Other income was derived from reinsurance related services providing an annual fee of $0.3 million. As the provision of these services began on January 1, 1997, there was no corresponding income in the year ended September 30, 1996.
During the year ended September 30, 1998, the Company modified its investment guidelines to allow the purchase of mortgage backed securities. In addition during the year ended September 30, 1998 the Company entered into a swap agreement to provide cash flow to a counterparty in the event of a defined earthquake activity in Japan. Receipts to the Company are accounted for as investment income and are based on a percentage of the notional amount of the swap. The contract exposes LaSalle Re to a maximum cash outflow of the original notional amount of $3.0 million should the defined earthquake event occur. In addition, the Company is exposed to credit loss in the event of nonperformance by the counter-party to the remittance of interest payments as required by the swap.
Changes in the minority interest of LaSalle Re as a result of the exchange of such shares for shares in the Company are recorded at historic cost by transferring an appropriate portion of the minority interest to the various components of shareholders' equity. The minority's share of income as recorded in the income statement is calculated using the minority's ownership percentage as at the balance sheet date. Minority interest as reported in the balance sheet represents the minority's current proportionate share of LaSalle Re and its subsidiaries' net assets.
All fixed interest securities and short term investments are considered as available for sale. The fair values are based on quoted market prices at the reporting date for those, or similar, investments. As at September 30, 1998 and 1997, the fair values and amortized cost of investments are as follows:
The following table summarizes the composition of the fair value of available for sale securities by ratings assigned by Standard & Poor's Ratings Services or Moody's Investors Services Inc. or, with respect to non-rated issues, as estimated by the Company's investment managers.
The Company applies APB Opinion 25 and Related Interpretations in accounting for the Incentive Plan. Accordingly, a compensation cost has been recognized based on the intrinsic value of the options at the measurement date. The net income and earnings per Common Share would have been reduced to the pro forma amounts indicated below had compensation cost been determined based on the fair value of the options at the grant date consistent with the method of SFAS No 123:
During the year ended September 30, 1998, LaSalle Re assumed premiums written of approximately $16,917 (1997: $21,408; 1996: $24,045) from a ceding company related to a shareholder of LaSalle Re. In addition, LaSalle Re assumed premiums totaling $27,190 (1997: $28,450; 1996: $23,577) through brokers related to a shareholder of LaSalle Re. Brokerage fees incurred in respect of this business were approximately $2,719 (1997: $2,845; 1996: $2,357). All such transactions were undertaken on normal commercial terms. Reinsurance balances receivable at the balance sheet date include $8,729 (1997: $13,481) due from such related parties.
Other than with respect to its Lloyd's business, the Company does not consider itself to be engaged in a trade or business in the United States and accordingly does not expect to be subject to United States income taxes. LaSalle Re Corporate Capital Ltd. is a corporate member of Lloyd's. Pursuant to a Closing Agreement between Lloyd's and the IRS, LaSalle Re Corporate Capital Ltd. will be treated as engaged in business in the U.S. and is subject to U.S. corporate income tax on its net income from U.S. sources.