Tiptree is a holding company that combines insurance operations with investment management capabilities. Our principal operating subsidiary is a leading provider of specialty insurance products and related services. We also allocate capital across a broad spectrum of businesses, assets and other investments, which we refer to as Tiptree Capital. When considering capital allocation decisions, we take a diversified approach with a longer-term investment horizon. We evaluate our performance primarily by the comparison of our shareholder’s long-term total return on capital, as measured by Adjusted EBITDA, Operating EBITDA and growth in book value per share plus dividends.
In 2018, we returned $19.2 million to investors through $14.2 million of share buy-backs and $5.0 million of dividends paid.
On February 1, 2018, we sold our senior living assets to Invesque in exchange for a net 16.6 million shares of Invesque common stock. Tiptree’s increase to book value was $1.16 per share including a pre-tax $10.7 million earnout gain recognized in December 2018.
We use the combined ratio as an operating metric to evaluate our insurance underwriting performance, both overall and relative to peers. Expressed as a percentage, it represents the relationship of policy and contract benefits, commission expense (net of ceding commissions), employee compensation and benefits, and other expenses to net earned premiums, service and administrative fees, and other income. Investors use this ratio to evaluate our ability to profitably underwrite the risks we assume over time and manage our operating costs. A combined ratio less than 100% indicates an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. The below table outlines the insurance operating ratios, capital invested and the drivers of Operating EBITDA split between underwriting and investments as management evaluates the return on the investment portfolio separately from the returns from underwriting activities.
Our investment portfolio is subject to different regulatory considerations, including with respect to types of assets, concentration limits, affiliate transactions and the use of leverage. Our investment strategy is designed to achieve attractive risk-adjusted returns over the entire investment horizon across select asset classes, sectors and geographies while maintaining adequate liquidity to meet our claims payment obligations. As such, volatility from realized and unrealized gains and losses may impact period-over-period performance. Unrealized gains and losses on equity securities and loans held at fair value impact current period net income, while unrealized gains and losses on available for sale securities impact AOCI.
Net investments of $463.3 million have grown 16.9% from December 31, 2017 through a combination of organic growth in written premiums and increased retention.
Summary Consolidated Statements of Cash Flows - Year Ended December 31, 2018, December 31, 2017, and December 31, 2016
Cash used in investing activities (excluding VIEs) was $12.5 million for the year ended December 31, 2017. The primary uses of cash from investing activities included investments in real estate properties in our senior living business. The primary sources of cash from investing activities were the sales and maturities of investments exceeding purchases of investments, specifically the sale of NPLs and corporate loans, as well as the sales and redemption of our subordinated note investments in our consolidated CLOs.
Minimum rental obligation for office leases. The total rent expense for the Company for the year ended December 31, 2018 and 2017 was $7.5 million and $6.8 million, respectively.
The Company defers certain costs of acquiring new and renewal insurance policies and other products within the Company’s specialty insurance segment.
We have audited the accompanying consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2016 of Tiptree Inc. and subsidiaries and the schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.
Corporate loans are comprised of diversified portfolio of middle market leveraged loans which are carried at fair value. In general, the fair value of leveraged loans are obtained from an independent pricing service which provides coverage of secondary market participants. The values represent a composite of mark-to-market bid/offer prices. In certain circumstances the Company will make its own determination of fair value of leveraged loans based on internal models and other unobservable inputs.
The Company’s claims are generally reported and settled quickly, resulting in consistent historical loss development patterns. The Company’s actuaries apply a variety of generally accepted actuarial methods to the historical loss development patterns, to derive cumulative development factors. These cumulative development factors are applied to reported losses for each accident quarter
Net earned premium is from direct and assumed earned premium consisting of revenue generated from the direct sale of insurance policies by the Company's distributors and premiums written for insurance policies by another carrier and assumed by the Company. Whether direct or assumed, the premium is earned over the life of the respective policy using methods appropriate to the pattern of losses for the type of business. Methods used include the Rule of 78's, pro rata, and other actuarial methods.
As of December 31, 2018 and December 31, 2017, the Company did not record any impairments with respect to assets held for sale or discontinued operations.
The following table represents detail of assets and liabilities held for sale in the consolidated balance sheets for the following periods:
only to the extent it was received in cash. However, when there was doubt regarding the ultimate collectability of loan principal, cash receipts on such nonaccrual loans were applied to reduce the carrying value of such loans. Nonaccrual loans were returned to accrual status when repayment was reasonably assured and there had been demonstrated performance under the terms of the loan or, if applicable, the restructured terms of such loan.
(3) The weighted average coupon rate for residential mortgage warehouse borrowings was 4.66% and 4.27% at December 31, 2018 and December 31, 2017, respectively.
For the year ended December 31, 2018, the Company’s specialty insurance business experienced an increase in prior year case development of $2,509 primarily from its non-standard auto business.
The Company earns asset management fee income in the form of base management fees and incentives from the CLOs it manages. These base management fees are billed as the services are provided and paid periodically in accordance with the terms of the individual management agreements for as long as the Company manages the funds. Base management fees typically consist of fees based on the amount of assets held in the CLOs. Base management fees are recognized as revenue when earned. The Company does not recognize incentive fees until all contractual contingencies have been removed.
(2) Includes $2,554, $3,552 and $2,859 related to Specialty Insurance for the year ended December 31, 2018, 2017 and 2016, respectively.
On March 19, 2018 and December 10, 2018 the Company engaged a broker in connection with a daily stock repurchase program for the repurchase of up to $10.0 million of shares of the Company’s outstanding Common Stock, for a total authorization of $20.0 million. On March 19, 2018, the Company’s Board of Directors authorized the Company to make block repurchases of up to $10.0 million of shares in the aggregate, at the discretion of the Company's Executive Committee. On December 10, 2018 the Company’s Board of Directors replenished the authorization to $10.0 million.
(1) See Note (24) Subsequent Events for when dividend was declared.
space and information technology services. On January 1, 2018, The Company’s executive chairman became an employee of the Company. Payments to Tricadia for the services of our Executive Chairman are included in employee compensation and benefits.