Our principal operations are conducted from property leased from a subsidiary of the Iowa Farm Bureau Federation under a 15 year operating lease which expires in 2013. The property leased currently consists of approximately 181,000 square feet of a 400,000 square foot office building located at 5400 University Avenue, West Des Moines, Iowa 50266. We consider the current facilities to be adequate for the foreseeable future.
The costs related to acquiring new business, including certain costs of issuing policies and other variable selling expenses (principally commissions), defined as deferred policy acquisition costs, are capitalized and amortized into expense. For nonparticipating traditional life and accident and health insurance products, these costs are amortized over the premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues. Such anticipated premium revenues are estimated using the same assumptions used for computing liabilities for future policy benefits. For participating traditional life insurance and interest sensitive products, these costs are amortized generally in proportion to expected gross profits from surrender charges and investment, mortality, and expense margins. This amortization is adjusted when the Life Companies revise their estimate of current or future gross profits or margins. For example, deferred policy acquisition costs are amortized earlier than originally estimated when policy terminations are higher than originally estimated or when investments backing the related policyholder liabilities are sold at a gain prior to their anticipated maturity. Death and other policyholder benefits reflect exposure to mortality risk and fluctuate from year to year based on the level of claims incurred under insurance retention limits. The profitability of the Life Companies is primarily affected by fluctuations in mortality, morbidity, other policyholder benefits, expense levels, interest spreads (i.e., the difference between interest earned on investments and interest credited to policyholders) and persistency. We have the ability to mitigate adverse experience through adjustments to credited interest rates, policyholder dividends or cost of insurance charges.
A summary of our premiums and product charges is as follows:
TRADITIONAL LIFE INSURANCE AND ACCIDENT AND HEALTH PREMIUMS increased 2.6% in 1999 to $95.9 million and 1.0% in 1998 to $93.5 million. During 1999, traditional life premiums increased 1.0% to $82.6 million and accident and health premiums increased 14.0% to $13.3 million. During 1998, traditional life premiums increased 0.7% to $81.8 million and accident and health premiums increased 3.4% to $11.7 million. Management believes the relatively flat sales of traditional life insurance products are the result of a marketing emphasis placed on the sale of variable universal life insurance contracts. Premiums collected on variable universal life insurance products increased 11.8% to $42.3 million in 1999 and increased 19.7% to $37.8 million in 1998. The increase in accident and health premiums is primarily the result of the recapture of certain reinsurance ceded business, which is not expected to be a recurring item in 2000.
NET INVESTMENT INCOME, which excludes investment income on separate account assets relating to variable products, decreased 1.0% in 1999 to $225.8 million and increased 3.5% in 1998 to $228.1 million. The decrease in 1999 is attributable to a decrease in the yield partially offset by an increase in average invested assets. The increase in 1998 is attributable to increases in yield and average invested assets. Average invested assets totaled $2,982.1 million in 1999, $2,895.5 million in 1998 and $2,855.7 million in 1997. The annualized yield earned on average invested assets was 7.57% in 1999 compared to 7.88% in 1998 and 7.72% in 1997. The yield during the 1999 period declined due principally to a reduction in the amount of prepayment and bond call fee income. Despite a general decline in market interest rates during 1998 and 1997, yield on invested assets during 1998 increased due principally to an increase in prepayment and bond call fee income. Fee income from mortgage loan prepayments and bond calls totaled $5.2 million in 1999, $9.8 million in 1998 and $3.1 million in 1997. In addition, we recorded $1.7 million in interest income during 1999 relating to settlement of a fixed maturity security that had been in default. We had discontinued the accrual of interest on this security during 1996. The revenue from these sources is not expected to stay at these levels.
OTHER INCOME decreased 2.8 % in 1999 to $20.2 million and increased 6.5% in 1998 to $20.8 million. The decrease in 1999 is primarily due to a $0.9 million decrease in rental income resulting from the exchange of the home office properties for common stock on March 30, 1998. The increase in 1998 is attributable to an increase in the level of leasing, investment advisory and other financial services provided to affiliates and third parties, partially offset by a $2.4 million decrease in rental income due to the exchange of home office properties. See "Exchange of Home Office Properties."
INTEREST SENSITIVE PRODUCT BENEFITS increased 0.6% in 1999 to $123.2 million and decreased 0.2% in 1998 to $122.5 million. The components of interest sensitive product benefits, along with selected average contractual interest crediting rates, are as follows:
TRADITIONAL LIFE INSURANCE AND ACCIDENT AND HEALTH BENEFITS, INCLUDING THE RELATED CHANGES IN RESERVES, increased 0.5% in 1999 to $77.5 million and decreased 7.7% in 1998 to $77.1 million. Death and surrender benefits on traditional products increased 2.1% in 1999 to $49.2 million and 3.6% in 1998 to $48.2 million. Accident and health benefits increased 29.1% in 1999 to $5.5 million and decreased 33.0% in 1998 to $4.3 million. During 1999, these increases were partially offset by a decrease in the change in reserves on life and accident and health policies. A $5.9 million decrease in the change in reserves in 1998 compared to 1997 is attributable primarily to a $4.0 million decrease in the change in accident and health reserves resulting from fewer disability income claims. Traditional life insurance and accident and health benefits tend to fluctuate from year to year as a result of changes in mortality and morbidity experience.
DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED STOCK OF SUBSIDIARY TRUST were $4.9 million in 1999 and 1998 and $2.8 million in 1997. The underlying securities were issued on May 30, 1997. The increase in 1998 is offset by a corresponding decrease in dividends on serial preferred stock.
We closed an administrative service center during July 1999 and merged two life insurance subsidiaries effective July 1, 1999. As a result of the closing of the service center, a leased property was vacated, 22 job positions were eliminated and moving costs were incurred. During 1999, we charged to expense costs totaling $1.2 million, $0.4 million of which remains accrued at December 31, 1999, for related severance benefits, lease costs and other costs primarily associated with closing the service center.
We recorded a gain of $1.4 million in 1999 and $1.0 million in 1998, net of related income taxes, on the sale of Utah Farm Bureau Insurance Company (Utah Insurance), a former wholly-owned property-casualty insurance company, to Farm Bureau Mutual Insurance Company (Farm Bureau Mutual), an affiliate. In addition, during 1998 the increase in net unrealized appreciation on securities classified as available for sale was reduced $1.4 million, net of related income taxes, as a result of the sale. The gain on the sale may be increased in future years in accordance with an earn-out provision included in the related sales agreement. See "Liquidity - FBL Financial Group, Inc."
During 2000, it is anticipated that we will discontinue underwriting long-term disability income insurance and begin to offer, to our agents, a long-term disability income product underwritten by one of our variable alliance partners. We will not share in the risks, costs or profits of the new product, but will earn a commission on new sales. It is anticipated that this change, over time, will result in a decrease in accident and health premiums and benefits as our existing block of business matures.
As of March 10, 2000, we have not encountered any significant Year 2000 date-related problems that adversely impact our operations. The fact that we have not encountered any significant problems is attributable to a three-year date conversion project, which began in 1997. The plan consisted of the following phases:
* Identification of all information technology and non-information technology systems that have time-sensitive software. * Modification or replacement of the software/systems. * Testing the modified or new software/systems. * Development of a contingency plan to address any critical system that may malfunction.
As of December 31, 1999, 93.8% (based on carrying value) of the fixed maturity securities were investment grade debt securities, defined as being in the highest two National Association of Insurance Commissioners (NAIC) designations. Non-investment grade debt securities generally provide higher yields and involve greater risks than investment grade debt securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers. In addition, the trading market for these securities is usually more limited than for investment grade debt securities. We regularly review the percentage of our portfolio that is invested in non-investment grade debt securities (NAIC designations 3 through 6). As of December 31, 1999,
the investment in non-investment grade debt was 6.2% of fixed maturity securities. At that time no single non-investment grade holding exceeded 0.3% of total investments.
The following table sets forth the par value, amortized cost and carrying value of our mortgage and asset-backed securities at December 31, 1999, summarized by type of security.
Deferred policy acquisition costs increased 16.1% to $236.3 million at December 31, 1999 due principally to the capitalization of costs incurred with new sales. In addition, deferred policy acquisition costs increased $10.8 million during 1999 due to the impact of the decrease in unrealized appreciation on fixed maturity securities classified as available for sale. Assets held in separate accounts increased 34.7% to $256.0 million at December 31, 1999 due primarily to net transfers to the separate accounts resulting from sales of our variable products. Total assets increased 0.3% to $3,662.3 million at December 31, 1999. During 1999, the impact of net income on assets was offset by the decrease in unrealized appreciation on fixed maturity securities classified as available for sale and a $25.7 million repurchase of our Class A common stock.
At December 31, 1999, common stockholders' equity was $502.0 million, or $15.94 per share, compared to $580.6 million, or $17.75 per share at December 31, 1998. Included in stockholders' equity per common share is ($1.52) at December 31, 1999 and $1.61 at December 31, 1998 attributable to unrealized investment gains (losses) resulting from marking our fixed maturity securities classified as available for sale to market value. The change in unrealized appreciation of fixed maturity and equity securities classified as available for sale decreased stockholders' equity $100.0 million during 1999, after related adjustments to deferred policy acquisition costs, value of insurance in force acquired, unearned revenue reserve and deferred income taxes.
A majority of our insurance liabilities are backed by fixed maturity securities and mortgage loans. The fixed maturity securities have laddered maturities and a weighted average life of 8.6 years at December 31, 1999 and 7.0 years at December 31, 1998. Accordingly, the earned rate on the portfolio lags behind changes in market yields. The extent that the portfolio yield lags behind changes in market yields generally depends upon the following factors:
For a majority of our traditional insurance products, profitability is significantly affected by the spreads between interest yields on investments and rates credited on insurance liabilities. For variable products, profitability on the portion of the policyholder's account balance invested in our general account, if any, is also affected by the spreads earned. The variable policyholder assumes essentially all the investment earnings risk for the portion of the account balance invested in the separate accounts.
A major component of our asset-liability management program is structuring the investment portfolio with cash flow characteristics consistent with the cash flow characteristics of our insurance liabilities. We use computer models to perform simulations of the cash flows generated from existing insurance policies under various interest rate scenarios. Information from these models is used in the determination of interest crediting rates and investment strategies. Effective duration is a common measure for price sensitivity to changes in interest rates. It measures the approximate percentage change in the market value of a portfolio when interest rates change by 100 basis points. This measure includes the impact of estimated changes in portfolio cash flows from features such as bond calls and prepayments. When the estimated durations of assets and liabilities are similar, exposure to interest rate risk is reduced because a change in the value of assets should be largely offset by a change in the value of liabilities. The effective duration of our fixed maturity portfolio was approximately 4.7 at December 31, 1999 and 4.4 at December 31, 1998. The effective duration of the interest sensitive products was approximately 4.5 at December 31, 1999 and 3.5 at December 31, 1998.
Our parent company cash inflows from operations consists primarily of dividends from subsidiaries, if declared and paid, fees which it charges the various subsidiaries and affiliates for management of their operations and tax settlements between our parent company and its subsidiaries. Cash outflows are principally for salaries and other expenses related to providing these management services, dividends on outstanding stock and interest on our holding company debt issued to a subsidiary. In addition, our parent company will on occasion enter into capital transactions such as the acquisition of our common stock.
The purchase of Series A preferred stock and simultaneous issuance of Series B preferred stock and 5% Preferred Securities were noncash transactions. Except for the maturity of the Notes on June 1, 2047, the parent company's future cash flow requirements were not changed significantly by the aforementioned transactions.
On September 22, 1999, Farm Bureau Life paid an extraordinary dividend totaling $75.0 million, consisting of cash and fixed maturity securities, to FBL Financial Group, Inc. Because of this dividend, we expect that further regulatory approval will be required for any dividends prior to the expiration of the aforementioned 12-month measurement period ending September 22, 2000. However, management believes that, due to the financial strength of Farm Bureau Life, such regulatory approval would be granted to fund FBL Financial Group's regular quarterly interest and dividend (subject to Board approval) requirements, if needed.
Primarily as a result of the $75.0 million dividend, FBL Financial Group, Inc. has cash and investments totaling $72.7 million at December 31, 1999. Except for the potential acquisition of approximately $24.4 million worth of our common stock to complete a stock repurchase plan and payment of expected recurring dividends, management does not have any immediate plans to deploy this capital and is currently evaluating capital management and investment options. We may from time to time review potential acquisition opportunities. It is anticipated that funding for any such acquisition would be provided from available cash resources, debt or equity financing. As of December 31, 1999, we had no material commitments for capital expenditures.
The Life Companies' cash inflows consist primarily of premium income, deposits to policyholder account balances, product charges on variable products, income from investments, sales, maturities and calls of investments and repayments of investment principal. The Life Companies' cash outflows are primarily related to withdrawals of policyholder account balances, investment purchases, payment of policy acquisition costs, policyholder benefits, income taxes, dividends and current operating expenses. Life insurance companies generally produce a positive cash flow which may be measured by the degree to which cash inflows are adequate to meet benefit obligations to policyholders and normal operating expenses as they are incurred. The remaining cash flow is generally used to increase the asset base to provide funds to meet the need for future policy benefit payments and for writing new business. The Life Companies' liquidity positions continued to be favorable in 1999, with cash inflows at levels sufficient to provide the funds necessary to meet their obligations.
For the life insurance operations, cash outflow requirements for operations are typically met from the year's normal premium and deposit cash inflows. This has been the case for all reported years as the Life Companies' continuing operations and financing activities relating to interest sensitive products provided funds amounting to $104.1 million in 1999, $121.5 million in 1998 and $99.3 million in 1997. These funds were primarily used to increase the insurance companies' short-term and fixed maturity investment portfolios. In developing their investment strategy, the Life Companies establish a level of cash and securities which, when combined with expected net cash inflows from operations, maturities of fixed maturity investments and principal payments on mortgage and asset-backed securities and mortgage loans, are believed adequate to meet anticipated short-term and long-term benefit and expense payment obligations.
Through its membership in the Federal Home Loan Bank of Des Moines (FHLB), Farm Bureau Life is eligible to establish and borrow on a line of credit to provide it additional liquidity. The line of credit available is based on the amount of capital stock of the FHLB owned by Farm Bureau Life, which supported a borrowing capacity of $55.8 million as of December 31, 1999. During 1999, Farm Bureau Life established a line of credit and borrowed $40.0 million under this arrangement, leaving a borrowing capacity of $15.8 million at December 31, 1999. The outstanding debt is due September 17, 2003, and interest on the debt is charged at a variable rate equal to the London Interbank Offered Rate less 0.0475% (5.77% at December 31, 1999). Fixed maturity securities with a carrying value of $41.7 million are on deposit with the FHLB as collateral for the note. Interest is payable at the current market rate on the date of issuance. Proceeds from the note were used to fund the maturity of our $24.5 million short-term debt.
We anticipate that funds to meet our short-term and long-term capital expenditures, cash dividends to stockholders and operating cash needs will come from existing capital and internally generated funds. We believe that the current level of cash and available-for-sale and short-term securities, combined with expected net cash inflows from operations, maturities of fixed maturity investments, principal payments on mortgage and asset-backed securities,
FBL FINANCIAL GROUP, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The management of FBL Financial Group, Inc. is responsible for the integrity of the financial information contained in this annual report. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. Certain financial information presented depends on management's estimates and judgments regarding the ultimate outcome of transactions which are not yet complete. Management believes these estimates and judgements are fair and reasonable based upon available information.
Property and equipment, comprised primarily of furniture, equipment and capitalized software costs, are reported at cost less allowances for depreciation and amortization. Depreciation and amortization expense are computed primarily using the straight-line method over the estimated useful lives of the assets. Depreciation and amortization expense was $12.4 million in 1999, $11.4 million in 1998 and $11.0 million in 1997.
Goodwill represents the excess of the fair value of assets exchanged over the net assets acquired. Goodwill is generally being amortized on a straight-line basis over a period of 20 years. The carrying value of goodwill is regularly reviewed for indicators of impairment in value, which in the view of management are other than temporary. If facts and circumstances suggest that goodwill is impaired, we assess the fair value of the underlying business and reduce goodwill to an amount that results in the book value of the underlying business approximating fair value. We have not recorded any such writedowns during 1999, 1998 or 1997.
The separate account assets and liabilities reported in our accompanying consolidated balance sheets represent funds that are separately administered, principally for the benefit of certain policyholders who bear the underlying investment risk. The separate account assets and liabilities are carried at fair value. Revenues and expenses related to the separate account assets and liabilities, to the extent of benefits paid or provided to the separate account policyholders, are excluded from the amounts reported in the accompanying consolidated statements of income.
We use reinsurance to manage certain risks associated with our insurance operations. These reinsurance arrangements provide for greater diversification of business, allow management to control exposure to potential risks arising from large losses and provide additional capacity for growth.
Our life insurance operations cede reinsurance to various reinsurers. The cost of reinsurance is generally amortized over the contract periods of the reinsurance agreements.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. For example, significant estimates and assumptions are utilized in the calculation of deferred policy acquisition costs, policyholder liabilities and accruals and valuation allowances on investments. It is reasonably possible that actual experience could differ from the estimates and assumptions utilized which could have a material impact on the consolidated financial statements.
On May 30, 1997, FBL Financial Group Capital Trust (the Trust), one of our wholly-owned subsidiaries, issued $97.0 million of 5% Preferred Securities to our majority stockholder, the Iowa Farm Bureau Federation. In connection with the Trust's issuance of the 5% Preferred Securities and our related purchase of all of the Trust's common securities, we issued to the Trust $100.0 million principal amount of our 5% Subordinated Deferrable Interest Notes, due June 30, 2047 (the Notes). The sole assets of the Trust are and will be the Notes and any interest accrued thereon. The interest payment dates on the Notes correspond to the distribution dates on the 5% Preferred Securities. The 5% Preferred Securities, which have a liquidation value of $1,000.00 per share plus accrued and unpaid distributions, mature simultaneously with the Notes. As of December 31, 1999, 97,000 shares of 5% Preferred Securities were outstanding, all of which we unconditionally guarantee.
On October 31, 1999, the Iowa Farm Federation exchanged the 5% Preferred Securities issued by the Trust for $97.0 million face amount of 5% trust preferred securities issued by an equity investee of the Company. In preparing our consolidated financial statements, we do not eliminate our portion of the 5% Preferred Securities owned by the equity investee since the terms of the preferred securities issued by the equity investee are substantially similar to the terms of the 5% Preferred Securities.
On March 17, 1998, our Board of Directors approved a two-for-one common stock split payable in the form of a 100% stock dividend, to stockholders of record as of April 6, 1998. The additional shares were distributed April 17, 1998. As required by our Articles of Incorporation, holders of the Class B common stock received Class A common shares in payment of the stock dividend. In addition, the 5.0 million shares of Series B preferred stock have non-dilutive voting rights. As a result, voting rights on these shares increased proportionately while the number of shares outstanding did not change. All references to the number of common shares and per share amounts in this report have been restated to reflect the effect of the stock dividend.
The carrying value and estimated market value of our portfolio of fixed maturity securities at 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.
Net unrealized investment gains (losses) on equity securities and fixed maturity securities classified as available for sale were comprised of the following:
Our mortgage loan portfolio consists principally of commercial mortgage loans. Our lending policies require that the loans be collateralized by the value of the related property, establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type.
We did not have any impaired loans (those loans in which we do not believe we will collect all amounts due according to the contractual terms of the respective loan agreements) at December 31, 1999. We had impaired loans with a carrying value of $1.0 million and a corresponding valuation allowance of $0.4 million at December 31, 1998.
An analysis of sales, maturities and principal repayments of our fixed maturities portfolio is as follows:
No investment in any person or its affiliates (other than bonds issued by agencies of the United States Government) exceeded ten percent of stockholders' equity at December 31, 1999.
Also in December 1997, we acquired all of the common stock of EquiTrust Life Insurance Company for $9.7 million. EquiTrust Life Insurance Company is a life insurance company licensed in 42 states. Goodwill totaling $1.5 million was recorded in connection with the acquisition and is being amortized over 20 years.
We have a $12.0 million line of credit with Farm Bureau Mutual Insurance Company (Farm Bureau Mutual), an affiliate, in the form of a revolving demand note. Borrowings on the note, which totaled $11.7 million at December 31, 1999 and $8.6 million at December 31, 1998 are being used to acquire assets that are leased to certain affiliates, including Farm Bureau Mutual. Interest is payable at a rate equal to the prime rate of a national bank (8.50% at December 31, 1999 and 7.75% at December 31, 1998). Rental income from the related leases includes a provision for interest on the carrying value of the assets.
We participate with several affiliates in various defined benefit plans covering substantially all of our employees. The benefits of these plans are based primarily on years of service and employees' compensation. Net periodic pension cost of the plans is allocated between participants generally on a basis of time incurred by the respective employees for each employer. Such allocations are reviewed annually. Pension expense aggregated $4.5 million in 1999, $5.7 million in 1998 and $6.9 million in 1997.
among the affiliates on a basis of time incurred by the respective employees for each employer. Related expense totaled $0.3 million for 1999 and 1998.
We have established deferred compensation plans for certain key current and former employees and have certain other benefit plans which provide for retirement and other benefits. These plans have been accrued or funded as deemed appropriate by management.
We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related Interpretations in accounting for our stock options. No compensation expense is recognized under APB 25 because the exercise price of our stock options equals the market price of the underlying stock on the date of grant. Under the alternative accounting method provided by Statement No. 123, compensation expense is recognized in an amount equal to the estimated fair value of stock options on the date of grant. We have not adopted the accounting provisions of Statement No. 123 because the valuation of non-traded stock options is highly subjective and, in management's opinion, the existing pricing models do not necessarily provide a reliable single measure of the fair value of the Company's options.
The financial statements of our insurance subsidiaries included herein differ from related statutory-basis financial statements principally as follows: (a) the bond portfolio is segregated into held-for-investment (carried at amortized cost) and available-for-sale (carried at fair value) classifications rather than generally being carried at amortized cost; (b) acquisition costs of acquiring new business are deferred and amortized over the life of the policies rather than charged to operations as incurred; (c) future policy benefit reserves for participating traditional life insurance products are based on net level premium methods and guaranteed cash value assumptions which may differ from statutory reserves; (d) future policy benefit reserves on certain interest sensitive products are based on full account values, rather than discounting methodologies utilizing statutory interest rates; (e) deferred income taxes are provided for the difference between the financial statement and income tax bases of assets and liabilities; (f) net realized gains or losses attributed to changes in the level of market interest rates are recognized as gains or losses in the statements of income when the sale is completed rather than deferred and amortized over the remaining life of the fixed maturity security or mortgage loan; (g) declines in the estimated realizable value of investments are charged to the statements of income when such declines are judged to be other than temporary rather than through the establishment of a formula-determined statutory investment reserve (carried as a liability), changes in which are charged directly to surplus; (h) agents' balances and certain other assets designated as "non-admitted assets" for statutory purposes are reported as assets rather than being charged to surplus; (i) revenues for interest sensitive and variable products consist of policy charges for the cost of insurance, policy administration charges, amortization of policy initiation fees and surrender charges assessed rather than premiums received; (j) pension income or expense is recognized in accordance with Statement No. 87, "Employers' Accounting for Pensions" rather than in accordance with rules and regulations permitted by the Employee Retirement Income Security Act of 1974; (k) the financial statements of subsidiaries are consolidated with those of the insurance subsidiary; and (l) assets and liabilities are
restated to fair values when a change in ownership occurs that is accounted for as a purchase, with provisions for goodwill and other intangible assets, rather than continuing to be presented at historical cost.
Net income of the life insurance subsidiaries, as determined in accordance with statutory accounting practices, was $40.4 million in 1999, $52.5 million in 1998 and $85.3 million in 1997. Statutory net gain from operations for the life insurance subsidiaries, which excludes realized gains and losses, totaled $41.2 million in 1999, $56.0 million in 1998 and $46.9 million in 1997. Statutory capital and surplus, after appropriate elimination of intercompany accounts, totaled $301.5 million at December 31, 1999 and $376.9 million at December 31, 1998.
Beginning in 1998, we established administrative services agreements with American Equity under which we provide underwriting, claims processing, accounting, compliance and other administrative services relating to certain variable insurance products underwritten by them. Fee income from performing these services totaled $0.3 million in 1999 and $0.2 million in 1998.
We lease our home office properties under a 15-year operating lease from a wholly-owned subsidiary of the Iowa Farm Bureau Federation. Future remaining minimum lease payments under this lease as of December 31, 1999 are as follows: 2000 - $2.1 million; 2001 - $2.1 million; 2002 - $2.1 million; 2003 - $2.3 million; 2004 - $2.4 million and thereafter, through 2013 - $21.2 million. Rent expense for the lease totaled $2.3 million in 1999 and $1.3 million in 1998. These amounts are net of $1.4 million in 1999 and $1.0 million in 1998 in amortization of the deferred gain on the exchange of home office properties for common stock (see Note 2).
In connection with an investment in a limited real estate partnership, we have agreed to pay any cash flow deficiencies of a medium-sized shopping center owned by the partnership through January 1, 2001. We recorded a reserve for expected future cash flow deficiencies totaling $0.4 million at December 31, 1999 and $0.3 million at December 31, 1998. At December 31, 1999, the limited partnership had a $5.3 million mortgage loan, secured by the shopping center, with Farm Bureau Mutual.
The following table sets forth the computation of earnings per common share and earnings per common share - assuming dilution:
On March 31, 1998, we sold our wholly-owned subsidiary, Utah Farm Bureau Insurance Company (Utah Insurance), to Farm Bureau Mutual. We recorded gains on the sale totaling $1.4 million in 1999 and $1.0 million in 1998. The 1999 gain and $0.8 million of the 1998 gain were earned in connection with an earn-out provision included in the underlying sales agreement. The 1999 gain is net of income taxes totaling $0.6 million. The 1998 gain is net of an income tax benefit of $0.5 million resulting from the reversal of cumulative temporary differences between the book and income tax bases of Utah Insurance's assets and liabilities.
In addition to merging Western Life into Farm Bureau Life, we also closed an administrative processing center during 1999. As a result of the closing of the service center, a leased property was vacated, 22 positions were eliminated and moving costs were incurred. During 1999, we charged to expense costs totaling $1.2 million, $0.4 million of which remains accrued at December 31, 1999, for related severance benefits, lease costs and other costs primarily associated with the closing of the service center. The restructuring expenses are recorded in the underwriting, acquisition and insurance expense line of the 1999 consolidated statement of income.
As noted above, we also had a property-casualty insurance segment prior to March 31, 1998. Revenues from this segment were derived from the sale of property-casualty insurance policies. See Note 14, "Discontinued Operations and Restructuring", for additional information regarding this segment.
Our investment in equity method investees and the related equity income are attributable to the life insurance segment. The exchange of our home office properties for Class A common stock described in Note 2 is attributable to the life insurance segment.