The Company's consolidated net income increased $38.1 million or 24% in 1998 when compared to the year ended December 31, 1997, reflecting improved results in both the Employee Benefits segment and the Financial Services segment. The Employee Benefits segment contributed $8.8 million or 23% to the improved consolidated results compared to the Financial Services segment which contributed $29.3 million or 77% to the overall improvement. Of total consolidated net income in 1998 and 1997, the Employee Benefits segment contributed 54% and 62%, respectively, while the Financial Services segment contributed 46% and 38%, respectively.
Fee income increased $8.6 million or 14%, from $62.4 million in 1997 to $71.0 million in 1998. Fee income increased $36.1 million or 137%, from $26.3 million in 1996 to $62.4 million in 1997. The growth in fee income in 1998 and 1997 was the result of new sales and increased fees on variable funds related to growth in equity markets.
During 1996, the U.S. Congress enacted legislation to phase out during 1997 and 1998 the tax deductibility of interest on policy loans on COLI products. Since then, renewal premiums and deposits for COLI products have decreased to $179.8 million in 1998 from $299.8 million in 1997 and $384.2 million in 1996, and the Company expects this decline to continue. As a result of these legislative changes, the Company has shifted its emphasis from COLI to new sales in the BOLI market. This product provides long-term benefits for bank employees and was not affected by the 1996 legislative changes. BOLI premiums and deposits were $430.7 million during 1998, compared to $179.3 million in 1997. The Company continues working closely with existing COLI customers to determine the options available to them and is confident that the effect of the legislative changes will not be material to the Company's operations.
Consolidated Financial Statements for the Years Ended December 31, 1998, 1997, and 1996 and Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of Great-West Life & Annuity Insurance Company (an indirect wholly-owned subsidiary of The Great-West Life Assurance Company) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
Organization - Great-West Life & Annuity Insurance Company (the Company) is an indirect wholly-owned subsidiary of The Great-West Life Assurance Company (the Parent Corporation). The Company is an insurance company domiciled in the State of Colorado. The Company offers a wide range of life insurance, health insurance, and retirement and investment products to individuals, businesses, and other private and public organizations throughout the United States.
The 1997 and 1996 releases were recorded in revenues in the Company's prior financial statements, but have been reclassified in the accompanying consolidated financial statements as a component of the current income tax provisions for those years.
Other comprehensive income at December 31, 1998 is summarized as follows:
The following table summarizes the status of, and changes in, Lifeco options outstanding and the weighted-average exercise price (WAEP) for the years ended December 31. As the options granted relate to Canadian stock, the values, which are presented in U.S. dollars, will fluctuate as a result of exchange rate fluctuations: