The Company's net income increased 16.6% from $30.3 million in the year ended December 31, 1996 to $35.3 million in the year ended December 31, 1997. The Company's operating income increased 47.4% from $39.3 million in the year ended December 31, 1996 to $57.9 million in the year ended December 31, 1997. These improved results occurred despite a decrease in the Company's insurance premiums earned and the differential between the growth in net income and operating income occurred as the Company's tax rate returned to normal levels in 1997 after the Company's 1996 taxes were positively affected by the decrease in the valuation allowance relating to the unrealized loss from the Company's investment in Major Realty. The improved results were attributed primarily to improved loss and expense ratios in all of the Company's Property and Casualty divisions, excellent crop results resulting from an above average profit sharing earned in the Company's MPCI program, and increased investment income and realized gains from the Company's investment portfolio. These positive factors were partially offset by an increase in the expense ratio of the Crop division, increased interest expense, and an increase in the Company's effective tax rate.
Positive factors effecting net income were partially offset by deteriorating underwriting results in the Company's Program division. The Program division's combined loss and expense ratio increased from 113.6% during 1995 to 117.5% during 1996. A variety of factors combined to cause this deterioration in underwriting results. In two of the division's departments, Rural America and Special Products, weather related incidents increased the frequency of losses. In the Rural America department, storms in areas where the Company had concentrations of farm business adversely effected the Company's loss ratio, while in the Company's Special Products department, prolonged sub-zero temperatures in the greater Chicago area increased the number and severity of freeze losses experienced in the Company's condominium program. The Company has taken steps to reduce its geographic concentrations in the Rural America department, and is making changes in the reinsurance structure of both of these departments in order to reduce volatility and improve net underwriting results.
Offsetting these deteriorating results in the Program division were improved results in the Company's Transportation department. With the Transportation department, the Company's loss and expense ratio improved from 120.6% during the year ended December 31, 1995 to 103.6% during 1996.
Under the American Agrisurance profit sharing agreement, American Agrisurance receives up to 50% of the crop insurance profit after expenses and a margin retained by the Insurance Companies based upon a formula established by the Company and approved by the Nebraska Department of Insurance. If the calculated profit share is negative, such negative amounts are carried forward and offset future profit sharing payments. For the year ended December 31, 1997, American Agrisurance recorded $12.4 million, net of tax, related to the profit sharing agreement. This entire amount was distributed in the form of a dividend to the Company.