ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section includes a summary of FBL Financial Group, Inc.’s consolidated results of operations, financial condition and where appropriate, factors that management believes may affect future performance. Unless noted otherwise, all references to FBL Financial Group, Inc. (we or the Company) include all of its direct and indirect subsidiaries, including insurance subsidiaries Farm Bureau Life Insurance Company (Farm Bureau Life) and Greenfields Life Insurance Company (Greenfields Life). Please read this discussion in conjunction with the accompanying consolidated financial statements and related notes. In addition, we encourage you to refer to our Form 10-K for the fiscal year ended
December 31, 2017
for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.
This Form 10-Q includes statements relating to anticipated financial performance, business prospects, new products and similar matters. These statements and others, which include words such as “expect,” “anticipate,” “believe,” “intend” and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. A variety of factors could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. See Part 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2017
for additional information on the risks and uncertainties that may affect the operations, performance, development and results of our business.
Overview
We operate predominantly in the life insurance industry through our principal subsidiary, Farm Bureau Life. Farm Bureau Life markets individual life insurance policies and annuity contracts to Farm Bureau members and other individuals and businesses in the Midwestern and Western sections of the United States through an exclusive agency force. Several subsidiaries support various functional areas of Farm Bureau Life and other affiliates by providing investment advisory, marketing and distribution, and leasing services. In addition, we manage two Farm Bureau-affiliated property-casualty companies.
We analyze operations by reviewing financial information regarding our primary products that are aggregated in Annuity and Life Insurance product segments. In addition, our Corporate and Other segment includes various support operations, corporate capital and other product lines that are not currently underwritten by the Company. We analyze our segment results based on pre-tax non-GAAP operating income, which excludes the impact of certain items that are included in net income. See Note 9 to our consolidated financial statements for further information regarding how we define our segments and non-GAAP operating income.
We also include within our analysis “premiums collected,” which is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of agent productivity. See Note 9 to our consolidated financial statements for further information regarding this measure and its relationship to GAAP revenues.
Impact of Recent Business Environment
Our business generally benefits from moderate to strong economic expansion. Conversely, a lackluster economy characterized by higher unemployment, lower family income, lower consumer spending, muted corporate earnings growth and lower business investment could adversely impact the demand for our products in the future. We also may experience a higher incidence of claims, lapses or surrenders of policies during such times. We cannot predict whether or when such actions may occur, or what impact, if any, such actions could have on our business, results of operations, cash flows or financial condition.
Economic and other environmental factors that may impact our business include, but are not limited to, the following:
|
|
•
|
Gross Domestic Product increased at an annual rate of 2.3% during the
first quarter
of
2018
based on recent estimates.
|
|
|
•
|
U.S. unemployment was estimated to be 4.1% at the end of the
first quarter
of
2018
.
|
|
|
•
|
U.S. net farm income is forecast to decrease 6.7% and farm real estate value is estimated to have increased 2.1% during the
first quarter
of
2018
according to recent U.S. Department of Agriculture estimates.
|
|
|
•
|
The U.S. 10-year Treasury yield increased during the
first quarter
of
2018
to 2.74% at
March 31, 2018
from 2.40% at
December 31, 2017
.
|
|
|
•
|
The impact of the enactment of the Tax Act during December 2017 on the general U.S. economy, business initiatives and consumer demand for our insurance products is uncertain.
|
The low market interest rate environment continues to impact our investment yields as well as the interest we credit on our interest sensitive products. The benchmark 10-year U.S. Treasury yield trended higher in January and February before retreating slightly in March to end the quarter higher by 34 basis points. Credit spreads widened during the quarter. Low crediting rates still pose challenges to maintaining attractive annuity and universal life products, although our rates are comparable to other insurance companies, allowing us to maintain our competitive position within the market. We experienced a decrease in the fair value of our fixed maturity security portfolio during the first quarter of 2018 primarily due to an increase in market yields. See the segment discussion and “Financial Condition” section that follows for additional information regarding the impact of low market interest rates on our business.
Results of Operations for the Periods Ended
March 31, 2018
and
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
|
Change
|
|
(Dollars in thousands, except per share data)
|
Net income attributable to FBL Financial Group, Inc.
|
$
|
23,631
|
|
|
$
|
26,433
|
|
|
(11
|
)%
|
Adjustments to net income:
|
|
|
|
|
|
Impact of the Tax Act
|
1,069
|
|
|
—
|
|
|
N/A
|
|
Realized gains/losses on investments (1)(2)
|
2,424
|
|
|
554
|
|
|
338
|
%
|
Change in net unrealized gains/losses on derivatives (1)
|
509
|
|
|
1
|
|
|
N/A
|
|
Non-GAAP operating income (3)
|
$
|
27,633
|
|
|
$
|
26,988
|
|
|
2
|
%
|
|
|
|
|
|
|
Pre-tax non-GAAP operating income:
|
|
|
|
|
|
Annuity segment
|
$
|
16,582
|
|
|
$
|
16,421
|
|
|
1
|
%
|
Life Insurance segment
|
10,897
|
|
|
13,749
|
|
|
(21
|
)%
|
Corporate and Other segment
|
1,881
|
|
|
4,162
|
|
|
(55
|
)%
|
Total pre-tax non-GAAP operating income
|
29,360
|
|
|
34,332
|
|
|
(14
|
)%
|
Income taxes on non-GAAP operating income
|
(1,727
|
)
|
|
(7,344
|
)
|
|
(76
|
)%
|
Non-GAAP operating income (3)
|
$
|
27,633
|
|
|
$
|
26,988
|
|
|
2
|
%
|
|
|
|
|
|
|
Earnings per common share - assuming dilution
|
$
|
0.94
|
|
|
$
|
1.05
|
|
|
(10
|
)%
|
Non-GAAP operating income per common share - assuming dilution (3)
|
1.10
|
|
|
1.08
|
|
|
2
|
%
|
Effective tax rate on non-GAAP operating income
|
6
|
%
|
|
21
|
%
|
|
|
Average invested assets, at amortized cost (4)
|
$
|
8,271,919
|
|
|
$
|
7,983,600
|
|
|
4
|
%
|
Annualized yield on average invested assets (4)
|
5.19
|
%
|
|
5.30
|
%
|
|
|
|
|
(1)
|
Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs and value of insurance in force acquired, as well as changes in interest sensitive product reserves and income taxes attributable to these items.
|
|
|
(2)
|
Beginning in 2018, amount includes changes in net unrealized gains/losses on equity securities.
|
|
|
(3)
|
See Note 9 to our consolidated financial statements for further information on non-GAAP operating income.
|
|
|
(4)
|
Average invested assets and annualized yield, including investments held as securities and indebtedness of related parties.
|
Net income and non-GAAP operating income were positively impacted in 2018, compared to 2017, by reduced tax rates related to changes under the Tax Act and increased earnings from higher other investment-related income and an increase in the volume of business in force. These increases to income were partially offset by increases in death benefits, other underwriting expenses and amortization of deferred acquisition costs. See the discussion that follows for details regarding non-GAAP operating income by segment. Net income was also impacted by net realized losses from investments and lower equity income due to the enactment of the Tax Act.
|
|
|
|
|
|
|
|
|
|
|
|
Annuity Segment
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
|
Change
|
|
(Dollars in thousands)
|
Non-GAAP operating revenues:
|
|
|
|
|
|
Interest sensitive product charges
|
$
|
1,202
|
|
|
$
|
1,135
|
|
|
6
|
%
|
Net investment income
|
56,233
|
|
|
53,916
|
|
|
4
|
%
|
Total non-GAAP operating revenues
|
57,435
|
|
|
55,051
|
|
|
4
|
%
|
|
|
|
|
|
|
Non-GAAP operating benefits and expenses:
|
|
|
|
|
|
Interest sensitive product benefits
|
31,286
|
|
|
29,878
|
|
|
5
|
%
|
Underwriting, acquisition and insurance expenses:
|
|
|
|
|
|
Commissions net of deferrals
|
504
|
|
|
531
|
|
|
(5
|
)%
|
Amortization of deferred acquisition costs
|
3,065
|
|
|
2,528
|
|
|
21
|
%
|
Amortization of value of insurance in force
|
172
|
|
|
170
|
|
|
1
|
%
|
Other underwriting expenses
|
5,826
|
|
|
5,523
|
|
|
5
|
%
|
Total underwriting, acquisition and insurance expenses
|
9,567
|
|
|
8,752
|
|
|
9
|
%
|
Total non-GAAP operating benefits and expenses
|
40,853
|
|
|
38,630
|
|
|
6
|
%
|
Pre-tax non-GAAP operating income (1)
|
$
|
16,582
|
|
|
$
|
16,421
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data
|
|
|
|
|
|
Annuity premiums collected, direct (2)
|
$
|
78,810
|
|
|
$
|
81,463
|
|
|
(3
|
)%
|
Policy liabilities and accruals, end of period
|
4,462,979
|
|
|
4,232,025
|
|
|
5
|
%
|
Average invested assets, at amortized cost
|
4,505,251
|
|
|
4,323,348
|
|
|
4
|
%
|
Other investment-related income included in net investment income (3)
|
2,657
|
|
|
600
|
|
|
343
|
%
|
Average individual annuity account value
|
3,106,259
|
|
|
2,991,811
|
|
|
4
|
%
|
|
|
|
|
|
|
Earned spread on individual annuity products:
|
|
|
|
|
|
Weighted average yield on cash and invested assets
|
5.03
|
%
|
|
5.10
|
%
|
|
|
Weighted average crediting rate
|
2.46
|
%
|
|
2.60
|
%
|
|
|
Spread
|
2.57
|
%
|
|
2.50
|
%
|
|
|
|
|
|
|
|
|
Individual annuity withdrawal rate
|
5.4
|
%
|
|
3.7
|
%
|
|
|
|
|
(1)
|
See Note 9 to our consolidated financial statements for further information on non-GAAP operating income.
|
|
|
(2)
|
Premiums collected is a non-GAAP measure of sales production, see Note 9 to our consolidated financial statements.
|
|
|
(3)
|
Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.
|
Pre-tax non-GAAP operating income for the Annuity segment increased in the
first quarter
of
2018
, compared to the prior year period, primarily due to higher other investment-related income, partially offset by higher amortization of deferred acquisition costs and increases in interest sensitive product benefits.
The average aggregate account value for individual annuity contracts in force increased in the first quarter of 2018, compared to the prior year period, due to continued sales, advances on our funding agreements with FHLB and the crediting of interest. Continued growth in our business in force contributes to increases in revenues, benefits and expenses. Premiums collected were lower in the first quarter of 2018, compared to the prior year period, due to decreased sales of fixed rate deferred annuity products, partially offset by increased sales of indexed annuity products. Individual fixed rate deferred annuity collected premiums were $38.4 million in the first quarter of 2018, compared to $56.8 million in the first quarter of 2017. Indexed annuity collected premiums were $37.7 million in the first quarter of 2018, compared to $23.4 million in the first quarter of 2017. Outstanding funding agreements with FHLB totaled $530.3 million at March 31, 2018 and $428.8 million at March 31, 2017. During the first quarter of 2018, receipts from funding agreements totaled $140.8 million and redemptions totaled $25.6 million.
Amortization of deferred acquisition costs changed during the
first quarter
of
2018
, compared to the prior year period, due to changes in actual and expected profits on the underlying business.
The weighted average yield on cash and invested assets for individual annuities decreased in the first quarter of 2018, compared to the prior year period, primarily due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield, partially offset by higher other investment-related income. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. Weighted average crediting rates on our individual annuity products decreased due to crediting rate actions taken in 2017 and 2018 in response to the declining portfolio yield and a change in the underlying product mix.
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance Segment
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
|
Change
|
|
(Dollars in thousands)
|
Non-GAAP operating revenues:
|
|
|
|
|
|
Interest sensitive product charges and other income
|
$
|
17,980
|
|
|
$
|
16,940
|
|
|
6
|
%
|
Traditional life insurance premiums
|
49,497
|
|
|
48,434
|
|
|
2
|
%
|
Net investment income
|
40,250
|
|
|
38,769
|
|
|
4
|
%
|
Total non-GAAP operating revenues
|
107,727
|
|
|
104,143
|
|
|
3
|
%
|
|
|
|
|
|
|
Non-GAAP operating benefits and expenses:
|
|
|
|
|
|
Interest sensitive product benefits:
|
|
|
|
|
|
Interest and index credits
|
8,393
|
|
|
8,385
|
|
|
—
|
%
|
Death benefits and other
|
15,241
|
|
|
14,074
|
|
|
8
|
%
|
Total interest sensitive product benefits
|
23,634
|
|
|
22,459
|
|
|
5
|
%
|
Traditional life insurance benefits:
|
|
|
|
|
|
Death benefits
|
23,735
|
|
|
21,667
|
|
|
10
|
%
|
Surrender and other benefits
|
10,144
|
|
|
10,429
|
|
|
(3
|
)%
|
Increase in traditional life future policy benefits
|
11,578
|
|
|
10,859
|
|
|
7
|
%
|
Total traditional life insurance benefits
|
45,457
|
|
|
42,955
|
|
|
6
|
%
|
Distributions to participating policyholders
|
2,551
|
|
|
2,553
|
|
|
—
|
%
|
Underwriting, acquisition and insurance expenses:
|
|
|
|
|
|
Commission expense, net of deferrals
|
4,923
|
|
|
4,903
|
|
|
—
|
%
|
Amortization of deferred acquisition costs
|
4,436
|
|
|
3,911
|
|
|
13
|
%
|
Amortization of value of insurance in force
|
373
|
|
|
375
|
|
|
(1
|
)%
|
Other underwriting expenses
|
16,151
|
|
|
14,404
|
|
|
12
|
%
|
Total underwriting, acquisition and insurance expenses
|
25,883
|
|
|
23,593
|
|
|
10
|
%
|
Total non-GAAP operating benefits and expenses
|
97,525
|
|
|
91,560
|
|
|
7
|
%
|
|
10,202
|
|
|
12,583
|
|
|
(19
|
)%
|
Equity income, before tax
|
695
|
|
|
1,166
|
|
|
(40
|
)%
|
Pre-tax non-GAAP operating income (1)
|
$
|
10,897
|
|
|
$
|
13,749
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance Segment - continued
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
|
Change
|
|
(Dollars in thousands)
|
Other data
|
|
|
|
|
|
Life premiums collected, net of reinsurance (2)
|
$
|
76,263
|
|
|
$
|
73,573
|
|
|
4
|
%
|
Policy liabilities and accruals, end of period
|
2,918,284
|
|
|
2,808,192
|
|
|
4
|
%
|
Life insurance in force, end of period
|
58,543,298
|
|
|
56,416,539
|
|
|
4
|
%
|
Average invested assets, at amortized cost (3)
|
2,979,404
|
|
|
2,887,287
|
|
|
3
|
%
|
Other investment-related income included in net investment income (4)
|
1,498
|
|
|
121
|
|
|
1,138
|
%
|
Average interest sensitive life account value
|
844,559
|
|
|
820,794
|
|
|
3
|
%
|
|
|
|
|
|
|
Interest sensitive life insurance spread:
|
|
|
|
|
|
Weighted average yield on cash and invested assets (3)
|
5.33
|
%
|
|
5.49
|
%
|
|
|
Weighted average crediting rate
|
3.64
|
%
|
|
3.85
|
%
|
|
|
Spread
|
1.69
|
%
|
|
1.64
|
%
|
|
|
|
|
|
|
|
|
Life insurance lapse and surrender rates
|
4.9
|
%
|
|
5.6
|
%
|
|
|
Death benefits, net of reinsurance and reserves released
|
$
|
26,479
|
|
|
$
|
22,981
|
|
|
15
|
%
|
|
|
(1)
|
See Note 9 to our consolidated financial statements for further information on non-GAAP operating income.
|
|
|
(2)
|
Premiums collected is a non-GAAP measure of sales production, see Note 9 to our consolidated financial statements.
|
|
|
(3)
|
Average invested assets and weighted average yield including investments held as securities and indebtedness of related parties.
|
|
|
(4)
|
Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.
|
Pre-tax non-GAAP operating income for the Life Insurance segment decreased in the
first quarter
of
2018
, compared to the prior year period, primarily due to increases in death benefits and other underwriting expenses, partially offset by higher other investment-related income and the impact of an increase in the volume of business in force.
Continued growth in our business in force contributes to the increase in revenues, benefits and expenses. The increase in other underwriting expenses included increased expenses associated with salaries, including a one-time employee bonus in the first quarter of 2018 related to the enactment of the Tax Act, and additional expenses associated with system enhancements.
Amortization of deferred acquisition costs changed during the first quarter of 2018, compared to the prior year period, due to changes in actual and expected profits on the underlying business.
Death benefits, net of reinsurance and reserves released, increased in the first quarter of 2018, compared to the prior year period due to an increase in the number of claims reported and the average claim amount, net of reinsurance and reserves released.
We assign a portion of our investments held in securities and indebtedness of related parties to the Life Insurance segment. These investments include equity interests in limited liability partnerships and corporations, accounted for under the equity method of accounting. Equity income, before tax, consists of our proportionate share of gains and losses attributable to our relative ownership interest in these investments. See the Equity Income discussion that follows for additional information regarding these investments.
The weighted average yield on cash and invested assets for interest sensitive life insurance products decreased in the first quarter of 2018, compared to the prior year period, due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield, partially offset by higher other investment-related income. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. Weighted average crediting rates on our interest sensitive life insurance products decreased due to crediting rate actions taken in 2017 and 2018 in response to the declining portfolio yield.
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other Segment
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
|
Change
|
|
(Dollars in thousands)
|
Non-GAAP operating revenues:
|
|
|
|
|
|
Interest sensitive product charges
|
$
|
11,021
|
|
|
$
|
10,978
|
|
|
—
|
%
|
Net investment income
|
8,411
|
|
|
8,768
|
|
|
(4
|
)%
|
Other income
|
4,679
|
|
|
3,920
|
|
|
19
|
%
|
Total non-GAAP operating revenues
|
24,111
|
|
|
23,666
|
|
|
2
|
%
|
|
|
|
|
|
|
Non-GAAP operating benefits and expenses:
|
|
|
|
|
|
Interest sensitive product benefits
|
9,342
|
|
|
10,059
|
|
|
(7
|
)%
|
Underwriting, acquisition and insurance expenses:
|
|
|
|
|
|
Commission expense, net of deferrals
|
680
|
|
|
721
|
|
|
(6
|
)%
|
Amortization of deferred acquisition costs
|
2,512
|
|
|
637
|
|
|
294
|
%
|
Other underwriting expenses
|
1,402
|
|
|
1,098
|
|
|
28
|
%
|
Total underwriting, acquisition and insurance expenses
|
4,594
|
|
|
2,456
|
|
|
87
|
%
|
Interest expense
|
1,213
|
|
|
1,212
|
|
|
—
|
%
|
Other expenses
|
5,593
|
|
|
4,151
|
|
|
35
|
%
|
Total non-GAAP operating benefits and expenses
|
20,742
|
|
|
17,878
|
|
|
16
|
%
|
|
3,369
|
|
|
5,788
|
|
|
(42
|
)%
|
Net loss (income) attributable to noncontrolling interest
|
23
|
|
|
(2
|
)
|
|
(1,250
|
)%
|
Equity loss, before tax
|
(1,511
|
)
|
|
(1,624
|
)
|
|
(7
|
)%
|
Pre-tax non-GAAP operating income (1)
|
$
|
1,881
|
|
|
$
|
4,162
|
|
|
(55
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data
|
|
|
|
|
|
Average invested assets, at amortized cost (2)
|
$
|
787,264
|
|
|
$
|
772,965
|
|
|
2
|
%
|
Other investment-related income included in net investment income (3)
|
137
|
|
|
350
|
|
|
(61
|
)%
|
Average interest sensitive life account value
|
360,586
|
|
|
365,641
|
|
|
(1
|
)%
|
Death benefits, net of reinsurance and reserves released
|
5,939
|
|
|
6,885
|
|
|
(14
|
)%
|
Estimated impact on pre-tax non-GAAP operating income from separate account performance on amortization of deferred acquisition costs (1)
|
(860
|
)
|
|
931
|
|
|
(192
|
)%
|
|
|
(1)
|
See Note 9 to our consolidated financial statements for further information on non-GAAP operating income.
|
|
|
(2)
|
Average invested assets including investments held as securities and indebtedness of related parties.
|
|
|
(3)
|
Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.
|
Pre-tax non-GAAP operating income decreased for the Corporate and Other segment in the
first quarter
of
2018
, compared to the prior year period, primarily due to increases in amortization of deferred acquisition costs from the impact of market performance on our variable business and expenses, partially offset by decreases in death benefits.
Death benefits, net of reinsurance and reserves released, decreased in the
first quarter
of
2018
, compared to the prior year period, due to a decrease in the average size of claims.
Other income and other expenses includes fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries, which include management, advisory, marketing and distribution services and leasing activities. The increase in other expenses in the first quarter of 2018, compared to the prior year period, includes $0.6 million in expenses associated with expanding our wealth management offerings.
We assign a portion of our investments held in securities and indebtedness of related parties to the Corporate and Other segment. These investments include equity interests in limited liability partnerships and corporations, accounted for under the equity method of accounting. Equity loss, before tax, consists of our proportionate share of gains and losses attributable to our relative ownership interest in these investments. See the Equity Income discussion that follows for additional information regarding these investments.
|
|
|
|
|
|
|
|
|
Equity Income
|
|
|
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
|
(Dollars in thousands)
|
Pre-tax equity income (loss):
|
|
|
|
LIHTC
|
$
|
(1,652
|
)
|
|
$
|
(1,805
|
)
|
Other equity method investments
|
836
|
|
|
1,347
|
|
|
(816
|
)
|
|
(458
|
)
|
|
|
|
|
Income taxes
|
|
|
|
Taxes on equity income (loss)
|
171
|
|
|
160
|
|
Investment tax credits
|
3,569
|
|
|
3,529
|
|
Equity income, net of related taxes, included in non-GAAP operating income
|
2,924
|
|
|
3,231
|
|
LIHTC equity losses related to the enactment of the Tax Act (1)
|
(1,069
|
)
|
|
—
|
|
Equity income, net of related income taxes
|
$
|
1,855
|
|
|
$
|
3,231
|
|
|
|
(1)
|
Amount represents LIHTC equity losses recorded by the partnerships upon enactment of the Tax Act. See Note 2 to our consolidated financial statements for additional information.
|
Equity income includes our proportionate share of gains and losses attributable to our ownership interest in partnerships, joint ventures and certain companies over which we exhibit some control but have a minority ownership interest. We consistently use the most recent financial information available, generally for periods not to exceed three months prior to the ending date of the period for which we are reporting, to account for equity income. Several of these entities are investment companies whose operating results are derived primarily from unrealized and realized gains and losses generated by their investment portfolios. As is normal with these types of entities, the level of these gains and losses is subject to fluctuation from period to period depending on the prevailing economic environment, changes in prices of bond and equity securities held by the investment partnerships, the timing and success of initial public offerings or exit strategies, and the timing of the sale of investments held by the partnerships and joint ventures. Our LIHTCs generally generate pre-tax losses and after-tax gains as the related tax credits are realized. The timing of the realization of tax credits is subject to fluctuation from period to period due to the timing of housing project completions and the approval of tax credits. See Note 2 to our consolidated financial statements for further information.
Income Taxes on Non-GAAP Operating Income
The effective tax rate on non-GAAP operating income was
5.9%
for the
first quarter of 2018
, compared with
21.4%
for the
first quarter of 2017
. The 2018 effective tax rate differs from the 2017 rate due to the decrease in the federal corporate tax rate from 35% to 21% under the Tax Act, effective for 2018. As discussed earlier, any impact related to the initial enactment of the Tax Act is excluded from non-GAAP operating income. The effective tax rates differ from the federal statutory rate of 21% in 2018 and 35% in 2017 primarily due to the impact of low-income housing tax credits from equity method investees and tax-exempt investment income.
|
|
|
|
|
|
|
|
|
Impact of Adjustments to Net Income Attributable to FBL
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
|
(Dollars in thousands)
|
Impact of the Tax Act
|
$
|
(1,069
|
)
|
|
$
|
—
|
|
Realized (losses) on investments
|
(1,225
|
)
|
|
(469
|
)
|
Change in net unrealized gain/loss on equity securities
|
(1,817
|
)
|
|
—
|
|
Change in net unrealized gains/losses on derivatives
|
(1,208
|
)
|
|
(49
|
)
|
Offsets: (1)
|
|
|
|
Change in amortization
|
338
|
|
|
253
|
|
Reserve change on interest sensitive products
|
199
|
|
|
(590
|
)
|
Income tax
|
780
|
|
|
300
|
|
Net impact of adjustments to net income
|
$
|
(4,002
|
)
|
|
$
|
(555
|
)
|
Net impact per common share - basic
|
$
|
(0.16
|
)
|
|
$
|
(0.03
|
)
|
Net impact per common share - assuming dilution
|
$
|
(0.16
|
)
|
|
$
|
(0.03
|
)
|
|
|
(1)
|
The items excluded from non-GAAP operating income impact the amortization of deferred acquisition costs, value of business acquired and unearned revenue reserve. Certain interest sensitive reserves as well as income taxes are also impacted.
|
Under the Tax Act, the federal statutory tax rate was changed from 35% to 21% effective January 1, 2018. Accordingly, income taxes on adjustments to net income have been recorded at 35% in 2017 and 21% in 2018 as there are no permanent differences between book and taxable income relating to these adjustments.
|
|
|
|
|
|
|
|
|
Realized Gains (Losses) on Investments
|
|
|
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
|
(Dollars in thousands)
|
Realized gains (losses) on investments:
|
|
|
|
Realized gains on sales
|
$
|
83
|
|
|
$
|
124
|
|
Realized losses on sales
|
(13
|
)
|
|
(527
|
)
|
Change in unrealized gains (losses) on equity securities
|
(1,817
|
)
|
|
—
|
|
Total other-than-temporary impairment charges
|
(1,295
|
)
|
|
(66
|
)
|
Net realized investment losses
|
$
|
(3,042
|
)
|
|
$
|
(469
|
)
|
The level of realized gains (losses) is subject to fluctuation from period to period due to movements in credit spreads and prevailing interest rates, changes in the economic environment, the timing of the sales of the investments generating the realized gains and losses, as well as the timing of other than temporary impairment charges and unrealized gains and losses on equity securities. See “Financial Condition - Investments” and Note 2 to our consolidated financial statements for details regarding our unrealized gains and losses on available-for-sale securities at
March 31, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
Investment Credit Impairment Losses Recognized in Net Income
|
|
Three months ended March 31,
|
|
2018
|
|
2017
|
|
(Dollars in thousands)
|
Corporate securities:
|
|
|
|
Financial
|
$
|
26
|
|
|
$
|
—
|
|
Energy
|
1,014
|
|
|
—
|
|
Residential mortgage-backed
|
—
|
|
|
66
|
|
Securities and indebtedness of related parties
|
255
|
|
|
—
|
|
Total other-than-temporary impairment losses reported in net income
|
$
|
1,295
|
|
|
$
|
66
|
|
Other-than-temporary credit impairment losses for the three months ended March 31, 2018 included a previously impaired energy sector bond due to the commencement of bankruptcy proceedings. Impairment charges were also recognized on securities and indebtedness of related parties due to a decrease in the expected future tax benefits of an LIHTC entity.
Earnings Outlook
While subject to volatility from mortality experience, investment prepayment fee income and the impact of unlocking actuarial assumptions, non-GAAP operating income for the final nine months of 2018 is expected to compare favorably to the non-GAAP operating income for the final nine months of 2017, due primarily to the impact of the Tax Act on our effective tax rate. The benefit of the lower effective tax rate is expected to be partially offset by decreases in non-GAAP pre-tax operating income in the Corporate segment. The Corporate segment results in the final nine months of 2018 are expected to be negatively impacted, relative to the comparable period in 2017, by less favorable equity market performance on the closed-block variable business and lower equity income from LIHTC. The expected decrease in income from LIHTC is driven primarily by the lower effective tax benefit, due to the Tax Act, on future investment partnership losses. The impact of separate account performance during the first quarter of 2018 and 2017 on the amortization of deferred acquisition costs on the variable business is summarized in the preceding discussion of the Corporate Segment results. While subject to volatility, income from LIHTC in the final nine months of 2018 is expected to be approximately $3.0 million less than that earned over the final nine months of 2017.
Financial Condition
Investments
Our investment portfolio decreased
0.4%
to
$8,589.5 million
at
March 31, 2018
compared to
$8,620.2 million
at
December 31, 2017
. The portfolio decreased due to a decrease of $179.0 million of net unrealized appreciation of fixed maturities, partially offset by positive cash flows from operating activities during 2018. Additional details regarding securities in an unrealized gain or loss position at
March 31, 2018
are included in the discussion that follows and in Note 2 to our consolidated financial statements. Details regarding investment impairments are discussed above in the “Realized Gains (Losses) on Investments” section under “Results of Operations.”
We manage the investment portfolio to optimize risk-adjusted yield within the context of prudent asset-liability management. We evaluate multiple cash flow testing scenarios as part of this process. The Company’s investment policy calls for investing primarily in high quality fixed maturity securities and commercial mortgage loans.
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Acquisitions Selected Information
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
2018
|
|
2017
|
|
|
(Dollars in thousands)
|
Cost of acquisitions:
|
|
|
|
|
Corporate
|
|
$
|
48,683
|
|
|
$
|
36,557
|
|
Mortgage- and asset-backed
|
|
189,771
|
|
|
81,869
|
|
United States Government and agencies
|
|
—
|
|
|
248
|
|
Tax-exempt municipals
|
|
33,750
|
|
|
6,462
|
|
Taxable municipals
|
|
—
|
|
|
8,215
|
|
Total
|
|
$
|
272,204
|
|
|
$
|
133,351
|
|
Effective annual yield
|
|
3.89
|
%
|
|
4.18
|
%
|
Credit quality
|
|
|
|
|
NAIC 1 designation
|
|
85.6
|
%
|
|
69.2
|
%
|
NAIC 2 designation
|
|
14.4
|
%
|
|
30.8
|
%
|
Weighted-average life in years
|
|
16.0
|
|
|
13.0
|
The table above summarizes selected information for fixed maturity purchases. The effective annual yield shown is the yield calculated to the “worst-call date.” For non-callable bonds, the worst-call date is always the maturity date. For callable bonds, the worst-call date is the call or maturity date that produces the lowest yield. The weighted-average life is calculated using scheduled pay-downs and expected prepayments for amortizing securities. For non-amortizing securities, the weighted-average life is equal to the stated maturity date.
A portion of the securities acquired during the three months ended
March 31, 2018
were acquired with the proceeds from advances on our funding agreements with the FHLB. There were no securities acquired during the three months ended
March 31, 2017
with proceeds from these agreements. The securities acquired to support these funding agreements often carry a lower average yield than securities acquired to support our other insurance products, due to the shorter maturity and relatively low interest rate paid on those advances. In addition, certain municipal securities acquired are exempt from federal income taxes, and accordingly have a higher actual return than reflected in the yields stated above. The average yield of the securities acquired, excluding the securities supporting the funding agreements and using a tax-adjusted yield for the municipal securities, was 3.97% during the three months ended
March 31, 2018
and was 4.21% during the three months ended March 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Portfolio Summary
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Carrying Value
|
|
Percent
|
|
Carrying Value
|
|
Percent
|
|
(Dollars in thousands)
|
Fixed maturities - available for sale:
|
|
|
|
|
|
|
|
Public
|
$
|
5,484,231
|
|
|
63.8
|
%
|
|
$
|
5,510,658
|
|
|
63.9
|
%
|
144A private placement
|
1,534,572
|
|
|
17.9
|
|
|
1,547,097
|
|
|
18.0
|
|
Private placement
|
228,109
|
|
|
2.7
|
|
|
234,212
|
|
|
2.7
|
|
Total fixed maturities - available for sale
|
7,246,912
|
|
|
84.4
|
|
|
7,291,967
|
|
|
84.6
|
|
Equity securities
|
103,920
|
|
|
1.2
|
|
|
104,145
|
|
|
1.2
|
|
Mortgage loans
|
968,664
|
|
|
11.2
|
|
|
971,812
|
|
|
11.3
|
|
Real estate
|
1,543
|
|
|
—
|
|
|
1,543
|
|
|
—
|
|
Policy loans
|
193,413
|
|
|
2.3
|
|
|
191,398
|
|
|
2.2
|
|
Short-term investments
|
30,075
|
|
|
0.4
|
|
|
17,007
|
|
|
0.5
|
|
Other investments
|
44,973
|
|
|
0.5
|
|
|
42,371
|
|
|
0.2
|
|
Total investments
|
$
|
8,589,500
|
|
|
100.0
|
%
|
|
$
|
8,620,243
|
|
|
100.0
|
%
|
As of
March 31, 2018
,
96.5
% (based on carrying value) of the available-for-sale fixed maturities were investment grade debt securities, defined as being in the highest two National Association of Insurance Commissioners (NAIC) designations. Non-investment grade debt securities generally provide higher yields and involve greater risks than investment grade debt securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers. In addition, the trading market for these securities is usually more limited than for investment grade debt securities. We regularly review the percentage of our portfolio that is invested in non-investment grade debt securities (NAIC designations 3 through 6). As of
March 31, 2018
, no single non-investment grade holding exceeded 0.2% of total investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality by NAIC Designation and Equivalent Rating
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
NAIC Designation
|
|
Equivalent Rating (1)
|
|
Carrying Value
|
|
Percent
|
|
Carrying Value
|
|
Percent
|
|
|
|
|
(Dollars in thousands)
|
1
|
|
AAA, AA, A
|
|
$
|
4,790,494
|
|
|
66.1
|
%
|
|
$
|
4,771,407
|
|
|
65.4
|
%
|
2
|
|
BBB
|
|
2,202,432
|
|
|
30.4
|
|
|
2,267,892
|
|
|
31.1
|
|
|
|
Total investment grade
|
|
6,992,926
|
|
|
96.5
|
|
|
7,039,299
|
|
|
96.5
|
|
3
|
|
BB
|
|
180,425
|
|
|
2.5
|
|
|
174,660
|
|
|
2.4
|
|
4
|
|
B
|
|
45,812
|
|
|
0.6
|
|
|
57,970
|
|
|
0.8
|
|
5
|
|
CCC
|
|
16,462
|
|
|
0.2
|
|
|
13,111
|
|
|
0.2
|
|
6
|
|
In or near default
|
|
11,287
|
|
|
0.2
|
|
|
6,927
|
|
|
0.1
|
|
|
|
Total below investment grade
|
|
253,986
|
|
|
3.5
|
|
|
252,668
|
|
|
3.5
|
|
|
|
Total fixed maturities - available for sale
|
|
$
|
7,246,912
|
|
|
100.0
|
%
|
|
$
|
7,291,967
|
|
|
100.0
|
%
|
|
|
(1)
|
Equivalent ratings are based on those provided by nationally recognized rating agencies with some exceptions for certain residential mortgage, commercial mortgage- and asset-backed securities that are based on the expected loss of the security rather than the probability of default. This may result in a final designation being higher or lower than the equivalent credit rating.
|
See Note 2 to our consolidated financial statements for a summary of fixed maturity securities by contractual maturity date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
|
|
March 31, 2018
|
|
Total Carrying Value
|
|
Carrying
Value of
Securities
with Gross
Unrealized
Gains
|
|
Gross Unrealized Gains
|
|
Carrying Value of Securities
with Gross Unrealized Losses
|
|
Gross Unrealized Losses
|
|
(Dollars in thousands)
|
Corporate securities:
|
|
|
|
|
|
|
|
|
|
Basic industrial
|
$
|
340,291
|
|
|
$
|
274,934
|
|
|
$
|
19,237
|
|
|
$
|
65,357
|
|
|
$
|
(2,225
|
)
|
Capital goods
|
274,099
|
|
|
194,772
|
|
|
12,763
|
|
|
79,327
|
|
|
(1,251
|
)
|
Communications
|
138,413
|
|
|
107,246
|
|
|
8,154
|
|
|
31,167
|
|
|
(1,932
|
)
|
Consumer cyclical
|
123,890
|
|
|
102,189
|
|
|
6,065
|
|
|
21,701
|
|
|
(741
|
)
|
Consumer non-cyclical
|
499,307
|
|
|
351,083
|
|
|
21,999
|
|
|
148,224
|
|
|
(10,043
|
)
|
Energy
|
447,852
|
|
|
340,742
|
|
|
23,280
|
|
|
107,110
|
|
|
(7,943
|
)
|
Finance
|
672,394
|
|
|
537,703
|
|
|
35,664
|
|
|
134,691
|
|
|
(4,658
|
)
|
Transportation
|
99,160
|
|
|
86,587
|
|
|
5,069
|
|
|
12,573
|
|
|
(500
|
)
|
Utilities
|
777,781
|
|
|
724,854
|
|
|
83,570
|
|
|
52,927
|
|
|
(2,108
|
)
|
Other
|
172,494
|
|
|
146,136
|
|
|
8,453
|
|
|
26,358
|
|
|
(560
|
)
|
Total corporate securities
|
3,545,681
|
|
|
2,866,246
|
|
|
224,254
|
|
|
679,435
|
|
|
(31,961
|
)
|
Mortgage- and asset-backed securities
|
2,161,112
|
|
|
1,279,039
|
|
|
73,787
|
|
|
882,073
|
|
|
(22,622
|
)
|
United States Government and agencies
|
23,212
|
|
|
15,782
|
|
|
1,333
|
|
|
7,430
|
|
|
(130
|
)
|
States and political subdivisions
|
1,516,907
|
|
|
1,420,674
|
|
|
113,842
|
|
|
96,233
|
|
|
(2,782
|
)
|
Total
|
$
|
7,246,912
|
|
|
$
|
5,581,741
|
|
|
$
|
413,216
|
|
|
$
|
1,665,171
|
|
|
$
|
(57,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Total Carrying Value
|
|
Carrying
Value of
Securities
with Gross
Unrealized
Gains
|
|
Gross Unrealized Gains
|
|
Carrying Value of Securities
with Gross Unrealized Losses
|
|
Gross Unrealized Losses
|
|
(Dollars in thousands)
|
Corporate securities:
|
|
|
|
|
|
|
|
|
|
Basic industrial
|
$
|
353,351
|
|
|
$
|
336,293
|
|
|
$
|
29,849
|
|
|
$
|
17,058
|
|
|
$
|
(479
|
)
|
Capital goods
|
279,281
|
|
|
271,346
|
|
|
21,624
|
|
|
7,935
|
|
|
(139
|
)
|
Communications
|
151,763
|
|
|
133,263
|
|
|
12,364
|
|
|
18,500
|
|
|
(862
|
)
|
Consumer cyclical
|
128,618
|
|
|
117,370
|
|
|
9,118
|
|
|
11,248
|
|
|
(516
|
)
|
Consumer non-cyclical
|
521,128
|
|
|
461,205
|
|
|
41,221
|
|
|
59,923
|
|
|
(4,684
|
)
|
Energy
|
462,437
|
|
|
409,768
|
|
|
34,028
|
|
|
52,669
|
|
|
(5,950
|
)
|
Finance
|
695,604
|
|
|
633,513
|
|
|
50,908
|
|
|
62,091
|
|
|
(1,143
|
)
|
Transportation
|
103,049
|
|
|
93,921
|
|
|
7,978
|
|
|
9,128
|
|
|
(141
|
)
|
Utilities
|
814,238
|
|
|
796,782
|
|
|
108,914
|
|
|
17,456
|
|
|
(1,909
|
)
|
Other
|
178,802
|
|
|
165,971
|
|
|
13,295
|
|
|
12,831
|
|
|
(132
|
)
|
Total corporate securities
|
3,688,271
|
|
|
3,419,432
|
|
|
329,299
|
|
|
268,839
|
|
|
(15,955
|
)
|
Mortgage- and asset-backed securities
|
2,055,090
|
|
|
1,549,187
|
|
|
88,999
|
|
|
505,903
|
|
|
(9,727
|
)
|
United States Government and agencies
|
24,905
|
|
|
17,343
|
|
|
1,606
|
|
|
7,562
|
|
|
(79
|
)
|
States and political subdivisions
|
1,523,701
|
|
|
1,497,292
|
|
|
141,813
|
|
|
26,409
|
|
|
(1,239
|
)
|
Total
|
$
|
7,291,967
|
|
|
$
|
6,483,254
|
|
|
$
|
561,717
|
|
|
$
|
808,713
|
|
|
$
|
(27,000
|
)
|
Our largest unrealized loss is in the consumer non-cyclical sector. Within this sector two companies represent 48.4% of the unrealized loss. One company is a grocery store chain representing $2.9 million of the unrealized loss while the other company is a large pharmaceutical company representing $1.9 million of the unrealized loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
|
|
|
|
|
March 31, 2018
|
NAIC Designation
|
|
Equivalent Rating
|
|
Carrying Value of Securities with Gross Unrealized Losses
|
|
Percent of Total
|
|
Gross Unrealized Losses
|
|
Percent of Total
|
|
|
|
|
(Dollars in thousands)
|
1
|
|
AAA, AA, A
|
|
$
|
1,055,625
|
|
|
63.4
|
%
|
|
$
|
(26,946
|
)
|
|
46.9
|
%
|
2
|
|
BBB
|
|
497,585
|
|
|
29.9
|
|
|
(16,676
|
)
|
|
29.0
|
|
|
|
Total investment grade
|
|
1,553,210
|
|
|
93.3
|
|
|
(43,622
|
)
|
|
75.9
|
|
3
|
|
BB
|
|
75,479
|
|
|
4.5
|
|
|
(4,928
|
)
|
|
8.6
|
|
4
|
|
B
|
|
25,015
|
|
|
1.5
|
|
|
(5,688
|
)
|
|
9.9
|
|
5
|
|
CCC
|
|
11,457
|
|
|
0.7
|
|
|
(3,257
|
)
|
|
5.6
|
|
6
|
|
In or near default
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Total below investment grade
|
|
111,961
|
|
|
6.7
|
|
|
(13,873
|
)
|
|
24.1
|
|
|
|
Total
|
|
$
|
1,665,171
|
|
|
100.0
|
%
|
|
$
|
(57,495
|
)
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
NAIC Designation
|
|
Equivalent Rating
|
|
Carrying Value of Securities with Gross Unrealized Losses
|
|
Percent of Total
|
|
Gross Unrealized Losses
|
|
Percent of Total
|
|
|
|
|
(Dollars in thousands)
|
1
|
|
AAA, AA, A
|
|
$
|
518,748
|
|
|
64.1
|
%
|
|
$
|
(8,638
|
)
|
|
32.0
|
%
|
2
|
|
BBB
|
|
199,529
|
|
|
24.7
|
|
|
(6,927
|
)
|
|
25.6
|
|
|
|
Total investment grade
|
|
718,277
|
|
|
88.8
|
|
|
(15,565
|
)
|
|
57.6
|
|
3
|
|
BB
|
|
41,488
|
|
|
5.1
|
|
|
(819
|
)
|
|
3.0
|
|
4
|
|
B
|
|
37,944
|
|
|
4.7
|
|
|
(8,125
|
)
|
|
30.1
|
|
5
|
|
CCC
|
|
4,109
|
|
|
0.5
|
|
|
(1,314
|
)
|
|
4.9
|
|
6
|
|
In or near default
|
|
6,895
|
|
|
0.9
|
|
|
(1,177
|
)
|
|
4.4
|
|
|
|
Total below investment grade
|
|
90,436
|
|
|
11.2
|
|
|
(11,435
|
)
|
|
42.4
|
|
|
|
Total
|
|
$
|
808,713
|
|
|
100.0
|
%
|
|
$
|
(27,000
|
)
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
|
|
March 31, 2018
|
|
Amortized Cost
|
|
Gross Unrealized Losses
|
|
Fair Value
is Less than 75% of Cost
|
|
Fair Value is
75% or Greater
than Cost
|
|
Fair Value is Less than 75% of Cost
|
|
Fair Value is
75% or Greater
than Cost
|
|
(Dollars in thousands)
|
Three months or less
|
$
|
—
|
|
|
$
|
983,814
|
|
|
$
|
—
|
|
|
$
|
(18,462
|
)
|
Greater than three months to six months
|
—
|
|
|
240,967
|
|
|
—
|
|
|
(6,690
|
)
|
Greater than six months to nine months
|
—
|
|
|
156,366
|
|
|
—
|
|
|
(6,134
|
)
|
Greater than nine months to twelve months
|
—
|
|
|
20,149
|
|
|
—
|
|
|
(1,176
|
)
|
Greater than twelve months
|
26,315
|
|
|
295,055
|
|
|
(7,214
|
)
|
|
(17,819
|
)
|
Total
|
$
|
26,315
|
|
|
$
|
1,696,351
|
|
|
$
|
(7,214
|
)
|
|
$
|
(50,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
|
|
December 31, 2017
|
|
Amortized Cost
|
|
Gross Unrealized Losses
|
|
Fair Value
is Less than 75% of Cost
|
|
Fair Value is 75% or Greater than Cost
|
|
Fair Value is Less than 75% of Cost
|
|
Fair Value is
75% or Greater
than Cost
|
|
(Dollars in thousands)
|
Three months or less
|
$
|
—
|
|
|
$
|
292,187
|
|
|
$
|
—
|
|
|
$
|
(3,974
|
)
|
Greater than three months to six months
|
—
|
|
|
164,170
|
|
|
—
|
|
|
(2,331
|
)
|
Greater than six months to nine months
|
—
|
|
|
24,821
|
|
|
—
|
|
|
(579
|
)
|
Greater than nine months to twelve months
|
—
|
|
|
9,350
|
|
|
—
|
|
|
(361
|
)
|
Greater than twelve months
|
16,747
|
|
|
328,438
|
|
|
(4,798
|
)
|
|
(14,957
|
)
|
Total
|
$
|
16,747
|
|
|
$
|
818,966
|
|
|
$
|
(4,798
|
)
|
|
$
|
(22,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Fixed Maturities with Unrealized Losses by Maturity Date
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Carrying Value of Securities with Gross Unrealized Losses
|
|
Gross
Unrealized
Losses
|
|
Carrying Value of Securities with Gross Unrealized Losses
|
|
Gross
Unrealized
Losses
|
|
(Dollars in thousands)
|
Due in one year or less
|
$
|
873
|
|
|
$
|
(2
|
)
|
|
$
|
872
|
|
|
$
|
(2
|
)
|
Due after one year through five years
|
43,965
|
|
|
(1,763
|
)
|
|
25,857
|
|
|
(1,052
|
)
|
Due after five years through ten years
|
204,523
|
|
|
(7,802
|
)
|
|
107,198
|
|
|
(3,657
|
)
|
Due after ten years
|
533,737
|
|
|
(25,306
|
)
|
|
168,883
|
|
|
(12,562
|
)
|
|
783,098
|
|
|
(34,873
|
)
|
|
302,810
|
|
|
(17,273
|
)
|
Mortgage- and asset-backed
|
882,073
|
|
|
(22,622
|
)
|
|
505,903
|
|
|
(9,727
|
)
|
Total
|
$
|
1,665,171
|
|
|
$
|
(57,495
|
)
|
|
$
|
808,713
|
|
|
$
|
(27,000
|
)
|
See Note 2 to our consolidated financial statements for additional analysis of these unrealized losses.
Mortgage- and Asset-Backed Securities
Mortgage-backed and other asset-backed securities are purchased when we believe these types of investments provide superior risk-adjusted returns compared to returns of more conventional investments such as corporate bonds and mortgage loans. These securities are diversified as to collateral types, cash flow characteristics and maturity.
The repayment pattern on mortgage and other asset-backed securities is more variable than that of more traditional fixed maturity securities because the repayment terms are tied to underlying debt obligations that are subject to prepayments. The prepayment speeds (e.g., the rate of individuals refinancing their home mortgages) can vary based on a number of economic factors that cannot be predicted with certainty. These factors include the prevailing interest rate environment and general status of the economy.
At each balance sheet date, we review and update our expectation of future prepayment speeds and the book value of the mortgage and other asset-backed securities purchased at a premium or discount is reset, if needed. See Note 1 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2017 for more detail on accounting for the amortization of premium and accrual of discount on mortgage-backed and asset-backed securities.
Our direct exposure to the Alt-A home equity and subprime first-lien sectors is limited to investments in structured securities collateralized by senior tranches of residential mortgage loans. We also have a partnership interest in one fund at
March 31, 2018
and
December 31, 2017
, that owns securities backed by Alt-A home equity, subprime first-lien and adjustable rate mortgage collateral. The fund is reported as securities and indebtedness of related parties in our consolidated balance sheets with a fair value of $2.7 million at
March 31, 2018
and $3.0 million at
December 31, 2017
. We do not own any direct investments in subprime lenders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage- and Asset-Backed Securities by Collateral Type
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Amortized Cost
|
|
Carrying Value
|
|
Percent
of Fixed Maturities
|
|
Amortized Cost
|
|
Carrying Value
|
|
Percent
of Fixed Maturities
|
|
(Dollars in thousands)
|
Government agency
|
$
|
234,923
|
|
|
$
|
240,154
|
|
|
3.3
|
%
|
|
$
|
220,385
|
|
|
$
|
230,792
|
|
|
3.2
|
%
|
Prime
|
213,406
|
|
|
224,087
|
|
|
3.1
|
|
|
181,397
|
|
|
194,081
|
|
|
2.7
|
|
Alt-A
|
94,100
|
|
|
107,883
|
|
|
1.5
|
|
|
98,100
|
|
|
111,993
|
|
|
1.5
|
|
Subprime
|
140,252
|
|
|
151,349
|
|
|
2.1
|
|
|
139,826
|
|
|
149,469
|
|
|
2.0
|
|
Commercial mortgage
|
784,999
|
|
|
793,276
|
|
|
10.9
|
|
|
674,076
|
|
|
705,307
|
|
|
9.7
|
|
Non-mortgage
|
642,267
|
|
|
644,363
|
|
|
8.9
|
|
|
662,034
|
|
|
663,448
|
|
|
9.1
|
|
Total
|
$
|
2,109,947
|
|
|
$
|
2,161,112
|
|
|
29.8
|
%
|
|
$
|
1,975,818
|
|
|
$
|
2,055,090
|
|
|
28.2
|
%
|
The mortgage- and asset-backed securities can be summarized into three broad categories: residential, commercial and other asset-backed securities.
The residential mortgage-backed portfolio includes government agency pass-through and collateralized mortgage obligation (CMO) securities. With a government agency pass-through security, we receive a pro rata share of principal payments as payments are made on the underlying mortgage loans. CMOs consist of pools of mortgages divided into sections or “tranches” with varying stated maturities that provide sequential retirement of the bonds. While each tranche receives monthly interest payments, a subsequent tranche is not entitled to receive payment of principal until the entire principal of the preceding tranche is paid off. We primarily invest in sequential tranches, which allow us to manage cash flow stability and prepayment risk by the level of tranche in which we invest. In addition, to provide call protection and more stable average lives, we invest in CMOs such as planned amortization class (PAC) and targeted amortization class (TAC) securities. PAC bonds provide more predictable cash flows within a range of prepayment speeds and provide some protection against prepayment risk. TAC bonds provide protection from a rise in the prepayment rate due to falling interest rates. We generally do not purchase certain types of CMOs that we believe would subject the investment portfolio to excessive prepayment risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage-Backed Securities by NAIC Designation and Origination Year
|
|
|
|
|
March 31, 2018
|
|
|
2004 & Prior
|
|
2005 to 2008
|
|
2009 & After
|
|
Total
|
NAIC Designation
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
|
(Dollars in thousands)
|
1
|
|
$
|
84,156
|
|
|
$
|
86,579
|
|
|
$
|
77,235
|
|
|
$
|
98,351
|
|
|
$
|
355,136
|
|
|
$
|
356,918
|
|
|
$
|
516,527
|
|
|
$
|
541,848
|
|
3
|
|
—
|
|
|
—
|
|
|
2,378
|
|
|
2,330
|
|
|
—
|
|
|
—
|
|
|
2,378
|
|
|
2,330
|
|
4
|
|
494
|
|
|
503
|
|
|
8,562
|
|
|
8,853
|
|
|
—
|
|
|
—
|
|
|
9,056
|
|
|
9,356
|
|
6
|
|
10
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
10
|
|
Total
|
|
$
|
84,660
|
|
|
$
|
87,092
|
|
|
$
|
88,175
|
|
|
$
|
109,534
|
|
|
$
|
355,136
|
|
|
$
|
356,918
|
|
|
$
|
527,971
|
|
|
$
|
553,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
2004 & Prior
|
|
2005 to 2008
|
|
2009 & After
|
|
Total
|
NAIC Designation
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
|
(Dollars in thousands)
|
1
|
|
$
|
88,773
|
|
|
$
|
91,424
|
|
|
$
|
79,358
|
|
|
$
|
101,123
|
|
|
$
|
303,659
|
|
|
$
|
311,883
|
|
|
$
|
471,790
|
|
|
$
|
504,430
|
|
2
|
|
—
|
|
|
—
|
|
|
876
|
|
|
877
|
|
|
—
|
|
|
—
|
|
|
876
|
|
|
877
|
|
3
|
|
—
|
|
|
—
|
|
|
1,697
|
|
|
1,634
|
|
|
—
|
|
|
—
|
|
|
1,697
|
|
|
1,634
|
|
4
|
|
584
|
|
|
592
|
|
|
8,713
|
|
|
8,738
|
|
|
—
|
|
|
—
|
|
|
9,297
|
|
|
9,330
|
|
6
|
—
|
|
11
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
10
|
|
Total
|
|
$
|
89,368
|
|
|
$
|
92,026
|
|
|
$
|
90,644
|
|
|
$
|
112,372
|
|
|
$
|
303,659
|
|
|
$
|
311,883
|
|
|
$
|
483,671
|
|
|
$
|
516,281
|
|
The commercial mortgage-backed securities are primarily sequential securities. Commercial mortgage-backed securities typically have cash flows that are less subject to refinance risk than residential mortgage-backed securities principally due to prepayment restrictions on many of the underlying commercial mortgage loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year
|
|
|
|
|
March 31, 2018
|
|
|
2004 & Prior
|
|
2005 to 2008
|
|
2009 & After
|
|
Total
|
NAIC Designation
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
|
(Dollars in thousands)
|
1
|
|
$
|
8,768
|
|
|
$
|
9,358
|
|
|
$
|
112,422
|
|
|
$
|
124,511
|
|
|
$
|
627,661
|
|
|
$
|
621,694
|
|
|
$
|
748,851
|
|
|
$
|
755,563
|
|
2
|
|
—
|
|
|
—
|
|
|
36,148
|
|
|
37,713
|
|
|
—
|
|
|
—
|
|
|
36,148
|
|
|
37,713
|
|
Total (1)
|
|
$
|
8,768
|
|
|
$
|
9,358
|
|
|
$
|
148,570
|
|
|
$
|
162,224
|
|
|
$
|
627,661
|
|
|
$
|
621,694
|
|
|
$
|
784,999
|
|
|
$
|
793,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
2004 & Prior
|
|
2005 to 2008
|
|
2009 & After
|
|
Total
|
NAIC Designation
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
|
(Dollars in thousands)
|
1
|
|
$
|
8,878
|
|
|
$
|
9,661
|
|
|
$
|
114,230
|
|
|
$
|
128,907
|
|
|
$
|
515,654
|
|
|
$
|
529,192
|
|
|
$
|
638,762
|
|
|
$
|
667,760
|
|
2
|
|
—
|
|
|
—
|
|
|
35,314
|
|
|
37,547
|
|
|
—
|
|
|
—
|
|
|
35,314
|
|
|
37,547
|
|
Total (1)
|
|
$
|
8,878
|
|
|
$
|
9,661
|
|
|
$
|
149,544
|
|
|
$
|
166,454
|
|
|
$
|
515,654
|
|
|
$
|
529,192
|
|
|
$
|
674,076
|
|
|
$
|
705,307
|
|
|
|
(1)
|
The commercial mortgage-backed securities (CMBS) portfolio included government agency-backed securities with a carrying value of $608.2 million at
March 31, 2018
and $515.7 million at
December 31, 2017
. Also included in the CMBS are military housing bonds totaling $157.0 million at
March 31, 2018
and $161.1 million at
December 31, 2017
. These bonds are used to fund the construction of multi-family homes on United States military bases. The bonds are backed by a first mortgage lien on residential military housing projects.
|
The other asset-backed securities are backed by both residential and non-residential collateral. The collateral for residential asset-backed securities primarily consists of second lien fixed-rate home equity loans. The cash flows of these securities are less subject to prepayment risk than residential mortgage-backed securities as the borrowers are less likely to refinance than those with only a first lien mortgage. The collateral for non-residential asset-backed securities primarily includes securities backed by credit card receivables, auto dealer receivables, auto installment loans, aircraft leases, middle market and syndicated business loans, timeshare receivables and trade and account receivables. The majority of these securities are high quality, short-duration assets with limited cash flow variability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Asset-Backed Securities by NAIC Designation and Origination Year
|
|
|
|
|
March 31, 2018
|
|
|
2004 & Prior
|
|
2005 to 2008
|
|
2009 & After
|
|
Total
|
NAIC Designation
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
|
(Dollars in thousands)
|
1
|
|
$
|
10,317
|
|
|
$
|
10,073
|
|
|
$
|
150,706
|
|
|
$
|
166,109
|
|
|
$
|
493,424
|
|
|
$
|
493,338
|
|
|
$
|
654,447
|
|
|
$
|
669,520
|
|
2
|
|
1,686
|
|
|
1,781
|
|
|
2,167
|
|
|
2,276
|
|
|
103,836
|
|
|
104,603
|
|
|
107,689
|
|
|
108,660
|
|
3
|
|
—
|
|
|
—
|
|
|
351
|
|
|
349
|
|
|
21,858
|
|
|
21,662
|
|
|
22,209
|
|
|
22,011
|
|
4
|
|
186
|
|
|
175
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
186
|
|
|
175
|
|
5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,375
|
|
|
4,375
|
|
|
4,375
|
|
|
4,375
|
|
6
|
|
—
|
|
|
—
|
|
|
8,071
|
|
|
9,551
|
|
|
—
|
|
|
—
|
|
|
8,071
|
|
|
9,551
|
|
Total
|
|
$
|
12,189
|
|
|
$
|
12,029
|
|
|
$
|
161,295
|
|
|
$
|
178,285
|
|
|
$
|
623,493
|
|
|
$
|
623,978
|
|
|
$
|
796,977
|
|
|
$
|
814,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Asset-Backed Securities by NAIC Designation and Origination Year
|
|
|
|
|
December 31, 2017
|
|
|
2004 & Prior
|
|
2005 to 2008
|
|
2009 & After
|
|
Total
|
NAIC Designation
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
|
(Dollars in thousands)
|
1
|
|
$
|
10,606
|
|
|
$
|
10,367
|
|
|
$
|
151,775
|
|
|
$
|
166,223
|
|
|
$
|
512,548
|
|
|
$
|
513,792
|
|
|
$
|
674,929
|
|
|
$
|
690,382
|
|
2
|
|
1,745
|
|
|
1,846
|
|
|
2,612
|
|
|
2,557
|
|
|
97,549
|
|
|
98,811
|
|
|
101,906
|
|
|
103,214
|
|
3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,586
|
|
|
26,444
|
|
|
26,586
|
|
|
26,444
|
|
4
|
|
189
|
|
|
178
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189
|
|
|
178
|
|
5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,400
|
|
|
6,400
|
|
|
6,400
|
|
|
6,400
|
|
6
|
|
—
|
|
|
—
|
|
|
8,061
|
|
|
6,884
|
|
|
—
|
|
|
—
|
|
|
8,061
|
|
|
6,884
|
|
Total
|
|
$
|
12,540
|
|
|
$
|
12,391
|
|
|
$
|
162,448
|
|
|
$
|
175,664
|
|
|
$
|
643,083
|
|
|
$
|
645,447
|
|
|
$
|
818,071
|
|
|
$
|
833,502
|
|
State and Political Subdivision Securities
State and political subdivision securities totaled $1,516.9 million, or 20.9% of total fixed maturities, at
March 31, 2018
, and $1,523.7 million, or 20.9% of total fixed maturities at
December 31, 2017
and include investments in general obligation, revenue and municipal housing bonds. Our investment strategy is to utilize municipal bonds in addition to corporate bonds, as we believe they provide additional diversification and have historically low default rates compared with similarly rated corporate bonds. We evaluate the credit strength of the underlying issues on both a quantitative and qualitative basis, excluding insurance, prior to acquisition. The majority of the municipal bonds we hold are investment grade credits without consideration of insurance. Our municipal bonds are well diversified by type and geography with the top exposure being water and sewer revenue bonds. We do not hold any Puerto Rico-related bonds. Exposure to the state of Illinois and municipalities within the state accounted for 1.5% of our total fixed maturities at
March 31, 2018
. As of
March 31, 2018
, our Illinois-related portfolio holdings were rated investment grade, and were trading at 108.9% of amortized cost. Our municipal bond exposure had an average rating of Aa2/AA and our holdings were trading at 107.9% of amortized cost at
March 31, 2018
.
Equity Securities
Equity securities totaled
$103.9 million
at
March 31, 2018
and
$104.1 million
at
December 31, 2017
. Due to the adoption of new accounting guidance during the first quarter of 2018, changes in unrealized gains and losses are now recognized in net income rather than other comprehensive income. See Note 1 to our consolidated financial statements for further information regarding the impact of the new guidance on the reporting of equity securities. At
December 31, 2017
, gross unrealized gains totale
d $7.7 million and gross unrealized losses totaled $0.3
mill
ion on these securities. The unrealized losses were attributable to non-redeemable perpetual preferred securities from issuers in the financial sector.
Mortgage Loans
Mortgage loans totaled
$968.7 million
at
March 31, 2018
and
$971.8 million
at
December 31, 2017
. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. The total number of commercial mortgage loans outstanding was 189 at
March 31, 2018
and 190 at
December 31, 2017
. In the first three months of 2018, new loans ranged from $1.4 million to $5.8 million in size, with an average loan size of $3.6 million, an average loan term of 10 years and an average net yield of 4.56%. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. All of our mortgage loans are amortizing principal as of
March 31, 2018
. At
March 31, 2018
, the average loan-to-value of the current outstanding principal balance using the most recent appraised value was 54.5% and the weighted average debt service coverage ratio was 1.6 based on the results of our 2016 annual study. See Note 2 to our consolidated financial statements for further discussion regarding our mortgage loans.
Other Assets and Liabilities
Deferred acquisition costs increased
18.3%
to
$357.9 million
at
March 31, 2018
, compared to
December 31, 2017
, primarily due to a $53.2 million decrease in the impact of the change in net unrealized appreciation on fixed maturity securities during the period. Cash and cash equivalents decreased 74.1% to $13.7 million primarily due to normal fluctuations in timing of payments made and received. Assets and liabilities held in separate accounts decreased
2.0%
to
$638.8 million
primarily due to market performance on the underlying investment portfolios.
Future policy benefits increased
2.2%
to
$7,208.5 million
at
March 31, 2018
, compared to
December 31, 2017
, primarily due to an increase in the volume of annuity and life business in force. Deferred income taxes decreased 20.9% to
$104.4 million
primarily due to the tax impact of the change in unrealized appreciation/depreciation on investments. Other liabilities decreased 18.5% to $90.5 million due to a decrease in unsettled security trades.
Stockholders’ Equity
As discussed in Note 7 to our consolidated financial statements, stockholders’ equity was impacted by capital deployment actions during the first quarter of 2018. We paid a special cash dividend of $1.50 per share on Class A and Class B common stock and increased our regular quarterly dividend by 4.5% to $0.46 per share during March 2018.
Our stockholders’ equity decreased
9.0%
to
$1,264.2 million
at
March 31, 2018
, compared to
$1,388.8 million
at
December 31, 2017
, primarily due to the change in unrealized appreciation of fixed maturity securities during the period and dividends paid, partially offset by net income.
At
March 31, 2018
, our common stockholders’ equity was
$1,261.2 million
, or
$50.78
per share, compared to
$1,385.8 million
, or
$55.59
per share, at
December 31, 2017
. Included in stockholders’ equity per common share is
$7.50
at
March 31, 2018
and
$11.43
at
December 31, 2017
attributable to accumulated other comprehensive income.
Liquidity and Capital Resources
Cash Flows
During the first quarter of
2018
, our operating activities generated cash flows totaling
$51.6 million
, consisting of net income of
$23.6 million
adjusted for non-cash operating revenues and expenses netting to
$28.0 million
. We used cash of
$172.3 million
in our investing activities during the
2018
period. The primary uses were
$321.8 million
of investment acquisitions, mostly in fixed maturity securities, partially offset by
$164.4 million
in sales, maturities and repayments of investments. Our financing activities provided cash of
$81.6 million
during the
2018
period. The primary financing source was
$261.2 million
in receipts from interest sensitive products credited to policyholder account balances, which was partially offset by
$125.0 million
for return of policyholder account balances on interest sensitive products and
$48.8 million
for dividends paid to stockholders.
Sources and Uses of Capital Resources
Parent company cash inflows from operations consist primarily of fees that it charges various subsidiaries and affiliates for management of their operations, expense reimbursements and tax settlements from subsidiaries and affiliates, proceeds from the exercise of employee stock options, investment income and dividends from subsidiaries, if declared and paid. Revenue sources for the parent company during the three months ended
March 31, 2018
included management fees from subsidiaries and affiliates totaling $2.0 million and dividends of $52.5 million. Cash outflows are principally for salaries, taxes and other expenses related to providing management services, dividends on outstanding stock, stock repurchases and interest on our parent company debt.
We paid regular cash dividends on our common and preferred stock during the three-month period ended March 31 totaling $11.5 million in
2018
and $11.0 million in
2017
. In addition, we paid a special $1.50 per common share cash dividend in March 2018 totaling $37.3 million and a $1.50 per common share cash dividend in March 2017 totaling $37.4 million. It is anticipated that quarterly cash dividend requirements for 2018 will be $0.0075 per Series B preferred share and $0.46 per common share. The level of common stock dividends are analyzed quarterly and are dependent upon our capital and liquidity positions. In addition, alternative uses of excess capital may impact future dividend levels. Assuming these quarterly dividend rates, the
common and preferred dividends would total approximately $34.2 million for the remainder of 2018. The parent company expects to have sufficient resources and cash flows to meet its interest and dividend payments throughout 2018. The parent company had available cash and investments totaling $48.2
million at
March 31, 2018
. The parent company expects to rely on available cash resources, dividends from Farm Bureau Life and management fee income to make dividend payments to its stockholders and interest payments on its debt. In addition, our parent company and Farm Bureau Life have entered into a reciprocal line of credit arrangement, which provides additional liquidity for either entity up to $20.0 million. We had no material commitments for capital expenditures as of
March 31, 2018
.
As discussed in Note 7 to our consolidated financial statements, we have periodically taken advantage of opportunities to repurchase our outstanding Class A common stock through Class A common stock repurchase programs approved by our Board of Directors. At
March 31, 2018
, $50.0 million remains available for repurchase under the Class A common stock repurchase program. We repurchased 99,312 shares of Class A common stock for $6.8 million during the three months ended
March 31, 2018
. Completion of this program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice.
Interest payments on our debt totaled $1.2 million for the three months ended
March 31, 2018
and
March 31, 2017
. Interest payments on our debt outstanding at
March 31, 2018
are estimated to be $3.6 million for the remainder of
2018
.
Farm Bureau Life’s cash inflows primarily consist of premiums; deposits to policyholder account balances; income from investments; sales, maturities and calls of investments; and repayments of investment principal. Farm Bureau Life’s cash outflows are primarily related to withdrawals of policyholder account balances, investment purchases, payment of policy acquisition costs, policyholder benefits, income taxes, current operating expenses and dividends. Life insurance companies generally produce a positive cash flow that may be measured by the degree to which cash inflows are adequate to meet benefit obligations to policyholders and normal operating expenses as they are incurred. The remaining cash flow is generally used to increase the asset base to provide funds to meet the need for future policy benefit payments and for writing new business. Continuing operations and financing activities from Farm Bureau Life relating to interest sensitive products provided funds totaling
$196.4 million
for the three months ended
March 31, 2018
and
$83.7 million
for the prior year period.
Farm Bureau Life’s ability to pay dividends to the parent company is limited by law to earned profits (statutory unassigned surplus) as of the date the dividend is paid, as determined in accordance with accounting practices prescribed by insurance regulatory authorities of the State of Iowa. At December 31, 2017, Farm Bureau Life’s statutory unassigned surplus was $482.5 million. There are certain additional limits on the amount of dividends that may be paid within a year without approval of the Insurance Division, Department of Commerce of the State of Iowa as discussed in Note 8 to our consolidated financial statements included in Item 8 of our 2017 Form 10-K. During the remainder of 2018, the maximum amount legally available for distribution to the parent company without further regulatory approval is $56.1 million.
We manage the amount of capital held by our insurance subsidiaries to ensure they meet regulatory requirements. State laws specify regulatory actions if an insurer’s risk-based capital (RBC) ratio, a measure of solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC based on the various risk factors related to an insurance company’s capital and surplus, including insurance, business, asset and interest rate risks. The insurance regulators monitor the level of RBC against a statutory “authorized control level” RBC at which point regulators have the option to assume control of the insurance company. The company action level RBC is 200% of the authorized control level and is the first point at which any action would be triggered. Our adjusted capital and RBC is reported to our insurance regulators annually based on formulas that may be revised throughout the year. We estimate our adjusted capital and RBC quarterly; however, these estimates may differ from annual results should the regulatory calculations change. As of
March 31, 2018
, Farm Bureau Life’s statutory total adjusted capital is estimated at $658.6 million, resulting in a RBC ratio of 543%, based on company action level capital of $121.2 million.
On a consolidated basis, we anticipate that funds to meet our short-term and long-term capital expenditures, cash dividends to stockholders and operating cash needs will come from existing capital and internally-generated funds. However, there can be no assurance that future experience regarding benefits and surrenders will be similar to historic experience since benefits and surrender levels are influenced by such factors as the interest rate environment, our financial strength ratings, the economy and other factors that impact policyholder behavior. Farm Bureau Life is a member of the FHLB, which provides a source for additional liquidity, if needed. This membership allows us to utilize fixed or floating rate advances offered by the FHLB and secured by qualifying collateral. Our total capacity to utilize such advances is impacted by multiple factors including the market value of eligible collateral, our level of statutory admitted assets and excess reserves and our willingness or capacity to hold activity-based FHLB common stock.
Contractual Obligations
In the normal course of business, we enter into insurance contracts, financing transactions, lease agreements or other commitments that are necessary or beneficial to our operations. These commitments may obligate us to certain cash flows during future periods. There have been no material changes to our total contractual obligations since
December 31, 2017
.