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Derivatives | 3 Months Ended
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Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
5. Derivatives | We manage exposure to changes in market interest rates. Our use of derivative instruments is limited to highly effective interest rate swaps to hedge the risk of changes in cash flows (future interest payments) attributable to changes in SOFR swap rates with the designated benchmark interest rate being hedged on certain of our SOFR indexed variable rate debt. The interest rate swaps effectively fix our interest payments on certain SOFR indexed variable rate debt through July 2032. We monitor our positions and the credit ratings of our counterparties and do not currently anticipate non-performance by the counterparties. Interest rate swap agreements are not entered into for trading purposes. These fair values are determined using pricing valuation models which include broker quotes for which significant inputs are observable. They include adjustments for counterparty credit quality and other deal-specific factors, where appropriate and are classified as Level 2 in the fair value hierarchy. The derivative fair values reflected in prepaid expense and accounts payable and accrued expenses in the consolidated balance sheet were as follows: June 30, 2023 March 31, 2023 (Unaudited) (In thousands) Interest rate swaps designated as cash flow hedges: Assets $ 9,254 $ 5,311 Liabilities – – Notional amount 204,227 206,347 The Effect of Interest Rate Contracts on the Statements of Operations for the Quarters Ended June 30, 2023 June 30, 2022 (Unaudited) (In thousands) Gain recognized in AOCI on interest rate contracts $ (3,943) $ (736) (Gain) loss reclassified from AOCI into income $ ( 1,150 ) $ 566 (Gains) or losses recognized in income on interest rate derivatives are recorded as interest expense in the consolidated statements of operations. During the first quarter of fiscal 2024 and 2023, we recognized an increase in the fair value of our cash flow hedges of $ 3.8 million and $ 0.1 million, respectively, net of taxes. During the first quarter of fiscal 2024 and 2023, we reclassified ($ 0.9 ) million and $ 0.4 million, respectively, from accumulated other comprehensive income (loss) (“AOCI”) to interest expense, net of tax. As of June 30, 2023, we expect to reclassify $ 4.8 million of net losses on interest rate contracts from AOCI to earnings as interest expense over the next twelve months. We use derivatives to economically hedge our equity market exposure to indexed annuity products sold by our Life Insurance company. These contracts earn a return for the contractholder based on the change in the value of the S&P 500 index between annual index point dates. We buy and sell listed equity and index call options and call option spreads. The credit risk is with the party in which the options are written. The net option price is paid up front and there are no additional cash requirements or additional contingent liabilities. These contracts are held at fair value on our balance sheet. As of March 31, 2023 and December 31, 2022, these derivative hedges had a fair value of $ 7.5 million and $ 4.3 million, with notional amounts of $ 362.4 million and $ 465.7 million, respectively. These derivative instruments are included in Investments, other; on the consolidated balance sheets. The fair values of these call options are determined based on quoted market prices from the relevant exchange and are classified as Level 1 in the fair value hierarchy. Net (gains) losses recognized in net investment and interest income for the quarters ended March 31, 2023 and 2022 were ($ 1.5 ) million and $ 0.6 million, respectively. Derivatives Fair Values as of June 30, 2023 March 31, 2023 (Unaudited) (In thousands) Equity market contracts as economic hedging instruments Assets $ 7,539 $ 4,295 Liabilities $ – $ – Notional amount $ 362,436 $ 465,701 Although the call options are employed to be effective hedges against our policyholder obligations from an economic standpoint, they do not meet the requirements for hedge accounting under generally accepted accounting principles (“GAAP”). Accordingly, the changes in fair value of the call options are recognized each reporting date as a component of net investment and interest income. The change in fair value of the call options include the gains or losses recognized at the expiration of the option term and the changes in fair value for open contracts.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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