We have historically focused on lines of business and forms of reinsurance that have demonstrated more stable return characteristics and have limited our underwriting of property catastrophe risk. However, we have incrementally expanded the lines of business and forms of reinsurance on which we focus where we believe the higher expected margins adequately compensate us for the increased risk. During the year ended December 31, 2019, we wrote $68.3 million of new property catastrophe business.
The TP Fund investment strategy, as implemented by Third Point LLC, is intended to achieve superior risk-adjusted returns by deploying capital in both long and short investments with favorable risk/reward characteristics across select asset classes, sectors and geographies. Third Point LLC identifies investment opportunities via a bottom-up, value
Outside of property catastrophe reinsurance, we have also experienced some improvement in reinsurance terms and conditions and underlying pricing across our portfolio, with the previously observed trends continuing through the January 2020 renewals, as expected.
We continue to see evidence of increasing casualty loss trends across the market. We assume casualty exposure through selected cedents and classes of business. We incorporate the potential for elevated loss trends in our pricing analyses and endeavor to mitigate the potential impact of such increases in loss trend by structuring our contracts accordingly. We monitor and analyze each individual reinsurance contract on a quarterly basis and proactively respond to the actual experience observed within each contract, adjusting reserves as appropriate. Thus far, the observed loss trend and experience across our overall portfolio has generally been within our pricing and reserving expectations.
We have expanded the lines of business and forms of reinsurance on which we focus to achieve our goal of underwriting a reinsurance portfolio with an expected combined ratio below 100%, which we expect to achieve in 2020, subject to property catastrophe losses exceeding expectations. This expansion includes lines of business and forms of reinsurance with increased risk profiles where we believe the higher expected margins adequately compensate us for the increased risk. In addition to commencing writing property catastrophe business in 2019, we also expanded into new, primarily event driven, specialty lines of business. We plan to continue to expand our activity in these lines of business and to evaluate and consider pursuing opportunities in other new lines of reinsurance business in 2020. As such, we recently hired senior underwriters and other support staff to support our growth and deploy capital efficiently.
In addition, we may, from time to time, invest in managing general agents or other insurance businesses as part of our ongoing strategy to leverage our underwriting and capital markets expertise to structure and offer capital alternatives in numerous forms and combinations, including equity, debt and reinsurance offerings.
During 2019, we reduced our investment risk by reallocating some of our investments in TP Fund to fixed income investments. This realignment of our investment strategy is being driven by several factors, including the following:
An increasing underwriting risk profile including writing property catastrophe business as described above, that requires additional risk capital to support these underwriting activities which, taken together with other actions, is expected to improve the underwriting results over time;
To meet our targeted levels of risk-adjusted capitalization in accordance with our enterprise-wide risk appetite as well as capital requirements per rating agencies and regulators.
We believe that by combining a disciplined and opportunistic approach to reinsurance underwriting with investment results from the active management of TP Fund’s investment portfolio, in which we invest, as well as stable returns from our other investments, we will be able to generate attractive returns for our shareholders. The key financial measures that we believe are most meaningful in analyzing our performance are: net underwriting income (loss) for our property and casualty reinsurance segment, combined ratio for our property and casualty reinsurance segment, net investment income (loss), net investment return on investments managed by Third Point LLC, basic book value per share, diluted book value per share, growth in diluted book value per share and return on beginning shareholders’ equity attributable to Third Point Re common shareholders.
Basic book value per share, diluted book value per share, change in diluted book value per share and return on beginning shareholders’ equity attributable to Third Point Re common shareholders are non-GAAP financial measures. There are no comparable GAAP measures. In the year ended December 31, 2019, we changed our method for calculating the impact of options and warrants on diluted book value per share to the treasury stock method. See reconciliations in “Non-GAAP Financial Measures and Other Financial Metrics”.
Basic Book Value Per Share and Diluted Book Value Per Share
As of December 31, 2019, diluted book value per share was $15.04, representing an increase of $2.06 per share, or 15.9%, from $12.98 per share as of December 31, 2018. As of December 31, 2018, diluted book value per share was $12.98, representing a decrease of $2.73 per share, or 17.4%, from $15.71 per share as of December 31, 2017. The changes were primarily due to net income (loss) in the year and were also affected by share repurchases in 2018.
The decrease in return on beginning shareholders’ equity attributable to Third Point Re common shareholders for the year ended December 31, 2018 compared to the year ended December 31, 2017 was primarily due to a net loss during the year.
Consolidated Results of Operations-Years ended December 31, 2019, 2018 and 2017
The following is a summary of our total net investments managed by Third Point LLC as of December 31, 2019 and 2018:
The following is a summary of the net investment return by investment strategy on total net investments managed by Third Point LLC for the years ended December 31, 2019, 2018 and 2017:
The other key changes in our consolidated results for the years ended December 31, 2019 compared to the prior year periods were primarily due to the following:
The decrease in general and administrative expenses related to corporate activities for the year ended December 31, 2018 compared to the year ended December 31, 2017 was primarily due to a decrease in our annual incentive plan compensation expense, partially offset by higher stock compensation expense in 2018. Our annual incentive plan is based on the Company’s return on average equity and the combined ratio.
In February 2015, TPRUSA issued $115.0 million of senior notes bearing 7.0% interest. As a result, our consolidated results of operations include interest expense related to the senior notes.
The foreign exchange gains (losses) were primarily due to the revaluation of foreign currency loss and loss adjustment expense reserves denominated in British pounds to the United States dollar, which worsened in the current year period and had strengthened in the prior year period. For these contracts, non U.S. dollar reinsurance assets, or balances held in trust accounts securing reinsurance liabilities generally offset reinsurance liabilities in the same non-U.S. dollar currencies resulting in minimal net exposure. As a result, the foreign exchange gains (losses) on loss and loss adjustment expense reserves were offset by corresponding foreign exchange gains (losses) included in net investment income (loss) resulting from the revaluation of foreign currency reinsurance collateral held in trust accounts.