At least annually, management reviews the unamortized balances of present value of future profits, goodwill and other identified intangibles to determine whether events or circumstances indicate the carrying value of such assets is not recoverable, in which case an impairment charge would be recognized. Management believes that no impairments of present value of future profits, goodwill or other identified intangibles existed as of December 31, 2007.
originators of subprime loans has recently led to higher delinquency and loss rates, especially within the 2006 and 2007 vintage years. These factors have caused a significant reduction in market liquidity and repricing of risk, which has led to a decrease in the market valuation of these securities sector wide.
On June 15, 2007, CMS announced the voluntary participation by us and several other sponsors of Medicare Advantage PFFS plans to temporarily suspend marketing activities of non-group, individual PFFS plans effective June 22, 2007 until CMS provided us with its approval that our systems and management controls meet all of the conditions specified in CMS's 2008 Call Letter and May 25, 2007 guidance, which we call collectively, the CMS Conditions. While in the process of enhancing our systems and management controls to satisfy the CMS Conditions, Congress passed legislation for the expiration of the continuous enrollment period for PFFS on July 31, 2007, which effectively ended the 2007 PFFS selling season, except for individuals who turned 65 thereafter, and resulted in an adverse effect to our results of operations compared with the results we could have achieved with a longer selling season. In August 2007, we received approval from CMS to resume the marketing of non-group, individual PFFS plans. CMS has determined that the 2008 PFFS selling season will run from November 15, 2007 through March 31, 2008. In contrast, CMS extended the 2007 selling season beyond March 31, 2007.
We paid a purchase price of $630 million, 55% in cash and 45% in our common stock valued at $20 per share. We paid transaction costs of approximately $12 million in cash. In addition to the purchase price, the transaction includes an additional three year earn-out tied to target earnings from
Benefits, Claims and Expenses. Medical expenses increased by $73.1 million, compared to 2005, primarily due to growth in membership combined with an increase in the medical loss ratio. The PFFS medical loss ratio increased to 78.9% for 2006 from 67.2% for 2005 primarily due to more competitively priced products. Commissions and general expenses increased by $29.8 million compared to 2005, due primarily to the growth in business including $14.7 million for marketing costs for new service areas and other development activities.
from MemberHealth was a reduction in revenues of $80.1 million. The government risk corridor adjustment from our Prescription PathwaySM business was $36.2 less of a reduction in revenue in 2007 compared to 2006. The change in the risk corridor adjustment was primarily due to the clarification of the CMS guidance regarding direct and indirect remuneration, known as, DIR, and as a result of changes in estimates associated with the 2006 Medicare Part D Reconciliations. Ceded premium increased $21.3 million from 2006, in relation to the increase in net premiums on Prescription PathwaySM business. Ceded reinsurance on the MemberHealth business is minimal.
Revenues. Net premium declined by $25.5 million, or 5%, and was principally caused by the effect of higher lapsation of our Medicare supplement in force products. Below is a summary of premium for the segment by major lines of business:
The increase in deferred acquisition costs was $35.7 million less for 2006 than the increase for 2005. We incurred lower commissions and other acquisition costs during 2006 as a result of lower production, resulting in a decrease in the costs capitalized of $17.5 million compared to 2005. Additionally, amortization increased by approximately $18.2 million, primarily as a result of higher lapsation of our Medicare supplement products, compared to 2005.
The loss from our Corporate segment increased by $12.6 million, or 56%, for the year ended December 31, 2007 compared to 2006. The increase was due primarily to the increase in interest costs, the cost associated with the early extinguishment of debt and the cost of stock based compensation, offset by an increase in net investment income.
(5)The obligations on policy related liabilities represent those payments we expect to make on death, disability and health insurance claims and policy surrenders. These projected values contain assumptions for future policy persistency, mortality and morbidity comparable with our historical experience. The distribution of payments for policy and contract claims includes assumptions as to the timing of policyholders reporting claims for prior periods and the amounts of those claims. Actual amounts and timing of both future policy benefits and policy and contract claims may differ significantly from the estimates above. We anticipate that our liabilities for policyholder account balances and reserves for future policy benefits totaling $1.1 billion, along with future net premiums, investment income and recoveries from our reinsurers, will be sufficient to fund future policy benefit payments. In addition, we anticipate that our policy and contract claims liability totaling $749.4 million, along with recoveries from our reinsurers, will be sufficient to fund these claim liability payments. Liquidity and Capital Resources
Senior Managed Care Company. Liquidity for our managed care company is measured by its ability to pay operating expenses and pay dividends to our parent company. The primary source of liquidity is management fees for administration of our HealthPlan affiliates and services provided to the IPA's. Dividend payments by our HMO affiliates to Heritage are subject to the approval of the insurance regulatory authorities of our HMO affiliates' respective states of domicile. SCOT is not able to pay dividends during 2008 without prior approval. However, we believe that the sources of cash to
Our parent holding company made capital contributions to American Exchange amounting to $81.0 million during 2007. American Exchange made capital contributions of $44.0 million to American Progressive, $32.0 million to Pyramid and $5 million to Marquette during 2007. In December 2007, Pennsylvania Life declared and paid a dividend in the amount of $21.0 million to American Exchange. American Exchange made a capital contribution of $20.0 million to Pyramid.
capitalized and amortized over a period of years, as opposed to an immediate deduction in the year incurred. Instead of measuring actual selling expenses, the amount capitalized for tax purposes is based on a percentage of premiums. In general, the capitalized amounts are subject to amortization over a ten-year period. Since this change only affects the timing of the deductions, it does not, assuming stability of rates, affect the provisions for taxes reflected in our financial statements prepared in accordance with GAAP. However, by deferring deductions, the change has the effect of increasing our current tax expense and reducing statutory surplus. There was no material increase in our current income tax provision for any of the three years in the period ended December 31, 2007.