The Employee Benefits segment experienced strong sales growth during 1998 with a net increase of 593 group health care customers (versus 440 in 1997), which added 143,699 new individual health care members, excluding the AH&L acquisition. Much of the health care growth can be attributed to the introduction of new HMOs in markets with high sales potential, and the Company's ability to offer a choice of managed care products.
With a heightened sensitivity to price comes the demand for more tightly managed health plans, which is why HMO development remains Employee Benefits' most important product development initiative. In 1998, the Company licensed HMOs in Arizona, Florida, Indiana and New Jersey and applied for licenses in North Carolina and Pennsylvania. The Company also entered into agreements with another insurance carrier which will exclusively market the HMO product in various states. This type of arrangement will augment growth in the Company's HMO programs in the future.
Total health care membership increased from 1996 to 1997 by 8% (1996 was the first year the Company offered HMO plans). Gatekeeper members grew 18% from 1996 to 1997.
Deposits for investment-type contracts increased $20.4 million or 9%, from $218.6 million in 1997 to $239.0 million in 1998. Deposits for investment-type contracts increased $4.3 million or 2%, from $214.3 million in 1996 to $218.6 million in 1997.
Customer participation in guaranteed separate accounts increased, as many customers prefer the security of fixed income securities and separate account assets. Assets under management for guaranteed separate account funds were $562.3 million in 1998, compared to $466.2 million in 1997 and $392.8 million in 1996.
The average balance of impaired loans continued to remain low at $31.2 million in 1998, compared with $37.9 million in 1997, and foreclosures totaled $3.0 million and $14.1 million in 1998 and 1997, respectively. The low levels of problematic mortgages relative to the Company's overall balance sheet are due to the ongoing decrease in the size of the mortgage portfolio, the Company's active loan management program and overall strength in market conditions.
The Company's real estate portfolio is composed primarily of the Head Office property ($54.2 million) and properties acquired through the foreclosure of troubled mortgages ($16.3 million). The Company operates a wholly-owned real estate subsidiary, which attempts to maximize the value of these properties through rehabilitation, leasing and sale. The Company is currently adding a third tower to its Head Office complex, which it anticipates completing in the year 2000.
Fixed maturities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the net unrealized gains and losses reported as accumulated other comprehensive income in stockholder's equity. The net unrealized gains and losses on derivative financial instruments used to hedge available-for-sale securities are also included in other comprehensive income.
At December 31, 1998 and 1997, due to Parent Corporation includes $17,930 and $8,957 due on demand and $34,947 and $117,699 of notes payable which bear interest and mature at various dates through June 15, 2008. These notes may be prepaid in whole or in part at any time without penalty; the issuer may not demand payment before the maturity date. The amounts due on demand to the Parent Corporation bear interest at the public bond rate (6.1% and 7.1% at December 31, 1998 and 1997, respectively) while the remainder bear interest at various rates ranging from 5.4% to 6.6%. Interest expense attributable to these payables was $9,891, $9,758, and $11,282 for the years ended December 31, 1998, 1997 and 1996, respectively.
The Company has a commercial paper program that is partially supported by a $50,000 standby letter-of-credit. At December 31, 1998, commercial paper outstanding had maturities ranging from 69 to 118 days and interest rates ranging from 5.10% to 5.22%. At December 31, 1997, maturities ranged from 41 to 99 days and interest rates ranged from 5.6% to 5.8%.