The following discussion highlights significant factors influencing the consolidated financial position and results of operations of The National Security Group, Inc. (referred to in this document as we, our, us, the Company or NSEC) and its subsidiaries. We are a “smaller reporting company” under Securities and Exchange Commission (SEC) regulations and therefore qualify for the scaled disclosure of smaller reporting companies. In general, the same information is required to be disclosed in the management discussion and analysis by smaller reporting companies except that the discussion need only cover the latest two year period and disclosures relating to contractual obligations are not required. In accordance with the scaled disclosure requirements, this discussion covers the two year period ended December 31, 2017.
The Property and Casualty (P&C) segment is the most significant segment, accounting for 90.8% of gross earned premium in 2017. The P&C segment has insurance in-force in the states of Alabama, Arkansas, Georgia, Louisiana, Mississippi, Oklahoma, South Carolina, and Tennessee.
From a revenue standpoint, our life segment is the smaller of our insurance segments contributing 10.0% of total insurance net earned premium revenue in 2017 and 10.2% in 2016. Premium revenues and operating income for the life segment for the year ended December 31, 2017 and 2016 are summarized below (amounts in thousands):
Policyholder benefits and settlement expenses in the property and casualty segment were $37,824,000 in 2017 compared to $33,562,000 for the same period in 2016; an increase of $4,262,000 or 12.7%. The P&C segment ended 2017 with a loss ratio of 68.0% compared to 60.2% for the same period in 2016. The primary reason for the increase in claims and the loss ratio in 2017 compared to 2016 was reported losses and loss adjustment expenses (LAE) from Hurricane Irma coupled with an active spring storm season in 2017.
The single largest catastrophe event in 2017 was Hurricane Irma, which caused $3,622,000 in reported losses in 2017 from 992 claims. Hurricane Irma impacted our policyholders in Alabama, Georgia, South Carolina and Tennessee.
Georgia was the primary state in our coverage area impacted by Hurricane Irma comprising approximately 85% of reported claims to date.
The Company holds a passive interest in a limited partnership that is considered to be a Variable Interest Entity (VIE) under the provisions of ASC 810 Consolidation. The Company is not the primary beneficiary of the entity and is not required to consolidate under ASC 810. The entity is a private placement investment fund formed for the purpose of investing in private equity investments. The Company owns less than 1% of the limited partnership. The carrying value of the investment totals $177,000 and is included as a component of Other Invested Assets in the accompanying consolidated balance sheets.
Major categories of realized investment gains and losses are summarized as follows (dollars in thousands):
The swaps entered into in 2009 and 2010 have fair values of $65,000 (liability) and $543,000 (liability), respectively, for a total liability of $608,000 at December 31, 2017 ($1,030,000 at December 31, 2016). The swap liability is reported as a component of other liabilities on the consolidated balance sheets. A net valuation gain of $278,000 (net of tax) is included in accumulated other comprehensive income related to the swap agreements at December 31, 2017. A
Pursuant to the rules and regulations of the Securities and Exchange Commission, the Condensed Financial Information of the Registrant does not include all of the information and notes normally included with financial statements prepared in accordance with generally accepted accounting principles. It is, therefore, suggested that this Condensed Financial Information be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Registrant’s Annual Report as referenced in Form 10-K, Part II, Item 8, page 44.