Our adjusted net operating income for 2000 included the following items: $7.3 million of after-tax earnings on the cash balances which were distributed to our former members in connection with our demutualization in September 2000, non-recurring costs of $1.5 million, after-tax, related to AMHC, our predecessor, and a $1.6 million reduction due to our equity investment in IL Group. The loss on this equity investment in IL Group occurred in the third quarter of 2000. Adjusting for these factors would have reduced
Underwriting, acquisition and other expenses were $69.0 million in 2001 compared to $51.5 million in 2000 and $57.8 million in 1999. The acquisition of ILICO in the second quarter of 2001 increased expenses approximately $19.5 million in 2001. Excluding the impact of the ILICO acquisition, underwriting, acquisition and other expenses decreased $2.0 million in 2001 as compared to 2000 and $6.3 million in 2000 as compared to 1999. The 2001 decrease in expenses, exclusive of the impact of ILICO, was primarily due to increased reinsurance commission and expense allowances in 2001 which were partially offset by general compensation increases, depreciation on the new life insurance administrative system and distribution system enhancements. Expenses declined in 2000 as compared to 1999. This was primarily due to the increased technology costs incurred in 1999 related to the Year 2000 Compliance Project and the enhancement of distribution systems.
Non-core realized/unrealized gains (losses) on investments were a loss amounting to $99.3 million in 2001 compared to losses of $11.7 million in 2000 and $12.3 million in 1999. The significant change in 2001 was primarily driven by our adoption of SFAS No. 133 "Accounting for Certain Derivative Instruments and Hedging Activities." In accordance with this statement, we adjusted our options to market value, which, due to the economic environment, resulted in an unrealized loss of $54.2 million in 2001. We use options to hedge our equity-indexed annuity products. In addition, we also have trading securities that back our total return strategy fixed annuity products. The market value adjustment on the trading securities resulted in a loss of $5.9 million in 2001. The majority of the unrealized gains and losses on the options and trading securities are offset by similar adjustments to the option portion of the equity-indexed annuity reserves and to the total return strategy annuity reserves. The reserve adjustments are reflected in the policyowner benefits line of the consolidated statements of income and are explained in the following paragraph. The remainder of the 2001 realized and unrealized gains and losses on investments of $39.2 million consisted primarily of writedowns on investments mainly related to telecommunications and emerging markets investments, during 2001. The level of realized gains and losses will fluctuate from period to period depending on the prevailing interest rate and economic environment and the timing of investment sales.
The fair value change in options embedded within our equity-indexed products and the fair value changes on our total return strategy fixed annuity contracts was a $52.7 million decrease in reserve balances. These fair value changes are being recorded in accordance with SFAS No. 133, which we adopted January 1, 2001. As previously discussed, these fair value changes are offset by similar adjustments and unrealized gains
Restructuring costs relate to our consolidation of various functions in connection with a restructuring of our life insurance and annuity operations, which began in the third quarter of 2001. The objective of the restructuring plan is to eliminate duplicative life insurance, annuity and general administrative functions for all business units. The elimination of duplicative functions will reduce on-going operating costs. General administrative functions will be transitioned so they are performed primarily in Des Moines. Life insurance processes will be transitioned so they are performed primarily in Des Moines and Indianapolis and annuity functions will be transitioned to Topeka. The restructuring charges to date included severance and termination benefits of $6.8 million related to the elimination of approximately 80 positions and other costs of $1.8 million. Actual pre-tax costs totaling $6.5 million have been expended and an accrual for severance and termination benefits not yet paid amounted to $2.1 million at December 31, 2001. Additional activities will primarily involve relocation or severance benefits for affected employees and various administrative, financial and actuarial system conversion costs. System conversion costs will be expensed as incurred and are expected to primarily be completed by the fourth quarter of 2003.
The following table summarizes invested assets by asset category as of December 31, 2001 and 2000:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. The following are considered our critical accounting policies due to their subjective nature and significance to the financial statements.