In 1998, core earnings increased $67, or 9%, from 1997 primarily due to an increase in fees earned resulting from growth in account values in the Investment Products and Individual Life operations due to strong sales and equity market appreciation, an increase in net other considerations, primarily as a result of the IRI transaction, and higher net investment income. Partially offsetting these increases were a decrease in underwriting results, primarily the result of higher catastrophe losses, as well as an increase in other non-underwriting expenses.
Revenues for 1997 increased $884, or 7%, from 1996. The growth was primarily due to increases in fee income earned on separate account assets, higher group life and disability sales and premium growth in the Reinsurance segment and business written under an exclusive licensing arrangement with The American Association of Retired Persons ("AARP"). Partially offsetting this increase was a decrease in COLI premiums as a result of the Health Insurance Portability and Accountability Act of 1996 ("HIPA Act of 1996"), which phases out the deductibility of interest on policy loans under leveraged COLI by 1998, and a decrease in premium in mid-to-large commercial accounts and agency personal lines. Higher net investment income and net realized capital gains also contributed to the revenue increase.
Certain transactions between segments occur during the year that primarily relate to tax settlements, insurance coverage, expense reimbursements, services provided and capital contributions. Certain reinsurance stop loss agreements exist between the segments which specify that one segment will reimburse another for losses incurred in excess of a predetermined limit. Also, one segment may purchase group annuity contracts from another to fund pension costs and claim annuities to settle casualty claims.
The outlook at Zwolsche for 1999 is for slow written premium growth in property and casualty due to continued soft market conditions. Continued moderate growth is expected for life operations. Growth expectations for life savings and pension products in the Netherlands continues to be positive due to their tax advantages and the expected continuation of a low interest rate environment. The Company will continue to explore the viability of opportunities in both life and property and casualty business in the Netherlands during 1999 as the government continues to review moving certain social security programs into the private sector. In February 1998, Zwolsche obtained a bank license to support the growth of the life and asset management business in the Netherlands and established a company in Luxembourg to support the growth of its Belgium life operation.
Consolidated Financial Statements under "Investments".) Net realized capital gains also include a $33, after-tax gain from the sale of London & Edinburgh.
Portfolio Hedging -- The life operation periodically compares the duration and convexity of its portfolios of assets to their corresponding liabilities and enters into portfolio hedges to reduce any difference to desired levels. Portfolio hedges reduce the mismatch between assets and liabilities and offset the potential impact to cash flows caused by changes in interest rates. The notional amount of portfolio hedges as of December 31, 1998 and 1997, was $1.5 and $3.1 billion, respectively.
Pursuant to the initial public offering of HLI Class A common stock (the "Offering") on May 22, 1997, Hartford Life, Inc. ("HLI"), the holding company parent of The Hartford's significant life insurance subsidiaries, sold to the public 26 million shares at $28.25 per share and received proceeds, net of offering expenses, of $687.
Stock Split in the Form of a Stock Dividend - For a discussion of the stock split in the form of a stock dividend, see Note 8 of Notes to Consolidated Financial Statements.
The costs of The Hartford's Year 2000 program that were incurred through the year ended December 31, 1997 were not material to The Hartford's financial condition or results of operations. The after-tax costs of The Hartford's Year 2000 efforts for the year ended December 31, 1998 were approximately $23. Management currently estimates that after-tax costs related to the Year 2000 program to be incurred in 1999 will be approximately $15 to $25. These costs are being expensed as incurred.