Declines in the fair value of investments below cost are evaluated for other than temporary impairment losses. The evaluation for other than temporary impairment losses is a quantitative and qualitative process which is subject to risks and uncertainties in the determination of whether declines in the fair value of investments are other than temporary. The risks and uncertainties include our intent and ability to hold the security, changes in general economic conditions, the issuer’s financial condition or near term recovery prospects, and the effects of changes in interest rates. Our accounting policy requires that a decline in the value of a security below its cost basis be assessed to determine if the decline is other than temporary. If so, the security is deemed to be impaired and a charge is recorded in net realized losses equal to the difference between the fair value and the cost basis of the security. The fair value of the impaired investment becomes its new cost basis.
We recorded net investment income of $399,476 for the year ended December 31, 2017 compared to $277,537 for the year ended December 31, 2016, an increase of $121,939 or 43.9%. The increase in net investment income was due to the increase in dividend income, which was attributable to a certain higher yielding equity security held in our investment portfolio during 2017 compared to 2016 and to the increase in interest income, which was attributable to higher yielding fixed income securities held in our investment portfolio during 2017 compared to 2016 and to a larger base of fixed income securities held in our investment portfolio during 2017 compared to 2016. Annualized investment yield, calculated as total interest and dividends divided by the net average amount of total investments and cash and cash equivalents, was 1.2% in 2017, a marginal increase from the 1.0% yield earned in 2016.
There have been no material changes to any of our valuation techniques from what was used as of December 31, 2016. Since the fair value of a financial instrument is an estimate of what a willing buyer would pay for our asset if we sold it, we will not know the ultimate value of our financial instruments until they are sold. We believe the valuation techniques utilized provide us with the best estimate of the price that would be received to sell our assets or transfer our liabilities in an orderly transaction between participants at the measurement date.
Total cash, investments and other invested assets increased from $31,673,066 at December 31, 2016 to $35,734,280 at December 31, 2017, an increase of $4,061,214 or 12.8%. The net increase resulted primarily from positive cash inflows in relation to net investment income and net premiums received under the Reinsurance Agreement in the amount of $2,088,388. These increases were partially offset by (i) net cash outflows to fund our operations and (ii) dividends of $303,919 paid during the year.
Operating and management expenses include compensation paid to members of the Board of Directors and various committees of the Board totaling $576,300 in 2017 and $525,517 in 2016. Included as a part of this compensation are annual retainers paid to directors in the form of common shares of the Company in the amount of $70,000 for the years ended December 31, 2017 and 2016, respectively. Such amounts are included as part of purchase of shares by subsidiary, net, in the consolidated statements of changes in shareholders’ equity and cash flows.