In addition to net income, we have consistently utilized non-GAAP operating income and non-GAAP operating income per common share-assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Non-GAAP operating income equals net income adjusted to eliminate the impact of items that fluctuate from year to year in a manner unrelated to core operations, and we believe measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income eliminate the impact of fair value accounting for our fixed index annuity business. These adjustments are not economic in nature but rather impact the timing of reported results. In addition, 2017 includes a $35.9 million adjustment to arrive at non-GAAP operating income resulting from the Tax Cuts and Jobs Act of 2017, which was enacted on December 22, 2017 and required a revaluation of our net deferred tax assets from 35% to 21%. We believe the combined presentation and evaluation of non-GAAP operating income together with net income provides information that may enhance an investor's understanding of our underlying results and profitability. The amounts included in the reconciliation of net income to non-GAAP operating income are presented net of related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs.
The economic and personal investing environments continued to be conducive for high sales levels as retirees and others look to put their money in instruments that will protect their principal and provide them with consistent cash flow sources in their retirement years. Our sales increased in 2019 as compared to 2018 due to the launch of new products during 2018 and improvements in our competitive position in the accumulation and guaranteed income markets. These factors were partially mitigated by competitive pressures within each of our distribution channels. We continue to face a challenging environment for sales of fixed index annuities due to a highly competitive market.
We continue to be in the midst of an unprecedented period of low interest rates and low yields for investments with the credit quality we prefer which presents a strong headwind to achieving our target rate for investment spread. In response, we have been reducing policyholder crediting rates for new annuities and existing annuities since the fourth quarter of 2011. Active management of policyholder crediting rates resulted in a lower aggregate cost of money during 2019 and contributed to an increase in aggregate investment spread during 2019. We continue to have flexibility to reduce our crediting rates if necessary and could decrease our cost of money by approximately 59 basis points if we reduce current rates to guaranteed minimums. In addition, starting in 2017 we began to invest in asset classes that were not traditionally in our portfolio, focusing on investments with less liquidity that provide higher yields and have a track record of positive credit performance. During 2018, we opportunistically replaced lower yielding securities with higher yielding securities and sold $2.1 billion in book value of lower yielding securities for a yield pick-up of approximately 170 basis points on these investments. While we anticipated pursuing additional portfolio realignment opportunities in 2019, market conditions were not conducive to such realignment during 2019. Investment yields on fixed income securities purchased and commercial mortgage loans funded in 2019 decreased compared to 2018 due to a general decline in interest rates and credit spreads tightening.
On November 21, 2019 we issued $400 million of 5.95% fixed-rate reset non-cumulative preferred stock and received net proceeds of $388.9 million. We used a portion of the proceeds to redeem $165 million of our floating rate subordinated debentures in the fourth quarter of 2019 and the first quarter of 2020 and have $225 million of net proceeds available for general corporate purposes.
We specialize in the sale of individual annuities (primarily fixed index deferred annuities). Under U.S. GAAP, premium collections for deferred annuities are reported as deposit liabilities instead of as revenues. Similarly, cash payments to policyholders are reported as decreases in the liabilities for policyholder account balances and not as expenses. Sources of revenues for products accounted for as deposit liabilities are net investment income, surrender charges assessed against policy withdrawals and fees deducted from policyholder account balances for lifetime income benefit riders, net realized gains (losses) on investments and changes in fair value of derivatives. Components of expenses for products accounted for as deposit liabilities are interest sensitive and index product benefits (primarily interest credited to account balances and changes in the liability for lifetime income benefit riders), changes in fair value of embedded derivatives, amortization of deferred sales inducements and deferred policy acquisition costs, other operating costs and expenses and income taxes.
our ability to manage our investment portfolio to maximize returns and minimize risks such as interest rate changes and defaults or impairment of investments,
our ability to appropriately price for lifetime income benefit riders offered on certain of our fixed rate and fixed index annuity policies,
our ability to manage the costs of acquiring new business (principally commissions paid to agents and distribution partners and bonuses credited to policyholders),
Aggregate investment spread increased during 2019 compared to 2018 due to an increase in the average yield on invested assets and a decrease in the cost of money. The increase in the average yield on investments 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 was 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 decrease in the cost of money was due to decreases in option costs for certain index strategies during 2019 which in part was due to our active management of new business and renewal rates.
Results of Operations for the Three Years Ended December 31, 2019
Annuity deposits before coinsurance ceded increased 13% during 2019 compared to 2018 and increased 5% during 2018 compared to 2017. Annuity deposits after coinsurance ceded increased 17% during 2019 compared to 2018 and increased 5% in 2018 as compared to 2017. The increase in sales in 2019 was due to the launch of new products during 2018 and improvements in our competitive position in the accumulation and guaranteed income markets. These factors were partially mitigated by competitive pressures within each of our distribution channels. We continue to face a challenging environment for sales of fixed index annuities due to a highly competitive market.
Net income, in general, has been positively impacted by the growth in the volume of business in force and the investment spread earned on this business. The average amount of annuity account balances outstanding (net of annuity liabilities ceded under coinsurance agreements) increased 5% to $52.3 billion for the year ended December 31, 2019 compared to $49.9 billion in 2018 and 6% for the year ended December 31, 2018 compared to $46.8 billion in 2017. Our investment spread measured in dollars was $1.3 billion, $1.2 billion, and $1.2 billion for the years ended December 31, 2019, 2018 and 2017, respectively. As previously mentioned, our investment spread has been positively impacted by our opportunistic replacement of lower yielding securities with higher yielding securities during 2018, however yields in general continue to be negatively impacted by the extended low interest rate environment (see Net investment income). Our investment spread has also been positively impacted by our active management of new business and renewal rates.
Net income for the year ended December 31, 2019 was negatively impacted by net realized investment losses of $11.7 million, of which $18.7 million was recognized as OTTI partially offset by $7.0 million of net realized gains. Net income for the year ended December 31, 2018 was negatively impacted by realized investment losses of $73.8 million, of which $37.1 million was recognized as net realized losses and $36.7 million was recognized as OTTI. See Net OTTI losses recognized in operations and Net realized gains (losses) on investments, excluding OTTI losses and Note 3 to our audited consolidated financial statements for discussion of OTTI losses recognized in operations and net realized gains (losses) on investments.
Net income is also impacted by the change in fair value of derivatives and embedded derivatives which fluctuates from year to year based upon changes in fair values of call options purchased to fund the annual index credits for fixed index annuities and changes in interest rates used to discount the embedded derivative liability. Net income for the year ended December 31, 2019 was negatively impacted by decreases in the discount rates used to estimate the fair value of our embedded derivative liabilities, the impact of which was partially offset by decreases in amortization of deferred policy acquisition costs and deferred sales inducements related to the change in fair value of derivatives and embedded derivatives. Net income for the year ended December 31, 2018 was positively impacted by increases in the discount rates used to estimate our embedded derivative liabilities while net income for the year ended December 31, 2017 was negatively impacted by decreases in the discount rates used to estimate our embedded derivative liabilities the impacts of which were partially offset by changes in amortization of deferred policy acquisition costs and deferred sales inducements related to the change in fair value of derivatives and embedded derivatives. See Change in fair value of derivatives, Change in fair value of embedded derivatives, Amortization of deferred sales inducements and Amortization of deferred policy acquisition costs.
Net income for 2019, 2018 and 2017 includes effects from revisions to assumptions as follows:
We review these assumptions quarterly and as a result of these reviews, we made updates to assumptions during each year. In addition, we implemented an enhanced actuarial valuation system during 2019, and as a result, our 2019 assumption updates include model refinements resulting from the implementation.
In addition, we revised our assumptions regarding future crediting rates on policies. We are assuming a 3.80% U.S. Treasury rate with a 20 year mean reversion period. Our assumption for aggregate spread is 2.60% which translates to an ultimate discount rate of 2.90%. While the aggregate spread of 2.60% did not change from prior estimates, our estimates of the profitability of individual cohorts has changed with the use of an aggregate portfolio yield across all cohorts. This assumption revision resulted in a change in the allocation of profitability by cohort, which caused a reduction in the deferred policy acquisition costs and deferred sales inducements assets and partially offset the increase in the deferred policy acquisition costs and deferred sales inducements assets from the change in lapse assumptions.
The most significant revisions to the calculation of the fair value of the embedded derivative component of our fixed index annuity policy benefit reserves in 2019 were to decrease lapse rate assumptions as noted above. The impact of the lapse rate assumption changes was partially offset by a decrease in the option budget from 3.10% to 2.90% as a result of a revised estimate of the cost of options over the 20 year mean reversion period.
The most significant revisions from the 2018 review were account balance true-ups which were favorable to us due to stronger index credits than we assumed due to strong equity market performance and adjustments to generally decrease lapse rate assumptions to reflect better persistency experienced than assumed. The favorable impact of the account balance true-ups and lapse rate assumption changes on the deferred policy acquisition costs and deferred sales inducements balances was partially offset by revisions to lower our future investment spread assumptions primarily due to an increase in the cost of money we had been experiencing.
The most significant revisions made during 2017 as a result of our quarterly reviews were account balance true-ups which were favorable to us due to stronger index credits than we assumed due to strong equity market performance and adjustments to generally decrease lapse rate assumptions to reflect better persistency experienced than assumed. The favorable impact of the account balance true-ups and lapse rate assumption changes on the deferred policy acquisition costs and deferred sales inducements balances was partially offset by reductions in estimated future gross profits attributable to revisions to assumptions used in determining the liability for lifetime income benefit riders as well as an increase in estimated expenses associated with a reinsurance agreement with an unaffiliated reinsurer.
Non-GAAP operating income, a non-GAAP financial measure (see reconciliation to net income in Item 6. Selected Consolidated Financial Data) increased 29% to $548.2 million in 2019 and 49% to $425.7 million in 2018 from $285.1 million in 2017.
In addition to net income, we have consistently utilized non-GAAP operating income, a non-GAAP financial measure commonly used in the life insurance industry, as an economic measure to evaluate our financial performance. Non-GAAP operating income equals net income adjusted to eliminate the impact of items that fluctuate from year to year in a manner unrelated to core operations, and we believe measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income eliminate the impact of fair value accounting for our fixed index annuity business and are not economic in nature but rather impact the timing of reported results. In addition, 2017 includes a $35.9 million adjustment to arrive at non-GAAP operating income resulting from Tax Reform, which was enacted on December 22, 2017 and required a revaluation of our net deferred tax assets from 35% to 21%. We believe the combined presentation and evaluation of non-GAAP operating income together with net income provides information that may enhance an investor's understanding of our underlying results and profitability.
Non-GAAP operating income for 2019, 2018 and 2017 includes effects from revisions to assumptions as follows:
Annuity product charges (surrender charges assessed against policy withdrawals and fees deducted from policyholder account balances for lifetime income benefit riders) increased 7% to $240.0 million in 2019 and 12% to $224.5 million in 2018 from $200.5 million in 2017. The components of annuity product charges are set forth in the table that follows:
The increases in annuity product charges were attributable to increases in fees assessed for lifetime income benefit riders due to a larger volume of business in force subject to the fee and increases in the average fees being charged due to higher fees on new products as compared to prior periods and to increases in surrender charges due to increases in withdrawals from annuity policies subject to surrender charges due to a larger volume of business in force and policyholder behavior, which were partially offset by lower average surrender charges collected on those withdrawals. See Interest sensitive and index product benefits below for corresponding expense recognized on lifetime income benefit riders.
Net investment income increased 7% to $2.3 billion in 2019 and 8% to $2.1 billion in 2018 from $2.0 billion in 2017. The increases were principally attributable to the growth in our annuity business and corresponding increases in our invested assets. Average invested assets excluding derivative instruments (on an amortized cost basis) increased 6% to $51.1 billion in 2019 and 7% to $48.1 billion in 2018 compared to $44.8 billion in 2017.
The differences between the change in fair value of derivatives between years for call options are primarily due to the performance of the indices upon which our call options are based which impacts the fair values and changes in the fair values of those call options between years. A substantial portion of our call options are based upon the S&P 500 Index with the remainder based upon other equity and bond market indices. The range of index appreciation (after applicable caps, participation rates and asset fees) for options expiring during these years is as follows:
Net realized gains (losses) on investments, excluding OTTI losses include gains and losses on the sale of securities and other investments and impairment losses on mortgage loans on real estate which fluctuate from year to year due to changes in the interest rate and economic environment and the timing of the sale of investments, as well as gains (losses) recognized on real estate owned due to any sales and impairments on long-lived assets. See Note 3 to our audited consolidated financial statements for a detailed presentation of the types of investments that generated the gains (losses) and Financial Condition - Investments and Note 4 to our audited consolidated financial statements for discussion of allowance for credit losses recognized on mortgage loans on real estate.
Securities were sold at losses in 2019, 2018 and 2017 due to our long-term fundamental concern with the issuers' ability to meet their future financial obligations. In addition, during 2018, losses on available for sale fixed maturity securities were realized due to strategies to reposition the fixed maturity security portfolio that resulted in improved net investment income, risk or duration profiles as they pertain to our asset liability management. During 2018 we sold $2.1 billion in book value of lower yielding securities for a yield pick-up of approximately 170 basis points on these investments. As book yields on these securities sold were less than market yields, we recognized losses of approximately $38 million on these sales.
The changes in index credits were attributable to changes in the level of appreciation of the underlying indices (see discussion above under Change in fair value of derivatives) and the amount of funds allocated by policyholders to the respective index options. Total proceeds received upon expiration of the call options purchased to fund the annual index credits were $0.6 billion, $1.3 billion and $1.6 billion for the years ended December 31, 2019, 2018 and 2017, respectively. The decreases in interest credited in 2019 and 2018 were primarily due to decreases in the amount of annuity liabilities outstanding receiving a fixed rate of interest and decreases in the average rate credited to the annuity liabilities outstanding receiving a fixed rate of interest. The increase in benefits recognized for lifetime income benefit riders in 2019 was primarily due to the impact of revisions of assumptions used in determining the liability for lifetime income benefit riders which caused an increase of $315.4 million in the liability in 2019 compared to a decrease of $53.6 million in the liability in 2018. Interest sensitive and index product benefits also increased in 2019 due to an increase in the number of policies with lifetime income benefit riders in 2019 compared to 2018, which correlates to the increase in fees discussed in Annuity product charges. The decrease in benefits recognized for lifetime income benefit riders in 2018 was due to the impact of revisions of assumptions used in determining the liability for lifetime income benefit riders which resulted in a $53.6 million decrease in the liability in 2018 compared to a $21.6 million increase in the liability in 2017 which was partially offset by an increase in the number of policies with lifetime income benefit riders which correlates to the increase in fees discussed in Annuity product charges. See Net income above for discussion of the changes in the assumptions used in determining reserves for lifetime income benefit riders for the years ended December 31, 2019, 2018 and 2017.
Amortization of deferred sales inducements, in general, has been increasing each year due to growth in our annuity business and the deferral of sales inducements incurred with respect to sales of premium bonus annuity products. Bonus products represented 76%, 81% and 87% of our net annuity account values at December 31, 2019, 2018 and 2017, respectively. The increases in amortization from these factors have been affected by amortization associated with fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business and amortization associated with net realized gains (losses) on investments and net OTTI losses recognized in operations. Fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liabilities in our fixed index annuity contracts. The change in fair value of the embedded derivatives will not correspond to the change in fair value of the derivatives (purchased call options), because the purchased call options are one-year options while the options valued in the fair value of embedded derivatives cover the expected lives of the contracts which typically exceed ten years. Amortization of deferred sales inducements is summarized as follows:
The change in fair value of the fixed index annuity embedded derivatives resulted from (i) changes in the expected index credits on the next policy anniversary dates, which are related to the change in fair value of the call options acquired to fund those index credits discussed above in Change in fair value of derivatives; (ii) changes in the discount rates used in estimating our embedded derivative liabilities; and (iii) the growth in the host component of the policy liability. The amounts presented as "Other changes in difference between policy benefit reserves computed using derivative accounting vs. long-duration contracts accounting" represents the total change in the difference between policy benefit reserves for fixed index annuities computed under the derivative accounting standard and the long-duration contracts accounting standard at each balance sheet date, less the change in fair value of our fixed index annuities embedded derivative. See Critical Accounting Policies - Policy Liabilities for Fixed Index Annuities.
Interest expense on notes and loan payable by debt instrument is as follows:
The decrease in interest expense in 2018 was due to the repayment of our outstanding $100 million term loan and the redemption of our $400 million 6.625% notes due 2021 with the proceeds from the issuance of $500 million aggregate principal amount of senior unsecured notes due 2027 which bear interest at 5.0% per year and will mature on June 15, 2027 (the "2027 Notes"). This lowered our senior notes costs to 5% from 6.625%. See Note 9 to our audited consolidated financial statements.
Amortization of deferred policy acquisition costs, in general, has been increasing each year due to the growth in our annuity business and the deferral of policy acquisition costs incurred with respect to sales of annuity products. The increases in amortization from these factors have been affected by amortization associated with fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business and amortization associated with net realized gains (losses) on investments and net OTTI losses recognized in operations. As discussed above, fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liabilities in our fixed index annuity contracts. Amortization of deferred policy acquisition costs is summarized as follows:
The increase in risk charges during 2019 was due to an increase in the amount of excess regulatory reserves ceded to an unaffiliated reinsurer pursuant to a reinsurance agreement primarily as a result of the replacement of the previous agreement with a new agreement effective April 1, 2019. The impact from increasing the amount of excess regulatory reserves ceded was partially offset by a lower risk charge percentage in the new agreement. The increase in risk charges during 2018 was due to an increase in the amount of excess regulatory reserves ceded to the unaffiliated reinsurer. The regulatory reserves ceded at December 31, 2019, 2018 and 2017 were $1,162.0 million, $780.0 million and $737.3 million, respectively.
Other expenses increased in 2019 and 2018 primarily as a result of increases in professional and consulting fees, increases in depreciation and maintenance expenses primarily related to software and hardware assets and increases in licensing fees which are based on the level of policyholder funds under management allocated to index strategies. These 2018 increases were offset by decreases in commission expense related to the exit of the group life business effective January 1, 2018.
The effective income tax rates for 2019, 2018 and 2017 were impacted by a discrete tax item related to share-based compensation that reduced income tax expense for 2019, 2018 and 2017 by approximately $1.3 million, $2.7 million and $2.8 million, respectively. Income tax expense for the year ended December 31, 2019 reflects an increase in income tax expense of approximately $2.5 million related to the reversal of the impact of capital losses expected to be carried back to periods in which a 35% statutory rate was in effect while income tax expense for the year ended December 31, 2018 reflects a decrease in income tax expense of $2.5 million as a result of changes in capital losses expected to be carried back to periods in which a 35% statutory tax rate was in effect. In addition, the effective tax rate for 2018 benefited from a discrete tax item for a worthless stock deduction related to a wholly-owned subsidiary which reduced income tax expense by approximately $7.4 million. The effective income tax rates excluding the impact of the discrete items and the impact of the expected loss carrybacks were 21.64% and 21.26%, respectively, for the years ended December 31, 2019 and 2018.
The decrease in unrealized losses from December 31, 2018 to 2019 was primarily due to a decrease in interest rates and tightening credit spreads during the year ended December 31, 2019. The 10-year U.S. Treasury yield rates at December 31, 2019 and 2018 were 1.92% and 2.69%, respectively. The 30-year U.S. Treasury yields at December 31, 2019 and 2018 were 2.39% and 3.02%, respectively.
At each balance sheet date, we identify invested assets which have characteristics (i.e. significant unrealized losses compared to amortized cost and industry trends) creating uncertainty as to our future assessment of an other than temporary impairment. As part of this assessment, we review not only a change in current price relative to its amortized cost but the issuer's current credit rating and the probability of full recovery of principal based upon the issuer's financial strength. Specifically for corporate issues we evaluate the financial stability and quality of asset coverage for the securities relative to the term to maturity for the issues we own. A security which has a 20% or greater change in market price relative to its amortized cost and/or a possibility of a loss of principal will be included on a list which is referred to as our watch list. We exclude from this list securities with unrealized losses which are related to market movements in interest rates and which have no factors indicating that such unrealized losses may be other than temporary as we do not intend to sell these securities and it is more likely than not we will not have to sell these securities before a recovery is realized. In addition, we exclude our residential and commercial mortgage backed securities as we monitor all of our residential and commercial mortgage backed securities on a quarterly basis for changes in default rates, loss severities and expected cash flows for the purpose of assessing potential other than temporary impairments and related credit losses to be recognized in operations. At December 31, 2019, the amortized cost and fair value of securities on the watch list (all fixed maturity securities) are as follows:
Consumer discretionary: The decline in the value of certain of these securities is primarily due to weak operating performance and sales trends. The decrease in sales for certain of these securities related to a domestic based toy manufacturer is attributable to the liquidation of a major toy retailer during the fourth quarter of 2017. While the issuer has seen a decrease in operating performance, it has implemented a plan to reduce costs and stabilize its revenue and is executing on that plan. We have determined that these securities were not other than temporarily impaired due to our evaluation of the operating performance and the creditworthiness of the issuer and the fact that all required payments have been made. The decline in operating performance and sales trends of another of these securities related to a domestic company operating retail chain stores is a result of market deterioration being experienced in many companies within the retail market. We recognized an other than temporary impairment on this issuer during the fourth quarter of 2018 due to our evaluation of the operating performance and the credit worthiness of the issuer. In addition, we included a Brazilian food company whose operating trends came under pressure during 2018 due to export challenges, domestic poultry price weakness and a domestic trucking strike. As one of the world's largest food companies, we believe the company remains a viable entity even though operating metrics have declined. Most recently the company has experienced improvement in financial metrics due to a stronger macro environment for food producers. We have determined that these securities were not other than temporarily impaired due to our evaluation of their operating performance, asset base and creditworthiness of the borrower.
Energy, Industrials and Materials: The decline in the value of these securities relates to continued operational pressure due to past declines in certain commodity prices specific to their businesses. The decline in these commodity prices creates financial challenges as the companies had to realign operations to accommodate the new environment. These issuers are stressed greater than the average company due to their price sensitivity and the specific position they hold in the supply chain. We recognized other than temporary impairments on three securities during the fourth quarter of 2019 with exposure to the offshore drilling industry due to increasing concerns around cash flow shortages creating possible liquidity challenges as debt maturity approaches. We recognized an other than temporary impairment on one of these issuers during the fourth quarter of 2018 due to our evaluation of the operating performance and the credit worthiness of the issuer. While the remaining issuers have seen their financial and profitability profile weakened, we have determined that the remaining securities were not other than temporarily impaired due to our evaluation of the operating performance and the credit worthiness of the issuer.
Financials: The decline in value of this security relates directly to the decline in oil prices and the financial stability of its operator. The issuer has direct exposure to the oil market as its primary business is deep water drilling. As oil prices have remained low, the operator of the deep water vessel has experienced financial pressure on its balance sheet and similar vessel sales have been at softer valuations. We recognized an other than temporary impairment on this security during 2018 and 2017.
Industrials: The decline in the value of this security is driven by poor financial performance of the trust and a decline in the value of the assets backing this security. Following the loss of several major license agreements with major retailers, revenues and cash flows have suffered. While the performance is down, we have determined the value of the underlying assets currently provide adequate debt service coverage and no other than temporary impairment is necessary.
Several factors led us to believe that full recovery of amortized cost is not expected on the securities for which we recognized credit losses. A discussion of these factors, our policy and process to identify securities that could potentially have impairment that is other than temporary and a summary of OTTI 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.
See Note 4 to our audited consolidated financial statements, incorporated by reference, for a presentation of our specific and general loan loss allowances, impaired loans, foreclosure activity and troubled debt restructure analysis.
Our liability for policy benefit reserves increased to $61.9 billion at December 31, 2019 compared to $57.6 billion at December 31, 2018, primarily due to net cash flows from annuity deposits and funds returned to policyholders and interest and index credits credited to policyholders during 2019. The increase in policy benefit reserves was also due to an increase in the fair value of our fixed index annuity embedded derivatives during 2019. Substantially all of our annuity products have a surrender charge feature designed to reduce the risk of early withdrawal or surrender of the policies and to compensate us for our costs if policies are withdrawn early. Our lifetime income benefit rider also reduces the risk of early withdrawal or surrender of the policies as it provides an additional liquidity option to policyholders as the policyholder can elect to receive guaranteed payments for life from their contract without requiring them to annuitize their contract value and the rider is not transferable to other contracts. Notwithstanding these policy features, the withdrawal rates of policyholder funds may be affected by changes in interest rates and other factors.
Liquidity requirements are met primarily by funds provided from operations. Our life subsidiaries generally receive adequate cash flow from annuity deposits and investment income to meet their obligations. Annuity liabilities are generally long-term in nature. However, a primary liquidity concern is the risk of an extraordinary level of early policyholder withdrawals. We include provisions within our annuity policies, such as surrender charges and bonus vesting, which help limit and discourage early withdrawals. Our lifetime income benefit rider also limits the risk of early withdrawals as it provides an additional liquidity option to policyholders as the policyholder can elect to receive guaranteed payments for life from their contract without requiring them to annuitize their contract value and the rider is not transferable to other contracts. At December 31, 2019, approximately 94% of our annuity liabilities were subject to penalty upon surrender, with a weighted average remaining surrender charge period of 6.7 years and a weighted average surrender charge percentage of 10.8%.
Our insurance subsidiaries continue to have adequate cash flows from annuity deposits and investment income to meet their policyholder and other obligations. Net cash flows from annuity deposits and funds returned to policyholders as surrenders, withdrawals and death claims were $1.5 billion for the year ended December 31, 2019 compared to $1.2 billion for the year ended December 31, 2018 with the increase attributable to a $693.2 million increase in net annuity deposits after coinsurance, which was partially offset by a $433.4 million (after coinsurance) increase in funds returned to policyholders. We continue to invest the net proceeds from policyholder transactions and investment activities in high quality fixed maturity securities and fixed rate commercial mortgage loans.
Currently, American Equity Life may pay dividends or make other distributions without the prior approval of the Iowa Insurance Commissioner, unless such payments, together with all other such payments within the preceding twelve months, exceed the greater of (1) American Equity Life's net gain from operations for the preceding calendar year, or (2) 10% of American Equity Life's statutory capital and surplus at the preceding December 31. For 2020, up to $349.0 million can be distributed as dividends by American Equity Life without prior approval of the Iowa Insurance Commissioner. In addition, dividends and surplus note payments may be made only out of statutory earned surplus, and all surplus note payments are subject to prior approval by regulatory authorities in the life subsidiary's state of domicile. American Equity Life had $2.1 billion of statutory earned surplus at December 31, 2019.
The maximum distribution permitted by law or contract is not necessarily indicative of an insurer's actual ability to pay such distributions, which may be constrained by business and regulatory considerations, such as the impact of such distributions on surplus, which could affect the insurer's ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends or make other distributions. Further, state insurance laws and regulations require that the statutory surplus of our life subsidiaries following any dividend or distribution must be reasonable in relation to their outstanding liabilities and adequate for their financial needs. Along with solvency regulations, the primary driver in determining the amount of capital used for dividends is the level of capital needed to maintain desired financial strength ratings from rating agencies. Both regulators and rating agencies could become more conservative in their methodology and criteria, including increasing capital requirements for our insurance subsidiaries which, in turn, could negatively affect the cash available to us from insurance subsidiaries. As of December 31, 2019, we estimate American Equity Life has sufficient statutory capital and surplus, combined with capital available to the holding company, to maintain this rating objective. However, this capital may not be sufficient if significant future losses are incurred or a rating agency modifies its rating criteria and access to additional capital could be limited.
Cash and cash equivalents of the parent holding company at December 31, 2019, were $332.5 million which includes the net proceeds from the November preferred offering discussed above. In addition, as discussed in Note 9 to our audited consolidated financial statements, we have a $150 million revolving line of credit agreement, with no borrowings outstanding at December 31, 2019. This revolving line of credit terminates on September 30, 2021, and borrowings are available for general corporate purposes of the parent company and its subsidiaries. We also have the ability to issue equity, debt or other types of securities through one or more methods of distribution. The terms of any offering would be established at the time of the offering, subject to market conditions.
In the normal course of business, we enter into financing transactions, lease agreements, or other commitments. These commitments may obligate us to certain cash flows during future periods. The following table summarizes such obligations as of December 31, 2019.
Amounts shown in this table are projected payments through the year 2039 which we are contractually obligated to pay to our annuity policyholders. The payments are derived from actuarial models which assume a level interest rate scenario and incorporate assumptions regarding mortality and persistency, when applicable. These assumptions are based on our historical experience.
The following table presents the fair value of fixed maturity securities, available for sale, by pricing source and hierarchy level as of December 31, 2019 and 2018, respectively:
our intent to sell and whether it is more likely than not we would be required to sell prior to recovery for debt securities;
Accounting for derivatives prescribes that the contractual obligations for future annual index credits are treated as a "series of embedded derivatives" over the expected life of the applicable contracts. Policy liabilities for fixed index annuities are equal to the sum of the "host" (or guaranteed) component and the embedded derivative component for each fixed index annuity policy. The host value is established at inception of the contract and accreted over the policy's life at a constant rate of interest. We estimate the fair value of the embedded derivative component at each valuation date by (i) projecting policy contract values and minimum guaranteed contract values over the expected lives of the contracts and (ii) discounting the excess of the projected contract value amounts at the applicable risk-free interest rates adjusted for our nonperformance risk related to those liabilities. The projections of policy contract values are based on our best estimate assumptions for future policy growth and future policy decrements including lapse, partial withdrawal and mortality rates. Our best estimate assumptions for future policy growth include assumptions for the expected index credits on the next policy anniversary date which are derived from the fair values of the underlying call options purchased to fund such index credits and the expected costs of annual call options we will purchase in the future to fund index credits beyond the next policy anniversary. The projections of minimum guaranteed contract values include the same best estimate assumptions for policy decrements as were used to project policy contract values. The amounts reported in the consolidated statements of operations as "Interest sensitive and index product benefits" represent amounts credited to policy liabilities pursuant to accounting by insurance companies for certain long-duration contracts which include index credits through the most recent policy anniversary. The amounts reported in the consolidated statements of operations as "Change in fair value of embedded derivatives" equal the change in the difference between policy benefit reserves for fixed index annuities computed under the derivative accounting standard and the long-duration contracts accounting standard at each balance sheet date.
As indicated above, the discount rates used to discount excess projected contract value are based on applicable risk-free interest rates adjusted for our nonperformance risk related to those liabilities. If the discount rates used to discount the excess projected contract values at December 31, 2019 were to increase by 100 basis points, our reserves for fixed index annuities would decrease by $871.3 million. A decrease by 100 basis points in the discount rates used to discount the excess projected contract values would increase our reserves for fixed index annuities by $1.0 billion.
The liability for lifetime income benefit riders is based on the actual and present value of expected benefit payments to be paid in excess of projected policy values recognizing the excess over the expected lives of the underlying policies based on the actual and present value of expected assessments including investment spreads, product charges and fees. The inputs used in the calculation of the liability for lifetime income benefit riders include actual policy values, actual income account values, actual payout factors, actual roll-up rates and our best estimate assumptions for future policy growth, expected utilization of lifetime income benefit riders, which includes the ages at which policyholders are expected to elect to begin to receive lifetime income benefit payments and the percentage of policyholders who elect to receive lifetime income benefit payments, the type of income benefit payments selected upon election and future assumptions for lapse, partial withdrawal and mortality rates. The assumptions are reviewed quarterly and revisions to the assumptions are made based on historical results and our best estimates of future experience. The liability for lifetime income benefit riders is included in policy benefit reserves in the consolidated balance sheets and the change in the liability is included in interest sensitive and index product benefits in the consolidated statements of operations. See Results of Operations for the Three Years Ended December 31, 2019 in this Item 7 for a discussion and presentation of the actual effects of assumption revisions.
We utilize the expected cost of annual call options we will purchase in the future to project policy values and to discount future cash flows. In addition, it is a key component in the calculation of expected assessments in the projection period. As of December 31, 2019, we utilized an estimate of 2.90% for the long-term expected cost of annual call options, which is based on estimated long-term account value growth and a historical review of our actual call options. If the expected cost of annual call options and fixed crediting rates were to increase by 25 basis points, our liability for lifetime income benefit riders would decrease by $87.9 million. A decrease of 25 basis points in the expected cost of annual call options and fixed crediting rates would increase our liability for lifetime income benefit riders by $94.6 million.
For annuity products, these costs are being amortized in proportion to actual and expected gross profits. Actual and expected gross profits include the the excess of net investment income earned over the interest credited or the cost of providing index credits to the policyholders, or the "investment spread"; and to a lesser extent, product charges and fees net of expected excess payments for lifetime income benefit riders and certain policy expenses. Actual and expected gross profits for fixed index annuities also include the impact of amounts recorded for the change in fair value of derivatives and the change in fair value of embedded derivatives. Current period amortization is adjusted retrospectively through an unlocking process when estimates of actual and expected gross profits (including the impact of net realized gains (losses) on investments and net OTTI losses recognized in operations) to be realized from a group of products are revised. Our estimates of future gross profits are based on actuarial assumptions related to the underlying policies terms, lives of the policies, yield on investments supporting the liabilities and level of expenses necessary to maintain the polices over their entire lives. Revisions are made based on historical results and our best estimates of future experience. See Results of Operations for the Three Years Ended December 31, 2019 in this Item 7 for a discussion and presentation of the actual effects of unlocking.
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 combined balance of deferred policy acquisition costs and deferred sales inducements would decrease by $86.3 million. A decrease in lapse rates of 10% would increase our combined balance of deferred policy acquisition costs and deferred sales inducements by $89.0 million.
We utilize the expected cost of annual call options we will purchase in the future to project policy values and to discount future cash flows. In addition, it is a key component in the calculation of expected gross profits in the projection period. As of December 31, 2019, we utilized an estimate of 2.90% for the expected long-term cost of annual call options, which is based on estimated long-term account value growth and a historical review of our actual call options. If the expected cost of annual call options and fixed crediting rates were to increase by 25 basis points, our combined balance of deferred policy acquisition costs and deferred sales inducements would increase by $44.6 million. A decrease of 25 basis points in the expected cost of annual call options and fixed crediting rates would decrease our combined balance of deferred policy acquisition costs and deferred sales inducements by $81.1 million.
The audited consolidated financial statements are included as a part of this report on Form 10-K on pages through.