We report balances pertaining to reinsurance transactions "gross" on the balance sheet, meaning that reinsurance recoverables on unpaid losses and ceded unearned premiums are not deducted from insurance reserves but are recorded as assets.

We expect the companies to which we have ceded reinsurance to honor their obligations. In the event these companies are unable to honor their obligations to us, we will pay these amounts. We have established allowances for possible nonpayment of amounts due to us.

Additionally, we have been active in the involuntary market as a servicing carrier whereby we process business for a pool but take no net underwriting risk because we are directly reimbursed for the cost of processing policies and settling any related claims. Servicing carrier receivables of $805 million and $710 million associated with this business are included in our balance sheet in reinsurance recoverables on unpaid losses at Dec. 31, 1998 and 1997, respectively.

In August 1996, our life insurance subsidiary entered into a coinsurance contract with an unaffiliated life insurance company to cede a significant portion of a block of single premium deferred annuities. As part of the transaction, our life insurance subsidiary transferred $932 million of investments and other assets to the coinsurer and recorded a reinsurance recoverable of $964 million. In December 1997, our life insurance subsidiary entered into another coinsurance agreement with an unaffiliated life reinsurance company whereby it transferred approximately $144 million of investments and other assets to the reinsurer and recorded a reinsurance recoverable of $131 million. For each of these transactions, the difference between the assets transferred for the reinsurance contract and the amount of the reinsurance recoverable was considered part of the net cost of reinsurance, and is recognized over the remaining life of the underlying reinsurance contracts. The reinsurance costs of the coinsurance transactions (net of related deferred policy acquisition cost amortization) were deferred at the inception of the contracts and are being amortized into expense over the remaining term of the underlying reinsurance contracts. These transactions had no material effect on our 1997 or 1996 net income.