Under accounting principles generally accepted in the United States of America ("GAAP"), premium and deposit collections for variable life, universal life and annuity products are not recorded as revenues but are instead reflected on the balance sheet as an increase in separate account liabilities (in the case of certain investment options of variable products) or in policy liabilities and accruals (in the case of other products) or policyholder deposit funds (in the case of fixed annuities and certain investment options of variable annuities).
Net investment income increased 18% in 2000 primarily due to the increase in Venture Capital net investment income of $137.4 million due to favorable returns in stock market performance in the technology sector in the first nine months of 2000. Also, average invested assets, excluding venture capital partnerships, were $11,696.3 million in 2000, an increase of $393.3 million, or 3%, from $11,303.0 million in 1999. The yield on average invested assets, excluding venture capital partnerships, was relatively consistent over each period.
(10) Represents expenses related to the purchase of the PXP minority interest including: PXP's accrual of non-recurring compensation expenses of $57.0 million to cash out stock options, $5.5 million of related compensation costs, non-recurring retention costs of $19.7 million, and non-recurring transaction costs of $3.9 million. Income taxes of $33.3 million were calculated using an effective tax rate of 38.8%.
For the Year Ended December 31, ---------------------------------------------- 1999 2000 2001 -------------- ------------ ------------ (in millions) Operating Results: Revenues: --------- Premiums......................................... $1,175.7 $1,147.4 $1,112.7 Insurance and investment product fees............ 277.7 302.7 303.8 Net investment income............................ 768.3 791.4 890.9 -------------- ------------ ------------ Total revenues............................ 2,221.7 2,241.5 2,307.4 -------------- ------------ ------------ Benefits and expenses: ---------------------- Policy benefits and dividends.................... 1,723.6 1,775.8 1,797.2 Amortization of deferred policy acquisition costs............................. 147.9 137.8 133.0 Other operating expenses......................... 278.0 297.7 293.4 -------------- ------------ ------------ Total benefits and expenses................ 2,149.5 2,211.3 2,223.6 -------------- ------------ ------------ Operating income before income taxes............. 72.2 30.2 83.8 Income tax expense............................... 25.5 10.6 29.4 Minority interest in net income of consolidated subsidiaries.................. -- -- .3 -------------- ------------ ------------ Segment after-tax operating income............... 46.7 19.6 54.1 -------------- ------------ ------------ After-tax adjustments: ---------------------- Net realized investment (losses) gains......... 10.3 (15.8) (19.8) Deferred policy acquisition costs adjustment... -- (141.8) -- -------------- ------------ ------------ Total after-tax adjustments...................... 10.3 (157.6) (19.8) -------------- ------------ ------------ GAAP reported income (loss): ---------------------------- Income (loss) from continuing operations.... $ 57.0 $(138.0) $ 34.3 ============== ============ ============
The decrease in premiums of 2% and 3% in 2000 and 2001, respectively was primarily due to whole life premiums which decreased $17.1 million and $24.8 million in 2000 and 2001. The declines reflect the shift to variable products, for which revenues are recognized through insurance and investment product fees. There were also decreases in both 2001 and 2000 due to the runoff of the Confederation Life whole life business.
The decrease in net investment income of 131% in 2001 was primarily driven by stock market performance in the technology sector, which produced very favorable returns in 2000 but suffered significant declines during 2001. The increase in net investment income of 98% in 2000 was primarily driven by stock market performance in the technology sector in the first nine months of 2000.
The decrease in insurance and investment product fees of 55% in 2001 was primarily due to the decision to exit our physician practice management business in the third quarter of 2000. The decrease of 33% in 2000 was primarily due to the sale of our property and casualty distribution subsidiary in May 1999.
Cash flows relating to, and the profitability of, our life insurance and annuity businesses are sensitive to interest rate changes. In periods of increasing interest rates, life insurance policy loans and surrenders and withdrawals may increase, as policyholders seek investments with higher perceived returns. This process could result in cash outflows requiring us to sell invested assets at a time when the prices of those assets are adversely affected by the increase in market interest rates, which could cause us to suffer realized investment losses.
Our primary uses of liquidity include the payment of dividends on our common stock, loans or contributions to our subsidiaries, debt service and the funding of our general corporate expenses.
(1) Data are reported on a statutory basis, which more accurately reflects the potential cash outflows. Data include variable product liabilities. Annuity contract reserves and deposit fund liabilities are monetary amounts that an insurer must have available to provide for future obligations with respect to its annuities and deposit funds. These are liabilities on the balance sheet of financial statements prepared in conformity with statutory accounting practices. These amounts are at least equal to the values available to be withdrawn by policyholders.
PXP's liquidity requirements are primarily to fund operating expenses and pay outstanding debt. PXP also will require liquidity to fund the costs of acquisitions or any contingent payments for previous acquisitions. Historically, PXP's principal source of liquidity has been cash flows from operations. We expect that cash flow from operations will continue to be PXP's principal source of working capital for the foreseeable future. PXP, together with us and Phoenix Life, has entered into a master credit facility. Under this facility, PXP has direct borrowing rights, subject to our unconditional guarantee. See "--Debt Financing-- Master Credit Facility." We believe that PXP's current and anticipated sources of liquidity are adequate to meet its present and anticipated needs.