The Company has one reportable operating segment with two primary lines of business individual annuities and individual life insurance. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Premiums shown on the Company's consolidated financial statements in accordance with GAAP consist of premiums received for whole or term life insurance products, as well as that portion of the Company's single premium immediate annuities which have life contingencies. With respect to that portion of single premium annuity contracts without life contingencies, as well as single premium deferred annuities and universal life insurance products, premiums collected by the Company are not reported as premium revenues, but rather are reported as additions to policyholders' account balances. With respect to products that are accounted for as policyholders' account balances, revenues are recognized over time in the form of policy fee income, surrender charges and mortality and other charges deducted from the policyholders' account balances. The Company's operating earnings are derived primarily from these revenues, plus the Company's investment results, including realized gains (losses), less interest credited, benefits to policyholders and expenses.
Comparison of Fiscal Year 1998 to Fiscal Year 1997 and Fiscal Year 1997 to Fiscal Year 1996.
Total benefits and expenses for fiscal 1998 aggregated approximately $170.5 million, as compared to approximately $157.1 million for fiscal 1997 and approximately $147.3 million for fiscal 1996. This represents an increase of approximately 8.5% comparing fiscal 1998 to fiscal 1997 and an increase of approximately 6.7% comparing fiscal 1997 to fiscal 1996. The reasons for these changes will be discussed under the respective components below.
In connection with the offering of the New Senior Notes, the Company entered into a forward treasury lock agreement with a creditworthy financial institution pursuant to which the Company will make or receive, respectively, payments in respect of an aggregate notional principal amount of $100 million depending upon whether the interest rate for ten-year Treasury Notes in effect on the settlement date has increased or declined during the term of the agreement. The amount of any unrecognized gain or loss is recognized in the financial statements and fluctuates with the ten-year Treasury Note. At December 31, 1998, the agreement had an unrealized loss of $9.1 million. The Company has issued the related debt in February of 1999 and the unrecognized loss will be capitalized and amortized over the term of the New Senior Notes as an increase in interest expense.
invests a portion of its total assets in short-term investments (approximately 8.74%, 10.32% and 9.97% as of December 31, 1998, 1997 and 1996, respectively). The weighted average duration of the Company's debt portfolio was approximately five and one half years as of December 31, 1998. The Company's fixed maturity investments are all classified as available for sale and include those securities available to be sold in response to, among other things, changes in market interest rates, changes in the security's prepayment risk, the Company's need for liquidity and other similar factors. These investments are carried at estimated market value, and unrealized gains (losses), net of federal income taxes and deferred policy acquisition costs, if any, are charged directly to shareholders' equity, unless a decline in market value is considered to be other than temporary, in which event the Company recognizes a loss. Equity securities include common stocks and non-redeemable preferred stocks and are carried at market, with the related unrealized gains and losses, net of federal income taxes, if any, charged or credited directly to shareholders' equity, unless a decline in market value is considered to be other than temporary, in which event the Company recognizes a loss.
The Company has initiated formal communications with its significant vendors and business partners to determine the extent to which the Company may be vulnerable to those third parties' failure to properly remediate their own year 2000 issues. While the Company is not presently aware of any such significant exposure, the Company cannot predict the outcome of other companies' remediation efforts.