Throughout the discussion we use certain terms and abbreviations, which can be found in the Glossary of Terms and Acronyms at the beginning of this report. In addition, a glossary of insurance terms and phrases is available on the investor section of our website. Throughout the discussion, references to "ProAssurance," "PRA," "Company," "we," "us" and "our" refer to ProAssurance Corporation and its consolidated subsidiaries. The discussion contains certain forward-looking information that involves significant risks, assumptions and uncertainties. As discussed under the heading "Caution Regarding Forward-Looking Statements," our actual financial condition and operating results could differ significantly from these forward-looking statements.
Segregated Portfolio Cell Reinsurance - This segment includes the operating results (underwriting profit or loss, plus investment results) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations. Each SPC is owned, fully or in part, by an agency, group or association, and the operating results of the SPCs are due to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC operating results attributable to external cell participants are reflected as an SPC dividend expense (income) in our Segregated Portfolio Cell Reinsurance segment. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments. In addition, an SPC at Eastern Re assumed an errors and omissions liability policy from a captive insurer unaffiliated with ProAssurance during 2019. We do not participate in the SPC that assumed this policy; therefore, the operating results of this policy are reflected in the SPC dividend expense (income).
Lloyd's Syndicates - This segment includes the operating results from our participation (61% for the 2019 underwriting year) in Lloyd's of London Syndicate 1729 and our 100% participation in Syndicate 6131, which is an SPA that underwrites on a quota share basis with Syndicate 1729. To reduce our exposure and the associated earnings volatility, we decreased our participation in the operating results of Syndicate 1729 for the 2020 underwriting year from 61% to 29%. The results of this segment are normally reported on a quarter lag, except when information is available that is material to the current period. Syndicate 1729 underwrites risks over a wide range of property and casualty insurance and reinsurance lines in both the U.S. and international markets while
Syndicate 6131 focuses on contingency and specialty property business, also within the U.S. and international markets.
Additional information regarding our segments is included in Note 17 of the Notes to Consolidated Financial Statements, Part I and in the Segment Operating Results sections that follow.
We have also been a consistent acquirer of other physician insurers, completing four acquisitions between 2009 and 2013 as well as acquiring an agency largely focused on the professional liability needs of allied healthcare providers, an insurer focused on the legal professional liability market and a mutual company that focused on medical technology liability insurance for companies that manufacture or distribute medical products.
We provide capital to Lloyd's of London Syndicate 1729 and Syndicate 6131 which represents 11% of our gross premiums written in 2019. As previously discussed, to reduce our exposure and the associated earnings volatility, we decreased our participation in the operating results of Syndicate 1729 for the 2020 underwriting year from 61% to 29%. Our allocated share of Syndicate 1729's maximum underwriting capacity for 2020 is £39 million (approximately $51 million at December 31, 2019). We continue to provide 100% of the capital to Syndicate 6131 which has a maximum underwriting capacity for the 2020 underwriting year of £12 million (approximately $15.9 million at December 31, 2019).
We believe our emphasis on the fair treatment of our insureds and other important stakeholders through our commitment to “Treated Fairly” has enhanced our market position and differentiated us from other insurers. We will continue to practice our values of integrity, leadership, relationships and enthusiasm in all of our activities. We will honor these values in the execution of “Treated Fairly” to perform our Mission and realize our Vision. We believe that as we reach more customers with this message we will continue to improve retention and add new insureds.
The tax ratio which is calculated as total income tax expense (benefit) divided by income (loss) before income taxes and measures our effective tax rate.
We particularly focus on our combined ratio and investment returns, both of which directly affect our ROE and growth in our book value. We currently target a dynamic long-term ROE of 700 basis points above the 10-year U.S. Treasury rate, which at December 31, 2019 was approximately 8.9%.
As of December 31, 2019 our reserve is comprised almost entirely of long-tail exposures. The estimation of long-tailed losses is inherently difficult and is subject to significant judgment on the part of management. Due to the nature of our claims, our loss costs, even for claims with similar characteristics, can vary significantly depending upon many factors, including but not limited to the specific characteristics of the claim and the manner in which the claim is resolved. Long-tailed insurance is characterized by the extended period of time typically required both to assess the viability of a claim and potential damages, if any, and to reach a resolution of the claim. The claims resolution process may extend to more than five years. The combination of continually changing conditions and the extended time required for claim resolution results in a loss cost estimation process that requires actuarial skill and the application of significant judgment, and such estimates require periodic modification.
Our reserving process can be broadly grouped into three areas: the establishment of the reserve for the current accident year (the initial reserve), the re-estimation of the reserve for prior accident years (development of prior accident years) and the establishment of the initial reserve for risks assumed in business combinations, applicable only in periods in which acquisitions occur (the acquired reserve). A summary of the activity in our net reserve for losses during 2019 and 2018 is provided under the heading "Losses" in the Liquidity and Capital Resources and Financial Condition section that follows.
Specialty P&C Segment. Loss costs within this segment are impacted by many factors including but not limited to the nature of the claim, including whether or not the claim is an individual or a mass tort claim, the personal situation of the claimant or the claimant's family, the outcome of jury trials, the legislative and judicial climate where any potential litigation may occur, general economic and social trends and, for claims involving bodily injury, the trend of healthcare costs. Within our Specialty P&C segment, for our HCPL business (76% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2019), we set an initial reserve based upon our evaluation of the current loss environment including frequency, severity, economic inflation, social inflation and legal trends. The initial loss ratio for our HCPL business has ranged from 87% to 106% in recent years. We have recently trended towards the higher end of this range due to increased reserve estimates for a large national healthcare account that far exceeded the assumptions we made when originally underwriting the account as well as increases in loss severity in the broader HCPL industry, including our excess and surplus lines of business. See further discussion on our current accident year net loss ratio in our Segment Operating Results - Specialty Property & Casualty section that follows under the heading "Losses."A similar practice is followed for our legal professional liability business (3% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2019).
Lloyd's Syndicates Segment. Initial reserves for Syndicate 1729 and Syndicate 6131 are primarily recorded using the loss assumptions by risk category incorporated into each Syndicate's business plan submitted to Lloyd's with consideration given to loss experience incurred to date (4% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2019). The assumptions used in each business plan are consistent with loss results reflected in Lloyd's historical data for similar risks. The loss ratios may also fluctuate due to the timing of earned premium adjustments. Such adjustments may be the result of premiums for certain policies and assumed reinsurance contracts being reported subsequent to the coverage period and may be subject to adjustment based on loss experience. Premium and exposure for some of Syndicate 1729's insurance policies and reinsurance contracts are initially estimated and subsequently recorded over an extended period of time as reports are received under delegated underwriting authority programs. When reports are received, the premium, exposure and corresponding loss estimates are revised accordingly. Changes in loss estimates due to premium or exposure fluctuations are incurred in the accident year in which the premium is earned.
For the Specialty P&C, Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments, the analysis performed by the consulting actuaries analyzes each partition of our business in a variety of ways and uses multiple actuarial methodologies in performing these analyses, including:
Generally, methods such as the Bornhuetter-Ferguson Method are used on more recent accident years where we have less data on which to base our analysis. As time progresses and we have an increased amount of data for a given accident year, we begin to give more confidence to the development and average methods, as these methods typically rely more heavily on our own historical data. These methods emphasize different aspects of loss reserve estimation and provide a variety of perspectives for our decisions.
We utilize the selected point estimates of ultimate losses to develop estimates of ultimate losses recoverable from reinsurers, based on the terms and conditions of our reinsurance agreements. An overall estimate of the amount receivable from reinsurers is determined by combining the individual estimates. Our net reserve estimate is the gross reserve point estimate less the estimated reinsurance recovery.
For our Lloyd's Syndicates segment we rely on the analysis of actual loss experience on the book of business written by Syndicate 1729 to determine loss development by accident year.
Because of the implicit and wide-ranging nature of severity trend assumptions on the loss reserving process, it is not practical to specifically isolate the impact of changing severity trends. However, because severity is an explicit component of our HCPL pricing process we can better isolate the impact that changing severity can have on our loss costs and loss ratios in regards to our pricing models for this business component. Our current HCPL pricing models assume severity trends in the range of 2% to 5% depending on state, territory and specialty. In some portions of our HCPL business we have observed and reflected higher severity trends in our estimates of losses and loss adjustment expenses.
However, from early 2017 to December 31, 2019, the average charged premium rates on our standard physician renewal business have increased by approximately 4% per annum, and we anticipate further rate increases due to indications of increasing loss severity.
Net favorable reserve development recognized within our Segregated Portfolio Cell Reinsurance segment primarily reflected better than expected claim trends in the 2015 through 2018 accident years. The improved claim trends reflected lower frequency and severity than anticipated at the time the reserves were established.
Net favorable reserve development recognized within our Workers' Compensation Insurance segment reflected overall favorable trends in claim closing patterns primarily in the 2015 and 2016 accident years.
Net unfavorable reserve development of $5.7 million in our Specialty P&C segment was driven by $51.5 million of unfavorable reserve development recognized in 2019 related to our reserves for the previously mentioned large national healthcare account that has experienced losses far exceeding the assumptions we made when underwriting the account, beginning in 2016. Excluding the unfavorable reserve development related to this account, the Specialty P&C segment recognized favorable reserve development totaling $45.8 million in 2019 which included favorable reserve development in our medical technology liability line of business of $12.8 million. Net favorable reserve development in 2018 of $77.0 million included $13.3 million and $10.9 million attributable to our medical technology liability and legal professional liability lines of business, respectively. While the majority of our reserves in our Specialty P&C segment continue to develop favorably, the favorable development we recognized, excluding the large national healthcare account, was lower as compared to 2018, in part due to the observed increase in claim severity in the broader HCPL industry. See further discussion in our Segment Operating Results - Specialty Property & Casualty section that follows under the heading "Losses."
Our professional liability line of business includes both our HCPL and legal professional lines, with our HCPL line representing the largest component of our reserve. In support of our concern that the decline in frequency will result in a higher severity trend for our HCPL claims, we saw our closed-with-indemnity-payment ratio (i.e., the number of claims closed with an indemnity or loss payment as compared to the total number of closed claims) for our claims increase from 10% in 2005 to 18% in 2019.
During 2019 the loss experience in our HCPL excess and surplus lines of business deteriorated further, particularly in regard to the reserves we established for a large national healthcare account, as previously discussed. This deterioration is the primary driver of the unfavorable development we recognized in 2019 for accident years 2016-2018. During the years ended December 31, 2018 and 2017, reflection of higher severity trends in certain HCPL lines of business also resulted in increases of estimated ultimate losses for open claims for earlier accident years, which resulted in a lower amount of favorable development recognized in 2018 and 2017 as compared to earlier years.
Approximately $6.8 million of the $12.8 million total net favorable development recognized in 2019 related to the 2014 to 2017 accident years. The development for the 2014 to 2017 accident years represents a 13.7% reduction to the ultimates established for those reserves at December 31, 2018. Approximately $5.7 million of the $13.3 million total net favorable development recognized in 2018 related to the 2013 to 2016 accident years. The development for the 2013 to 2016 accident years represents a 12.3% reduction to the ultimates established for those reserves at December 31, 2017. Approximately $5.8 million of the $10.1 million total net favorable development recognized in 2017 related to the 2012 to 2015 accident years. The development for the 2012 to 2015 accident years represents a 12.1% reduction to the ultimates established for those reserves at December 31, 2016.
Any change in our estimate of net ultimate losses for prior years is reflected in net income in the period in which such changes are made.
We evaluate each of our ceded reinsurance contracts at inception to confirm that there is sufficient risk transfer to allow the contract to be accounted for as reinsurance under current accounting guidance. At December 31, 2019, all ceded contracts were accounted for as risk transferring contracts.
We record the majority of our investments at fair value as shown in the table below. At December 31, 2019, the distribution of our investments based on GAAP fair value hierarchies (levels) was as follows:
We measure the fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. These assets include investments carried principally at cost, investments in tax credit partnerships, fixed assets, goodwill and other intangible assets. These assets would also include any equity method investments that do not provide a NAV.
for asset-backed securities, the origination date of the underlying loans, the remaining average life, the probability that credit performance of the underlying loans will deteriorate in the future and our assessment of the quality of the collateral underlying the loan;
Investments in tax credit partnerships are evaluated for OTTI by considering both qualitative and quantitative factors. These factors include, but are not limited to:
in situations where there was not a previous OTTI for the investment, whether the current expected cash flows from the investment, primarily tax benefits, are less than those expected at the time the investment was acquired due to various factors, such as a change in the statutory tax rate; or
in situations where there was a previous OTTI for the investment, whether the expected cash flows from the investment at the time of the OTTI, primarily tax benefits, are less than its current carrying value.
Investments which are accounted for under the equity method are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the investment might not be recoverable. These circumstances include, but are not limited to, evidence of the inability to recover the carrying value of the investment, the inability of the investee to sustain an earnings capacity that would justify the carrying value of the investment or the current fair value of the investment is less than the carrying value.
As part of our evaluation of the recoverability of DPAC, we also evaluate our unearned premiums for premium deficiencies. A premium deficiency is recognized if the sum of anticipated losses and loss adjustment expenses, unamortized DPAC and maintenance costs, net of anticipated investment income, exceeds the related unearned premium. If a premium deficiency is identified, the associated DPAC is written off, and a PDR is recorded for the excess deficiency as a component of net losses and loss adjustment expenses in our Consolidated Statement of Income and Comprehensive Income and as a
component of the reserve for losses on our Consolidated Balance Sheet. For the year ended December 31, 2019, a nominal amount of DPAC was charged to expense as it was determined to be unrecoverable, and a $9.2 million PDR was established in our Specialty P&C segment related to a large national healthcare account. See further discussion on the PDR in the Segment Operating Results - Specialty Property & Casualty section that follows. No amounts were determined to be unrecoverable for the year ended December 31, 2018.
The TCJA also requires a U.S. shareholder of a controlled foreign corporation to include its GILTI in U.S. taxable income. The GILTI amount is based on the U.S. shareholder’s aggregate share of the gross income of the controlled foreign corporation reduced by certain exceptions and a net deemed tangible income return. The net deemed tangible income return is based on the controlled foreign corporation’s basis in the tangible depreciable business property. Cell rental fee income earned by Inova Re and Eastern Re fall within the scope of the GILTI provisions of the TCJA. We have evaluated the new GILTI provisions of the TCJA and we have made an accounting policy election to treat the taxes due on inclusions of GILTI in U.S. taxable income as a current period expense when incurred. We recognized a nominal amount of tax expense for the GILTI provision of the TCJA during year ended December 31, 2019.
When testing goodwill for impairment on our annual test date, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform the two-step quantitative impairment test; otherwise, no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test.
In the first step of the two-step quantitative impairment test, the fair value of a reporting unit is determined using income and market approaches and is compared to its carrying value, as described above. The estimate of fair value derived from the income approach is based on the present value of expected future cash flows, including terminal value, utilizing a market based weighted average cost of capital determined separately for each reporting unit. The estimate of fair value derived from the market approach is based on earnings multiple data derived from market information. The determination of fair value involves the use of significant estimates and assumptions, including revenue growth rates, operating margins, capital expenditures, working capital requirements, tax rates, terminal growth rates, discount rates, comparable public companies and synergistic benefits available to market participants. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit. To corroborate the reporting units’ valuation, we perform a reconciliation of the estimate of the aggregate fair value of the reporting units to ProAssurance's market capitalization, including consideration of a control premium. Because not all of our reporting units have goodwill, we make certain assumptions regarding the fair value of our other reporting units in reconciling to our market capitalization.
If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed for purposes of measuring the impairment of goodwill, if any. In the second step, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit to determine an implied fair value of goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of goodwill, an impairment loss will be recognized in an amount equal to that excess.
As of the most recent goodwill impairment test performed on October 1, 2019, we elected to perform a qualitative goodwill impairment test for our Specialty P&C, Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance reporting units. Each of these reporting units have historically had an excess of fair value over book value and based on current operations are expected to continue to do so; therefore, our annual impairment test for these reporting units was performed qualitatively. In applying the qualitative approach, management considered macroeconomic factors, industry and market conditions, cost factors that could have a negative impact on the reporting units, actual financial performance of the reporting units versus expectations and management's future business expectations. As a result of the qualitative assessments, management concluded that it was not more likely than not that the fair value of each of our three reporting units that have goodwill was less than the carrying value of each reporting unit as of the testing date; therefore, no further impairment testing was required. No goodwill impairment was recorded in 2019, 2018 or 2017.
When a lease of an office facility is to be abandoned and will not be subleased, we first evaluate whether or not the operating lease ROU asset’s inclusion in an existing asset group continues to be appropriate and if the commitment to abandon the lease constitutes a change in circumstances requiring the operating lease ROU asset, or the larger asset group, to be tested for impairment. If an impairment test is required, it is performed in the same manner as discussed above. Any remaining carrying value of the operating lease ROU asset is amortized from the date we commit to a plan to abandon the lease to the expected date that we will cease to use the leased property. Leases to be abandoned in which we have the intent or practical ability to sublease continue to be accounted for under a held and use model, with no change to the amortization period of the operating lease ROU asset, and are evaluated for impairment as a separate asset group at the date the sublease is executed.
Workers’ compensation premiums are determined based upon the payroll of the insured, respective premium rates and, where applicable, an experience-based modification factor. An audit of the policyholders’ records is conducted after policy expiration to make a final determination of applicable premiums. Audit premium due from or due to a policyholder as a result of an audit is reflected in net premiums written and earned when billed. We track, by policy, the amount of additional premium billed in final audit invoices as a percentage of payroll exposure and use this information to estimate the probable additional amount of EBUB premium as of the balance sheet date. We include changes to the EBUB premium estimate in net premiums written and earned in the period recognized.
Our financing cash flows are primarily composed of dividend payments and borrowings and repayments under our Revolving Credit Agreement. See further discussion of our financing activities in this section under "Financing Activities and Related Cash Flows."
Beginning in 2017, we identified potential higher severity trends in the broader HCPL industry. These trends were also reflected in increases in estimates of ultimate losses for open HCPL claims for earlier accident years, which resulted in a lower amount of favorable development recognized in 2018 and 2017 as compared to prior years.
degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC operating results due to external cell participants are reflected as an SPC dividend expense (income) in our Segregated Portfolio Cell Reinsurance segment. See further discussion on our SPC operations in the Segment Operating Results - Segregated Portfolio Cell Reinsurance section that follows. The alternative market workers' compensation policies are ceded from our Workers' Compensation Insurance segment to the SPCs under 100% quota share reinsurance agreements. The alternative market professional liability policies are ceded from our Specialty P&C segment to the SPCs under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. The nominal portion of the risk that is not ceded to an SPC is retained in our Specialty P&C segment and may also be reinsured under our standard healthcare professional liability reinsurance program, depending on the policy limits provided. The remaining premium written in our alternative market business of $2.4 million and $4.5 million in 2019 and 2018, respectively, was 100% ceded to a single unaffiliated captive insurer in 2019 and to two unaffiliated captive insurers in 2018.
For all of our segments, we make a determination of the amount of insurance risk we choose to retain based upon numerous factors, including our risk tolerance and the capital we have to support it, the price and availability of reinsurance, the volume of business, our level of experience with a particular set of claims and our analysis of the potential underwriting results. We purchase excess of loss reinsurance to limit the amount of risk we retain and we do so from a number of companies to mitigate concentrations of credit risk. We utilize reinsurance brokers to assist us in the placement of these reinsurance programs and in the analysis of the credit quality of our reinsurers. The determination of which reinsurers we choose to do business with is based upon an evaluation of their then current financial strength, rating and stability. However, the financial strength of our reinsurers and their corresponding ability to pay us may change in the future due to forces or events we cannot control or anticipate. As of December 31, 2019, there is no reinsurer, on an individual basis, for which our recoverables for both paid and unpaid claims (net of amounts due to the reinsurer) and our prepaid balances are aggregately $40 million or more.
We generally reinsure risks under treaties (our excess of loss reinsurance agreements) pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. These agreements are negotiated and renewed annually. Renewal dates for our healthcare professional liability, medical technology liability and workers' compensation treaties are October 1, January 1 and May 1, respectively. Our healthcare professional liability treaty renewed October 1, 2019 at a higher rate than the previous agreement, partially offset by a lower intermediary compensation rate. Our medical technology liability treaty renewed January 1, 2020 at a lower rate than the previous agreement. Our workers' compensation treaty renewed May 1, 2019 at a lower rate than the previous agreement; however, the lower rate reflects the addition of an AAD and the elimination of the return premium component of the contract. The significant coverages provided by our current excess of loss reinsurance agreements are detailed in the following table.
Large healthcare professional liability risks that are above the limits of our basic reinsurance treaties are reinsured on a facultative basis, whereby the reinsurer agrees to insure a particular risk up to a designated limit. We also have in place a number of risk sharing arrangements that apply to the first $1 million of losses for certain large healthcare systems and other insurance entities, as well as with certain insurance agencies that produce business for us.
Each SPC has participants and the profit or loss of each cell accrues fully to these cell participants. As previously discussed, we participate in certain SPCs to a varying degree. Each SPC maintains a loss fund initially equal to the difference between premium assumed by the cell and the ceding commission. The external participants of each cell provide collateral, typically in the form of a letter of credit, to us that is initially equal to the difference between the loss fund of the SPC (amount of funds available to pay losses after deduction of ceding commission) and the aggregate attachment point of the reinsurance. Over time, an SPC's retained profits are considered in the determination of the collateral amount required to be provided by the cell's external participants.
the nature and intensity of a loss event. For significant reinsured catastrophe losses, the inability or unwillingness of the reinsurer to make timely payments under the terms of the reinsurance agreement could have an adverse effect on Syndicate 1729's liquidity.
We are involved in various legal actions related to insurance policies and claims handling including, but not limited to, claims asserted against us by policyholders. These types of legal actions arise in the ordinary course of business and, in accordance with GAAP for insurance entities, are generally considered as a part of our loss reserving process, which is described in detail in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses." We also have other direct actions against the Company unrelated to our claims activity which we evaluate and account for as a part of our other liabilities. For these corporate legal actions, we evaluate each case separately and establish what we believe is an appropriate reserve based on GAAP guidance related to contingent liabilities. As of December 31, 2019 there were no material reserves established for corporate legal actions.
At December 31, 2019, 99% of our investments in available-for-sale fixed maturity securities were rated, and the average rating was A+. The distribution of our investments in available-for-sale fixed maturity securities by rating were as follows:
We manage our investments to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the timing of cash flows from our investments, including interest payments, dividends and principal payments, as well as the expected cash flows to be generated by our operations. In addition to the interest and dividends we will receive, we anticipate that between $30 million and $80 million of our investments will mature (or be paid down) each quarter over the next twelve months and become available, if needed, to meet our cash flow requirements. The primary outflow of cash at our insurance subsidiaries is related to paid losses and operating costs, including income taxes. The payment of individual claims cannot be predicted with certainty; therefore, we rely upon the history of paid claims in estimating the timing of future claims payments. To the extent that we may have an unanticipated shortfall in cash, we may either liquidate securities or borrow funds under existing borrowing arrangements through our Revolving Credit Agreement and the FHLB system. As of February 14, 2020, $300 million could be made available for use through our Revolving Credit Agreement, as discussed in this section under the heading "Debt." Given the duration of our investments, we do not foresee a shortfall that would require us to meet operating cash needs through additional borrowings. Additional information regarding our Revolving Credit Agreement is detailed in Note 11 of the Notes to Consolidated Financial Statements.
At December 31, 2019, our FAL was comprised of fixed maturity securities with a fair value of $129.9 million and cash and cash equivalents of $7.2 million deposited with Lloyd's. See further discussion in Note 3 of the Notes to Consolidated Financial Statements.
Our investment portfolio continues to be primarily composed of high quality fixed income securities with approximately 94% of our fixed maturities being investment grade securities as determined by national rating agencies. The weighted average effective duration of our fixed maturity securities at December 31, 2019 was 2.96 years; the weighted average effective duration of our fixed maturity securities combined with our short-term securities was 2.58 years.
Each dividend was paid in the month following the quarter in which it was declared. Cash dividends totaling $93 million, $316 million and $315 million were paid during the years ended December 31, 2019, 2018 and 2017, respectively. Any decision to pay future cash dividends is subject to the Board’s final determination after a comprehensive review of financial performance, future expectations and other factors deemed relevant by the Board.
At December 31, 2019, our debt included $250 million of outstanding unsecured senior notes. The notes bear interest at 5.3% annually and are due in 2023 although they may be redeemed in whole or part prior to maturity. There are no financial covenants associated with these notes.
We have a Revolving Credit Agreement which may be used for general corporate purposes, including, but not limited to, short-term working capital, share repurchases as authorized by the Board and support for other activities. On November 7, 2019, we executed an amendment to our Revolving Credit Agreement which extended its expiration from June 2020 to November 2024 and increased the permitted borrowings from $200 million to $250 million. In addition to the permitted borrowings of $250 million, our Revolving Credit Agreement has available a $50 million accordion feature, which, if successfully subscribed, would expand permitted borrowings up to $300 million. At December 31, 2019, there were no outstanding borrowings on our Revolving Credit Agreement and we are in compliance with the financial covenants of the Revolving Credit Agreement.
A schedule of our non-cancellable contractual obligations at December 31, 2019 was as follows:
We are involved in a number of operating leases primarily for office facilities. Office facility leases have remaining lease terms ranging from one year to thirteen years. The above table includes the remaining future minimum lease payments including imputed interest for operating leases that had an initial or remaining non-cancellable lease term in excess of one year as of December 31, 2019. In addition, the above table excludes total future minimum lease payments of $1.5 million for an eleven year lease signed but not yet commenced as of December 31, 2019. Additional information regarding our leases is included in Note 1 and Note 10 of the Notes to Consolidated Financial Statements.
The decrease in our consolidated net investment result in 2019 as compared to 2018 was primarily attributable to a decrease in earnings (loss) from our unconsolidated subsidiaries, somewhat offset by an increase in net investment income. Equity in earnings (loss) of unconsolidated subsidiaries includes our share of the operating results of interests we hold in certain LPs/LLCs as well as operating losses associated with our tax credit partnership investments, which are designed to generate returns in the form of tax credits and tax-deductible project operating losses. During 2019, the earnings generated from our LPs/LLCs did not exceed the operating losses recorded from our tax credit partnership investments resulting in an overall loss from investments in unconsolidated subsidiaries as compared to earnings from investments in unconsolidated subsidiaries in 2018. The decrease in earnings generated from our LPs/LLCs in 2019 was driven by lower reported earnings from two LP investments, somewhat offset by lower operating losses from our tax credit partnership investments. The increase in net investment income in 2019 was primarily due to an increase in interest earned on our FAL in our Lloyd's Syndicate segment due to a higher average balance in 2019 as compared to 2018. Our FAL primarily includes investment-grade corporate debt securities deposited with Lloyd's.
The primary drivers of the increase in our consolidated current accident year net loss ratio for the year ended December 31, 2019 as compared to 2018 were as follows:
As a result of actuarial analyses performed by both internal and consulting actuaries during 2019 and 2018, we increased our current accident year net loss ratio in our Specialty P&C segment in both 2019 and 2018; however, the adjustment was greater in 2019 as compared to 2018 which accounted for 3.4 percentage points of the increase in our consolidated current accident year net loss ratio. This increase in 2019 was driven by increased reserve estimates for a large national healthcare account and, to a lesser extent, in our broader HCPL excess and surplus lines of business. In addition, the higher consolidated current accident year net loss ratio reflected changes to our reserve in our Specialty P&C segment related to DDR coverage endorsements as well as a PDR of $9.2 million, which accounted for 1.7 and 1.1 percentage points, respectively, of the increase. The PDR represents an estimated premium deficiency associated with the aforementioned large national healthcare account which is reflected as a component of current accident year net losses in 2019 (see further discussion in our Segment Operating Results - Specialty Property & Casualty section that follows). Furthermore, the increase in our consolidated current accident year net loss ratio also reflected a $10 million reserve that an SPC at Eastern Re established during 2019 associated with an assumed E&O liability policy in our Segregated Portfolio Cell Reinsurance segment which accounted for 1.2 percentage points of the increase. We do not participate in the SPC that assumed this policy; therefore, these losses are the obligation of the external cell participants and are reflected in the SPC dividend expense (income), which is an offset to expenses, and thus has no effect on our consolidated net income or Segregated Portfolio Cell Reinsurance segment net operating results for 2019 (see further discussion in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section that follows).
In both 2019 and 2018, our consolidated calendar year net loss ratio was lower than our consolidated current accident year net loss ratio due to the recognition of consolidated net favorable prior year reserve development, as shown in the previous table. Consolidated net favorable prior year reserve development in 2019 was lower than in 2018 driven by unfavorable development recognized in our Specialty P&C segment of $5.7 million in 2019 as compared to favorable development of $77.0 million recognized in 2018. The unfavorable development recognized in our Specialty P&C segment in 2019 was driven by $51.5 million of unfavorable prior year reserve development related to the previously mentioned large national healthcare account that has experienced losses far exceeding the assumptions we made when underwriting the account, beginning in 2016. Excluding the unfavorable development related to this account, our Specialty P&C segment recognized favorable prior year reserve development totaling $45.8 million in 2019.
Our effective tax rates for the years ended December 31, 2019 and 2018 were as follows:
We recognized an income tax benefit in both 2019 and 2018; however, the comparability of our effective tax rates is impacted by the pre-tax loss recognized in 2019 as compared to pre-tax income recognized in 2018.
Our effective tax rates for the years ended December 31, 2019 and 2018 were different from the statutory federal income tax rates in effect for each year primarily due to the recognition of a tax benefit from credits transferred to us from our tax credit partnership investments and, to a lesser extent, portions of our income that are exempt from federal income taxes. See further discussion, including other notable items during 2019 and 2018 in the Segment Operating Results - Corporate section that follows under the heading "Taxes."
Our operating ratio is our combined ratio, less our investment income ratio. This ratio provides the combined effect of underwriting profitability and investment income. Our operating ratio for the years ended December 31, 2019 and 2018 was as follows:
Our operating ratio for the year ended December 31, 2019 as compared to 2018 increased by approximately 17.6 percentage points driven by a higher combined ratio in our Specialty P&C segment. The higher combined ratio in our Specialty P&C segment was driven by a higher current accident year net loss ratio and the recognition of net unfavorable development on prior accident year reserves. See previous discussion in this section under the heading "Expenses" and further discussion in our Segment Operating Results - Specialty Property & Casualty section that follows under the heading "Losses."
ROE is calculated as net income divided by the average of beginning and ending shareholders’ equity. This ratio measures our overall after-tax profitability and shows how efficiently capital is being used. ROE for the years ended December 31, 2019 and 2018 was as follows:
The following table is a reconciliation of net income to Non-GAAP operating income (loss):
Our Specialty P&C segment focuses on professional liability insurance and medical technology liability insurance as discussed in Note 17 of the Notes to Consolidated Financial Statements. Segment operating results reflected pre-tax underwriting profit or loss from these insurance lines, exclusive of investment results, which are included in our Corporate segment. Segment operating results included the following:
In addition, segment operating results for the years ended December 31, 2019 and 2018 included the effect of two separate loss portfolio transfers; one entered into during the third quarter of 2019 and one entered into during the second quarter of 2018. A loss portfolio transfer is a form of retroactive insurance coverage as we are assuming and accepting an entity’s existing open and future claim liabilities through the transfer of the entity’s loss reserves. The loss portfolio transfer entered into during the third quarter of 2019 resulted in total net premiums written and earned of $2.7 million (consisting of $0.9 million of retroactive premium and $1.8 million of prospective (tail) premium) and total net losses and loss adjustment expenses of $2.1 million. The loss portfolio transfer entered into during the second quarter of 2018 resulted in total net premiums written and earned of $26.6 million (consisting of $18.7 million of retroactive premium and $7.9 million of prospective (tail) premium) and total net losses and loss adjustment expenses of $25.4 million. See further discussion of these loss portfolio transfers in Note 4 of the Notes to Consolidated Financial Statements.
Physician policies were our greatest source of premium revenues in both 2019 and 2018. The increase in twelve month term policies in 2019 included timing differences of $5.6 million primarily related to the prior year renewal of certain policies. Excluding the effect of these timing differences, twelve month term policies increased $9.2 million as compared to 2018. The remaining increase was primarily due to new business written, an increase in exposure related to three policies written on an excess and surplus lines basis totaling $5.2 million and an increase in renewal pricing, partially offset by retention losses. Renewal pricing increases in 2019 are reflective of our concern about increases in loss severity. The lower retention for 2019 is largely attributable to our focus on underwriting discipline, as we continue to emphasize careful risk selection, rate adequacy and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit. We anticipate a lower than average level of retention to persist as we continue to reevaluate certain books of business and set our rates to reflect our observations of higher severity trends. We also offer twenty-four month term policies to our physician insureds in one selected jurisdiction. The increase in twenty-four month term policies in 2019 as compared to 2018 primarily reflected the normal cycle of renewals (policies subject to renewal in 2019 were previously written in 2017 rather than in 2018).
Our legal professionals policies are primarily individual and small group policies in select areas of practice. Our legal professionals premium remained relatively unchanged in 2019 as compared to 2018 as new business written and renewal pricing increases were offset by retention losses. The increase in renewal pricing was primarily the result of an increase in the rate charged for certain renewed policies in select states due to rate filings.
We are committed to a rate structure that will allow us to fulfill our obligations to our insureds, while generating competitive long-term returns for our shareholders. Our pricing continues to be based on expected losses as indicated by our historical loss data and available industry loss data. In recent years, this practice has resulted in gradual rate increases and we anticipate further rate increases due to indications of increasing loss severity. Additionally, the pricing of our business includes the effects of filed rates, surcharges and discounts. Renewal pricing also reflects changes in our exposure base, deductibles, self-insurance retention limits and other policy items.
New business written by major component on a direct basis was as follows:
Retention for our Specialty P&C segment, including by major component, was as follows:
As shown in the table below, our ceded premiums ratio was affected in both 2019 and 2018 by revisions to our estimate of premiums owed to reinsurers related to coverages provided in prior accident years.
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to our reinsurers for their assumption of a portion of our losses. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Generally, our policies carry a term of one year; however, as discussed above, we write certain policies with a twenty-four month term, and a few of our medical technology liability policies have a multi-year term. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. Retroactive coverage premiums are 100% earned at the inception of the contract, as all of the underlying loss events occurred in the past. Additionally, ceded premium changes due to changes to estimates of premiums owed under reinsurance agreements for prior accident years are fully earned in the period of change.
Gross premiums earned during 2019 and 2018 included the effects of two different loss portfolio transfers which resulted in $2.7 million and $26.6 million, respectively, of one-time premium written and fully earned in the respective periods (see discussion under the heading "Gross Premiums Written"). After removing the impacts of the loss portfolio transfers from each period, gross premiums earned increased $24.7 million due to by the pro rata effect of an increase in the volume of written premium during the preceding twelve months, predominantly in our physicians and healthcare facilities lines of business driven by an increase in renewal pricing.
The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Additionally, the table shows our current accident year net loss ratios were affected by revisions to our estimate of premiums owed to reinsurers related to coverages provided in prior accident years. The net loss ratios for our Specialty P&C segment were as follows:
The current accident year net loss ratio, excluding the effect of prior year ceded premium adjustments (as shown in the table above), increased 12.1 percentage points as compared to 2018. The change in the current accident year net loss ratio was primarily attributable to the following:
As a result of our re-evaluation of previously established reserves, we recognized net unfavorable prior year reserve development of $5.7 million for the year ended December 31, 2019 as compared to net favorable prior year reserve development of $77.0 million for the year ended December 31, 2018. Development recognized during 2019 principally related to accident years 2016 through 2018. Development recognized during 2018 principally related to accident years 2011 through 2014. Net unfavorable prior year reserve development in 2019 included $51.5 million of unfavorable prior year reserve development related to our reserves for the previously mentioned large national healthcare account that has experienced losses far exceeding the assumptions we made when underwriting the account, beginning in 2016. Excluding the unfavorable development related to this account, the Specialty P&C segment recognized favorable prior year reserve development totaling $45.8 million in 2019 which included favorable loss development in our medical technology liability line of business of $12.8 million. Net favorable loss development in 2018 of $77.0 million included $13.3 million and $10.9 million attributable to our medical technology liability and legal professional liability lines of business, respectively. While the majority of our reserves continue to develop favorably, the favorable development we recognized, excluding the large national healthcare account, was lower as compared to 2018 due to the observed increase in claim severity in the broader HCPL industry.
DPAC amortization increased during the year ended December 31, 2019 as compared to 2018 driven by an increase in earned premium, excluding the effects of the premium earned from the loss portfolio transfers in 2019 and 2018 as there were no deferred acquisition costs associated with those transactions (see discussion under the heading "Gross Premiums Written"). In addition, the increase in DPAC amortization also reflected a decrease in ceding commission income related to the reduction in premiums ceded to Syndicate 1729, partially offset by an increase in ceding commission income from certain of our shared risk arrangements.
Excluding the impacts of the loss portfolio transfers entered into during 2019 and 2018 (net premiums earned with minimal associated operating expenses), our underwriting expense ratio was relatively unchanged for the year ended December 31, 2019 as compared to 2018 as the increase in earned premium and the decrease in compensation related costs outpaced the increase in DPAC amortization and offset the effect of the fees incurred related to the data analytics services agreement, as previously discussed.
New business opportunities, renewal pricing and retention continue to be a challenge as a result of intense competition, especially from multi-line carriers that are willing to underprice their workers' compensation products to offset other coverages. This has resulted in fewer new business opportunities, which is reflected in a 20% decline in submissions during 2019. The decrease in new business in 2019 as compared to 2018 also reflects the acquisition of the Great Falls renewal book of business in September 2017, which contributed $11.7 million of new business for the year ended December 31, 2018. Excluding the Great Falls acquisition, submissions declined 12% during 2019. Renewal pricing decreases reflect the competitive market, as well as the impact of state loss cost decreases in the majority of the states in which we write business.
Gross premiums written in our alternative market business decreased for the year ended December 31, 2019 as compared to 2018. New business and renewal pricing trends in our alternative market business for 2019 were relatively consistent with the trends in our traditional business. We retained all 22 of the available workers' compensation alternative market programs up for renewal for the year ended December 31, 2019, including 6 programs available for renewal during the fourth quarter of 2019. Additionally, we wrote one new workers' compensation alternative market program in the third quarter of 2019.
Our Workers' Compensation Insurance segment cedes alternative market business under a 100% quota share reinsurance agreement, net of a ceding commission, to SPCs in our Segregated Portfolio Cell Reinsurance segment.
Under our external reinsurance agreement, we retain the first $0.5 million in risk insured by us and cede losses in excess of this amount on each loss occurrence under our primary external reinsurance treaty. Effective May 1, 2019, our primary reinsurance layer was renewed with an AAD equal to the greater of $3.9 million or 2.1% of subject premium, in excess of the $0.5 million retention per loss occurrence, and the elimination of the return premium component of the contract. The addition of the AAD was partially offset by a reduction in the reinsurance rates under our renewed treaty. Per our reinsurance agreements, we cede premiums related to our traditional business on an earned premium basis. The increase in premiums ceded to external
Changes in the return premium estimate reflected the loss experience under the reinsurance treaties during 2019 and 2018. The increase in the return premium estimate for the year ended December 31, 2019 reflected prior year unfavorable loss development on reinsured claims.
The above table reflects ceded premiums earned as a percent of gross premiums earned. As discussed above, we cede premiums related to our traditional business to external reinsurers on an earned premium basis. For the year ended December 31, 2019, the ceded premiums ratio, excluding the effects in the table above, decreased slightly as compared to 2018 which primarily reflected the impact of lower reinsurance rates for the treaty year effective May 1, 2019.
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to SPCs in our Segregated Portfolio Cell Reinsurance segment, external reinsurers or to any unaffiliated captive insurers. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Our workers’ compensation policies are twelve month term policies, and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of our insureds' payrolls. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period. In addition, we record an estimate for EBUB and evaluate the estimate on a quarterly basis. We did not adjust the EBUB estimate during the years ended December 31, 2019 or 2018. The increase in net premiums earned primarily reflected the pro rata effect of higher net premiums written during the preceding twelve months, partially offset by the retrospective policy premium adjustments, as previously discussed.
The increase in DPAC amortization for the year ended December 31, 2019 as compared to 2018 primarily reflected the increase in net premiums earned. The increase in other underwriting and operating expenses for the year ended December 31, 2019 as compared to 2018 reflected an increase in compensation and benefit related costs, technology costs, including an increase in the allocation of technology costs charged by our Corporate segment, professional fees and bad debt expense.
The increase in the expense ratio for the year ended December 31, 2019, exclusive of the items noted in the table, primarily reflected the increase in other underwriting and operating expenses noted above.
The Segregated Portfolio Cell Reinsurance segment reflects the operating results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations, as discussed in Note 17 of the Notes to Consolidated Financial Statements. SPCs are segregated pools of assets and liabilities that provide an insurance facility for a defined set of risks. Assets of each SPC are solely for the benefit of that individual cell and each SPC is solely responsible for the liabilities of that individual cell. Assets of one SPC are statutorily protected from the creditors of the others. Each SPC is owned, fully or in part, by an agency, group or association and the operating results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC operating results attributable to external cell participants are reflected as an SPC dividend expense in our Segregated Portfolio Cell Reinsurance segment. In addition, our Segregated Portfolio Cell Reinsurance segment includes the SPC investment results as the investments are solely for the benefit of the cell participants, and investment results attributable to external cell participants are reflected in the SPC dividend expense. As of December 31, 2019, there were 27 (23 active) SPCs. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments. As of December 31, 2019, there were two SPCs that assumed both workers' compensation insurance and healthcare professional liability insurance and one SPC that assumed only healthcare professional liability insurance. In addition, an SPC at Eastern Re assumed an errors and omissions liability policy from a captive insurer unaffiliated with ProAssurance during 2019.
Net investment income for the years ended December 31, 2019 and 2018 was primarily attributable to interest earned on available-for-sale fixed maturity investments, which primarily includes investment-grade corporate debt securities. Net realized investment gains for the year ended December 31, 2019 primarily reflected realized gains from the sale of equity securities. Net realized investment losses for the year ended December 31, 2018 primarily reflected a decrease in the fair value of the equity securities portfolio.
The following table summarizes the calendar year net loss ratios by separating losses between the current accident year and all prior accident years. The current accident year net loss ratio reflected the aggregate loss ratio for all programs. Loss reserves are estimated for each program on a quarterly basis. Due to the size of some of the programs, quarterly loss results can create volatility in the current accident year net loss ratio to fluctuate significantly from period to period.
For the year ended December 31, 2019, our Segregated Portfolio Cell Reinsurance segment's net loss ratio was affected by a $10 million reserve that an SPC at Eastern Re established during the second quarter of 2019. This SPC previously assumed an errors and omissions policy that provides coverage for losses up to a lifetime maximum of $10 million from a captive insurer unaffiliated with ProAssurance. During the second quarter of 2019, a claim was filed under this policy that met the lifetime maximum limit and, accordingly, a $10 million reserve was recorded. We do not participate in the SPC that assumed this policy; therefore, these losses are the obligation of the external cell participants and are reflected as an offset in the SPC dividend expense (income) and have no effect on our Segregated Portfolio Cell Reinsurance segment net operating results for the year ended December 31, 2019. Given the significance of this one-time event, we have removed the impact of the policy from each of the ratios below (as shown in the columns labeled "Adjusted") in order to assist in the comparability between periods. Calendar year and current accident year net loss ratios for the years ended December 31, 2019 and 2018 were as follows:
ended December 31, 2019 as compared to 2018 primarily reflected an increase in the provision for federal income taxes and fees related to letters of credit posted as program collateral. The provision for federal income taxes totaled $1.1 million and $0.4 million in 2019 and 2018, respectively.
As previously mentioned, we normally report results from our involvement in Lloyd's Syndicates on a quarter lag; however, during the fourth quarter of 2018, we accelerated our reporting of approximately $6.8 million, net of reinsurance and reinstatement premiums, of storm-related losses in connection with Hurricane Michael, which affected the northwest portion of Florida during October 2018. These losses would have normally been reported in the first quarter of 2019 due to the aforementioned quarter delay. However, due to the availability and significance of these estimates, we accelerated our reporting of these storm-related losses into the fourth quarter of 2018, which is consistent with our policy of disclosing significant losses in the period in which they become known to us. No such adjustments were made during 2019.
Syndicate 1729 utilizes reinsurance to provide the capacity to write larger limits of liability on individual risks, to provide protection against catastrophic loss and to provide protection against losses in excess of policy limits. Ceded premiums written increased for the year ended December 31, 2019 as compared to 2018 primarily due to the overall increase in gross premiums written.
over twelve months. During 2019, the increase in gross premiums earned also reflected our participation in Syndicate 6131 at the beginning of 2018, which was not reflected in our Lloyd's Syndicates Segment results until the second quarter of 2018.
Underwriting, policy acquisition and operating expenses increased by $3.0 million for the year ended December 31, 2019 as compared to 2018 primarily due to an increase in DPAC amortization driven by an increase in net premiums earned, partially offset by the effect of higher operational expenses incurred associated with establishing Syndicate 6131 during 2018.
The decrease in the underwriting expense ratio for the year ended December 31, 2019 as compared to 2018 was primarily due to the increased volume of earned premium as a result of the growth of the Syndicates. In addition, the decrease in the underwriting expense ratio reflected the effect of higher operational expenses in 2018 associated with the establishment of Syndicate 6131.
Net investment income increased during the year ended December 31, 2019 as compared to 2018 due to an increase in interest earned on our FAL due to a higher average FAL balance in 2019 as compared to 2018. Our FAL primarily includes investment-grade corporate debt securities. Syndicate 1729's fixed maturities portfolio includes certain debt securities classified as trading securities. Investment results associated with these fixed maturity trading securities are reported on the same quarter lag.
the results of the LPs/LLCs become available. Our investment results from our portfolio of investments in LPs/LLCs decreased for the year ended December 31, 2019 driven by lower reported earnings from two LP investments which accounted for $20.5 million of the decrease as compared to 2018.
Due to our consolidated loss before income taxes recognized for the year ended December 31, 2019, the tax credits generated in 2019 from our tax credit partnership investments of $18.1 million were deferred and are expected to be utilized in future periods. Tax credits in the above table recognized during the year ended December 31, 2019 included tax credits of $3.8 million that were carried forward from 2018, which had previously been carried back to the 2017 tax year; however because we expect to carryback our tax loss for the year ended December 31, 2019 to the 2017 tax year, a portion of those tax credits have been recaptured. Of the $3.8 million of tax credits recaptured and recognized during the year ended December 31, 2019, $0.2 million was recognized as a current income tax benefit and $3.6 million was recognized as a deferred income tax benefit in 2019. See Note 6 of the Notes to Consolidated Financial Statements for further information.
We recognized $55.1 million of net realized investment gains during 2019, driven by both realized gains from the sale of equity investments and unrealized holding gains on our equity portfolio due to the improvement in the market since December 31, 2018, which caused our equity securities to increase in value. The most significant sectors that benefited from the improvement in the market were the financial and energy sectors.
We recognized $39.9 million of net realized investment losses during 2018, primarily driven by unrealized holding losses on our equity trading portfolio and, to a lesser extent, unrealized losses on convertible securities. The primary driver of these unrealized holding losses was market volatility throughout 2018, which caused our securities to decline in value. The most significant sectors impacted by the market volatility were the financial and energy sectors, although all sectors were impacted.
The increase in operating expenses during 2019 as compared to 2018 was primarily driven by an increase in employee benefits, primarily medical costs associated with employee health plans, and other one-time compensation related expenses as well as professional fees, largely offset by a decrease in share-based compensation expenses and, to a lesser extent, technology-related expenses. The decrease in share-based compensation expenses in 2019 was attributable to a decrease in value of the projected awards based on the decline of one of the associated performance metrics as well as fewer awards outstanding as compared to 2018. The decrease in technology expenses was due to an increase in the allocation of technology costs to the operating subsidiaries within our Specialty P&C and Workers' Compensation Insurance segments from our Corporate segment.
Consolidated interest expense increased during 2019 as compared to 2018 driven by the change in the fair value of our interest rate cap. The interest rate cap is designated as an economic hedge of interest rate risk associated with our variable rate Mortgage Loans. Excluding the impact of the change in fair value of our interest rate cap, consolidated interest expense decreased during 2019 as compared to 2018 driven by lower interest expense on our Revolving Credit Agreement as we did not have any outstanding borrowings during the year ended December 31, 2019 compared to weighted average outstanding borrowings of $41 million for the year ended December 31, 2018. Interest expense on our Revolving Credit Agreement for the year ended December 31, 2019 primarily reflected unused commitment fees as there were no outstanding borrowings during the period. See further discussion of our outstanding debt in Note 11 and further discussion of our interest rate cap agreement in Note 12 of the Notes to Consolidated Financial Statements.
Tax expense allocated to our Corporate segment includes U.S. tax only, which would include U.S. tax expense incurred from our corporate membership in Lloyd's of London and tax expense incurred from SPCs at Inova Re, one of our Cayman Islands reinsurance subsidiaries, as those SPCs elected to be taxed as U.S. taxpayers. The U.K. tax expense incurred by the U.K. based subsidiaries of our Lloyd's Syndicates segment is allocated to that segment. Consolidated tax expense reflects tax expense of both segments, as shown in the table below:
Consolidated Statements of Changes in Capital - Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows - Years Ended December 31, 2019, 2018 and 2017
The Supplementary Financial Information required by Item 302 of Regulation S-K is included in Note 20 of the Notes to Consolidated Financial Statements of ProAssurance and its subsidiaries.