Gross written premiums (“GWP”) includes business from certain niches that are no longer part of our ongoing business. All GWP from exited niches(12) are included in “Other” which consists of (i) primary and excess workers’ compensation coverage for Self-Insured Groups(12), (ii) niches exited prior to 2018, many with a concentration in commercial auto, (iii) certain fronting arrangements in which all premium written is ceded to a third party (iv) participation in industry pools, and (v) emerging new business. The table below includes GWP for each customer segment for the years ended December 31, 2019, 2018, 2017, 2016 and 2015. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.
Adjusted operating income is a non-GAAP financial measure. We calculate adjusted operating income as net income, excluding net realized investment gains (losses), net and the income tax expense resulting from implementation of the TCJA. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income in accordance with GAAP to adjusted operating income.
In connection with the divestment of our U.K. business, New York Marine as reinsured entered into the whole account quota share reinsurance agreements (the “WAQS”) with third party reinsurers to maintain reasonable underwriting leverage within New York Marine and its subsidiary insurance companies during a transition period following the U.K. divestment. The effective date of the WAQS was April 1, 2017. The reinsurers’ ceding participation is an aggregate 26.0%. A provisional ceding commission of 30.0% to 30.5% is received as a reduction in the amount of ceded premium. Subject to limits, these ceding commissions will vary in subsequent periods based on contractual ultimate loss ratios. During 2018 and following the transition of the U.S. business back to New York Marine, the WAQS were terminated. Previously ceded written and unearned premium, net of the ceding commission, was reversed. Loss reserves on premium earned prior to the cut-off termination remain ceded loss reserves. The ceded loss reserves under the WAQS were $33.1 million and $43.7 million as of December 31, 2019 and December 31, 2018, respectively. Loss reserve development on the reserves ceded under the WAQS is included in continuing operations.
Included within our 62.0% loss and LAE ratio for the year ended December 31, 2019 is $0.4% of catastrophe losses, a decrease of 0.1%, from $3.6 million, or 0.5% for the year ended December 31, 2018. Catastrophe losses for the years ended December 31, 2019 related to a midwestern tornado and 2018 was primarily California wildfires.
GWP were $895.1 million for the year ended December 31, 2018 compared to $836.3 million for the year ended December 31, 2017, an increase of $58.8 million, or 7.0%.
Included within our 59.5% loss and LAE ratio for the year ended December 31, 2018 is 0.5% of catastrophe losses primarily from the California wildfires. This is a decrease of 1.0% of losses for the year ended December 31, 2018, from 1.5% for the year ended December 31, 2017.
Our adjusted operating return on equity was 14.4% for the year ended December 31, 2018, an increase of 10.7 percentage points from 3.7% for the year ended December 31, 2017.
We file a consolidated U.S. federal income tax return with our subsidiaries, and under our corporate tax allocation agreement, each participant is charged or refunded taxes according to the amount that the participant would have paid or received had it filed on a separate return basis with the Internal Revenue Service (“IRS”).
Our cash flows for the years ended December 31, 2019, 2018 and 2017 were:
In connection with, and prior to the completion of the IPO, the Company’s Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”) was terminated. Immediately prior to the merger, P Shares granted under the 2010 Plan prior to the IPO, were cancelled, and all outstanding RSUs granted under the 2010 Plan were converted into RSUs based on the shares of common stock of the Company.
Our cash and invested assets consist of debt securities, cash and cash equivalents, short-term investments and alternative investments.
The table below presents the credit quality of total bonds at December 31, 2019 and 2018, as rated by Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) or Equivalent Designation:
During the year ended December 31, 2017, our reserve for unpaid losses and loss adjustment expenses for accident years 2016 and prior developed adversely by $20.3 million. Adverse development of $20.3 million was driven primarily by unfavorable development of $33.2 million in Commercial Auto which consisted of several niches that are now terminated. Adverse development in Commercial Auto was driven primarily by higher than expected frequency and severity. The Commercial Auto experience were likely a result of industry trends such as an improving economy resulting in more drivers on the roads, the hiring of less experienced drivers, the use of personal technology while in transit and litigation of bodily-injury claims, which resulted in unexpected adverse experience from historical performance patterns. The adverse development was offset by favorable development in Workers’ Compensation of $12.4 million due to lower than expected claim severity for accident years 2016 and prior, including a decline in the frequency of large loss activity.
Fixed income securities may include U.S. Treasury securities, government agency securities, municipal debt obligations, RMBS, CMBS, CLO, ABS and corporate debt securities.
2018, respectively. The Company does not anticipate any future premiums from this distribution partner other than audit premiums after the first quarter of 2019. The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner above) totaled $267.8 million, $240.7 million and $235.0 million for the years ended December 31, 2019, 2018 and 2017 respectively.
Other category represents unallocated loss adjustment expense (“ULAE”) reserves $45.6 million, discounting of loss reserves $(47.4) million and retroactive reinsurance agreements $12.3 million, allowance for uncollectible reinsurance $0.5 million and other $3.2 million.
In November 2013, the Company issued $140.0 million of 7.5% Senior Unsecured Notes due November 2020. The notes provide for semi-annual interest payments and are to be repaid in full in November 2020. The indenture contains certain covenants that restrict the Company’s ability to, among other items, incur indebtedness, make restricted payments, incur liens and require the Company to maintain specified liquidity levels. The Company remains in compliance with the covenants. Debt issuance costs of $2.1 million were incurred and are being amortized over the life of the loan.
At December 31, 2019, the minimum gross rental payments and sublease income relating to these various operating leases are as follows:
In the normal course of business, the Company’s insurance subsidiaries are subject to disputes, including litigation and arbitration, arising out of the ordinary course of business. The Company’s estimates of the costs of settling such matters are reflected in its reserves for losses and loss expenses, and the Company does not believe that the ultimate outcome of such matters will have a material adverse effect on its financial condition or results of operations.