BNSF operates various facilities and equipment to support its transportation system, including its infrastructure, locomotives and freight cars. It also owns or leases other equipment to support rail operations, such as vehicles. Support facilities for rail operations include yards and terminals throughout its rail network, system locomotive shops to perform locomotive servicing and maintenance, a centralized network operations center for train dispatching and network operations monitoring and management in Fort Worth, Texas, regional dispatching centers, computers, telecommunications equipment, signal systems and other support systems. Transfer facilities are maintained for rail-to-rail as well as intermodal transfer of containers, trailers and other freight traffic and include approximately 25 intermodal hubs located across the system. BNSF owns or holds under non-cancelable leases exceeding one year approximately 8,000 locomotives and 70,000 freight cars, in addition to maintenance of way and other equipment.
Losses and loss adjustment expenses regularly include gains or losses for the decreases or increases in the ultimate claim loss estimates during the period for prior years’ loss events. These gains or losses produce corresponding increases or decreases to pre-tax underwriting gains. GEICO’s losses and loss adjustment expenses included gains of $222 million in 2018 and losses of $517 million in 2017 with respect to prior years’ loss events. In addition, claims frequencies in 2018 for property damage, collision, and bodily and personal injury protection coverages declined (two to four percent range) compared to 2017. Average claims severities in 2018 increased for property damage and collision coverages (four to six percent range) and bodily injury coverage (five to seven percent range) versus 2017.
Pre-tax underwriting losses in 2017 were $310 million compared to pre-tax gains of $462 million in 2016. Losses and loss adjustment expenses in 2017 increased approximately $4.5 billion (21.2%) compared to 2016. Our loss ratio in 2017 increased 4.0 percentage points compared to 2016. The increase in losses incurred was attributable to increased average claims severities, losses from significant catastrophe events in 2017 ($450 million) and losses with respect to prior years’ loss events ($517 million). Average claims severities were higher in 2017 for property damage and collision coverages (four to six percent range) and bodily injury coverage (five to seven percent range). Claims frequencies in 2017 were relatively unchanged compared to 2016 for bodily injury coverage, decreased about one percent for property damage and collision coverages and decreased about two to three percent for personal injury protection coverage. Underwriting expenses increased $277 million (7.0%) in 2017 compared to 2016. Our expense ratio in 2017 declined 1.1 percentage points compared to 2016.
A summary of property/casualty reinsurance underwriting results follows (dollars in millions).
We currently own 90.9% of the outstanding common stock of Berkshire Hathaway Energy Company (“BHE”), which operates a global energy business. BHE’s domestic regulated utility interests are comprised of PacifiCorp, MidAmerican Energy Company (“MEC”) and NV Energy. In Great Britain, BHE subsidiaries operate two regulated electricity distribution businesses referred to as Northern Powergrid. BHE also owns two domestic regulated interstate natural gas pipeline companies. Other energy businesses include a regulated electricity transmission-only business in Alberta, Canada (“AltaLink, L.P.”) and a diversified portfolio of mostly renewable independent power projects. In addition, BHE also operates the second-largest residential real estate brokerage firm and one of the largest residential real estate brokerage franchise networks in the United States.
The rates our regulated businesses charge customers for energy and services are based, in large part, on the costs of business operations, including income taxes and a return on capital, and are subject to regulatory approval. To the extent these regulated operations are not allowed to include such costs in the approved rates, operating results will be adversely affected. Among its provisions, the TCJA reduced the U.S. federal statutory income tax rate of our domestic regulated utilities from 35% to 21%. In 2018, BHE’s regulated subsidiaries began passing the benefits of lower income tax expense attributable to the TCJA to customers through various regulatory mechanisms, including lower rates, higher depreciation and reductions to rate base, which produced lower revenue and pre-tax earnings in 2018. Revenues and earnings of BHE are summarized below (dollars in millions).
Corporate interest includes interest on unsecured debt issued by the BHE holding company and borrowings from Berkshire insurance subsidiaries in connection with certain of BHE’s business acquisitions. The borrowings from Berkshire insurance subsidiaries were repaid in the third quarter of 2017. Corporate interest in 2017 also included pre-tax charges of $410 million from a tender offer completed in December 2017 to redeem certain long-term debt of BHE. Otherwise, corporate interest declined 6% and 7%, respectively, in 2018 and 2017 as compared to the corresponding prior years, primarily due to lower average borrowings.
BHE’s consolidated effective income tax rates were (18.3)% in 2018, 5.9% in 2017 and 12.9% in 2016. BHE’s effective income tax rates regularly reflect significant production tax credits from wind-powered electricity generation placed in service by our domestic regulated utilities and other energy businesses. The decrease in the effective income tax rate in 2018 compared to 2017 was attributable to the reduction in the U.S. Federal corporate income tax rate, the impacts of rate making, adjustments to the amounts recorded for the repatriation tax on foreign earnings, higher production tax credits and lower U.S. income taxes on foreign earnings. The effective income tax rate in 2017 decreased versus 2016 primarily due to an increase in production tax credits.
Marmon’s earnings in 2017 declined 3.5% compared to 2016, primarily due to lower earnings of the Rail Products and Services sector, partially offset by the effects of business acquisitions and ongoing cost control efforts.
Revenues of the building products group in 2018 were approximately $18.7 billion, an increase of 10.2% compared to 2017. Pre-tax earnings of the building products group were approximately $2.3 billion in 2018, an increase of 8.8% versus 2017. Overall, pre-tax earnings as a percentage of revenues were 12.5% in 2018 and 12.7% in 2017. The pre-tax earnings increase was primarily due to higher earnings from Clayton Homes and Shaw, partly offset by lower earnings from Johns Manville.
Berkshire parent company debt outstanding at December 31, 2018 was approximately $16.9 billion, a decrease of $1.9 billion since December 31, 2017, reflecting term debt maturities of $1.55 billion and a $366 million decrease attributable to foreign currency exchange rate changes applicable to the 6.85 billion par amount of Euro denominated senior notes. Berkshire parent company debt of $750 million matures in 2019.
The nature and extent of loss information provided under many facultative (individual risk), per occurrence excess or retroactive reinsurance contracts may not differ significantly from the information received under a primary insurance contract if reinsurer personnel either work closely with the ceding company in settling individual claims or manage the claims themselves. However, loss information is often less detailed with respect to aggregate excess-of-loss and quota-share contracts. Additionally, loss information we receive through periodic reports is often in a summary format rather than on an individual claim basis. Loss data includes recoverable paid losses, as well as case loss estimates. Ceding companies infrequently provide reliable IBNR estimates to reinsurers.
General Re’s process for estimating unpaid losses and loss adjustment expenses starts with case loss estimates reported by ceding companies. We independently evaluate certain reported case losses and if appropriate, we use our own case liability estimate. As of December 31, 2018, our case loss estimates exceeded ceding company estimates by approximately $2.0 billion, which were concentrated in legacy workers’ compensation claims occurring over 10 years ago. We also periodically conduct detailed reviews of individual client claims, which may cause us to adjust our case estimates.
Equity securities represent a significant portion of our investment portfolio. Strategically, we strive to invest in businesses that possess excellent economics and able and honest management, and we prefer to invest a meaningful amount in each investee. Consequently, equity investments are concentrated in relatively few issuers. At December 31, 2018, approximately 68% of the total fair value of equity securities was concentrated in five issuers.
Cash equivalents consist of demand deposit and money market accounts and investments with maturities of three months or less when purchased. Short-term investments in U.S. Treasury Bills with remaining maturities exceeding three months at the time of purchase are stated at amortized cost, which approximates fair value.
We carry derivative contracts in our Consolidated Balance Sheets at fair value, net of reductions permitted under master netting agreements with counterparties. We record the changes in fair value of derivative contracts that do not qualify as hedging instruments for financial reporting purposes in earnings or by our regulated utilities businesses as regulatory assets or liabilities, as applicable, when inclusion in regulated rates is probable.
In each of the past three years, we also completed several smaller-sized business acquisitions, which we consider as “bolt-ons” to several of our existing business operations. Aggregate consideration paid for bolt-on acquisitions was approximately $1.0 billion in 2018, $2.7 billion in 2017 and $1.4 billion in 2016. We do not believe that these acquisitions are material, individually or in the aggregate to our Consolidated Financial Statements.
Trade receivables include unbilled revenue of $554 million and $665 million as of December 31, 2018 and 2017, respectively, attributable to the regulated utility businesses.
We recorded derivative contract losses of $300 million in 2018 and gains of $718 million in 2017, with respect to our equity index put option contracts. The losses in 2018 were primarily due to decreases in equity index values during the fourth quarter. Derivative contract gains in 2016 were $751 million, which included $662 million related to equity index put option contracts and $89 million related to a credit default contract that was terminated.
Incurred losses and loss adjustment expenses in the preceding table were recorded in earnings in each period and related to insured events occurring in the current year (“current accident year”) and events occurring in all prior years (“prior accident years”). Current accident year losses in 2018 included $1.6 billion from four significant catastrophe events, while current accident year losses in 2017 included approximately $3 billion from six significant catastrophe events during that year. As discussed in Note 2, NICO acquired MLMIC, a writer of medical professional liability insurance, on October 1, 2018.
Reconciliations of assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for each of the three years ending December 31, 2018 follow (in millions).
Pursuant to the terms of agreements with noncontrolling shareholders in our less than wholly-owned subsidiaries, we may be obligated to acquire their equity interests. If we had acquired all outstanding noncontrolling interests as of December 31, 2018, we estimate the cost would have been approximately $5.6 billion. However, the timing and the amount of any such future payments that might be required are contingent on future actions of the noncontrolling owners.
The tabular information that follows shows data of reportable segments reconciled to amounts reflected in our Consolidated Financial Statements. Intersegment transactions are not eliminated from segment results when management considers those transactions in assessing the results of the respective segments. Furthermore, our management does not consider investment and derivative gains/losses, amortization of certain purchase accounting adjustments related to Berkshire’s business acquisitions or certain other corporate income and expense items in assessing the financial performance of operating units. Collectively, these items are included in reconciliations of segment amounts to consolidated amounts.