Selected consolidated financial data for the Company are presented below for each of the five years in the period ended December 31, 1999. This data should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto and Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition.
Total annuity considerations and life insurance premiums increased to approximately $58.9 million in fiscal 1999 from approximately $32.2 million in fiscal 1998, an increase of approximately 82.8%. Of this amount, annuity considerations increased to approximately $54.4 million in fiscal 1999 from approximately $28.1 million in fiscal 1998, an increase of approximately $26.3 million. In accordance with generally accepted accounting principles, sales of single premium deferred annuities are not reported as annuity considerations, but rather as additions to policyholder account balances. Sales of single premium annuities were approximately $186.1 million, $135.2 million and $125.5 million in fiscal 1999, 1998 and 1997, respectively. Management believes that the increase in annuity considerations is due to the successful expansion of our Marketing Department. Beginning in 1996, the Company added regional sales directors in various states. These regional sales directors have added new general agents which have generated sales.
Total annuity considerations and life insurance premiums increased to approximately $32.2 million in fiscal 1998 from approximately $23.6 million in fiscal 1997, an increase of approximately 36.4%. Of this amount, annuity considerations increased to approximately $28.1 million in fiscal 1998 from approximately $19.7 million in fiscal 1997, an increase of approximately $8.4 million.
The decrease in other income for fiscal 1998 as compared with fiscal 1997 is the result of the settlement in the second quarter of 1997 of litigation with Fidelity Mutual Life Insurance Company pursuant to which the Company received $1.7 million.
Total benefits and expenses for fiscal 1999 aggregated approximately $208.6 million, as compared to approximately $170.5 million for fiscal 1998 and approximately $157.1 million for fiscal 1997. This represents an increase of approximately 22.4% comparing fiscal 1999 to fiscal 1998 and an increase of approximately 8.5% comparing fiscal 1998 to fiscal 1997. The reasons for these changes will be discussed under the respective components below.
The Insurance Company's average credited rates for reserves and account balances for the 12 months ended December 31, 1999, 1998 and 1997 were less than the Company's ratio of net investment income to mean assets for the same periods as noted above under "Net Investment Income." Although management does not currently expect material declines in the spread between the Company's average credited rate for reserves and account balances and the Company's ratio of net investment income to mean assets (the "Spread"), there can be no assurance that the Spread will not decline in future periods or that such decline will not have a material adverse effect on the Company's financial condition and results of operations. Depending, in part, upon competitive factors affecting the industry in general, and the Company in particular, the Company may, from time to time, adjust the average credited rates on certain of its products. There can be no assurance that the Company will reduce such rates or that any such reductions will broaden the Spread.
The change in the net DAC for fiscal 1999 resulted in a credit of approximately $5.2 million, as compared to a credit of approximately $2.4 million in fiscal 1998 and a credit of approximately $2.9 million in fiscal 1997. Such changes are due (i) to the effect of revisions to estimated gross profits on unamortized deferred acquisition costs which are reflected in the year such estimated gross profits are revised and (ii) to the increase in costs associated with recent new product sales which have been deferred and are amortized in proportion to the recognition of earned revenue.
For the reasons discussed above, income before income taxes amounted to approximately $69.5 million in fiscal 1999, as compared to approximately $71.7 million in fiscal 1998 and approximately $90.6 million in fiscal 1997.
For purposes of the Company's consolidated statements of cash flows, financing activities relate primarily to "dollar roll" repurchase transactions, and to sales and surrenders of the Company's annuity and universal life insurance products. The payment of dividends by the Company to its stockholders also is considered to be a financing activity. Net cash provided by (used in) the Company's financing activities amounted to approximately $130.1 million, $(21.9) million and $27.9 million in fiscal 1999, 1998 and 1997, respectively. These fluctuations primarily are attributable to the new Senior Notes, higher policyholder account balances (as a result of increased sales), partially offset by the repayment of amounts outstanding under the Company's line of credit during fiscal 1999.
The indenture governing the Senior Notes contains covenants relating to limitations on liens and sale or issuance of capital stock of the Insurance Company. In the event the Company violates such covenants as defined in the indenture, the Company may be obligated to offer to repurchase all of the outstanding principal amount of such notes. The Company believes that it is in compliance with all of the covenants.
The Company's deferred annuity products are designed to encourage persistency by incorporating surrender charges. An annuitant may not terminate or withdraw substantial funds for a period of generally seven years without incurring significant penalties in the form of surrender charges. Approximately 50.9%, 56.0%, and 60.2% of the Company's deferred annuity contracts in force (measured by reserves) as of December 31, 1999, 1998, and 1997 are surrenderable without charge. The decrease since December 31, 1997 is attributable to the increase in deferred annuity contracts inforce as a result of the increase in annuity considerations received.
Capital expenditures during fiscal 1999 were approximately $169,000. As of December 31, 1999, the Company had no outstanding commitments for significant capital expenditures.
In certain situations, the terms of some fixed maturity assets are restructured or modified. There were no restructured fixed maturities at December 31, 1999.
In 1994, the Company initiated the process of migrating to a local area network and preparing its computer systems and applications for the Year 2000. This process involved modifying or replacing certain hardware and software maintained by the Company as well as communicating with external service providers to ensure that they were taking the appropriate action to remedy their Year 2000 issues. The modification process of all administrative systems has been completed and the Company has not experienced any failure of systems due to a Year 2000 readiness problem.
The Company seeks to manage its investment portfolio in part to reduce its exposure to interest rate fluctuations. In general, the market value of the Company's fixed maturity portfolio increases or decreases in an inverse relationship with fluctuations in interest rates, and the Company's net investment income increases or decreases in direct relationship with interest rate changes. For example, if interest rates decline, the Company's fixed maturity investments generally will increase in market value, while net investment income will decrease as fixed income investments mature or are sold and proceeds are reinvested at the declining rates, and vice versa. Management is aware that prevailing market interest rates frequently shift and, accordingly, the Company has adopted strategies which are designed to address either an increase or decrease in prevailing rates. In a rising interest rate environment, the Company's average cost of funds would be expected to increase over time as it prices its new and renewing annuities to maintain a generally competitive market rate. In addition, the market value of the Company's fixed maturity portfolio decreases resulting in a decline in shareholders' equity. Concurrently, the Company would attempt to place new funds in investments which were matched in duration to, and higher yielding than, the liabilities associated with such annuities. Management believes that liquidity necessary in such an interest rate environment to fund withdrawals, including surrenders, would be available through income, cash flow, the Company's cash
reserves or from the sale of short-term investments. In a declining interest rate environment, the Company's cost of funds would be expected to decrease over time, reflecting lower interest crediting rates on its fixed annuities. Should increased liquidity be required for withdrawals in such an interest rate environment, management believes that the portion of the Company's investments which are designated as available for sale in the Company's consolidated balance sheet could be sold without materially adverse consequences in light of the general strengthening in market prices which would be expected in the fixed maturity security market.
Interest rate changes also may have temporary effects on the sale and profitability of the universal life and annuity products offered by the Company. For example, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Company's competitors, certificates of deposit, mutual funds and similar instruments) may become more attractive to potential purchasers of the Company's products until the Company increases the rates credited to holders of its universal life and annuity products. In contrast, as interest rates fall, the Company attempts to lower its credited rates to compensate for the corresponding decline in its net investment income. As a result, changes in interest rates could materially adversely effect the financial condition and results of operations of the Company depending on the attractiveness of alternative investments available to the Company's customers. In that regard, in the current interest rate environment, the Company has attempted to maintain its credited rates at competitive levels which are designed to discourage surrenders and which may be considered attractive to purchasers of new annuity products. In addition, because the level of prevailing interest rates impacts the Company as well as its competition, management does not believe that the current interest rate environment has materially affected the Company's competitive position vis a vis other life insurance companies that emphasize the sale of annuity products. Notwithstanding the foregoing, if interest rates continue at current levels or decline, there can be no assurance that this segment of the life insurance industry, including the Company, would not experience increased levels of surrenders and reduced sales and thereby be materially adversely affected.
In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. It also establishes specific conditions that must be met in order for a derivative to be recognized as a hedge of certain exposures.