Although variability is inherent in estimates, the Company believes that the liability for unpaid losses and loss adjustment expenses reflects Management’s best estimate for future amounts needed to pay losses and related loss adjustment expenses and the impact of its reinsurance coverage with respect to insured events.
The expense ratio is a GAAP financial measure that is calculated by dividing the sum of acquisition costs and other underwriting expenses by net earned premiums.
Gross written premiums increased by 16.2% for year ended December 31, 2019 as compared to 2018. Gross written premiums include business written by American Reliable that is ceded to insurance entities owned by Assurant under a 100% quota share reinsurance agreement in the amount of ($0.3) million and ($2.1) million for the years ended December 31, 2019 and 2018, respectively. Excluding the business that is ceded 100% to insurance entities owned by Assurant, gross written premiums increased by 15.9% for the year ended December 31, 2019 as compared to 2018. The increase is mainly due to several new programs and increases in excess & surplus lines submissions within Commercial Specialty, rate increases within Specialty Property and Farm, Ranch, & Stable, new agents appointments within Farm, Ranch, & Stable, and growth in the Reinsurance Operation’s property catastrophe book primarily driven by rate increases as well as a new casualty treaty. This new casualty treaty contributed $26.9 million in gross written premiums during the year ended December 31, 2019. This growth in premiums was partially offset by a continued reduction of catastrophe exposed business within both Commercial Specialty and Specialty Property.
In 2019, the decrease in operating cash flows of approximately $9.7 million from the prior year was primarily a net result of the following items:
During 2018, the Board of Directors approved a dividend payment of $0.25 per ordinary share to all shareholders of record on the close of business on March 21, 2018, June 22, 2018, September 27, 2018, and December 24, 2018. Dividends paid were $14.0 million during the year ended December 31, 2018.
The Company has commitments in the form of operating leases, commitments to fund limited liability investments, subordinated notes, and unpaid losses and loss expense obligations. As of December 31, 2019, contractual obligations related to Global Indemnity’s commitments, including any principal and interest payments, were as follows:
Obligations of states and political subdivisions - As of December 31, 2019, gross unrealized losses related to obligations of states and political subdivisions were $0.271 million. All unrealized losses have been in an unrealized loss position for less than twelve months. All factors that influence performance of the municipal bond market are considered in evaluating these securities. The aforementioned factors include investor expectations, supply and demand patterns, and current versus historical yield and spread relationships. The analysis relies on the output of fixed income credit analysts, as well as dedicated municipal bond analysts who perform extensive in-house fundamental analysis on each issuer, regardless of their rating by the major agencies.
As of December 31, 2019 and 2018, the Company is due $3.0 million and $2.6 million, respectively, for funds it needed to post to execute the swap transaction and $12.5 million and $3.7 million, respectively, for margin calls made in connection with the interest rate swaps. These amounts are included in other assets on the consolidated balance sheets.
the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral. The estimated fair value of the derivative instruments, consisting of interest rate swaps, is obtained from a third party financial institution that utilizes observable inputs such as the forward interest rate curve.
The following table provides the fair value and future funding commitments related to these investments at December 31, 2019 and 2018.
U.S. treasuries are evaluated by obtaining feeds from a number of live data sources including primary and secondary dealers as well as inter-dealer brokers.
During 2019 and 2018, the Company has not adjusted quotes or prices obtained from the pricing vendors.
As of December 31, 2019, the Company had one aggregate unsecured reinsurance receivables that exceeded 3% of shareholders’ equity from the following reinsurer. Unsecured reinsurance receivables include amounts receivable for paid and unpaid losses and loss adjustment expenses, less amounts secured by collateral.
Professional Liability: A $5.8 million decrease in aggregate primarily reflects lower than expected claims severity in the 2006 through 2008 and 2011 through 2012 accident years.
The $7.9 million reduction of prior accident year loss reserves related to Reinsurance Operations was primarily from the property lines for accident years 2008 through 2016. Ultimate losses were lowered in these accident years based on reviews of the experience reported from cedants.
applies the new leases standard at the adoption date and recognizes a cumulative effect adjustment to the opening balance sheet of retained earnings. The lease guidance is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this new accounting guidance on January 1, 2019 using the optional transition method. The Company elected the package of practical expedients permitted under the transition guidance within the new standard. In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases. Upon adoption, the Company recognized right-of-use lease assets and lease liabilities of $25.3 million and $25.4 million, respectively, and recorded a cumulative effect adjustment, net of tax, of less than $0.1 million to retained earnings.
In January, 2017, the FASB issued updated guidance that simplifies how an entity is required to test goodwill for impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e. Step 2 of the current goodwill impairment test). Under the new amendments, an entity may still first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized, if any. A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective for public business entities’ annual or interim goodwill impairment testing in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this new accounting guidance will not have a material impact on the Company’s financial condition, results of operations, and cash flows.
including interim periods within those fiscal years. Early application of this new guidance is permitted as of the fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. This guidance will be applied using a modified-retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The adoption of this new accounting guidance will not have a material impact on the Company’s financial condition, results of operations, and cash flows.
An unaudited summary of the Company’s 2019 and 2018 quarterly performance is as follows: