We reclassified prior year amounts to conform with the current year presentation.
Premium income increased in 2002 primarily due to increases in premium received from annuity products. Increases in annuity product premium over 2001 were primarily the result of an increase in sales of fixed annuity products and increased sales of a new variable annuity product, which was introduced in July 2001.
The increase in mortgage loans is primarily attributed to a continuation of our strategy of increasing our investment in mortgage loans due to favorable market conditions. For the year ended December 31, 2002, $168.0 million of new loans were issued and $75.5 million was received on outstanding accounts.
To identify under-performing investments, we review all bonds on a regular basis utilizing the following criteria:
We consider the maturities of commercial mortgage loans to be sufficiently diversified, and carefully monitor and manage maturities in light of our liquidity needs. In 2002, we added 42 new loans for $116.8 million, 16 of which were office buildings for $51.9 million. Additionally, in 2002, borrowers paid off 16 loans, which totaled $30.8 million.
Policy loans are carried at the outstanding loan balance less amounts unsecured by the cash surrender value of the policy. Accrued investment income on policy loans more than 90 days past due is included in the unpaid balance of the policy loan.
Other investments primarily include derivatives, real estate, unaffiliated common stocks and preferred stocks.
The Company had $3,542.5 million of insurance in force at December 31, 2002, for which the gross premium is less than the net premium according to the standard valuation set by the Department.
Other liabilities primarily include payables for securities purchased, amounts payable on reinsurance contracts, outstanding drafts and due and accrued expenses.
Under interest rate swaps, the Company agrees to an exchange, at specified intervals, between streams of variable rate and fixed rate interest payments calculated by reference to an agreed-upon notional principal amount. The fair value of these contracts is included in other investments on the Statutory Statements of Financial Position. Changes in the fair value of these contracts are recorded as realized capital gains and losses when contracts are closed and at each reporting date. Net amounts receivable and payable are accrued as adjustments to net investment income and included in other investments on the Statutory Statements of Financial Position. Gains and losses realized on the termination or assignment of contracts are recognized as realized capital gains and losses.
Investment-type insurance contracts: The estimated fair value for liabilities under investment-type insurance contracts is determined by discounting future cash flows at current market rates.
MassMutual and the Company have an agreement whereby MassMutual, for a fee, furnishes the Company, as required, operating facilities, human resources, computer software development and managerial services. Also, investment and administrative services are provided to the Company pursuant to a management services agreement with MassMutual. Fees incurred under the terms of these agreements were $161.8 million, $171.6 million and $172.6 million in 2002, 2001 and 2000, respectively. While management believes that these fees are calculated on a reasonable basis, these fees may not necessarily be indicative of the costs that would have been incurred on a stand-alone basis.
The Board of Directors of MassMutual has authorized the contribution of funds to the Company sufficient to meet the capital requirements of each state in the United States of America in which the Company is licensed to do business.