•Finally, we discuss critical accounting policies and recently issued accounting standards. The critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult or complex judgment.
•Collected annuity premium decreased to $182.3 million during 2020, compared to $252.0 million collected during 2019. These decreases were attributable to COVID-19 through fewer sales opportunities, decreased interest crediting rates and economic uncertainty.
(5)Annualized average crediting rates consist of annualized interest credited and index credits applied to policyholders during the reporting period, along with amortization of call option costs and proceeds from sales or maturing call options associated with the call options that back our indexed products as a percentage of the simple average of policyholder account values as of the beginning of the reporting period and end of the reporting period, adjusted for interest credited during the period. Annualized average crediting rates along with annualized average investment yields provides a view of spread margin earned on the underlying products.
(6)Average aggregate individual annuity account value is a measure used to monitor business growth in our individual fixed and indexed annuity product lines and is calculated using a simple average of policyholder account values as of the beginning and end of the reporting period.
(9)Life insurance lapse and surrender rate represents the face amount of policyholder lapses and surrenders, incurred during the reporting period, as a percent of the simple average of related insurance in force at the beginning and end of the reporting period. The life insurance lapse and surrender rate is a measure of customer retention.
Pre-tax adjusted operating income for the Annuity segment increased in 2020, compared to 2019, primarily due to the impact of unlocking actuarial assumptions and a decrease in other underwriting expenses, partially offset by lower spread income earned. Pre-tax adjusted operating income decreased in 2019, compared to 2018, primarily due to lower spread income earned and the impact of unlocking actuarial assumptions.
Death benefits, net of reinsurance and reserves released, vary from year-to-year due to changes in claim counts and average claim size. In 2020, death benefits in the Corporate and Other segment include COVID-19 related claims, net of reinsurance and reserves released, totaling $2.4 million.
Other income and other expenses include fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries, including wealth management services, advisory, management and leasing activities. Other income and other expenses increased in 2020 and 2019, compared to the prior year periods, primarily due to expanding our wealth management business. The expansion of our wealth management business has increased administrative costs along with the costs of implementing a new delivery platform to allow for additional product offerings and an enhanced customer experience. Revenues associated with our wealth management expansion have increased modestly as we continue to expand this business increasing to $4.6 million in 2020 compared to $2.2 million in 2019 and $0.5 million in 2018. Expenses, including commissions, associated with our wealth management expansion have increased to $11.1 million during 2020 compared to $7.1 million in 2019 and $3.4 million in 2018. In 2018, we offered a voluntary early retirement program to certain employees resulting in a $1.1 million increase in other expenses in the Corporate and Other segment.
Our exposure to interest rate risk stems from both the longevity of our life block and the interest rate sensitivity of our annuity products. We actively manage the projected cash flows, duration and key rate duration of these assets and liabilities by minimizing the difference between them. While it can be difficult to maintain asset and liability durations that are perfectly matched in a dynamic environment, we have identified various strategies that can be implemented if effective duration or key rate duration mismatches exceed acceptable tolerances.
•The amortization of deferred acquisition costs on our variable business can fluctuate with changes in the performance of the underlying separate accounts. See the Corporate and Other Segment discussion above for additional discussion of this amortization.
Parent company cash inflows from operations consist primarily of fees that it charges various subsidiaries and affiliates for management of their operations, expense reimbursements and tax settlements from subsidiaries and affiliates, investment income and dividends from subsidiaries, if declared and paid. Revenue sources for the parent company during 2020 included management fees from subsidiaries and affiliates totaling $7.9 million and dividends of $98.5 million. Cash outflows are principally for salaries, taxes and other expenses related to providing management services, dividends on outstanding stock, stock repurchases and interest on our parent company debt.
Deferred acquisition costs amortization based on estimated gross profits or estimated gross margins
(1)Includes $1.7 million and $2.5 million as of December 31, 2020 and December 31, 2019, respectively, of net unrealized gains on impaired fixed maturities related to changes in fair value subsequent to the impairment date, which are included in AOCI.
Corporate securities: The largest unrealized losses were in the energy sector ($23.5 million fair value and $1.7 million unrealized loss) and in the consumer non-cyclical sector ($6.0 million fair value and $0.9 million unrealized loss). The majority of losses were attributable to credit spread widening across the energy sector associated with the decline in crude oil prices. Energy-related companies have been negatively impacted by the decline in oil prices due to a decrease in demand brought on by COVID-19.
Commercial mortgage-backed securities: The unrealized losses on commercial mortgage-backed securities were primarily due to spread widening. The wider spreads were caused by continued market uncertainty brought on by COVID-19 for some securities. The contractual cash flows of these investments are based on mortgages backing the securities.
As discussed in Note 1, during 2020 we adopted accounting guidance which requires establishing an allowance for credit losses that may occur over the life of the mortgage loan portfolio. At December 31, 2020, our allowance for credit losses on mortgage loans was estimated by incorporating historical internal information, historical industry averages, current conditions as well as conditions for a reasonable and supportable forecast that includes an estimated recessionary period. The loans are segmented by an internal risk rating as well as geographic region with an estimated loss ratio applied against each segment. For the years after our reasonable and supportable forecast period we graded the expected loss ratio over the estimated remaining recessionary period to our actual loss history. During the year ended December 31, 2020, positive trends in the historical industry averages and a decrease in our mortgage loan principal balance during 2020 more than offset our negative internal rating migrations and increased recessionary probabilities for the year which led to a decrease in our allowance. Amounts on mortgage loans deemed to be uncollectible are charged off and removed from the valuation allowance. The allowance for credit losses at the date of adoption, January 1, 2020, and December 31, 2020 is as follows.
In addition, we make passive investments in the normal course of business in structured securities issued by VIEs for which we are not the investment manager. These structured securities include all of the residential mortgage-backed securities, commercial mortgage-backed securities and other asset-backed securities included in our fixed maturity securities. Our maximum exposure to loss on these securities is limited to our carrying value of the investment. We have determined that we are not the primary beneficiary of these structured securities because we do not have the power to direct the activities that most significantly impact the entities’ economic performance.
We are exposed to credit losses on our call options in the event of nonperformance of the derivative counterparties. This credit risk is minimized by purchasing such agreements from financial institutions with high credit ratings (currently rated A or better by nationally recognized statistical rating organizations). We have also entered into credit support agreements with the counterparties requiring them to post collateral when net exposures exceed pre-determined thresholds that vary by counterparty. The net amount of such exposure is essentially the market value less collateral held for such agreements with each counterparty. The call options are supported by securities collateral received of $18.9 million at December 31, 2020, which is held in a separate custodial account. Subject to certain constraints, we are permitted to sell or re-pledge this collateral, but do not have legal rights to the collateral; accordingly, it has not been recorded on our balance sheet. We have elected to present our derivative receivables netted with the obligation to return cash collateral received on our balance sheet in other investments. We received cash collateral of $10.2 million included in cash and cash equivalents on our balance sheet as of December 31, 2020. At December 31, 2020, none of the collateral had been sold or re-pledged. As of December 31, 2020, our net derivative exposure recorded on the balance sheet without the off balance sheet collateral was $23.5 million.
The separate account assets are primarily comprised of stock and bond mutual funds. The net amount at risk for these contracts is based on the amount by which GMDB, IDB or GMIB exceeds account value. The reserve for GMDBs, IDBs or GMIBs, determined using modeling techniques and industry mortality assumptions, that is included in future policy benefits, totaled $9.4 million at December 31, 2020 and $8.3 million at December 31, 2019. The weighted average age of the contract holders with GMDB, IDB or GMIB rider exposure was 68 years at December 31, 2020 and at December 31, 2019. Benefits paid for GMDBs, IDBs and GMIBs totaled $0.3 million for 2020, $0.2 million for 2019 and $0.2 million for 2018.
Holders of the Class A common stock and Series B preferred stock vote together to elect Class A Directors (four to ten). Holders of the Class B common stock elect the Class B Directors (five to seven). Voting for the Directors is noncumulative. All of the holders of our Class B common stock are parties to a Stockholders’ Agreement. The IFBF’s ownership in the three classes of stock results in IFBF owning 72% of our voting stock as of December 31, 2020 and having the ability to control the Company. Holders of Class A common stock and Class B common stock receive equal per-share cash dividends.
Net periodic pension cost of the Multiemployer Plan is allocated between participating employers on a basis of time incurred by the respective employees for each employer. Such allocations are reviewed annually. The Multiemployer Plan is not subject to collective bargaining agreements, a financial improvement plan or a rehabilitation plan. No surcharges were required to be paid to the Multiemployer Plan during 2020, 2019 or 2018. We are the primary employer in the Multiemployer Plan, providing more than 5 percent of the total contributions during 2020, 2019 and 2018.
The Plans’ prior service costs are amortized using a straight-line amortization method over the average remaining service period or life expectancy of the employees, depending upon who is covered under each plan. For actuarial gains and losses, a corridor (10% of the greater of the projected benefit obligation or the market value of plan assets) is used to determine the amounts to
Upon the effective time of the Merger contemplated under the Merger Agreement, each restricted stock unit would be cancelled and exchanged for the right of each holder to receive an amount in cash equal to the agreed Merger consideration per share, multiplied by the total number restricted stock units, plus the aggregate sum of any cash dividend equivalents on the restricted stock units. The payment would be made in accordance with the restricted stock unit vesting schedule in place immediately before the closing of the Merger, provided the executive remains employed, or in the service of, the Company, FBPCIC or their subsidiaries on each applicable vesting date and other conditions set forth in the Merger Agreement.