Ceded premiums increased $0.3 million, or 6.0%, during 2018 as compared to 2017. The increase in ceded premiums was primarily due to an increase in earned premiums in certain accounts within the automobile physical damage line of business, which is subject to reinsurance.
Net earned premiums increased $0.1 million, or 0.3%, during 2018 as compared to 2017. The increase in net earned premiums was primarily attributable to an increase in automobile physical damage net earned premiums resulting from the addition of a new agency and increased business writings discussed previously. Premiums are earned ratably over their respective policy terms, and therefore premiums earned in the current year are related to policies written during both the current year and immediately preceding year.
Underwriting expenses decreased $1.7 million, or 10.2%, during 2018 as compared to 2017. As a percentage of premiums, underwriting expenses were 27.4% in 2018 as compared to 30.6% in 2017. The decrease in the expense ratio was primarily due to American Southern’s use of a variable commission structure with certain agents, which compensates the participating agents in relation to the loss ratios of the business they write. In 2018, variable commissions at American Southern decreased $1.1 million as compared to 2017 due to less favorable loss experience from certain accounts subject to variable commissions.
Underwriting expenses decreased $2.4 million, or 7.0%, during 2018 as compared to 2017. As a percentage of earned premiums, these expenses were 27.1% in 2018 as compared to 31.7% in 2017. The decrease in the expense ratio was primarily due to the increase in earned premiums coupled with a relatively consistent level of fixed general and administrative expenses. Also contributing to the decrease in the expense ratio was an increase in the amount of reinsurance expense-reimbursement allowance associated with the Company’s reinsurance agreement, which reimbursed the Company for a portion of its indirect underwriting expenses.
The Parent provides certain administrative, purchasing and other services to each of its subsidiaries. The amount charged to and paid by the subsidiaries for these services was $8.0 million and $7.7 million in 2018 and 2017, respectively. In addition, the Parent has a formal tax-sharing agreement with each of its insurance subsidiaries. A net total of $3.4 million and $2.7 million were paid to the Parent under the tax sharing agreement in 2018 and 2017, respectively.
Cash and cash equivalents consist of cash on hand and investments in short-term, highly liquid securities with original maturities of three months or less from date of purchase.
For employee and director share-based compensation awards, the Company determines a grant date fair value based on the price of our publicly-traded common stock and recognize the related compensation expense, adjusted for actual forfeitures, in the statement of income on a straight-line basis over the requisite service period for the entire award. For non-employee share-based compensation awards, the Company recognizes the impact during the period of performance, and the fair value of the award is measured as of the date performance is complete, which is the vesting date.
The Company’s fixed maturities valued using Level 3 inputs consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies that are not actively traded. There are no assumed prepayments and/or default probability assumptions as a majority of these instruments contain certain U.S. government agency strips to support repayment of the principal. Other qualitative and quantitative information received from the original underwriter of the pooled offerings is also considered, as applicable.
Under the insurance code of the state in which each insurance subsidiary is domiciled, dividend payments to the Parent by its insurance subsidiaries are subject to certain limitations without the prior approval of the applicable state’s Insurance Commissioner. The Parent received dividends of $4,800 and $4,850 in 2018 and 2017, respectively, from its subsidiaries. In 2019, dividend payments to the Parent by the insurance subsidiaries in excess of $4,347 would require prior approval.