Ceding fees are fees we receive in the Program Services segment in exchange for providing access to the U.S. property and casualty insurance market and are based on the gross premiums we write on behalf of our GA and capacity provider clients. We earn ceding fees in a manner consistent with the recognition of the gross earned premium on the underlying insurance policies, generally on a pro-rata basis over the terms of the policies reinsured. Typically, the reinsured policies have a term of one year. Ceding commissions earned on Lender Services business are not included as ceding fees. CUNA Mutual’s ceding commission is included as a partial offset to commission expense.
Upon the completion of the private placement, our parent company’s status as a Subchapter S corporation terminated and our consolidated income became fully subject to U.S. federal income taxes. This adjustment represents estimated income taxes as if the Company had been treated as a C Corporation for each period presented. The estimated tax was calculated assuming the Company’s blended statutory federal and state income tax rates of 37.5%, 38.1%, 37.2%, 35.7%, and 35.5% for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively.
Founder special compensation, offering-related expenses, and contract modification expense are shown net of the estimated tax benefit for each period presented. The estimated tax was calculated assuming the Company’s blended statutory federal and state income tax rates of 37.5%, 38.1%, 37.2%, 35.7%, and 35.5% for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively.
Trending Market Opportunities. We believe that recently improved macroeconomic conditions, including the availability of alternative capital in the insurance industry and increasing automobile sales, should provide us with growth opportunities in both of our business segments. We also believe that the increased role of capital markets alternatives to reinsurance, the capitalization of hedge fund-backed reinsurers and the growth of the off-shore reinsurance market generally should drive demand for our Program Services, as these firms typically do not have direct access to the U.S. market.
In our Lender Services business, we believe that organic growth from our existing lender clients is, and potential new business from banks and specialty finance companies will be, driven by overall growth in lenders’ portfolios as a result of rising automobile sales, higher average auto loan sizes and increasing credit availability. We expect that growth in lenders’ portfolios will result in increased premium writings for us. However, with the increasing availability of credit, we expect the credit quality of borrowers to deteriorate, resulting in increased losses and loss ratios in our Lender Services business compared to losses and loss ratios we experienced during prior periods when credit was not as available and the credit quality of borrowers would be expected to be higher. For the years ended December 31, 2014, 2013 and 2012, our net loss ratio was 42.0%, 37.3% and 33.9%, respectively. We believe the credit quality of borrowers has declined over the last few years with the increasing availability of credit, and our loss ratio has increased consistent with this trend. Also consistent with this trend, our policy cancellation experience increased while credit availability was limited as we believe higher credit quality borrowers tend to be more diligent in providing evidence of insurance to their lending institution. If credit availability continues to increase, we expect our cancellation experience to return to historical levels, which will further increase our premium writings.
We have experienced additional demand in our Program Services segment from an increase in hedge fund sponsored reinsurers and other institutional risk investors. One recent example of a significant program with an institutional risk investor is Nephila Capital Ltd. Nephila is a hedge fund with approximately $10 billion in assets under management that participates in the reinsurance market for catastrophe exposed property business. Nephila is currently accessing the U.S. market through our insurance subsidiaries. In addition, in 2014 we entered into an arrangement with Nephila under which we have granted Nephila the exclusive right to produce U.S. property insurance, predominantly in areas potentially affected by catastrophes, for us during 2015 and 2016. Under this arrangement, Nephila has agreed to produce minimum premiums written of $300 million for 2015 and $400 million for 2016, with equivalent minimum ceding fees paid to us on such amounts whether or not the minimum premium levels are produced, subject to our maintaining our “A” A.M. Best rating and potential reductions to the extent we do not have the authority to write the particular policies they desire to have written and they write such policies through other providers. The timing and actual amount of gross premiums written for Nephila will impact the timing and amount of ceding fees earned each period under this program. See “-Principal Revenue and Expense Items-Minimum ceding fees” and “Critical Accounting Estimates-Minimum ceding fees.”
Alliance with CUNA Mutual. The Company’s alliance with CUNA Mutual that began in 2009 provides us access to a wider array of clients and added significant additional scale to our CPI business. For the years ended December 31, 2014, 2013 and 2012, we have generated premiums earned of $40.7 million, $30.3 million and $25.2 million, respectively, through the alliance with CUNA Mutual. Prior to July 1, 2014, this business was subject to a 50% quota share agreement with CUNA Mutual. In May 2014, we amended the alliance agreement to increase our retention of the business subject to the alliance to 70% from 50% for business written on or after July 1, 2014, and in exchange have made payments to CUNA Mutual totaling approximately $17.8 million, which payments may be adjusted somewhat based on net premiums and loss ratio for the 12-month period ending June 30, 2015. In addition, the term of the alliance has been extended at least through July 31, 2018.
Premiums earned. Premiums earned are the earned portion of our net premiums written, which are predominately CPI premiums. As the CPI product is not a traditional insurance product, the premium recognition is likewise different. First, we do not record premiums until we collect them from our accounts since they have the right to waive the placement of insurance on any of their loans. Our premium notice cycles average approximately 45 to 65 days. Therefore, we earn premiums for such notice periods at the time they are written. Next, there is a high level of policy cancellations since borrowers often purchase insurance at the traditional rates that provides protection for them in addition to their lender. Due to this high level of policy cancellations, we split the premium into two pieces: (1) an allowance for future cancellations and (2) premiums that we expect to earn, which we refer to as “stick premiums.” We earn stick premiums on a pro rata basis over the terms of the policies. The CPI premiums written as presented in this document reflect the effects of the allowance for policy cancellations including any adjustments related to re-estimation of the allowance. As such, our recorded CPI premiums written are those that we expect to earn while those that are expected to cancel are included in the allowance for policy cancellations. At the end of each reporting period, premium written that is not earned is classified as unearned premium, which is earned in subsequent periods over the remaining terms of the policies. Our policies typically have a term of one year, although the average duration of our CPI policies is typically less than six months due to policy cancellations.
Ceding fees. Ceding fees are fees we receive in the Program Services segment in exchange for providing access to the U.S. property and casualty insurance market and are based on the gross premiums we write on behalf of our GA and capacity provider clients. We earn ceding fees in a manner consistent with the recognition of the gross earned premium on the underlying insurance policies, generally on a pro-rata basis over the terms of the policies reinsured, which policies often have a one year term.
Stock-based compensation expense. Compensation expense for stock-based payments is recognized based on the measurement-date fair value for awards that will settle in shares. Compensation expense for awards that are settled in equity are recognized on a straight line pro rata basis over the vesting period. Stock-based compensation expense was approximately $2.0 million as of December 31, 2014, relating to stock options and stock grants that we granted to our
Minimum ceding fees. Minimum ceding fees are fees we receive pursuant to contractual minimum premium requirements for certain of our programs where either significant premium capacity is reserved for that program or where the expected premium volume is not reasonably assured. For those programs where a minimum applies, the ceding fees are considered as two distinct pieces: 1) “premium related fees,” which are earned as the associated gross written premium is earned, typically pro rata on an annual basis; and (2) “capacity fees,” which are determined based on the shortfall between the program’s contractual annual premium minimum and the amount of premium that we estimate will be written in the contract year, which fees are earned ratably in each quarter.
Adjusted pre-tax income. Adjusted pre-tax income is considered a non-GAAP financial measure because it reflects the following adjustments to pre-tax income, which is the most directly comparable measure calculated in accordance with GAAP: the amount of founder special compensation and the non-recurring offering-related expenses and contract modification expense related to the amendment to our alliance agreement with CUNA Mutual. Management believes this measure is helpful to investors because it provides comparability in evaluating core financial performance between periods. Management uses adjusted pre-tax income to evaluate core financial performance against historical results without the effect of these items.
Program gross expense ratio. The program gross expense ratio is a measure of our ability to earn increasing amounts of ceding fees with only minimal incremental expense in our Program Services business. Expressed as a percentage, this is the ratio of general and administrative expense incurred to gross written premium. Our GAs and capacity providers are responsible for providing all underwriting, policy administration, claims handling and other traditional insurance company services. As a result, we are able to produce significant premium volume with only minimal operating expenses. In addition, our fixed costs are a large component of the operating expenses while the incremental costs are small and are dependent upon the size and complexity of the programs being supported. For the year ended December 31, 2014, our ratio of operating expenses to gross premiums written, or program gross expense ratio, was 1.2%. For the three years ended December 31, 2014, this ratio has been in the range of 1.2% to 1.8%. Our objective is to produce a gross expense ratio in a range of 1.0% to 1.5%.
Gross operating leverage. Gross operating leverage is the ratio of gross premiums written (including our Lender Services segment) to shareholder’s equity. A significant portion of our capital is used to support the gross premium produced in our Program Services segment. We retain virtually no risk other than the credit risk of the capacity providers. We maintain strict credit underwriting standards, broad indemnification agreements and collateral requirements. Using this efficient model, we are able to generate significant gross written premiums on a relatively small amount of capital compared to our peers. For the year ended December 31, 2014, our gross operating leverage ratio was 4.29 to 1. Our objective is to produce a total company gross operating leverage ratio of between 3 to 1 and 5 to 1 over time.
Net expense ratio. The net expense ratio is a component of our operational efficiency in administering our Lender Services segment. Expressed as a percentage, this is the ratio of net expenses (commissions, taxes, licenses, and fees and general and administrative) to net premiums earned. Our expense ratio is higher than most traditional insurance products due to the labor and systems intensive process involved in monitoring the insurance statuses for the loan portfolios of our Lender Services clients. For the years ended December 31, 2014, 2013 and 2012, our net expense ratio was 47.3%, 47.8% and 57.5%, respectively.
Net combined ratio. The net combined ratio is a measure of the overall profitability of our Lender Services segment. This is the sum of the net loss ratio and the net expense ratio. For the years ended December 31, 2014, 2013 and 2012, our net expense ratio was 89.3%, 85.1% and 91.4%, respectively. Our objective is to price our products to achieve a net combined ratio between 85% to 90%.
Financial leverage ratios. Our financial leverage ratio at December 31, 2014 was 18.5%, reflecting the additional capital from the private placement. Our objective is to maintain a financial leverage ratio in the range of 20% to 40%.
we believe that the amounts included in our consolidated financial statements reflect our best judgment, actual amounts could ultimately materially differ from those currently presented. We believe the items that require the most subjective and complex estimates are: unpaid losses and loss adjustment expense reserves, allowance for policy cancellations, unearned premium reserve, reinsurance recoverable, valuation of our investment portfolio, assessment of other-than-temporary impairments (OTTI), and minimum ceding fees.
In establishing these estimates, we make various assumptions regarding a number of factors, including frequency and severity of claims, the length of time needed to achieve ultimate settlement of claims, inflation of medical costs, insurance policy coverage interpretations, jury determinations and legislative changes. Due to the inherent uncertainty associated with these estimates, and the cost of incurred but unreported claims, our actual liabilities may be different from our original estimates. On a quarterly basis, we review our reserves for losses and LAE to determine whether further adjustments are required. Any resulting adjustments are included in the current period’s results. Additional information regarding the judgments and uncertainties surrounding our estimated reserves for loss and LAE can be found in “Business-Loss Reserves” in Item 1 of this report.
The recoverable for ceded unpaid losses and LAE includes an estimate for claims reported and an additional liability for claims incurred but not reported, based on the Company’s historical loss experience. While management believes the amounts included in the consolidated financial statements are adequate, such estimates may be more or less than the amount ultimately paid when the claims are settled. These estimates are reviewed and adjusted on a continuing basis, as
necessary, as experience develops or as new information becomes known and such adjustments are included in current operations. The recoverable for ceded premium reserves represent the portion of premiums written applicable to the unexpired terms of the policies. The Lender Services segment calculates this reserve after adjusting for anticipated policy cancellations.
Current tax expense. Current tax expense increased by $6.7 million, from $4.8 million for the year ended December 31, 2013 to $11.5 million for the year ended December 31, 2014, primarily due to a $7.2 million tax impact of the conversion of the Company’s tax status to a C Corporation.
Consolidated Results of Operations for the Year Ended December 31, 2013 compared to the Year Ended December 31, 2012
million decrease in premiums earned resulting from the 2013 change that moved the remaining retained program to 100% ceded.
Ceding fees. Ceding fees remained substantially unchanged at $32.4 million for the year ended December 31, 2012 compared to $32.9 million for the year ended December 31, 2013 as the large programs added in 2013 had not yet begun to recognize a significant portion of written premiums as earned. We earn ceding fees in a manner consistent with the recognition of the gross earned premium on the underlying insurance policies, generally on a pro rata basis over the terms of the policies reinsured.
Loss and loss adjustment expenses. Loss and LAE increased by $3.1 million, or 10.7% from $29.0 million for the year ended December 31, 2012 to $32.1 million for the year ended December 31, 2013 partly due to the increased Lender Services premium as discussed above. The net loss ratio on the Lender Services segment increased from 33.9% for the year ended December 31, 2012 to 37.3% for the year ended December 31, 2013 causing a $5.7 million increase. This was partially offset by a decrease in the Program Services segment of $2.6 million due to the run-off of the retained business.
Commission expense. Commission expense decreased by $0.5 million, or 18.6%, from $2.9 million for the year ended December 31, 2012 to $2.4 million for the year ended December 31, 2013. This decrease is primarily caused by a $0.5 million decrease in the Lender Services segment as a result of an increase in commissions received under the CUNA Mutual quota share agreement and a decrease in contingent commissions of $0.1 million for two retained programs that are in run-off.
General and administrative expense. General and administrative expense decreased $0.7 million, or 1.3%, from $54.1 million for the year ended December 31, 2012 compared to $53.4 million for the year ended December 31, 2013. This variance is primarily attributable to the prospective adoption of ASU No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts effective January 1, 2012. This prospective adoption resulted in additional amortization expense of $2.9 million in 2012. The decrease in the Lender Services segment was offset, in part, by an increase in the Program Services segment for deferred executive compensation expense recognized in 2013.
Income taxes. Income taxes decreased by $1.9 million, or 40.1% from $4.7 million for the year ended December 31, 2012 to $2.8 million for the year ended December 31, 2013 primarily due to the filing of amended returns related to a change in the apportionment method for Texas franchise tax.
Ceding fees. Ceding fees increased by $12.8 million, or 39.0%, from $32.9 million for the year ended December 31, 2013 to $45.7 million for the year ended December 31, 2014, primarily due to an increase in Program Services gross earned premium from $563.0 million for the year ended December 31, 2013 to $815.2 million for the year ended December 31, 2014 related to improvement from two sources. First, one significant program experienced growth in 2014. Second, another significant program was added in mid-2013 and generated a full year of earned premium in 2014. We earn ceding fees in a manner consistent with the recognition of the gross earned premium on the underlying insurance policies, generally on a pro-rata basis over the terms of the policies reinsured.
Commissions. Commissions decreased by $0.4 million primarily due to a prior year contingent commission expense on a run-off program.
Ceding fees. Ceding fees remained substantially unchanged at $32.4 million for the year ended December 31, 2012 compared to $32.9 million for the year ended December 31, 2013, as the large programs added in late 2013 had not yet
Loss and loss adjustment expenses. Loss and LAE decreased by $2.6 million from $3.1 million for the year ended December 31, 2012 to $0.5 million for the year ended December 31, 2013 due to the run-off of the retained business.
General and administrative expense. General and administrative expense increased by $1.7 million, or 18.2%, from $9.3 million for the year ended December 31, 2012 to $11.0 million for the year ended December 31, 2013. This variance is primarily attributable to deferred executive compensation expense recognized in 2013.
Lender Services Segment Results of Operations for the Year Ended December 31, 2014 compared to the Year Ended December 31, 2013
Lender Services Segment Results of Operations for the Year Ended December 31, 2013 compared to the Year Ended December 31, 2012
Commission income. Commission income decreased by $0.4 million, or 15.6%, from $2.4 million for the year ended December 31, 2012 to $2.0 million for the year ended December 31, 2013 primarily due to a contingent commission earned on an ancillary Lender Services line in 2012. Higher loss ratios eliminated the contingent commission in 2013.
Commission expense. Commission expense decreased by $0.4 million, or 18.5%, from $2.4 million for the year ended December 31, 2012 to $2.0 million for the year ended December 31, 2013. This situation occurred despite the
increase in premiums earned due to partially offsetting commissions received under the CUNA Mutual quota share agreement.
General and administrative expense. General and administrative expense decreased by $3.2 million, or 8.1%, from $39.2 million for the year ended December 31, 2012 to $36.0 million for the year ended December 31, 2013. This variance is primarily attributable to the prospective adoption of ASU No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts effective January 1, 2012. This prospective adoption resulted in additional amortization expense of $2.9 million in 2012.
During the periods presented, we made special compensation payments to our co-founders and principal executive officers, Lonnie Ledbetter and Terry Ledbetter in recognition of their service to our Company. We refer to these payments as “Founder special compensation.” Following the completion of the private placement, we ceased paying Founder special compensation.
Other income. Other income increased by $1.8 million, or 123.8%, from $1.4 million for the year ended December 31, 2013 to $3.2 million for the year ended December 31, 2014. This increase consists primarily of an early termination fee related to an operating lease. In November 2013, the Company received an early termination notice from an unaffiliated third party relating to the operating lease between the parties. The early termination notice was in compliance with the terms of the lease. The Company recognized $1.5 million in lease termination fees in 2014 due to the early termination of the lease. The lease was considered an operating lease through the early termination date of November 30, 2014. In addition, we recognized a gain of $0.6 million for the year ended December 31, 2014 related to the auction and repurchase of one of the Company’s subordinated debentures. The Company repurchased a $7.5 million subordinated debenture for $6.8 million. This transaction resulted in a $0.6 million gain after deducting the unamortized portion of the initial issuance costs from the difference in the par value and the purchase price.
Offering-related expenses. Offering-related expenses of $8.8 million as of year ending December 31, 2014 are non-recurring expenses associated with the private placement of the Company’s stock.
Corporate Segment Results of Operations for the Year Ended December 31, 2013 compared to the Year Ended December 31, 2012
Realized net investment gains. Realized net investment gains increased by $0.5 million, or 34.8% from $1.3 million for the year ended December 31, 2012 to $1.8 million for the year ended December 31, 2013 primarily due to gains on sales of bonds.
General and administrative expense. General and administrative expense increased by $0.8 million, or 14.0%, from $5.6 million for the year ended December 31, 2012 to $6.4 million for the year ended December 31, 2013. This increase is primarily attributable to costs associated with positioning the Company for a potential liquidity transaction for shareholders.
Our investment strategy emphasizes, first, the preservation of capital and, second, the generation of an appropriate risk-adjusted return. We seek to generate investment returns using investment guidelines that stress prudent allocation among cash and cash equivalents, fixed-maturity securities and, to a lesser extent, equity securities. Cash and cash equivalents include cash on deposit and short-term money market funds. As of December 31, 2014, the yield on our fixed maturity and equity securities was 2.8%. Convertible securities represent 5.3% of the portfolio. The average duration, excluding convertible securities, was 4.03 years and included obligations of the U.S. Treasury or U.S. government agencies, obligations of U.S. and Canadian corporations, mortgages guaranteed by the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, Federal Farm Credit entities, and asset-backed securities and commercial mortgage obligations. Our equity securities include preferred stock and common stock of U.S. corporations. Our investment portfolio is managed by Asset Allocation & Management Company, L.L.C and AAM Advisors, Inc. (collectively, “AAM”). AAM operates under written investment guidelines approved by our board of directors. We pay AAM an investment management fee based on the market value of assets under management.
For each period specified below, the cost, fair value, and gross unrealized gains and losses on available-for-sale securities were as follows:
The table below summarizes the credit quality of our fixed-maturity securities as of December 31, 2014, as rated by Standard and Poor’s.
The amortized cost and fair value of available-for-sale debt securities held as of December 31, 2014, by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because some borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
We are organized as a holding company with three domestic insurance company subsidiaries (“Insurance Subsidiaries”), as well as a wholly-owned subsidiary that operates in an agency capacity. Our principal sources of operating funds are premiums, ceding fee income, investment income and proceeds from sales and maturities of investments. Our primary uses of operating funds include payments of claims and operating expenses. We pay claims using cash flow from operations and invest our excess cash primarily in fixed-income and, to a lesser extent, equity securities. We expect that projected cash flows from operations, as well as the net proceeds from the private placement that we contributed to our insurance subsidiaries, will provide us with sufficient liquidity to fund our anticipated growth, as well as to pay claims and operating expenses, and to pay interest on debt facilities and other holding company expenses for the foreseeable future. However, if our growth attributable to potential acquisitions, internally generated growth, or a combination of these factors, exceeds our expectations, we may have to raise additional capital in the near term. If we cannot obtain adequate capital on favorable terms or at all, we may be unable to support future growth or operating requirements and, as a result, our business, financial condition and results of operations could be adversely affected. We may generate liquidity through the issuance of debt or equity securities or financing through borrowings under credit facilities, or a combination thereof.
Our insurance subsidiaries are subject to statutory and regulatory restrictions imposed on insurance companies by their states of domicile which limit the amount of cash dividends or distributions that they may pay to us unless special permission is received from the insurance regulator of the relevant domiciliary state. The aggregate limit imposed by the various domiciliary states of our insurance subsidiaries was approximately $21.6 million and $15.6 million as of December 31, 2014 and 2013, respectively. In addition, we are able to generate substantial cash flow outside of our regulated insurance company subsidiaries through intercompany agency and management agreements between our insurance subsidiaries and our agency, TBA. TBA functions as a managing general agent for SNIC and NSIC in connection with the Lender Services segment, overseeing the underwriting of the CPI business. In addition, under the management agreement TBA provides business development, financial monitoring and other oversight functions to our insurance subsidiaries.
Net cash used in investing activities was $128 million for the year ended December 31, 2014 while net cash provided by investing activities was $15.8 million for the year ended December 31, 2013. The $128 million used in investing activities as of December 31, 2014 is primarily due to investing cash received from the private placement of the Company’s stock.
Net cash provided by financing activities was $73.7 million for the year ended December 31, 2014 compared to net cash used in financing activities of $15.3 million for the year ended December 31, 2013. In 2014, cash provided by financing activities increased due to the private placement of the Company’s stock, partially offset by the redemption of common shares of existing shareholders. The net increase related to this activity is approximately $97 million. The increase in dividends is primarily related to the payment of estimated taxes in the first and second quarters, which increased significantly for 2014 as the “S” Corporation taxable income increased for 2013 compared to 2012. In addition, the Company repurchased one of its subordinated debentures at auction for $6.8 million.
Net cash provided by investing activities was $15.8 million for the year ended December 31, 2013 while net cash used in investing activities was $11.5 million for the year ended December 31, 2012. For the year ended December 31, 2013, net cash from investing activities increased primarily due to purchasing short-term Treasury bills of $19.0 million at December 31, 2012. These were sold or matured in 2013.
Net cash used in financing activities was $15.3 million for the year ended December 31, 2013 compared to net cash used in financing activities for the year ended December 31, 2012 of $14.2 million. In 2013, cash used by financing activities increased versus the comparable period in 2013 due to the increase in dividends paid. The dividends are primarily related to the payment of “S” Corporation taxes which increased for 2013 as the “S” Corporation taxable income increased for 2013 compared to 2012. The increase is not proportional to the increase in taxable income due to the estimated payment made in the first quarter of 2014 as described above.
Accounts receivable from agents, net. During the year ended December 31, 2014, accounts receivable from agents increased $1.2 million from December 31, 2013, as a result of an increase in gross premiums written for Program Services business due to the addition of new programs and new contracts added to existing programs. This balance reflects ceding fees and premium taxes due as calculated on gross premium written.
Reinsurance recoverables. During the year ended December 31, 2014, reinsurance recoverables increased $284.3 million from December 31, 2013, which was primarily a result of the increase in gross premiums written for Program Services business due to the addition of new programs and new contracts added to existing programs. This balance reflects the receivable for ceded unearned premiums and ceded loss and LAE reserves. The $284.3 million increase is
reflected in both the unearned premiums and the loss and LAE reserves increases of $93.8 million and $193.3 million, respectively.
Deferred income taxes, net. Deferred income taxes, net, increase of $20.1 million is primarily due to the termination of the parent company’s status as a Subchapter S corporation. The deferred tax asset recognized upon conversion to a C corporation primarily associated with the elimination of intercompany transactions was $19.3 million.
Deferred ceding fees. Deferred ceding fees increased $4.9 million during the year ended December 31, 2014 from December 31, 2013, as a result of the increase in gross premiums written for Program Services business due to the addition of new programs and new contracts added to existing programs. This balance reflects ceding fees that are deferred and earned as the underlying premium is earned as such this balance is directly related to the balance in unearned premium.
Other liabilities. During the year ended December 31, 2014, other liabilities increased $4.3 million. This is due to an increase in compensation payable and regulatory fees payable related to program growth.
The interest related to the debt by period as of December 31, 2014 was as follows: $2.0 million-less than 1 year, $4.3 million-1 - 3 years, $4.3 million-3 - 5 years and $29.7 million-more than 5 years.