The Company discusses its financial results by breaking out various levels of its income statement in order to present a better analysis of underlying trends. Core net income represents net income before the after-tax effects of refundings and prepayments, net realized capital gains and losses, the cost of equity-based compensation programs and other non-recurring adjustments. Core net income therefore represents the Company's normal operating results on a basis comparable to that of its industry peers. Operating net income is core net income plus the after-tax effect of refundings and prepayments. The distinction between core and operating net income is important because higher than normal volumes of refundings and prepayments disproportionately increase earned premiums and could suggest a stronger earnings trend than the pace of originations would warrant. Net income, as reported, is operating net income plus the after-tax effects of capital gains and losses, the cost of equity-based compensation programs and other non-recurring items, if any.
In international markets, business was particularly strong in Europe, where FSA guaranteed public-private partnership (PPP) financings in the United Kingdom, synthetic CDOs and other transactions. A large market has developed in Europe for synthetics, which tend to be large-scale, high-quality transactions that produce attractive returns. Financial institutions use synthetics both to restructure their portfolios to achieve optimal allocations of regulatory capital and to take advantage of arbitrage opportunities. In synthetic transactions, FSA guarantees payment obligations of counterparties under credit default swaps referencing asset portfolios. Synthetics do not rely on new issues of public securities and therefore represent a growing business area that is not dependent on bond market variables. During 2000, FSA insured $13.2 billion of international par, compared with $8.7 billion in 1999, to generate PV premiums of $109.3 million, compared with $133.8 million in 1999. In its international business, FSA focuses on Western Europe and on certain developed countries in the Asia Pacific region.
Interest expense in 1999 and 2000 was $16.6 million. For further discussion, see Liquidity and Capital Resources below.
FSA achieved exceptional results, as positive market trends created strong and broad-based demand for insured transactions. With solid contributions from its three core markets, FSA wrote insurance policies generating $517.2 million of gross PV premiums, 32.2% more than the $391.2 million in 1998. The annual par value of bonds insured by FSA rose just 1.9%, to $59.8 billion. The greater rise in PV premiums reflects an improved municipal pricing environment and a higher proportion of asset-backed and international transactions, which tend to have higher premiums than municipal bonds. The credit quality and return characteristics for the new business were extremely attractive.
The U.S. domiciled insurance subsidiaries file statutory-basis financial statements with state insurance departments in all states in which they are licensed. On January 1, 2001, significant changes to the statutory basis of accounting became effective. The cumulative effect of these changes, known as Codification guidance, will be recorded as a direct adjustment to statutory surplus. The effect of adoption is expected to be an approximate $50 million decrease to statutory surplus.
The Subsidiaries have an employee retirement savings plan for the benefit of all eligible employees. The plan permits employees to contribute a percentage of their salaries up to limits prescribed by IRS Code, Section 401(k). The Subsidiaries' contributions are discretionary, and none have been made.