Standard Life leases 13,500 square feet of office space in New York, New York as its corporate headquarters, and 3,000 square feet of office space in Farmington, New York for its DBL claims processing center.
Madison Life leases 16,800 square feet of office space in Middleton, Wisconsin as its corporate headquarters, 3,900 square feet in Birmingham, Alabama for its military and government individual life and annuity division and 1,300 square feet in Austin, Texas for executive office space.
IndependenceCare leases 3,000 square feet of office space in Minneapolis, Minnesota as its corporate headquarters.
Also excludes the $1,046,000 gain from the sale of real estate in 1997.
Premiums earned increased $9.7 million to $90.4 million in 1999 from $80.7 million in 1998; premiums earned increased $9.5 million at Madison Life and $.2 million at Standard Life. The increase at Madison Life is comprised of: a $2.6 million increase in long-term disability premiums due to an increase in retention on this line of business and an increase in premiums written in 1999; a $9.4 million increase in ordinary life and individual accident and health premiums primarily due to the acquisition of several blocks of business effective June 30, 1999 and May 1, 1999 (See Outlook - Assumption Reinsurance Transactions); and a $.8 million increase in group term life premiums due to an increase in retention; such increases were offset by: a $2.7 million decrease in the credit line of business primarily due to the runoff of acquisitions from 1997; a $.3 million decrease in family group term life and a $.3 million decrease in all other lines of business. The increase at Standard Life is comprised of: an increase of $.8 million in group life due to the acquisition of the volunteer firefighters block of business effective April 1, 1999; an increase of $2.6 million in HMO reinsurance due to an increase in retention in 1999; an increase of $.5 million in POS also due to higher retention; an increase of $.4 million in the provider excess line of business due to increased production; and a $.3 million increase in group term life due to increased production; such increases were offset by: a $1.4 million decrease in its DBL line due to terminations in 1998 resulting in a lower premium base in 1999; a $.8 million decrease in an accident and health reinsurance facility assumed due to the runoff of this line; and a $2.2 million decrease in stop-loss health premiums due to an overall reduction in retention in 1999.
Operating income for the year ended December 31, 1999 decreased $.7 million to a loss of $1.3 million as compared to a loss of $.6 million for the year ended December 31, 1998. Operating income includes realized and unrealized losses of $.1 million in 1998. Excluding realized and unrealized losses, Corporate had a loss of $1.3 million in 1999 and $.5 million in 1998. Investment income increased $.4 million from 1998 due to higher returns on certain limited partnership investments in 1999. Other income decreased $.3 million as a result of fee income earned from the termination of the guarantee of certain subordinated indebtedness of Zimmerman in 1998 for which no similar amount was recorded in 1999. Selling, general and administrative expenses increased $.8 million due to an increase in compensation expense from the termination of options in 1999 and an increase in consulting expenses in 1999. Interest expense increased $.1 million due to the Company's draw down on its revolving line of credit in December 1999.
Other income increased $4.8 million. Madison Life had an increase of $2.8 million due to fee income earned by the MGU acquired on December 31, 1997; such fee income was offset by expenses described below in general and administrative expenses. Other income at Standard Life increased $2.0 million due to an increase in coinsurance reserves of $2.1 million from the surrender by a large group of policyholders in a coinsurance treaty in the second quarter of 1997, for which there was no similar surrender in 1998, and an increase of $.8 million in POS fee income; the foregoing was offset by a $.9 million decrease in fee income from the third party administrator (² TPA² ) in which Standard Life sold its interest in December 1997. Equity income from insurance related partnerships decreased $.2 million.
Insurance benefits, claims and reserves increased $1.1 million reflecting an increase of $5.1 million at Madison Life and a decrease of $4.0 million at Standard Life. Madison Life's increase results from: a $1.9 million increase in the credit lines of business due to the 1997 acquisitions described above; a $2.8 million expected increase in surrenders on its new blocks of business; a $.4 million increase in ordinary life and individual accident and health claims and reserves due to acquisitions; and a $.4 million increase in group term life claims; the foregoing was offset by a $.4 million decrease in dental claims due to a decrease in premiums from this line of business. The change at Standard Life is comprised of: a $2.7 million decrease in HMO reserves due to a reinsurance adjustment on an assumed block of business; a $4.0 million decrease in additional DBL claims and reserves due to improved experience ($3.4 million) and lower premiums ($.6 million); a $1.0 million decrease in POS claims and reserves due to a retroactive adjustment and the loss of one large policy contract in 1998; a $.6 million decrease in reserves on the runoff pool of accident and health business. The foregoing were offset by: a $1.9 million increase in reserves in the closed blocks of life, annuity and individual and group accident and health lines of business; a $2.0 million increase in stop-loss reserves due to higher claims experience; a $.1 million increase in dividends to policyholders; and a $.3 million increase in group life claims and reserves.
Amortization of deferred policy acquisition costs and general and administrative expenses for the Insurance Group increased $1.7 million. Madison Life's expenses increased $4.5 million and Standard Life's expenses decreased $2.8 million. The increase at Madison Life is primarily due to an increase in other general expenses of $3.4 million related to the MGU acquired on December 31, 1997; an increase in commissions of $.6 million related to the acquisition of new blocks of business in 1997 and 1998; a $.2 million increase in premium taxes; and $.3 million increase in other expenses related to the increase in business. The decrease at Standard Life is primarily due to a reduction in net commission expense of $1.7 million attributable to the increase in expense allowances received from reinsurers on its HMO and special disability lines of business as a result of the increase in gross premiums and a $1.1 million decrease in general expenses from the TPA.
The following summarizes the estimated pre-tax change in fair value (based upon hypothetical parallel shifts in the U.S. Treasury yield curve) of the fixed income portfolio assuming immediate changes in interest rates at specified levels at December 31, 1999:
The decrease in short-term investments is offset by a decrease in due to brokers attributable to the settlement of a securities trade that was placed at the end of December 1998. Long-term debt increased $15.0 million as the Company borrowed against its line of credit in connection with the assumption reinsurance transactions in December 1999. Fixed maturities, deferred acquisition costs, due and unpaid premiums, notes receivable, future policy liabilities and funds on deposit experienced significant increases due to nine acquisitions made by Madison Life and Standard Life during 1999. Madison Life acquired: a block of individual life and annuity policies effective June 30, 1999 with reserves of $78.0 million; two blocks of pre-need and burial policies also effective June 30, 1999 with reserves of $43.8 million; a block of individual life, annuity and disability income policies effective November 30, 1999 with reserves of $13.6 million; and the remaining three blocks were also for individual life, annuity and disability income policies and had reserves of $8.1 million (see Note 2 of notes to Consolidated Financial Statements). Standard Life acquired a block of annuities and group life products sold to volunteer firefighters effective April 30, 1999 with reserves of $33.1 million and a block of individual life policies effective January 1, 1999 with reserves of $4.0 million.
Due to its superior capital ratios, broad licensing and excellent asset quality and credit-worthiness, the Insurance Group remains well positioned to increase or diversify its current activities.	It is anticipated that future acquisitions or other expansion of operations will be funded internally from existing capital and surplus and parent company liquidity, including the remaining $15.0 million availability under its credit facility. In the event additional funds are required, it is expected that they would be borrowed or raised in the public or private capital markets to the extent determined to be necessary or desirable.
The insurance liabilities assumed at the settlement represent the undertaking by Madison Life of the present value of future commitments of the policies outstanding at the respective effective dates as determined by generally prescribed actuarial standards. As of the effective dates, approximately $65.3 million of life policy reserves were assumed, most of which were underwritten, and all of which were reserved for, on mortality tables developed by The Society of Actuaries, and range from 2.5% to 5.5%. As of the effective dates, approximately $70.0 million of annuity reserves were assumed, which represent the contract (fund balance) value, with interest crediting rates of 3.5% to 7%.
The Company anticipates increasing its premium volume through: (i) acquisitions; (ii) greater geographical diversity; (iii) expansion of its network of MGUs, MGAs, HMOs, general agents and agents; and (iv) investments in affiliated marketing subsidiaries; and strategic marketing alliances. The Company is particularly interested in acquiring the following types of policies: traditional and group life, interest sensitive life, credit life and health, limited benefit health (e.g., cancer or hospital indemnity), medical stop-loss, DBL blocks, and certain other disability. In anticipation of increased acquisition opportunities, the Company has significantly improved its administration systems which has enabled it to more efficiently convert and manage acquired blocks. It is anticipated that future acquisitions will be funded internally from existing capital and surplus and parent company liquidity, including the remaining $15.0 million availability under its credit facility (see Note 11 of Notes to Consolidated Financial Statements) or through additional capital raised in the public or private markets.