Individual life premium revenues were $321.0 million in 1998, as compared with $373.0 million in 1997, as individual term life insurance premiums received in the current year, for business written between mid-1994 through mid-1996, were co-insured with a new reinsurance contract at a rate of 90% of the direct business. The new reinsurance program complements an existing program under which business written after mid-1996 is being co-insured at the rate of 75% of the direct premiums.
Pre-tax operating income in 1998 deteriorated by $65.0 million as compared to 1997. The decrease is primarily due to restructuring and other related charges of $39.0 million for Group Operations as discussed in Note 12 of the Notes to Consolidated Financial Statements. This included the effect of the decision to exit the insured comprehensive medical portion of the employer and affinity markets. A majority of this inforce business was sold effective January 1, 1999.
Net income declined due primarily to the settlement of certain tobacco related litigation. As discussed in Note 17 of the Notes to Consolidated Financial Statements, in 1997, Lorillard and other companies in the United States tobacco industry entered into agreements to settle health care cost recovery actions in Florida, Mississippi and Texas, and entered into an agreement to settle a class action lawsuit in Florida. Based on the agreements, Lorillard recorded pre-tax and after tax settlement charges of $198.8 and $122.0 million, respectively, in 1997.
At December 31, 1998 and 1997, short-term investments consisted primarily of U.S. treasury bills and commercial paper.
Derivative instruments are generally held for trading purposes and, as such, are marked to market. Gains or losses are included in investment gains or losses. Interest rate swaps which are used to manage the Company's exposure to variable rate long-term debt are not considered held for trading purposes. Such swaps are accounted for on an accrual basis and are included in the income statement as an adjustment to interest expense.
Statutory accounting practices - CNA's insurance subsidiaries are domiciled in various jurisdictions. These subsidiaries prepare statutory financial statements in accordance with accounting practices prescribed or otherwise permitted by their respective jurisdiction's insurance regulator. Prescribed statutory accounting practices are set forth in a variety of publications of the National Association of Insurance Commissioners, as well as state laws, regulations and general administrative rules. CNA has no material permitted accounting practices.
Statutory capital and surplus - Statutory capital and surplus and net income, determined in accordance with accounting practices prescribed by the regulations and statutes of various insurance regulators, for property and casualty and life insurance subsidiaries, are as follows:
The Company also enters into short sales as part of its portfolio management strategy. Short sales are commitments to sell a financial instrument not owned at the time of sale, usually done in anticipation of a price decline. These sales resulted in proceeds of $1,069.2 and $602.3 with fair value liabilities of $783.0 and $880.7 at December 31, 1998 and 1997, respectively. These positions are marked to market and investment gains or losses are included in the income statement.
(a) Excludes life claim and claim expense reserves and intercompany eliminations of $836.7, $986.8 and $999.5 as of December 31, 1998, 1997 and 1996, respectively, included in the Consolidated Balance Sheets.
Other lines favorable loss and loss adjustment expense reserve development for 1998 of $207.0 was due to favorable loss development of approximately $100.0 in commercial lines business and approximately $105.0 of favorable loss development in personal lines business. The favorable development in the commercial lines business was primarily attributable to improved frequency and severity in the commercial auto lines, as well as some continued improvement in workers' compensation. The favorable development in the personal lines business was attributable to improved trends, particularly in personal auto liability.
The Company has a history of profitability and as such, management believes it is more likely than not that the net deferred tax asset will be realized.
facilities were $3.0 and employee severance and outplacement costs related to planned net reductions of 600 employees in the current workforce and benefit costs associated with those reductions were $13.0. In addition, there were charges of $4.0 related to the writedown of certain assets and $3.0 related to the exiting of certain businesses.
The case is to be tried in three phases, although the court has stated that it may modify its trial plan order. In the first phase, which is proceeding, plaintiffs have submitted evidence as to certain issues common to the class and their causes of action. At the conclusion of the first phase, the jury will not award any compensatory or punitive damages. However, the jury is expected to decide whether there is a factual basis for awarding punitive damages in subsequent phases.
The next two phases of the trial will proceed only if plaintiffs prevail during the first phase. In the second phase, the jury will determine liability and compensatory damages as to each named class representative in the case. If the jury awards punitive damages to the class representatives, it will also be asked to set a percentage, or ratio, of punitive damages to be awarded to absent class members in the third phase.