$338.4 million primarily as a result of increased surrenders and withdrawals from separate account contracts for which the surrender charge had expired. Policy reserves decreased by $23 million, reflecting decreased annuitizations and lower increases in reserves for minimum death benefit guarantees. The decrease in liability for premium and other deposit funds of $55.3 million reflects higher surrenders of contracts described above. Commissions increased by $22.8 million, reflecting the increase in total sales of combination fixed/variable annuities. General expenses increased by $9.9 million reflecting an increase in salaries due to staff increases associated with increased sales and non-recurring costs associated with moving the retirement products and services facility to a new location. Transfers to separate accounts increased by $53.9 million, reflecting increased exchange activity out of the fixed account into the separate account, associated with the DCA activity.
See "Recent Reorganization," below, for a discussion of the effect on ongoing operations of the Company's transfer of its shares of MFS.
STATUTORY STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
On October 30, 1997, the Company established a wholly-owned special purpose corporation, Sun Life of Canada (U.S.) SPE 97-1, Inc. (SPE 97-1). SPE 97-1 was organized for the purpose of engaging in activities incidental to securitizing mortgage loans.
Bonds included above with an amortized cost of approximately $2,578,000 and $2,060,000 at December 31, 1997 and 1996, respectively, were on deposit with governmental authorities as required by law.
The Company has restructured mortgage loans totaling $26,284,000 and $29,261,000 at December 31, 1997 and 1996, respectively, against which there are allowances for losses of $3,026,000 and $5,893,000, respectively.
On December 19, 1995 the Company issued surplus notes totaling $315,000,000 to an affiliate, Sun Canada Financial Co., at interest rates between 5.75% and 7.25%. Of these notes, $157,500,000 will mature in the year 2007 and $157,500,000 will mature in the year 2015. Interest on these notes is payable semi-annually.
Principal and interest on surplus notes are payable only to the extent that the Company meets specified requirements regarding free surplus exclusive of the principal amount and accrued interest, if any, on these notes and with the consent of the Delaware Insurance Commissioner. In addition, with regard to surplus notes outstanding through January 16, 1996, subsequent to December 31, 1994 interest payments required
16. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE) (CONTINUED): the consent of the Delaware Insurance Commissioner. Payment of principal and interest on the notes issued in 1995 and in 1997 also requires the consents of the Delaware Insurance Commissioner and Canadian Office of the Superintendent of Financial Institutions.
We have audited the accompanying statutory statements of admitted assets, liabilities, and capital stock and surplus of Sun Life Assurance Company of Canada (U.S.) as of December 31, 1997 and 1996, and the related statutory statements of operations, changes in capital stock and surplus, and cash flow for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.