As we continue to reposition the insurance segment, we decided to no longer underwrite international professional liability and marine hull on the Lloyd’s platform and aviation effective August 2018. In addition, we closed Aspen U.K.’s reinsurance branches in Paris, France and Cologne, Germany during 2018.
On January 16, 2019, Aspen Bermuda entered into a number of standard fixed for floating interest rate swaps with a total notional amount of $3,318.0 million due to mature between January 18, 2021 and January 18, 2034. Aspen Bermuda entered into the swaps in the ordinary course of its investment activities to partially mitigate any negative impact of rises in interest rates on the market value of our fixed income portfolio.
Management’s best estimate of the net reserve for losses and loss expenses as at December 31, 2018 was $4,996.6 million. The following tables show the effect on estimated net reserves for losses and loss expenses as at December 31, 2018 of a change in two of the most critical assumptions in establishing reserves: (i) loss emergence patterns, accelerated or decelerated by three and six months; and (ii) expected loss ratios varied by plus or minus five and ten percent. Management believes that these scenarios present a reasonable range of variability around the booked reserves using standard actuarial techniques. Loss reserves may vary beyond these scenarios in periods of heightened or reduced claim activity. The reserves resulting from the changes in the assumptions are not additive and should be considered separately. The following tables vary the assumptions employed therein independently. In addition, the tables below do not adjust any parameters other than the ones described above.
Includes gross written premium of $259.7 million related to CGB DS and $33.1 million related to AgriLogic (2017 - $269.7 million, 2016 -$178.9 million related to AgriLogic).
Net premiums earned. The following table analyzes the overall change in net premiums earned for our two business segments in the twelve months ended December 31, 2018, 2017 and 2016:
Net premiums earned decreased by $91.9 million, or 4.0%, in 2018 compared to 2017 due to a $417.1 million increase in ceded earned premiums partially offset by a $325.2 million increase in gross earned premiums. Net premiums earned decreased by $330.7 million, or 12.5%, in 2017 compared to 2016 due to a $453.6 million increase in ceded earned premiums partially offset by a $122.9 million increase in gross earned premiums.
Investment gains. Total net realized and unrealized investment losses for the twelve months ended December 31, 2018 were $64.7 million (2017 - losses of $120.5 million; 2016 - losses of $45.2 million).
Non-underwriting disclosures. We provide additional disclosures for corporate and other (non-underwriting) income and expenses. Corporate and other income and expenses include net investment income, net realized and unrealized investment gains or losses, expenses associated with managing the Aspen Group, certain strategic and non-recurring costs, changes in fair value of derivatives and changes in fair value of loan notes issued by variable interest entities, interest expense, net realized and unrealized foreign exchange gains or losses and income taxes, which are not allocated to the business segments. Corporate expenses are not allocated to our business segments as they typically do not fluctuate with the levels of premiums written and are not directly related to our segment operations.
Policy acquisition, general and administrative expenses. Amortization of deferred policy acquisition costs were $260.9 million for the twelve months ended December 31, 2018, equivalent to 20.8% of net premiums earned (2017 - $235.5 million or 19.5% of net premiums earned; 2016 - $226.4 million or 19.2% of net premiums earned). The increase in the acquisition ratio was due predominantly to the impact on net earned premiums from ceding a greater proportion of written premiums to third parties as well as an increase of commission expense for crop business in the reinsurance segment following the sale of AgriLogic. The increase in policy acquisition expense ratio in 2017 compared with 2016 was due to an increase in profit commission accruals and the prior period benefiting from FET refunds.
The composition of our cash and investments as at December 31, 2018 and 2017 is summarized below:
The increase in reinsurance recoverables in 2018 was due predominantly to additional reinsurance purchased to reduce earnings volatility. The recoveries in the reinsurance segment are generally associated with catastrophes and levels of recoveries fluctuate based on the type of catastrophe.
The ability of our Operating Subsidiaries to pay us dividends or other distributions is subject to the laws and regulations applicable to each jurisdiction, as well as the Operating Subsidiaries’ need to maintain capital requirements adequate to maintain their insurance and reinsurance operations and their financial strength ratings issued by independent rating agencies. In line with common market practice for regulated institutions, the PRA previously requested that it be afforded with the opportunity to provide a “non-objection” prior to all future dividend payments made by Aspen U.K. In 2017, the PRA stated that they no longer routinely require Aspen U.K. to apply for a non-objection to dividends provided that such dividend payment and Aspen U.K.’s subsequent capital position are within Aspen U.K.’s board-approved solvency capital risk appetite. We do not expect to suffer tax on foreign earnings since our significant source of earnings outside of Bermuda is the U.K. and no taxes are imposed on profits repatriated from the U.K. to Bermuda. For a further discussion of the various restrictions on our ability and our Operating Subsidiaries’ ability to pay dividends, refer to Part I, Item 1 “Business - Regulatory Matters.” For a discussion of the volatility and liquidity of our other investments, refer to Part I, Item 1A, “Risk Factors - Market and Liquidity Risks,” and for a discussion of the impact of
Non-operating expenses in 2018 includes $37.5 million of expenses related to the Effectiveness and Efficiency Program, $39.0 million of advisor fees related to the Merger and $11.3 million of retention costs, offset by the write back of a $14.1 million buy out provision.