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, 2017 and 2016. DCLIC also maintains an office at 107 W. Main Avenue, Suite 325, Bismarck, North Dakota, 58501. The lease for the Bismarck office expires on September 30, 2018 with monthly rent of $948. The Company paid $4,684 in rent for this location in 2017.
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 four wholly-owned subsidiaries: USALSC, a life insurance corporation; DCLIC, a life insurance corporation; USAMC, an insurance marketing corporation; and USAIC, an investment management corporation
On August 1, 2017, the Company merged with NPCC, with the Company being the ultimate surviving entity. As a result of this merger, the Company acquired DCLIC, which became a wholly owned subsidiary of USALSC.
Value of business acquired (VOBA) represents the estimated value assigned to purchased companies or insurance in- force of the assumed policy obligations at the date of acquisition of a block of policies. At least annually, a review is performed of the models and the assumptions used to develop expected future profits, based upon management’s current view of future events. VOBA is reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. Management’s view primarily reflects our experience but can also reflect emerging trends within the industry. Short-term deviations in experience affect the amortization of VOBA in the period, but do not necessarily indicate that a change to the long-term assumptions of future experience is warranted. If it is determined that it is appropriate to change the assumptions related to future experience, then an unlocking adjustment is recognized for the block of business being evaluated. Certain assumptions, such as interest spreads and surrender rates, may be interrelated. As such, unlocking adjustments often reflect revisions to multiple assumptions. The VOBA balance is immediately impacted by any assumption changes, with the change reflected through the statements of comprehensive income as an unlocking adjustment in the amount of VOBA amortized. These adjustments can be positive or negative with adjustments reducing amortization limited to amounts previously deferred plus interest accrued through the date of the adjustment.
Revenues. Insurance revenues are primarily generated from premium revenues and investment income. Insurance revenues for the years ended December 31, 2017 and 2016 are summarized in the table below.
Net realized gains on investments: Net realized gains on investments for the years ended December 31, 2017 were $430,565, compared to $100,378 in 2016, an increase of $330,187. The increase in realized gains is attributable to the repositioning of an equity portfolio from a market return focus to an income focus. Additionally, during the third quarter we reduced our equity exposure in order to facilitate our reinsurance transaction with ALSC. Realized gains and losses related to the sale of securities for the years ended December 31, 2017 and 2016 are summarized as follows:
Other income: Other income for the year ended December 31, 2017 was $50,057 compared to $87,566 in 2016, a decrease of $37,509. This decrease is due to the acquisition of DCLIC, who was previously a third party administration client.
Policyholder benefits: Policyholder benefits were $3,485,564 in the year ended December 31, 2017 compared to $3,136,999 in 2016, an increase of $348,565. The primary driver of this increase is the growth of our assumed business and is more than offset by the increased premiums associated with this block of assumed policies.
Increase in policyholder reserves: Policyholder reserves increased $5,654,476 in the year ended December 31, 2017, compared to $1,686,841 in 2016, an increase of $3,967,635. The increase in policyholder reserves is driven by an assumed reserve increase of $3,824,902 incurred with inception of reinsurance transaction with ALSC.
Commissions, net of deferrals: The Company pays commissions to ULIC on a block of assumed policies. Commissions were $521,155 in the year ended December 31, 2017, compared to $457,671 in 2016, an increase of $63,484. This increase is due to an increase in assumed premiums.
Amortization of deferred acquisition costs: The amortization of deferred acquisition costs was $321,451 in the year ended December 31, 2017, compared to $153,671 in 2016, an increase of $167,780. This increase is due to amortization of the deferred cost of reinsurance on our ALSC reinsurance transaction.
Available for sale fixed maturity securities: As of December 31, 2017, we had available for sale fixed maturity assets of $22,945,700, an increase of $12,625,626 from the December 31, 2016 balance of $10,320,074. This growth is driven by our Merger with NPCC and our reinsurance agreement with ALSC.
Cash and cash equivalents: As of December 31, 2017, we had cash and cash equivalent assets of $651,809, a decrease of $2,493,936 from the December 31, 2016 balance of $3,145,745. This decrease was the result of deploying more cash into invested assets to provide additional investment earnings.
Investment income due and accrued: As of December 31, 2017, our investment income due and accrued was $214,998 compared to $100,713 as of December 31, 2016. This increase is attributable to the growth of our invested assets.
Policy loans: As of December 31, 2017, our policy loans were $33,975. All of our policy loans were the result of our coinsurance agreement with ALSC and we had no policy loans prior to this transaction.
Value of business acquired, net: As of December 31, 2017 our value of business acquired asset was $600,601. This asset was established in the third quarter of 2017 as a result of our acquisition of DCLIC.
Goodwill: As of December 31, 2017, our goodwill was $277,542. Goodwill was established as a result of our merger with Northern Plains and we had no previous goodwill balances.
Other assets: As of December 31, 2017, our other assets were $166,184, an increase of $114,262 from the December 31, 2016 balance of $51,922. This increase was driven by our purchase of pre-paid systems consulting hours.
Our overall investment philosophy is reflected in the allocation of our investments. We emphasize investment grade debt securities with smaller holdings in equity securities and other investments. The following table shows the carrying value of our investments by investment category and cash and cash equivalents, and the percentage of each to total invested assets as of December 31, 2017 and December 30, 2016.
The total value of our investments and cash and cash equivalents increased to $34,261,024 as of December 31, 2017 from $18,609,323 at December 31, 2016, an increase of $15,651,701. Increases in investments and cash and cash equivalents are primarily attributable to our Merger with NPCC, our coinsurance agreement with ALSC, and premiums and annuity deposits received by USALSC and DCLIC.
The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of December 31.
The amortized cost and fair value of debt securities as of December 31, 2017 and 2016, by contractual maturity, are shown below. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
We are exposed to credit risk through counterparties and within the investment portfolio. Credit risk relates to the uncertainty associated with an obligor's ability to make timely payments of principal and interest in accordance with the contractual terms of an instrument or contract. We manage our credit risk through established investment policies and guidelines which address the quality of creditors and counterparties, concentration limits, diversification practices and acceptable risk levels. These policies and guidelines are regularly reviewed and approved by senior management and USAC's Board of Directors.
Since inception, our operations have been financed primarily through the sale of USAC Common Stock. Our operations have not been profitable and have generated significant operating losses since we were incorporated in 2009.
Aside from raising capital, which has funded the vast majority of our operations, premium income, deposits to policyholder account balances, and investment income are the primary sources of funds while withdrawals of policyholder account balances, investment purchases, policy benefits in the form of claims, and operating expenses are the primary uses of funds. To ensure we will be able to pay future commitments, the funds received as premium payments and deposits are invested in primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will in the future meet our ongoing cash flow needs. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. Our investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. Cash flow projections and cash flow tests under various market interest scenarios are also performed annually to assist in evaluating liquidity needs and adequacy.
Net cash provided by operating activities was $593,160 for the year ended December 31, 2017. The primary sources of cash from operating activities were premiums received from policyholders. The primary uses of cash for operating activities were for payments of commissions to agents and settlement of policy liabilities. Net cash used in investing activities was $5,007,794. The primary source of cash was from sales of available for sale securities, our Merger with NPCC and our reinsurance agreement with ALSC. Offsetting this source of cash was our purchases of investments in available-for-sale securities. Cash provided by financing activities was $1,920,698. The primary sources of cash were receipts on deposit-type contracts and issuance of USAC Common Stock.