See "Non-GAAP Financial Measures" for a reconciliation of Operating (loss) income attributable to common shareholders to the comparable GAAP measure.
Net earned insurance and reinsurance premiums - Net earned insurance and reinsurance premiums in 2018 was $1,262 million, an increase of $227 million or 22% compared to net earned insurance and reinsurance premiums of $1,035 million in 2017, with Specialty & Casualty up 47%, Global A&H up 17%, and Global Property up 13%. See "Results of reportable segments" below.
Insurance and reinsurance acquisition expenses - Insurance and reinsurance acquisition expenses decreased 6% to $197 million in 2017 from $210 million in 2016 primarily due to lower commissions in Global A&H, partially offset by an increase in net earned insurance and reinsurance premiums. See "Results of Reportable Segments" below.
Total return on investments includes investment income, net realized gains and losses and the change in unrealized gains and losses generated by the investment portfolio including equity method investments for which we have made a fair value election and net income or loss in investments in unconsolidated affiliates. Total return is calculated on a pre-tax basis and includes the impact of investment related foreign exchange gains or losses whether reflected in pre-tax income or other comprehensive income, unless otherwise noted. Returns are calculated on average investments for the period displayed and presented gross of separately managed account fees as well as internal expenses in order to produce a better comparison to benchmark returns that exclude an expense load.
Underwriting income, including net service fee income, for Global A&H was $58 million in 2018 compared to $35 million in 2017. The increase of $23 million was primarily driven by net service fee income generated by IMG and Armada, which were both acquired during the second quarter of 2017. Starting in 2018, certain operating expenses for the MGUs are reflected in Unallocated LAE and Other underwriting expense, representing costs associated with the support of the Global A&H underwriting team.
Under local statutory requirements, an amount equal to the deferred tax liability on Sirius International's Safety Reserve ($261 million as of December 31, 2018) is included in solvency capital. Access to the Safety Reserve is restricted to coverage of insurance and reinsurance losses and to coverage of a breach of the Solvency Capital Requirement. Access for any other purpose requires the approval of Swedish regulatory authorities. Similar to the approach taken by Swedish regulatory authorities, most major rating agencies generally include the $1.2 billion balance of the Safety Reserve, without any provision for deferred taxes, in Sirius International's regulatory capital when assessing Sirius International and Sirius Group's financial strength. Subject to certain limitations under Swedish law, Sirius International is permitted to transfer certain portions of its pre-tax income to its Swedish parent companies to minimize taxes (referred to as a group contribution). During 2018, Sirius International did not transfer any of its 2018 pre-tax income via group contributions to its Swedish parent companies.
As a result of this time lag in reporting, Sirius Group estimates a portion of its written premium and related commissions and expenses. Given the nature of Sirius Group's business, estimated premium balances, net of related commissions and expenses, comprise a large portion of total premium balances receivable. The estimation process begins by identifying which major accounts have not reported activity at the most recent period end. In general, premium estimates for excess of loss business are based on expected premium income included in the contractual terms. For proportional business, Sirius Group's estimates are derived from expected premium volume based on contractual terms or ceding company reports and other correspondence and communication with underwriters, intermediaries and ceding companies. Once premium estimates are determined, related commission and expense estimates are derived using contractual terms.
As a part of the IMG acquisition, Sirius Group issued Series A redeemable preference shares, with 150,000 shares authorized and 100,000 issued at issuance date, with liquidation preference of $1,000 per preference share ("Liquidation Preference"). Up to 50,000 Series A redeemable preference shares were available pursuant to the IMG Earnout. The Series A redeemable preference shares participated in dividends on an as-converted basis with common shares and other shares junior to the Series A redeemable preference shares.
Accident and Health insurance and reinsurance-Sirius Group is an insurer of accident and health insurance business in the United States, either on an admitted or surplus lines basis, as well as international business written through wholly-owned IMG. Armada business is written on an admitted basis. Sirius Group also writes proportional and excess reinsurance treaties covering employer medical stop-loss for per person (specific) and per employer (aggregate) exposures. In addition, Sirius Group writes some medical, health, travel and personal accident coverages written on a treaty, facultative and primary basis.
Aviation & Space provides aviation insurance that covers loss of or damage to an aircraft and the aircraft operations' liability to passengers, cargo and hull as well as to third parties. Additionally, liability arising out of non-aircraft operations such as hangars, airports and aircraft products can be covered. Space insurance primarily covers loss of or damage to a satellite during launch and in orbit. The book consists of treaty, written on both a proportional and excess of loss basis, facultative, and primary business.
Marine provides marine reinsurance, primarily written on an excess of loss and proportional basis. Coverage offered includes damage to ships and goods in transit, marine liability lines, and offshore energy industry insurance. Sirius Group also writes yacht business, both on reinsurance and a primary basis. The marine portfolio is diversified across many countries and regions.
Runoff & Other consists of asbestos risks, environmental risks and other long-tailed liability exposures, and underwriting results from Sirius Global Solutions Holding Company ("Sirius Global Solutions") and its subsidiaries. Sirius Global Solutions is a Connecticut-based division of Sirius Group specializing in the acquisition and management of runoff liabilities for insurance and reinsurance companies, both in the United States and internationally.
(7)Other revenue is presented net of Service fee revenue and is comprised mainly of the right of indemnification, gains (losses) from derivatives (see Note 13), and the termination of the call option to purchase The Phoenix Holdings, Ltd. (the sum of Service fee revenue and Other revenue is equal to Other revenue on the Consolidated Statements of (Loss) Income).
In connection with purchase accounting for acquisitions, Sirius Group is required to adjust loss and LAE reserves and the related reinsurance recoverables to fair value on their respective acquired balance sheets. The net reduction to loss and LAE reserves is being recognized through an income statement charge ratably with and over the period the claims are settled and is recorded within General and administrative expenses. Sirius Group recognized $0.1 million, $0.1 million, and $0.5 million of such charges during 2018, 2017, and 2016, respectively. As of December 31, 2018, the pre-tax un-accreted adjustment was $2.7 million.
The following table summarizes the net unrealized investment (losses) and changes in fair value for the years ended December 31, 2018, 2017, and 2016:
The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments as of December 31, 2018 and 2017, and includes only those instruments for which information about the inputs is reasonably available to Sirius Group, such as data from independent third-party valuation service providers and from internal valuation models.
Prior to retirement, taking into effect the amortization of the original issue discount and all underwriting and issuance expenses, including the interest rate lock agreement, the 2007 SIG Senior Notes yielded an effective rate of approximately 6.5% per annum. Sirius Group recorded $31.2 million of interest expense, inclusive of loss on repurchase, amortization of issuance costs and the interest rate lock agreement, on the 2007 SIG Senior Notes for each of the year ended December 31, 2016.
Sirius International has other secured letter of credit and trust arrangements with various financial institutions to support its insurance operations. As of December 31, 2018 and 2017, respectively, these secured letter of credit and trust arrangements were collateralized by pledged assets and assets in trust of SEK 2.9 billion and SEK 2.1 billion, or $321.3 million and $261.2 million (based on the December 31, 2018 and December 31, 2017 SEK to USD exchange rates). As of December 31, 2018 and 2017, respectively, Sirius America's trust arrangements were collateralized by pledged assets and assets in trust of $56.2 million and $55.8 million. As of December 31, 2018 and 2017, respectively, Sirius Bermuda Insurance Company's ("Sirius Bermuda") trust arrangements were collateralized by pledged assets and assets in trust of $319.7 million and $123.3 million.
Net operating loss and capital loss carryforwards as of December 31, 2018, the expiration dates, and the deferred tax assets thereon are as follows:
Sirius Re Holdings, Inc. ("SReHi") has an immaterial valuation allowance on foreign tax credits, which will expire in 2019. SReHi has an additional $16.7 million of foreign tax credits that will expire between the years 2020 and 2027, which are expected to be fully utilized. Sirius International Insurance Corporation (publ.) has $11.9 million of foreign tax credits that will expire between 2021 and 2023 and are expected to be fully utilized.
In the United Kingdom, Sirius International contributes 12% of the employee's salary. Contributed funds are invested into an annuity of the employee's choice. In Belgium, Sirius International contributes 6.5%-8.5% of the employee's salary. Employees in Switzerland are eligible to participate in the industry-sponsored Swisscanto pension plan ("Swisscanto plan"). The Swisscanto plan is a combination of a defined contribution and a defined benefit plan. For the Swisscanto plan, Sirius International incurs 60%-70% of the total premium charges and the employees incur the remaining 30-40%. As of December 31, 2018 and 2017, the projected benefit obligation of Sirius International's various benefit plans was $17.5 million and $17.4 million, and the funded status was $(1.1) million and $(1.3) million, respectively. Sirius International recognized expenses related to these various plans of $7.6 million, $4.9 million, and $7.3 million in 2018, 2017, and 2016, respectively.
Sirius Bermuda sponsors defined contribution plans, which cover substantially all of the employees of Sirius Bermuda. Under these plans, Sirius Bermuda is required to contribute 10% of each participant's salary into an individual account maintained by an independent pension administrator. Employees become vested in the Sirius Bermuda contributions after two years of service. Sirius Bermuda recognized expenses of $0.5 million and $0.4 million during the years ended December 31, 2018 and 2017, respectively. In previous years, employees of Sirius Bermuda were covered by Sirius International sponsored plans and Sirius International incurred expenses of $0.5 million during the year ended December 31, 2016.
The total pool of shares granted, at target level of performance, is $13.0 million which is based on the acceptance of the employees, in addition to the final per share value of a common share of Sirius Group exchanged for Easterly common stock at the closing of the Merger.
Non-controlling interests consist of the ownership interests of non-controlling shareholders in consolidated entities and are presented separately on the balance sheet. At December 31, 2018 and 2017, Sirius Group's balance sheet included $1.7 million and $0.2 million, respectively, in non-controlling interests.
Sirius Group has elected the Fair Value Option to account for its equity method eligible investments accounted for as part of Other long-term investments for consistency of presentation with rest of its investment portfolio. The following table presents Sirius Group's investments in equity method eligible unconsolidated entities as of December 31, 2018 and 2017 with ownership interest greater than 20%: