Net earnings increased $131 million or 20% in 1998, including an increase in after-tax net realized gains on investments of $75 million. Excluding after-tax net realized gains on investments, net earnings increased $56 million or 12% in 1998. This increase was primarily attributable to a $75 million increase in net investment income, primarily due to the acquisitions of Medical Protective and Kemper Re and continued growth in the investment portfolios, and a $47 million increase in other revenues, primarily due to an increase in revenues generated from investment-related life reinsurance products and financial reinsurance transactions. These increases were partially offset by a decrease in underwriting results reflecting increased underwriting and operating expenses associated with the acquisitions and continued competitive market conditions.
Net premiums written in 1997 were $4,545 million compared to $4,573 million in 1996. The slight decrease was primarily attributable to a decrease in international P&C net premiums written reflecting competitive market conditions, the repositioning of certain portfolios to minimize loss accumulations and the impact of foreign currency translation in association with the strengthening of the U.S. dollar. This decrease in international P&C net premiums written was substantially offset by an increase in domestic business reflecting strong growth in life reinsurance business and the assumption of the renewal rights of a portfolio of specialty P&C business obtained as a result of GE Capital Corporation's acquisition of the renewal rights of business from Coregis.
Net earnings increased $81 million or 14% in 1997, including an increase in after-tax net realized gains on investments of $49 million. Excluding after-tax net realized gains on investments, net earnings increased $32 million or 7% in 1997. This increase was primarily attributable to a $73 million increase in net investment income, primarily due to continued growth in the investment portfolios, and a $61 million increase in other revenues, primarily due to an increase in revenues generated from investment-related life reinsurance products and financial reinsurance transactions. These increases were partially offset by a decrease in P&C underwriting results reflecting increased underwriting and operating expenses and competitive market conditions.
Net premiums written increased $690 million or 38% in 1998, primarily attributable to growth in various product lines, including new P&C business associated with the acquisition of the renewal rights of business from IRI and Coregis and the acquisitions of Medical Protective and Kemper Re, partially offset by continued competitive market conditions. Net premiums written increased $68 million or 4% in 1997, primarily attributable to new business associated with GE Capital Corporation's acquisition of the renewal rights of business from Coregis and growth in the national accounts business, partially offset by the termination of certain long-term disability business and continued competitive market conditions.
The lower combined ratio in 1998 primarily reflects a general reduction in incurred losses caused by a decline in both the frequency and overall severity of claims, partially offset by an increase in hurricane and other weather-related catastrophe losses. The lower combined ratio in 1997 primarily reflects a reduction in catastrophe costs due to a decline in both the frequency and severity of catastrophe losses, although it was moderately impacted by an increase in underwriting and operating costs associated with the implementation of new strategic business initiatives.
Earnings before income taxes, excluding net realized gains on investments, increased $13 million or 5% in 1998, primarily attributable to the decrease in the combined ratio and the increase in net investment income discussed above. Earnings before income taxes, excluding net realized gains on investments, increased $31 million or 13% in 1997, primarily attributable to the decrease in the combined ratio discussed above.
Net premiums written increased $705 million or 42% in 1998, primarily attributable to growth in various product lines, including new P&C business associated with the acquisition of Kemper Re, partially offset by the impact of foreign currency translation in association with the strengthening of the U.S. dollar and continued competitive market conditions. Net premiums written decreased $512 million or 23% in 1997, including an approximate $235 million decrease resulting from foreign currency translation in association with the strengthening of the U.S. dollar. Excluding the impact of foreign currency translation, net premiums written decreased approximately $277 million in 1997 reflecting a $58 million increase in ceded premium resulting from an expanded retrocession program, the repositioning of certain portfolios to minimize loss accumulations and a general decrease in premium rates associated with competitive market conditions.
Revenues, which consist of net premiums earned, net investment income, net realized gains on investments and other revenues, including fees generated from investment-related life reinsurance products and financial reinsurance transactions, increased $242 million or 19% in 1998. This increase was primarily attributable to growth in the traditional life and credit life business and fees generated from investment-related life reinsurance products and financial reinsurance transactions. Revenues increased $402 million or 46% in 1997, primarily attributable to growth in the domestic traditional life and credit life business, principally related to four significant quota share reinsurance contracts, and fees generated from investment-related life reinsurance products and financial reinsurance transactions.
Earnings before income taxes increased $5 million or 3% in 1998, including a $9 million decrease in net realized gains on investments. Excluding net realized gains on investments, earnings before income taxes increased $14 million or 13% in 1998, primarily attributable to an increase in net investment income, primarily due to continued growth in the investment portfolios, and fees generated from investment-related life reinsurance products and financial reinsurance tranactions. Earnings before income taxes increased $34 million in 1997, including a $20 million increase in net realized gains on investments. Excluding net realized gains on investments, earnings before income taxes increased $14 million in 1997, primarily attributable to an increase in net investment income, primarily due to continued growth in the investment portfolios, and fees generated from investment-related life reinsurance products and financial reinsurance transactions.
GE Global Insurance's ability to meet its obligations, including debt service and operating expenses, and pay dividends to its shareholder depends primarily upon its receipt of sufficient funds from its insurance subsidiaries. The payment of dividends by ERC and Kemper Re are subject to restrictions set forth in the insurance laws of Missouri and Illinois, respectively, as well as other restrictions. Historically, the Company's liquidity requirements have been met by funds provided from operations and from the maturity and sales of investments.
Cash flows used for investing activities decreased $423 million in 1998, primarily attributable to an increase in the maturity and sales of investments, partially offset by the acquisitions of Medical Protective and Kemper Re. Cash flows used for investing activities increased $290 million in 1997, primarily attributable to the purchase of other invested assets and the acquisition of minority shares associated with the Company's 1995 acquisition of Frankona Ruckversicherungs-Aktiengesellschaft ("Frankona Re").
Cash flows from financing activities increased $182 million in 1998, primarily attributable to an increase in the proceeds from short-term borrowings associated with the acquisitions of Medical Protective and Kemper Re, partially offset by the change in contract deposits associated with the commutation of a financial reinsurance treaty and an increase in dividends paid to affiliates. Cash flows from financing activities decreased $47 million in 1997, primarily attributable to an increase in dividends paid to affiliates, partially offset by the change in contract deposits and an increase in the proceeds from short-term borrowings.
On a worldwide basis, the Company manages 64% of its investments internally. General Electric Investment Corporation manages an additional 15% of the Company's investments, and the balance is managed by unaffiliated outside managers.
The Company's emphasis on investment quality is evidenced by the preceding table, which indicates that the bonds in the Company's investment portfolios are principally invested in either U.S. government and government agency securities or issues rated "A" or above. The Canadian securities held by the Company are similar in quality to the other securities held in its domestic property and casualty portfolio. Bonds held by the Company in its domestic life portfolios include mortgage-backed and other asset-backed securities that are matched to the liability profile of specific life reinsurance contracts. Investments in mortgage-backed and other asset-backed securities are limited to lower risk tranches and do not include any interest only or principal only elements. Mortgage-backed and other asset-backed securities in the Company's investment portfolio were principally issued by Federal agencies. The balance of the other securities held in the domestic life portfolios are principally U.S. government and government agency securities and other bonds with an investment grade rating. The Company does not contemplate significant additional investment in non-investment grade securities in either the property and casualty or life portfolios.
The principal objective of the ERC Frankona Group's investment policy is to manage the investment portfolios on a total return basis taking into consideration the duration and currency structure of the ERC Frankona Group's reinsurance liabilities. The ERC Frankona Group's investment portfolios are geographically diversified with investments principally from the major European markets and the United States.
As of December 31, 1998, the fair value of the ERC Frankona Group's investments totaled $7,256 million, an increase of $891 million from December 31, 1997. The composition of ERC Frankona Group's investments is summarized as follows:
The Company utilizes various financial instruments, such as currency and interest rate swaps, options and currency forwards to manage risks. The Company is exclusively an end user of these financial instruments, which are commonly referred to as derivatives. The Company does not engage in any derivatives trading, market-making or other speculative activities in the derivative markets.
The scope of the global Year 2000 effort encompasses many thousands of applications and computer programs; products and services; facilities and facilities-related equipment; suppliers and customers. Business operations are also affected by the Year 2000 readiness of customers and infrastructure suppliers in areas such as utilities, communications, transportation and other services. In this environment, there will likely be instances of failure that could cause disruptions in business processes for the Company's businesses, affect their customers' ability to repay amounts owed or result in an increased level of insurance claims activity. The likelihood and effects of failures in the customer base, infrastructure systems and in the supply chain cannot be estimated. However, with respect to operations under its direct control, management does not expect, in view of its Year 2000 program efforts and the diversity of its businesses, suppliers and customers, that occurrences of Year 2000 failures will have a material adverse effect on the results of operations, financial position or liquidity of the Company.
Including amounts attributable to recent acquisitions, total Year 2000 remediation expenditures are expected to be approximately $4 million, of which approximately 90% was spent by the end of 1998. Substantially all of the remainder is expected to be spent in 1999. Most of these costs are not likely to be incremental costs, but rather will represent the redeployment of existing resources. The activities involved in the Year 2000 effort necessarily involve estimates and projections of activities and resources that will be required in the future. These estimates and projections could change as work progresses.