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, 2018. The results of Platinum are included in our consolidated financial data from March 2, 2015. The selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes thereto and “Part II,
The following is a discussion and analysis of our results of operations for 2018 compared to 2017 and 2017 compared to 2016, respectively. The following also includes a discussion of our liquidity and capital resources at December 31, 2018. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto included in this filing. This filing contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from the results described or implied by these forward-looking statements. See “Note on Forward-Looking Statements.”
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, Ireland, Singapore, Switzerland, the U.K., and the U.S. Our operating subsidiaries include Renaissance Reinsurance, RenaissanceRe Specialty U.S., Renaissance Reinsurance U.S., Renaissance Reinsurance of Europe and Syndicate 1458. We also underwrite reinsurance on behalf of joint ventures, including Top Layer Re, Upsilon RFO, DaVinci, Vermeer and Fibonacci Re. In addition, through Medici, we invest in various insurance based investment instruments that have returns primarily tied to property catastrophe risk.
To best serve our clients in the places they do business, we have operating subsidiaries, joint ventures and underwriting platforms around the world, including DaVinci, Renaissance Reinsurance, Top Layer Re, Fibonacci Re, Upsilon RFO and Vermeer in Bermuda, Renaissance Reinsurance U.S. in the U.S., and Syndicate 1458 in the U.K. 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. Although each underwriting platform may write any or all of our classes of business, our Bermuda platform has traditionally written, and continues to write, the preponderance of our property business and our U.S. platform and Syndicate 1458 write a significant portion of our casualty and specialty business. 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.
Since a meaningful portion of the reinsurance and insurance we write provides protection from damages relating to natural and man-made catastrophes, our results depend to a large extent on the frequency and severity of such catastrophic events, and the coverages we offer to customers affected by these events. We are exposed to significant losses from these catastrophic events and other exposures we cover. Accordingly, we expect a significant degree of volatility in our financial results and our financial results may vary significantly from quarter-to-quarter and from year-to-year, based on the level of insured catastrophic losses occurring around the world. We view our exposure to casualty and specialty lines of business as an efficient use of capital given these risks are generally less correlated with our property lines of business. This has allowed us to bring additional capacity to our clients, across a wider range of product offerings, while continuing to be good stewards of our shareholders’ capital.
We continually explore appropriate and efficient ways to address the risk needs of our clients and the impact of various regulatory and legislative changes on our operations. We have created and managed, and continue to manage, multiple capital vehicles across a number of jurisdictions and may create additional risk bearing vehicles or enter into additional jurisdictions in the future. In addition, our differentiated strategy and capability position us to pursue bespoke or large solutions for clients, which may be non-recurring. This, and other factors including the timing of contract inception, could result in significant volatility of premiums in both our Property and Casualty and Specialty segments. As our product and geographical diversity increases, we may be exposed to new risks, uncertainties and sources of volatility.
Our estimates of losses from large events are based on factors including currently 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. The uncertainty of our estimates for large events is also impacted by the preliminary nature of the information available, the magnitude and relative infrequency of the events, the expected duration of the respective claims
Our reserving techniques, assumptions and processes differ among our Property and Casualty and Specialty segments. Refer to “Note 7. Reserve for Claims and Claim Expenses in our Notes to the 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, 2018 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 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, incurred claims and claim expenses associated with our 2011 accident year have developed favorably by $230.8 million, which is 18.3% better than our initial estimates of incurred claims and claim expenses for the 2011 accident year estimated as of December 31, 2011. This was largely driven by reductions in estimated ultimate claims and claim expenses associated with a number of large catastrophe events that occurred in 2011, including the Tohoku Earthquake, a number of large tornadoes in the U.S., the Australian Floods, Hurricane Irene and the Thailand Floods. In comparison, while net claims and claim expenses associated with the 2010 accident year initially developed favorably, it has experienced adverse development in the outer years. The adverse development in the outer years was driven by a deterioration in expected net claims and claim expenses associated with the 2010 New Zealand Earthquake as new and additional claims information was received. The 2010 New Zealand Earthquake has complex issues associated with establishing estimates of incurred claims and claim expenses, including the magnitude and relative infrequency of the event, the expected duration of the respective claims development period and inadequacies in the data provided by industry participants on the relevant date.
The table below shows the impact on our gross reserve for claims and claim expenses, net income and shareholders’ equity as of and for the year ended December 31, 2018 of a reasonable range of possible outcomes associated with our estimates of gross ultimate losses for claims and claim expenses incurred within our Property segment. The reasonable range of possible outcomes is based on a distribution of outcomes of our ultimate incurred claims and claim expenses from catastrophic events. In addition, we flex the loss ratios and development curves in our other property lines of business in a similar fashion to the
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 2011 accident year has experienced favorable development on prior accident years net claims and claim expenses for each subsequent calendar year-end. However, the favorable development experienced in the first few years was lower than the favorable development experienced in subsequent calendar years where the reserving methodology used changed to the Bornhuetter-Ferguson method as the experience became more credible.
The table below quantifies the impact on our gross reserves for claims and claim expenses, net income and shareholders’ equity as of and for the year ended December 31, 2018 of a reasonable range of possible outcomes in the actuarial assumptions used to estimate our December 31, 2018 claims and claim expense reserves within our Casualty and Specialty segment. The table quantifies a reasonable range of possible outcomes in our initial estimated gross ultimate claims and claim expense ratios and estimated loss reporting patterns. The impact on net income and shareholders’ equity assumes no increase or decrease in reinsurance recoveries, loss related premium or redeemable noncontrolling interest - DaVinciRe.
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.
We enter into retrocessional reinsurance agreements in order to help reduce our exposure to large losses and to help manage our risk portfolio. Amounts recoverable from reinsurers are estimated in a manner consistent with the claims and claim expense reserves associated with the related assumed reinsurance. For multi-year retrospectively rated contracts, we accrue amounts (either assets or liabilities) that are due to
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, 2018, our reinsurance recoverable balance was $2.4 billion (2017 - $1.6 billion). Of this amount, 60.8% is fully collateralized by our reinsurers, 38.0% is recoverable from reinsurers rated A- or higher by major rating agencies and 1.2% is recoverable from reinsurers rated lower than A- by major rating agencies (2017 - 54.5%, 44.5% and 1.0%, respectively). The increase in our reinsurance recoverable balance during 2018 was principally related to the 2018 Large Loss Events (as defined herein). Similarly, the increase during 2017 was primarily the result of reinsurance recoverables related to Hurricanes Harvey, Irma and Maria and the Mexico City Earthquake (the “Q3 2017 Catastrophe Events”), the wildfires in California during the fourth quarter of 2017 (the “Q4 2017 California Wildfires”) and losses associated with aggregate loss contracts (the “2017 Aggregate Losses” and collectively with the Q3 2017 Catastrophe Events and the Q4 2017 California Wildfires, the “2017 Large Loss Events”). The reinsurers with the three largest balances accounted for 15.5%, 6.7% and 6.5%, respectively, of our reinsurance recoverable balance at December 31, 2018 (2017 - 10.4%, 7.5% and 7.3%, respectively). The valuation allowance recorded against reinsurance recoverable was $9.0 million at December 31, 2018 (2017 - $7.0 million). The three largest company-specific components of the valuation allowance represented 16.2%, 14.8% and 12.3%, respectively, of our total valuation allowance at December 31, 2018 (2017 - 11.1%, 9.2% and 8.4%, respectively).
the acquisition of Platinum will not be amortized but instead will be tested for impairment at least annually, as outlined below (more frequently if certain indicators are present). Goodwill is assigned to the applicable reporting unit of the acquired entities giving rise to the goodwill and other intangible assets.
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, 2018, we had $115.2 million (2017 - $102.0 million) in investments in other ventures, under equity method on our consolidated balance sheets, including $10.6 million of goodwill and $17.1 million of other intangible assets (2017 - $7.8 million and $8.9 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.
Income taxes have been provided in accordance with the provisions of FASB ASC Topic Income Taxes. Deferred tax assets and liabilities result from temporary differences between the amounts recorded in our consolidated financial statements and the tax basis of our assets and liabilities. Such temporary differences are primarily due to net operating loss carryforwards and GAAP versus tax basis accounting differences relating to reserves for claims and claim expenses, deferred finance charges, accrued expenses, unearned premiums, deferred underwriting results, deferred acquisition expenses, amortization and depreciation and investments. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more likely than not that all, or some portion, of the benefits related to deferred tax assets will not be realized.
At December 31, 2018, our net deferred tax asset (prior to our valuation allowance) and valuation allowance were $99.9 million (2017 - $86.7 million) and $35.3 million (2017 - $30.0 million), respectively (see “Note 14. Taxation in our Notes to the Consolidated Financial Statements” for additional information). At each balance sheet date, we assess the need to establish a valuation allowance that reduces the net deferred tax asset when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. The valuation allowance assessment is performed separately in each taxable jurisdiction based on all available information including projections of future GAAP taxable income from each tax-paying component in each tax jurisdiction. The majority of the valuation allowance relates to a substantial portion of our deferred tax assets in our Ireland, U.K., and Singapore operations as these operations have produced historical GAAP taxable losses, among other facts. A small valuation allowance also continues to be recorded against finite lived tax carryforwards in our U.S. operations.
We have unrecognized tax benefits of $Nil as of December 31, 2018 (2017 - $Nil). Interest and penalties related to unrecognized tax benefits, would be recognized in income tax expense. At December 31, 2018, interest and penalties accrued on unrecognized tax benefits were $Nil (2017 - $Nil). Income tax returns filed for tax years 2015 through 2017, 2014 through 2017, 2017, 2014 through 2017, and 2017, are open for examination by the IRS, Irish tax authorities, U.K. tax authorities, Singapore and Switzerland tax authorities, respectively. We do not expect the resolution of these open years to have a significant impact on our consolidated statements of operations and financial condition.
Gross Premiums Written - our gross premiums written increased by $512.9 million, or 18.3%, to $3.3 billion in 2018, compared to 2017, driven primarily by increases of $320.5 million in the Property segment and $192.4 million in the Casualty and Specialty segment. Included in gross premiums written in 2018 were $94.5 million of reinstatement premiums written associated with the 2018 Large Loss Events and changes in the estimates of the 2017 Large Loss Events, and $102.3 million of gross premiums written associated with a large, non-recurring reinsurance transaction, each principally within the Property segment. Included in the gross premiums written in 2017 were $180.2 million of reinstatement premiums written associated with the 2017 Large Loss Events;
The most significant events affecting our financial performance during 2017, on a comparative basis to 2016, include:
The 2017 Large Loss Events resulted in $959.8 million of underwriting losses in our Property segment, or 110.5 percentage points on its combined ratio in 2017, and $29.4 million of underwriting losses in our Casualty and Specialty segment, or 3.7 percentage points on its combined ratio in 2017. See below for additional information regarding the net negative impact of the 2017 Large Loss Events. Our underwriting results are discussed in additional detail below in “Underwriting Results by Segment”;
Net Loss Attributable to Redeemable Noncontrolling Interests - our net loss attributable to redeemable noncontrolling interests was $132.3 million in 2017, compared to net income attributable to redeemable noncontrolling interests of $127.1 million in 2016. The decrease was principally due to significant underwriting losses associated with the 2017 Large Loss Events incurred by DaVinciRe, and a decrease in our ownership in DaVinciRe to 22.1% at December 31, 2017, compared to 24.0% at December 31, 2016; and
The financial data below provides additional information detailing the net negative impact of the Q3 2018 Catastrophe Events, the Q4 2018 Catastrophe Events and certain losses associated with aggregate loss contracts (the “2018 Aggregate Losses”) and the net positive impact of changes in estimates of the net negative impact of the 2017 Large Loss Events on our consolidated financial statements in 2018.
Q3 2018 Catastrophe Events includes Typhoons Jebi, Mangkhut and Trami, Hurricane Florence and the wildfires in California during the third quarter of 2018.
Q4 2018 Catastrophe Events includes Hurricane Michael and the wildfires in California during the fourth quarter of 2018.
In 2018, our Property segment gross premiums written increased by $320.5 million, or 22.2%, to $1.8 billion, compared to $1.4 billion in 2017.
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
Ceded premiums written in our Property segment increased $76.5 million to $462.4 million in 2017, compared to $385.9 million in 2016, primarily reflecting increased purchases of retrocessional reinsurance as part of the management of our risk portfolio and $32.8 million of ceded reinstatement premiums written associated with the 2017 Large Loss Events.
Our Property segment generated underwriting income of $262.1 million in 2018, compared to an underwriting loss of $574.9 million in 2017, an improvement of $837.0 million. In 2018, our Property segment generated a net claims and claim expense ratio of 47.4%, an underwriting expense ratio of 27.7% and a combined ratio of 75.1%, compared to 139.4%, 22.3% and 161.7%, respectively, in 2017.
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. See “Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” and “Note 7. 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.
Our Property segment incurred an underwriting loss of $574.9 million in 2017, compared to generating underwriting income of $363.2 million in 2016, a decrease of $938.1 million. In 2017, our Property segment generated a net claims and claim expense ratio of 139.4%, an underwriting expense ratio of 22.3% and a combined ratio of 161.7%, compared to 21.0%, 28.6% and 49.6%, respectively, in 2016.
Principally impacting our Property segment underwriting result and combined ratio in 2017 were the 2017 Large Loss Events, which resulted in an underwriting loss of $959.8 million and added 110.5 percentage points to the combined ratio. The underwriting result and combined ratio in 2016 were impacted by the 2016 Texas Events, the Fort McMurray Wildfire and Hurricane Matthew, which resulted in $101.0 million of underwriting losses and added 17.9 percentage points to our Property segment combined ratio. Partially offsetting the impact of the 2017 Large Loss Events was a 6.3 percentage point decrease in the underwriting expense ratio, from 28.6% in 2016 to 22.3% in 2017, driven in part by a decrease in operating expenses reflecting lower compensation expenses, combined with an increase in net premiums earned driven in large part by the reinstatement premiums written noted above.
Consolidated Financial Statements” for additional discussion of our reserving techniques and prior year development of net claims and claim expenses.
Casualty and Specialty Gross Premiums Written - 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.
In 2017, our Casualty and Specialty segment gross premiums written increased $93.8 million, or 7.4%, to $1.4 billion, compared to $1.3 billion in 2016. The $93.8 million increase was principally due to selective growth from existing business and private placements within certain of our casualty lines of business, partially offset by a decrease in financial lines of business primarily as a result of a large, in-force multi-year mortgage reinsurance contract written in 2016, that did not reoccur in 2017. Financial lines of business, and more specifically, mortgage reinsurance, are prone to significant gross premiums written volatility and can be influenced by a small number of relatively large transactions.
Our relative mix of business between proportional business and excess of loss business has fluctuated in the past and will likely continue to do so in the future. Proportional business typically has relatively higher premiums per unit of expected underwriting income, together with a higher combined ratio, than traditional excess of loss reinsurance. In addition, proportional coverage tends to be exposed to relatively more attritional, and frequent, losses, while being subject to less expected severity. Moreover, market conditions for our Casualty and Specialty segment have been impacted by a trend towards increased ceding commissions on our assumed proportional reinsurance.
Our Casualty and Specialty segment incurred an underwriting loss of $17.0 million in 2018, compared to an underwriting loss of $78.2 million in 2017. In 2018, our Casualty and Specialty segment generated a net claims and claim expense ratio of 67.3%, an underwriting expense ratio of 34.5% and a combined ratio of 101.8%, compared to 71.8%, 38.1% and 109.9%, respectively, in 2017.
The decrease in our Casualty and Specialty segment’s combined ratio was driven by decreases of 4.5 percentage points in the net claims and claim expense ratio and and 3.6 percentage points in the underwriting expense ratio in 2018, compared to 2017.
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. See “Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” and “Note 7. 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.
Current accident year net claims and claim expenses in the Casualty and Specialty segment were primarily impacted by net claims and claim expenses from the 2017 Large Loss Events, combined with higher attritional net claims and claim expenses.
Our Casualty and Specialty segment experienced adverse development on prior accident years net claims and claim expenses of $6.2 million, or 0.7 percentage points, during 2017, compared to favorable development of $58.1 million, or 8.6 percentage points, in 2016. See “Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” and “Note 7. 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.
Performance fees are based on the performance of the individual vehicles and/or product, and could be negative in any given quarter when large losses occur, which can result in the reversal of previously accrued performance fees.
Total fee income is earned through third-party capital management as well as various joint ventures and certain structured retrocession agreements to which we are a party. Joint ventures include DaVinciRe, Top Layer Re, Vermeer and certain entities investing in Langhorne. Managed funds include Upsilon Fund and Medici. Structured reinsurance products include Fibonacci Re, as well as certain other reinsurance contracts which transfer risk to capital.
In 2017, total fee income decreased $37.8 million, to $64.5 million, compared to $102.4 million in 2016, primarily the result of higher net claims and claims expenses experienced by our joint venture related vehicles during 2017, compared to 2016, which reduced our performance fee income.
Net investment income was $261.9 million in 2018, compared to $222.2 million in 2017, an increase of $39.7 million. Impacting our net investment income for 2018 were higher average invested assets in our fixed maturity and short term investment portfolios, combined with the impact of interest rate increases during recent periods. In addition, our catastrophe bonds, which are included in other investments, experienced an increase in net investment income as these investments benefited from higher interest rates and higher invested assets, and were less impacted by the catastrophe events in 2018, compared to 2017. Partially offsetting these items were lower returns in our portfolio of private equity investments in 2018 compared to 2017.
Low interest rates in preceding periods lowered the yields at which assets were invested relative to historical levels. In more recent periods, increases in interest rates should have a positive impact on future investment income.
net realized and unrealized gains on equity investments trading of $119.5 million in 2017, compared to $95.4 million in 2016, an improvement of $24.2 million, principally driven by positive returns in the global equity markets, combined with the strong performance of a number of our equity positions in 2017;
Our functional currency is the U.S. dollar. We routinely write a portion of our business in currencies other than U.S. dollars and invest a portion of our cash and investment portfolio in those currencies. As a result, we may experience foreign exchange gains and losses in our consolidated financial statements. All changes in exchange rates are recognized in our consolidated statements of operations. We are primarily impacted by the foreign currency risk exposures associated with our underwriting operations and investment portfolio, and may, from time to time, enter into foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar denominated assets and liabilities.