o valuation of investments; o amortization of deferred policy acquisition costs; o valuation of allowances for deferred tax assets; o calculation of policyholder liabilities and accruals; and o determination of pension expense.
The development of reserves for future policy benefits for equity-indexed products requires the valuation of the embedded derivatives relating to the contract holder's right to participate in one or more market indices. This valuation requires assumptions as to future volatility of the market indices, risk free interest rates, market returns and the lives of the contracts. These assumptions are revised at each balance sheet date and changes in the reserve pertaining to changes in assumptions are recorded as a component of net income in the period of the change.
PREMIUMS AND PRODUCT CHARGES increased 23.0% in 2001 to $188.5 million and 1.3% in 2000 to $153.3 million. The increase in 2001 is due primarily to the addition of the Kansas Farm Bureau Life, NTL and American Equity business. Revenues from this business in 2001 included interest sensitive product charges of $8.3 million, traditional life insurance premiums of $28.8 million and accident and health premiums of $2.7 million. In addition, cost of insurance charges, which are included in interest sensitive product charges, increased as a result of an increase in the volume and age of business in force. Accident and health premiums decreased as a result of 100% coinsurance agreements to reinsure our individual long-term disability income business effective September 1, 2001 and 2000.
A major component of our asset-liability management program is structuring the investment portfolio with cash flow characteristics consistent with the cash flow characteristics of our insurance liabilities. We use computer models to perform simulations of the cash flows generated from existing insurance policies under various interest rate scenarios. Information from these models is used in the determination of interest crediting rates and investment strategies. Effective duration is a common measure for price sensitivity to changes in interest rates. It measures the approximate percentage change in the market value of a portfolio when interest rates change by 100 basis points. This measure includes the impact of estimated changes in portfolio cash flows from features such as bond calls and prepayments. When the estimated durations of assets and liabilities are similar, exposure to interest rate risk is reduced because a change in the value of assets should be largely offset by a change in the value of liabilities. The effective duration of our fixed maturity portfolio was approximately 5.1 at December 31, 2001 and 4.3 at December 31, 2000. The effective duration of the interest sensitive products was approximately 4.1 at December 31, 2001 and 4.7 at December 31, 2000.
and the corresponding increase in carrying value totaling $2.8 million, net of offsetting adjustments to deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and income taxes, was credited to stockholders' equity. Prior year financial statements were not restated.
The carrying values of all our investments are reviewed on an ongoing basis for credit deterioration. If this review indicates a decline in market value that is other than temporary, the carrying value of the investment is reduced to its estimated realizable value, or fair value, and a specific writedown is taken. Such reductions in carrying value are recognized as realized losses on investments. Realized gains and losses on sales are determined on the basis of specific identification of investments. If we expect that an issuer of a security will modify its payment pattern from contractual terms but no writedown is required, future investment income is recognized at the rate implicit in the calculation of net realizable value under the expected payment pattern.
Interest crediting rates for interest sensitive products ranged from 3.35% to 6.90% in 2001, from 4.00% to 6.50% in 2000 and from 4.00% to 6.25% in 1999.
We have a note payable to the Federal Home Loan Bank (FHLB) totaling $40.0 million at December 31, 2001 and 2000. The note is due September 17, 2003, and interest on the note is charged at a variable rate equal to the London Interbank Offered Rate less 0.0475% (1.85% at December 31, 2001 and 6.50% at December 31, 2000). At December 31, 2001, fixed maturity securities with a carrying value of $44.4 million are on deposit with the FHLB as collateral for the note. As an investor in the FHLB, we have the ability to borrow an additional $38.9 million from the FHLB at December 31, 2001 with appropriate increased collateral deposits.
Pro forma information regarding net income and earnings per common share is required by Statement No. 123, and has been determined as if we had accounted for the stock options under the fair value method of that Statement.
In the normal course of business, we may be involved in litigation where amounts are alleged that are substantially in excess of contractual policy benefits or certain other agreements. At December 31, 2001, management is not aware of any claims for which a material loss is reasonably possible.
We lease our home office properties under a 15-year operating lease from a wholly-owned subsidiary of the Iowa Farm Bureau Federation. Future remaining minimum lease payments under this lease as of December 31, 2001 are as follows: 2002 - $2.1 million; 2003 - $2.3 million; 2004 - $2.4 million; 2005 - $2.4 million; 2006 - $2.4 million and thereafter, through 2013 - $16.4 million. Rent expense for the lease totaled $3.0 million in 2001, $3.1 million in 2000 and $2.3 million in 1999. These amounts are net of $1.4 million in 2001, 2000 and 1999 in amortization of a deferred gain on the exchange of our home office properties for common stock in 1998. The deferred gain totaled $15.7 million at December 31, 2001 and $17.1 million at December 31, 2000.