrued was $100,713 compared to $78,540 as of December 31, 2015. This increase is attributable to the growth of our invested assets.
Reinsurance related assets: As of December 31, 2016, our reinsurance related assets were $31,390 compared to $21,444 as of December 31, 2015. This increase is the result of a the growth of our reinsured business.
Deferred acquisition costs, net: As of December 31, 2016, our deferred acquisition costs were $153,792 compared to $86,053 as of December 31, 2015. This is the result of our growing block of in-force policies and we expect this balance to continue to grow along with the size of our in-force business.
Pre-paid expenses: As of December 31, 2016, our pre-paid expenses were $3,474 compared to $123,162 as of December 31, 2015. This decrease was the result of our utilization of pre-paid expenses during 2016.
Liabilities. Our total liabilities were $7,811,006 as of December 31, 2016, an increase of $3,499,601 from our December 31, 2015 liability of $4,311,405.
Accounts payable and accrued expenses: As of December 31, 2016, our accounts payable and accrued expenses were $66,472 compared to $85,888 as of December 31, 2015. The Company had fewer outstanding invoices as of December 31, 2016.
The total value of our investments increased to $18,609,323 as of December 31, 2016 from $14,201,913 at December 31, 2015, an increase of $4,407,410. Increases in investments are attributable to premiums received by USALSC and to proceeds from our intrastate warrant offering.
The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of December 31, 2016 and December 31, 2015.
Reflecting the high quality of securities maintained by us, 100% of all fixed maturity securities were investment grade as of December 31, 2015. As of December 31, 2016, 98.1% of all fixed maturity securities were investment grade. The increase in BB ratings is attributable to a credit downgrade by credit rating agencies of three securities already owned.
We hold a diversified portfolio of investments that primarily includes cash, bonds and equity securities. Each of these investments is subject to market risks that can affect their return and their fair value. A majority of the investments are fixed maturity securities including debt issues of corporations, US Treasury securities, or securities issued by government agencies. The primary market risks affecting the investment portfolio are interest rate risk, credit risk, and equity risk.