due to the acquisition of Paul Revere and a higher level of net claim resolutions. Management believes the substantial investment in the individual disability claims management process since the first quarter of 1995 helped produce the improvement that occurred in this line. The major elements of this investment include an emphasis on early intervention to better respond to the specific nature of the claims, increased specialization to properly adjudicate the increasingly specialized nature of disability claims, and an increased level of staffing with experienced claim adjusters. The individual life line of business produced income of $28.7 million in 1997, an increase of $4.6 million, or 19.1 percent, over the $24.1 million in 1996. The increase is the result of the acquisition of Paul Revere.
In 1997, revenue in the Other segment increased $15.4 million, or 2.0 percent, to $774.0 million from $758.6 million in 1996. This increase is primarily the result of the acquisition of Paul Revere, which added $150.4 million of revenue in 1997, including $119.1 million of revenue in the individual annuity line of business. This increase was partly offset by a decline in funds under management resulting from the discontinuation of the sale of products in the group pension line of business. Revenue in this line of business declined $107.8 million to $300.6 million in 1997 from $408.4 million in 1996. Revenue in the corporate-owned life insurance line of business increased by $9.0 million, or 4.5 percent, to $210.3 million in 1997 from $201.3 million in 1996, primarily due to increased net investment income.
The Company is subject to foreign exchange risk arising from its Canadian operations and certain Canadian-dollar denominated investment securities. Assuming a foreign exchange rate decrease of 10% from the December 31, 1998 level, the net hypothetical decrease in stockholders' equity is estimated to be $34.3 million at December 31, 1998. At December 31, 1998, there were no outstanding derivatives hedging the foreign currency risk.
Real Estate that the Company expects to hold and use is carried at cost less accumulated depreciation which is calculated using principally the straight- line method. Real estate to be disposed of is carried at the lower of cost less accumulated depreciation or fair value less cost to sell. Accumulated depreciation on real estate was $10.2 million and $23.3 million as of December 31, 1998 and 1997, respectively.
Value of Business Acquired: Value of business acquired represents the present value of future profits recorded in connection with the acquisition of a block of insurance policies. The asset is amortized based upon expected future premium income for traditional insurance policies and estimated future gross profits for interest-sensitive insurance policies, with the accrual of interest added to the unamortized balance at interest rates ranging from 5.55% to 7.60%. The Company periodically reviews the carrying amount of value of business acquired using the same methods used to evaluate deferred policy acquisition costs.
The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments:
Equity Securities: Fair values for equity securities are based on quoted market prices.
The Company uses interest rate swaps, interest rate forward contracts, exchange-traded interest rate futures contracts, and options to hedge interest rate risks and to match assets with its insurance liabilities.
option contract's strike price; otherwise, no cash payment will take place at expiration. At December 31, 1998, the outstanding notional amount of these options was $7.3 million, and the fair value and carrying amount were $4.2 million.
The majority of the net balances are related to disabled lives claims with long-tail payouts on which interest earned on assets backing liabilities is an integral part of pricing and reserving. Interest accrued on prior year
The Company is required to establish a valuation allowance for any portion of the deferred tax asset that management believes will not be realized. In the opinion of management, it is more likely than not that the Company will realize the benefit of the deferred tax asset and, therefore, no such valuation allowance has been established.
On February 28, 1997, the Company acquired GENEX Services, Inc. and GENEX Services of Canada, Inc. (GENEX) at a price of $70.0 million. GENEX is a provider of case management, vocational rehabilitation, and related services to corporations, third party administrators, and insurance companies. These services are utilized in the management of disability and worker's compensation cases. The acquisition, financed through borrowings on the Company's revolving credit facility, was accounted for by the purchase method. The fair values of the assets acquired and liabilities assumed were $17.9 million and $8.9 million, respectively. The purchase price has been allocated to goodwill and will be amortized on a straight-line basis over a 25 year period. The consolidated financial statements include the operating results of GENEX from March 1, 1997.
In December 1997, the Company entered into an agreement with American General Corporation (American General) under which various affiliates of American General agreed to acquire certain assets and assume certain liabilities of the Company's individual and tax-sheltered annuity business. In addition, American General acquired a number of miscellaneous group pension lines of business which were no longer actively marketed by the Company. The sale did not include the Company's Canadian annuity business, GICs, or group single premium annuities. The sale was completed during the second quarter of 1998.