- --------------- (A) Represents total realized gains or losses on investments less core realized gains or losses (defined as gains or losses on the convertible preferred stock and bond portfolio) adjusted for income taxes and minority interest on such amounts. Non-core realized gains or losses may vary widely between periods. Such amounts are determined by management's timing of individual transactions and do not necessarily correspond to the underlying operating trends.
Adjusted net operating income increased $13.2 million to $62.3 million, or $2.96 per diluted share, for 2000 compared to $49.1 million, or $2.81 per diluted share, for 1999 and $39.3 million, or $2.23 per diluted share, for 1998. The increase in adjusted net operating income in 2000 was primarily attributable to the reduction in income applicable to the minority interest and the growth in invested assets. The increase in 1999 adjusted operating income as compared to 1998 primarily resulted from increased spreads and increased investment income from the proceeds received on the sale of the residential real estate and bank operating segments in mid-1998. These changes are analyzed further in the operating segment discussion.
Total life insurance benefits were $107.3 million in 2000 compared to $107.8 million in 1999 and $92.4 million in 1998. An increase in life insurance benefits is expected as the traditional and universal blocks of business continue to grow. However, the Company's traditional benefit expense actually decreased in 2000
Total annuity expenses increased by $32.9 million to $118.5 million in 2000 compared to $85.6 million in 1999 and $76.6 million in 1998. Underwriting, acquisition and insurance expenses increased approximately $15.4 million in 2000 compared to 1999. Approximately $10.7 million of the increase related to the new IMO acquired in the first quarter of 2000. The increase in expense due to the new IMO was offset by the increase in other income from the IMO discussed previously. The remainder of the increase was primarily due to costs associated with consolidating the annuity operations in Topeka, additional agent related expenses, such as recruiting and annual conventions, and increase incentive compensation. Amortization of deferred policy acquisition costs and VOBA increased $17.5 million in 2000 as compared to 1999 and increased $9.3 million in 1999 as compared to 1998. The increase in amortization was partially attributable to the general growth in the deferred policy acquisition cost asset associated with the continued growth in annuity sales. In addition, VOBA amortization increased in 2000 as surrenders of those policies associated with the VOBA asset increased during the period, and due to the additional VOBA established in connection with the Company's third quarter market value adjustment.
Adjusted pre-tax operating income from Annuity operations was $88.2 million in 2000 compared to $89.2 million in 1999 and $85.1 million in 1998. The decrease in 2000 was primarily due to increased costs associated with the consolidation of the annuity operations in Topeka and increased VOBA amortization from increased surrenders. Partially offsetting these increased expenses was a favorable impact of approximately $2.2 million from the Company's third quarter market value adjustment. The increase in 1999 pre-tax operating income compared to 1998 was primarily due to increased spreads.
- --------------- (A) Includes $1,081.7 million of statutory liabilities with a contractual surrender charge of less than five percent of the account balance.
The Company's investment philosophy is to employ an integrated asset/liability management approach with separate investment portfolios for specific product lines, such as traditional life, universal life and annuities, to generate attractive risk-adjusted returns on capital. Essential to this philosophy is coordinating investments in the investment portfolio with product strategies, focusing on risk-adjusted returns and identifying and evaluating associated business risks.
The Company held $341.5 million of other invested assets (including short-term investments) on December 31, 2000. Other invested assets consist primarily of various joint venture and limited partnership investments and derivatives.