The Company owns three buildings in Los Angeles and twelve business service centers in which its administrative operations are conducted. In addition, the Company owns a building in the state of Washington in which the operations of Farmers Life are conducted.
- ---------------------------- (1) Includes cash and cash equivalents, marketable securities and notes receivable-affiliates. (2) The ratio of earnings to fixed charges has been determined by dividing the sum of income before income taxes plus fixed charges by fixed charges. Fixed charges consist of interest, capitalized interest, dividends paid to QUIPS holders, amortization of QUIPS offering expenses and that portion of rent expenses deemed to be interest.
Effective January 1, 1999, the P&C Group began assuming all personal lines business written by ZIC's subsidiary, Maryland Casualty Company ("MCC"). The Company provides management services in respect of this business and, as with its services to the P&C Group, receives compensation based on a percentage of gross premiums earned.
The Company underwrites life insurance, annuity and structured settlement products through Farmers Life. Revenues attributable to traditional life insurance products, such as whole life or term life contracts, are classified as premiums as they become due. Future benefits are associated with such premiums (through increases in liabilities for future policy benefits), and prior period capitalized costs are amortized (through amortization of DAC) so that profits are generally recognized over the same period as revenue income. Revenues attributable to universal life products consist of policy charges for the cost of insurance, policy administration charges, surrender charges and investment income on assets allocated to support policyholder account balances on deposit. Revenues for deferred annuity products consist of surrender charges and investment income on assets allocated to support policyholder account balances. Expenses on universal life and annuity policies include interest credited to policyholders on policy balances as well as benefit claims incurred in excess of policy account balances. Revenues attributable to structured settlement products consist of investment income on assets allocated to support the policyholder benefits schedule and expenses consist of interest credited to policyholders on policy balances.
Operating Revenues. Operating revenues, which primarily consist of management fees paid to the Company as a percentage of gross premiums earned by the P&C Group, reached a record level of $1,489.7 million in 1999, up $131.5 million, or 9.7%, from 1998. This growth was primarily attributable to higher volumes of gross premiums earned by the P&C Group, which grew $474.0 million, or 4.6%, to $10,804.9 million in 1999. The increase in gross premiums earned was driven by the P&C Group's assumption of MCC's personal lines business as well as the expansion of operations into twelve eastern states. Management fees earned on this assumed business totaled $50.7 million for the year ended December 31, 1999. Also contributing to the increase in operating revenues between years was the fact that, effective January 1999, management fee rates on all lines of business were increased 0.25% resulting in a $26.2 million increase in management fee revenues in 1999.
Dividends on Preferred Securities of Subsidiary Trusts. Dividend expense related to the $500.0 million of QUIPS issued in 1995 was $42.1 million in both 1998 and 1999.
Provision for Income Taxes. Provision for income taxes increased from $290.8 million in 1998 to $325.3 million in 1999, an increase of $34.5 million, or 11.9%, as a result of the increase in pretax income between years.
Management Services Income. As a result of the foregoing, management services income increased from $420.8 million for the year ended December 31, 1998 to $481.1 million for the year ended December 31, 1999, an increase of $60.3 million, or 14.3%. Exclusive of the merger related expenses and the write-off of impaired assets in 1998, management services income increased $18.4 million, or 4.0%, between years.
Under the quota share reinsurance treaty, Farmers Re assumed $1,000.0 million of premiums in each of the years ended 1999 and 1998. Losses and loss adjustment expenses incurred under this treaty were $661.3 million in 1999 and $655.1 million in 1998 and non-life reinsurance commissions paid were $313.7 million in 1999 and $319.9 million in 1998. Income before taxes increased from $37.2 million in 1998 to $53.3 million in 1999, an increase of $16.1 million, or 43.3%. This increase was due primarily to increased investment income as a result of a higher invested asset base. Farmers Re's contribution to net income was $37.7 million and $25.4 million in 1999 and 1998, respectively.
Policy Benefits. Policy benefits, which consist primarily of death and surrender benefits on life products, increased $3.8 million over 1998 to $137.8 million, due to a 5.7% growth in the volume of total life insurance in-force and an increase in death benefits per thousand of insurance in-force.
Increase in Liability for Future Benefits. The liability for future benefits expense increased from $23.7 million in 1998 to $52.2 million in 1999. This increase was primarily attributable to higher volumes of traditional life insurance in-force, particularly whole life, and the fact that Farmers Life entered the structured settlement market in 1999.
Amortization of DAC and VOLBA. Amortization expense increased from $90.1 million in 1998 to $102.6 million in 1999 reflecting the continued growth in sales and the corresponding increase in deferred expenses.
Commissions. Commissions expense decreased $5.5 million between years from $18.9 million in 1998 to $13.5 million in 1999 due to higher reinsurance activity.
General and Administrative Expenses. General and administrative expenses increased $2.6 million to $44.1 million in 1999 due primarily to $1.6 million of expenses incurred in connection with a project to implement a new financial accounting and reporting system for the Company and the P&C Group.
Operating Revenues. Operating revenues increased from $1,324.9 million in 1997 to $1,358.2 million in 1998, an increase of $33.3 million, or 2.5%, reflecting higher gross premiums earned by the P&C Group. Such premiums increased from $10,070.1 million in 1997 to $10,331.0 million in 1998 due primarily to an increase in the number of Auto and Fire policies-in-force between years and higher average premium levels in the Fire line of business.
Total Expenses. Total expenses as a percentage of operating revenues increased from 55.6% in 1997 to 59.0% in 1998, an increase of 3.4 percentage points. This increase was due to the $21.1 million of merger related expenses and the $46.0 million write-off of impaired assets in 1998. Excluding these two items, expenses as a percentage of revenues decreased by 1.5 percentage points between years.
General and Administrative Expenses. General and administrative expenses increased from $202.6 million in 1997 to $204.1 million in 1998 due to a $2.4 million write-off of impaired assets as well as a $0.8 million increase in Year 2000 Project related expenses. Despite these two items, the Company held the increase in general and administrative expenses between years to less than one percent as a result of continued attention to cost control and automation through the greater use of information technology systems.
Merger Related Expenses. Expenses incurred by the Company as a result of the merger with ZIC amounted to $21.1 million for the year ended December 31, 1998 (see Note E).
Gain on Sale of Subsidiaries. The gain recorded on the April 15, 1997 sale of OSL and IGL amounted to $19.0 million in 1997.
Dividends on Preferred Securities of Subsidiary Trusts. Dividend expense related to the $500.0 million of QUIPS issued in 1995 was $42.1 million in both 1998 and 1997.
On April 15, 1997, OSL and IGL were sold to Great Southern Life Insurance Company, a subsidiary of Americo Life Inc.. As a result, there was no contribution to net income from OSL or IGL in 1998, compared to $5.5 million in 1997. The following commentary addresses the results of the Company's remaining life insurance subsidiary, Farmers Life.
Net Investment Income. Net investment income increased $18.0 million in 1998, or 6.5% over 1997, due to a higher invested asset base.
Total Operating Expenses. Total operating expenses increased from $427.0 million in 1997 to $458.8 million in 1998, an increase of $31.8 million, or 7.4%.
Life Policyholders' Benefits and Charges. Life policyholders' benefits expense and charges increased from $274.5 million in 1997 to $308.3 million in 1998, an increase of $33.8 million, or 12.3%.
Policy Benefits. Policy benefits increased $21.6 million over 1997 to $134.0 million, due to growth in the volume of life insurance in-force and an increase in mortality experience between periods.
Interest Credited to Policyholders. Interest credited to policyholders increased from $146.4 million in 1997 to $150.6 million in 1998, or 2.9%, reflecting growth in the universal life fund balance.
Commissions. Commissions increased from $17.3 million in 1997 to $19.0 million in 1998 due to the increase in the volume of business in-force.
Provision for Income Taxes. Provision for income taxes decreased from $73.8 million in 1997 to $71.2 million in 1998, a decrease of $2.6 million, due to the decrease in pretax operating income.
Consolidated net income of the Company decreased from $593.5 million in 1997 to $576.8 million in 1998, a decrease of $16.7 million, or 2.8%, due primarily to the merger related expenses and the write-off of impaired assets in 1998.
In 1995, the Company initiated a Year 2000 project in order to prepare for the information processing problems presented by the approach of the new millenium. Significant efforts were expended to gain a complete understanding of Year 2000 implications and to develop a strategy to make the Company's and the P&C Group's systems Year 2000 compliant. The costs associated with the Year 2000 Project were expensed as incurred and, through December 31, 1999, totaled $23.2 million, of which $5.5 million was allocated to the P&C Group. The costs related to the Year 2000 Project were consistent with management's expectations of the total costs that would be incurred in connection with the Year 2000 issue. No further costs related to the Year 2000 Project are expected.
General. The principal uses of funds by the Company are (i) operating expenses, (ii) dividends to the shareholders of the Company's QUIPS, (iii) capital expenditures and (iv) dividends to its stockholders. In 1999, dividends paid on QUIPS totaled $42.1 million, capital expenditures totaled $89.7 million and cash dividends paid to stockholders totaled $433.4 million.
The principal sources of funds available to the Company are (i) the management fees that it receives for providing management services to the P&C Group, (ii) investment income and (iii) dividends from its subsidiaries. Historically, funds available from the first two of these sources have been sufficient to satisfy the liquidity needs of the Company, and the Company anticipates that such funds will continue to be adequate to satisfy such needs in the future. A portion of the net income of Farmers Life is available for payment as a dividend to the Company, subject to certain limitations imposed by the insurance laws of the state of Washington and additional state taxation. As of December 31, 1999, an aggregate of $112.9 million was available for distribution as a dividend without approval of the state insurance department (see Note I). Additionally, as of December 31, 1999, the Company had available revolving credit facilities enabling it to borrow up to $500.0 million in the event such a need should arise (see Note U).
In order to maintain the policyholders' surplus of the P&C Group, the Company has, from time to time, made surplus contributions to the P&C Group, receiving certificates of contribution or surplus notes which bear interest at various rates. As of December 31, 1999, the Company held $23.3 million of certificates of contribution of the P&C Group and a $119.0 million surplus note of the P&C Group. The Company believes that these purchases of certificates of contribution and the surplus note have helped to support the historical growth in premiums earned by the P&C Group and the related growth in management fees paid to the Company.
In June 1999, the Company loaned $190.0 million to Centre Reinsurance Holdings (Delaware II) Ltd., a subsidiary of Zurich. In December 1999, this loan was settled and the Company subsequently issued a $250.0 million loan to OSDH (see Note S).
We have audited the accompanying consolidated balance sheets of Farmers Group, Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and based on our audits.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP Los Angeles, California February 17, 2000 (March 7, 2000 as to Note Z)
FARMERS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands)
FARMERS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1999, 1998 and 1997 (Amounts in thousands)
The excess of the purchase price over the fair value of the net assets ("Goodwill") of the Company at the date of the Company's acquisition by B.A.T ($2,401,755,000) is being amortized on a straight-line basis over forty years. The carrying amount of the Goodwill is regularly reviewed for indications of impairment in value which in the view of management are other than temporary, including unexpected or adverse changes in the following: (1) the economic or competitive environments in which the Company operates, (2) profitability analyses and (3) cashflow analyses. As of December 31, 1999, management believes that the reported value is recoverable and the remaining life of Goodwill is appropriate.
As a result of the foregoing, references to the "Insurance Subsidiaries" within the 1999 and 1998 consolidated financial statements are to Farmers Life and Farmers Re, whereas, references to the "Insurance Subsidiaries" within the 1997 consolidated financial statements are to Farmers Life, OSL, IGL, and Farmers Re.
In 1999, the Company adopted Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". This SOP establishes the rules for capitalizing or expensing internally developed software.
released SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement establishes accounting and reporting standards for derivative instruments (including certain derivative instruments embedded in other contracts) and for hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at market value. The Company does not expect the adoption of these Statements to have a material impact on its consolidated financial statements.
Certain policy acquisition costs, principally first-year commissions and other expenses for policy underwriting and issuance (which are primarily related to and vary with the production of new business), are deferred and amortized proportionately over the estimated period during which the related premiums will be recognized as income, based on the same assumptions that are used for computing the liabilities for future policy benefits. Liabilities for future policy benefits are computed principally by means of a net level premium method reflecting estimated future investment yields, mortality, morbidity and withdrawals. Interest rate assumptions range from 2.25% to 9.00%, depending on the year of policy issue. Mortality is calculated principally on select and ultimate tables in common usage in the industry, modified for actual experience, and withdrawals are estimated based primarily on experience.
Revenues associated with universal life products consist of policy charges for the cost of insurance, policy administration fees, surrender charges and investment income on assets allocated to support policyholder account balances. Revenues for deferred annuity products consist of surrender charges and investment income on assets allocated to support policyholder account balances. Expenses include interest credited to policyholder account balances and benefit claims incurred in excess of policyholder account balances. Liabilities for future policy benefits on universal life and deferred annuity products are determined under the retrospective deposit method. DAC is amortized in relation to the present value of expected gross profit margins on the policies, after giving recognition to differences between actual and expected gross profit margins to date. In compliance with a Securities and Exchange Commission ("SEC") staff announcement, the Company has recorded certain entries to the DAC and VOLBA line of the consolidated balance sheet in connection with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The SEC requires that companies record entries to those assets and liabilities that would have been adjusted had the unrealized investment gains or losses from securities classified as available-for-sale actually been realized, with corresponding credits or charges reported directly to stockholders' equity. Accordingly, DAC and VOLBA are increased or decreased to reflect what would have been the impact on estimated future gross profits, had net unrealized gains or losses on securities been realized at the balance sheet date. Net unrealized gains or losses on securities, within stockholders' equity, also reflect this impact. These entries increased the DAC and VOLBA assets by $31,933,000 as of December 31, 1999 and decreased the DAC and VOLBA assets by $49,015,000 as of December 31, 1998.
In 1999, Farmers Life introduced structured settlement annuity products. Revenues and expenses for structured settlements involving life contingencies are recognized in a manner similar to traditional products. Revenues and expenses for structured settlements not involving life contingencies are recorded consistent with guidelines for investment contracts which are not subject to mortality risks.
Total losses paid by Farmers Re were $547,827,000 in 1999 and $543,445,000 in 1998, total loss adjustment expenses were $6,980,000 in 1999 and $5,736,000 in 1998 and reinsurance commissions were $313,749,000 in 1999 and $319,875,000 in 1998. Farmers Re had loss reserves of $106,444,000 and $105,944,000 as of December 31, 1999 and 1998, respectively.
As a result of the merger between B.A.T's Financial Services Businesses and ZIC in 1998, the Company recorded various merger related expenses totaling $244,000 in 1999 and $21,056,000 in 1998. The expenses recorded in 1999 related to audit and legal costs incurred by the Company in connection with the merger, while the expenses recorded in 1998 were primarily related to $16,545,000 of losses the Company incurred in connection with taking over the management of ZIC's United States personal lines business. An additional $2,728,000 was recorded in 1998 relating to the write-off of redundant capitalized software and $1,783,000 was recorded relating to miscellaneous audit, legal and travel expenses incurred by the Company in connection with the merger.
On April 7, 1999, the Company received $12,274,000 from the P&C Group for the redemption of an $11,050,000 certificate of contribution issued on December 11, 1991 and for the payment of $1,224,000 of accrued interest. As of December 31, 1999, the Company held miscellaneous other certificates of contribution of the P&C Group totaling $23,330,000 which bear interest at various rates. In addition, Farmers Life held a $119,000,000 surplus note of the P&C Group which bears interest at 6.10% annually.
The Company has two profit sharing plans providing for cash payment to all eligible employees. The two plans, Deferred Profit Sharing and Cash Profit Sharing (consisting of Cash and Quest for Gold in 1999 and 1998 and Cash and Cash Plus in 1997), provide for a maximum aggregate expense of 16.25% of the Company's consolidated annual pretax earnings, as adjusted. The Deferred Profit Sharing Plan, limited to 10% of pretax earnings, as adjusted, or 15% of the salary or wage paid or accrued to the eligible employee, provides for an annual contribution by the Company to a trust for eventual payment to employees as provided in the Plan. The Cash Profit Sharing Plan and Quest for Gold Program provide for annual cash distributions to eligible employees. The Cash Profit Sharing Plan is limited to 5% of pretax earnings, as adjusted, or 5% of employee salaries or wages paid or accrued. The Quest for Gold Program is limited to 1.25% of pretax earnings, as adjusted, or 6% of eligible
The Company follows the provisions of SFAS No. 115. This Statement addresses the accounting and reporting for investments in equity securities that have readily determinable market values and for all investments in debt securities. As of December 31, 1999 and 1998, the Company classified all investments in equity and debt securities as available-for-sale under SFAS No. 115 with the exception of $59.7 million in 1999 and $53.0 million in 1998 which relate to a grantor trust and are classified as trading securities under SFAS No. 115. The available-for-sale investments are reported on the balance sheet at market value, with unrealized gains and losses, net of tax, excluded from earnings and reported as a component of stockholders' equity. The investments classified as trading investments are reported on the "Other assets" line of the consolidated balance sheet at market value with both realized and unrealized gains and losses included in earnings, net of tax, in the year in which they occur. Real estate investments are accounted for on a depreciated cost basis. Real estate acquired in foreclosure and held for sale is carried at the lower of market value or depreciated cost less a valuation allowance. Marketable securities are carried at market. The Standard & Poor's 500 Composite Stock Price Index ("S&P 500") call options are carried at estimated fair value. Other investments, which consist primarily of certificates of contribution of the P&C Group, a surplus note of the P&C Group, policy loans and notes receivable from affiliates, which include British American Financial Services (UK and International), Ltd. ("BAFS") notes and an Old Stone (Delaware) Holdings Limited ("OSDH") note, are carried at the unpaid principal balances.
Realized gains and losses on sales, redemptions and writedowns of investments owned by the Company (excluding the Insurance Subsidiaries) are determined based on either the cost of the individual securities or the amortized cost of real estate. Net realized investment gains or losses for the years ended December 31 are:
The amortized cost, gross unrealized gains and losses, and estimated market values of investments in equity securities pertaining to non-redeemable preferred stocks and common stocks owned by the Company (excluding the Insurance Subsidiaries) are as follows:
The amortized cost, gross unrealized gains and losses, and estimated market values of investments in equity securities pertaining to non-redeemable preferred stocks and common stocks owned by the Insurance Subsidiaries in 1999 and 1998 are as follows:
The amortized cost and estimated market value of debt securities owned by the Insurance Subsidiaries as of December 31, 1999, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
During 1997, Farmers Life began selling an equity-indexed annuity product. At the end of its seven year term, this product credits interest to the annuity participant at a rate based on a specified portion of the change in the value of the S&P 500, subject to a guaranteed annual minimum return. In order to hedge the interest liability generated on the annuities as the index rises, Farmers Life purchases call options on the S&P 500. Farmers Life considers such S&P 500 call options to be held as a hedge. As of December 31, 1999 and 1998, Farmers Life had S&P 500 call options with contract values of $65,229,000 and $40,229,000, respectively, and carrying values of $32,718,000 and $14,817,000, respectively.
Hedge accounting is used to account for the call options as Farmers Life believes that the options reduce the risks associated with increases in the account value of the annuities that result from increases in the S&P 500. The call options effectively hedge the annuity contracts since they are both purchased and sold with identical parameters. Periodically, the value of the assets (S&P 500 call options) are matched to the potential liability (annuity contracts) to ensure the hedge has remained effective. The annuities were written based on a seven year investment term, absent early termination by participants. Therefore, the anticipated hedged transaction (i.e., payment of interest to the policyholder at the end of the investment term and maturity of the call option) for each annuity is generally expected to occur in seven years or less. The amount of unrealized hedging gains was $13,197,000 and $3,512,000 in 1999 and 1998, respectively.
Fixed maturities, non-redeemable preferred stocks and common stocks. The estimated fair values of bonds, redeemable and non-redeemable preferred stocks and common stocks are based upon quoted market prices, dealer quotes, and prices obtained from independent pricing services.
Certificates of contribution and surplus note of the P&C Group. The carrying amounts of these items are a reasonable estimate of their fair values.
Notes receivable-affiliate(s). The fair values are estimated by discounting the future cash flows using the current rates at which similar loans would be made by the Company to borrowers for the same remaining maturities.
Joint ventures, at equity. The estimated fair values are based upon quoted market prices, current appraisals and independent pricing services.
The changes in the Value of Life Business Acquired were as follows:
The securities are marked-to-market on a daily basis and the collateral is adjusted on the next business day. The collateral is invested in highly liquid, fixed income assets with a maturity of less than one year. Income earned from the security lending arrangements was allocated 75% to the Company and 25% to the institution for the year ended December 31, 1999 and 60% to the Company and 40% to the institution for the years ended December 31, 1998 and 1997. Income earned by the Company was $799,000, $968,000 and $856,000 in 1999, 1998 and 1997, respectively. The collateral under these agreements as of December 31, 1999 and 1998 was $307,529,000 and $461,801,000, respectively.
The Company uses the projected unit credit cost actuarial method for attribution of expense for financial reporting purposes. The interest cost and the actuarial present value of benefit obligations were computed using a weighted average interest rate of 8.00% in 1999, 6.75% in 1998 and 7.25% in 1997, while the expected return on plan assets was computed using a weighted average interest rate of 9.25% in 1999 and 1998 and 9.00% in 1997. The weighted average rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 5.00% in 1999, 4.50% in 1998 and 5.00% in 1997.
The Company follows the provisions of SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets and deferred tax liabilities are recorded to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and the corresponding bases used for financial statements. On April 15, 1997, OSL and IGL were sold pursuant to Internal Revenue Code 338(h)(10). Federal and state taxes incurred as a result of this transaction amounted to $26,826,000.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 1999 and 1998 are presented in the following tables:
As AIF, the Company, or its subsidiaries, as applicable, manages the affairs of the P&C Group and receives management fees for the services rendered. As a result, the Company received management fees from the P&C Group of $1,402,107,000, $1,271,763,000 and $1,241,153,000 in 1999, 1998 and 1997, respectively.
Also, on December 15, 1999, the Company, using the $190,000,000 of proceeds from the Centre Re loan settlement, loaned $250,000,000 to OSDH, a subsidiary of Zurich. In return, the Company received a $250,000,000 medium-term note that matures on December 15, 2004. Interest on the note is paid semi-annually at a fixed rate of 7.50%. Income earned on this note through December 31, 1999 was $781,000.
In addition, as of December 31, 1999, the Company held $1,057,000,000 of notes receivable from BAFS, a subsidiary of Zurich. The Company purchased the notes from BAFS on September 3, 1998, using proceeds received in settlement of $407,000,000 of notes receivable from B.A.T Capital Corporation, a subsidiary of B.A.T, and proceeds received from the redemption of $650,000,000 of certificates of contribution of the P&C Group on July 10, 1998. The $1,057,000,000 notes receivable are fixed rate medium-term notes with maturity dates as follows: $200,000,000 in September 2000, $207,000,000 in September 2001, $200,000,000 in September 2002, $200,000,000 in September 2003 and $250,000,000 in September 2004. Interest on these notes is paid semi-annually at coupon rates of 5.44%, 5.48%, 5.67%, 5.71% and 5.78%, respectively. Income earned on these notes for the years ended December 31, 1999 and December 31, 1998 was $59,434,000 and $19,481,000, respectively.
In 1999, the Company used $190,000,000 of proceeds it received from the settlement of the Centre Re loan to substantially fund the issuance of a $250,000,000 loan to OSDH (see Note S).
In 1998, the Company used $650,000,000 of proceeds it received from the redemption of the certificates of contribution of the P&C Group and $407,000,000 of proceeds it received from the settlement of the B.A.T Capital Corporation notes receivable, to issue $1,057,000,000 of notes receivable to BAFS (see Note S). In addition, Farmers Life purchased a $119,000,000 surplus note of the P&C Group on September 8, 1998 (see Note F).
Participating business, which consists of group business, comprised approximately 8.6% of Farmers Life's total insurance in-force as of both December 31, 1999 and 1998. In addition, participating business represented 2.0%, 2.1% and 2.2% of Farmers Life's premium income for the years ended December 31, 1999, 1998 and 1997, respectively.
(e) Amount includes PGAAP adjustments associated with the AIF contracts ($1,239.1 million) and goodwill ($1,741.3 million).