On March 22, 2019, we acquired TMR, including RenaissanceRe Europe, RenaissanceRe UK and their subsidiaries. As a result of the acquisition, each of the TMR entities became our wholly owned subsidiary. We accounted for the acquisition of TMR under the acquisition method of accounting in accordance with FASB Accounting Standards Codification (“ASC”) Topic Business Combinations.
Our results of operations and financial condition for 2019 include TMR for the period from March 22, 2019 through December 31, 2019. The following discussion and analysis of our results of operations for 2019, compared to 2018, as well as our liquidity and capital resources at December 31, 2019, should be read in that context. In addition, the results of operations for 2019 and financial condition at December 31, 2019 may not be reflective of the ultimate ongoing business of the combined entities.
Refer to “Note 3. Acquisition of Tokio Millennium Re” in our “Notes to the Consolidated Financial Statements” for additional information with respect to the acquisition of TMR.
RenaissanceRe is a global provider of reinsurance and insurance. We provide property, casualty and specialty reinsurance and certain insurance solutions to customers, principally through intermediaries. Established in 1993, we have offices in Bermuda, Australia, Ireland, Singapore, Switzerland, the U.K. and the U.S. Our operating subsidiaries include Renaissance Reinsurance, Renaissance Reinsurance U.S., RenaissanceRe Specialty U.S. Ltd., RenaissanceRe Europe, RenaissanceRe UK, Renaissance Reinsurance of Europe and Syndicate 1458. We also underwrite reinsurance on behalf of joint ventures, including DaVinci, Fibonacci Re, Top Layer Re, Upsilon RFO and Vermeer. In addition, through Medici, we invest in various insurance based investment instruments that have returns primarily tied to property catastrophe risk.
Our core products include property, casualty and specialty reinsurance, and certain insurance products principally distributed through intermediaries, with whom we have cultivated strong long-term relationships. We believe we have been one of the world’s leading providers of catastrophe reinsurance since our founding. In recent years, through the strategic execution of several initiatives, including organic growth and acquisitions, we have expanded and diversified our casualty and specialty platform and products and believe we are a leader in certain casualty and specialty lines of business. We have determined our business consists of the following reportable segments: (1) Property, which is comprised of catastrophe and other property reinsurance and insurance written on behalf of our operating subsidiaries and certain joint ventures managed by our ventures unit, and (2) Casualty and Specialty, which is comprised of casualty and specialty reinsurance and insurance written on behalf of our operating subsidiaries and certain joint ventures managed by our ventures unit. We also pursue a number of other opportunities through our ventures unit, which has responsibility for creating and managing our joint ventures, executing customized reinsurance transactions to assume or cede risk, and managing certain strategic investments directed at classes of risk other than catastrophe reinsurance. From time to time we consider diversification into new ventures, either through organic growth, the formation of new joint ventures, or the acquisition of, or the investment in, other companies or books of business of other companies.
To best serve our clients in the places they do business, we have operating subsidiaries, branches, joint ventures and underwriting platforms around the world, including DaVinci, Fibonacci Re, Renaissance Reinsurance, Top Layer Re, Upsilon RFO and Vermeer in Bermuda, Renaissance Reinsurance U.S. in the U.S., Syndicate 1458 in the U.K. and RenaissanceRe Europe in Switzerland, which has branches in Australia, Bermuda, the U.K. and the U.S. We write property and casualty and specialty reinsurance through our wholly owned operating subsidiaries, joint ventures and Syndicate 1458 and certain insurance products primarily through Syndicate 1458. Syndicate 1458 provides us with access to Lloyd’s extensive distribution network and worldwide licenses and also writes business through delegated authority arrangements. The underwriting results of our operating subsidiaries and underwriting platforms are included in our Property and Casualty and Specialty segment results as appropriate.
adequately covered in the application of IBNR. Our reserving committee, which includes members of our senior management, reviews, discusses, and assesses the reasonableness and adequacy of the reserving estimates included in our audited financial statements.
Represents the fair value of TMR's reserves for claims and claim expenses, net of reinsurance recoverables, acquired at March 22, 2019.
The following table details our prior year development by segment of its liability for unpaid claims and claim expenses:
Consolidated Financial Statements” for more information on the risks we insure and reinsure, the reserving techniques, assumptions and processes we follow to estimate our claims and claim expense reserves, prior year development of the reserve for claims and claim expenses, analysis of our incurred and paid claims development and claims duration information for each of our Property and Casualty and Specialty segments.
As discussed above, the key assumption in estimating reserves for our Property segment is our estimate of incurred claims and claim expenses. The table below shows our initial estimates of incurred claims and claim expenses for each accident year and how these initial estimates have developed over time. The initial estimate of accident year incurred claims and claim expenses represents our estimate of the ultimate settlement and administration costs for claims incurred in our Property segment occurring during a particular accident year, and as reported as of December 31 of that year. The re-estimated incurred claims and claim expenses as of December 31 of subsequent years, represent our revised estimates as reported as of those dates. Our most recent estimates as reported at December 31, 2019 differ from our initial accident year estimates and demonstrate that our initial estimate of incurred claims and claim expenses are reasonably likely to vary from our most recent estimate, perhaps significantly. Changes in this estimate will be recorded in the period in which they occur. In accident years where our current estimates are lower than our initial estimates, we have experienced favorable development while accident years where our current estimates are higher than our original estimates indicates adverse development. The table is presented on a net basis and, therefore, includes the benefit of reinsurance recoverable. In addition, we have included historical incurred claims and claim expenses development information related to Platinum and TMR in the table below. For incurred accident year claims denominated in foreign currency, we have used the current year-end balance sheet foreign exchange rate for all periods provided, thereby eliminating the effects of changes in foreign currency translation rates from the incurred accident year claims development information included in the table below.
Our initial and subsequent estimates of incurred claims and claim expenses are impacted by available information derived from claims information from certain customers and brokers, industry assessments of losses from the events, proprietary models, and the terms and conditions of our contracts. As described above, given the complexity in reserving for claims and claims expenses associated with property losses, and catastrophe excess of loss reinsurance contracts in particular, which make up a significant proportion of our Property segment, we have experienced development, both favorable and unfavorable, in any given accident year. For example, net claims and claim expenses associated with the 2017 accident year
have experienced favorable development. This is largely driven by reductions in estimated ultimate claims and claim expenses associated with Hurricanes Harvey, Irma and Maria, the Mexico City Earthquake, the wildfires in California during the fourth quarter of 2017 and certain losses associated with aggregate loss contracts (collectively, the “2017 Large Loss Events”). In comparison, net claims and claim expenses associated with 2018 accident year have experienced adverse development. The adverse development was driven by a deterioration in expected net claims and claim expenses as new and additional claims information was received associated with Typhoons Jebi, Mangkhut and Trami, Hurricane Florence, the wildfires in California during the third and fourth quarters of 2018, Hurricane Michael and certain losses associated with aggregate loss contracts (the ”2018 Large Loss Events”).
We believe the changes we made to our estimated incurred claims and claim expenses represent a reasonable range of possible outcomes based on our experience to date and our future expectations. While we believe these are a reasonable range of possible outcomes, we do not believe the above sensitivity analysis should be considered an actuarial reserve range. Excluded from the impact on our reserves for claims and claim expenses, net income and shareholders’ equity, in the table above, are reserves for claims and claim expenses associated with the TMR managed third-party capital vehicles as these reserves for claims and claim expenses are fully ceded and have no impact on our net income or shareholders’ equity. In addition, the sensitivity analysis only reflects a reasonable range of possible outcomes in our underlying assumptions. It is possible that our estimated incurred claims and claim expenses could be significantly higher or lower than the sensitivity analysis described above. For example, we could be liable for events for which we have not estimated claims and claim expenses or for exposures we do not currently believe are covered under our policies. These changes could result in significantly larger changes to our estimated incurred claims and claim expenses, net income and shareholders’ equity than those noted above, and could be recorded across multiple periods. We also caution that the above sensitivity analysis is not used by management in developing our reserve estimates and is also not used by management in managing the business.
As discussed above, the key assumption in estimating reserves for our Casualty and Specialty segment is our estimate of incurred claims and claim expenses. Standard actuarial techniques are used to calculate the ultimate claims and claim expenses and two key assumptions include the estimated incurred claims and claim expenses ratio and the estimated loss reporting patterns. The table below shows our initial estimates of incurred claims and claim expenses for each accident year and how these initial estimates have developed over time. The initial estimate of accident year incurred claims and claim expenses represents our estimate of the ultimate settlement and administration costs for claims incurred in our Casualty and Specialty segment occurring during a particular accident year, and as reported as of December 31 of that year. The re-estimated incurred claims and claim expenses as of December 31 of subsequent years, represent our revised estimates as reported as of those dates. Our most recent estimates as reported at December 31, 2019 differ from our initial accident year estimates and demonstrate that our initial estimate of incurred claims and claim expenses are reasonably likely to vary from our most recent estimate, perhaps significantly. Changes in this estimate will be recorded in the period in which they occur. In accident years where our current estimates are lower than our initial estimates, we have experienced favorable development while accident years where our current estimates are higher than our original estimates indicates adverse development. The table is presented on a net basis and, therefore, includes the benefit of reinsurance recoverable. In addition, we have included historical incurred claims and claim expenses development information related to Platinum and TMR in the table below. For incurred accident year claims denominated in foreign currency, we have used the current year-end balance sheet foreign exchange rate for all periods provided, thereby eliminating the effects of changes in foreign currency translation rates from the incurred accident year claims development information included in the table below.
As each underwriting year has developed, our estimated expected incurred claims and claim expenses have changed. As an example, our re-estimated incurred claims and claim expenses decreased for the
2013 accident year from the initial estimates. This decrease was principally driven by actual reported and
paid net claims and claim expenses associated with the 2013 accident year coming in less than expected,
year. In comparison, the 2018 accident year has developed adversely compared to our initial estimates of
The reserving methodology for our Casualty and Specialty segment is weighted more heavily to our initial estimate in the early periods immediately following the contracts’ inception through the use of the expected loss ratio method. The expected loss ratio method estimates the incurred losses by multiplying the initial expected loss ratio by the earned premium. Under the expected loss ratio method, no reliance is placed on the development of claims and claim expenses. The determination of when reported losses are sufficient and credible to warrant selection of an ultimate loss ratio different from the initial expected loss ratio also requires judgment. We generally make adjustments for reported loss experience indicating unfavorable variances from the initial expected loss ratio sooner than reported loss experience indicating favorable variances as reporting of losses in excess of expectations tends to have greater credibility than an absence of or lower than expected level of reported losses. Over time, as a greater number of claims are reported and the credibility of reported losses improves, actuarial estimates of IBNR are typically based on the Bornhuetter-Ferguson actuarial method. The Bornhuetter-Ferguson method places weight on claims and claim expenses development experience. If there is adverse development of prior accident years claims and claim expenses, we generally select the Bornhuetter-Ferguson method to ensure the claim experience is considered in the determination of our estimated claims and claim expenses with the associated business. If we believe we lack the claims experience in the early stages of development of a line of business, we may not select the Bornhuetter-Ferguson method until such time as we believe there is greater credibility in the level of reported losses. As prior accident years claims and claim expenses development experience becomes credible, the Bornhuetter-Ferguson method is generally selected which places greater weight on this experience as it develops. The Bornhuetter-Ferguson method estimates our expected ultimate claims and claim expenses by applying our initial estimated loss ratio to our undeveloped premium, and adding the reported losses to the estimate. The impact of these methodologies can be observed in the table above. For example, the 2014 accident year ultimate loss remained relatively consistent for the first two years of development (i.e., the years ended December 31, 2015 and 2016), before experiencing favorable development in years three and four (i.e., the years ended December 31, 2017 and 2018). This reflects the reserving methodology where we use the Bornhuetter-Ferguson method as the experience became more credible.
We believe that ultimate claims and claim expense ratios 10.0 percentage points above or below our estimated assumptions constitute a reasonable range of possible outcomes based on our experience to date and our future expectations. In addition, we believe that the adjustments we made to speed up or slow down our estimated loss reporting patterns represent a reasonable range of possible outcomes. While we believe these are a reasonable range of possible outcomes, we do not believe the above sensitivity analysis should be considered an actuarial reserve range. In addition, the sensitivity analysis only reflects a reasonable range of possible outcomes in our underlying assumptions. It is possible that our initial estimated claims and claim expense ratios and loss reporting patterns could be significantly different from the sensitivity analysis described above. For example, we could be liable for events that we have not estimated reserves for, or for exposures we do not currently believe are covered under our contracts. These changes could result in significantly larger changes to reserves for claims and claim expenses, net income and shareholders’ equity than those noted above, and could be recorded across multiple periods. We also caution that the above sensitivity analysis is not used by management in developing our reserve estimates and is also not used by management in managing the business.
to risks including: (1) commercial property, which principally included catastrophe-exposed commercial property products; (2) commercial multi-line, which included commercial property and liability coverage, such as general liability, automobile liability and physical damage, building and contents, professional liability and various specialty products; and (3) personal lines property, which principally included homeowners personal lines property coverage and catastrophe exposed personal lines property coverage and totaled $0.4 million at December 31, 2019 (2018 - $4.6 million).
as estimate the ultimate amount of insured industry losses that will be reported by the applicable statistical reporting agency, as per the contract terms. In addition, the level of our additional case reserves and IBNR reserves has a significant impact on reinsurance recoverables. These factors can impact the amount and timing of the reinsurance recoverables to be recorded.
We estimate our valuation allowance by applying specific percentages against each reinsurance recoverable based on our counterparty’s credit rating. The percentages applied are based on historical industry default statistics developed by major rating agencies and are then adjusted by us based on industry knowledge and our judgment and estimates. We also apply case-specific valuation allowances against certain recoveries we deem unlikely to be collected in full. We then evaluate the overall adequacy of the valuation allowance based on other qualitative and judgmental factors. At December 31, 2019, our reinsurance recoverable balance was $2.8 billion (2018 - $2.4 billion). Of this amount, 57.5% is fully collateralized by our reinsurers, 41.0% is recoverable from reinsurers rated A- or higher by major rating agencies and 1.5% is recoverable from reinsurers rated lower than A- by major rating agencies (2018 - 60.8%, 38.0% and 1.2%, respectively). The reinsurers with the three largest balances accounted for 12.7%, 7.2% and 7.0%, respectively, of our reinsurance recoverable balance at December 31, 2019 (2018 - 15.5%, 6.7% and 6.5%, respectively). The valuation allowance recorded against reinsurance recoverable was $7.3 million at December 31, 2019 (2018 - $9.0 million). The three largest company-specific components of the valuation allowance represented 18.1%, 7.9% and 7.2%, respectively, of our total valuation allowance at December 31, 2019 (2018 - 16.2%, 14.8% and 12.3%, respectively).
In order to determine if a market is active or inactive for a security, we consider a number of factors, including, but not limited to, the spread between what a seller is asking for a security and what a buyer is bidding for the same security, the volume of trading activity for the security in question, the price of the security compared to its par value (for fixed maturity investments), and other factors that may be indicative of market activity.
Goodwill and other intangible assets acquired are initially recorded at fair value. Subsequent to initial recognition, finite lived other intangible assets are amortized over their estimated useful life, subject to impairment, and goodwill and indefinite lived other intangible assets are carried at the lower of cost or fair value, subject to impairment. If goodwill or other intangible assets are impaired, they are written down to their estimated fair values with a corresponding expense reflected in our consolidated statements of operations.
unit exceeds its carrying amount, then goodwill is not considered impaired and no further analysis is required. If the carrying amount of a reporting unit exceeds its fair value, we then proceed to determine the amount of the impairment charge, if any. There are many assumptions and estimates underlying the fair value calculation. Principally, we identify the reporting unit or business entity that the goodwill or other intangible asset is attributed to, and review historical and forecasted operating and financial performance and other underlying factors affecting such analysis, including market conditions. Other assumptions used could produce significantly different results which may result in a change in the value of goodwill or our other intangible assets and a related charge in our consolidated statements of operations. An impairment charge could be recognized in the event of a significant decline in the implied fair value of those operations where the goodwill or other intangible assets are applicable. In the event we determine that the value of goodwill has become impaired, an accounting charge will be taken in the fiscal quarter in which such determination is made, which could have a material adverse effect on our results of operations in the period in which the impairment charge is recorded. As at December 31, 2019, excluding the amounts recorded in investments in other ventures, under the equity method, as noted below, our consolidated balance sheets include $210.7 million of goodwill (2018 - $197.6 million) and $51.5 million of other intangible assets (2018 - $39.8 million). Impairment charges related to these balances were $Nil during the year ended December 31, 2019 (2018 - $Nil, 2017 - $Nil). In the future, it is possible we will hold more goodwill, which would increase the degree of judgment and uncertainty embedded in our financial statements, and potentially increase the volatility of our reported results.
Investments in which we have significant influence over the operating and financial policies of the investee are classified as investments in other ventures, under equity method, and are accounted for under the equity method of accounting. Under this method, we record our proportionate share of income or loss from such investments in our results for the period. Any decline in the value of investments in other ventures, under equity method, including goodwill and other intangible assets arising upon acquisition of the investee, considered by management to be other-than-temporary, is reflected in our consolidated statements of operations in the period in which it is determined. As of December 31, 2019, we had $106.5 million (2018 - $115.2 million) in investments in other ventures, under equity method on our consolidated balance sheets, including $10.6 million of goodwill and $14.3 million of other intangible assets (2018 - $10.6 million and $17.1 million). The carrying value of our investments in other ventures, under equity method, individually or in the aggregate, may, and likely will, differ from the realized value we may ultimately attain, perhaps significantly so.
In determining whether an equity method investment is impaired, we take into consideration a variety of factors including the operating and financial performance of the investee, the investee’s future business plans and projections, recent transactions and market valuations of publicly traded companies where available, discussions with the investee’s management, and our intent and ability to hold the investment until it recovers in value. Accordingly, we make assumptions and estimates in assessing whether an impairment has occurred and if, in the future, our assumptions and estimates made in assessing the fair value of these investments change, this could result in a material decrease in the carrying value of these investments. This would cause us to write-down the carrying value of these investments and could have a material adverse effect on our results of operations in the period the impairment charge is taken. We do not have any current plans to dispose of these investments, and cannot assure you we will consummate future transactions in which we realize the value at which these holdings are reflected in our financial statements. During the year ended December 31, 2019, we recorded $Nil (2018 - $Nil, 2017 - $Nil) of other-than-temporary impairment charges related to goodwill and other intangible assets associated with our
In accordance with FASB ASC Topic Business Combinations, we allocated the total consideration paid for TMR among acquired assets and assumed liabilities based on their fair values. This included the establishment of a net deferred tax liability of $5.7 million and the recording of a valuation allowance against TMR’s deferred tax assets of $35.7 million in our consolidated financial statements.
We have unrecognized tax benefits of $Nil as of December 31, 2019 (2018 - $Nil). Interest and penalties related to unrecognized tax benefits, would be recognized in income tax expense. At December 31, 2019, interest and penalties accrued on unrecognized tax benefits were $Nil (2018 - $Nil).
The following filed income tax returns are open for examination with the applicable tax authorities: tax years 2016 through 2018 with the IRS; 2015 through 2018 with Ireland; 2018 with the U.K.; 2015 through 2018 with Singapore; 2018 with Switzerland; and 2015 through 2018 with Australia. We do not expect the resolution of these open years to have a significant impact on our consolidated statements of operations and financial condition.
Investment Results - our total investment result, which includes the sum of net investment income and net realized and unrealized gains on investments, was a gain of $838.3 million in 2019, compared to a gain of $86.8 million in 2018, an increase of $751.5 million. Impacting the investment results were higher returns on portfolios of fixed maturity and short term investments, equity investments trading, catastrophe bonds and investments-related derivatives. Also driving the investment result for 2019 was higher average invested assets, primarily resulting from the acquisition of TMR, combined with capital raised in certain of our consolidated third-party capital vehicles during 2019, including DaVinciRe, Upsilon RFO, Vermeer and Medici, and the subsequent investment of those funds as part of our consolidated investment portfolio; and
Net income available to RenaissanceRe common shareholders was $197.3 million in 2018, compared to a net loss attributable to RenaissanceRe common shareholders of $244.8 million in 2017, an increase of $442.0 million. As a result of our net income available to RenaissanceRe common shareholders in 2018, we generated an annualized return on average common equity of 4.7% and our book value per common share increased from $99.72 at December 31, 2017 to $104.13 at December 31, 2018, a 5.7% increase, after considering the change in accumulated dividends paid to our common shareholders.
Included in our underwriting results for 2018 were the 2018 Large Loss Events, which had a net negative impact on our underwriting result of $340.2 million and added 18.6 percentage points to the combined ratio, partially offset by changes in the estimates of the 2017 Large Loss Events, which had a positive impact on the underwriting result of $157.8 million and reduced the combined ratio by 8.0 percentage points. In addition, as a result of the Q4 2018 California Wildfires, our underwriting result was negatively impacted by certain casualty liability exposures within the Casualty and Specialty segment. In comparison, in 2017 the underwriting result experienced a net negative impact of $989.2 million, or an increase in the combined ratio of 59.4 percentage points, associated with the 2017 Large Loss Events;
Large Reinsurance Transactions - our results for 2018 include certain large reinsurance transactions, which are reflected in our Property segment and increased net premiums earned by $72.3 million and contributed $56.2 million to our net income available to RenaissanceRe common shareholders. While we expect large transactions from time to time, we believe they reflect our differentiated strategy, our capability to provide bespoke or large solutions for our clients and our continued focus on serving our clients with unique coverages;
Net Income Attributable to Redeemable Noncontrolling Interests - our net income attributable to redeemable noncontrolling interests was $41.6 million in 2018, compared to a net loss attributable to redeemable noncontrolling interests of $132.3 million in 2017. The increase was principally due to DaVinciRe generating underwriting income in 2018 compared to significant underwriting losses in 2017. Our ownership in DaVinciRe was 22.1% at both December 31, 2018 and December 31, 2017.
Meaningful uncertainty regarding the estimates and the nature and extent of the losses from these events remains, driven by the magnitude and recent occurrence of each event, the geographic areas in which the events occurred, relatively limited claims data received to date, the contingent nature of business interruption and other exposures, potential uncertainties relating to reinsurance recoveries and other factors inherent in loss estimation, among other things.
An initial estimate of the net negative impact of the 2017 Large Loss Events was recorded in our consolidated financial statements during 2017. The amounts noted in the table above reflect changes in the estimates of the net negative impact of the 2017 Large Loss Events recorded in 2018.
Impact on Casualty and Specialty segment result includes loss estimates from catastrophe exposed contracts within certain specialty lines of business (i.e., energy, marine, and regional multi-line business). Amounts shown for the Q4 2018 Catastrophe Events, which includes the Q4 2018 California Wildfires, do not reflect impacts from certain casualty liability exposures within the Casualty and Specialty segment associated with the Q4 2018 California Wildfires, as different actuarial techniques are used to estimate losses related to such exposures.
Ceded premiums written in our Property segment increased by $243.3 million, to $705.7 million, in 2018, compared to $462.4 million in 2017. The increase in ceded premiums written was principally due to a significant portion of the increase in gross premiums written in the catastrophe class of business noted above being ceded through our managed joint venture, Upsilon RFO, combined with increased purchases of retrocessional reinsurance as part of the management of our risk portfolio.
In addition, in 2019, net favorable development on prior accident years net claims and claim expenses of $2.9 million, or a decrease in the combined ratio of 0.2 percentage points, was primarily driven by favorable development on the 2017 Large Loss Events, which was mostly offset by adverse development on the 2018 Large Loss Events, compared to net favorable development of $221.3 million, or 21.0 percentage points, in 2018. The net favorable development in 2018 included the decreases in the estimates of the net negative impact of the 2017 Large Loss Events noted above. Refer to “Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” and “Note 8. Reserve for Claims and Claim Expenses” in our “Notes to the Consolidated Financial Statements” for additional discussion of our reserving techniques and prior year development of net claims and claim expenses.
Primarily as a result of changes in the estimates of the net negative impact of the 2017 Large Loss Events noted above, the Property segment experienced net favorable development on prior accident years net claims and claim expenses of $221.3 million, or 21.0 percentage points, during 2018, compared to $45.6 million, or 4.9 percentage points, in 2017. Refer to “Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” and “Note 8. Reserve for Claims and Claim Expenses” in our “Notes to the Consolidated Financial Statements” for additional discussion of our reserving techniques and prior year development of net claims and claim expenses.
Below is a summary of the underwriting results and ratios for our Casualty and Specialty segment:
In 2018, our Casualty and Specialty segment gross premiums written increased by $192.4 million, or 14.2%, to $1.5 billion, compared to $1.4 billion in 2017. The increase was principally due to selective growth from new business opportunities across various classes of business in our Casualty and Specialty segment. Much of this growth is a result of our differentiated strategy to provide bespoke customer solutions, which may be non-recurring.
The decrease in the Casualty and Specialty segment combined ratio in 2019 was primarily driven by an improved underwriting expense ratio as well as an overall decrease in the net claims and claims expense ratio. The decrease in the net claims and claim expense ratio was principally due to lower current accident year losses, which reduced the net claims and claim expense ratio by 5.1 percentage points in 2019, as compared to 2018 which was adversely impacted by liability exposures associated with the wildfires in California in 2018. The underwriting expense ratio in the Casualty and Specialty segment decreased 3.3 percentage points to 31.2% in 2019, compared to 34.5% in 2018, primarily due to a decrease in the operating expense ratio as a result of improved operating leverage.
Our Casualty and Specialty segment experienced net favorable development on prior accident years net claims and claim expenses of $23.9 million, or 1.4 percentage points, during 2019, compared to $49.3 million, or 5.3 percentage points, respectively, in 2018. The net favorable development during 2019 and 2018 was principally driven by reported losses coming in lower than expected. Refer to “Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” and “Note 8. Reserve for Claims and Claim Expenses” in our “Notes to the Consolidated Financial Statements” for additional discussion of our reserving techniques and prior year development of net claims and claim expenses.
The decrease in our Casualty and Specialty segment net claims and claim expense ratio was principally due to favorable development of prior accident year losses of $49.3 million, or 5.3 percentage points during 2018, as compared to net adverse development of $6.2 million, or 0.7 percentage points, in 2017. The net favorable development during 2018 was principally driven by reported losses coming in lower than expected compared to 2017, which experienced adverse development associated with the decrease in the Ogden Rate during the period. Refer to “Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” and “Note 8. Reserve for Claims and Claim Expenses” in our “Notes to the Consolidated Financial Statements” for additional discussion of our reserving techniques and prior year development of net claims and claim expenses.
In 2019, total fee income earned through third-party capital management increased $24.3 million, to $114.2 million, compared to $89.9 million in 2018, primarily driven by an increase in the dollar value of capital being managed combined with improved underlying performance.
In 2018, total fee income earned through third-party capital management increased $25.4 million, to $89.9 million, compared to $64.5 million in 2017, primarily driven by an increase in the dollar value of capital being managed. In addition, certain of our joint ventures, namely DaVinciRe, were significantly more profitable in 2018 compared to 2017.
Net realized and unrealized gains on investments were $414.5 million in 2019, compared to net realized and unrealized losses of $175.1 million in 2018, an increase of $589.6 million. Principally impacting our net realized and unrealized gains on investments in 2019 were:
net realized and unrealized gains on our fixed maturity investments trading of $260.4 million in 2019, compared to net realized and unrealized losses of $127.1 million in 2018, an increase of $387.6 million, principally driven by a downward shift in the interest rate yield curve during 2019, compared to an upward shift in the yield curve in 2018;
net realized and unrealized losses on equity investments trading of $39.2 million in 2018, compared to net realized and unrealized gains of $119.5 million in 2017, a decrease of $158.7 million, principally driven by lower returns on certain of our larger equity positions during 2018.