Total benefits and expenses decreased by $1.9 billion to $5.4 billion in 2018 from $7.3 billion in 2017. The decrease was driven by a decrease in interest sensitive contract benefits, a decrease in DAC, DSI and VOBA amortization, a decrease in dividends payable to policyholders and lower policy and other operating expenses, partially offset by an increase in future policy and other policy benefits.
Our consolidated net investment earned rate was 4.54% in 2018, an increase from 4.47% in 2017, primarily due to the performance in our fixed and other investment portfolio. Fixed and other net investment earned rate was 4.37% in 2018, an increase from 4.26% in 2017, driven by higher floating rate investment income in 2018 and the deconsolidation of Germany, which lowered returns in 2017, partially offset by lower new money rates over the past year and lower returns on assets from the Voya and Lincoln reinsurance transactions. Alternative net investment earned rate was 8.51% in 2018, a decrease from 8.72% in 2017, driven by the decline in market value of public equity positions in two of our funds, partially offset by strong MidCap and Amerihome performance and higher income in one of our hedge funds.
Our investments in AFS securities, including related parties, are reported at fair value with changes in fair value recorded in other comprehensive income. Certain of our AFS securities, including related parties, have experienced declines in fair value that we consider temporary in nature. As of December 31, 2018, our AFS securities, including related party, had a fair value of $60.7 billion, which was 1.3% below amortized cost of $61.5 billion. As of December 31, 2017, our AFS securities, including related party, had a fair value of $61.4 billion, which was 4.3% above amortized cost of $58.9 billion. These investments are held to support our product liabilities, and we currently have the intent and ability to hold these securities until sale or maturity, and believe the securities will recover the amortized cost basis prior to sale or maturity.
Funds withheld at interest represents a receivable for amounts contractually withheld by ceding companies in accordance with modco and funds withheld reinsurance agreements in which we act as the reinsurer. Generally, assets equal to statutory reserves are withheld and legally owned by the ceding company. We hold funds withheld at interest receivables with related parties including those held with VIAC. As of December 31, 2018, the significant majority of the ceding companies holding the assets pursuant to such reinsurance agreements had a financial strength rating of A- or better.
As part of our risk management strategies, management continually evaluates our derivative instrument holdings and the effectiveness of such holdings in addressing risks identified in our operations.
Our alternative investment in CoInvest VII is substantially comprised of its investment in MidCap, which was $552 million and $528 million as of December 31, 2018 and 2017, respectively. Our investment in CoInvest VII largely reflects any contributions to and distributions from CoInvest VII and the fair value of MidCap. CoInvest VII returned a net investment earned rate of 14.48%, 8.93% and 15.15% for the years ended December 31, 2018, 2017, and 2016, respectively. Alternative investment income from CoInvest VII was $81 million, $50 million and $79 million for the years ended December 31, 2018, 2017, and 2016, respectively. The increase in alternative investment income for 2018 compared to 2017 was driven by favorable valuation adjustment, higher loan volumes and increased assets under management. The decrease in alternative investment income for 2017 compared to 2016 was due to 2016 benefiting from a $37 million increase in the fair value of MidCap related to the removal of liquidity discounts related to marketability assumptions used in the determination of MidCap’s fair value.
Deconsolidation - AGER Bermuda Holding Ltd. and its subsidiaries, now known as Athora Holding Ltd. (Athora), was our consolidated subsidiary for the years ended December 31, 2017 and 2016. In April 2017, Athora entered into subscription agreements pursuant to which Athora secured commitments to purchase new common shares in Athora (Athora Offering). On January 1, 2018, the Athora Offering closed and Athora called capital from all of its investors, excluding us. In connection with the closing of the Athora Offering, our equity interest in Athora was exchanged for new common shares of Athora and our interest in Athora was reduced such that immediately after the closing of the Athora Offering, we held 10% of the aggregate voting power of and less than 50% of the economic interest in Athora. Our interest in Athora has since been held as a related party investment rather than a consolidated subsidiary. We did not recognize a material amount in the consolidated statements of income upon deconsolidation in 2018.
Foreign Currency-The accounts of foreign-based subsidiaries and equity method investments are measured using their functional currency. Revenue and expenses of these subsidiaries are translated into United States dollars at the average exchange rate for the period. Assets and liabilities are translated at the exchange rate as of the end of the reporting period. For the equity method investments, our proportionate share of the investee’s income is translated into United States dollars at the average exchange rate for the period and our investment is translated using the exchange rate as of the end of the reporting period. The resulting translation adjustments are included in equity as a component of AOCI. Gains or losses arising from transactions denominated in a currency other than the functional currency of the entity that is party to the transaction are included in net income. The impacts of any non-United States dollar denominated AFS securities are included in AOCI along with the change in its fair value unless in a fair value hedging relationship as discussed in -Derivative Instruments above.
Level 3 - Prices or valuation techniques with unobservable inputs significant to the overall fair value estimate. These valuations use critical assumptions not readily available to market participants. Level 3 valuations are based on market standard valuation methodologies, including discounted cash flows, matrix pricing or other similar techniques.
NAV - Investment funds are typically measured using NAV as a practical expedient in determining fair value and are not classified in the fair value hierarchy. The underlying investments of the investment funds may have significant unobservable inputs, which may include but are not limited to, comparable multiples and weighted average cost of capital rates applied in valuation models or a discounted cash flow model.
2016 Modification - On September 30, 2016, we modified Class M-1, M-2 and M-3 share agreements to vest all Tranche 2 performance-based shares. The compensation committee approved the modification given that vesting of the shares in the near future was probable. We also amended the conversion option, which previously allowed conversion of vested shares only subsequent to an IPO. Under the modified conversion terms, individuals with certain limited exceptions were able elect up to three conversion options including conversion at a specified date prior to an IPO, on the date of an IPO, or ratably each month for six months after an IPO. The modifications impacted 27 individuals.
The management and sub-advisory fees are included within net investment income on the consolidated statements of income. As of December 31, 2018 and 2017, the management fees payable was $34 million and $28 million, respectively, and the sub-advisory fees payable was $20 million and $13 million, respectively. Both the management and sub-advisory fees payables are included in other liabilities on the consolidated balance sheets.
A-A Mortgage - We have an equity method investment of $463 million and $403 million as of December 31, 2018 and 2017, respectively, in A-A Mortgage, which has an investment in AmeriHome Mortgage Company, LLC (AmeriHome). We have a loan purchase agreement with AmeriHome. The agreement allows us to purchase residential mortgage loans which AmeriHome has purchased from correspondent sellers and pooled for sale in the secondary market. AmeriHome retains the servicing rights to the sold loans. We purchased $722 million, $57 million and $22 million of residential mortgage loans under this agreement during the years ended December 31, 2018, 2017 and 2016, respectively. Additionally, we purchased ABS securities issued by AmeriHome affiliates in the amount of $122 million during the year ended December 31, 2018, which are included in related party AFS securities on the consolidated balances sheets. Previously, we had loans due from A-A Mortgage affiliates in the principal amount of $52 million as of December 31, 2017, and these were included in related party short-term investments on the consolidated balance sheets. The loans were repaid in 2018. We also have commitments to make additional equity investments in A-A Mortgage of $125 million as of December 31, 2018.
Letter of Credit-We have an unused letter of credit for $230 million as of December 31, 2018. This letter of credit was issued for our reinsurance program and expires in two years.
Pursuant to the terms of the reinsurance agreements between us and the relevant affiliates of Global Atlantic, the applicable affiliates of Global Atlantic have financial responsibility for the ceded life block and are subject to significant administrative service requirements, including compliance with applicable law. The agreements also provide for indemnification to us, including for administration issues.
The following represents the effects of the revisions on the condensed consolidated statements of comprehensive income (loss):