The following tables set forth our selected historical consolidated financial information for the last five years ended December 31. The Company was formed on October 19, 2005 and completed the acquisitions of Talbot, IPC, Flagstone, Western World and CRS on July 2, 2007, September 4, 2009, November 30, 2012, October 2, 2014 and May 1, 2017, respectively. Western World is included in the Company’s consolidated results from the October 2, 2014 date of acquisition. CRS is included in the Company’s consolidated results from the May 1, 2017 date of acquisition.
The losses and loss expense ratio is calculated by dividing losses and loss expenses by net premiums earned.
Book value per diluted common share is calculated based on total shareholders’ equity available to Validus common shareholders plus the assumed proceeds from the exercise of outstanding options and warrants, divided by the sum of common shares, unvested restricted shares and options and warrants outstanding (assuming their exercise). Book value per diluted common share is a non-GAAP financial measure, which are described in the section entitled “Non-GAAP Financial Measures.”
The following is a discussion and analysis of the Company’s consolidated results of operations for the years ended December 31, 2017, 2016 and 2015 and the Company’s consolidated financial condition, liquidity and capital resources as at December 31, 2017 and 2016. This discussion and analysis should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes thereto included elsewhere within this filing.
In addition, the Company has a corporate and investment function (“Corporate and Investments”), which includes the activities of the parent company, and which carries out certain functions for the group, including investment management. Corporate and Investments includes investment income on a managed basis and other non-segment expenses, predominantly general and administrative, stock compensation, finance and transaction expenses. Corporate and Investments also includes the activities of certain key executives such as the Chief Executive Officer and Chief Financial Officer. For reporting purposes, Corporate and Investments is reflected separately; however, it is not considered a reportable segment. The Company’s corporate expenses, capital servicing and debt costs and investment results are presented separately within the corporate and investments discussion.
On January 21, 2018, the Company entered into a definitive agreement and plan of merger (the “Merger Agreement”) with American International Group, Inc. (“AIG”). The Merger Agreement provides that, subject to the satisfaction or waiver of certain conditions set forth therein, the Company will merge with an existing AIG subsidiary in accordance with the Bermuda Companies Act (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of AIG (the “Surviving Company”).
Property and other reinsurance premiums have historically risen in the aftermath of significant catastrophic losses. As loss reserves are established, industry surplus is depleted and the industry’s capacity to write new business diminishes. The global property and casualty (re)insurance industry has historically been highly cyclical. Since 2007, increased capital and the absence of significant catastrophic events resulted in a softening of rates on most lines. From 2010 to 2012, there was an increased level of catastrophe activity, principally the Chilean earthquake, Deepwater Horizon, the Tohoku earthquake, the New Zealand earthquakes and Superstorm Sandy; however, the impact of these events in the aggregate were not severe enough to increase rates. As such, the Company continued to see increased competition and decreased premium rates in most classes of business.
The following table presents the Reinsurance and Asset Management segments’ January 2018 and 2017 reinsurance renewals by Catastrophe XOL, Per Risk XOL and Proportional premiums:
The following tables present the Reinsurance and Asset Management segments' January 2018 and 2017 reinsurance renewals by line of business:
During the January 2018 renewal season, the Reinsurance segment underwrote $646.8 million in gross premiums written (excluding agriculture premiums), an increase of $159.6 million, or 32.8% from the 2017 renewal season. The increase was primarily driven by:
Business written by the Insurance segment is distributed evenly throughout the year. Through December 31, 2017, the Insurance segment experienced a whole account rate decrease of 2.5% on business written through the Talbot Syndicate, primarily driven by decreases in the downstream and upstream energy classes, and a modest whole account rate decrease of 0.5% on business written through Western World.
The following table presents reconciliations of book value per common share to book value per diluted common share plus accumulated dividends and other non-GAAP book value financial indicators:
The equity amount used in the calculation of book value per common share represents total shareholders' equity available to Validus excluding the liquidation value of the preferred shares.
Book value per diluted common share plus accumulated dividends, a non-GAAP financial measure, is considered by management to be the key financial indicator of performance, as the Company believes growth in book value on a diluted basis, plus the dividends that have accumulated, ultimately translates into the return that a shareholder will receive. Book value per diluted common share plus accumulated dividends decreased by $0.74, or 1.3%, from $56.53 at December 31, 2016 to $55.79 at December 31, 2017. Cash dividends per common share are an integral part of the value created for shareholders. During the year ended December 31, 2017, the Company paid cash dividends of $1.52 (2016: $1.40) per common share.
Net operating income (loss) available (attributable) to Validus common shareholders is calculated by the addition or subtraction of certain Consolidated Statement of (Loss) Income and Comprehensive (Loss) Income line items from net (loss) income (attributable) available to Validus common shareholders, the most directly comparable GAAP financial measure, as illustrated in the table below:
Average shareholders’ equity for the three months ended is the average of the beginning and ending quarter end shareholders’ equity balances, excluding the liquidation value of the preferred shares. Average shareholders’ equity for the year ended is the average of the beginning, ending and intervening quarter end shareholders’ equity balances, excluding the liquidation value of the preferred shares.
The following table presents the results of operations for the three months ended December 31, 2017 and 2016:
Gross premiums written for the three months ended December 31, 2017 were $443.3 million compared to $339.5 million for the three months ended December 31, 2016, an increase of $103.9 million, or 30.6%. The increase was primarily driven by an increase in the Insurance segment.
Net premiums earned for the three months ended December 31, 2017 were $651.5 million compared to $540.4 million for the three months ended December 31, 2016, an increase of $111.1 million, or 20.6%. The increase was driven by increases in the Insurance and Reinsurance segments.
Losses and loss expenses for the three months ended December 31, 2017 were $479.8 million compared to $275.1 million for the three months ended December 31, 2016, an increase of $204.7 million or 74.4% and included the following:
Losses and loss expenses incurred during the three months ended December 31, 2017 from notable loss events were $120.8 million, or 18.5 percentage points of the loss ratio. Net of losses attributable to AlphaCat investors and noncontrolling interests of $78.0 million and including the net impact of reinstatement premiums and acceleration of unearned premiums of $2.2 million, the net loss attributable to Validus from 2017 notable loss events during the three months ended December 31, 2017 was $44.9 million and was incurred by event as follows:
Losses and loss expenses incurred during the three months ended December 31, 2016 from notable loss events were $52.3 million, or 9.7 percentage points of the loss ratio. Net of losses attributable to AlphaCat investors and noncontrolling interests of $15.3 million and net reinstatement premiums assumed of $0.7 million, the net loss attributable to Validus from 2016 notable loss events during the three months ended December 31, 2016 was $36.3 million and was incurred by event as follows:
Attritional losses of $392.3 million, or 60.3 percentage points of the loss ratio during the three months ended December 31, 2017 compared to $269.3 million, or 49.8 percentage points of the loss ratio during the three months ended December 31, 2016. The increase was primarily driven by the addition of CRS and a higher frequency of mid-size losses which did not meet the non-notable loss threshold.
Loss ratio for the three months ended December 31, 2017 and 2016 was 73.7% and 50.9%, respectively, an increase of 22.8 percentage points.
Policy acquisition cost ratio for the three months ended December 31, 2017 was 19.5% compared to 22.4% for the three months ended December 31, 2016, a decrease of 2.9 percentage points. The decrease was primarily driven by a decrease in the Insurance segment.
Property premiums of $18.1 million during the three months ended December 31, 2017, compared to $8.5 million during the three months ended December 31, 2016, an increase of $9.6 million, or 113.8%, primarily driven by premium adjustments on existing business;
Loss reserve development for the three months ended December 31, 2017 and 2016 was as follows:
The following table presents underwriting results by line of business for the three months ended December 31, 2017 and 2016:
Gross premiums written for the three months ended December 31, 2017 were $377.0 million compared to $297.9 million for the three months ended December 31, 2016, an increase of $79.1 million, or 26.6% and included the following:
Property premiums of $105.0 million during the three months ended December 31, 2017, compared to $96.2 million during the three months ended December 31, 2016, an increase of $8.8 million, or 9.1%. The increase was primarily driven by the continued build out of product offerings in the U.S. short-tail property lines;
Specialty - short-tail premiums of $155.2 million during the three months ended December 31, 2017, compared to $86.6 million during the three months ended December 31, 2016, an increase of $68.7 million, or 79.3%. The increase was primarily driven by new agriculture business written through CRS; and
Specialty - other premiums of $116.8 million during the three months ended December 31, 2017, compared to $115.1 million during the three months ended December 31, 2016, an increase of $1.7 million, or 1.4%.
Net premiums earned for the three months ended December 31, 2017 were $333.0 million compared to $240.1 million for the three months ended December 31, 2016, an increase of $92.9 million, or 38.7%. The increase was primarily driven by an increase in the specialty - short-tail lines of $85.7 million due to agriculture net premiums earned relating to new business written through CRS.
Losses and loss expenses for the three months ended December 31, 2017 were $244.9 million compared to $164.4 million for the three months ended December 31, 2016, an increase of $80.5 million or 49.0% and included the following:
Losses and loss expenses incurred during the three months ended December 31, 2017 from notable loss events were $20.9 million, or 6.3 percentage points of the loss ratio and included losses from fourth quarter 2017 notable loss events of $14.6 million, or 4.4 percentage points of the loss ratio, and losses from third quarter 2017 notable loss events of $6.3 million, or 1.9 percentage points of the loss ratio. Including the impact of net reinstatement premiums ceded of $4.2 million, the net loss attributable to the Insurance segment from 2017 notable loss events during the three months ended December 31, 2017 was $25.1 million and was incurred by event as follows:
Net impact on premiums earned includes reinstatement premiums assumed and ceded.
Losses and loss expenses incurred during the three months ended December 31, 2016 from notable loss events were $17.7 million, or 7.4 percentage points of the loss ratio. Net of reinstatement premiums of $0.1 million, the net loss attributable to the Insurance segment from 2016 notable loss events during the three months ended December 31, 2016 was $17.6 million and was incurred by event as follows:
Losses and loss expenses incurred during the three months ended December 31, 2017 from non-notable loss events were $(2.3) million, which benefited the loss ratio by 0.7 percentage points. The reduction in non-notable losses was driven by favorable development on the third quarter 2017 Mexico City Earthquake loss event and related primarily to the property lines.
Attritional losses of $246.0 million, or 73.8 percentage points of the loss ratio during the three months ended December 31, 2017 compared to $157.3 million, or 65.5 percentage points of the loss ratio during the three months ended December 31, 2016. The increase was primarily driven by the addition of CRS and a higher frequency of mid-size losses which did not meet the non-notable loss threshold.
Loss ratio for the three months ended December 31, 2017 and 2016 was 73.5% and 68.5%, respectively, an increase of 5.0 percentage points.
Policy acquisition cost ratio for the three months ended December 31, 2017 was 18.1% compared to 24.3% for the three months ended December 31, 2016, a decrease of 6.2 percentage points. The decrease was primarily driven by new agriculture business written during the three months ended December 31, 2017 which carries lower acquisition costs.
General and administrative expenses for the three months ended December 31, 2017 were $64.9 million compared to $33.1 million for the three months ended December 31, 2016, an increase of $31.9 million or 96.4%. General and administrative expenses for the three months ended December 31, 2017 included $11.8 million of CRS expenses, of which $1.8 million related to the amortization of intangible assets acquired. The remaining increase in general and administrative expenses was primarily driven by a higher allocation of costs to the segment during the three months ended December 31, 2017 and a reduction in the performance bonus accrual during the three months ended December 31, 2016.
The following table presents the Asset Management segment (loss) income on an asset manager basis for the three months ended December 31, 2017 and 2016:
Fee revenues earned for the three months ended December 31, 2017 were $5.5 million compared to $4.7 million during the three months ended December 31, 2016, an increase of $0.8 million or 17.4%. Third party fee revenues earned during the three months ended December 31, 2017 were $5.1 million compared to $3.9 million during the three months ended December 31, 2016, an increase of $1.1 million or 28.8%. The increase in third party fee revenues was primarily driven by an increase in management fees as a result of an increase in assets under management over the last twelve months.
Total expenses for the three months ended December 31, 2017 were $2.6 million compared to $2.9 million during the three months ended December 31, 2016, a decrease of $0.3 million, or 10.1%.
Validus’ share of investment (loss) from funds and sidecars for the three months ended December 31, 2017 was $(4.0) million compared to income of $4.5 million during the three months ended December 31, 2016, a decrease of $8.5 million. The decrease was driven by the fourth quarter 2017 notable loss events.
The Company’s assets under management are based on NAV and are represented by investments made by related parties and third parties in the feeder funds and on a direct basis.
During the three months ended January 1, 2018, a total of $1,045.3 million of capital was raised, of which $1,029.1 million was raised from third parties. During the three months ended January 1, 2018, $402.4 million was returned to investors, of which $401.4 million was returned to third party investors.
Income from investment affiliates for the three months ended December 31, 2017 was $6.3 million compared to $2.2 million for the three months ended December 31, 2016, an increase of $4.2 million, or 192.9%. The income from investment affiliates represents equity earnings on investments in funds managed by Aquiline Capital Partners LLC.
Foreign exchange (losses) for the three months ended December 31, 2017 were $(0.8) million compared to $(0.9) million for the three months ended December 31, 2016.
The following table presents the results of operations for the years ended December 31, 2017, 2016 and 2015:
Highlights for the years ended December 31, 2017, 2016 and 2015 were as follows:
Reinsurance premiums ceded for the years ended December 31, 2017, 2016 and 2015 were $469.6 million, $289.7 million, and $328.7 million, respectively. The increase in reinsurance premiums ceded during the year ended December 31, 2017 as compared to 2016 of $179.9 million, or 62.1% was primarily driven by increases in the Reinsurance and Insurance segments. The decrease in reinsurance premiums ceded of $39.0 million, or 11.9% during the year ended December 31, 2016 as compared to 2015 was primarily driven by a decrease in the Reinsurance segment.
Net impact on premiums earned includes reinstatement premiums assumed and ceded and the net impact of accelerating unearned premiums assumed and ceded.
Losses and loss expenses incurred during the year ended December 31, 2017 from non-notable loss events were $50.6 million, or 2.0 percentage points of the loss ratio. Net of losses attributable to AlphaCat investors and noncontrolling interests of $4.1 million and including the impact of net reinstatement premiums ceded of $0.3 million, the net loss attributable to Validus from 2017 non-notable loss events was $46.8 million and was incurred by event as follows:
Losses and loss expenses incurred during the year ended December 31, 2015 from a single non-notable loss event, the 2015 Chilean Earthquake, were $22.2 million, or 1.0 percentage point of the loss ratio. Net of reinstatement premiums of $2.2 million, the net loss attributable to Validus from 2015 non-notable loss events was $20.0 million.
•Attritional losses of $1,425.2 million, $1,120.8 million and $1,164.8 million or 55.1, 49.9 and 51.8 percentage points of the loss ratio during the years ended December 31, 2017, 2016 and 2015, respectively.
Loss ratios by line of business for the years ended December 31, 2017, 2016 and 2015 were as follows:
Combined ratio for the years ended December 31, 2017, 2016 and 2015 was 122.6%, 84.2% and 79.7%, respectively.
The following table presents underwriting results by line of business for the years ended December 31, 2017 and 2016:
Reinsurance premiums ceded for the year ended December 31, 2017 were $209.3 million compared to $121.3 million for the year ended December 31, 2016, an increase of $88.0 million or 72.5%. The increase was primarily driven by an increase in the property lines of $59.2 million as a result of new retrocession cover purchased from Tailwind Re, a new proportional retro program and new retrocession coverage purchased following 2017 notable loss events. Also contributing to the increase were increases in the specialty - short-tail and specialty - other lines of $12.4 million and $16.3 million, respectively, as a result of new non-proportional retro coverage and a new quota share retrocession program, respectively.
Losses and loss expenses for the year ended December 31, 2017 were $692.7 million compared to $415.5 million for the year ended December 31, 2016, an increase of $277.2 million or 66.7% and included the following:
Losses and loss expenses incurred during the year ended December 31, 2017 from notable loss events were $297.8 million, or 29.1 percentage points of the loss ratio. Net of reinstatement premiums and the acceleration of unearned premiums of $53.4 million, the net loss attributable to the Reinsurance segment from 2017 notable loss events was $244.3 million and was incurred by event as follows:
Losses and loss expenses incurred during the year ended December 31, 2016 from notable loss events were $45.2 million, or 4.5 percentage points of the loss ratio. Net of reinstatement premiums of $3.9 million, the net loss attributable to the Reinsurance segment from 2016 notable loss events was $41.2 million and was incurred by event as follows:
Losses and loss expenses incurred during the year ended December 31, 2017 from non-notable loss events were $21.0 million, or 2.1 percentage points of the loss ratio. Net of reinstatement premiums of $1.6 million, the net loss attributable to the Reinsurance segment from 2017 non-notable loss events was $19.4 million and was incurred by event as follows:
Net losses and loss expenses from the 2016 non-notable loss events by line of business were as follows:
•Attritional losses for the year ended December 31, 2017 were $487.2 million, or 47.6 percentage points of the loss ratio compared to $459.2 million, or 46.1 percentage points of the loss ratio for the year ended December 31, 2016.
The favorable development on events in the property lines for the year ended December 31, 2016 primarily related to the 2015 Chilean Earthquake non-notable loss event and the 2015 Tianjin port explosion notable loss event. The adverse development on events in the specialty - short-tail lines for the year ended December 31, 2016 primarily related to reserves established following the receipt of a loss advice on an individual marine policy that incepted during the second half of 2015.
Policy acquisition cost ratio for the years ended December 31, 2017 and 2016 was 19.5% and 19.1%, respectively, an increase of 0.4 percentage points.
The following table presents underwriting results by line of business for the years ended December 31, 2016 and 2015:
Specialty - short-tail premiums of $555.5 million during the year ended December 31, 2016, compared to $599.3 million during the year ended December 31, 2015, a decrease of $43.8 million or 7.3%, primarily driven by reductions in our participation on various marine programs as a result of challenging market conditions; and
Specialty - other premiums of $132.1 million during the year ended December 31, 2016, compared to $23.6 million during the year ended December 31, 2015, an increase of $108.5 million, primarily driven by new casualty business written during the year ended December 31, 2016.
Reinsurance premiums ceded for the year ended December 31, 2016 were $121.3 million compared to $158.4 million for the year ended December 31, 2015, a decrease of $37.1 million or 23.4%. The decrease was primarily due to a reduction in the costs associated with the Company’s main proportional retrocession program during the year ended December 31, 2016.
Losses and loss expenses for the year ended December 31, 2016 were $415.5 million compared to $467.8 million for the year ended December 31, 2015, a decrease of $52.3 million or 11.2% and included the following:
Losses and loss expenses incurred during the year ended December 31, 2015 from notable loss events were $70.5 million, or 6.7 percentage points of the loss ratio. Net of reinstatement premiums of $0.4 million, the net loss attributable to the Reinsurance segment from 2015 notable loss events was $70.1 million and was incurred by event as follows:
The favorable development on events in the property lines for the year ended December 31, 2015 was primarily related to Superstorm Sandy.
Loss ratio for the years ended December 31, 2016 and 2015 was 41.7% and 44.6%, respectively, a decrease of 2.9 percentage points.
General and administrative expenses for the years ended December 31, 2016 and 2015 were $85.0 million and $94.5 million, respectively, a decrease of $9.5 million or 10.1%. The decrease was primarily due to a reduction in office related expenses, staff costs and the performance bonus accrual.
Gross premiums written for the year ended December 31, 2017 were $1,453.1 million compared to $1,194.1 million for the year ended December 31, 2016, an increase of $259.0 million, or 21.7% and included the following:
Property premiums of $397.3 million during the year ended December 31, 2017, compared to $371.2 million during the year ended December 31, 2016, an increase of $26.1 million or 7.0%. The increase was primarily driven by the continued build out of product offerings in the U.S. short-tail property lines;
Specialty - other premiums of $474.9 million during the year ended December 31, 2017, compared to $425.3 million during the year ended December 31, 2016, an increase of $49.6 million or 11.7%. The increase was primarily driven by an increase in liability classes as a result of the continued build out of the Company’s U.S. underwriting platform and new financial lines business written.
Reinsurance premiums ceded for the year ended December 31, 2017 were $261.1 million compared to $162.7 million for the year ended December 31, 2016, an increase of $98.4 million or 60.5%. The increase was primarily driven by an increase in ceded agriculture premiums of $45.7 million relating to new business written through CRS, reinstatement premiums ceded of $22.9 million from 2017 notable loss events and new reinsurance coverage purchased following the 2017 notable loss events.
Net premiums earned for the year ended December 31, 2017 were $1,256.1 million compared to $1,002.9 million for the year ended December 31, 2016, an increase of $253.1 million or 25.2%. The increase was primarily due to the acquisition of CRS.
Losses and loss expenses for the year ended December 31, 2017 were $934.2 million compared to $604.7 million for the year ended December 31, 2016, an increase of $329.5 million or 54.5% and included the following:
Losses and loss expenses incurred during the year ended December 31, 2016 from notable loss events were $20.8 million, or 2.1 percentage points of the loss ratio. Net of reinstatement premiums $0.4 million, the net loss attributable to the Insurance segment from these 2016 notable loss events was $20.3 million and was incurred by event as follows:
Losses and loss expenses incurred during the year ended December 31, 2017 from non-notable loss events were $25.2 million, or 2.0 percentage points of the loss ratio. Including reinstatement premiums ceded of $1.9 million, the net loss attributable to the Insurance segment from 2017 non-notable loss events was $27.1 million and was incurred by event as follows:
Losses and loss expenses incurred during the year ended December 31, 2016 from non-notable loss events were $17.3 million, or 1.7 percentage points of the loss ratio. Net of reinstatement premiums of $1.0 million, the net loss attributable to the Insurance segment from 2016 non-notable loss events was $16.3 million and was incurred by event as follows:
•Attritional losses during the year ended December 31, 2017 were $902.7 million, or 71.9 percentage points of the loss ratio compared to $644.5 million, or 64.3 percentage points of the loss ratio during the year ended December 31, 2016. The increase was primarily driven by the addition of CRS and a higher frequency of mid-size losses which did not meet the non-notable loss threshold.
The favorable development on events for the year ended December 31, 2017 primarily related to favorable development on the 2015 Pemex oil refinery explosion.
Specialty - other premiums of $425.3 million during the year ended December 31, 2016, compared to $416.1 million during the year ended December 31, 2015, an increase of $9.2 million or 2.2%, primarily driven by an increase in financial lines business written during the year.
Net premiums earned for the year ended December 31, 2016 were $1,002.9 million compared to $1,039.0 million for the year ended December 31, 2015, a decrease of $36.0 million or 3.5%, primarily driven by decreases in the specialty - short-tail and specialty - other lines of $53.3 million and $9.1 million, respectively. The decrease in the specialty - short-tail lines was driven by the reduction in gross premiums written in the marine and aviation classes as noted above. The decrease in the specialty - other lines was primarily driven by slower earnings patterns on longer-term contracts and the discontinuation of underperforming liability classes of business. The decreases were partially offset by an increase in the property lines driven by the increase in gross premiums written as noted above.
Losses and loss expenses for the year ended December 31, 2016 were $604.7 million compared to $509.4 million for the year ended December 31, 2015, an increase of $95.4 million or 18.7% and included the following:
Losses and loss expenses incurred during the year ended December 31, 2015 from notable loss events were $26.5 million, or 2.5 percentage points of the loss ratio. Net of reinstatement premiums of $1.4 million, the net loss attributable to the Insurance segment from these loss events was $25.1 million and was incurred by event as follows:
Loss reserve development for the year ended December 31, 2015 was as follows:
The favorable development on events in the property lines for the year ended December 31, 2015 was primarily related to the 2011 Thailand Floods notable loss event.
AlphaCat Direct includes direct investments from a third party investor in AlphaCat Re.
Highlights for the for the year ended December 31, 2017 as compared to the year ended December 31, 2016 were as follows:
Total expenses for the year ended December 31, 2017 were $13.4 million compared to $11.5 million during the year ended December 31, 2016, an increase of $1.9 million, or 16.5%. The increase was primarily driven by a higher allocation of costs to the Asset Management segment and was partially offset by a reduction in the bonus accrual during the year ended December 31, 2017.
Validus’ share of investment (loss) from funds and sidecars for the year ended December 31, 2017 was $(25.1) million compared to income of $20.6 million during the year ended December 31, 2016, a decrease of $45.7 million. The decrease was driven by the 2017 notable loss events.
Highlights for the for the year ended December 31, 2016 as compared to the year ended December 31, 2015 were as follows:
Total expenses for the year ended December 31, 2016 were $11.5 million compared to $22.0 million during the year ended December 31, 2015, a decrease of $10.5 million, or 47.5%, primarily attributable to higher placement fees incurred in relation to raising new capital during 2015.
Assets under management were $3.4 billion as at January 1, 2018, compared to $2.7 billion as at January 1, 2017, of which third party assets under management were $3.2 billion as at January 1, 2018, compared to $2.5 billion as at January 1, 2017.
Managed net investment income for the year ended December 31, 2017 was $153.0 million compared to $141.7 million for the year ended December 31, 2016, an increase of $11.2 million, or 7.9%. The increase was primarily driven by strong performance from the Company’s fixed income funds.
Change in net unrealized gains on managed investments for the year ended December 31, 2017 was $6.4 million compared to $14.1 million for the year ended December 31, 2016. The change in net unrealized gains on managed investments during the year ended December 31, 2017 were driven by the impact of rising interest rates on the Company’s managed fixed maturity portfolio.
Income from investment affiliates for the year ended December 31, 2017 was $22.0 million compared to a loss of $(2.1) million for the year ended December 31, 2016. The income from investment affiliates represents equity earnings on investments in funds managed by Aquiline Capital Partners LLC.
Net realized gains on managed investments for the year ended December 31, 2016 were $14.7 million compared to $1.7 million for the year ended December 31, 2015. The net realized gains for the year ended December 31, 2016 primarily resulted from the sale of managed fixed maturities and gains realized on the termination of interest rate swap contracts as noted above.
Change in net unrealized gains on managed investments for the year ended December 31, 2016 was $14.1 million compared to (losses) of $(32.0) million for the year ended December 31, 2015. The changes in unrealized gains and (losses) on managed investments were primarily driven by the impact of changes in interest rates on the Company’s managed fixed maturity portfolio.
(Loss) from investment affiliates for the year ended December 31, 2016 was $(2.1) million compared to income of $4.3 million for the year ended December 31, 2015.
General and administrative expenses for the year ended December 31, 2017 were $48.6 million compared to $72.2 million for the year ended December 31, 2016, a decrease of $23.7 million, or 32.7%. The decrease was primarily driven by a reduction in the bonus accrual and a higher allocation of costs to reportable segments during the year ended December 31, 2017.
Share compensation expenses for the year ended December 31, 2017 were $16.2 million compared to $16.0 million for the year ended December 31, 2016, an increase of $0.2 million, or 1.1%.
Foreign exchange (losses) for the year ended December 31, 2017 were $(8.5) million compared to gains of $10.8 million for the year ended December 31, 2016, an unfavorable movement of $19.3 million. The unfavorable movement was primarily driven by the British pound sterling and Euro strengthening against the U.S. dollar during the year ended December 31, 2017.
Share compensation expenses for the year ended December 31, 2016 were $16.0 million compared to $13.0 million for the year ended December 31, 2015, an increase of $3.0 million, or 23.5%, primarily due to increased performance share award grants.
Managed investments represent assets governed by the Company’s IPS whereas, non-managed investments represent assets held in support of consolidated AlphaCat VIEs which are not governed by the Company’s IPS. Refer to Note 9 to the Consolidated Financial Statements, “Variable interest entities,” in Part II, Item 8 for further details.
The Company’s investments in investment affiliates have been treated as equity method investments with the corresponding gains and losses recorded in income as “Income (loss) from investment affiliates.”
As at December 31, 2017, the Company’s managed cash and investment portfolio totaled $7.1 billion (December 31, 2016: $6.5 billion). Refer to Note 7 to the Consolidated Financial Statements, “Investments,” in Part II, Item 8 for further details related to the Company’s managed investments.
A significant portion of (re)insurance contracts written by the Company provide short-tail reinsurance coverage for losses resulting mainly from natural and man-made catastrophes, which could result in payment of a substantial amount of losses at short notice. Accordingly, the Company’s investment portfolio is primarily structured to provide liquidity, which means the investment
portfolio contains a significant amount of relatively short-term fixed maturity investments. The Company’s IPS specifically requires certain minimum thresholds of cash, short-term investments, and highly-rated fixed maturity securities relative to our consolidated net reserves and estimates of probable maximum loss exposures at the 1 in 100 year threshold to provide necessary liquidity in a wide range of reasonable scenarios. As such, the Company structures its managed cash and investment portfolio to support policyholder reserves and contingent risk exposures with a liquid portfolio of high quality fixed-income investments with a comparable duration profile.