Our profitability depends in large part upon the amount of assets under our management, investment spreads we earn on our policyholder account balances, our ability to manage our investment portfolio to maximize returns and minimize risks such as interest rate changes, defaults or impairment of assets, our ability to manage interest rates credited to policyholders and costs of the options purchased to fund the annual index credits on our index annuities, our ability to manage the costs of acquiring new business (principally commissions to agents and first year bonuses credited to policyholders) and our ability to manage our operating expenses.
Mortgage and asset-backed securities: At December 31, 2007, we had no exposure to subprime mortgage-backed securities and limited exposure to "Alt-A" mortgage-backed securities. All securities we own are in the highest rated tranche of the pool in which they are structured and are not subordinated to any other tranche in the pool. Our "Alt-A" mortgage-backed securities are comprised of 16 securities with a total fair value of $184.3 million with agency ratings of Aaa, of which 58% is in Aaa super senior tranches and the remainder is in Aaa tranches. The unrealized losses on mortgage
Increases in the cost of commodity raw ingredients along with non-recurring write-offs related to the refinancing of debt and improper accounting treatments decreased this consumer staple company's capital during 2007. We have determined an other than temporary impairment was not necessary as the company's liquidity has improved due to new credit facilities, proceeds from the sale of one plant used to pay down debt and the intended sale of another plant.
We took write downs on certain securities that we concluded had an other than temporary impairment during 2007, 2006 and 2005 of $4.4 million, $1.3 million and $9.5 million, respectively. We also realized losses on the sale of certain securities during 2007, 2006 and 2005 of $0.7 million, $3.2 million and $3.6 million, respectively. The following is a discussion of each security for which we have taken write downs or sold at a material loss during the years ended December 31, 2007, 2006 and 2005. The discussion excludes securities sold at a loss which were deemed immaterial.
Net investment income increased 6% to $719.9 million in 2007 and 22% to $677.6 million in 2006 from $554.1 million in 2005. These increases were principally attributable to the growth in our annuity
The conversion option embedded within our contingent convertible senior notes was required to be bifurcated and recorded at fair value in accordance with SFAS 133 beginning December 15, 2005 due to an insufficient number of authorized shares. See notes 1 and 7 to our audited consolidated financial statements. Effective June 8, 2006, this conversion option is no longer required to be bifurcated and recorded at fair value upon shareholder approval of an increase of authorized shares. The changes in the fair value of the conversion option embedded within these notes for the years ended December 31, 2006 and 2005 coincide with the changes in the per share price of our common stock during the periods of time during 2006 and 2005 that the conversion option was required to be bifurcated.