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10) Reinsurance, Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2016
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10) Reinsurance, Commitments and Contingencies | 10) Reinsurance, Commitments and Contingencies Reinsurance Reinsurance Agreement with North America Life Insurance Company On May 8, 2015, the Company, through its wholly owned subsidiary, Security National Life, signed a paid-up business offer under the coinsurance agreement effective December 1, 2010 to reinsure certain life insurance policies from North America Life Insurance Company (“North America Life”). Pursuant to the paid-up business offer, North America Life ceded and transferred to Security National Life all contractual obligations and risks under the coinsured policies. Security National Life paid a ceding commission to North America Life in the amount of $281,908. As a result of the ceding commission, North America Life transferred $8,900,282 of cash and $9,182,190 in statutory reserves, or liabilities, to Security National Life. Reinsurance Agreement with American Republic Insurance Company On February 11, 2015, the Company, through its wholly owned subsidiary, Security National Life, signed a coinsurance agreement to reinsure certain life insurance policies from American Republic Insurance Company (“American Republic”). The policies were previously reinsured by North America Life under a coinsurance agreement between World Insurance Company (“World Insurance”) and North America Life entered into on July 22, 2009 which was commuted. World Insurance was subsequently purchased by and merged into American Republic. The current coinsurance agreement is between Security National Life and American Republic and became effective on January 1, 2015. As part of the coinsurance agreement, American Republic transferred all contractual obligations and risks to Security National Life and Security National Life took control of $15,004,771 of assets in a trust account held by Texas Capital Bank as the trustee. The assets have subsequently been moved to a trust account held by Zions Bank as the trustee. Mortgage Loan Loss Settlements Future loan losses can be extremely difficult to estimate. However, management believes that the Company’s reserve methodology and its current practice of property preservation allow it to estimate its potential losses on loans sold. The amounts expensed for loan losses for the three months ended September 30, 2016 and 2015 were $1,438,000 and $1,755,000 respectively, and for the nine months ended September 30, 2016 and 2015 were $2,853,000 and $4,674,000, respectively. The estimated liability for indemnification losses is included in other liabilities and accrued expenses and, as of September 30, 2016 and December 31, 2015, the balances were $5,326,000 and $2,806,000, respectively. Settlement of Investigation by U.S. Department of Justice and the Office of the Inspector General for the U.S. Department of Housing and Urban Development (HUD) of Certain FHA-Insured Mortgage Loans Originated On September 30, 2016, the Company, through its wholly owned subsidiary, SecurityNational Mortgage Company ("SecurityNational Mortgage") announced the execution of a settlement agreement with the U.S. Department of Justice ("DOJ") and the United States Attorney's Office in connection with the origination and underwriting by SecurityNational Mortgage of certain Federal Housing Administration (FHA) insured loans. Pursuant to the agreement, SecurityNational Mortgage is required to make a payment in the amount of $4,250,000 to the DOJ within ten days from the effective date of the settlement agreement. Payment was made to the DOJ on October 4, 2016. SecurityNational Mortgage made no admission of liability or fault, but chose to resolve the matter through a settlement agreement rather than engage in protracted and costly litigation. SecurityNational Mortgage continues to be able to participate fully in all Federal Housing Administration (FHA) programs as this settlement agreement does not affect SecurityNational Mortgage's status with the U.S. Department of Housing and Urban Development (HUD). In addition, this settlement does not include any allegations or findings against any particular individuals, such as officers, directors, employees or agents of SecurityNational Mortgage. Prior to executing the settlement agreement, SecurityNational Mortgage, like many other high volume FHA- approved lenders, was being reviewed by the U.S. Department of Justice and the Office of the Inspector General of HUD for loan origination activities that occurred as long as nine years ago. Without any admission of liability and in order to avoid the extended distractions and expenses associated with protracted litigation, SecurityNational Mortgage made a business decision to resolve this matter. This settlement in no way affects SecurityNational Mortgage's ability to originate FHA-insured mortgage loans in the future. Mortgage Loan Loss Litigation For a description of the litigation involving SecurityNational Mortgage and Lehman Brothers and Aurora Loan Services, reference is to Part II, Item 1. Legal Proceedings. Other Contingencies and Commitments The Company has entered into commitments to fund new residential construction loans. As of September 30, 2016, the Company’s commitments were $60,623,000 for these loans of which $42,011,000 had been funded. The Company will advance funds once the work has been completed and an independent inspection is made. The maximum loan commitment ranges between 50% and 80% of appraised value. The Company receives fees from the borrowers and the interest rate is generally 2% to 6.75% over the bank prime rate (3.50% as of September 30, 2016). Maturities range between six and twelve months. The Company belongs to a captive insurance group for certain casualty insurance, worker compensation and liability programs. Insurance reserves are maintained relative to these programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage. When estimating the insurance liabilities and related reserves, the captive insurance management considers a number of factors, which include historical claims experience, demographic factors, severity factors and valuations provided by independent third-party actuaries. If actual claims or adverse development of loss reserves occurs and exceed these estimates, additional reserves may be required. The estimation process contains uncertainty since captive insurance management must use judgment to estimate the ultimate cost that will be incurred to settle reported claims and unreported claims for incidents incurred but not reported as of the balance sheet date. At September 30, 2016, $795,183 of reserves was established related to such insurance programs versus $834,855 at December 31, 2015. The Company is a defendant in various other legal actions arising from the normal conduct of business. Management believes that none of the actions will have a material effect on the Company’s financial position or results of operations. Based on management’s assessment and legal counsel’s representations concerning the likelihood of unfavorable outcomes, no amounts have been accrued for the above claims in the consolidated financial statements. The Company is not a party to any other material legal proceedings outside the ordinary course of business or to any other legal proceedings, which, if adversely determined, would have a material adverse effect on its financial condition or results of operations.

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