Net premiums earned for the year ended December 31, 2013 were $2.1 billion compared to $1.9 billion for the year ended December 31, 2012, an increase of $228.8 million, or 12.2%.
Reinsurance premiums ceded in the property lines increased by $48.3 million, due to a significant restructuring of retrocessional coverage purchased. New coverage purchased in 2013 included $30.9 million in catastrophe bond coverage assumed through the Flagstone acquisition and $67.9 million for new excess of loss covers. Industry loss warranties purchased for $57.4 million in 2012 were not renewed in 2013, offsetting the increases in premiums ceded from these new covers. The increase in reinsurance premiums ceded in the specialty lines of $37.7 million was due primarily to a $35.0 million increase in proportional coverage relating to the new agriculture business.
The increase in general and administrative expenses of $28.2 million or 44.7% expenses was primarily due to costs associated with the run-off from the Flagstone acquisition of $23.5 million.
The acquisition cost ratios for the years ended December 31, 2013 and 2012 were comparable.
The tables below show the Company’s investments in affiliates, accounted for under the equity method:
Notable loss for the year ended December 31, 2013 was the European floods.
(d) Total capitalization equals total shareholders' equity plus borrowings drawn under credit facilities, Senior Notes and Junior Subordinated Deferrable Debentures and redeemable noncontrolling interests.
Contractual obligations related to the notes payable to operating affiliates, including the timing of any payment, are dependent upon the settlement of the relevant underlying transactions. The notes typically have at least a twelve month duration and do not have any principal amount, since the final amount payable is dependent on the income or loss generated by the transactions. They also do not have any stated maturity date, since full repayment is dependent on the complexity involved in the settlement of the underlying transactions. Please refer to Note 9 to the Consolidated Financial Statements (Part II, Item 8) for further details describing the notes payable.
The Company has large catastrophe event ultimate loss reserve estimation procedures for the investigation, analysis, and estimation of ultimate losses resulting from large catastrophe events. The determination regarding which events follow these procedures is made by members of senior management from relevant departments within the Company. The procedures are designed to facilitate the communication of information between various relevant functions and provide an efficient approach to determining the estimated loss for the event.
Changes to the reserve for potential development on notable loss events will be considered in light of changes to previous loss estimates from notable losses in this re-estimation process. To the extent that there are continued complexity and volatility factors relating to notable loss events in the aggregate, additions to the RDE may be established for a specific accident year, as illustrated in the RDE roll forward table above.
For business written on a facultative basis, endorsements, based on reports by our clients of changes in the original contractual cover, are recorded in the period in which the client reports are received, which would normally be over the life of the cover or shortly afterwards. Typically the adjustment to the original premium is an insignificant portion of the total premium written.
The Company believes that reasonably likely changes in assumptions made in the estimation process would not have a significant impact on gross premiums written as recorded.