During the years ended December 31, 1997, 1996 and 1995, the Company sold $801.1 million, $378.6 million and $109.8 million of fixed maturity and equity securities, and purchased $1,021.5 million, $955.8 million and $217.8 million of fixed maturity and equity securities, respectively. Such sales and purchases were often effected to improve the quality of the investment portfolio or to avoid prepayment risks. As a result of the Company's decision to exit the private placement bond sector, the Company transferred all of its remaining assets in the fixed maturities held for investment portfolio to its fixed maturities available for sale portfolio as of April 1, 1997. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, the Company marked all assets subject to the transfer to fair value resulting in an increase in shareholders' equity, net of applicable income taxes, of approximately $1.8 million. During 1996, the Company sold one security in its held for investment portfolio aggregating $4.9 million as a result of a dramatic deterioration in its credit rating.
The Company has engaged certain outside vendors and focused certain employees full time efforts to help in the full array of its year 2000 initiative. This includes systems assessment and monitoring advice, actual code remediation, communication and consultation with critical business partners and additional data center and testing resources. The Company expects to incur internal and external costs associated with such expertise ranging from $9.3 million to $14.9 million, which are likely to be incurred primarily during 1998 and early 1999, and which represent approximately 25% of the Company's technology costs. Of the range of estimated costs, the Company anticipates approximately 42% of the costs to be internal allocation of resources.
We have audited the accompanying consolidated balance sheets of PennCorp Financial Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For each of the periods presented, the Company has made certain valuation determinations with respect to pre- acquisition contingencies or allocations. For the year ended December 31, 1997, the Company determined the following with respect to certain material acquisition contingencies or allocations: (i) the Company increased deferred tax assets and reduced associated costs in excess of net assets acquired associated with the Integon Life acquisition by $19.6 million as a result of the Company resolving certain acquisition date tax contingencies, (ii) the Company reduced both deferred tax liabilities and associated costs in excess of net assets acquired associated with the Marketing One acquisition by $1.1 million as a result of the Company resolving certain acquisition date tax contingencies, and (iii) the Company reduced costs in excess of net assets acquired and increased certain mortgage loan values by $1.1 million, associated with the acquisition of United Life, as a result of final appraisals becoming available.
As a part of the purchase accounting for the Company's acquisitions, a present value of insurance in force asset is established which represents the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. Such value is the actuarially determined present value of the projected cash flows from the acquired policies, discounted at an appropriate risk rate of return.
On December 31, 1997, PennCorp shareholders approved the acquisition of the Controlling Interest in SW Financial through the assignment by Fickes, Stone and Knightsbridge ("the Controlling Parties") of certain rights, including common stock and common stock equivalents of SW Financial. The controlling Parties will receive aggregate cash consideration ranging from $73,777 to $77,444 (not including expenses) depending upon the outcome of certain contingencies.
The Company and its subsidiaries are obligated under operating leases, primarily for office space. Rent expense, net of sublease income, was $5,178, $8,416 and $8,489 in 1997, 1996 and 1995, respectively.
Fees incurred for financial reinsurance were approximately, $145 in 1997, $265 in 1996, and $339 in 1995.
On January 5, 1998, the Company acquired the Fickes and Stone Knightsbridge interests (see Note 16).
The Company's fourth quarter 1997 reported loss was primarily a result of reserve strengthening aggregating $12,373 associated with the businesses held for sale and certain non-recurring charges including transaction costs, period restructuring costs and other costs aggregating $5,222, associated with the retained businesses. In addition, the Company unlocked certain actuarial assumptions on interest sensitive blocks of business resulting in additional amortization of deferred policy acquisition costs and present value of insurance in force amounting to $6,944.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Accounts that the Company deems to be acutely sensitive to changes in estimates include deferred policy acquisition costs, future policy benefits, policy and contract claims and present value of insurance in force. In addition, the Company must determine requirements for disclosure of contingent assets and liabilities as of the date of the financial statements based upon estimates. In all instances, actual results could differ from estimates.
Fixed maturity and equity securities classified as available for sale are recorded at fair value, as they may be sold in response to changes in interest rates, prepayment risk, liquidity needs, the need or desire to increase income or capital and other economic factors. Changes in unrealized gains and losses related to securities available for sale are recorded as a separate component of shareholders' equity, net of applicable taxes and amount attributable to deferred policy acquisition costs and present value of insurance in force related to universal life and investment-type products. Mortgage-backed securities are amortized using the interest method including