Net earned premium. Net earned premium is the earned portion of our net premium written. We generally earn insurance premium on a pro rata basis over the term of the policy. 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 term of the policy. Our policies typically have a term of six months or one year. For a six-month policy written on January 1, 2016, we would earn half of the premium in the first quarter of 2016 and the other half in the second quarter of 2016.
present in determining the amount and timing of payment of such reserves. The difference between the acquired loss and LAE reserves and our best estimate of the fair value of such reserves at the acquisition date is recorded as either an intangible asset or another liability, as applicable and is amortized proportionately to the reduction in the related loss reserves (i.e., over the estimated payout period of the acquired loss and LAE reserves). We assign fair values to intangible assets acquired based on valuation techniques including the income and market approaches. We record contingent consideration at fair value based on the terms of the purchase agreement with subsequent changes in fair value recorded through earnings. The determination of fair value may require management to make significant estimates and assumptions. The purchase price is the fair value of the total consideration conveyed to the seller and we record the excess (deficiency) of the purchase price over the fair value of the acquired net assets, where applicable, as goodwill or bargain purchase gain in earnings. We expense costs associated with the acquisition of a business in the period incurred.
Level 2 - Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full term of the assets or liabilities.
Excluding the Reciprocal Exchanges, income tax expense was $52.4 million and $24.9 million for the years ended December 31, 2016 and 2015, respectively, reflecting effective tax rates of 26.3% and 15.9%, respectively. The Reciprocal Exchanges had pre-tax income of $10.8 million and $7.9 million for the years ended December 31, 2016 and 2015, respectively. A full valuation allowance was recorded on the Reciprocal Exchanges at December 31, 2015. For the year ended December 31, 2016, the valuation allowance for two of the four Reciprocal Exchanges was released in full. The remaining two exchanges maintained their full valuation allowance. The valuation allowance across all exchanges was $7.1 million and $17.3 million for the years ended December 31, 2016 and 2015, respectively.
Loss and loss adjustment expense; net loss ratio. Loss and LAE increased by $328.6 million, or 31.2%, from $1,053.1 million for the year ended December 31, 2014 to $1,381.6 million for the year ended December 31, 2015, primarily reflecting the Quota Share Runoff, the Imperial acquisition, the consolidation of the Reciprocal Exchanges, the LPI Business acquisition, the Assurant Transaction and loss experience in our domestic stop loss programs. The changes by segment were: P&C - increased $243.1 million and A&H - increased $85.4 million. Loss and LAE for the year ended December 31, 2015 included $15.7 million of unfavorable development on prior accident year loss and LAE reserves ($18.4 million excluding $2.7 million of favorable development for the Reciprocal Exchanges) primarily caused by $17.2 million of A&H reserve strengthening predominantly with respect to business subject to the EHC Reinsurance Agreement and $1.2 million of unfavorable development in the P&C segment predominantly with respect to higher than expected loss emergence from commercial auto liability combined single limit insurance policies.
Gross premium written. Gross premium written increased by $111.5 million, or 79.4%, from $140.4 million for the year ended December 31, 2014 to $251.9 million for the year ended December 31, 2015, primarily as a result of premium from the Assurant Transaction ($55.7 million) and organic growth ($66.6 million), partially offset by a decrease in our EHC business ($10.8 million) which included a one-time unearned premium reserve assumption of $15.2 million in 2014.
Trading Securities. The cost or amortized cost, gross unrealized gains and losses, and fair value on trading securities were as follows:
As of December 31, 2016, the face value amounts of the 254 life insurance policies disclosed in the table below was approximately $1.6 billion. As of December 31, 2016, the LSC Entities owned no premium finance loans. The following table describes details of our investment in LSC Entities as of December 31, 2016. This table shows the gross amounts for the portfolio of life insurance policies owned by the LSC Entities, in which we and AmTrust each own a 50% interest.
Borrowings under the Credit Agreement bear interest at either the Alternate Base Rate (“ABR”) or LIBOR. ABR borrowings (which are borrowings bearing interest at a rate determined by reference to the ABR) under the Credit Agreement will bear interest at (x) the greatest of (a) the prime rate in effect on such day, (b) the federal funds effective rate on such day plus 0.5 percent or (c) the adjusted LIBOR for a one-month interest period on such day plus 1.0 percent. Eurodollar borrowings under the Credit Agreement will bear interest at the adjusted LIBOR for the interest period in effect. Fees payable by us under the Credit Agreement include a letter of credit participation fee (the margin applicable to Eurodollar borrowings), a letter of credit fronting fee with respect to each letter of credit (0.125%) and a commitment fee on the available commitments of the lenders (a range of 0.20% to 0.30% based on our consolidated leverage ratio, and which rate was 0.30% as of December 31, 2016).