The Company leases office space from Sompo International in Pembroke, Bermuda, through the Administrative Services Agreement.
While good progress was made in 2018 to reduce volatility and improve the balance of our portfolio, adverse development from 2017 events and another active catastrophe year in 2018 masked underlying improvements. These improvements were evident in our current accident year loss ratio for the 2018 year which, while elevated at 94.3%, was significantly improved from the 169.1% achieved for the full year in 2017. Our 2018 portfolio benefited from increased rates, better balance and improved retrocessional protection.
Looking forward, market conditions remain competitive. While loss exposed contracts saw some pricing increases, the January 2019 renewals were relatively flat overall. As a result, we non-renewed several underperforming contracts and focused our capital deployment on quota share contracts which have historically generated better returns with lower volatility. We are closely monitoring market conditions for the upcoming April and June renewal periods where opportunities could emerge as more loss exposed contracts will be up for renewal during those periods.
During 2018, we recorded a net loss of $28.6 million and declared and paid quarterly dividends of $0.30 per Common Share and RSU during each of the first three quarters. The aggregate dollar value of all dividends declared with respect to 2018, totaled $7.9 million.
Our January 1, 2019 estimated single event loss exposures were within our underwriting guidelines. Namely, the estimated net impact from any one catastrophe loss event (excluding earthquake) at the 1 in 100 year return period for any one zone did not exceed 35% of our then-projected December 31, 2018 shareholders’ equity, and the estimated net impact from any one earthquake loss event at the 1 in 250 year return period for any zone did not exceed 35% of our then-projected December 31, 2018 shareholders’ equity.
(1) A "100-year" return period can also be referred to as the 1.0% occurrence exceedance probability ("OEP"), meaning there is an estimated 1.0% chance in any given year that this level will be exceeded. A "250-year" return period can also be referred to as the 0.4% OEP, meaning there is an estimated 0.4% chance in any given year that this level will be exceeded.
Our estimates of the net impact from single event losses may vary considerably from our actual experience for an event within a particular territory depending on the specific characteristics of the event.
Our consolidated results of operations for the years ended December 31, 2018 and 2017 were as follows:
During 2018 and 2017 we wrote $33.2 million and $46.1 million of reinsurance premiums, respectively, all of which represented indemnity reinsurance contracts relating to property catastrophe risks. The decrease in reinsurance premiums written in 2018, compared to 2017 was driven by a smaller capital base, lower reinstatement premiums and participation in greater cessions to third party reinsurers by Blue Water Re, partially offset by average risk adjusted price increases at the key renewal dates. See "Reinsurance Premiums and Acquisition Costs" in Note 1 of the Notes to Consolidated Financial Statements.
During 2018 and 2017, we earned $33.4 million and $46.0 million of reinsurance premiums, respectively. Our reinsurance premiums earned are primarily a function of the amount and timing of reinsurance premiums previously written.
During 2018, our in-force derivative contracts included the 2017 Outward ILW Swaps. During 2017, our in-force derivative contracts included the 2017 Outward ILW Swaps and the 2016 Outward ILW Swaps.
During the year ended December 31, 2018 we recognized less than $0.1 million of net loss from derivative instruments. During the year ended December 31, 2017, we recognized $2.3 million of net gain from derivative instruments. The Company did not enter into any ILW Swaps during 2018. Net gains from derivative instruments recorded in 2017 were due to a $4.7 million recovery that was triggered and settled on the 2017 Outward ILW Swaps resulting from the third quarter catastrophe events, partially offset by amortization of fixed payments.
During 2018, we incurred losses and loss adjustment expenses of $50.5 million primarily driven by the catastrophe events summarized in the following table together with reported attritional losses and incurred but not reported ("IBNR") reserves. The catastrophe event losses shown are net of recoveries from retrocessional protection purchased by Blue Water Re totaling $19.5 million. In addition, during the year ended December 31, 2018, we recognized $19.0 million of net adverse loss and LAE reserve development for estimated losses incurred related to 2017 catastrophe events, primarily Hurricane Irma, which made landfall in the U.S. in September 2017 following the receipt of new or revised loss information from our cedants.
The following table summarizes our general and administrative expenses for the years ended December 31, 2018 and 2017 .
The expenses we have incurred pursuant to the Investment Management Agreement and the Administrative Services Agreement has decreased slightly in 2018 as compared to 2017, due to the lower equity base. During 2018, we incurred no performance fees pursuant to the Underwriting and Insurance Management Agreement compared to $0.4 million during 2017. The absence of performance fees since the first half of 2017 is due to the underwriting losses recorded in the ensuing period.
The primary sources of cash for the Company’s operating subsidiaries are capital contributions, premium collections, issuances of and net income from insurance-linked securities and reinsurance recoveries. The primary uses of cash for the Company’s operating subsidiaries are payments of loss and LAE, reinsurance acquisition costs, general and administrative expenses, including fees payable to the Manager, ceded reinsurance, purchases of and net losses from insurance-linked securities and dividends and distributions. As a result of the net losses recorded in 2018 and 2017, until such time as Blue Capital Re extinguishes its retained deficit position, the payment of dividends are subject to return of capital restrictions. Blue Capital Re may not reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Total statutory capital consists of Blue Capital Re’s paid in share capital, its contributed surplus (sometimes called additional paid in capital) and any other fixed capital designated by the BMA as statutory capital. As of December 31, 2018, Blue Capital Re could pay a dividend or return additional paid-in-capital totaling approximately $22.6 million (2017 - $23.9 million) without prior regulatory approval based upon Bermuda law and regulations.
As of December 31, 2018, we had outstanding borrowings of $4.0 million (2017 - nil) under the 2016 Credit Facility, which were subject to annual interest rates ranging between 3.91% and 4.11%.
distribute cash to our shareholders. In addition, if we cannot obtain adequate capital on favorable terms, or at all, our business could be adversely affected.
The Company's contractual obligations as of December 31, 2018 are summarized as follows:
As of December 31, 2018, our total shareholders’ equity was $90.7 million. Assuming that our average total shareholders’ equity remains at this level in future periods, we would expect to pay the Manager a Management Fee of approximately $1.4 million per year pursuant to this agreement.
As a result of the net losses recorded in the years ended December 31, 2018 and 2017, the company did not incur a Performance fee in 2018, and management estimates that the Company will not pay a Performance Fee in 2019 due to the rolling three year high water mark provision.
Certain Termination Provisions Associated with the Foregoing Agreements. We may not terminate the Investment Management Agreement, the Underwriting and Insurance Management Agreement or the Administrative Services Agreement other than in three year intervals, whether or not the Manager’s performance results are satisfactory. Upon any termination or non-renewal of either of the Investment Management Agreement or the Underwriting and Insurance Management Agreement (other than for a material breach by, or the insolvency of, the Manager), we must pay a one-time termination fee to the Manager equal to 5% of our GAAP shareholders’ equity, calculated as of the most recently completed quarter prior to the date of termination.
As of December 31, 2018, we were not subject to any off-balance sheet arrangements that we believe are material to our investors.
Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported and disclosed amounts of our assets and liabilities as of the balance sheet dates and the reported amounts of our revenues and expenses during the reporting periods. We believe the items that require the most subjective and complex estimates are: (1) our loss and LAE reserves; and (2) our written and earned reinsurance premiums. Our accounting policies for these items are of critical importance to our consolidated financial statements.
Our case reserve estimates are initially determined on the basis of loss reports we receive from our cedants. Our IBNR reserve estimates are determined using various actuarial methods as well as a combination of historical insurance industry loss experience, estimates of pricing adequacy trends and our professional judgment. The process we use to estimate our IBNR reserves involves projecting our estimated ultimate loss and LAE reserves and then subtracting paid claims and case reserves as notified by the ceding company, to arrive at our IBNR reserves. For the quota share business assumed by the Company, IBNR is generally determined using a variety of loss reserving methods based upon loss reporting patterns, initial expected loss ratios, information provided by ceding companies and brokers, and judgment.
The two primary bases we use for estimating the ultimate loss associated with a large event are: (i) actual and precautionary claims advice received from the cedant; and (ii) the nature and extent of the impact the event is estimated to have on the industry as a whole and the affected underlying contracts. Immediately after a loss event, the estimated industry market loss is the primary driver of our ultimate loss from such event. In order to estimate the nature and extent of the event, we rely on output provided by commercially available catastrophe models, as well as proprietary models developed by Sompo
Since we rely on ceding company estimates of case and IBNR reserves in the process of establishing our own loss and LAE reserves, we maintain certain procedures designed to mitigate the risk that this information is incomplete or inaccurate. These procedures may include: (i) performing retrospective reviews regarding how the client's loss estimates held up for prior events; and (ii) holding discussions and meetings with the client and broker to ascertain further details and potential uncertainties impacting their estimates. We also utilize catastrophe model outputs and industry market share information to evaluate the reasonableness of reported losses, which are also compared to loss reports received from other cedants. These procedures are incorporated on an ongoing basis and are regularly evaluated and amended as market conditions, risk factors and unanticipated areas of exposure develop.
The uncertainties inherent in the reserving process, together with the potential for unforeseen developments, including changes in laws and the prevailing interpretation of policy terms, may result in our ultimate paid loss and LAE amounts being significantly greater or less than the loss and LAE reserves we initially established. Estimated ultimate losses for Hurricane Michael, Hurricane Florence, Typhoon Jebi, and the California fires which occurred in the latter half of 2018 are subject to particularly high uncertainty, as the large magnitude and recent occurrence of these events make damages particularly difficult to assess. There also remains significant uncertainty related to our loss estimates for Hurricane Irma due to continued judicial and claims issues in Florida related to the legal environment, the assignment of benefits issue, and the reopening of previously closed claims. In addition, there is a great deal of uncertainty regarding the extent to which judicial and regulatory rulings will cause uncovered perils, such as flood, to be covered by the ceding companies, which further increases the uncertainty around the ultimate loss estimates. Any adjustments to our loss and LAE reserves are reflected in our financial results during the period in which they are determined.
For reinsurance contracts which incorporate minimum premium amounts, we typically write the entire ultimate premium at inception, and earn the associated premium after the premium is written over the term of the contract. For reinsurance contracts which do not incorporate minimum premium amounts, we typically write the premium over the term of the contract, and earn the associated premium in the same periods that the premium is written.
Some of our reinsurance contracts may include contract terms that require an automatic reinstatement of coverage in the event of a loss. Reinstatement premiums are fully earned or expensed as applicable when a triggering loss event occurs and losses are recorded. We record reinstatement premiums on a basis consistent with our estimates of losses and LAE. During 2018 and 2017, we recorded net written and earned reinstatement premiums totaling $4.6 million and $4.7 million, respectively.