We currently lease under a non-cancelable operating lease that is expiring in September 2019 approximately 183,000 square feet of space in an office building in Houston, Texas, which is used for our corporate offices and for offices of several of our subsidiaries. Upon expiration of this lease, we plan to relocate our corporate and other subsidiaries' offices to an approximately 150,000 square feet of new space in Houston, Texas leased under a non-cancelable operating lease that expires in 2025. Additionally, we lease offices at approximately 513 locations for title office operations, production, administrative and technology centers. These additional locations include significant leased facilities in Glendale, California; Houston, Texas; New York, New York; Dallas, Texas; Denver, Colorado; St. Louis, Missouri; Austin, Texas; and San Diego, California.
$3.0 million of third-party advisory expenses related to the FNF merger transaction included in other operating expenses within the ancillary services and corporate segment,
$1.0 million of executive severance expenses included in employee costs within the title and ancillary services and corporate segments, and
$2.9 million of third party advisory expenses relating to the strategic alternatives review included in other operating expenses within the ancillary services and corporate segment,
$1.0 million of acquisition integration expenses included in other operating expenses within the title segment,
Title operating revenues in the fourth quarter 2018 decreased 10% compared to the prior year quarter as direct title and independent agency revenues decreased 7% and 12%, respectively. Included in investment income and other net gains were $4.0 million of net unrealized losses relating to changes in fair value of equity securities investments in the fourth quarter 2018, as compared to $3.3 million of net realized gains from the sale of investments available-for-sale in the fourth quarter 2017. The segment’s pretax income improved to $29.5 million in the fourth quarter 2018, compared to $27.0 million in the fourth quarter 2017, as a result of the lower overall title operating expenses offsetting the segment’s reduced revenues.
Actual results can differ from our accounting estimates. While we do not anticipate significant changes in our estimates, there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods. The discussion of critical accounting estimates below should be read in conjunction with the related accounting policies disclosed within Note 1 to our audited consolidated financial statements.
In 2018, total known claims provisions increased to $79.8 million from $77.5 million in 2017, as a result of slightly higher reported claims relating to prior year policies. Total 2018 provisions - IBNR decreased by $25.0 million to $53.3 million compared to the prior year, primarily due to a lower provisioning rate related to current year policies and a $4.0 million prior policy year reserve reduction during the year, both influenced by our favorable claims experience. In 2017, total known claims provisions decreased to $77.5 million from $85.4 million in 2016, as a result of lower dollar amounts of claims reported to us relating to both current and prior year policies. Total provisions - IBNR increased in 2017 by $7.8 million to $78.3 million compared to 2016, principally due to a higher current year loss provisioning rate related to certain foreign operations and an unfavorable loss experience related to prior years' policies. As a percentage of title operating revenues, current year provisions - IBNR were 2.8%, 3.8% and 3.8% in 2018, 2017 and 2016, respectively.
Large title losses due to independent agency defalcations typically occur when the independent agency misappropriates funds from escrow accounts under its control. Such losses are usually discovered when the independent agency fails to pay off an outstanding mortgage loan at closing (or immediately thereafter) from the proceeds of the new loan. These incurred losses are typically more severe in terms of dollar value compared with traditional title policy claims since the independent agency is often able, over time, to conceal misappropriation of escrow funds relating to more than one transaction through the constant volume of funds moving through its escrow accounts. In declining real estate markets, lower transaction volumes result in a lower incoming volume of funds, making it more difficult to cover up the misappropriation with incoming funds. Thus, when the defalcation is discovered, it often relates to several transactions. In addition, the overall decline in an independent agency’s revenues, profits and cash flows increases the agency’s incentive to improperly utilize the escrow funds from real estate transactions. For the three years ended December 31, 2018, our net title losses due to independent agency defalcations were immaterial.
Our accruals for revenues on unreported policies from independent agencies were not material to our consolidated financial statements as of December 31, 2018 and 2017. The differences between the amounts our independent agencies have subsequently reported to us compared to our estimated accruals are substantially offset by any differences arising from prior years’ accruals and have been immaterial relative to consolidated assets and stockholders’ equity during each of the three prior years. We believe our process provides the most reliable estimate of the unreported revenues on policies and appropriately reflects the trends in agency policy activity.
The quantitative analysis involves the comparison of the fair value of each reporting unit to its carrying amount. The goodwill impairment is calculated as the excess of the reporting unit's carrying amount over the estimated fair value and is charged to current operations. While we are responsible for assessing whether an impairment of goodwill exists, we utilize inputs from third-party appraisers in performing the quantitative analysis. We estimate the fair value using a combination of the income approach (discounted cash flow (DCF) technique) and the market approach (guideline company and precedent transaction analyses). The DCF model utilizes historical and projected operating results and cash flows, initially driven by estimates of changes in future revenue levels, and risk-adjusted discount rates. Our projected operating results are primarily driven by anticipated mortgage originations, which we obtain from projections by industry experts, for our title reporting units and expected contractual revenues for our ancillary services reporting unit. Fluctuations in revenues, followed by our ability to appropriately adjust our employee count and other operating expenses, or large and unanticipated adjustments to title loss reserves, are the primary reasons for increases or decreases in our projected operating results. Our market-based valuation methodologies utilize (i) market multiples of earnings and/or other operating metrics of comparable companies and (ii) our market capitalization and a control premium based on market data and factors specific to our ownership and corporate governance structure.
During 2018 and 2017, we concluded that the goodwill related to each of our reporting units was not impaired after performing our impairment analysis. We utilized the quantitative analysis in 2018, while we performed the qualitative assessment in 2017. Refer to Note 8 to our audited consolidated financial statements for details on goodwill.
Factors affecting revenues. The principal factors that contribute to changes in operating revenues for our title and ancillary services and corporate segments include:
Gross revenues from independent agency operations declined $12.4 million, or 1%, in 2018 compared to 2017; while revenues increased $6.6 million, or approximately 1%, in 2017 compared to 2016. The 2018 gross revenue decrease was driven by decreases primarily in Massachusetts, Utah, Colorado, Michigan, California, Minnesota, and Georgia, partially offset by increases from Texas, Pennsylvania and Idaho. The 2017 gross revenue improvement was driven by increases, primarily from Michigan, California, Minnesota, Ohio, Colorado and Arizona, partially offset by declines in Massachusetts, Florida, Texas and New York. 2018 net agency revenues (net of agency retention) decreased $2.3 million, or 1%, compared to 2017, primarily due to lower gross agency revenues; while 2017 net agency revenues decreased $4.5 million, or 3%, compared to 2016, primarily due to the lower average agency remittance rate. Refer further to the "Retention by independent agencies" discussion under Expenses below.
Ancillary services revenues. Ancillary services revenues in 2018 decreased $5.1 million, or 9%, compared to 2017, as a result of lower revenues from valuation services due to decreased demand, partially offset by increased revenues from our search services business. Ancillary services revenues in 2017 decreased $28.4 million, or 34%, in 2017, compared to 2016, primarily due to our divestitures of the loan file review, quality control services and government services lines of business at the end of 2016.
In 2017, investment and other gains - net included $3.2 million of net realized gains from the sale of securities investments, partially offset by $0.8 million of net realized loss due to an increase in the fair value of a contingent consideration liability related to a prior acquisition.
Expense comparisons for the three years ended December 31, 2018 are influenced by the following net charges:
Retention by independent agencies. Amounts retained by independent agencies are based on agreements between the agencies and our title underwriters. Amounts retained by independent agencies, as a percentage of revenues generated by them, averaged 82.4%, 82.4% and 81.8% in 2018, 2017 and 2016, respectively. The increase of the agency retention rate in 2017 compared to 2016 was primarily due to decreased revenues in higher-remitting states and increased revenues in lower-remitting states during 2017. The average retention percentage may vary from year-to-year due to the geographical mix of agency operations, the volume of title revenues and, in some states, laws or regulations. Due to the variety of such laws or regulations, as well as competitive factors, the average retention rate can differ significantly from state to state. In addition, a high proportion of our independent agencies are in states with retention rates greater than 80%. We continue to focus on increasing profit margins in every state, increasing premium revenue in states where remittance rates are above 20%, and maintaining the quality of our agency network, which we believe to be the industry’s best, in order to mitigate claims risk and drive consistent future performance. While market share is important in our agency operations channel, it is not as important as margins, risk mitigation and profitability.
Selected cost ratios (by segment). The following table shows employee costs and other operating expenses as a percentage of related segment operating revenues for the years ended December 31:
Employee costs. Consolidated employee costs in 2018 and 2017, compared to the respective prior years, decreased $3.7 million, or approximately 1%, and $38.2 million, or 6%, respectively, primarily as a result of the reduction of 7% and 8%, respectively, in average employee counts related to volume declines in our title and ancillary services operations, which were partially offset by additional employee costs from title office acquisitions in 2018 and 2017. As a percentage of total operating revenues, employee costs were 29.8%, 29.3% and 30.4% in 2018, 2017 and 2016, respectively. Our total employee counts at December 31, 2018, 2017 and 2016 were approximately 5,400, 6,000 and 6,400, respectively. Average cost per employee increased 7% in 2018, compared to 2017, primarily due to increased incentive compensation on higher commercial revenues, increased retention and severance expenses, annual salary increases and the lower average employee count largely due to employee terminations in direct title operations. The average cost per employee in 2017 increased 3%, compared to 2016, primarily as a result of increased incentive compensation on higher commercial revenues and annual salary increases.
The ancillary services and corporate segment's employee costs in 2018 and 2017 decreased $8.9 million, or 24%, and $27.9 million, or 42%, compared to 2017 and 2016, respectively, due to employee count reductions relating to volume declines and the 2016 disposition of several lines of business within ancillary services.
Other operating expenses. Other operating expenses include costs that are fixed in nature, costs that follow, to varying degrees, changes in transaction volumes and revenues and costs that fluctuate independently of revenues. Costs that are fixed in nature include attorney and professional fees, third-party-outsourcing provider fees, equipment rental, insurance, rent and other occupancy expenses, repairs and maintenance, technology costs, telephone and title plant expenses. Costs that follow, to varying degrees, changes in transaction volumes and revenues include attorney fee splits, bad debt expenses, ancillary services cost of sales expenses, copy supplies, delivery fees, outside search fees, postage, premium taxes and title plant maintenance expenses. Costs that fluctuate independently of revenues include general supplies, litigation defense, business promotion and marketing and travel.
Consolidated other operating expenses decreased $6.2 million, or 2%, in 2018 compared to 2017 and also decreased $12.5 million, or 3%, in 2017 compared to 2016. As a percentage of total operating revenues, other operating costs were 18.3%, 18.2% and 18.3% in 2018, 2017 and 2016, respectively. In 2018, other operating expenses included $12.7 million of third-party advisory expenses related to the FNF merger transaction, $1.2 million of litigation expense related to a 2013 lender services acquisition and $0.8 million of office closure costs. In 2017, other operating expenses included $3.2 million of office closure costs, $2.9 million of third-party consulting fees related to the corporate strategic alternatives review, $2.4 million of Title365 acquisition integration expenses and $0.4 million of litigation expense. In 2016, other operating expenses included approximately $3.6 million for litigation-related accruals, $1.2 million of shareholder activism costs and $2.2 million of costs associated with the Class B common stock exchange agreement. Excluding the impact of these non-operating charges, other operating expenses, as a percentage of total operating revenues, would have been 17.5%, 17.7% and 18.0% in 2018, 2017 and 2016, respectively.
In 2018, excluding the charges listed above, costs fixed in nature decreased $2.4 million, or 2%, compared to 2017, primarily due to reduced professional and consulting fees and third-party outsourcing provider fees, partially offset by higher insurance expenses. Costs that follow, to varying degrees, changes in transaction volumes and revenues also decreased $9.8 million, or 6%, primarily due to lower cost of sales expenses and delivery fees in ancillary services as a result of lower ancillary services revenues, and lower attorney fee splits due to lower transaction volumes from our Canada operations. Excluding the non-operating litigation-related expenses and office closure costs, costs that fluctuate independently of revenues were comparable to the prior year.
Title losses. Provisions for title losses, as a percentage of title operating revenues, were 3.9%, 5.1% and 4.8% in 2018, 2017 and 2016, respectively. The title loss ratio in any given year can be significantly influenced by new large claims incurred as well as adjustments to reserves for existing large claims. We continue to manage and resolve large claims prudently and in keeping with our commitments to our policyholders.
For the year ended December 31, 2018, title losses decreased $25.0 million, or 26%, compared to 2017, primarily due to a lower provisioning rate related to current year policies and a $4.0 million prior policy year reserve reduction during the year, both influenced by our favorable claims experience.
For the year ended December 31, 2017, title losses increased $5.4 million, or 6%, compared to 2016, primarily due to the loss reserve reductions recorded in 2016, as detailed below. In 2017, we recorded increases to policy loss reserves of approximately $3.3 million relating to our European and Australian businesses which were more than offset by favorable adjustments to policy loss reserves for our U.S. business.
Our liability for estimated title losses as of December 31, 2018 and 2017 comprises both known claims and our IBNR. Known claims reserves are reserves related to actual losses reported to us. Our reserve for known claims comprises both claims related to title insurance policies as well as losses arising from escrow closing and funding operations due to fraud or error (which are recognized as expense when discovered). The amount of the reserve represents the aggregate, non-discounted future payments (net of recoveries) that we expect to incur on policy and escrow losses and in costs to settle claims.
Depreciation and amortization. Depreciation and amortization expense in 2018 decreased $0.9 million, or 4%, compared to 2017, primarily due to a lower depreciation expense resulting from reduced purchases of property and equipment, which was partially offset by increased amortization of intangible assets from our 2018 and mid-2017 acquisitions. Depreciation and amortization expense in 2017 decreased $4.2 million, or 14%, compared to 2016, primarily due to lower amortization expense in 2017 as a result of the disposal of certain intangible assets in connection with the divestitures in ancillary services, as earlier discussed, and the higher depreciation expense recorded in 2016 resulting from accelerated depreciation charges relating to our exit from the delinquent loan servicing operations.
Income taxes. Our effective tax rates for 2018, 2017 and 2016 were 22.1%, 23.5% and 26.1%, respectively, based on income before taxes (after deducting noncontrolling interests) of $61.0 million, $63.6 million and $75.1 million, respectively. Our 2018 effective tax rate included $2.7 million of income tax net benefits primarily related to adjustments in connection with the final determination of the tax effects of the 2017 Act, previously unrecognized research and development tax credits and other 2017 return-to-provision and true-up adjustments.
Contractual obligations. Our material contractual obligations at December 31, 2018 were:
Cash provided by operations in 2018 decreased by approximately $23.9 million compared to 2017, primarily due to higher payments on accounts payable, lower collection on accounts receivable and lower 2018 net income, partially offset by lower payments on claims. Cash provided by operations in 2017 decreased by approximately $14.9 million compared to 2016, primarily as a result of the lower 2017 net income and lower collections on accounts receivable, partially offset by lower payments on claims.
Investing activities. Cash provided or used by investing activities was primarily driven by purchases of investments, capital expenditures and acquisition of subsidiaries, offset by proceeds from matured and sold investments. During 2018, 2017 and 2016, total proceeds from securities investments sold and matured aggregated $79.1 million, $110.9 million and $108.2 million, respectively, while cash used for purchases of securities investments approximated $43.1 million, $179.7 million and $166.4 million, respectively. The lower purchases and sales of securities investments in 2018, compared to 2017 and 2016, was primarily the result of the rising interest rate environment in 2018. We continued to position the portfolio to reduce interest rate risk, which resulted in fewer opportunistic trades. As bonds matured, we generally moved to cash equivalents and short term investments, where interest rates are attractive in the current markets, on a risk adjusted basis.
As of December 31, 2018, the outstanding balance on the line of credit facility was $98.9 million, while the remaining balance of the line of credit available for use was $48.6 million, net of an unused $2.5 million letter of credit. Our debt-to-equity ratio at December 31, 2018, excluding our Section 1031 notes, was approximately 15.5%, below the 20% we have set as our unofficial internal limit on leverage.
During each of 2018, 2017 and 2016, we paid total dividends of $1.20 per common share, which aggregated $28.3 million, $28.1 million and $27.8 million, respectively. Additionally in 2016, we paid $12.0 million in cash as part of the consideration in exchange for the retirement of the outstanding Class B Common Stock shares in relation to the Class B Exchange Agreement approved by our stockholders (refer to Note 12 to our audited consolidated financial statements for details).
Forward-looking statements. Certain statements in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "foresee" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the challenging economic conditions; adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses or the need to strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the ability to attract and retain highly productive sales associates; the impact of vetting our agency operations for quality and profitability; independent agency remittance rates; changes to the participants in the secondary mortgage market and the rate of refinancing that affects the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance independent agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of pending litigation; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; the continued realization of expense savings from our cost management program; our ability to successfully integrate acquired businesses; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; seasonality and weather; and our ability to respond to the actions of our competitors. We expressly disclaim any obligation to update, amend or clarify any forward-looking statements contained in this report to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.