Our GAAP combined ratio is the sum of the loss and settlement expense ratio and the expense ratio and measures our overall underwriting profit. If the GAAP combined ratio is below 100%, we are making an underwriting profit. If our combined ratio is at or above 100%, we are not profitable without investment income and may not be profitable if investment income is insufficient.
In addition to case reserves, we maintain an estimate of reserves for loss and settlement expenses incurred but not reported. Some claims may not be reported for several years. As a result, the liability for unpaid loss and settlement expense reserves includes significant estimates for IBNR.
Net unrealized gains in the corporate bond portfolio increased $199,309 in 2017 from a gain of $751,339 in 2016 to a gain of $950,648 in 2017 as corporate spreads tightening throughout the year. In fact, corporate spreads tightened about 30 bps in 2017 as investor demand increased in anticipation of better economic data due to improving global economic activity as well as due to the possibility of U.S. tax reform.
For the year ended December 31, 2017, the Company incurred $57,000 of OTTI losses on an ETF included in common stock that was impaired during the second quarter of 2017 and subsequently sold during in the third quarter of 2017. During 2016 the Company recognized $213,000 of OTTI losses on two securities that were impaired and subsequently sold during the last three months of 2016. Adverse investment market conditions, or poor operating results of underlying investments, could result in impairment charges in the future.
Under current accounting standards, an OTTI write-down of debt securities, where fair value is below amortized cost, is triggered by circumstances where (1) an entity has the intent to sell a security, (2) it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis or (3) the entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security in a loss position or if it is more likely than not the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the difference between the security’s amortized cost and its fair value. If an entity does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in other comprehensive income. Impairment losses result in a reduction of the underlying investment’s cost basis.
The Company paid off the remaining mortgage balance on its home office during the fourth quarter of 2017. Interest was charged at a fixed rate of 2.6% and the loan matured in 2017. The building was used as collateral to secure the loan. The loan balance at year end 2017 and 2016 was $0 and $183,790, respectively. The interest paid on the loan in 2017 was $1,518 and $9,163 in 2016.
On March 2, 2018 and March 7, 2018, the Company paid $343,365 and $346,000, respectively to BofI. These disbursements were made to pay off the balances of the sale leaseback arrangements entered into with BofI during 2015 and 2016.