At December 31, 2018 and 2017, the Company recorded its point estimate of approximately $1.83 billion and $1.51 billion ($1.65 billion and $1.45 billion, net of reinsurance), respectively, in loss and loss adjustment expense reserves, which included approximately $823 million and $668 million ($751 million and $627 million, net of reinsurance), respectively, of incurred-but-
The Company, which predominantly offers six-month personal automobile insurance policies, reintroduced twelve-month personal automobile policies for new business in MIC, its largest insurance subsidiary, in March 2018. Twelve-month policies are generally sold for twice the price of six-month policies. MIC's net premiums written from twelve-month policies in 2018 and 2017 was approximately $205 million and $70 million, respectively.
The changes in fair value of the investment portfolio resulted from the application of the fair value option.
The Company is largely dependent upon dividends received from its insurance subsidiaries to pay debt service costs and to make distributions to its shareholders. Under current insurance law, the Insurance Companies are entitled to pay ordinary dividends of approximately $145 million in 2019 to Mercury General. The Insurance Companies paid Mercury General ordinary dividends of $135 million during 2018. As of December 31, 2018, Mercury General had approximately $146 million in investments and cash that could be utilized to satisfy its direct holding company obligations.
Equity holdings of $529.6 million and $537.2 million, at fair value, as of December 31, 2018 and 2017, respectively, consisted of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds. The net (losses) gains due to changes in fair value of the Company’s equity portfolio were $(77.5) million and $37.5 million in 2018 and 2017, respectively. The primary cause of the decrease in the value of the Company's equity securities was the overall decline in the equity markets in 2018.
Insurance companies are required to file an Own Risk and Solvency Assessment ("ORSA") with the insurance regulators in their domiciliary states. The ORSA is required to cover, among many items, a company’s risk management policies, the material risks to which the company is exposed, how the company measures, monitors, manages and mitigates material risks, and how much economic and regulatory capital is needed to continue to operate in a strong and healthy manner. The ORSA is intended to be used by state insurance regulators to evaluate the risk exposure and quality of the risk management processes within insurance companies to assist in conducting risk-focused financial examinations and for determining the overall financial condition of insurance companies. The Company filed its most recent ORSA Summary Report with the California DOI in November 2018.
We have audited the accompanying consolidated balance sheets of Mercury General Corporation and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes and financial statement schedules I, II, and IV (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Equity securities consist of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds.
Premium revenue is recognized on a pro-rata basis over the terms of the policies in proportion to the amount of insurance protection provided. Premium revenue includes installment and other fees for services which are recognized in the periods in which the services are rendered. Unearned premiums represent the portion of the written premium related to the unexpired policy term. Unearned premiums are predominantly computed monthly on a pro-rata basis and are stated gross of reinsurance deductions,
The Company was in compliance with all of its financial covenants pertaining to minimum statutory surplus, debt to total capital ratio, and risk based capital ("RBC") ratio under the unsecured credit facility at December 31, 2018, except that CAIC's RBC ratio as of December 31, 2018 was below the required level. The Company received a waiver of the non-compliance. Notwithstanding the covenant under the unsecured credit facility, CAIC's RBC ratio was well in excess of the regulatory minimum capital requirement at December 31, 2018.
The Company is obligated under various non-cancellable lease agreements providing for office space, automobiles, and office equipment that expire at various dates through the year 2026. For leases that contain predetermined escalations of the minimum rentals, the Company recognizes the related rent expense on a straight-line basis and records the difference between the recognized rental expense and the amount paid under the lease as deferred rent in other liabilities. The total deferred rent liability amounted to $2.4 million and $2.1 million at December 31, 2018 and 2017, respectively. Total rent expense recognized under these lease agreements was $14.9 million, $14.8 million, and $15.2 million for 2018, 2017, and 2016, respectively.
Net income for 2017 was primarily attributable to net premiums earned, net investment income and net realized investment gains, partially offset by operating expenses and losses and loss adjustment expenses, including catastrophe losses and unfavorable development on prior accident years' loss and loss adjustment expense reserves. The primary causes of the net income for the fourth quarter of 2017 were the increases in the fair values of the Company’s fixed maturity and equity securities due to the overall market improvement, net investment income, and a net tax benefit of $7.4 million due to the effect of the Act.