(xiii) Adverse litigation results and/or resolution of litigation and/or arbitration or investigation results.
Interest expense on debt increased 23% in 2004 compared to 2003 due to the issuance of a $100.0 million surplus note to NFS in December 2003, increased utilization of commercial paper in 2004 and 2003, and interest on short-term borrowings related to a consolidated variable interest entity during 2004. The 34% increase in interest expense in 2003 compared to 2002 was due to the $300.0 million surplus note issued to NFS in June 2002 and the increased utilization of commercial paper during 2003.
Sales generated by life insurance specialists decreased 1% in 2004 compared to 2003. The decline in sales during 2004 was driven largely by the slow growth in new corporate-owned life insurance (COLI) sales due to the unfavorable environment for COLI and executive deferred compensation programs affecting the creation of new plans and sales, partially offset by increased renewal premium from the funding of existing COLI cases. Increased renewal premium from COLI cases can be attributed to continued improvement in the market environment and increased participant deferrals in existing executive deferred compensation plans. Sales through this channel declined 24% in 2003 compared to 2002 due to the unfavorable environment for COLI and executive deferred compensation programs. The sluggish equity markets, the weak economy, unfavorable press regarding COLI and executive deferred compensation plans, and proposed legislation which could adversely impact the tax benefits of COLI all negatively impacted sales and new business opportunities.
Sales through TBG Financial increased 14% in 2004 compared to 2003, due to higher renewal premiums from the funding of existing executive deferred compensation plans. Sales increased by 10% in 2003 compared to 2002, primarily due to the sale of a single large case, partially offset by a decline in sales due to the unfavorable environment for COLI and executive deferred compensation plans.
Interest spread income grew 18% in 2004 to $273.4 million from $231.0 million a year ago, while growth was 16% during 2003 compared to 2002. The growth was driven by a $10.6 million increase in prepayment income on mortgage loans and bond call premiums in 2004, due to reductions in crediting rates over the last several quarters. Higher average general account values also contributed to the increase. These factors more than offset decreased customer allocations to the guaranteed fixed options of individual variable annuities. Allocations to the guaranteed fixed option related to new domestic individual variable annuity sales during 2004 totaled 22%, compared to 39% for 2003 and 43% for 2002.
Net investment income increased to $327.2 million in 2004 compared to $324.3 million in 2003, which was a slight decrease from 2002. The increase in 2004 was due to growth in the universal life insurance business.
The Corporate and Other segment includes certain structured products business, the MTN program, net investment income not allocated to product segments, periodic net coupon settlements on non-qualifying derivatives, unallocated expenses, interest expense on debt, revenue and expenses of the Company’s non-insurance subsidiaries not reported in other segments, and realized gains and losses related to securitizations. This segment differs from the former Corporate segment as it now includes results from the structured products and MTN businesses, but no longer includes results from the advisory services program.