The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the years ended December 31, 2014 and 2013:
Policy Fee Income for the years ended December 31, 2014 and 2013 was $2,820 and $3,098, respectively. The decrease in 2014 is primarily due to the change in the fourth quarter of 2013 in the method of recognizing policy fees, which are recognized ratably over the policy coverage period.
Net Realized Investment Gains for the years ended December 31, 2014 and 2013 was $4,735 and $80, respectively. The increase in 2014 is due to sales of fixed-maturity securities primarily in the third quarter of 2014.
At December 31, 2014, we had $142,634 of available-for-sale investments, which are carried at fair value. Changes in the general interest rate environment affect the returns available on new fixed-maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing fixed-maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new fixed-maturity investments but increases the market value of existing fixed-maturity investments, creating the opportunity for realized investment gains on disposition.
While the property and casualty industry has incurred substantial aggregate losses from claims related to asbestos-related illnesses, environmental remediation, sinkholes, product and mold, and other uncertain or environmental exposures, we have not experienced significant losses from these types of claims. However, we have experienced losses from exposures (sinkholes and catastrophes) that follow materially different loss patterns than the balance of our experience. To address this situation, we separate these exposures from the remainder of the business and derive reserves specific to each of these exposures. Total reserves are determined by adding the reserves related to each segment of business.
Report of Hacker, Johnson & Smith PA, Independent Registered Public Accounting firm
Principles of Consolidation. The accompanying consolidated financial statements include the accounts of HCI and its majority-owned and controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, the Company evaluates its relationships or investments for consolidation pursuant to authoritative accounting guidance related to the consolidation of variable interest entities (“VIE”) under the Variable Interest Model prescribed by the Financial Accounting Standards Board (“FASB”). A VIE is consolidated when the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. When a VIE is not consolidated, the Company uses the equity method to account for the investment. Under this method, the carrying value is generally the Company’s share of the net asset value of the unconsolidated entity, and changes in the Company’s share of the net asset value are recorded in net investment income.
Securities with gross unrealized loss positions at December 31, 2014 and 2013, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:
Depreciation and amortization expense for other investments was $402, $388 and $279, respectively, for the years ended December 31, 2014, 2013 and 2012.
The Company has no uncertain tax positions or unrecognized tax benefits that, if recognized, would impact the effective income tax rate. The tax years ending December 31, 2013, 2012, and 2011 remain subject to examination by the Company’s major taxing jurisdictions. The Company elected to classify, if any, interest and penalties arising from uncertain tax positions as income tax expense as permitted by current accounting standards. There have been no material amounts of interest or penalties for the years ended December 31, 2014 and 2013. Effective October 20, 2014, the Internal Revenue Service notified the Company that the examination of the Company’s 2011 federal income tax return was completed with no change to the Company’s reported tax. In addition, as of April 18, 2014, the Florida Department of Revenue completed an audit of the state income tax returns filed for 2010, 2011, and 2012. The audit resulted in no material changes to the state income taxes originally reported.
The following presents assumptions used in a Monte Carlo simulation model to determine the fair value of the awards with market-based conditions:
The Company currently leases 15,000 square feet of office space in Noida, India. The lease commenced January 15, 2013 and has an initial term of nine years with monthly rental payments of approximately $10 plus applicable service tax for the first year. Thereafter the monthly rental payment will increase by five percent every year. The Company is entitled to terminate the lease 36 months after the commencement date by providing 3 months’ written notice to the landlord.
Provided the agreement is not early terminated, minimum future payments under the service agreement after December 31, 2014 are as follows: