Realized investment gains during 1999 totaled $205. During 1998, realized investment gains totaled $6,529 from investment gains on the sale of bonds. During 1997, realized investment losses included a write-off of a $31,000 credit line balance of LGP, Inc., a valuation allowance of $75,000 on notes receivable offset by a $8,000 gain on the sale of Medical Acceptance Corporation.
Commissions paid to life insurance agents totaled $1,524,961, $933,100 and $473,231 1999, 1998 and 1997, respectively. Commissions are paid to agents on both first year and renewal premium payments. First year commission
percentages are significantly greater than renewal commission percentages. When new premiums written increase from year to year and existing policies renew, commission expense increases. In December 1998 FAIC began the selling credit insurance. During 1999, commission on the sale of credit insurance was $220,838. During 1999 first year premium sales increased which, combined with the sale of credit insurance, accounts for the $591,861 increase in commission expense in 1999 over 1998.
Certain costs related to the acquisition of life insurance policies are capitalized and amortized over the premium paying period of the policies. These costs, which are referred to as deferred policy acquisition costs, include first year commissions and first year management fees based on new premiums written. During 1999, $1,655,160 of these expenses were capitalized and will be amortized over the life of the associated policies. In 1998 and 1997, $1,200,412 and $708,185 of these costs were capitalized. Amortization of deferred policy acquisition costs totaled $760,468, $426,476 and $339,562 for 1999, 1998 and 1997, respectively.
Selling, administrative and general insurance expenses increased $29,416 in a comparison of 1999 to 1998. These expenses relate to the administration and issuance of life insurance policies. This increase can be attributed to a larger sales volume and increased processing costs. Selling , administrative and general insurance expenses totaled $363,166, $333,750, and $225,511 in 1999, 1998 and 1997, respectively. Salaries, wages and employee benefits totaled $1,102,195 in 1999 and increased $300,863 over 1998 results. This increase is due to additional personnel, increased costs of employee benefits and incentive payments to officers.
Professional fees increased $20,778 during 1999 compared to 1998. Professional fees include accounting fees, actuarial fees, consulting fees and legal fees. Professional fees totaled $107,708, $86,930 and $235,749 for 1999, 1998 and 1997, respectively.
Changes in the consolidated balance sheet of 1999 compared to 1998 reflect the operations of the Company and capital transactions discussed below.
Deferred policy acquisition costs increased $894,692 net of amortization of $760,468 during 1999. Policy acquisition expenses related to new insurance sales totaled $1,655,160 and were capitalized during 1999. Goodwill and value of insurance acquired increased $216,567 due to the acquisition of BCLIC. Advances to agents decreased $14,678 during 1999 due to repayments of prior advances on new business submitted.
Liabilities increased $3,351,456 during 1999 to $7,757,755. Annuity premiums received by insurance companies are classified as liabilities. At December 31, 1999 these annuity premiums, along with interest credited to policyholder balances, totaled $3,004,186. Renewal annuity premiums plus interest less surrenders accounted for the $1,241,157 increase over 1998. Life policy reserves increased $1,779,798 during 1999 to $3,273,564. Life policy reserves were established on new business and additional reserves were recorded on existing policies which renewed. Deposits on pending policy applications increased from $216,565 in 1998 to $233,158 in 1999. These deposits are monies submitted with life insurance applications which are in the process of being underwritten. In the event these policies are issued, this money becomes premium income, otherwise it is refunded to the policyholder. The increase of $16,593 in 1999 represents increased sales volume. Policyholder dividend deposits in the amount of $43, 188 for 1999, are funds placed on deposit with the Company to accumulate interest and they are related to BCLIC policies that were acquired on December 30, 1999. Policyholder premium deposits are funds placed on deposit with the Company to accumulate interest to pay future policy premiums. Interest credited to the fund along with additional deposits and withdrawals accounted for the $9,886 increase during 1999.
Deferred federal income taxes are based on timing differences between FAIC's financial statement taxable income and taxable income computed based on Internal Revenue Service requirements. Due to increased earnings of FAIC, the deferred federal income taxes liability increased $143,735 to $602,667 for 1999.