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Fair Value of Financial Instruments | 3 Months Ended
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Mar. 31, 2016
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | Note 3 - Fair Value of Financial Instruments The Company is required under GAAP to disclose estimated fair values for certain financial and nonfinancial assets and liabilities. Fair values of the Company’s insurance contracts other than annuity contracts are not required to be disclosed. However, the estimated fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk through the matching of investment maturities with amounts due under insurance contracts. Information regarding the three-level hierarchy presented below and the valuation methodologies utilized by the Company to estimate fair values at a point in time is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, specifically in “Note 3 — Fair Value of Financial Instruments”. Financial Instruments Measured and Carried at Fair Value The following table presents the Company’s fair value hierarchy for those assets and liabilities measured and carried at fair value on a recurring basis. At March 31, 2016, these Level 3 invested assets comprised 2.6% of the Company’s total investment portfolio fair value.
|  |  |  |  |  | Fair Value Measurements at |
|  | Carrying |  | Fair |  | Reporting Date Using |
|  | Amount |  | Value |  | Level 1 |  | Level 2 |  | Level 3 |
March 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 495,200 |  | $ | 495,200 |  | $ | - |  | $ | 493,001 |  | $ | 2,199 |
Other, including |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  |  | 540,120 |  |  | 540,120 |  |  | 13,863 |  |  | 526,257 |  |  | - |
Municipal bonds |  |  | 1,727,328 |  |  | 1,727,328 |  |  | - |  |  | 1,680,835 |  |  | 46,493 |
Foreign government bonds |  |  | 74,087 |  |  | 74,087 |  |  | - |  |  | 74,087 |  |  | - |
Corporate bonds |  |  | 2,833,931 |  |  | 2,833,931 |  |  | 8,711 |  |  | 2,755,149 |  |  | 70,071 |
Other mortgage-backed securities |  |  | 1,545,836 |  |  | 1,545,836 |  |  | - |  |  | 1,464,214 |  |  | 81,622 |
Total fixed maturities |  |  | 7,216,502 |  |  | 7,216,502 |  |  | 22,574 |  |  | 6,993,543 |  |  | 200,385 |
Equity securities |  |  | 104,044 |  |  | 104,044 |  |  | 90,321 |  |  | 13,717 |  |  | 6 |
Short-term investments |  |  | 216,204 |  |  | 216,204 |  |  | 210,320 |  |  | 5,884 |  |  | - |
Other investments |  |  | 14,640 |  |  | 14,640 |  |  | - |  |  | 14,640 |  |  | - |
Totals |  |  | 7,551,390 |  |  | 7,551,390 |  |  | 323,215 |  |  | 7,027,784 |  |  | 200,391 |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment contract and life policy reserves, embedded derivatives |  |  | 23 |  |  | 23 |  |  | - |  |  | 23 |  |  | - |
Other policyholder funds, embedded derivatives |  |  | 42,085 |  |  | 42,085 |  |  | - |  |  | - |  |  | 42,085 |
December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 504,414 |  | $ | 504,414 |  | $ | - |  | $ | 504,414 |  | $ | - |
Other, including |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  |  | 546,111 |  |  | 546,111 |  |  | 14,258 |  |  | 531,853 |  |  | - |
Municipal bonds |  |  | 1,708,943 |  |  | 1,708,943 |  |  | - |  |  | 1,678,564 |  |  | 30,379 |
Foreign government bonds |  |  | 73,617 |  |  | 73,617 |  |  | - |  |  | 73,617 |  |  | - |
Corporate bonds |  |  | 2,779,415 |  |  | 2,779,415 |  |  | 10,195 |  |  | 2,701,645 |  |  | 67,575 |
Other mortgage-backed securities |  |  | 1,478,840 |  |  | 1,478,840 |  |  | - |  |  | 1,403,374 |  |  | 75,466 |
Total fixed maturities |  |  | 7,091,340 |  |  | 7,091,340 |  |  | 24,453 |  |  | 6,893,467 |  |  | 173,420 |
Equity securities |  |  | 99,797 |  |  | 99,797 |  |  | 86,088 |  |  | 13,703 |  |  | 6 |
Short-term investments |  |  | 174,152 |  |  | 174,152 |  |  | 169,764 |  |  | 4,388 |  |  | - |
Other investments |  |  | 14,001 |  |  | 14,001 |  |  | - |  |  | 14,001 |  |  | - |
Totals |  |  | 7,379,290 |  |  | 7,379,290 |  |  | 280,305 |  |  | 6,925,559 |  |  | 173,426 |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment contract and life policy reserves, embedded derivatives |  |  | 14 |  |  | 14 |  |  | - |  |  | 14 |  |  | - |
Other policyholder funds, embedded derivatives |  |  | 39,021 |  |  | 39,021 |  |  | - |  |  | - |  |  | 39,021 |
The Company did not have any transfers between Levels 1 and 2 during the three months ended March 31, 2016. The following table presents reconciliations for the periods indicated for all Level 3 assets and liabilities measured at fair value on a recurring basis.
|  |  |  | Financial |
|  | Financial Assets |  | Liabilities(1) |
|  |  |  |  |  | Mortgage- |  | Total |  |  |  |  |  |  |
|  | Municipal |  | Corporate |  | Backed |  | Fixed |  | Equity |  |  |  |  |
|  | Bonds |  | Bonds |  | Securities(2) |  | Maturities |  | Securities |  | Total |  |  |
Beginning balance, January 1, 2016 |  | $ | 30,379 |  | $ | 67,575 |  | $ | 75,466 |  | $ | 173,420 |  | $ | 6 |  | $ | 173,426 |  | $ | 39,021 |
Transfers into Level 3 (3) |  |  | 14,751 |  |  | 6,059 |  |  | 11,642 |  |  | 32,452 |  |  | - |  |  | 32,452 |  |  | - |
Transfers out of Level 3 (3) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Total gains or losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net realized gains (losses) included in net income related to financial assets |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Net realized (gains) losses included in net income related to financial liabilities |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 674 |
Net unrealized gains (losses) included in other comprehensive income |  |  | 1,484 |  |  | 388 |  |  | (7) |  |  | 1,865 |  |  | - |  |  | 1,865 |  |  | - |
Purchases |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Issuances |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 3,491 |
Sales |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Settlements |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Paydowns, maturities and distributions |  |  | (121) |  |  | (3,951) |  |  | (3,280) |  |  | (7,352) |  |  | - |  |  | (7,352) |  |  | (1,101) |
Ending balance, March 31, 2016 |  | $ | 46,493 |  | $ | 70,071 |  | $ | 83,821 |  | $ | 200,385 |  | $ | 6 |  | $ | 200,391 |  | $ | 42,085 |
Beginning balance, January 1, 2015 |  | $ | 13,628 |  | $ | 74,717 |  | $ | 82,949 |  | $ | 171,294 |  | $ | 6 |  | $ | 171,300 |  | $ | 20,049 |
Transfers into Level 3 (3) |  |  | - |  |  | 1,895 |  |  | 461 |  |  | 2,356 |  |  | - |  |  | 2,356 |  |  | - |
Transfers out of Level 3 (3) |  |  | - |  |  | - |  |  | (9,664) |  |  | (9,664) |  |  | - |  |  | (9,664) |  |  | - |
Total gains or losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net realized gains (losses) included in net income related to financial assets |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Net realized (gains) losses included in net income related to financial liabilities |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (439) |
Net unrealized gains (losses) included in other comprehensive income |  |  | 380 |  |  | 352 |  |  | 3 |  |  | 735 |  |  | - |  |  | 735 |  |  | - |
Purchases |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Issuances |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 2,964 |
Sales |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Settlements |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Paydowns, maturities and distributions |  |  | (123) |  |  | (4,686) |  |  | (1,155) |  |  | (5,964) |  |  | - |  |  | (5,964) |  |  | (534) |
Ending balance, March 31, 2015 |  | $ | 13,885 |  | $ | 72,278 |  | $ | 72,594 |  | $ | 158,757 |  | $ | 6 |  | $ | 158,763 |  | $ | 22,040 |
(1) | Represents embedded derivatives, all related to the Company’s fixed indexed annuity (“FIA”) products, reported in Other Policyholder Funds in the Company’s Consolidated Balance Sheets.
| (2) | Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other mortgage-backed securities.
| (3) | Transfers into and out of Level 3 during the three months ended March 31, 2016 and 2015 were attributable to changes in the availability of observable market information for individual fixed maturity securities. The Company’s policy is to recognize transfers into and transfers out of the levels as having occurred at the end of the reporting period in which the transfers were determined.
At March 31, 2016 and 2015, there were no realized gains or losses included in earnings that were attributable to changes in the fair value of Level 3 assets still held. For the three months ended March 31, 2016 and 2015, realized gains/(losses) of $(674) and $439, respectively, were included in earnings that were attributable to the changes in the fair value of Level 3 liabilities (embedded derivatives) still held. The valuation techniques and significant unobservable inputs used in the fair value measurement for financial assets classified as Level 3 are subject to the control processes as described in “Note 3 — Fair Value of Financial Instruments — Investments” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Generally, valuation techniques for fixed maturity securities include spread pricing, matrix pricing and discounted cash flow methodologies; include inputs such as quoted prices for identical or similar securities that are less liquid; and are based on lower levels of trading activity than securities classified as Level 2. The valuation techniques and significant unobservable inputs used in the fair value measurement for equity securities classified as Level 3 use similar valuation techniques and significant unobservable inputs as fixed maturities. The sensitivity of the estimated fair values to changes in the significant unobservable inputs for fixed maturities and equity securities included in Level 3 generally relates to interest rate spreads, illiquidity premiums and default rates. Significant spread widening in isolation will adversely impact the overall valuation, while significant spread tightening will lead to substantial valuation increases. Significant increases (decreases) in illiquidity premiums in isolation will result in substantially lower (higher) valuations. Significant increases (decreases) in expected default rates in isolation will result in substantially lower (higher) valuations. Financial Instruments Not Carried at Fair Value; Disclosure Required The Company has various other financial assets and financial liabilities used in the normal course of business that are not carried at fair value, but for which fair value disclosure is required. The following table presents the carrying value, fair value and fair value hierarchy of these financial assets and financial liabilities.
|  |  |  |  |  | Fair Value Measurements at |
|  | Carrying |  | Fair |  | Reporting Date Using |
|  | Amount |  | Value |  | Level 1 |  | Level 2 |  | Level 3 |
March 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other investments |  | $ | 148,686 |  | $ | 153,150 |  | $ | - |  | $ | - |  | $ | 153,150 |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment contract and life policy reserves, fixed annuity contracts |  |  | 4,128,205 |  |  | 4,004,390 |  |  | - |  |  | - |  |  | 4,004,390 |
Investment contract and life policy reserves, account values on life contracts |  |  | 77,562 |  |  | 81,486 |  |  | - |  |  | - |  |  | 81,486 |
Other policyholder funds |  |  | 651,834 |  |  | 651,834 |  |  | - |  |  | 575,256 |  |  | 76,578 |
Long-term debt |  |  | 247,022 |  |  | 254,700 |  |  | 254,700 |  |  | - |  |  | - |
December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other investments |  | $ | 148,759 |  | $ | 153,228 |  | $ | - |  | $ | - |  | $ | 153,228 |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment contract and life policy reserves, fixed annuity contracts |  |  | 4,072,102 |  |  | 4,049,840 |  |  | - |  |  | - |  |  | 4,049,840 |
Investment contract and life policy reserves, account values on life contracts |  |  | 77,429 |  |  | 81,360 |  |  | - |  |  | - |  |  | 81,360 |
Other policyholder funds |  |  | 653,631 |  |  | 653,631 |  |  | - |  |  | 575,104 |  |  | 78,527 |
Long-term debt |  |  | 249,346 |  |  | 252,700 |  |  | 252,700 |  |  | - |  |  | - |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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