During the second quarter of 2018, our Company established a wholly owned subsidiary, Navigators Holding (Europe) NV, which on June 7, 2018 (the “acquisition date”), acquired a 100% ownership interest in Bracht, Deckers & Mackelbert NV, an insurance underwriting agency organized under the laws of Belgium (“BDM”), Assurances Continentales - Continentale Verzekeringen NV, an insurance company licensed under the laws of Belgium (“ASCO”), and a wholly-owned subsidiary of ASCO, Canal Re S.A., a reinsurance company licensed under the laws of the Grand Duchy of Luxembourg (“Canal Re”). The acquisition of all three of these entities will be referred to as the “Acquisition” and the group of companies will be referred to as the Navigators Insurance Company Europe Group (the “NICE Group”). The Acquisition was undertaken as part of the Company’s strategy of expanding to more brokers and insureds across Europe and reinforces the Company’s presence in the European Union’s single market. We anticipate that this will enable the Company to better serve its European clients after Brexit, and will also provide opportunities to reach a wider European audience. The underwriting results of the acquired business from the NICE Group are included in the Int’l Insurance reporting segment, with no new operating segments resulting from the Acquisition.
As part of our overall investment strategy, we seek to build a tax efficient investment portfolio by maintaining an allocation to tax exempt municipal bonds. The tax exempt portion of our investment portfolio was approximately 16.5% and 22.4% of the Fixed Maturities investment portfolio as of December 31, 2018 and 2017, respectively. Additionally, 84.8% and 88.6% of our Equity Securities portfolio is invested in tax efficient securities which qualify for the dividends received deduction for the period ended December 31, 2018 and 2017, respectively. The tax equivalent yields for the years ended December 31, 2018, 2017 and 2016 on a consolidated basis were 3.1%, 3.1% and 2.9%, respectively.
The decrease in our Marine operating segment was impacted by our decision to exit certain Hull and War products. Additionally, the renewal of certain business now being managed in our Int’l Insurance reporting segment as well as a transfer of the management of our Custom Bonds product to the Other P&C division impacted the decrease. These decreases were partially offset by an increase in renewals for our Cargo and Inland Marine products.
Lower levels of large loss activity for the year ended December 31, 2018, compared to a large loss of $4.1 million in our Hull product within our Marine operating segment for the same period in 2017.
The increase in our Marine operating segment was largely due to growth in our Hull and Protection & Indemnity products driven by new business, an increase in our Craft product related to the renewal of certain business previously managed by our U.S. Insurance reporting segment now managed in our Int’l Insurance reporting segment, and an increase in our Transport product related to increased premium estimates.
The increase in our P&C operating segment’s Net Earned Premium was due to increased production in most divisions, additional earned premium of $8.5 million from the NICE Group business acquired in the second quarter of 2018, and a lower level of ceded RRPs as 2017 was impacted by the Hurricane events. These increases were partially offset by the impact of our decision to exit our International and North American Property businesses in 2017.
The above increase in our Net Prior AY Loss and LAE Ratio was partially offset by:
Our P&C operating segment for the year ended December 31, 2017 recognized $3.1 million of Net Prior AY Reserve Strengthening related to loss development in our Property division, partially offset by favorable loss emergence within our Offshore Energy business. This compares to $7.1 million of Net Prior AY reserve release related to favorable loss emergence.
$5.5 million of Additional Net Current AY Reserve Development for the year ended December 31, 2017 primarily attributable to our E&O and D&O products; and
The impact of additional ceded protection on our P&C operating segment during 2017.
U.S. insurance companies, NIC and NSIC, utilize the financial strength ratings from A.M. Best and S&P for underwriting purposes. NIC and NSIC are both rated “A” (Excellent - positive outlook) by A.M. Best and “A” (Strong - stable outlook) by S&P. The Syndicate utilizes the ratings from A.M. Best and S&P for underwriting purposes, which apply to all Lloyd’s syndicates. Lloyd’s is rated “A” (Excellent - stable outlook) by A.M. Best and A+ (Strong - negative outlook) by S&P. NIIC utilizes the financial strength ratings from AM Best and S&P for underwriting purposes. NIIC is rated “A” (Excellent - stable outlook) by AM Best and “A” (Strong - stable outlook) by S&P. ASCO is rated “A-“ (Strong - stable outlook) by S&P.
Our Company has established a reserve for uncollectible reinsurance in the amount of $13.4 million and $12.6 million as of December 31, 2018 and 2017, respectively. Our reserve is determined by considering reinsurer specific default risk as indicated by their financial strength ratings, as well as additional default risk for asbestos and environmental related recoverables or an individual impairment assessment for certain reinsurers that exhibit additional default risk. Actual uncollectible reinsurance could potentially differ from the estimate. The increase in our reserves for uncollectible reinsurance as compared to 2017 is driven primarily by one of our reinsurers having been placed in liquidation by the State of California. We continue to monitor the liquidation process and assess our potential exposure.