A portion of the costs of acquiring new business, such as commissions, certain internal expenses related to our policy issuance and underwriting departments and other variable selling expenses are capitalized. The resulting deferred acquisition costs asset is amortized over future periods based on our expectations as to the emergence of future gross profits from the underlying contracts. These costs are dependent on the structure, size and type of business written. For certain products, we may retrospectively adjust our amortization when we revise our estimate of current or future gross profits to be realized. The effects of this adjustment are reflected in earnings in the period in which we revise our estimate. Acquisition costs also include letter of credit costs.
o our ability to manage our assets and liabilities to manage investment and liquidity risk; and
During 2004, realized losses amounted to $8.3 million in comparison with realized losses of $4.4 million in 2003. Included in 2004 realized losses is $2.2 million resulting from the mark to market of an interest rate swap not designated as a hedge which was entered into in relation to certain of our investment assets not supporting reinsurance liabilities. In 2004, we recognized losses of $9.9 million in respect of impairments on the portfolio controlled by us compared to $6.3 million in 2003.
Total benefits and expenses increased by 46% to $758.9 million in 2004 from $518.3 million in 2003. The increase was due to the acquisition of Scottish Re Life Corporation, continued growth in our Life Reinsurance North America Segment, additional operating costs required to meet the growth in our business, additional operating costs necessary to meet the requirements of the Sarbanes-Oxley Act of 2002, costs relating to due diligence activities and additional interest expense arising from the HyCU offering and trust preferred debt offerings in the fourth quarter of 2003 and the second quarter of 2004.
During 2004, acquisition costs and other insurance expenses decreased by $12.1 million or 41% to $17.6 million from $29.7 million in 2003. Acquisition costs related to a specific portfolio were $2.3 million lower in 2004 than 2003 due to the run-off nature of the portfolio. Acquisition costs include the amortization of the present value of in-force business. This was $1.8 million lower in 2004 compared to 2003 primarily due to the sale of the unit linked business in 2003. In 2004 we recognized profit commission income of $1.8 million arising from a run-off book of
In the table below are the total returns earned by our portfolio in 2005, compared to the returns earned by three indices: the Lehman Brothers Global Bond Index, the S&P 500 and a customized index that we developed to take into account our investment guidelines. We believe that this customized index is a more relevant benchmark for our portfolio's performance.
assets into a reserve credit trust with a U.S. bank or issue a letter of credit in order that the ceding company may obtain reserve credit for the reinsurance transaction;
Assets placed in trust continue to be owned by us, but their use is restricted based on terms of the trust agreements. We have a number of facilities in place to provide the collateral required for our reinsurance business. See Note 8 of the Consolidated Financial Statements.
Failure to comply with the requirements of the credit facilities would, subject to grace periods, result in an event of default and we would be required to repay any outstanding borrowings. At December 31, 2005, we and Scottish Annuity & Life Insurance Company (Cayman) Ltd. were in compliance with the financial covenants noted in the preceding paragraphs.
In 2004, we entered into a collateral finance facility with HSBC Bank USA, N.A. ("HSBC I"). This facility provides $200.0 million that can be used to collateralize reinsurance obligations under intercompany reinsurance agreements. Simultaneously, we entered into a total return swap with HSBC Bank USA, N.A. under which we are entitled to the total return of the investment portfolio of the trust established for this facility. In accordance with FIN 46R, the trust is considered to be a variable interest entity and we are deemed to hold the primary beneficial interest in the trust. As a result, the trust has been consolidated in these financial statements. The assets of the trust have been recorded as fixed maturity investments. Our consolidated statements of income show the investment return of the trust as investment income and the cost of the facility is reflected in collateral finance facilities expense. The creditors of the trust have no recourse against our general assets.
Scottish Re Group Limited and Scottish Annuity & Life Insurance Company (Cayman) Ltd. have executed similar agreements for Scottish Re (Dublin) Limited and Scottish Re Life (Bermuda) Limited and may, from time to time, execute additional agreements guaranteeing the performance and/or obligations of their subsidiaries.
Statutory dividends limitations are outlined in Note 15 to the Consolidated Financial Statements.