The following tables set forth our selected consolidated financial data and other financial information at the end of and for each of the years in the five-year period ended December 31, 2017.
Statement of income data and balance sheet data are derived from our audited Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. These historical results are not necessarily indicative of results to be expected from any future period. For further discussion of this risk, see Item 1A. "Risk Factors" in this Annual Report on Form 10-K. You should read the following selected financial data in conjunction with the other information contained in this Annual Report on Form 10-K, including
The following are strategic and capital transactions that occurred during the years ended December 31, 2017 and 2016.
On September 15, 2016, the Parent Company's $165.0 million mandatory convertible Preference Shares - Series B were automatically converted into 12,069,090 of the Parent Company's common shares at a conversion rate of 3.6573 per preference share.
The sum of the Company's principal amount of debt and Maiden shareholders' equity. See "Key Financial Measures" for additional information.
Non-GAAP operating (loss) earnings and non-GAAP diluted operating (loss) earnings per common share: Management believes that the use of non-GAAP operating (loss) earnings and non-GAAP diluted operating (loss) earnings per share enables investors and other users of the Company’s financial information to analyze its performance in a manner similar to how management analyzes performance. Management also believes that these measures generally follow industry practice and, therefore, allow the users of financial information to compare the Company’s performance with its industry peer group, and that the equity analysts and certain rating agencies which follow the Company, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons. Non-GAAP operating (loss) earnings should not be viewed as a substitute for U.S. GAAP net (loss) income.
Underwriting (loss) income is a non-GAAP measure and is calculated as net premiums earned plus other insurance revenue less net loss and LAE, commission and other acquisition expenses and general and administrative expenses directly related to underwriting activities. Management believes that this measure is important in evaluating the underwriting performance of the Company and its segments. This measure is also a useful tool to measure the profitability of the Company separately from the investment results and is also a widely used performance indicator in the insurance industry. A reconciliation of the Company's underwriting results can be found in the Company's Consolidated Financial Statements. Please refer to "Notes to Consolidated Financial Statements Note 3. Segment Reporting" included under Item 8 "Financial Statements and Supplementary Data" of this Form 10-K for further details.
Non-GAAP operating (loss) earnings and non-GAAP diluted operating (loss) earnings per common share can be reconciled to the nearest U.S. GAAP financial measure as follows:
Non-GAAP operating (loss) earnings attributable to Maiden common shareholders decreased by $202.2 million for the year ended December 31, 2017 compared to the same period in 2016. This decrease was largely due to $321.5 million of adverse prior year loss development as well as higher initial current year loss ratios during the year ended December 31, 2017 in both of our operating segments. More than half of the adverse development was due to a $171.0 million reserve charge implemented in the fourth quarter of 2017. AmTrust Reinsurance segment's Workers' Compensation business represented about 39.4% of the adverse development with the balance primarily from AmTrust Reinsurance segment's General Liability business and two large Commercial Auto accounts in the Diversified Reinsurance segment's US business unit. The decline in underwriting income during the year ended December 31, 2017 was partially offset by the $20.5 million increase in net investment income.
Non-GAAP operating (loss) earnings attributable to Maiden common shareholders decreased by $89.9 million for the year ended December 31, 2016 compared to the same period in 2015. This decrease was largely due to $165.3 million of adverse reserve development during 2016, primarily related to our commercial auto line of business. The decline in underwriting results in 2016 was partially offset by the $14.8 million increase in net investment income.
Non-GAAP Operating ROACE for the years ended December 31, 2017, 2016 and 2015 was computed as follows:
Book Value per Common Share and Diluted Book Value per Common Share: Management uses growth in both of these metrics as a prime measure of the value we are generating for our common shareholders, as management believes that growth in each metric ultimately results in growth in the Company’s common share price. These metrics are impacted by the Company’s net (loss) income and external factors, such as interest rates, which can drive changes in unrealized gains or losses on our investment portfolio and share repurchases which amounted to $25.7 million during the year ended December 31, 2017. At December 31, 2017, book value per common share decreased by 23.7% and diluted book value per common share decreased by 23.5%, compared to December 31, 2016, (see "Liquidity and Capital Resources - Investments" on page 73 for further information).
Ratio of Debt to Total Capital Resources: Management uses this non-GAAP measure to monitor the financial leverage of the Company. This measure is calculated using total principal amount of debt divided by the sum of total capital resources. On June 27, 2017, we fully redeemed all of the 2012 Senior Notes using a portion of the proceeds from the Preference Shares - Series D issuance (see related discussions in "Notes to Consolidated Financial Statements, Note 7. Long-Term Debt and Note 13. Shareholders' Equity") included under Item 8 "Financial Statement and Supplementary Data". The ratio of Debt to Total Capital Resources at December 31, 2017 and 2016 was computed as follows:
We derive our revenues primarily from premiums on reinsurance contracts, net of any reinsurance or retrocessional coverage purchased and to a minor extent from premiums from insurance policies. Reinsurance premiums are a function of the amount and types of policies and contracts we write, as well as prevailing market prices. Our prices are determined before our ultimate costs, which may extend far into the future, are known.
The Company's revenues also include fee income as well as income generated from our investment portfolio. The Company's investment portfolio is comprised of fixed maturity investments, currently held as AFS and HTM, and other investments. In accordance with U.S. GAAP, these investments, except for HTM fixed maturities, are carried at fair market value and unrealized gains and losses are excluded from earnings. These unrealized gains and losses are included on the Company's Consolidated Balance Sheet in accumulated other comprehensive income ("AOCI") as a separate component of shareholders' equity. If unrealized losses are considered to be other-than-temporarily impaired due to a credit event, such losses are included in earnings as a realized loss.
change in IBNR reserves, which we establish to respond to changes in the values of claims that have been reported to us but are not yet settled, as well as claims that have occurred but have not yet been reported to us. The portion recoverable from reinsurers is deducted from the gross estimated loss.
Commission and other acquisition expenses include commissions, brokerage fees and insurance taxes. Commissions and brokerage fees are usually calculated as a percentage of premiums and depend on the market and line of business and can, in certain instances, vary based on loss sensitive features of reinsurance contracts. Commission and other acquisition expenses are reported after: (1) deducting commissions received on ceded reinsurance; (2) deducting the part of commission and other acquisition expenses relating to unearned premiums; and (3) including the amortization of previously deferred commission and other acquisition expenses.
For excess of loss treaties, cedants generally are required to report losses that either (i) exceed 50% of their retention; or (ii) have a reasonable probability of exceeding the retention; or (iii) meet defined reporting criteria. All reinsurance claims that are reserved are reviewed at least every six months. In addition, reserves for loss and LAE are reviewed every quarter for each cedant. For proportional treaties, cedants are required to give a periodic statement of account, generally monthly or quarterly. These periodic statements typically include information regarding written premiums, earned premiums, unearned premiums, ceding commissions, brokerage amounts, applicable taxes, paid losses and outstanding losses. They can be submitted up to 90 days after the close of the reporting period. Some proportional treaties have specific language requiring earlier notice of serious claims.
For all lines, the Company’s objective is to estimate ultimate loss and LAE. Total loss reserves are then calculated by subtracting losses paid. Similarly, IBNR reserves are calculated by subtracting case reserves from total loss reserves. IBNR is the estimated liability for (1) changes in the values of claims that have been reported to us but are not yet settled, as well as (2) claims that have occurred but have not yet been reported as well as (3) claims that are closed but subsequently reopened. Each claim is settled individually based upon its merits, and particularly for longer-tailed lines of business, it is not unusual for a claim to take years after being reported to settle, especially if legal action is involved. As a result, the reserve for loss and LAE include significant estimates for IBNR reserves.
In selecting management's best estimate of loss and LAE reserves, we consider the range of results produced by many actuarial methods and the appropriateness of those estimates. These methodologies are described in "Notes to Consolidated Financial Statements Note 9. Reserve for Loss and Loss Adjustment Expenses" included under Item 8 "Financial Statement and Supplementary Data".
The reserve for loss and LAE at December 31, 2017 and 2016 was as follows:
In our Diversified Reinsurance segment, the Company’s executive and technical management, including Claims, Underwriting and Actuarial, have significant experience with this book of business, which also has more than 30 years of loss experience associated with it. In general for our Diversified Reinsurance segment, we utilize the Expected Loss Ratio ("ELR") approach at the onset of reserving an account, the Bornhuetter-Ferguson ("BF") method for business with less but maturing loss experience, and as the experience matures the Loss Development ("LD") method. For proportional business the Company relies heavily on the actual contract experience, whereas for excess of loss business there will be more usage of industry and/or Company specific benchmark assumptions.
Significant Assumptions Employed in the Estimation of Reserve for Loss and Loss Adjustment Expenses: The most significant assumptions used at December 31, 2017 to estimate the reserve for loss and LAE within the Company’s segments are as follows:
The above four assumptions most significantly influence the Company’s determination of initial expected loss ratios and expected loss reporting patterns that are the key inputs which impact potential variability in the estimate of the reserve for loss and LAE and are applicable to each of the Company’s business segments. These factors are combined with the actuarial judgment exercised by our reserving actuaries, and validated by the external review of our reserving levels. While there can be no assurance that any of the above assumptions will prove to be correct, we believe that this process represents a realistic and appropriate basis for estimating the reserve for loss and LAE. Loss emergence factors and expected loss ratios used in the reserving process are
based on a blend of our own experience, cedant experience and industry benchmarks, when appropriate. The benchmarks selected were those that we believe are most similar to our underwriting business.
Factors Creating Uncertainty in the Estimation of the Reserve for Loss and Loss Adjustment Expenses: While management does not at this time include an explicit or implicit provision for uncertainty in its reserve for loss and LAE, certain of the Company’s business lines are by their nature subject to additional uncertainties, which are discussed in detail below. In addition, the Company’s reserves are subject to additional factors which add to the uncertainty of estimating reserve for loss and LAE. Time lags in the reporting of losses can also introduce further ambiguity to the process of estimating reserve for loss and LAE.
changes in the social environment regarding the general attitude of juries in the determination of liability and damages;
Contracts and policies written on a "losses occurring" basis cover claims that may occur during the term of the contract or policy, which is typically 12 months. Accordingly, the premium is earned evenly over the term. Contracts which are written on a "risks attaching" basis cover claims from all underlying insurance policies written during the terms of such contracts. Premiums earned on such contracts extend beyond the original term of the reinsurance contract, typically resulting in recognition of premiums earned over a 24-month period.
Reinsurance premiums on specialty risk and extended warranty are earned based on the estimated program coverage period. These estimates are based on the expected distribution of coverage periods by contract at inception, because a single contract may contain multiple coverage period options and these estimates are revised based on the actual coverage period selected by the original insured.
Assessing whether or not a reinsurance contract meets the condition for risk transfer requires judgment. The determination of risk transfer is critical to reporting premiums written and is based, in part, on the use of actuarial and pricing models and assumptions. If we determine that a reinsurance contract does not transfer sufficient risk, we account for the contract as deposit liability rather than a premium written.
During 2016, the Company wrote off the goodwill relating to the acquisition of a majority interest in Regulatory Capital Limited, which was deemed to be permanently impaired. The Company recognized an impairment loss of $1.8 million as a result. The following table shows the analysis of goodwill and intangible assets:
In making an assessment of the value of its goodwill and intangible assets, the Company uses both market based and non-market based valuations. Assumptions underlying these valuations include an analysis of the Company’s share price relative to both its book value and its net income in addition to forecasts of future cash flows and future profits. Significant changes in the data underlying these assumptions could result in an assessment of impairment of the Company’s goodwill asset. In addition, if the current economic environment and/or the Company’s financial performance were to deteriorate significantly, this could lead to an impairment of goodwill and intangible, the write-off of which would be recorded against net income in the period such deterioration occurred. If a 5% decline in the fair value of the reporting units occurred, this would not result in an impairment of the goodwill asset at December 31, 2017.
Underwriting related general and administrative expenses is a non-GAAP measure. Please refer to "General and Administrative Expenses" below for additional information related to these corporate expenses and the reconciliation to those presented in our Condensed Consolidated Statements of Income.
Adverse development of prior year losses of $321.5 million in 2017 compared to $165.3 million for the same period in 2016. This development, which is discussed in greater detail in the individual segment discussion and analysis, was primarily in our AmTrust Reinsurance segment, but adverse prior year development was also experienced in our Diversified Reinsurance Segment and Other category (as discussed below); and
foreign exchange losses of $14.9 million for the year ended December 31, 2017 compared to foreign exchange gains of $11.6 million for the same period in 2016 due to the strengthening of euro and British pound against the U.S. dollar.
an increase in net investment income of $20.5 million or 14.0% for the year ended December 31, 2017 compared to the same period in 2016. This increase reflects the growth in average invested assets of 8.6% from the same period in 2016 and increase in average yields to 3.1% during the year ended December 31, 2017 compared to 3.0% during the same period in 2016. Additionally, part of the increase is attributable to the call of certain securities which generated additional amortization income of $7.2 million during the period compared to $2.0 million of calls in the comparative period; and
decrease in underwriting income of $97.7 million as a result of $165.3 million of adverse prior year development primarily in commercial auto liability across the portfolio. In the Diversified Reinsurance segment, commercial auto liability incurred losses were greater than expected in both excess of loss and quota share accounts so $96.8 million of adverse loss development was recorded for the full year. In the AmTrust Reinsurance segment, we recorded $54.0 million of adverse reserve development for the full year, primarily related to higher than expected commercial auto and general liability loss emergence in program business. Finally, we recorded a $14.6 million increase in additional IBNR reserves relating to the run-off of our NGHC contract; and
The decreases above were offset by an increase in investment income of $14.8 million or 11.3%, for the year ended December 31, 2016 compared to the same period in 2015. This increase reflects the growth in average investable assets of 12.9%.
Net premiums written increased by $107.0 million, or 4.0%, for the year ended December 31, 2017 compared to the same period in 2016. The table below compares net premiums written by our reportable segments, reconciled to the total consolidated net premiums written, for the years ended December 31, 2017 and 2016:
Net premiums written increased by $140.8 million, or 5.6%, for the year ended December 31, 2016 compared to the same period in 2015. The table below compares net premiums written by our reportable segments, reconciled to the total consolidated net premiums written, for the years ended December 31, 2016 and 2015:
The $109.1 million increase in net premiums written in our AmTrust Reinsurance segment for the year ended December 31, 2016 compared to the same period in 2015 is due to organic growth as well as acquisitions made by AmTrust, partially offset by the impact of the 2015 partial commutation.
The $31.3 million increase in net premiums written in our Diversified Reinsurance segment for the year ended December 31, 2016 compared to the same period in 2015 was mainly due to growth in our Diversified Reinsurance segment's U.S. casualty and accident and health premiums and treaty contracts written in Europe by Maiden Bermuda in 2016.
Net Investment Income - Net investment income increased by $20.5 million, or 14.0%, for the year ended December 31, 2017 compared to the same period in 2016, due to the growth in average invested assets of 8.6%. Additionally, a portion of the increase in net investment income is attributable to the call of certain securities during the year ended December 31, 2017, which generated additional amortization income of $7.2 million (2016 - $2.0 million).
Net Realized Gains on Investment - Net realized gains on investment were $12.2 million for the year ended December 31, 2017, compared to $6.8 million for the same period in 2016.
Net Realized Gains on Investment - Net realized gains on investment were $6.8 million for the year ended December 31, 2016, compared to $2.5 million for the same period in 2015.
The impact on the net loss and LAE ratios in each period should be considered in conjunction with the commission and other acquisition expense ratio as changes to either ratio can be affected by changes in the mix of business and the impact of the change in the commission and other acquisition expense rates on quota share contracts with loss sensitive features. As a result of these factors, as well as the adverse prior year loss development experienced in both the Diversified Reinsurance and AmTrust Reinsurance segments and our run-off business, the combined ratio increased by 8.1 points for the year ended December 31, 2017 compared to 2016.
Net loss and LAE increased by $186.3 million, or 11.4%, for the year ended December 31, 2016 compared to 2015. This increase reflects the continued growth of the business combined with $165.3 million of adverse reserve development experienced in both our Diversified Reinsurance and AmTrust Reinsurance segments as well as in our NGHC run-off business during 2016.
Commission and other acquisition expenses increased by $47.1 million or 6.1% for the year ended December 31, 2017 compared to 2016. The commission and other acquisition expense ratios slightly decreased to 29.9% for the year ended December 31, 2017 from the same period in 2016. The commission and other acquisition expense ratio is largely dependent on the mix of business within the AmTrust Reinsurance segment and the mix of pro-rata and excess of loss business as well as the impact of loss sensitive features in some contracts within the Diversified Reinsurance segment. Please refer to the reasons for the changes in the combined ratio discussed in the Net Loss and Loss Adjustment Expenses section above.
Commission and other acquisition expenses increased by $49.5 million, or 6.8%, for the year ended December 31, 2016 compared to December 31, 2015. The commission and other acquisition expense ratio increased to 30.0% for the year December 31, 2016 compared to 29.7% for the same period in 2015. Please refer to the reasons for the changes in the combined ratio discussed in the Net Loss and Loss Adjustment Expenses section above.
Total general and administrative expenses increased by $3.6 million, or 5.3%, for the year ended December 31, 2017 compared to 2016 due to increases in legal, other professional fees and technology-related expenses offset by a decrease in employee related expenses. The general and administrative expense ratio remained flat at 2.6% for the years ended December 31, 2017 and 2016.
The interest and amortization expenses related to our Senior Notes were $28.2 million for the year ended December 31, 2016 compared to $29.1 million for the same period in 2015. The weighted average effective interest rate for the Company's debt was 8.02% for the year ended December 31, 2016 compared to 8.25% in 2015. Please refer to "Notes to Consolidated Financial Statements Note 7. Long Term Debt" for details on the Company’s Senior Notes.
Excluding prior year loss development, the combined ratio for 2017 would have been 98.6% compared to 96.2% for 2016, reflecting higher initial expected loss ratios for premiums earned during the period.
Net premiums earned increased by $99.2 million, or 13.7%, during the year ended December 31, 2017 compared to the same period in 2016. The table below shows net premiums earned by line of business:
The net loss and LAE ratio decrease for the year ended December 31, 2017 was due to the following:
Adverse prior year loss development of $71.4 million during 2017, compared to $96.8 million recorded in the same period in 2016. The 2017 development was largely due to higher than expected loss emergence emanating largely from commercial auto as well as certain specific contracts across several lines of business, with over half of the development coming from two accounts. The 2016 adverse prior year development was primarily from the commercial auto liability line of business in Maiden US of $85.7 million.
Commission and Other Acquisition Expenses - Commission and other acquisition expenses increased by $17.5 million, or 9.3%, for the year ended December 31, 2017 compared to 2016. The commission and other acquisition expense ratios decreased to 24.7% for the year ended December 31, 2017 compared to 25.6% for the same period in 2016. The decrease in ratios for the year ended December 31, 2017 was primarily due to the change in the mix of pro rata versus excess of loss premiums written. Please refer to the reasons for the changes in the combined ratio discussed in the preceding paragraph.
General and Administrative Expenses - General and administrative expenses increased by $0.1 million, or 0.4%, for the year ended December 31, 2017 compared to 2016. The general and administrative expense ratio was 4.3% and 4.9% for the years ended December 31, 2017 and 2016, respectively. The overall expense ratio (including commission and other acquisition expenses) was 29.0% and 30.5% for the years ended December 31, 2017 and 2016, respectively.
The combined ratio increased to 109.4% for the year ended December 31, 2016 compared to 103.0% for the year ended December 31, 2015. Reserve development in commercial auto continued to unfavorably impact our Diversified Reinsurance segment resulting in underwriting losses.
Premiums - Gross premiums written increased by $47.5 million, or 6.1% for the year ended December 31, 2016 compared to the same period in 2015. The increase was primarily due to growth resulting from existing client accounts and premium from new customers won throughout the year as well as the new European treaty contracts written by Maiden Bermuda in 2016.
Net premiums written increased by $31.3 million or 4.3%, for the year December 31, 2016, compared to the same period in 2015 due to the same circumstances as described above related to this segment's gross premiums written. The table below illustrates net premiums written by line of business in this segment:
General and Administrative Expenses - General and administrative expenses increased by $0.4 million, or 1.0%, for the year ended December 31, 2016 compared to 2015. The general and administrative expense ratio was 4.9% and 4.7% for the years ended
December 31, 2016 and 2015, respectively. The overall expense ratio (including commission and other acquisition expenses) was 30.5% and 30.7% for the years ended December 31, 2016 and 2015, respectively.
The AmTrust Reinsurance segment experienced an increase in the combined ratio to 110.8% for the year ended December 31, 2017 compared to 98.4% during the same period in 2016 due to the following:
Adverse prior year loss development of $239.9 million during 2017 compared to $54.0 million recorded in 2016. More than half of the prior year loss development in 2017 was from workers' compensation, the largest line of business in the AmTrust Reinsurance segment. Other significant adverse loss development occurred during 2017 in the general liability and, to a lesser extent, commercial auto lines of business in AmTrust's Specialty Program and Small Commercial Business segments. The 2016 loss development was largely due to a fourth quarter reserve charge of $52.0 million related primarily to program commercial auto as well as program general liability.
Excluding prior year loss development, the combined ratio for the current period in 2017 was 98.3% compared to 95.5% for 2016, reflecting higher initial expected loss ratios for premiums earned during the period.
Premiums - Net premiums written in our AmTrust Reinsurance segment increased by $66.4 million or 3.5% during the year ended December 31, 2017 compared to the same period in 2016. The table below shows net premiums written by line of business for the years ended December 31, 2017 and 2016:
The increase in net premiums written was due to the lower utilization of retrocessional capacity in 2017, which decreased by $79.6 million compared to 2016. The retention ratio of written premiums increased to 98.1% for the year ended December 31, 2017 compared to 94.1% for the same period in 2016. In addition, gross premiums written decreased by $13.2 million or 0.7% for the year ended December 31, 2017 compared to the same period in 2016. The decrease in gross premiums written reflects the
reductions in AmTrust's Specialty Risk & Warranty segment primarily due to continued declines in premium associated with its European Hospital Liability business. AmTrust's Small Commercial and Specialty Program segments are experiencing slower rates of organic growth due to market conditions and underwriting initiatives focused on improving the profitability of these classes of business.
Net Loss and Loss Adjustment Expenses - Net loss and LAE increased by $273.1 million, or 22.3%, for the year ended December 31, 2017 compared to the same period in 2016. Net loss and LAE ratios were 78.4% and 66.5% for the years ended December 31, 2017 and 2016, respectively. The net loss and LAE ratio for the year ended December 31, 2017 increased primarily due to the following:
Adverse prior year loss development of $239.9 million during 2017, compared to $54.0 million recorded in 2016. More than half of the adverse prior year loss development in 2017 was from workers' compensation, the largest line of business in the AmTrust Reinsurance segment. Other significant drivers during 2017 were general liability and, to a lesser extent, commercial auto from both Specialty Program and Small Commercial Business. The 2016 adverse prior year development was largely due to a fourth quarter reserve charge of $52.0 million related primarily to program commercial auto as well as program general liability reserves; and
General and Administrative Expenses - General and administrative expenses increased by $0.2 million, or 5.4%, for the year ended December 31, 2017 compared to the same period in 2016. The general and administrative expense ratio has remained unchanged at 0.2% for the years ended December 31, 2017 and 2016, respectively. The overall expense ratio (including commission and other acquisition expenses) was 32.4% and 31.9% for the years ended December 31, 2017 and 2016, respectively.
Premiums - Gross premiums written increased by $120.7 million or 6.4% for the year ended December 31, 2016 compared to the same period in 2015. Growth in our AmTrust Reinsurance segment is due to additional 2016 premium relating to acquisitions made by AmTrust that were ceded to us for the first time, ongoing organic growth and also reflects the removal of certain classes of business which we commuted with AmTrust in the fourth quarter of 2015. The table below shows net premiums written by line of business for the years ended December 31, 2016 and 2015:
Net premiums earned increased by $159.4 million, or 9.5% for the year ended December 31, 2016 compared to the same period in 2015. The increase is primarily due to AmTrust's prior year written premium growth. The table below details net premiums earned by line of business for the years ended December 31, 2016 and 2015:
The amount of dividends that can be distributed from Maiden Bermuda is, under certain circumstances, limited under Bermuda law and Bermuda regulatory requirements, which requires our Bermuda operating subsidiary to maintain certain measures of solvency and liquidity in accordance with the BSCR. At December 31, 2017, the statutory capital and surplus of Maiden Bermuda was $1,206.0 million. Maiden Bermuda is allowed to pay dividends or distributions not exceeding $301.5 million. During 2017 and 2016, Maiden Bermuda paid dividends of $105.0 million and $445.0 million, respectively, to Maiden Holdings.
Cash flows from operations for the year ended December 31, 2017 were $458.5 million compared to $470.1 million for the year ended December 31, 2016, a 2.5% decrease. In 2016, operating cash flows were reduced by the settlement of a $107.0 million commutation with AmTrust. Excluding the impact of the commutation, cash flows from operations for the year ended December 31, 2017 were $118.6 million or 20.5% lower compared to the same period in 2016. This net decrease was the result of higher payment of losses and decline in gross premiums written in 2017 compared to 2016, offset by the increase in reserves for loss and LAE during the year ended December 31, 2017 of $187.8 million, which reflects the adverse prior year development recognized during 2017.
Cash flows used in financing activities were $60.4 million for the year ended December 31, 2017 compared to $76.8 million for the same period in 2016. The decrease in net cash outflow for the year ended December 31, 2017 compared to the same period in 2016 was due to the issuance of new preference shares with net proceeds of $144.9 million, which was partially used to redeem the 2012 senior notes issuance of $100.0 million. The net proceeds from the preference share issue were also offset by the repurchase of common shares of $25.7 million during 2017, the bulk of which was made under the Company's authorized share repurchase program. In addition, there was a decrease in dividends paid on preference shares of $4.6 million due to the mandatory conversion of Preference Shares Series B to Maiden's common shares during the third quarter of 2016, offset by the increase in dividends paid to common shareholders of $8.5 million due to an increased number of common shares outstanding as well as a higher dividend rate in 2017.
At December 31, 2017 and 2016, restricted cash and cash equivalents and fixed maturity investments used as collateral were $4.9 billion and $4.4 billion, respectively. This collateral represents 90.8% and 90.0% of the fair value of our total fixed maturity investments and cash and cash equivalents (including restricted cash and cash equivalents) at December 31, 2017 and 2016, respectively. The $469.7 million increase was primarily attributable to the increase in assets provided as collateral for the AmTrust Reinsurance segment reflecting continued growth in both premiums and reserves.
The following table details additional information on those assets used as collateral at December 31, 2017 and 2016:
Maiden Bermuda has also loaned funds to AmTrust totaling $168.0 million at December 31, 2017 and 2016, respectively, to partially satisfy its collateral requirements with AII. Advances under the loan have been secured by promissory notes and the loan is carried at cost.
Collateral arrangements with ceding insurers may subject our assets to security interests or require that a portion of our assets be pledged to, or otherwise held by, third parties. Both our trust accounts and letters of credit are fully collateralized by assets held in custodial accounts. Although the investment income derived from our assets, while held in trust, accrues to our benefit, the investment of these assets is governed by the terms of the letter of credit facilities or the investment regulations of the state or territory of domicile of the ceding insurer, which may be more restrictive than the investment regulations applicable to us under Bermuda law. The restrictions may result in lower investment yields on these assets, which may adversely affect our profitability.
We do not currently anticipate that the restrictions on liquidity resulting from restrictions on the payments of dividends by our subsidiary companies or from assets committed in trust accounts or those assets used to collateralize the letter of credit facilities will have a material impact on our ability to carry out our normal business activities, including our ability to make dividend payments on our common and preference shares.
The movement in the market values of our AFS fixed maturity portfolio was a net gain of $50.4 million, primarily due to foreign exchange gains of $59.8 million arising mainly on our euro-denominated investment portfolio following the strengthening of the euro versus the U.S. dollar during the year ended December 31, 2017. Please see "Liquidity and Capital Resources - Capital Resources" on page 78 for further information.
At December 31, 2017, we consider the levels of cash and cash equivalents we are holding to be within our targeted ranges. During periods when interest rates experience greater volatility, we have periodically maintained more cash and cash equivalents in order to better assess current market conditions and opportunities within our defined risk appetite, and may do so in future periods.
During the year ended December 31, 2017, the weighted average duration of our fixed maturity investment portfolio decreased by 0.5 years to 4.4 years and the duration for reserve for loss and LAE decreased by 0.2 years to 3.6 years. The differential in duration between these assets and liabilities may fluctuate over time and, in the case of fixed maturities, is affected by factors such as market conditions, changes in asset mix and prepayment speeds in the case of both our agency MBS and commercial mortgage-backed securities ("CMBS"). The average yield and average duration of our fixed maturities, by asset class, and our cash and cash equivalents (restricted and unrestricted) are as follows:
Average yield is calculated by dividing annualized investment income for each sub-component of AFS and HTM securities and cash and cash equivalents (including amortization of premium or discount) by amortized cost.
The following table provides a summary of changes in fair value associated with our Agency MBS portfolio:
At December 31, 2017, the Company’s ten largest corporate holdings, all of which are U.S. dollar denominated and 69.6% of which are in the Financial Institutions sector, as carried at fair value and as a percentage of all fixed income securities, were as follows:
At December 31, 2017 and December 31, 2016, respectively, these non-U.S. securities are invested in the following currencies:
The net increase in non-U.S. dollar denominated fixed maturities is primarily due to purchases made during the year ended December 31, 2017. At December 31, 2017 and December 31, 2016, all of the Company's non-U.S. government and supranational issuers were rated A+ or higher by S&P. For our non-U.S. dollar denominated corporate bonds, the following table summarizes the composition of the fair value of our fixed maturity investments at the dates indicated by ratings:
net loss attributable to Maiden of $169.9 million. See "Results of Operations - Net Income" on page 60 for a discussion of the Company’s net loss for the year ended December 31, 2017;
dividends declared of $80.3 million related to the Company’s common and preferred shares;
net decrease in AOCI of $1.6 million which arose due to: 1) decrease in cumulative translation adjustments of $44.2 million due to the effect of the appreciation of the euro and British pound relative to the original currencies on our non-U.S. dollar net liabilities (excluding non-U.S. dollar denominated AFS fixed maturities); and offset by 2) an increase in net unrealized gains on investment of $42.6 million which arose from the net decrease in our U.S. dollar denominated investment portfolio of $17.2 million relating to market price movements and an increase in our non-U.S. dollar denominated investment portfolio of $59.8 million, primarily due to the strengthening of the euro and British pound relative to the U.S. dollar during 2017.
We have, and expect to continue, to fund a portion of our capital requirements through issuances of senior securities, including secured and unsecured debt securities, or issuances of common or preference shares. For flexibility, we have a current universal shelf registration statement that allows for the public offering and sale of our debt securities, common shares, preference shares and warrants to purchase such securities. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful.
The Company's principal operating subsidiaries are rated A (Excellent) with a stable outlook by A.M. Best and has remained unchanged throughout the reporting period. The rating of A (Excellent) is the third highest of sixteen rating levels.
On November 17, 2017, S&P lowered its long-term issuer credit and financial strength ratings on our principal operating subsidiaries to 'BBB' from 'BBB+' (Good). S&P also lowered our long-term issuer credit and senior debt ratings to 'BB+' from 'BBB-'. Subsequently, we requested that S&P withdraw its ratings of the Company. The outlook was negative at the time of withdrawal. Our withdrawal of the S&P rating did not have a material impact on opportunities in the subsequent months and there has not been a noticeable reduction in current underwriting opportunities.
(1) The Company leases office space, an apartment, equipment and vehicles under operating leases expiring in various years through 2022.
Net foreign exchange losses amounted to $14.9 million during the year ended December 31, 2017 compared to net foreign exchange gains of $13.4 million and $7.4 million during the years ended December 31, 2016 and 2015, respectively.
At December 31, 2017, we did not have any off-balance sheet arrangements as defined by Item 303(a) (4) of Regulation S-K.