Fremont provides insurance premium finance loans, primarily to small businesses, which finance property and casualty insurance premiums. These loans are collateralized by the unearned premiums of the underlying insurance policies. At December 31, 1999, the insurance premium finance loan portfolio totaled $65 million.
Through January 1, 1998 the Company maintained a small medical malpractice insurance operation within the property and casualty insurance segment. On January 1, 1998, the Company entered into reinsurance and assumption agreements with a reinsurer whereby substantially all of the assets and liabilities related to the medical malpractice policies were ceded to the reinsurer. These reinsurance agreements are part of several other agreements which collectively result in the sale of the Company's medical malpractice operation effective January 1, 1998. The effect on the Company's results of operations from these agreements was not material. Revenues from the medical malpractice operation were $32.6 million for 1997.
Also contributing to the Company's loss before taxes in 1999 was the recognition of $75 million in lower reinsurance recoverables on the 1998 and 1999 accident years pursuant to a settlement agreement entered into February 28, 2000 between the Company and Reliance under a reinsurance contract that was in effect from January 1, 1998 through December 31, 1999. Under the settlement agreement, the Company is to receive in excess of $100 million in cash and will no longer have any involvement with the Reliance workers'
Partially offsetting the 1999 increase in interest revenues were lower gains on the whole loan sales of residential real estate loans. Gains on whole loan sales were approximately $5.0 million, $29.7 million and $8.2 million for the years ended December 31, 1999, 1998 and 1997, respectively. Whole loan sales are cash transactions made without recourse to the Company or its subsidiaries. The lower whole loan sales resulted from an observed decrease in the price for the Company's residential real estate loans beginning in the second half of 1998. This condition was a consequence of market disruptions and an oversupply of loans available for sale which occurred during this same period. Rather than sell its loans at cash prices lower than what it believed was the economic benefit to be derived, the Company began a program to retain these benefits by either retaining the loans in its portfolio or by securitizing them. During 1999, Fremont sold $1.75 billion in residential real estate loans, comprised of $1.41 billion in loans sold in three securitizations and $343.5 million in whole loan sales to other financial institutions. In 1998 and 1997, residential real estate loan sales of $746.5 million and $162.8 million, respectively, were represented entirely by whole loan sales. For the year ended December 31, 1999, the Company has not recognized any gain on the residual interests retained from the three securitizations, since the value of the residual interests is subject to substantial credit, prepayment, and interest rate risks on the loans sold. While this reduces current period income, income may be recognized in future periods if the Company's original assumptions develop favorably. (See "Variability of Operating Results.") The Company's financial services loan disposition strategy will continue to include securitization in addition to whole loan sale and retaining loans in its portfolio, depending on market conditions, profitability and cash flows. (See "Residential Real Estate Loan Securitization" and Notes A and D of Notes to Consolidated Financial Statements.)
Variability of Operating Results. During periods when economic conditions are unfavorable, the Company's financial services businesses may not be able to originate new loan products or maintain the credit quality of its finance receivables, both in its portfolio and for those loans that have been securitized, at previously attained levels. This may result in increased levels of non-performing assets and net credit losses. Changes in market interest rates, or in the relationships between various interest rates could cause Fremont's interest margins to be reduced and may result in significant changes in the prepayment patterns of the Company's finance receivables. These risk factors could adversely affect the value of Fremont's loans and their related collateral, as well as, the valuation of the residual interests in the Company's securitized loans, both of which could adversely affect Fremont's results of operations and financial condition.
The amortized cost of Fremont's invested assets were $2.31 billion and $2.33 billion at December 31, 1999 and 1998, respectively. The modest decrease in invested assets is due mainly to a decrease in invested assets resulting from cash requirements within the Company's property and casualty insurance operation and payments under various incentive compensation plans, offset partially by the receipt of $131 million in cash from the December 1999 sale of the Company's commercial finance subsidiary.