Certain characteristics of the Company's crop business may affect comparisons, including: (i) the seasonal nature of the business whereby profits or losses are generally recognized predominately in the second half of the year; (ii) the nature of crop business whereby losses are known within a one year period; and (iii) the limited amount of investment income associated with crop business. In addition, cash flows from such business differ from cash flows from certain more traditional lines. See "Liquidity and Capital Resources" below. With the Company's increased emphasis on the crop segment, the seasonal and short term nature of the Company's crop business, as well as the impact on the crop business of weather and other natural perils, may produce more volatility in the Company's operating results on a quarter to quarter or year to year basis than has historically been the case.
During 1999 the Company earned a profit share of $40.1 million on its MPCI retained pool of approximately $246.1 million while in 1998 the Company earned a profit share of $49.1 million on $196.5 million retained premium pool. Also, in 1999 and 1998, the Company recorded additional profit share relating to previous years of approximately $.8 million and $4.0 million, respectively. The decreases in operating profits from $33.9 million in 1998 to $0.8 million in 1999 were primarily attributable to the decrease in reimbursement rate, increase in reinsurance costs, the higher operating costs and less profit share. The Company's net investment income declined from approximately $28.3 million for the year ended December 31, 1998 to $25.1 million for 1999. This decline in the investment income of the Company was affected by a decline in the size of the average outstanding portfolio of the Company from $498 million during the year ended December 31, 1998 to $473 million for 1999. In addition, the yield on the portfolio declined from 5.7% during the year ended December 31, 1998 to 5.3% for 1999. This decrease in yield primarily resulted from several of the Company's higher yielding preferred stock investments being called and a decrease in the Company's mortgage backed security portfolio. The mortgage backed securities were on average, $23 million less for 1999 versus 1998 as the Company reduced both the interest rate risk and the investment yield on its mortgage backed portfolio through the elimination of substantially all of its inverse floating rate collateralized mortgage obligations. Net realized gains approximated $10.2 million for the year ended December 31, 1999 as compared to $6.8 million 1998.
In December 1999, the Company received a $20 million surplus note payment from one of its insurance subsidiaries. The Company currently holds two surplus notes, each in the amount of $20 million, issued by two of its insurance company subsidiaries, bearing interest at the rate of 9% per annum payable quarterly. Although repayment of all or part of the principal of these surplus notes requires prior insurance department approval, no prior approval of interest payment is currently required.
The Company uses two models to analyze the sensitivity of its market risk assets and liabilities. For its fixed maturity securities, mortgage loans and mandatorily redeemable Preferred Securities, the Company uses duration modeling to calculate changes in fair value. For its marketable equity securities, the Company uses a hypothetical 20% decrease in the fair value of these securities. Actual results may differ from the hypothetical results assumed in this disclosure due to possible actions taken by management to mitigate adverse changes in fair value and because fair values of securities may be affected by credit concerns of the issuer, prepayment speeds, liquidity of the security and other general market conditions. The sensitivity analysis duration model used by the Company produces a loss in fair value of $13.6 million on its fixed maturity securities and mortgage loans and a gain in fair value of $6.3 million on its mandatorily redeemable Preferred Securities, based on a 100 basis point increase in interest rates. The hypothetical 20% decrease in fair value of the Company's marketable equity securities produces a loss in fair value of $5.0 million.