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During the first quarter of 2019, UFG benefited through from strong equity markets, achieving higher net investment income and an increase in net realized investment gains. This compares with net realized investment losses in the first quarter of 2018, which were offset by the one-time realized gain of $1.07 per diluted share of the sale of our life company. Also in the first quarter of 2019, we experienced an increase in net premiums earned reflecting pricing increases on our commercial business particularly commercial auto. As mentioned last year, we are focused solely on improving our profitability with several strategic initiatives in enterprise analytics under way, which Mike will elaborate on.

On the claim side, our new chief claims officer, Corey Ruehle, is working on the initiatives we announced during last quarter's call. As a reminder, these new initiatives are aimed at improving claims service, including shortening cycle time and reducing claims costs, attorney involvement and the impact of litigation. As always, these initiatives take time to implement, and therefore, will take time to show up in our financial results. This quarter's improvements in net investment income and net premiums earned were partially offset by a reserved strengthening on commercial auto in our Gulf Coast region.

This resulted in a decrease in the favorable prior year reserve development from the same period a year ago. Dawn will be discussing this in more detail. Catastrophe losses were insignificant in the first quarter of 2019, as well as in the first quarter of 2018, adding only 1.4 points to the combined ratio in both periods. This is below our 10-year historical average of 2.5 points for the first quarter.

With the geographic mix of our book of business, the second and third quarters typically lead to a higher impact of catastrophes in our financial results. On a preliminary basis, we know that, in April, we've experienced more cat losses from storms than we did in the prior year, although at this point not significantly different than our expectations of second-quarter storm losses. Without the impact of prior year reserve development and catastrophe losses, our core loss ratio improved 10.1 percentage points quarter over quarter. We are cautiously optimistic with this improvement, but it is too early to tell if it is a trend especially heading into the second and third quarters.

Slide 9 of our presentation on our website provides a detailed reconciliation of the impact of catastrophes and development on the combined ratio. We realized, as we look to the future, we need to continually refine our business approach both in our ability to adapt, as well as anticipate the demands of the changing insurance marketplace. Five years ago, we've built our 2020 vision to guide us to the future. We are a larger company than we were five years ago when our stock was trading at 91% of book value and our annual property and casualty premiums were about 30% less than today.

During this time frame, our stock price has appreciated around 50%, and we've grown book value even considering returning over $250 million to shareholders through dividends and share repurchases. And most recently, UFG is trading at a stock multiple of about 115%. However, importantly, we also realized with our recent couple of years of disappointing commercial auto results. We have more work to do toward improving profitability.

With our internal leadership teams and McKinsey consultants, we have commenced a strategic review looking out to 2025. This is an in-depth review of the what, where and how we can do things differently or do things we do well even better. This review will emphasize all the pillars of performance including ways to improve our business profitability, strengthen our digital and analytic capabilities, innovate and continue to drive the evolution of the underwriting platform through our Oasis Project. Although in the very early stages of this endeavor, we will share perspectives as we progress throughout the year.

With that, I will turn the discussion over to Mike Wilkins. Mike?

Mike Wilkins -- Executive Vice President and Chief Operating Officer

Thanks, Randy, and good morning, everyone. We continue to focus on the strategic underwriting and claims initiatives we discussed last quarter to improve profitability. In the first quarter, we can report that our average commercial lines renewal pricing increases are the highest in recent history with effective rate changes remaining in the mid single digits. The renewal price increases continued to be driven by commercial auto pricing with an effective rate change in the low double digits in the first quarter of 2019.

Filed commercial auto rate increases during the first quarter of 2019 continue to be in the low double digits. We continue to aggressively push rate increases in targeted areas with our commercial auto book of business, seeking double-digit rate increases. With the assistance of our enterprise analytics team, we are closely reviewing the bottom 30% of our commercial auto book of business, seeking significant pricing adjustments or taking underwriting action. We are also passing on new business opportunities with commercial auto, which did not align with UFG's risk appetite including certain classes of heavy-wheeled commercial vehicles.

Our premium retention remains strong at 84% during the first quarter of 2019 primarily due to rate increases in our commercial auto book. Going forward, we expect to see a decrease in our premium and policy retention as we continue to review our book of business for profitability. Before I turn the call over to Dawn, I'll spend a few minutes discussing a couple of additional and important initiatives we are working on, which will be instrumental in how we do business in the future. First, over the past two years, the newly created enterprise analytics team has been actively pursuing the build-out of an analytics ecosystem to support data and advance analytics capabilities at UFG.

Capitalizing on the initial stages of data management solutions, the enterprise analytics team was able to deliver an improved commercial auto predictive model in the fourth quarter of 2018. Actual results are still pending, but the team is closely monitoring the impact of underwriting decisions for signs of effectiveness. Plans for 2019 include the deployment of a commercial property model during the third quarter in completion of data mining for claims analytics by year end. As we look ahead to 2020 and beyond, our focus will be on enhancing claims analytics, as well as completing additional lines of business that will allow for account level predictive modeling for underwriting.

Second, we are in the year two of our multiyear Oasis Project to upgrade our underwriting technology and enterprise analytics platform. We are currently nearing the first rollout for this project, which is an important milestone for our company. We expect Phase 1 to roll out on schedule in July, and it is limited to two products in our Rocky Mountain region. Lastly, we continue to focus on our small commercial insurance operations with the continued build-out of our service center and technology platform.

We are now writing approximately $100 million annually in premiums and small commercial insurance. We have seen increases in submissions, hit ratios and percentage of policies issued without underwriter involvement. With that, I'll turn the discussion over to Dawn Jaffray. Dawn?

Dawn Jaffray -- Senior Vice President and Chief Financial Officer

Thanks, Mike, and good morning, everyone. In the first-quarter 2019, we reported consolidated net income of $44.5 million, compared to net income of $45.8 million in the first quarter of 2018. first-quarter 2019 net income was impacted by strong equity market performance. This included a $2.4 million after-tax increase in net investment income due primarily to an increased valuation our bank fund limited liability partnerships and an increase in our invested assets with last year's sale of our life company.

Our year-over-year increase in the value of equity security resulted in an after-tax increase of $19.5 million recognizing the income statement. Higher net premium growth quarter over quarter of 7% also contributed to net income. And as Mike mentioned, this increase was primarily driven by an increase in rates with the largest rate increases occurring in our commercial auto line of business. Lastly, a reminder that the one-time after-tax gain on the sale of United Life of $27.3 million was previously recognized in first quarter of 2018.

I want to highlight that the 2019 annualized return on equity is 19.3% as compared to 11% in the first-quarter 2018. The change in valuation of our equity securities included in the income statement or what I personally refer to as phantom gains are impacting our first-quarter annualized ROE calculation. Excluding the impact of all unrealized gains in our portfolio, our annualized return on equity would be 10.9%. In the first quarter of 2019, we recognized favorable reserve development of $4.6 million compared to favorable reserve development of $38.1 million in the first quarter of 2018.

The decrease in favorable reserve development was primarily in our general liability, commercial property and commercial auto lines of business due to prior accident year reserve strengthening in our Gulf Coast region as Randy mentioned. This reserve strengthening was not due to a change in reserving philosophy in the Gulf Coast region, but rather the results of our recent experience with similar claims settlements especially with auto liability claims. According to the U.S. Census Bureau, Texas has four of the country's 10 fastest growing counties and consistently leads the nation in a number of traffic accident fatalities.

Texas is not only our largest data in premium, it also represent approximately 22% of our total annual companywide commercial auto premiums. On an annualized basis, it has also accounted for roughly 24% of our total commercial auto losses. With the growing population on the roadways, our commercial auto experience has followed suit. We believe our new predictive commercial auto model developed by our enterprise analytics team will assist us in refining our risk selection and underwriting decisions, not only in Texas, but companywide as Mike discussed.

As a reminder, our approach to reserving remains conservative. Supporting that absorption, we've had annual favorable reserve development every year since 2009. At March 31, 2019, our total reserve position remained within actuarial estimates. Our expense ratio was 33% in the first quarter of 2019, compared to 34.5% in the first quarter of 2018, which included about 1.5 points for our Oasis underwriting initiative.

The overall improvement in the ratio is due primarily to a decrease in employee benefit expenses. As we mentioned last quarter, changes we made to our postretirement benefits along with other assumption changes have resulted in a reduction in our annual pension and postretirement benefit expense of approximately $7 million for 2019. Our first-quarter 2019 GAAP effective tax rate came in at 18.6%, which is higher than our expected range of 15% to 17% primarily due to the phantom realized equity gains as previously mentioned. Moving on to capital management matters, during the first quarter, we declared and paid a $0.31 per share cash dividend to shareholders of record as of March 1, 2019.

We have paid quarterly dividends consecutively for the past 204 quarters since March of 1968. We did not repurchase any shares in the first quarter. We are authorized by the board of directors to purchase an additional 2.1 million shares of common stock under our share repurchase program, which will expire in August 2020. And with closing of prepared remarks, I will now open the line for questions.

Operator?

Questions & Answers:

Operator

[Operator instructions] And our first question comes from Paul Newsome with Sandler O'Neill.

Paul Newsome -- Sandler O'Neill -- Analyst

Congratulations on the quarter. I was wanting to ask about the combined ratio, really loss ratio, if you exclude reserve development in the cats. It looked like it improved quite a bit and on -- both the year over year and sequential basis. And I was hoping you could talk about sort of the sustainability of that and whether there was something unusual or different in that particular metric?

Randy Ramlo -- Chief Executive Officer

Well, we sure hope that's sustainable, Paul. We think we're seeing some good progress. We continually repeat that a quarter doesn't make a trend, but we had some reserve strengthening in our Gulf coast, as we mentioned, but we are starting to see a little bit of progress. Maybe Mike, you could add a little bit on what we're seeing on the frequency side.

Mike Wilkins -- Executive Vice President and Chief Operating Officer

Yes. A couple of comments, Paul. First, I would say the improvement was broad-based. So property lines, while we had quiet cat quarter, we also had a reduction in prior losses versus prior years.

So it's good to see that. Personal lines was improved quite a bit from last year first quarter. Assumed business performed better than it did last year first quarter. Work comp, we had a good quarter.

So a lot of improvement across many different lines. Some other underlying things that maybe give us some optimism, we've had 2 consecutive quarters of quarterly moving average decrease in frequency in the auto lines. So while we still have work to do in that line, it's nice to see that trend reverse because we did several quarters consecutively prior to that time where we saw increase in frequency. So I think some good trends.

As Randy said, it's just a quarter. So we aren't going to get too excited, but maybe some indicators of turning tide on our underwriting profitability side.

Paul Newsome -- Sandler O'Neill -- Analyst

And then maybe we can turn to the reserve issues in the Gulf region. I guess is it -- it sounds like it's just kind of commercial auto for the most part, but I'm surprised that Texas is the issue. I thought sort of the West Coast was the problem child area. Maybe some more comments on that and maybe how quickly that might turn itself around.

Randy Ramlo -- Chief Executive Officer

Well, you are correct, we've had our share of issues on the West Coast as well. We have a new branch claims manager in our Texas region. As we mentioned in the release, we don't think there's necessarily a change in philosophy, but we've probably increased our pessimism on the way some -- especially bodily injury losses are settling out, especially in left turn situations or rear-end accidents. And I think really this is kind of a reflection of a new set of eyes on some of the claims we've had and kind of just a bit more pessimism on how these claims are settling out.

Corey, I don't know if you want to add anything to that commentary?

Corey Ruehle -- Vice President, Chief Claims Officer

Sure. Paul, this is Corey Ruehle, chief claims officer. While we're not looking to change our reserving philosophy, we are looking at refining it in ways that we can continue to evaluate that. A couple of examples would be looking at a quality assurance unit that will help identify trends, training gaps and then also things, the proper institution best practices as well so that we can make sure that the reserving philosophy is being followed completely.

The second thing, Dawn Jaffrey had mentioned analytics, and we have engaged analytics to work on developing a couple of claims models to start that will help us better identify this as well.

Paul Newsome -- Sandler O'Neill -- Analyst

OK. My final question, I wanted to talk a little bit more about the expense ratio and the outlook there. It looks like you've had a couple of quarters now of keeping it -- actually, more a couple of quarters keeping it under 3% to 4%. Is that outlook more sustainable now that it looks like you've made some efforts there? So any thoughts on the sustainability of the expense ratio at this level?

Randy Ramlo -- Chief Executive Officer

Well, I'll make a comment, and if Dawn or Mike want to add anything. The Oasis Project is kind of staying kind of where we had predicted. So that's kind of a plus. We have made some changes to our postretirement benefits.

Those benefits do run out someday, and hopefully, the timing with this Oasis Project, ultimately, is going to some efficiencies. So there'd be -- I think long, long term, yes, we'll see the expense ratio return to normal kind of in the next three, four bumpy years. That will remain to see, but we sure hope so.

Dawn Jaffray -- Senior Vice President and Chief Financial Officer

Paul, this is Dawn. The only other thing I would add is relative to the investment in enterprise analytics. Obviously, there's a cost of the enterprise analytics team, and that investment will directly pay off in the lower loss ratio. So I do think we will continue to have some additional amount than maybe we've had in the past relative to that particular group.

Operator

[Operator instructions] I'm showing no further questions. This concludes our question-and-answer session. I'd like to turn the conference back over to Randy Patten for any closing remarks.

Randy Patten -- Assistant Vice President of Finance and Investor Relations

This now concludes our conference call. Thank you for joining us and have a great day.

Operator

[Operator signoff]

Duration: 23 minutes

Call participants:

Randy Patten -- Assistant Vice President of Finance and Investor Relations

Randy Ramlo -- Chief Executive Officer

Mike Wilkins -- Executive Vice President and Chief Operating Officer

Dawn Jaffray -- Senior Vice President and Chief Financial Officer

Paul Newsome -- Sandler O'Neill -- Analyst

Corey Ruehle -- Vice President, Chief Claims Officer

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