Consolidated net income after Federal income taxes increased by $13.3 million to $22.9 million ($0.49 per share) in 2000, compared to $9.6 million ($0.34 per share) in 1999. Operating income before realized gains and Federal income taxes increased by $16.6 million to $32.9 million in 2000 compared to $16.3 million in 1999.
Consolidated net income after Federal income taxes increased by $7.5 million to $9.6 million ($0.34 per share) in 1999, compared to $2.2 million ($0.20 per share) in 1998. Operating income before realized gains and Federal income taxes increased by $12.6 million to $16.3 million in 1999 compared to $3.7 million in 1998.
The increase in deferred acquisition costs was approximately $5.5 million more in 2000, compared to the increase in 1999 on an annualized basis and is directly related to the new business sold in 2000. The deferred acquisition costs in this segment relates solely to business sold subsequent to the Penn Union acquisition.
Commissions and other operating expenses decreased by approximately $5.5 million or 8% in 2000 compared to 1999 on an annualized basis. Approximately $2.2 million of the decrease relates to a reduction in the overall commission rate for the Career Agents, as well as a reduction in stock-based compensation related to agent production. The remaining decrease relates to the decrease in production as compared to 1999 on an annualized basis.
BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Policyholder benefits, including the change in reserves, increased by approximately $17.0 million, or 72%, compared to 1999. The net policyholder benefits increased more than the net premium primarily due to an increase in loss ratios on the Medicare Supplement written policies from approximately 70% in 1999 to 75% in 2000. The Company has implemented rate increases, which will be effective during 2001. The loss ratios on the Medicare Supplement acquired policies decreased slightly from 84% in 1999 to 83% in 2000. In addition, the net benefits incurred on the business acquired in the 1999 Acquisition increased $2.0 million as a result of including twelve months of operations in 2000 compared to five months in 1999.
Operating income from the Senior Market Brokerage segment increased by $1.8 million, or 86%, in 1999 compared to 1998.
The increase in deferred acquisition costs amounted to $3.7 million and $3.8 million in 1999 and 1998, respectively. Increases in the deferred acquisition costs on the supplemental senior health products were offset by corresponding decreases in the annuity deferred acquisition costs balances.
The United States Insurance Subsidiaries are taxed as life insurance companies as provided in the Tax Code. The Omnibus Budget Reconciliation Act of 1990 amended the Tax Code to require a portion of the expenses incurred in selling insurance products to be 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 the Company's financial statements prepared in accordance with GAAP. However, by deferring deductions, the change does have the effect of increasing the current tax expense, thereby reducing statutory surplus. Because of the Insurance Subsidiaries' net operating loss carryforwards, there was no material increase in the Company's current income tax provision for any of the three years in the period ended December 31, 2000 due to this provision.