Intangible asset amortization expenses - Intangible asset amortization of $10 million in 2017 related to the amortization of intangible assets as a result of Sirius Group's acquisitions of IMG and Armada in the second quarter of 2017. See Note 3 "Significant transactions" in Sirius Group's audited financial statements included elsewhere in this Annual Report on Form 10-K.
The fixed income portfolio returned 2.9% on a U.S. dollar basis and 1.8% in local currencies in 2017. Our U.S. portfolio returned 1.9% versus the BarcAg1-3 of 0.9%. Our non-U.S. portfolio returned 0.8% in original currencies which compares to the OMRX of 0.3% due to a market-driven strong performance of our Canadian dollar, EUR and SEK-denominated fixed income holdings.
(2)Component of Net unrealized investment (losses) on the Consolidated Statements of (Loss) Income
As of December 31, 2018 and 2017, Sirius Group's investment portfolio included approximately $468 million and $575 million in non-U.S. dollar denominated investments, most of which is denominated in SEK, EUR, GBP, CAD and NIS. The investment values in this portfolio are impacted by changes in the exchange rate between the U.S. dollar and those currencies.
Gross written premiums increased 49% to $325 million in 2018 from $218 million in 2017. Increases in gross written premiums were primarily driven by new initiatives in Casualty ($98 million), partially offset by a decline in Marine ($21 million). Additionally, gross written premiums include amounts related to Environmental ($10 million) and Surety ($7 million).
Sum of Total common shareholders' equity and Series B preference shares (Adjusted book value) and Adjusted book value per common and preference shares outstanding, including Series B preference shares (Adjusted book value per Share)
Cash flows from operations for the years ended December 31, 2018, 2017, and 2016
On November 1, 2016, Sirius Group issued $400.0 million face value of 2016 SIG Senior Notes at an issue price of 99.209% for net proceeds of $392.4 million after taking into effect issuance costs.
During the year ended December 31, 2017, Sirius Group had net favorable prior year loss reserve development of $1 million. During 2017, Sirius Group strengthened its asbestos loss reserves by $59 million, which was offset by reductions of other runoff claims reserves of $46 million, which is reflected in Runoff & Other. Specialty & Casualty had net favorable prior year loss reserve development of $12 million, which is comprised of Marine ($5 million), Trade Credit ($4 million), Aviation & Space ($2 million), and Contingency ($1 million).
During the year ended December 31, 2016, Sirius Group had net favorable prior year loss reserve development of $64 million. The major reductions in loss reserve estimates were recognized in Global Property ($27 million) and Specialty & Casualty ($25 million). The decrease in Global Property was driven by Other Property ($23 million) due primarily to reductions in the ultimate loss estimates for natural catastrophes that occurred between 2010 and 2015 due to lower than expected claims activity. The decrease in Specialty & Casualty was mainly due to Aviation & Space and Marine with decreases of $12 million and $7 million, respectively. Asbestos losses of $14 million in 2016 were offset by other long tail favorable loss reserve development in Runoff & Other.
Sirius Group early adopted Accounting Standards Update ("ASU") No. 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates Step Two from the goodwill impairment test. Under the new standard, to the extent the carrying amount of a reporting unit exceeds the fair value, an impairment charge should be recorded that is equal to the difference. The impairment charge recognized should not exceed the total amount of goodwill allocated to the reporting unit.
Sirius Group writes primary insurance business ("primary business" or "insurance"), as well as treaty and facultative reinsurance business ("assumed business"). The majority of Sirius Group's treaty reinsurance premiums are derived from pro-rata ("proportional") and excess of loss ("non-proportional") reinsurance contracts, which in 2018 amounted to 47% and 28%, respectively, of its total gross written premiums. Primary business represented 25% of total gross written premiums.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Premiums written are recognized as revenues and are earned ratably over the term of the related policy or reinsurance treaty. Premiums written include amounts reported by brokers, managing general underwriters, and ceding companies, supplemented by the Company's own estimates of premiums where reports have not been received. The determination of premium estimates requires a review of the Company's experience with the ceding companies, managing general underwriters, familiarity with each market, the timing of the reported information, an analysis and understanding of the characteristics of each class of business, and management's judgment of the impact of various factors, including premium or loss trends, on the volume of business written and ceded to the Company. On an ongoing basis, the Company's underwriters review the amounts reported by these third parties for reasonableness based on their experience and knowledge of the subject class of business, taking into account the Company's historical experience with the brokers or ceding companies. Unearned premiums represent the portion of premiums written that are applicable to future insurance or reinsurance coverage provided by policies or treaties in force.
(8)General and administrative expenses are presented net of General and administrative expenses, MGU + Runoff & Other (the sum of General and administrative expenses, MGU + Runoff & Other and General and administrative expenses is equal to General and administrative expenses on the Consolidated Statements of (Loss) Income).
Sirius Group's net reserves for A&E losses were $200.3 million and $220.6 million as of December 31, 2018 and 2017, respectively. Sirius Group's asbestos three-year net paid survival ratio was approximately 10.2 years as of December 31, 2018 and 2017. Sirius Group's environmental three-year net paid survival ratio was approximately 4.2 years and 4.3 years as of December 31, 2018 and 2017, respectively.
The following tables provide a listing of the five highest gross recoverable amounts by reinsurer, along with percentage of total recoverable amount, the reinsurer's Standard & Poor's reinsurer rating, and the percentage that the recoverable is collateralized as of December 31, 2018 and 2017:
As of December 31, 2018 and 2017, Sirius Group reported $3.2 million and $0.3 million, respectively, in Accounts payable on unsettled investment purchases.
Sirius Group uses various financial instruments in the normal course of its business. The carrying values of Cash, Accrued investment income, certain other assets, Accounts payable on unsettled investment purchases, certain other liabilities, and other financial instruments not included in the table below approximated their fair values at December 31, 2018 and 2017, due to their respective short maturities. As these financial instruments are not actively traded, their respective fair values are classified within Level 3. The following table includes financial instruments for which the carrying value differs from the estimated fair values at December 31, 2018 and 2017:
Taking into effect the amortization of the original issue discount and all underwriting and issuance expenses, the 2016 SIG Senior Notes yield an effective rate of approximately 4.7% per annum. Sirius Group recorded $19.1 million, $19.1 million, and $3.2 million of interest expense, inclusive of amortization of issuance costs on the 2016 SIG Senior Notes for the years ended December 31, 2018, 2017, and 2016, respectively.
Sirius Group executes foreign currency swaps to manage foreign currency exposure. The foreign currency swaps have not been designated or accounted for under hedge accounting. Changes in fair value are recognized as unrealized gains or losses and are presented within Net foreign exchange gains (losses). The fair value of the foreign currency swaps has been estimated using a non-binding single broker quote and accordingly, has been classified as a Level 3 measurement as of December 31, 2018 and 2017. Sirius Group does not provide or hold any collateral associated with the swaps.
As of December 31, 2018, the total number of shares reserved for issuance under the LTIP are 5,614,904. Sirius Group has recorded compensation expense of $1.0 million, $3.9 million, and $16.6 million for the years ended December 31, 2018, 2017, and 2016, respectively.
The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31, 2018, 2017, and 2016:
Sirius International has the ability to pay dividends up to Sirius Bermuda subject to the availability of unrestricted equity, calculated in accordance with the Swedish Act on Annual Accounts in Insurance Companies and the FSA. Unrestricted equity is calculated on a consolidated group account basis and on a parent account basis. Differences between the two include but are not limited to accounting for goodwill, subsidiaries (with parent accounts stated at original foreign exchange rates), taxes and pensions. Sirius International's ability to pay dividends is limited to the "lower of" unrestricted equity as calculated within the group and parent accounts. As of December 31, 2018, Sirius International had $373.4 million (based on the December 31, 2018 SEK to USD exchange rate) of unrestricted equity on a parent account basis (the lower of the two approaches) available to pay dividends in 2019. The amount of dividends available to be paid by Sirius International in any given year is also subject to cash flow and earnings generated by Sirius International's business, the maintenance of adequate solvency capital ratios for Sirius International and the consolidated SIUK group, as well as to dividends received from its subsidiaries, including Sirius America. Earnings generated by Sirius International's business that are allocated to the Safety Reserve are not available to pay dividends (see "Safety Reserve" below). During 2018, Sirius International did not declare a dividend and paid $20.3 million of dividends declared in 2017.