The principal operations of the insurance subsidiaries are conducted from Kansas City, Missouri and Dallas, and Austin, Texas. The Company's locations include leased office space located at 1055 Broadway, Kansas City, Missouri 64105 and 333 West 11th Street, Kansas City, Missouri 64105. These properties are leased from Broadway Square Partners, a Missouri limited partnership, of which a corporation controlled by a related party is a partner as described in the "Certain Relationships and Related Transactions" section included elsewhere in this Form 10-K. The leases expire on August 31, 2010 and August 31, 2013, respectively.
Changes in the Company's volume of life insurance in force and annuity policyholder account balances for the last three years is summarized in the following table. These changes reflect the Company's shift from traditional life insurance products to its asset accumulation business. The table below excludes inforce of blocks of insurance business which have been permanently reinsured.
Asset accumulation products operations. Income before income taxes increased $10.0 million from 1999 to 2000. The primary reasons for the increase were (i) a $3.5 million increase in deferred policy acquisition costs resulting from revisions made to the Company's estimate of future gross profits from its interest-sensitive life and annuity products in both 2000 and 1999, (ii) a $2.7 million increase in surrender charge revenue resulting from higher levels of surrenders in 2000, and (iii) an increase in interest margins due to higher fund values on annuity business in 2000. Income before income taxes decreased $3.3 million from 1998 to 1999. The primary reasons for the decrease were (i) adjustments to deferred policy acquisition costs resulting from revisions made to the Company's estimate of future gross profits from its interest-sensitive life and annuity products in both 1999 and 1998, and (ii) increased death benefits in 1999.
Non-life insurance investments. Income before income taxes decreased $2.1 million from 1999 to 2000. The primary reasons for the decrease were (i) a $1.8 million decrease in income from Argus in 2000 and (ii) a $0.5 million decrease in income from the real estate entities. Income before income taxes decreased $2.8 million from 1998 to 1999. The primary reason for the decrease is a $3.1 million decrease in net realized investment gains on the sale of investment properties in 1999 compared to 1998.
At December 31, 2000, United Fidelity had outstanding to Americo four surplus debentures with an aggregate unpaid balance of $121.0 million. The terms of the surplus debentures have been established to provide for the payment of principal and interest to Americo in amounts sufficient to make payments on Americo's external debt obligations in accordance with their payment schedules. The surplus debentures and their payment schedules have been approved by the Texas Department of Insurance; therefore, no scheduled payment will require the approval of the Texas Department of Insurance.
The following table sets forth the composition of the Company's fixed maturity securities according to NAIC designations and S&P and Moody's ratings at December 31, 2000:
As part of its asset-liability management, the Company conducts detailed computer simulations that model its fixed-rate assets and liabilities under various interest rate scenarios. With the results of these computer simulations, the Company can measure the potential gain or loss in fair value of its interest-rate sensitive instruments and seek to protect its economic value and achieve a predictable spread between what it earns on its invested assets and what it pays on its liabilities. At December 31, 2000, the Company's assets had effective duration of 5.0 and its liabilities had an effective duration of 5.4. If interest rates were to decrease 10% from December 31, 2000 levels, the increase in the value of the Company's liabilities would exceed the increase in the value of the Company's assets by approximately $20 million. Because the Company actively manages its assets and liabilities and has developed strategies to reduce its exposure to loss as interest rate changes occur, it expects that actual losses would be less than the estimated potential loss.