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A summary of gross premiums written in 2018 compared with 2017 by line of business within each business segment follows: 

• Insurance gross premiums increased 4% to $7,157 million in 2018 from $6,870 million in 2017. Gross premiums increased $156 million (7%) for other liability, $87 million (12%) for professional liability, $64 million (4%) for short-tail lines and $54 million (7%) for commercial auto, and decreased $74 million (4%) for workers' compensation. 

• Reinsurance gross premiums decreased 10% to $545 million in 2018 from $607 million in 2017. Gross premiums written decreased $38 million (19%) for property lines and decreased $24 million (6%) for casualty lines. 

Net premiums written were $6,433 million in 2018, an increase of 3% from $6,261 million in 2017. Ceded reinsurance premiums as a percentage of gross written premiums were 17% and 16% in 2018 and 2017, respectively. 

Premiums earned increased 1% to $6,372 million in 2018 from $6,311 million in 2017. Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term, and accordingly recent rate increases will be earned over the upcoming quarters. Premiums earned in 2018 are related to business written during both 2018 and 2017. Audit premiums were $192 million in 2018 compared with $172 million in 2017. 

Net Investment Income. Following is a summary of net investment income for the years ended December 31, 2018 and 2017: 

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Net investment income increased 17% to $674 million in 2018 from $576 million in 2017 primarily due to an increase in income from fixed maturity securities of $46 million, a $41 million increase in investment funds, a $9 million increase in arbitrage trading account and a decrease in investment expenses of $2 million, partially offset by a decrease in real estate of $1 million. Investment funds are reported on a one quarter lag. The average annualized yield for fixed maturity securities was 3.6% in 2018 and 3.3% in 2017; accordingly, the increase in fixed maturity securities income was mainly the result of a larger investment portfolio and higher interest rates. The effective duration of the fixed maturity portfolio was 2.8 years at December 31, 2018, down from 3.0 years at December 31, 2017. The Company has maintained a shortened duration of its fixed maturity security portfolio. This has reduced the potential impact of mark-to-market adjustments on the portfolio and positioned the Company to take advantage of rising interest rates. Average invested assets, at cost (including cash and cash equivalents), were $18.4 billion in 2018 and $17.5 billion in 2017. 

Insurance Service Fees. The Company earns fees from an insurance distribution business, a third-party administrator, and as a servicing carrier of workers' compensation assigned risk plans for certain states. Insurance service fees were $118 million in 2018 and $135 million in 2017. The decrease is primarily due to the sale of a third party administration business in third quarter of 2018. 

Net Realized and Unrealized Gains on Investments. The Company buys and sells securities and other investment assets on a regular basis in order to maximize its total return on investments. Decisions to sell securities and other investment assets are based on management’s view of the underlying fundamentals of specific investments as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions. Effective January 1, 2018, the Company adopted new accounting guidance that requires all equity investments with readily determinable fair values to be measured at fair value with changes in the fair value recognized through net income (other than those equity securities accounted for under the equity method of accounting or those that result in consolidation of the investee). Net realized and unrealized gains on investments were $154 million in 2018 compared with $336 million in 2017. In 2018, the gains reflected net realized gains on investment sales of $480 million reduced by a change in unrealized gains on equity securities of $320 

