The Company conducts business from various facilities, most of which are leased. In addition, the Company owns its administrative offices in Overland Park, Kansas, Fort Wayne, Indiana and Munich, Germany.
Net premiums written increased $431 million or 13% in 2000, primarily attributable to the combination of hardening pricing within the overall property and casualty insurance/reinsurance industry and a focus on growth within the niche direct commercial market. This increase was partially offset by the 2000 decision to exit certain lines of business and customer relationships as part of a reunderwriting initiative undertaken during the year and higher levels of ceded premiums under aggregate excess retrocession programs. Net premiums written increased $871 million or 35% in 1999, primarily attributable to the acquisitions of GE Re and Medical Protective and core growth in various product lines, partially offset by continued competitive market conditions and an increase in contingently payable ceded premiums relating to recorded recoveries under aggregate excess retrocession programs.
Net investment income increased $93 million or 18% in 2000, primarily attributable to the combination of higher average investment yields (as a result of the increasing U.S. interest rate environment throughout most of 2000) and repositioning of the investment portfolio to include a higher proportion of fixed maturity securities. Net investment income increased $94 million or 22% in 1999, primarily attributable to inclusion of a full year of investment activity in 1999 for the 1998 GE Re and Medical Protective acquisitions.
(1) Represents data for the applicable periods calculated in accordance with GAAP. Claims and claim expense ratio represents incurred claims and claim expenses as a percentage of net premiums earned. Underwriting expense ratio represents acquisition costs and other underwriting expenses (excluding amortization of intangibles, interest expense and minority interest in net earnings of consolidated subsidiaries) as a percentage of net premiums earned. The combined ratio represents the sum of the claims and claim expense ratio and the underwriting expense ratio.
Net premiums written increased $241 million or 10% in 2000, primarily attributable to the combination of hardening pricing within the overall property and casualty insurance/reinsurance industry and the impact of a full year of operating activity for the March 1999 acquisition of Eagle Star Re. This increase was somewhat offset by the 2000 decision to exit certain lines of business and customer relationships as part of a reunderwriting initiative undertaken during the year. Net premiums written increased $124 million or 5% in 1999, primarily attributable to the acquisitions of Eagle Star Re and GE Re and core growth in various product lines. Premium growth in both 2000 and 1999 was also partially offset by an increase in contingently payable ceded premiums relating to recorded recoveries under aggregate excess retrocession programs and the impact of foreign currency translation in connection with the strengthening of the U.S. dollar compared to most major European currencies.
Consistent with experience in the domestic property and casualty business, the relatively high combined ratios in 2000 and 1999 primarily reflect the effects of continued insufficient pricing within the overall property and casualty insurance/reinsurance industry and adverse development on prior year recorded losses. The increase in the combined ratio in 2000 includes the impact of significant adverse development relating to certain European windstorms occurring late in 1999. The 1999 combined ratio was also adversely impacted by a heightened frequency and severity of large loss events occurring in that year.
Net investment income increased $7 million or 2% in 2000, primarily attributable to the repositioning of the investment portfolio to include a higher proportion of fixed maturity securities. Net investment income increased $54 million or 19% in 1999, primarily attributable to the acquisitions of GE Re and Eagle Star Re.
Earnings before income taxes, excluding net realized gains on investments, decreased $290 million in 2000, primarily attributable to the significant increase in the combined ratio discussed above. Earnings before income taxes, excluding net realized gains on investments, decreased $115 million or 51% in 1999, primarily attributable to the significant increase in the combined ratio, partially offset by the increase in net investment income discussed above.
Revenues, which consist of net premiums earned, net investment income, net realized gains on investments and other revenues, including fees generated from investment-related life reinsurance products and financial reinsurance transactions, increased $418 million or 23% in 2000. This increase was primarily attributable to growth in the domestic traditional life and credit life business and an increase in net realized gains on investments. Revenues increased $264 million or 17% in 1999, primarily attributable to growth in the domestic traditional life and credit life business, an increase in net realized gains on investments and fees generated from investment-related life reinsurance products and financial reinsurance transactions.
GE Global Insurance's ability to meet its obligations, including debt service and operating expenses, and pay dividends to its shareholder depends primarily upon the receipt of sufficient funds from its insurance subsidiaries. The payment of dividends by ERC, GE Re and Medical Protective are subject to restrictions set forth in the insurance laws of Missouri, Illinois and Indiana, respectively, as well as other restrictions. Historically, the Company's liquidity requirements have been met by funds provided from operations and from the maturity and sales of investments.
Cash flows from operating activities, which primarily consists of premiums collected during the period and payments made for claims and claim expenses, decreased $1,030 million in 2000, primarily as a result of an escalation in claim-related payments attributable to higher levels of incurred claims and claim expenses in recent years. Cash flows from operating activities increased $578 million in 1999, primarily attributable to a decrease in claim settlements relative to the collection of premiums, somewhat offset by an increase in reinsurance recoverables under the Company's aggregate excess retrocession programs.
Cash flows from investing activities increased $447 million in 2000, primarily attributable to a net decrease in the purchases of investment securities as a result of the decrease in operating cash flows discussed above. Cash flows from investing activities increased $374 million in 1999, primarily attributable to a reduction in cash used to fund acquisitions in 1999 due to the 1998 acquisitions of Medical Protective and GE Re, somewhat offset by a net increase in the purchases of investment securities.
On a worldwide basis, based on data as of December 31, 2000, the Company manages 75% of its investments internally. General Electric Investment Corporation manages an additional 9% of the Company's investments, and the balance is managed by unaffiliated outside managers.
The increase in unrealized gains on investment securities before deferred income taxes in 2000 is primarily due to the concentration of fixed maturity debt securities held in the investment portfolio and the effects of a general decrease in interest rates which occurred in late 2000.
The principal objective of the GE Frankona Re Group's investment policy is to manage the investment portfolios on a total return basis taking into consideration the duration and currency structure of the GE Frankona Re Group's reinsurance liabilities. The GE Frankona Re Group's investment portfolios are geographically diversified with investments principally from the major European markets and the United States.
As of December 31, 2000, the fair value of the GE Frankona Re Group's investments totaled $6,740 million, a decrease of $750 million from December 31, 1999. The composition of GE Frankona Re Group's investments is summarized as follows:
The Company manages its exposure to currency principally by matching the underlying reinsurance liabilities with the corresponding assets. Any remaining significant net asset/liability positions in a given currency are hedged with forward currency purchase or sale contracts to further mitigate currency exposures. The Company also hedges its currency risk on a portion of its foreign subsidiary investments by utilizing cross currency swaps and currency forwards. The Company manages its exposure to interest rates principally by matching floating rate liabilities with corresponding floating rate assets and by matching fixed rate liabilities with corresponding fixed rate assets. Certain of the products reinsured within the life segment include fixed rate interest rate features that are matched with fixed rate investments of a similar duration.
On a limited basis, and as part of ongoing customer activities, the Company uses equity options to minimize its exposure to movements in equity markets that have a direct correlation with certain of its reinsurance products. Additionally, the Company has entered into a limited number of credit default swaps to lessen its exposure on certain financial guarantee reinsurance business.
One means of assessing exposure to interest rate changes is a duration-based analysis that measures the potential loss in net earnings resulting from a hypothetical decrease in interest rates of 100 basis points across all maturities (sometimes referred to as a "parallel shift in the yield curve"). Under this model, it is estimated that, all else constant, such a decrease, including repricing effects in the securities portfolio, would reduce the 2001 net earnings of the Company based on year-end 2000 positions by an insignificant amount. Based on positions at year-end 1999, the pro forma effect on 2000 net earnings of such a decrease in interest rates was also estimated to be an insignificant amount.
The Company's ultimate claims and claim expense costs on claims not yet settled is increased by the effects of inflation, and changes in the inflation rate therefore could become a significant factor in determining appropriate claims and claim expense reserves, as well as reinsurance premium rates. Generally, the Company's methods used to estimate claims and claim expense reserves and to calculate reinsurance premium rates take into account the anticipated effects of inflation in estimating the ultimate claims and claim expense costs. The Company uses both insurance industry data and government economic indices in estimating the effects of inflation on reinsurance premium rates and claims and claim expense reserves. However, until claims are ultimately settled, the full effect of inflation on the Company's results cannot be known.