The following analysis of our consolidated financial condition and results of operations should be read in conjunction with Selected Financial Data and the Consolidated Financial Statements and accompanying Notes included elsewhere in this report. The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires the use of estimates and assumptions developed by our management.
All amounts are expressed in thousands of United States Dollars, except per share amounts. The period ended December 31, 1998 is the period from May 12, 1998 (date of incorporation) to December 31, 1998.
We are engaged in two lines of business: Life Reinsurance, and the direct issuance of variable insurance policies to high net worth individuals which we call Wealth Management.
Earnings per share increased 100% on a diluted basis from $0.50 in 1999 to $1.00 in 2000. As mentioned above, the increase from 1998 to 1999 is not meaningful. The increase in earnings per share was due to the increased earnings plus the repurchase of 2,529,700 shares in 1999 and 432,500 shares in 2000.
Premiums earned during the year ended December 31, 2000 are in respect of 10 new reinsurance clients in Scottish Re, premiums from a block of Accident & Health business written by Scottish Re before we acquired the company in 1999 and two reinsurance treaties written by SALIC. Premiums earned in 1999 are in relation to the Accident & Health business in existence when we acquired Scottish Re. As of December 31, 2000 we reinsured approximately $11.4 billion of life coverage on 248,000 lives. The average benefit coverage per life is $45,800 and the maximum retention on any one life is $1 million.
We anticipate a steady flow of premiums in future quarters from existing treaties along with a significant amount of premium from new treaties in 2001.
Net realized losses on fixed maturities in 1999 were primarily due to portfolio restructuring. The losses in 2000 are a result of sales of fixed maturities to meet cash flow demands and improve yield.
Claims and other policy benefits increased from $1.7 million in 1999 to $23.6 million in 2000 as a result of the 10 new reinsurance clients in Scottish Re and two new treaties written by SALIC in 2000, together with active management of existing treaties.
Interest credited to interest sensitive contract liabilities increased from $5.5 million in 1999 to $17.4 million in 2000 as a result of two new reinsurance treaties written by SALIC in 2000 and the annuity business written by Scottish Re; the latter recording an interest expense in only the fourth quarter of 1999, compared to a whole year's expense in 2000. Interest is calculated based on the liabilities recorded on the balance sheet at the rate of interest specified in the reinsurance agreement.
Acquisition costs and other insurance expenses increased from $2.0 million in 1999 to $17.2 million in 2000 as a result of the 10 new reinsurance clients in Scottish Re and the four new reinsurance treaties written by SALIC during 2000.
Commissions & excise taxes vary with premiums earned. Other insurance expenses include direct and indirect expenses of those departments involved in the marketing, underwriting and issuing of reinsurance agreements. Of these total expenses a portion is deferred and amortized over the life of the reinsurance treaty or in relation to the estimated gross profit in respect of our interest sensitive contracts.
In June 2000, SALIC entered into a joint venture with Crown Capital Investors, LLC, a Delaware limited liability company, to form Scottish Crown. SALIC paid $5.25 million for its share of Scottish Crown. Scottish Crown provides customized variable life and annuity insurance products to high net worth individuals and families. At December 31, 2000 Scottish Crown owned two Bermuda-licensed insurance companies, and had a 10-year exclusive distribution agreement with Crown World Services Ltd., a Bermuda company. The Minority interests share of this operation is shown separately on the Income Statement and Balance Sheet.
General Re--New England Asset Management, Inc. manage our investment portfolio. Our investment guidelines are designed to diversify the portfolio and maximize investment income while limiting risk in an asset-liability management context. At December 31, 2000, the portfolio had an average quality rating of "AA-," an average duration of 2.62 years and an average book yield of 7.24%. This compares with an average quality rating of "AA," an average duration of 2.87 years and an average book yield of 6.75% respectively at December 31, 1999. A realized loss of $0.2 million was recognized on investments during 2000 as compared to $2.6 million in 1999. At December 31, 2000 the portfolio had unrealized losses of $3.8 million net of tax as compared to $15.7 million at December 31, 1999, these unrealized losses are shown on the balance sheet as part of Shareholders' equity entitled Accumulated other comprehensive loss.
During 2000, we paid quarterly dividends totaling $3.2 million or $0.20 per share (1999--$2.7 million or $0.15 per share; 1998 $ nil).
Some of the statements contained in this report are not historical facts and are forward-looking within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results to differ materially from the forward-looking statements. When used, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "plan," "intend" and similar expressions identify forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: our ability to execute the business plan; changes in the general economic conditions including the performance of the financial markets and interest rates; changes in insurance regulations or taxes; changes in rating agency policy; the loss of key executives; trends in the insurance and reinsurance industries; government regulations; trends that may affect our financial condition or results of operations; and the declaration and payment of dividends.
Potential investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results may differ materially from those included within the forward- looking statements as a result of various factors. Factors that could cause or contribute to such differences include, but are not limited to, those described in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and under the heading "Risk Factors of Investing in our Ordinary Shares". We assume no obligation to update any forward-looking statement to reflect actual results or changes in or additions to the factors affecting such forward-looking statements.
The information called for by this item is set forth in "Item 14: Exhibits, Financial Statements and Reports on Form 8-K".