The Excess and Surplus Lines segment offers E&S commercial lines liability and property insurance in every U.S. state and the District of Columbia through James River Insurance and its wholly-owned subsidiary, James River Casualty. James River Insurance and James River Casualty are both non-admitted carriers. Non-admitted carriers writing in the E&S market are not bound by most of the rate and form regulations imposed on standard market companies, allowing them flexibility to change the coverage terms offered and the rate charged without the time constraints and financial costs associated with the rate and form filing process. In 2017, the average account in this segment (excluding commercial auto policies) generated annual gross written premiums of approximately $19,000. The Excess and Surplus Lines segment distributes primarily through wholesale insurance brokers. Members of our management team have participated in this market for over three decades and have long-standing relationships with the wholesale agents who place E&S lines accounts. The Excess and Surplus Lines segment produced 49.0% of our gross written premiums and 61.3% of our net written premiums for the year ended December 31, 2017.
We plan to make changes to the Company’s structure in 2018 to minimize the impact of BEAT that include the formation of Carolina Re, a Bermuda-domiciled, wholly owned subsidiary of James River Group, Inc. We expect Carolina Re to be a Class 3A reinsurer and make an irrevocable election to be taxed as a U.S. domestic corporation under Section 953(d) of the Code. Effective January 1, 2018, we will discontinue ceding 70% of our U.S.-written premiums to JRG Re and will instead cede 70% of our U.S.-written premiums to Carolina Re. We also expect Carolina Re will enter into a stop loss reinsurance agreement with JRG Re. While Carolina Re will be subject to U.S. corporate income tax, we do not expect that it will be subject to BEAT in fiscal year 2018 as the Company is expected to have sufficient regular U.S. income tax liability compared to the BEAT liability.
At December 31, 2017, we have $181.8 million of goodwill and $38.3 million of net intangible assets on our consolidated balance sheet, primarily resulting from the acquisition of James River Group in December 2007.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) on December 22, 2017. Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited to accumulated other comprehensive income. This ASU allows for the option to reclassify the stranded tax effects resulting from the implementation of the TCJA out of accumulated other comprehensive income and into retained earnings. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. As the adoption of ASU 2016-01 in 2018 will result in the reclassification of the entire unrealized balance on equity securities from accumulated other comprehensive income into retained earnings, only the stranded tax effects on the unrealized balances of our fixed income securities will be impacted by the adoption of ASU 2018-02 . The reclassification will result in a $710,000 decrease to the Company's retained earnings with a corresponding increase to accumulated other comprehensive income in the first quarter of 2018.
Combined Ratio. The combined ratio of the Excess and Surplus Lines segment for the year ended December 31, 2017 was 93.6%, comprised of a loss ratio of 80.2% and an expense ratio of 13.4%. The combined ratio of the Excess and Surplus Lines segment for the year ended December 31, 2016 was 84.3%, comprised of a loss ratio of 62.6% and an expense ratio of 21.7%.
The $8.5 million increase in net investment income year-over-year was largely driven by the performance of the Company’s renewable energy LLCs. Net investment income from renewable energy LLCs increased from $3.5 million for the year ended December 31, 2016 to $10.6 million for the year ended December 31, 2017. Excluding the private investments, our net investment income increased by $3.9 million over the prior year due to a 11.7% increase in our cash and invested assets from $1,442.1 million at December 31, 2016 to $1,611.1 million at December 31, 2017 and an increase in investment yield.
Expense Ratio. The expense ratio decreased from 25.8% in 2015 to 21.7% in 2016. The decrease in the expense ratio is primarily attributable to the 25.1% increase in net earned premiums without a proportional increase in the total amount of operating expenses and to the increase in fee income from $3.2 million in 2015 to $10.1 million in 2016.
The junior subordinated debt contains certain covenants with which we are in compliance as of December 31, 2017.
We use catastrophe modeling software to analyze the risk of severe losses from hurricanes and earthquakes on our exposure. We utilize the model in our risk selection, pricing, and to manage our overall portfolio probable maximum loss (“PML”) accumulations. A PML is an estimate of the amount we would expect to pay in any one catastrophe event within a given annual probability of occurrence (i.e. a return period or loss exceedance probability). Based upon the modeling of our Excess and Surplus Lines segment, a $45.0 million gross catastrophe loss would exceed our 1 in 1,000 year PML. In the event of a $45.0 million gross property catastrophe loss to the Excess and Surplus Lines segment, we estimate our pre-tax cost at approximately $7.4 million, including reinstatement premiums and net retentions. In addition to this retention, we would retain any losses in excess of our reinsurance coverage limits.
The following is a summary of our Specialty Admitted Insurance segment’s ceded reinsurance in place as of December 31, 2017:
At December 31, 2017, we had reinsurance recoverables on unpaid losses of $302.5 million and reinsurance recoverables on paid losses of $11.3 million, and all material recoverable amounts were from companies with A.M. Best ratings of “A-” or better or collateral had been posted by the reinsurer for our benefit.
Interest on debt obligations was calculated using the LIBOR rate as of December 31, 2017 with the assumption that interest rates would remain flat over the remainder of the period that the debt was outstanding.