Total common stockholders’ equity and book value per common share excluding AOCI, non-GAAP financial measures, are based on common stockholders’ equity excluding the effect of AOCI. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale securities, we believe these non-GAAP financial measures provide useful supplemental information. Total common stockholders' equity and total common stockholder's equity excluding AOCI, non-GAAP financial measures, exclude equity available to preferred stockholders. Book value per common share including and excluding AOCI are calculated as total common stockholders’ equity and total common stockholders’ equity excluding AOCI divided by the total number of shares of common stock outstanding.
Management's discussion and analysis reviews our consolidated financial position at December 31, 2019 and 2018, and our consolidated results of operations for the three years in the period ended December 31, 2019, and where appropriate, factors that may affect future financial performance. This analysis should be read in conjunction with our audited consolidated financial statements, notes thereto and selected consolidated financial data appearing elsewhere in this report.
changes in Federal income tax laws and regulations which may affect the relative income tax advantages of our products;
Excellent customer service teamed with our ability to offer innovative insurance products that provide principal protection and lifetime income continued to result in significant sales of our annuity products. In 2019, our sales were $5.0 billion which has resulted in cash and investments in excess of $59 billion at December 31, 2019. Our sales for the last five years have ranged from $4.2 billion to $7.1 billion. We have applied a conservative investment strategy to the annuity deposits we manage which has provided reliable returns on our invested assets. Our profitability has also been driven by maintaining an efficient operation.
Our business model contemplates continued growth in invested assets and non-GAAP operating income while maintaining a high quality investment portfolio that will not experience significant losses from impairments of invested assets. We are committed to maintaining a high quality investment portfolio with limited exposure to below investment grade securities and other riskier assets. Growth in invested assets is predicated on a continuation of our high sales achievements of the last five years while at the same time maintaining a high level of retention of the funds received.
Annuity deposits by product type collected during 2019, 2018 and 2017, were as follows:
2018 sales were positively impacted by the launch of new products during 2018 to improve our competitive position in the guaranteed lifetime income benefit market, the continued competitiveness of our accumulation products and higher yields which supported increases in payout factors on our guaranteed income products. In addition, we benefited from an increase in industry sales of fixed index annuities during 2018 in part due to the DOL fiduciary rule being vacated. These factors were partially mitigated by continued competitive pressures within each of our distribution channels.
We coinsure 80% of the annuity deposits received from MYGA fixed annuity products and 20% of certain fixed index annuities sold by Eagle Life through broker/dealers and banks. The decrease in coinsurance ceded premiums in 2019 was attributable to a decrease in the coinsurance percentage for fixed index annuities sold by Eagle Life from 50% for 2018 to 20% for 2019 partially offset by an increase in deposits received from MYGA fixed annuity products during 2019. The increase in coinsurance ceded premiums in 2018 was attributable to an increase in deposits received from fixed index annuities sold by Eagle Life during 2018.
Net income decreased 46% to $246.1 million in 2019 and increased 162% to $458.0 million in 2018 from $174.6 million in 2017.
The most significant assumption changes from the 2019 review were to lapse and utilization assumptions. We have credible lapse and utilization data based upon a comprehensive experience study spanning over 10 years on our products with lifetime income benefit riders and have experienced lapse rates that are lower than previously estimated.
Our experience study also indicated that the ultimate utilization of certain lifetime income benefit riders is expected to be less than our prior assumptions and the timing of utilization of lifetime income benefit riders is later than in our prior assumptions. We have reduced our ultimate utilization assumptions for fee riders from 75% to 60% and for no-fee riders from 37.5% to 30%, for policies issued in 2014 and prior years. The net effect of the utilization assumption revisions resulted in a decrease in the liability for lifetime income benefit riders and partially offset the increase in the reserve for lifetime income benefit riders from the change in lapse assumptions.
The 2018 and 2017 revisions to the liability for lifetime income benefit riders were consistent with the revisions used in the calculation of amortization of deferred policy acquisition costs and deferred sales inducements described above. The 2018 revisions were primarily attributable to account balance true-ups and future investment spread assumptions. The impact of the account balance true-ups and future investment spread changes was partially offset by the lapse rate assumptions changes described above. The 2017 revisions were primarily due to the lapse rate assumption changes described above and changes to our account value growth projections.
The most significant revisions to the calculation of the fair value of embedded derivative component of our fixed index annuity policy benefit reserves in 2018 were to decrease lapse rate assumptions consistent with the 2018 changes for deferred policy acquisition costs, deferred sales inducements and the liability for lifetime income benefit riders.
Non-GAAP operating income is not a substitute for net income determined in accordance with GAAP. The adjustments made to derive non-GAAP operating income are important to understand our overall results from operations and, if evaluated without proper context, non-GAAP operating income possesses material limitations. As an example, we could produce a low level of net income or a net loss in a given period, despite strong operating performance, if in that period we experience significant net realized losses from our investment portfolio. We could also produce a high level of net income in a given period, despite poor operating performance, if in that period we generate significant net realized gains from our investment portfolio. As an example of another limitation of non-GAAP operating income, it does not include the decrease in cash flows expected to be collected as a result of credit loss OTTI. Therefore, our management reviews net realized investment gains (losses) and analyses of our net investment income, including impacts related to OTTI write-downs, in connection with their review of our investment portfolio. In addition, our management examines net income as part of their review of our overall financial results.
The impact to net income and non-GAAP operating income from assumption revisions varies due to the impact of fair value accounting for our fixed index annuity business as non-GAAP operating income eliminates the impact of fair value accounting for our fixed index annuity business. While the assumption revisions made during 2019, 2018 and 2017 were consistently applied, the impact to net income and non-GAAP operating income varies due to different amortization rates being applied to gross profit adjustments included in the valuation.
The average yield earned on average invested assets was 4.52%, 4.47% and 4.46% for 2019, 2018 and 2017, respectively. The increase in yield earned on average invested assets in 2019 was primarily attributable to our opportunistic replacement of lower yielding securities with higher yielding securities throughout 2018 as previously discussed. In addition, the increase in average yield earned for 2019 as compared to 2018 is due to increases in investment income on our floating rate investment securities due to an increase in the average benchmark rates associated with these investments during 2019 as compared to 2018. The average yield on fixed income securities purchased and commercial mortgage loans funded was 3.88%, 4.79% and 4.16% for the years ended December 31, 2019, 2018 and 2017, respectively.
The change in fair value of derivatives is also influenced by the aggregate costs of options purchased. During 2019 the aggregate cost of options purchased decreased compared to 2018 due to a decrease in the average cost of options for 2019, partially offset by an increase in the amount of fixed index annuities in force during 2019 compared to 2018. During 2018, the aggregate cost of options purchased increased compared to 2017 due to an increased amount of fixed index annuities in force as well as an increase in the cost of options for certain index strategies which began during the second half of 2017. The aggregate cost of options is also influenced by the amount of policyholder funds allocated to the various indices and market volatility which affects option pricing. See Critical Accounting Policies - Policy Liabilities for Fixed Index Annuities.
Net OTTI losses recognized in operations decreased to $18.7 million in 2019 and increased to $36.7 million in 2018 from $4.6 million in 2017. The impairments recognized in 2019 were primarily on corporate securities with exposure to the offshore drilling industry. The decrease in impairments recognized in 2019 compared to 2018 is partially related to our strategy to reposition the fixed maturity security portfolio during 2018. We sold $384 million in book value of securities in early October of 2018 and recognized OTTI of $12 million based on our intent to sell such securities as of September 30, 2018. In addition, during 2018 we recognized impairments on certain securities with exposure to various sectors, including the energy and utilities sectors, due to specific credit concerns and/or our intent to sell such securities. The impairments recognized in 2017 were primarily on a corporate security with exposure to the industrial sector in Latin America and additional impairments on previously impaired residential mortgage backed securities. See Financial Condition - Other Than Temporary Impairments and Note 3 to our audited consolidated financial statements for additional discussion of other than temporary impairments recognized.
See Net income and Non-GAAP operating income, a non-GAAP financial measure above and Critical Accounting Policies - Deferred Policy Acquisition Costs and Deferred Sales Inducements for discussion of the impact of unlocking on amortization of deferred sales inducements for the years ended December 31, 2019, 2018 and 2017.
Change in fair value of embedded derivatives includes changes in the fair value of our fixed index annuity embedded derivatives (see Note 5 to our audited consolidated financial statements). The components of change in fair value of embedded derivatives are as follows:
The primary reasons for the increase in the change in fair value of the fixed index annuity embedded derivatives for 2019 were increases in the expected index credits on the next policy anniversary dates resulting from increases in the fair value of the call options acquired to fund these index credits during 2019 as compared to decreases in the expected index credits on the next policy anniversary date resulting from decreases in the fair value of the call options acquired to fund these index credits during 2018 and decreases in the discount rates for 2019 as compared to increases in the discount rates for 2018. The primary reasons for the decrease in the change in fair value of the fixed index annuity embedded derivatives for 2018 were decreases in the expected index credits on the next policy anniversary dates resulting from a decrease in the fair value of the call options acquired to fund these index credits during 2018 compared to increases in the expected index credits resulting from an increase in the fair value of the call options during 2017 and increases in the discount rates for 2018 compared to decreases in the discount rates for 2017. The discount rates used in estimating our embedded derivative liabilities fluctuate from year to year based on changes in the general level of interest rates and credit spreads.
See Net income and non-GAAP operating income, a non-GAAP financial measure, above and Critical Accounting Policies - Deferred Policy Acquisition Costs and Deferred Sales Inducements for discussion of the impact of unlocking on amortization of deferred policy acquisition costs for the years ended December 31, 2019, 2018 and 2017.
Other operating costs and expenses increased 19% to $154.2 million in 2019 and increased 16% to $129.3 million in 2018 from $111.7 million in 2017 and are summarized as follows:
Salary and benefits expense increased in 2019 as a result of an increase in salary and benefits of $6.6 million and an increase of $3.3 million related to expense recognized under our equity and cash incentive compensation programs ("incentive compensation programs"). Salary and benefits expense increased in 2018 as a result of an increase in salary and benefits of $5.4 and an increase of $6.8 million related to expense recognized under our incentive compensation programs. The increases in salary and benefits were due to an increased number of employees related to our continued growth. The increases in expense for our incentive compensation programs were primarily due to increases in the actual and expected payouts due to a larger number of employees participating in the programs, higher potential payouts for certain employees participating in the programs and an increase in the percentage of restricted stock units that were earned or expected to be earned.
Income tax expense decreased in 2019 primarily due a decrease in income before income taxes and decreased in 2018 due to Tax Reform reducing the statutory federal income tax rate from 35% to 21% effective January 1, 2018 partially offset by an increase in income before income taxes. The effective income tax rates were 22.0%, 19.0% and 44.8% for 2019, 2018 and 2017, respectively.
Income tax expense for the year ended December 31, 2017 was increased by $35.9 million related to the revaluation of our net deferred tax assets using the newly enacted federal tax rate as a result of Tax Reform. The effective tax rate for 2017 adjusted to exclude the impact of Tax Reform was 32.3%.
Our fixed maturity security portfolio is managed to minimize risks such as interest rate changes and defaults or impairments while earning a sufficient and stable return on our investments. The largest portion of our fixed maturity securities are in investment grade (NAIC designation 1 or 2) publicly traded or privately placed corporate securities.
The amortized cost and fair value of fixed maturity securities at December 31, 2019, by contractual maturity are presented in Note 3 to our audited consolidated financial statements in this Form 10-K, which is incorporated by reference in this Item 7.
Our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities (consisting of 1,033 and 2,715 securities, respectively) have been in a continuous unrealized loss position at December 31, 2019 and 2018, along with a description of the factors causing the unrealized losses is presented in Note 3 to our audited consolidated financial statements in this Form 10-K, which is incorporated by reference in this Item 7.
We hold fixed maturity securities with international exposure. As of December 31, 2019, 24% of the carrying value of our fixed maturity securities was comprised of corporate debt securities of issuers based outside of the United States and debt securities of foreign governments. All of our fixed maturity securities with international exposure are denominated in U.S. dollars. Our investment professionals analyze each holding for credit risk by economic and other factors of each country and industry. The following table presents our international exposure in our fixed maturity portfolio by country or region:
Greece, Ireland, Italy, Portugal and Spain ("GIIPS"). All of our exposure in GIIPS are corporate securities with issuers domiciled in these countries. None of our foreign government obligations were held in any of these countries.
In 2019, we recognized OTTI losses of $17.3 million on corporate securities with exposure to the offshore drilling industry as discussed above. In addition, during 2019 we recognized additional credit losses on residential mortgage backed securities on which we have previously recognized OTTI, recognized OTTI of $0.5 million related to two commercial mortgage backed securities due to our intent to sell the securities and an OTTI of $0.6 million on an other asset backed security on which we have previously recognized OTTI.
Our commercial mortgage loan portfolio consists of mortgage loans collateralized by the related properties and diversified as to property type, location and loan size. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and other criteria to attempt to reduce the risk of default. Our commercial mortgage loans on real estate are reported at cost, net of loan loss allowances and deferred prepayment fees. At December 31, 2019 and 2018, the largest principal amount outstanding for any single mortgage loan was $28.5 million and $23.8 million, respectively, and the average loan size was $4.4 million and $3.8 million, respectively. In addition, the average loan to value ratio for the overall portfolio was 54.3% and 53.6% at December 31, 2019 and 2018, respectively, based upon the underwriting and appraisal at the time the loan was made. This loan to value is indicative of our conservative underwriting policies and practices for making commercial mortgage loans and may not be indicative of collateral values at the current reporting date. Our current practice is to only obtain market value appraisals of the underlying collateral at the inception of the loan unless we identify indicators of impairment in our ongoing analysis of the portfolio, in which case, we either calculate a value of the collateral using a capitalization method or obtain a third party appraisal of the underlying collateral. The commercial mortgage loan portfolio is summarized by geographic region and property type in Note 4 of our audited consolidated financial statements of this Form 10-K, which is incorporated by reference in this Item 7.
In the normal course of business, we commit to fund commercial mortgage loans up to 90 days in advance. At December 31, 2019, we had commitments to fund commercial mortgage loans totaling $244.3 million, with interest rates ranging from 3.35% to 5.68%. During 2019 and 2018, due to historically low interest rates, the commercial mortgage loan industry has been very competitive. This competition has resulted in a number of borrowers refinancing with other lenders. For the year ended December 31, 2019, we received $187.6 million in cash for loans being paid in full compared to $178.2 million for the year ended December 31, 2018. Some of the loans being paid off have either reached their maturity or are nearing maturity; however, some borrowers are paying the prepayment fee and refinancing at a lower rate.
All of our mortgage loans (based on principal outstanding) that have a debt service coverage ratio of less than 1.0 are performing under the original contractual loan terms at December 31, 2019.
At December 31, 2019, we had no commercial mortgage loans that were delinquent (60 days or more past due at the reporting date) in their principal and interest payments.
We, as the parent company, are a legal entity separate and distinct from our subsidiaries, and have no business operations. We need liquidity primarily to service our debt (senior notes and subordinated debentures issued to subsidiary trusts), pay operating expenses and pay dividends to common and preferred stockholders. Our assets consist primarily of the capital stock and surplus notes of our subsidiaries. Accordingly, our future cash flows depend upon the availability of dividends, surplus note interest payments and other statutorily permissible payments from our subsidiaries, such as payments under our investment advisory agreements and tax allocation agreement with our subsidiaries. These sources provide adequate cash flow for us to meet our current and reasonably foreseeable future obligations and we expect they will be adequate to fund our parent company cash flow requirements in 2020.
The transfer of funds by American Equity Life is also restricted by a covenant in our line of credit agreement which requires American Equity Life to maintain a minimum risk-based capital ratio of 275% and a minimum level of statutory surplus equal to the sum of 1) 80% of statutory surplus at June 30, 2016, 2) 50% of the statutory net income for each fiscal quarter ending after June 30, 2016, and 3) 50% of all capital contributed to American Equity Life after June 30, 2016. American Equity Life's risk-based capital ratio was 372% at December 31, 2019. Under this agreement, we are also required to maintain a maximum ratio of adjusted debt to total adjusted capital of 0.35.
We validate external valuations at least quarterly through a combination of procedures that include the evaluation of methodologies used by the pricing services, comparison of the prices to a secondary pricing source, analytical reviews and performance analysis of the prices against trends, and maintenance of a securities watch list. Additionally, as needed we utilize discounted cash flow models or perform independent valuations on a case-by-case basis using inputs and assumptions similar to those used by the pricing services. Although we do identify differences from time to time as a result of these validation procedures, we did not make any significant adjustments as of December 31, 2019 and 2018.
We determine whether other than temporary impairment losses should be recognized for debt securities by assessing all facts and circumstances surrounding each security. Where the decline in fair value of debt securities is attributable to changes in market interest rates or to factors such as market volatility, liquidity and spread widening, and we anticipate recovery of all contractual or expected cash flows, we do not consider these investments to be other than temporarily impaired because we do not intend to sell these investments and it is not more likely than not we will be required to sell these investments before a recovery of amortized cost, which may be maturity.
If we do not intend to sell and it is not more likely than not we will be required to sell the debt security but also do not expect to recover the entire amortized cost basis of the security, an impairment loss would be recognized in operations in the amount of the expected credit loss. We determine the amount of expected credit loss by calculating the present value of the cash flows expected to be collected discounted at each security's acquisition yield based on our consideration of whether the security was of high credit quality at the time of acquisition. The difference between the present value of expected future cash flows and the amortized cost basis of the security is the amount of credit loss recognized in operations. The remaining amount of the other than temporary impairment is recognized in other comprehensive income (loss).
In addition, we analyze the mortgage loan portfolio for the need of a general loan allowance for probable losses on all other loans on a quantitative and qualitative basis. The amount of the general loan allowance is based upon management's evaluation of the collectability of the loan portfolio, historical loss experience, delinquencies, credit concentrations, underwriting standards and national and local economic conditions.
We rate each of the mortgage loans in our portfolio based on factors such as historical operating performance, loan to value ratio and economic outlook, among others. We calculate a loss factor to apply to each rating based on historical losses we have recognized in our mortgage loan portfolio. We apply the loss factors to the total principal outstanding within each rating category to determine an appropriate estimate of the general loan loss allowance. We also assess the portfolio quantitatively and apply a loss rate to all loans without a specific allowance based on management's assessment of economic conditions, and we apply an additional amount of loss allowance to a group of loans that we have identified as having higher risk of loss.
As of December 31, 2019, we utilized an estimate of 2.90% for the expected cost of annual call options, which is based on estimated long-term account value growth and a historical review of our actual options costs. If the expected cost of annual call options we purchase in the future to fund index credits beyond the next policy anniversary date were to increase by 25 basis points, our reserves for fixed index annuities would increase by $737.5 million. A decrease of 25 basis points in the expected cost of annual call options would decrease our reserves for fixed index annuities by $706.9 million.
Our lapse rate assumptions are based on actual experience and our outlook as to future expectations for lapse rates. If lapse rates were to increase 10%, our reserves for fixed index annuities would decrease by $60.5 million. A decrease in lapse rates of 10% would increase our reserves for fixed index annuities by $63.0 million.
Our assumptions related to the percentage of policyholders who elect to receive lifetime income benefit payments is based on actual experience and our outlook as to future expectations for utilization rates. If the percentage of policyholders who elect to receive lifetime income benefit payments was increased by 10% at December 31, 2019, our liability for lifetime income benefit riders would increase by $55.5 million. A decrease by 10% in the percentage of policyholders who elect to receive lifetime income benefit payments would decrease our liability for lifetime income benefit riders by $44.5 million.
The net investment earned rate is a key component in the calculation of estimated gross profits. The net investment earned rate is based on current yields being earned in our invested assets portfolio, future spot rates, the expected mean reversion period and expected spread we will earn above the risk-free rate. If the net investment earned rate were to increase 10 basis points, our combined balance for deferred policy acquisition costs and deferred sales inducements at December 31, 2019 would increase by $83.9 million. A decrease in the net investment earned rate of 10 basis points would decrease our combined balance for deferred policy acquisition costs and deferred sales inducements at December 31, 2019 by $86.7 million.