Net investment gains, net of related costs, often fluctuate from period to period.
We offer deferred annuity products with a "market value adjustment" feature designed to provide additional protection from early terminations during a period of rising interest rates by reducing the surrender value payable upon a full surrender of the policy in excess of the allowable penalty-free withdrawal amount. Conversely, during a period of declining interest rates, the market value adjustment feature would increase the surrender value payable to the policyholder. Annuity premiums collected with this feature represent 11 percent and 16 percent of total annuity premiums collected during 1997 and 1996, respectively.
Amortization related to operations increased 10 percent in 1997 and 18 percent in 1996. Amortization related to operations includes amortization of: (i) the cost of policies produced; (ii) the cost of policies purchased; and (iii) goodwill related to this segment's business. The amount of amortization increased primarily because of the increase in balances subject to amortization as a result of recent acquisitions.
Net investment gains (losses), net of related costs and amortization, often fluctuate from period to period. Selling securities at a gain and reinvesting the proceeds at lower yields may, absent other management action, tend to decrease future investment yields. We believe, however, that the following factors mitigate the adverse effect of such decreases on net income: (i) we recognized additional amortization of cost of policies purchased and cost of policies produced in order to reflect reduced future yields (thereby reducing such amortization in future periods); (ii) we can reduce interest rates credited to some products, thereby diminishing the effect of the yield decrease on the investment spread; and (iii) the investment portfolio grows as a result of reinvesting the realized gains. As a result of the sales of fixed maturity investments, the amortization of the cost of policies produced and the cost of policies purchased increased $132.0 million in 1997, $31.6 million in 1996 and $117.3 million in 1995.
Premiums collected by this segment increased 27 percent in 1997, to $69.2 million, and decreased 18 percent in 1996, to $54.5 million. The increase in premiums collected in 1997 primarily relates to recent acquisitions.
In addition to the income of the five operating segments, income before income taxes, minority interest and extraordinary charge is affected by interest and other corporate expenses, nonrecurring charges and net investment gains not attributable to the operating segments.
Interest and other corporate expenses were $126.8 million in 1997, $112.4 million in 1996, and $140.5 million in 1995. Interest expense included therein was $109.4 million in 1997, $108.1 million in 1996, and $119.4 million in 1995. Such expense fluctuates in relationship to the average debt outstanding during each period and the interest rate thereon.
Our investment strategy is to: (i) maintain a predominately investment-grade fixed income portfolio; (ii) provide adequate liquidity to meet the cash flow requirements of policyholders and other obligations; and (iii) maximize current income and total investment return through active investment management. Consistent with this strategy, investments in fixed maturity securities, mortgage loans, credit-tenant loans, policy loans, separate accounts and short-term investments made up 97 percent of our $27.0 billion investment portfolio at December 31, 1997. The remainder of the invested assets were equity securities and other invested assets.
The following table sets forth the par value, amortized cost and estimated fair value of mortgage-backed securities at December 31, 1997, summarized by interest rates on the underlying collateral:
Changes in the consolidated balance sheet of 1997 compared with 1996
Of the above insurance liabilities under contracts containing fixed payment dates, approximately 59 percent relate to payments that will be made for the lifetime of the contract holder. We consider expected mortality in determining the amount of this liability. The remaining insurance liabilities having fixed payment dates are payable regardless of the contract holder's survival.