Contract interest including equity-indexed products also encompasses the performance of the derivative component of the Company's equity-indexed products. As previously noted, the market performance of these derivative features resulted in net realized and unrealized gains of $16.6 million and $45.3 million in 2010 and 2009, respectively, and net realized and unrealized losses of $65.7 million in 2008. Contract interest in 2010 also includes $16.7 million of policy credits added in conjunction with the settlement of a class action lawsuit. See additional comments in “Other Operating Expenses” below.
Fixed-indexed products are more attractive for consumers when interest rate levels remain low and equity markets produce positive returns. Since the Company does not offer variable products or mutual funds, fixed-indexed products provide an important alternative to the Company's existing fixed interest rate annuity products. Fixed-indexed annuity deposits as a percentage of total annuity deposits were 63%, 58% and 69% for the years ended December 31, 2010, 2009 and 2008, respectively. The recovery in equity markets that began during 2009 did not manifest itself in terms of increased fixed-indexed sales until the latter part of 2009. Consequently, while 2010 total collected annuity deposits increased 71% over the level in 2009, fixed-indexed sales increased by 84% during the same time period. Other deferred annuity deposits increased 57% in 2010 compared to 2009.
Annuity contract interest includes the equity component return associated with the call options purchased to hedge the Company's fixed-indexed annuities. The detail of fixed-indexed annuity contract interest as compared to contract interest for all other annuities is as follows:
During the twelve months ended December 31, 2010 the Company recorded other-than-temporary impairment credit related write-downs on debt securities totaling $0.7 million and $0.1 million on equity securities. See Note 3, Investments Debt and Equity Securities, of the accompanying consolidated financial statements for further discussion.
The Company recognized valuation losses of $0.4 million, $1.4 million and $1.0 million for the years ended December 31, 2010, 2009 and 2008, respectively. The principle balance requiring the valuation allowance was $7.0 million, $9.2 million and $9.2 million in 2010, 2009, and 2008, respectively. The amount of interest recorded while these loans were impaired was $0.1 million, $0.3 million and $0.5 million in 2010, 2009, and 2008, respectively. The impairments were based on information which indicated that the Company may not collect all amounts in accordance with the mortgage agreement. While the Company closely monitors its mortgage loan portfolio, future changes in economic conditions can result in impairments beyond those currently identified.
A decline in interest rates could cause certain mortgage-backed securities in the Company’s portfolio to be more likely to paydown or prepay. In this situation, the Company typically will be unable to reinvest the proceeds at comparable yields. Lower interest rates will likely also cause lower net investment income, subject the Company to reinvestment rates risks, and possibly reduce profitability through reduced interest rate margins associated with products with minimum guaranteed crediting rates. Alternatively, the fair value of the Company’s investment portfolio will increase when interest rates decline.
On April 9, 2009 the FASB issued new guidance to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. It was effective for the Company as of June 30, 2009 and did not have a significant impact on the consolidated financial position or results of operations. See Note 14, Fair Values of Financial Instruments, of the accompanying consolidated financial statements for additional disclosures.