In August 1998, State Auto Financial purchased $9.0 million of surplus notes from Farmers Casualty Company Mutual ("FCCM"), an Iowa domiciled property casualty insurer for the standard insurance market. In 1998, a plan to convert FCCM into a stock insurance company was approved by the board of FCCM, its policyholders and the Iowa Division of Insurance. The plan of conversion provided that State Auto Financial, in exchange for the redemption of the surplus notes, would acquire the newly issued shares of Farmers Casualty. Effective January 1, 1999, FCCM, renamed Farmers Casualty Insurance Company, became a wholly owned subsidiary of State Auto Financial. In addition, Farmers Casualty owns 100% of the outstanding shares of Mid-Plains, an Iowa domiciled property casualty insurer, which principally writes nonstandard auto insurance.
Other expense includes those operating expenses associated with general corporate expenses, S.I.S., 518 PML and Stateco's investment management services (the investment management services segment). In 1999, other expense increased 10.0%, which is primarily attributable to an increase in S.I.S.'s operating expenses from 1998.
Net cash used in investing activities reflects cash flows used in purchases of fixed maturity and equity securities, respectively, of $187.7 million and $15.8 million in 2000, $207.8 million and $25.6 million in 1999, and $193.9 million and $17.1 million in 1998. During 1998 and continuing into 2000, market interest rates on fixed maturities declined from previous years' levels, and the Company experienced a significantly higher number of calls on fixed maturities than in previous years. During 2000, this call activity slowed somewhat from previous year's levels. Cash flows provided by maturities, calls and principal reductions of fixed maturities were $27.0 million in 2000, $37.3 million in 1999 and $47.8 million in 1998. During 1998, 518 PML began construction of a building in Goodlettsville, Tennessee that was completed in 1999. The building is currently being leased to Mutual. The total construction cost of the building, including land cost, was approximately $6.4 million. Overall, net cash used in investing activities was $90.9 million in 2000, $56.9 million in 1999 and $55.6 million in 1998. The increase in the 2000 investing activities was the result of the Company investing the proceeds received on the cash transfers discussed under cash flows from operating activities.
(k) SOFTWARE REVENUE RECOGNITION S.I.S. recognizes revenue from license fees when the product is delivered and service revenue when services are performed. Costs of developing and testing new or enhanced software products are capitalized and are amortized on a product-by-product basis utilizing the straight-line method over a period not to exceed three years. Unamortized software development costs of $626,000 and $1,248,000 are included in accrued investment income and other assets at December 31, 2000 and 1999, respectively. Software amortization, included in other expenses, was $622,000, $614,000 and $673,000 in 2000, 1999 and 1998, respectively.
A summary of the Company's stock option activity and related information for these plans for the years ended December 31, 2000, 1999 and 1998, follows:
(17) SUBSEQUENT EVENT The Ohio Department of Insurance (the "Department") has requested that Mutual, starting with the quarter beginning January 1, 2001, file an analysis on a quarterly basis with the Department that justifies the apportionment of the service fee paid by Mutual to State Auto P&C under the accounting guidance outlined in Statement of Statutory Accounting Principles No. 70 - Allocation of Expenses. The Company believes that its accounting for such service fee is consistent with all statutory accounting principles. However, there can be no assurance that all or any part of the service fee paid by Mutual will be justified to the Department's satisfaction, which may affect the amount of such fee recognized as revenue by Company.