On December 31, 1998, the Company acquired from Seaboard Life Insurance Company of Canada and its parent, Seaboard North American Holdings, Inc., a Canadian company that is owned by Eureko, B.V. of the Netherlands ("Eureko"), Seaboard Life Insurance Company (USA), an Indiana domiciled life insurance company ("Seaboard Life"), and its affiliate, VASA North America, Inc. and its subsidiaries. The principal subsidiaries of VASA North America, Inc. are VASA North Atlantic Insurance Company ("VNAIC"), an Indiana domiciled property/casualty insurance company , and VASA Brougher, Inc. ("VBI"), a managing general underwriter of medical stop-loss and group term life insurance coverages issued by Seaboard Life and VNAIC . Seaboard Life is licensed in 41 states and the District of Columbia and VNAIC is licensed in 36 states and the District of Columbia. Seaboard Life and VNAIC are referred to herein as the "Insurance Companies." The Insurance Companies both carry an "A- " (Excellent) rating from A.M. Best Company. The purchase did not include the individual life and annuity business of Seaboard Life which is being sold separately by the Sellers. Effective January 1, 1999, the Company will incorporate Seaboard Life and VNAIC operations into its medical lines segment.
The following tables present pre-tax operating information by continuing business segment and holding company operations (including realized gains) for the years ended December 31, 1998, 1997 and 1996.
applicable to prescribed procedures which are normal and recurring aspects inherent in the estimation of accident and health reserves. Calendar year results of the medical lines segment reflects various policy years at different stages of completion for each line of business included in the segment. The respective policy years become complete 15 to 18 months after policy inception. Each policy year is subject to differing market conditions and varying claim development patterns. Additionally, in recent years competition in the medical lines segment has constrained the ability to increase premium rate levels commensurate with increases in health care costs. Each calendar year will be affected by such normal, recurring elements that cause fluctuations in the ordinary course of business. In the 1998 period, increases in estimated losses and LAE for claims arise from the 1997 medical stop-loss policy year and the run-off of a book of business acquired in the Global transaction in 1997. Medical lines reserves pertaining to business written through December 31, 1998, of $34.6 million, are included in the expected sale of USF RE to Folksamerica. In conjunction with the sale, the Company expects to purchase a $5 million cover on its medical lines reserves which, when combined with 1998 USF RE medical lines reserve increases of $11.1 million result in an expectation that future periods will not be impacted by prior period loss reserve development.
Each of the Company's insurance company subsidiaries experienced unusual values in the NAIC insurance regulatory information system ("IRIS") tests. Generally, unusual values on two or more of the tests require an insurance company to report to the NAIC its plans to rectify the situation. USFIC had three unusual values on tests that measured surplus aid to surplus, two year overall operating ratio and one year reserve development to surplus. Over the last two years USFIC has been negatively impacted by medical lines underwriting results, which it assumes from USF RE as part of the intercompany pooling arrangement between the two insurers. With effect from January 1, 1999, that agreement has been cancelled and management expects the two year operating ratio and one year reserve development tests to return to more normal results. Seaboard Life experienced 6 out of 13 unusual results on its IRIS tests all but two related to surplus levels. Seaboard Life's operating results under its previous owner produced a net loss for the 1998 year so these unusual values were not unexpected. The Company expects to increase Seaboard's surplus during the first quarter of 1999. Such action, combined with returning Seaboard to profitability, is expected to return these test results to more usual values.