The Company occupies approximately 547,000 square feet of office space in Columbia, South Carolina. The buildings are located on approximately 47 acres with a portion developed for employee parking.
Subsequent to the merger, the Company also completed a review of the methodology and assumptions used for the capitalization and amortization of the costs of acquiring new business. The result of the review was immaterial and was reflected in 1999 operating earnings, which were increased approximately $8.0 million during 1999 to reflect the application of the revised estimate. The change in estimate was applied to amounts capitalized in 1999 and will be applied to future years to reflect the combined entity's practices and pricing assumptions. There was not a need to adjust amounts capitalized in years prior to 1999, as those amounts are believed to be recoverable from the related policies. A key element in the ability to recover amounts capitalized in prior periods is the persistency of the business. The Company monitors persistency and reflects adverse changes in persistency in the current year's amortization of deferred acquisition costs. Actual persistency experienced during the fourth quarter of 1999 for group disability and group life compared unfavorably to the persistency expected, resulting in additional amortization of $5.2 million during 1999. It is expected that persistency in 2000 will continue to be lower than historical levels for group disability as well as group life, which will unfavorably impact the level of amortization during 2000.
Group disability revenue increased to $2,632.1 million in 1998 compared to $2,245.1 million in 1997 primarily due to the increase in premium income. Premium growth during 1998 for group long-term disability was driven by favorable persistency, prior period sales, and strong new annualized sales, which were $441.7 million in 1998 compared to $374.7 million in 1997. New annualized sales for group short-term disability increased 30.4 percent to $176.2 million in 1998 as compared to $135.1 million in 1997. This growth reflected management's continuing efforts to cross-sell group short-term disability products with other employee benefits products, as well as increasing large case sales.
At December 31, 1999 and 1998, impaired loans totaled $18.1 million and $20.7 million, respectively. Included in the impaired loans at December 31, 1999 were $6.6 million of loans which had a related, specific allowance for probable losses of $2.4 million and $11.5 million of loans which had no related, specific allowance for probable losses. Impaired mortgage loans are not expected to have a material impact on the Company's liquidity, financial position, or results of operations.
The Company values its available-for-sale fixed maturity and equity securities at fair value, with unrealized holding gains and losses reported as a component of comprehensive income (loss). Companies are required to also adjust deferred acquisition costs and/or certain policyholder liabilities to reflect the changes that would have been necessary if the unrealized investment gains and losses related to the available-for-sale securities had been realized. Prior to the merger, Unum adjusted policyholder liabilities and Provident adjusted deferred policy acquisition costs (DPAC) and value of business acquired (VOBA) for those products where these assets existed. To present financial information in a common reporting format, management has determined that the combined entity will adjust policyholder liabilities rather than DPAC and VOBA. Prior period financial statements have been restated to reflect this reclassification. The reclassification did not change other comprehensive income (loss), accumulated other comprehensive income (loss), or fixed maturity and equity securities. The reclassification reflected in the December 31, 1998 consolidated statement of financial condition resulted in an increase of $329.7 million in DPAC, $1.5 million in VOBA, and, $331.2 million in reserves for future policy and contract benefits. Certain additional reclassification adjustments have been made to conform the companies' presentations in the consolidated financial statements.
If the hedged item matures or terminates earlier than anticipated, the remaining unamortized gain or loss is amortized to net investment income or policyholder benefits in the current period. If the hedged asset is disposed, the remaining unamortized gain or loss is recognized as an adjustment to net realized investment gains and losses. Gains or losses realized on interest rate swap agreements which are terminated when the hedged assets are sold or which are terminated because the hedged anticipated transaction is no longer likely to occur are reported in the consolidated statements of operations as a component of net realized investment gains and losses.
Liabilities for Restructuring Activities: Liabilities for restructuring activities are recorded when management, prior to the balance sheet date, commits to execute an exit plan that will result in the incurral of costs that have no future economic benefit or approves a plan of termination and communicates sufficient detail of the plan to employees. Liabilities for restructuring activities are included in other liabilities in the consolidated statements of financial condition.
number of outstanding claims. Because of the long elimination periods, generally 90 to 180 days or longer, the development of the factors must cover a period of sufficient length to mitigate the effects of random fluctuations and to establish the presence of trends. Recent trends indicate an increase in new claim rates which results in an increase in the estimate of outstanding claims. Another item affecting this liability is the estimate of the average cost of each outstanding claim. The lengthening of time a claimant receives monthly benefits resulting from the factors noted above also results in an increase in the estimate of the average cost of each claim.
Mortgage Loans: Fair values for mortgage loans are estimated using discounted cash flow analyses, using interest rates currently being offered for similar mortgage loans to borrowers with similar credit ratings and maturities. Mortgage loans with similar characteristics are aggregated for purposes of the calculations.
Long-term Debt and Company-Obligated Mandatorily Redeemable Preferred Securities: Fair values for long-term debt and company-obligated mandatorily redeemable preferred securities were obtained from independent pricing services or discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements.
In 1999, the Company entered into a foreign currency interest rate swap to hedge its currency risk in Japan. The notional amount of this swap is $8.2 million and is scheduled for termination in 2000. The unrealized loss on this swap at December 31, 1999 was immaterial. Additionally, the Company entered into a foreign currency interest rate swap to hedge the currency risk of certain foreign currency denominated fixed income securities purchased in 1999. The notional amount outstanding for this currency hedge was $12.3 million, and the hedge is scheduled for termination in 2006. The unrealized gain on this swap at December 31, 1999 was immaterial.
Gains or losses on termination of these forwards and futures are deferred and reported as an adjustment of the carrying amount of the hedged asset or liability and amortized into earnings over the lives of the hedged items. The net deferred gain associated with this activity was $26.7 million and $28.9 million at December 31, 1999 and 1998, respectively.
Provision for Losses on Lloyd's of London Syndicate Participations--The periodic method of accounting is followed for Lloyd's syndicate participation, which requires the premiums be recognized as revenue over the policy term and claims, including the estimate of claims incurred but not reported, to be recognized as incurred. During the first quarter of 1999, the Company received more information about the Lloyd's market from various sources, including managing agents/underwriters syndicate reports and published information from Moody's Investors Service. The information received indicated significant deterioration in the loss experience of open years of account primarily related to significant losses in certain syndicates (space and aviation, accident and health, and other non-marine classes of business) and continued pressure on the pricing of insurance coverage provided by the Lloyd's market. In addition, the Company discussed projected results of the Lloyd's market with the underwriters of the syndicates that are managed through a subsidiary of the Company. These projected results also indicated future deterioration of the open years of account. Using this information and recent experience with prior revisions of estimated losses in this business, the Company performed a review of its claim reserve liabilities related to its open years of account.
In certain reinsurance pools associated with the Company's reinsurance businesses there are disputes among the pool members and reinsurance participants concerning the scope of their obligations and liabilities