Despite the reduction in significant property catastrophe events in 2012 our combined ratio for the year ended December 31, 2012 increased 1.3 percentage points compared to the prior year. The reduction in property catastrophe losses was partially offset by losses in our agriculture line of business resulting from the severe drought conditions experienced in many parts of the United States in 2012. For the year ended December 31, 2012 our agriculture line of business experienced an underwriting loss of $17.5 million. In addition, the level of net favorable development of prior year loss reserves was lower than in the prior year. Net favorable development of prior year loss reserves was $90.8 million for the year ended December 31, 2012, principally within our global insurance and reinsurance segments, compared to $153.3 million of net favorable development in the year ended December 31, 2011.
Net favorable development for the reinsurance segment of $53.4 million, excluding the development associated with changes in reinsurance premium estimates described below. We recorded net favorable development on long tail lines of business, including $28.1 million from general casualty primarily on the 2002 year and $19.8 million on our whole account line of business primarily on 2006-2007 years. This was partially offset by unfavorable development of $17.4 million on medical malpractice primarily on 2008-2011 years. We recorded net favorable development on short tail lines of business, including $7.1 million on property primarily on 2010 and 2011 years;
Our structured deposit has a fair value that is based on a publicly quoted index. Our derivatives holdings comprise convertible bond equity call options, interest rate linked derivative instruments, credit derivatives and foreign currency forward contracts. The fair value of the equity call options is determined using an Option Adjusted Spread model, the significant inputs for which include equity prices, interest rates and benchmark yields. The other derivative instruments trade in the over-the-counter derivative market, or are priced based on broker/dealer quotes or quoted market prices for similar securities. Fair values of our catastrophe bonds are based on dealer quotes and, if available, trade prices.
Acquisition costs. Our acquisition cost ratio for the year ended December 31, 2012 remained consistent with the prior year. The insurance and reinsurance contracts we write have a wide range of acquisition cost ratios. Changes in the mix of business written and earned and the amount and type of reinsurance purchased impact our acquisition cost ratio from period to period. Our mix between insurance and reinsurance business did not change significantly between 2011 and 2012.
For the year ended December 31, 2012, our results included $18.5 million of net losses relating to Hurricane Sandy compared to net losses of $15.4 million related to property catastrophe events in the year ended December 31, 2011. A portion of the losses in the current and prior year fell within our attritional loss ratio, as we expect a certain level of property losses in each period.
Acquisition costs. Acquisition costs are presented net of ceding commission income associated with reinsurance premiums ceded. These ceding commissions compensate us for the costs of producing the portfolio of risks ceded to our reinsurers. The acquisition cost ratio was consistent for the year ended December 31, 2012 compared to the prior years.
Gross premiums written in our property line of business increased $30.8 million principally in our international property business where we continued to experience improvement in pricing conditions. The growth in international property also included an increase in gross premiums written of $13.8 million related to our Latin America operations. The increase in property gross premiums written was partially offset by a decrease in reinstatement premiums. The year ended December 31, 2012 included $8.9 million of reinstatement premiums related to catastrophe events compared to $18.5 million in the prior year;
The ratio of reinsurance premiums ceded to gross premiums written for the year ended December 31, 2012 was 19.1% compared to 9.3% in the prior year. The increase was principally due to increased property reinsurance purchases, primarily to manage aggregate risk exposures.
The ratio of acquisition costs to net premiums earned for the year ended December 31, 2011 increased 1.2 percentage points compared to the year ended December 31, 2010. The variance is the result of shifts in the mix of business written and earned. For the year ended December 31, 2011, a higher proportion of net earned premiums were from our auto, whole account and credit/surety lines of business, which generally have higher acquisition cost ratios compared to other lines of business.
Gross premiums written, reinsurance premiums ceded, net premiums earned, acquisition costs and general and administrative expenses represent ongoing premium receipts or adjustments and related administration expenses on existing contracts. Claims and policy benefits in each period represent reinsured policy claims payments net of the change in claims and policy liabilities.
Net investment income. Net investment income for the year ended December 31, 2012 decreased compared to the prior year. As investments in our fixed maturity portfolio mature, lower reinvestment yields on new purchases have reduced the average yield on our investments.
The largest contributors by investment strategy to the decrease in fair value for the year ended December 31, 2011 were the event-driven arbitrage and diversified arbitrage strategies. As of December 31, 2011, 8.5% and 7.0% of our hedge fund portfolio was allocated to the event-driven arbitrage and diversified arbitrage strategies, respectively. The largest increase in fair value offsetting the overall decrease for the year was contributed by the global macro strategy. As of December 31, 2011, 19.6% of our hedge fund portfolio was allocated to this strategy.
We performed a review of securities in an unrealized loss position as of December 31, 2012 for other-than-temporary impairments, which included the consideration of relevant factors, including prepayment rates, subordination levels, default rates, credit ratings, weighted average life and cash flow testing. Together with our investment managers, we continue to monitor our potential exposure to credit losses in mortgage-backed and asset-backed securities, and we will make adjustments to the investment portfolio, if and when we deem necessary.
As of December 31, 2012, we held no government securities issued by Greece, Ireland, Italy, Portugal or Spain.
While we tailor our fixed maturities portfolios in an effort to match the duration of expected loss and benefit payments, increased loss amounts or settlement of losses and benefits earlier than anticipated can result in greater cash needs. We maintain a significant working cash balance and have generated positive cash flow from operations in each of our last eight years of
In the ordinary course of business, we are required to provide letters of credit or other regulatory approved security to certain of our clients to meet contractual and regulatory requirements. As of December 31, 2012, we had two U.S. dollar denominated letter of credit facilities totaling $1,175.0 million with an additional $500.0 million available, subject to certain conditions. On that date, we had $670.9 million in letters of credit outstanding under these facilities. We also had a British pound sterling, or GBP, denominated letter of credit facility of GBP 30.0 million ($48.8 million) to support our London branch of Alterra Europe, of which GBP 16.8 million ($27.3 million) was utilized as of December 31, 2012. Each of our credit facilities requires that we comply with certain financial covenants, which may include covenants related to maximum debt to capital ratio,
periods beginning on or after December 15, 2011 with prospective or retrospective application permitted. This standard did not
quantitative impairment test for indefinite-lived intangible assets. An entity that elects to perform a qualitative assessment is
asset is impaired. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after
ASU 2013-02, Comprehensive Income (220) - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income