In presenting the Company’s results, management has included and discussed certain non-GAAP financial measures. The Company believes that these non-GAAP measures, which may be defined and calculated differently by other companies, better explain and enhance the understanding of the Company’s results of operations. However, these measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP.
Net operating income (loss) available (attributable) to Validus common shareholders, a non-GAAP financial measure, measures the performance of the Company’s operations without the influence of gains or losses on investments and foreign currencies and other items as noted in the table above. The Company excludes these items from its calculation of net operating income (loss) available (attributable) to Validus common shareholders because the amount of these gains and losses is heavily influenced by, and fluctuates in part, according to availability of investment market opportunities and other factors. The Company believes these amounts are largely independent of its core underwriting activities and including them distorts the analysis of trends in its operations. The Company believes the reporting of net operating income (loss) available (attributable) to Validus common shareholders enhances the understanding of results by highlighting the underlying profitability of the Company’s core (re)insurance operations. This profitability is influenced significantly by earned premium growth, adequacy of the Company’s pricing, as well as loss frequency and severity. Over time it is also influenced by the Company’s underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance and its ability to manage its expense ratio, which it accomplishes through its management of acquisition costs and other underwriting expenses.
Return on average equity, a GAAP financial measure, and net operating return on average equity, a non-GAAP financial measure, represents the returns generated on common shareholders’ equity during the year. The Company’s objective is to generate superior returns on capital that appropriately reward shareholders for the risks assumed.
Assets under management were $3.4 billion as at January 1, 2018, compared to $2.9 billion as at October 1, 2017, of which third party assets under management were $3.2 billion as at January 1, 2018, compared to $2.7 billion as at October 1, 2017.
Gross premiums written for the year ended December 31, 2017 were $1,195.2 million compared to $1,184.9 million for the year ended December 31, 2016, an increase of $10.3 million, or 0.9% and included the following:
Net premiums earned for the year ended December 31, 2017 were $1,023.0 million compared to $996.1 million for the year ended December 31, 2016, an increase of $26.9 million or 2.7%. Excluding the net impact of reinstatement premiums assumed and the acceleration of unearned premiums ceded from 2017 notable loss events of $53.4 million, net premiums earned were $969.6 million, a decrease of $26.6 million, or 2.7% compared to the year ended December 31, 2016.
The net favorable development for the year ended December 31, 2016 was primarily driven by favorable development on attritional losses and was partially offset by adverse development in the specialty - short-tail lines related to reserves established following the receipt of a loss advice on an individual marine policy that incepted during the second half of 2015.
Loss ratio for the years ended December 31, 2016 and 2015 was 60.3% and 49.0%, respectively, an increase of 11.3 percentage points.
Effective yield on managed investments for the year ended December 31, 2016 was 2.24%, compared to 1.91% for the year ended December 31, 2015, an increase of 33 basis points.
Transaction expenses for the year ended December 31, 2017 were $4.4 million compared to $nil for the year ended December 31, 2016. Transaction expenses are primarily comprised of legal, financial advisory and audit related services incurred in connection with the acquisition of CRS, which was completed on May 1, 2017.
The value of the Company’s managed fixed maturity portfolio will fluctuate with, among other factors, changes in the interest rate environment and in overall economic conditions. Additionally, the structure of the Company’s overall managed investment portfolio exposes the Company to other risks, including insolvency or reduced credit quality of corporate debt securities, prepayment, default and structural risks on asset-backed securities, mortgage-backed securities and bank loans and liquidity risks on certain other investments, including hedge funds, fixed income investment funds and private equity investments. For further details on market risks, refer to Part I,