The following table presents life insurance sales as measured by annualized premium, a non-GAAP measure used by the insurance industry, which allows a comparison of new policies sold by an insurance company during the period (in thousands):
Commissions increased during 2016 compared to 2015 primarily due to an increase in universal life policy sales. Commissions were relatively flat during 2015 compared to 2014.
Earnings remained relatively constant during 2016 and 2015 and decreased from 2014 relating to separate items that reduced earnings below levels of prior years. In 2016, the Company decreased the estimate of losses that would be ceded to and paid by reinsurers on claims incurred primarily in 2001. In 2015, earnings were negatively impacted due to an increase in claims retained by the Company from a reinsurer that was unable to meet its contractual obligations.
(1) A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated. A positive net change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.
Other Personal: These products include watercraft, rental-owner and umbrella coverages for individuals seeking to protect their personal property and liability not covered within their home and auto policies. The loss ratio decreased during 2016 compared to 2015 primarily due to certain umbrella claim re-designations from personal lines to commercial lines. The loss ratio increased during 2015 compared to 2014 due to increased catastrophe claim activity during the first half of 2015 and lower than typical loss results in 2014.
Automobile: Net premiums written and earned increased during 2016 compared to 2015, due to an increase in direct written premiums coupled with a decrease in ceded premiums. The loss ratio decreased during 2016 compared to 2015, primarily due to a decrease in average severity of losses. Net premiums written increased during 2015 compared to 2014 primarily due to improved rate adequacy. The loss and combined ratios increased during 2015 compared to 2014, primarily due to an increase in average severity of losses.
We have audited American National Insurance Company’s (the Company) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
Index to Financial Statements Note 7 - Derivative Instruments - (Continued)
Investment contracts -The carrying value of investment contracts is equivalent to the accrued account balance. The accrued account balance consists of deposits, net of withdrawals, plus or minus interest credited, fees and charges assessed and other adjustments. American National believes that the carrying value of investment contracts approximates fair value because the majority of these contracts’ interest rates reset to current rates offered at anniversary.
American National’s federal income tax returns for years 2013 to 2015 and years 2005 to 2009 are subject to examination by the Internal Revenue Service. In the opinion of management, all prior year deficiencies have been paid or adequate provisions have been made for any tax deficiencies that may be upheld. No provision for penalties was established; however, management has accrued interest in the amount of $2.7 million, net of tax, during 2016 relating to a dispute with the Internal Revenue Service. Management does not believe there are any uncertain tax benefits that could be recognized within the next twelve months that would decrease American National’s effective tax rate.