Net new insurance written was $4.8 billion for 1998 as compared to $2.9 billion for 1997, an increase of 66.2%. For the fourth quarter 1998, net new insurance written increased 106.2% to $1.5 billion compared to $740 million in the fourth quarter 1997. The Company also produced approximately $225 million of new insurance written on seasoned loans in 1998 compared to $950 million in 1997. The increase in new insurance written was the result of a strong economy, continued geographic expansion, the penetration of Triad's products in the marketplace to both new and existing customers, and the introduction of new products. According to industry data, Triad's national market share of net new 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.
The growth in new insurance written also reflects the favorable interest rate environment in 1998 which caused home buying and refinance activities to remain strong. Refinance activity was 31.7% of new insurance written in 1998 compared to 14.0% in 1997. Total direct insurance in force reached $11.3 billion at December 31, 1998, compared to $9.2 billion at December 31, 1997, an increase of 22.7%.
Standard & Poor's Corporation in February 1999 affirmed the "AA" Financial Strength and counterparty credit rating of Triad. In addition, the "A" issuer credit rating and senior debt rating of the Company were also affirmed.
The expense ratio (ratio of underwriting expenses to net premiums written) for 1998 was 35.4% compared to 37.5% for 1997. Contributing to this year-to-date improvement is the higher level of written premiums in 1998 partially offset by the increase in expenses.
Total direct premiums written were $40.1 million for 1997, an increase of 53.3% compared to $26.2 million in 1996. Net premiums written increased by 60.0% to $38.3 million in 1997 compared to $24.0 million in 1996. Earned premiums increased 55.8% to $38.5 million for 1997 from $24.7 million in 1996. This growth in written and earned premium resulted from the increase in new insurance written offset slightly by the decline in the Company's persistency rate. Sales under the Company's monthly premium plan represented 94.3% of new insurance written in 1997 compared to 93.0% in 1996. The Company's persistency rate was 84.2% for 1997 compared to 85.3% for 1996.
Net investment income for 1997 was $6.2 million, a 14.5% increase over $5.4 million in 1996. This increase resulted from the growth in the average book value of invested assets to $103.8 million at December 31, 1997, from $89.6 million at December 31, 1996. The yield on average invested assets was 6.0% for 1997 compared to 6.1% for 1996. This slight decrease was attributable to the Company's continued investment in lower yielding municipal tax-preferred securities. The portfolio's tax-equivalent yield was 8.0% for 1997 up from 7.7% for 1996. Approximately 72%, or $68.7 million, of the Company's fixed maturity portfolio at December 31, 1997, was composed of state and municipal tax-preferred securities as compared to 53% at December 31, 1996, and 37% at December 31, 1995.
The Company's loss ratio was 13.4% for 1997 compared to 13.3% for 1996. The Company's favorable loss ratio reflected the low level of delinquencies compared to the number of insured loans and the fact that approximately 73% of the Company's insurance in force was originated in the previous 36 months.
Net losses and loss adjustment expenses (net of reinsurance recoveries) increased by 57.9% in 1997 to $5.2 million compared to $3.3 million in 1996. This increase reflected the increase in the Company's insurance in force and the resulting recognition of a greater amount of insurance in force reaching its higher claim frequency years.
Amortization of deferred policy acquisition costs increased by 27.4% to $4.1 million in 1997 compared to $3.2 million for 1996. The increase in amortization reflected a growing balance of deferred policy acquisition costs to amortize as the Company continued to build its total insurance in force.
Other operating expenses increased 41.3% to $10.3 million for 1997 compared to $7.3 million for 1996. 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 effective tax rate for 1997 was 31.7% compared to 31.0% in 1996. This increase was primarily the result of the phase-in of the 35.0% federal statutory income tax rate applicable to companies with annual taxable income above $10.0 million.
The Company's sources of operating funds consist primarily of premiums written and investment income. Operating cash flow is applied primarily to the payment of claims, interest, expenses, and taxes.
Triad's total statutory policyholders' surplus increased to $89.5 million at December 31, 1998, from $60.9 million at December 31, 1997. This increase resulted from the Company's contribution to Triad of $25.0 million of note proceeds through a surplus debenture and statutory net income of $31.3 million, offset primarily by a decrease in unrealized investment gains of $925,000 and an
Substantially all of the Company's existing computer systems which are integral to its business were originally developed to be year 2000 compliant or are being reprogrammed. The Company plans to reprogram its existing computer systems, as necessary, and complete testing of the Company's existing system by March 31, 1999. As of December 31, 1998, the Company is approximately 90% complete in the review and testing of its existing computer systems for year 2000 compliance. Year 2000 compliance costs incurred relating to the Company's existing computer systems are being expensed and are immaterial. Some of the Company's computer systems integral to its business interface with computer systems of third parties. Virtually all transactions with systems operated by third parties involve nationally recognized service bureaus and government-sponsored entities such as Freddie Mac and Fannie Mae. The Company is working with these third parties to coordinate any necessary testing of year 2000 related system interfaces. As a result, the Company does not anticipate that year 2000 compliance issues arising from interfaces with third-party systems will have a material impact on its operations.