Our principal operations are conducted from property leased from a subsidiary of the Iowa Farm Bureau Federation under a 10 year operating lease that expires in 2021, with automatic five-year extensions unless terminated by one of the parties at least six months prior to the expiration date. Currently, the property leased primarily consists of approximately 154,000 square feet of a 400,000 square foot office building in West Des Moines, Iowa. We consider the current facilities to be adequate for the foreseeable future.
We then describe the business environment in which we operate including factors that affect operating results.
We highlight significant events that are important to understanding our results of operations and financial condition.
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 operating income, which excludes the impact of certain items that are included in net income. See Note 13 to our consolidated financial statements included in Item 8 for further information regarding how we define our segments and operating income.
We also include within our analysis “premiums collected,” which is not a measure used in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), but is a common industry measure of agent productivity. See Note 13 to our consolidated financial statements included in Item 8 for further information regarding this measure and its relationship to GAAP revenues.
On December 30, 2011, we completed the sale of our wholly-owned subsidiary, EquiTrust Life Insurance Company (EquiTrust Life). As a result of the sale, certain lines of business are considered discontinued operations, and unless otherwise indicated, have been removed from the discussion that follows. See Note 15 to our consolidated financial statements included in Item 8 for additional information related to the sale.
Gross Domestic Product increased approximately 2.6% during 2014 based on early estimates.
The low market interest rate environment continues to impact our investment yields as well as the interest we credit on our interest sensitive products. Interest rates remained low during 2014, as the benchmark 10 year U.S. Treasury yield declined during the year, offsetting moderate increases in overall credit spreads and placing further strain on available investment yields. Our average investment portfolio yield declined during 2014 as yields on new acquisitions were generally lower than the average portfolio yield. As a result we proactively reduced customer crediting rates on certain annuity and universal life products. Low crediting rates 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 continue to reassess the future profitability of our interest sensitive products as future profit expectations impact the valuation of deferred policy acquisition costs. During 2014 we unlocked our profitability assumptions to reflect the expectation of lower earned spread rates, primarily driven by the expected continuation of low market interest rates. We have, however, experienced an increase in the fair value of our fixed maturity security portfolio during 2014 due to declining 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.
Earnings per share from continuing operations and operating income per common share benefited from the repurchase of Class A common shares, primarily in 2012, as well as a tender offer for Class B common shares completed in the third quarter of 2013. Details regarding the share repurchases are included in Note 7 to the consolidated financial statements included in Item 8.
Pre-tax operating income for the Annuity segment increased in 2014 and 2013 compared to prior periods. The increase in 2014 was primarily due to higher spread income earned from an increase in the volume of business in force, partially offset by the impact of unlocking and a decrease in the earned spread rate. The increase in 2013 was primarily due to higher spread income earned from an increase in the volume of business in force, higher investment fee income and the impact of unlocking.
The Annuity segment also includes advances on our funding agreements with the Federal Home Loan Bank of Des Moines (FHLB). Outstanding funding agreements totaled $362.9 million at December 31, 2014, $322.3 million at December 31, 2013 and $328.5 million at December 31, 2012.
Pre-tax operating income for the Life Insurance segment increased in 2014 and 2013 compared to prior periods. The increase in 2014 was primarily due to an increase in the volume of business in force and the impact of unlocking. The increase in 2013 was primarily due to an increase in the volume of business in force and the impact of unlocking, partially offset by increased death benefits.
Premiums collected were lower in 2014 and higher in 2013, compared to the prior periods, primarily due to changes in universal life sales. Universal life collected premiums were $100.1 million in 2014, $128.2 million in 2013 and $81.5 million in 2012. The changes in sales activity also contributed to the changes in non-deferrable commission expenses. Continued growth in our business in force contributes to the increase in revenues and expenses.
Unlocking of deferred acquisition costs, value of insurance in force and unearned revenue reserve resulted in increases in 2014 and 2013 operating income compared to prior periods. Unlocking for each year reflected changes in projected earned spreads, policy lapses and mortality assumptions. During 2014 and 2012, we incurred additional amortization through unlocking as a result of our analysis of the impact of the low interest rate environment on projected investment and spread income.
The weighted average yield on cash and invested assets for interest sensitive life insurance products decreased in 2014 and 2013 compared to prior periods due to lower yields on new investment acquisitions from premium receipts and reinvestment of
Amortization of deferred acquisition costs and unearned revenue reserves changed over the three-year period primarily due to the impact of unlocking and market performance in the separate accounts.
Death benefits net of reinsurance and reserves released decreased in 2014 compared to 2013 due to lower claim counts and a decrease in the average claim size. Death benefits decreased in 2013 compared to 2012 primarily due to a decrease in the average claim size.
Net investment income decreased in 2014 compared to 2013 as we had lower invested assets held in the segment during 2014 due to higher stockholder dividends, share repurchase activity and the retirement of long-term debt in the third quarter of 2013. The retirement of debt also resulted in a decrease in interest income in 2014 compared to 2013. Net investment income increased in 2013 compared to 2012 due to an increase in investments as well as the impact of higher yielding securities held in the portfolio.
Equity income (loss) includes our proportionate share of gains and losses attributable to our ownership interest in partnerships, joint ventures and certain companies where we exhibit some control but have a minority ownership interest. Given the timing of availability of financial information from our equity investees, we will consistently use information that is as much as three months in arrears for certain of these entities. 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, 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. We have increased our investments in low income housing tax credit partnerships which generate pre-tax losses but 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. Equity income, net of related income taxes, was as follows:
We monitor the financial condition and operations of the issuers of securities rated below investment grade and of the issuers of certain investment grade securities for which we have concerns regarding credit quality. If we determine that an unrealized loss is other-than-temporary, the security is written down to its fair value. A portion of the write down attributable to credit factors is recognized in net income, with the non-credit portion recognized in accumulated other comprehensive income. See additional details regarding the non-credit portion of the write downs and our methodology for evaluating investments for other-than-temporary impairment in Notes 1 and 2 to our consolidated financial statements included in Item 8.
Fixed maturity other-than-temporary credit losses for 2013 were incurred within residential mortgage-backed securities due to changes in the amount and timing of future cash flows resulting in a decline in the present value. Losses within our asset-backed securities and the transportation and finance sectors were due to our intent to reduce our exposure by selling all or a portion of these securities. Losses were also incurred on mortgage loans that were restructured.
quarter. Losses were incurred within our residential and other asset-backed securities due to weakness in underlying collateral values, reduced reliance on insurance credit support and anticipated interest shortfalls that we do not expect to recover.
Our investment portfolio increased 9.1% to $7,681.0 million at December 31, 2014 compared to $7,040.0 million at December 31, 2013. The portfolio increased due to an increase of $336.1 million of net unrealized appreciation of fixed maturities during 2014 and positive cash flows from operating and financing activities. Additional details regarding securities in an unrealized loss position at December 31, 2014 are included in the discussion that follows and in Note 2 to our consolidated financial statements included in Item 8. Details regarding investment impairments are discussed above in the "Realized Gains (Losses) on Investments" section under "Results of Operations."
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 noncallable 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 maturity is calculated using scheduled pay-downs and expected prepayments for amortizing securities. For non-amortizing securities, the weighted-average maturity is equal to the stated maturity date.
As of December 31, 2014, 96.4% (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 December 31, 2014, no single non-investment grade holding exceeded 0.2% of total investments.
The table above reflects our exposure to non-sovereign European debt. This represents 6.7% of total fixed maturities as of December 31, 2014 and 6.9% of total fixed maturities as of December 31, 2013. The exposures are primarily in the industrial, finance and utility sectors. We do not own any securities issued by European governments.
See Note 2 to our consolidated financial statements included in Item 8 for additional analysis of these unrealized losses.
The Government National Mortgage Association (GNMA) guarantees principal and interest on mortgage-backed securities. The guarantee is backed by the full faith and credit of the United States Government. The Federal National Mortgage Association (FNMA) is a government-sponsored enterprise (GSE) that was chartered by Congress to reduce borrowing costs for certain homeowners. GSE's carry an implicit backing of the U.S. Government but do not have explicit guarantees like GNMA.
and an average yield of 4.68%. 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. The majority of our mortgage loans amortize principal, with 2.4% that are interest-only loans at December 31, 2014. At December 31, 2014, the average loan-to-value of the current outstanding principal balance using the most recent appraised value was 56.2% and the weighted average debt service coverage ratio was 1.5 based on the results of our 2013 annual study. See Note 2 to our consolidated financial statements included in Item 8 for further discussion regarding our mortgage loans.
FBL Financial Group, Inc. stockholders' equity increased 19.9% to $1,252.8 million at December 31, 2014, compared to $1,044.7 million at December 31, 2013, primarily due to the change in unrealized appreciation of fixed maturity securities during the period and net income, partially offset by cash dividends and stock repurchases.
At December 31, 2014, FBL Financial Group, Inc.'s common stockholders' equity was $1,249.8 million, or $50.57 per share, compared to $1,041.7 million, or $42.08 per share at December 31, 2013. Included in stockholders' equity per common share is $10.46 at December 31, 2014 and $4.81 at December 31, 2013 attributable to accumulated other comprehensive income.
For a portion of our business in force, we have the ability to adjust interest or dividend crediting rates in response to changes in portfolio yield. However, the ability to adjust these rates is limited by competitive factors and contractual guarantees. Surrender rates could increase and new sales could be negatively impacted if the crediting rates are not competitive with the rates on similar products offered by other insurance companies and financial services institutions. In addition, if market rates were to stay at a low level for an extended period of time, our spread could be lowered due to interest rate guarantees on many of our interest sensitive products. See "Part 1, Item 1 - Business, Segmentation of Our Business" for the ranges of guaranteed rates and where our products fall within those ranges.
The following is a hypothetical illustration of the potential impact to average investment yields of a static 2.00% 10-year U.S. Treasury rate during 2015 and 2016 without any corresponding change in current spreads. The level of investments maturing and requiring reinvestment are based on projections of the current investment portfolios supporting these blocks of business without incorporation of new business. We estimate that this scenario would decrease average investment yields supporting our annuity business by 0.10% to 0.15% and our universal life business by 0.05% to 0.10% annually over the near term. In addition to not incorporating the impact of new business, this hypothetical illustration does not reflect the potential impact of policyholder behavior. An increase in net cash flows from that modeled will accelerate the pace at which the portfolio yield will decrease, and a decrease in the net cash flows from that modeled will slow down the pace at which the portfolio yield will decrease. Accordingly, actual investment yields could differ materially from those presented. Furthermore, the impact of a decline in portfolio yield on net income is dependent on our ability and willingness to adjust crediting rates.
Our exposure to interest rate risk stems largely from our annuity products as the cash flows of these products can vary significantly with changes in interest rates. We have holdings in fixed maturity and mortgage loan portfolios to offset the interest rate risk of our annuity products. We actively manage the projected cash flows and duration of these assets and liabilities by minimizing the difference between the two. While it can be difficult to maintain asset and liability durations that are perfectly matched in a dynamic environment, we have identified various strategies that can be implemented if duration mismatches exceed acceptable tolerances. The effective duration of the fixed maturity and mortgage loan portfolios backing our annuity products was 5.9 years at December 31, 2014 and 6.0 years at December 31, 2013. The effective duration of our annuity liabilities was approximately 6.4 years at December 31, 2014 and 6.3 years at December 31, 2013.
If interest rates had increased 10% from levels at December 31, 2014 and 2013, the fair value of our fixed maturity securities and short-term investments would have decreased approximately $110.5 million at December 31, 2014 and $126.8 million at December 31, 2013. These hypothetical changes in value do not take into account any offsetting change in the value of insurance liabilities for investment contracts since we estimate such value to be the cash surrender value for a portion of the underlying contracts. If interest rates were to decrease 10% from levels at December 31, 2014 and 2013, the fair value of our debt would increase $2.6 million at December 31, 2014, and $2.9 million at December 31, 2013.
FBL Financial Group, Inc., exclusive of its subsidiaries, (the parent company) cash inflows from operations consist primarily of (i) fees that it charges the various subsidiaries and affiliates for management of their operations, (ii) expense reimbursements and tax settlements from subsidiaries and affiliates, (iii) proceeds from the exercise of employee stock options, (iv) proceeds from borrowings, (v) investment income and (vi) dividends from Farm Bureau Life. Revenue sources for the parent company during 2014 included management fees from subsidiaries and affiliates of $10.8 million. Cash outflows are principally for salaries, taxes and other expenses related to providing these management services, dividends on outstanding stock, stock repurchases, interest on our parent company debt and capital contributions to subsidiaries.
We paid regular cash dividends on our common and preferred stock totaling $34.7 million in 2014, $13.4 million in 2013 and $11.1 million in 2012. In addition, we paid a special $2.00 per common share cash dividend in September 2013 of $51.4 million. It is anticipated that quarterly cash dividend requirements for 2015 will be $0.0075 per Series B redeemable preferred share and $0.40 per common share. In addition, we expect to pay a special dividend of $2.00 per common share in the first quarter of 2015. The level of common stock dividends will be analyzed quarterly and will be dependent upon our capital and liquidity positions. In addition, alternative uses of excess capital may impact future dividend levels. Assuming a quarterly dividend rate of $0.40 per common share and a special dividend of $2.00 per common share, the common and preferred dividends would total approximately $89.1 million in 2015. The parent company expects to have sufficient resources and cash flows to meet its interest and dividend payments throughout 2015. The parent company had available cash and investments totaling $113.7 million at December 31, 2014. The parent company expects to rely on available cash resources, dividends from subsidiaries and management fee income to make dividend payments to its stockholders and interest payments on its debt, as well as fund any capital initiatives such as the stock repurchases. As of December 31, 2014, we had no other material commitments for capital expenditures.
Farm Bureau Life's cash inflows primarily consist of premium income, 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 which 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 $410.3 million in 2014, $361.0 million in 2013 and $476.2 million in 2012.
We do not have any off-balance sheet arrangements as of December 31, 2014 or 2013.
In the normal course of business, we enter into insurance contracts, financing transactions, lease agreements or other commitments which are necessary or beneficial to our operations. These commitments may obligate us to certain cash flows during future periods. The following table summarizes such obligations as of December 31, 2014:
Amounts shown in this table are projected payments through the year 2064 which we are contractually obligated to pay to our life insurance and annuity contract holders. The payments are derived from actuarial models which assume a level interest rate scenario and incorporate assumptions regarding mortality and persistency when applicable. These assumptions are based on our historical experience. The total of the contractual obligations relating to insurance contracts noted above differs from the liability balance on our consolidated balance sheet as follows:
We are also a party to other operating leases with total payments of approximately $0.3 million per year. Generally, these leases are renewable annually with similar terms. Although our current intention is to renew these leases, we are not obligated to do so.
At December 31, 2014, we had 189 fixed maturity and equity securities with gross unrealized losses totaling $27.8 million. Included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as temporary credit issues. Details regarding these securities are included in the "Financial Condition - Investments" section above.
Based upon a historical analysis of fluctuations in estimated gross profits, we believe it is reasonably likely that a 10% change in estimated gross profits could occur. A 10% increase in estimated gross profits for 2015 would result in $1.6 million of additional amortization expense. Correspondingly, a 10% decrease in estimated gross profits would result in a $1.6 million reduction of amortization expense. The information above is for illustrative purposes only and does not reflect our expectations regarding future changes in estimated gross profits.
The determination of net periodic pension expense and related accrued/prepaid pension cost requires the use of estimates as to the expected return on plan assets, discount rate on plan liabilities and other accrual assumptions. Pension expense for 2014 totaled $5.9 million.
We assume an expected long-term rate of return on plan assets of 7.00% and a discount rate of 4.05%. Details regarding the method used to determine the discount rate are summarized in Note 8 to our consolidated financial statements included in Item 8.
We have audited FBL Financial Group, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Management of FBL Financial Group, Inc. (the Company) is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FBL Financial Group, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 5, 2015 expressed an unqualified opinion thereon.
See Note 15 for information on the sale of our former subsidiary, EquiTrust Life Insurance Company (EquiTrust Life) in 2011. Financial results of this business component have been reclassified to discontinued operations in the prior period financial statements and excluded from the notes to the consolidated financial statements, unless otherwise noted.
unearned revenue reserves and policyholder liabilities that would have been required as a charge or credit to income had such amounts been realized.
length of time the security has been in an unrealized loss position.
Deferred acquisition costs include certain costs of successfully acquiring new insurance business, including commissions and other expenses related to the production of new business, to the extent recoverable from future policy revenues and gross profits. Also included are premium bonuses and bonus interest credited to contracts during the first contract year only. The value of insurance in force acquired represents the cost assigned to insurance contracts when an insurance company is acquired. The initial value is determined by an actuarial study using expected future gross profits as a measurement of the net present value of the insurance acquired. Interest accrued on the unamortized balance at a weighted average rate of 3.90% in 2014, 4.56% in 2013 and 4.70% in 2012.
Upon the sale of EquiTrust Life our independent distribution business segment was discontinued. Discontinued operations are those in which we no longer have any significant continuing involvement in the operations after the disposal transaction. The results of discontinued operations are segregated from our continuing operations and reported as loss from discontinued operations in the consolidated statements of operations for current and prior periods. The loss recognized on the disposal is also reported as a component of discontinued operations. Components of the loss from discontinued operations are separately disclosed in Note 15.
We participate with affiliates in defined benefit pension plans, including a multiemployer plan. The multiemployer plan records an asset or liability based on the difference between contributions made to the plan to date and expense recognized for the plan to date. The obligations for the single employer plans are based on an actuarial valuation of future benefits. For the multiemployer plan, our contributions are commingled with those of the other employers to fund the plan benefit obligations. Should a participating employer be unable to provide funding, the remaining employers would be required to continue funding all future obligations. We employ a long-term investment strategy of maintaining diversified plan assets. The expected return on plan assets is set at the long-term rate expected to be earned based on the long-term investment strategy of the plans for assets at the end of the reporting period.
Non-credit losses subsequent to the initial impairment measurement date on OTTI's are included in the gross unrealized gains and losses columns above. The non-credit loss component of OTTI losses for corporate and other asset-backed securities were in an unrealized gain position at December 31, 2014 and at December 31, 2013 due to increases in estimated fair value subsequent to initial recognition of non-credit losses on such securities.
Fixed maturities in the above table include 185 securities from 160 issuers at December 31, 2014 and 440 securities from 366 issuers at December 31, 2013. We do not intend to sell or believe we will be required to sell any of our impaired fixed maturities before recovery of their amortized cost basis. The following summarizes the more significant unrealized losses of fixed maturities and equity securities by investment category as of December 31, 2014.
Corporate securities: The largest unrealized losses were in the energy sector ($90.2 million carrying value and $6.6 million unrealized loss). The largest unrealized losses in the energy sector were in the energy services ($30.4 million carrying value and $3.0 million unrealized loss) and the energy independent ($36.0 million carrying value and $2.2 million unrealized loss) sub-sectors. The majority of losses were primarily attributable to general credit spread widening across the energy sector.
Commercial mortgage-backed securities: The unrealized losses on commercial mortgage-backed securities were primarily due to spread widening and concerns regarding the potential for future defaults. The contractual cash flows of these investments are based on mortgages backing the securities. Unrealized losses on military housing bonds were mainly attributable to spread widening relative to spreads at which we acquired the bonds. Insured military housing bonds have also been impacted by the removal of their ratings following downgrades of the insurance providers after we purchased the bonds.
Our mortgage loan portfolio consists principally of commercial mortgage loans that we have originated. Our lending policies require that the loans be collateralized by the value of the related property, establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. We originate loans with an initial loan-to- value ratio that provides sufficient excess collateral to absorb losses should we be required to foreclose and take possession of the collateral. In order to identify impairment losses timely, management maintains and reviews a watch list of mortgage loans that have heightened risk. These loans may include those with borrowers delinquent on contractual payments, borrowers experiencing financial difficulty, increases in rental real estate vacancies and significant declines in collateral value. We evaluate each of our mortgage loans individually and establish an estimated loss, if needed, for each impaired loan identified. An estimated loss is needed for loans for which we do not believe we will collect all amounts due according to the contractual terms of the respective loan agreements.
Any loan delinquent on contractual payments is considered non-performing. At December 31, 2014 and December 31, 2013, there were no non-performing loans over 90 days past due on contractual payments.
Our commercial mortgage loan portfolio includes loans that have been modified. We assess loan modifications on a loan-by-loan basis to evaluate whether a troubled-debt restructuring (TDR) has occurred. Generally, the types of concessions include: reduction of the contractual interest rate to a below market rate, extension of the maturity date, and/or a reduction of accrued
Proceeds from sales of fixed maturities were $67.2 million in 2014, $138.4 million in 2013 and $156.3 million in 2012.
We evaluate our variable interest entity (VIE) investees to determine whether the level of our direct ownership interest, our rights to manage operations or our obligation to provide ongoing financial support are such that we are the primary beneficiary of the entity, and are then required to consolidate it for financial reporting purposes. None of our VIE investees were required to be consolidated during 2014, 2013 or 2012. Our VIE investments were as follows:
We are not significantly involved in hedging activities and have limited exposure to derivatives. We do not apply hedge accounting to any of our derivative positions. Derivative assets, which are primarily reported in reinsurance recoverable and other investments, totaled $7.1 million at December 31, 2014 and $3.7 million at December 31, 2013. Our derivative assets consist of derivatives embedded within our modified coinsurance agreements and call options which provide an economic hedge for our index annuity contracts. Derivative liabilities totaled $8.7 million at December 31, 2014 and $0.3 million at December 31, 2013 and include derivatives embedded within our index annuity contracts and derivatives embedded within our modified coinsurance agreements. The net gain (loss) recognized on these derivatives was included in net investment income and interest sensitive benefits and totaled $2.1 million in 2014, ($1.5) million in 2013 and $1.6 million in 2012.
At December 31, 2014, affidavits of deposits covering investments with a carrying value totaling $7,110.5 million were on deposit with state agencies to meet regulatory requirements. Fixed maturities with a carrying value of $409.2 million were on deposit with the Federal Home Loan Bank of Des Moines (FHLB) as collateral for funding agreements.
At December 31, 2014, we had committed to provide additional funds for investments in limited partnerships. The amounts of these unfunded commitments totaled $47.9 million.
The carrying value of investments which have been non-income producing for the twelve months preceding December 31, 2014 includes fixed maturities, real estate, short-term and equity securities totaling $3.6 million.
Level 1 - Fair values are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 3 fixed maturities include private placements as well as corporate, mortgage and other asset-backed and state and municipal securities for which there is little or no current market data available. We use external pricing sources, or if prices are not available, we will estimate fair value internally. Fair values of private investments in Level 3 are determined by reference to public market, private transactions or valuations for comparable companies or assets in the relevant asset class when such amounts are available. For other securities where an exit price based on relevant observable inputs is not obtained, the fair value is determined using a matrix calculation. Fair values estimated through use of matrix pricing methods rely on an estimate of credit spreads to a risk-free U.S. Treasury yield. Selecting the credit spread requires judgment based on an understanding of the security and may include a market liquidity premium. Our selection of comparable companies as well as the level of spread requires significant judgment. Increases in spreads used in our matrix models, or those used to value comparable companies, will result in a decrease in discounted cash flows used, and accordingly in the estimated fair value of the security.
Future policy benefits, supplementary contracts without life contingencies and advance premiums and other deposits:
Level 3 policy-related financial instruments of investment-type contracts are those not involving significant mortality or morbidity risks. No active market exists for these contracts and they are not measured at fair value on a recurring basis. Fair values for our insurance contracts, other than investment-type contracts, are not required to be disclosed. Fair values for our investment-type contracts with expected maturities, including deferred annuities, funding agreements and supplementary contracts, are determined using discounted cash flow valuation techniques based on current interest rates adjusted to reflect our credit risk and an additional provision for adverse deviation. For certain deposit liabilities with no defined maturities and no surrender charges, including pension-related deposit administration funds, advance premiums and other deposits, fair value is the account value or amount payable on demand. Significant judgment is required in selecting the assumptions used to estimate the fair values of these financial instruments. For contracts with known maturities, increases in current rates will result in a decrease in discounted cash flows and a decrease in the estimated fair value of the policy obligation.
Farm Bureau Life may cede certain losses under an annual 100% quota share accidental death reinsurance agreement. Coverage includes all acts of terrorism including those of a nuclear, chemical or biological origin. Coverage is subject to an annual aggregate retention of $13.9 million. A maximum occurrence limit of $50.0 million per aircraft applies to policies written on agents of the Company who are participating in company-sponsored incentive trips. Additionally, a $200.0 million occurrence limit applies to employees in the home office building, net of reinsurance on group life policies. All other occurrence catastrophes are unlimited in amount.
We recognize the benefits of uncertain tax positions in accordance with the provisions of the FASB interpretation on accounting for uncertainty in income taxes. At December 31, 2014 and 2013, our reserve for uncertain tax positions is less than $0.1 million. Unrecognized tax benefits included in our reserve, if recognized, would impact our effective tax rate, although we do not expect these impacts to be material. We recognize interest related to unrecognized tax benefits in interest expense and related penalties in other expenses. We do not expect any significant increases or decreases in the amount of our reserve for uncertain tax positions within the next twelve months. We are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years prior to 2011.
At December 31, 2014, we had non-life net operating loss carryforwards for federal income tax purposes totaling $32.6 million, which expire beginning in 2031.
We are continuing to invest in low income housing tax credit partnerships which generate pre-tax losses but 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. These tax credits, which are reported in equity income, totaled $12.2 million in 2014, $9.8 million in 2013 and $5.7 million in 2012.
Long-term debt includes $97.0 million of our subordinated debt obligation to FBL Financial Group Capital Trust (the Trust). We issued 5% Subordinated Deferrable Interest Notes due June 30, 2047 (the Notes) with a principal amount of $100.0 million to support $97.0 million of 5% Preferred Securities issued by the Trust. We also have a $3.0 million equity investment in the Trust, which is netted against the Notes on the consolidated balance sheets due to a contractual right of offset. The sole assets of the Trust are and will be the Notes and any interest accrued thereon. The interest payment dates on the Notes correspond to the distribution dates on the 5% Preferred Securities. The 5% Preferred Securities, which have a liquidation value of $1,000.00 per share plus accrued and unpaid distributions, mature simultaneously with the Notes. As of December 31, 2014 and 2013, 97,000 shares of 5% Preferred Securities were outstanding, all of which we unconditionally guarantee.
On September 26, 2013, we redeemed the Senior Notes payable to affiliates that had a balance of $50.0 million at December 31, 2012. These 6.10% Senior Notes were due May 3, 2015 and prepayable anytime at par. These notes were issued to Farm Bureau Property & Casualty Insurance Company (Farm Bureau Property & Casualty), an affiliate, and an investment affiliate of the Iowa Farm Bureau Federation (IFBF), our majority stockholder.
During 2012 and 2014, our Board of Directors approved plans to repurchase our Class A common stock. These repurchase plans authorize us to make repurchases in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. In connection with the Class A repurchase plans, we repurchased 0.4 million shares of stock for $18.5 million in 2014, 0.4 million shares of stock for $14.2 million in 2013 and 5.5 million shares of stock for $181.9 million in 2012. 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, if any, that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice. There was $42.7 million remaining available for repurchases at December 31, 2014 under the active repurchase plan.
The amount of dividends we have available to pay our common shareholders is limited to a certain extent by the amount of dividends our primary operating subsidiary, Farm Bureau Life, is able to pay to its parent, FBL Financial Group, Inc. See Note 12 for discussion on statutory dividend restrictions.
The FBL Financial Group Retirement Plan (the Multiemployer Plan) is considered a multiemployer plan, with the participation of unaffiliated and affiliated organizations along with FBL Financial Group, Inc. and its subsidiaries. Under the multiemployer plan structure, our contributions are commingled with those of the other employers to fund the plan benefit obligations. Should a participating employer be unable to provide funding, the remaining employers would be required to continue funding all future obligations. If an employer elects to discontinue participation, prior to departure they will be required to contribute their portion of the underfunded pension obligation associated with their employees. This required contribution will be based on an actuarial estimate of future benefit obligations, which as an estimate may not ultimately be sufficient to fund future actual benefits. None of the participating employers have provided notice that they would be discontinuing participation in the Multiemployer Plan or would otherwise be unable to continue providing their share of required funding as of December 31, 2014.
Net periodic pension cost of the Multiemployer Plan is allocated between participating employers on a basis of time incurred by the respective employees for each employer. Such allocations are reviewed annually. This Multiemployer Plan is not subject to collective bargaining agreements, a financial improvement plan or a rehabilitation plan. No surcharges were required to be paid to the Multiemployer Plan during 2014, 2013 or 2012. We are the primary employer in the Multiemployer Plan, providing more than 5 percent of the total contributions during 2014, 2013 and 2012.
For multiemployer plans, the funded status is not required to be recognized as an asset or liability in the consolidated balance sheets. The unrecognized liability for the underfunded status of our Multiemployer Plan totaled $82.1 million at December 31, 2014 and $41.6 million at December 31, 2013.
7.00% is reasonable based on the current and expected asset allocations and on the Multiemployer Plan's historical investment performance and best estimates for future investment performance.
We also have a Cash-Based Restricted Stock Unit Plan. Compensation expense for arrangements under this plan totaled $1.0 million for 2014, $1.0 million for 2013 and $0.2 million for 2012. The income tax benefit recognized in the statements of operations for this arrangement totaled $0.6 million in 2014, $0.6 million in 2013 and $0.1 million in 2012.
Prior to 2011, we granted stock options for Class A common stock to officers and employees, which have a contractual term of 10 years and vest over a period up to five years, contingent upon continued employment with us. Prior to 2009, we also granted stock options for Class A common stock to directors, which were fully vested upon grant and had a contractual term that varied with the length of time the director remained on the Board, up to 10 years. The exercise price for all options is equal to the fair value of the common stock on the grant date. The fair value of each option award was estimated on the date of grant using a Black-Scholes-Merton option valuation model. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. We used the historical realized volatility of our stock for the expected volatility assumption within the valuation model. The weighted average expected term for the majority of our options was calculated using average historical behavior.
Represents the difference between the share price and exercise price for each option, excluding options where the exercise price is above the share price, at December 31, 2014.
We issue new shares to satisfy stock option exercises. Beginning in 2014, conditional upon market conditions, we repurchase Class A common shares on the open market for shares issued upon the exercise of stock options. Cash received from stock options exercised totaled $10.5 million for 2014, $19.4 million for 2013 and $9.7 million for 2012. The actual tax benefit realized from stock options exercised totaled $2.2 million for 2014, $2.3 million for 2013 and $1.8 million for 2012.
We share certain office facilities and services with the IFBF and its affiliated companies. These expenses are allocated on the basis of cost and time studies that are updated annually and primarily consist of rent, salaries and related expenses, travel and other operating costs. We also have an expense allocation agreement with Farm Bureau Property & Casualty for the use of property and equipment. Expense relating to this agreement totaled $0.9 million in 2014 and $1.1 million in 2013 and 2012.
We have service agreements with the Farm Bureau-affiliated property-casualty companies operating within our marketing territory, including Farm Bureau Property & Casualty and another affiliate. Under the service agreements, the property-casualty companies are responsible for development and management of our agency force for a fee. We incurred expenses totaling $9.3 million in 2014, $9.7 million in 2013 and $10.0 million in 2012 relating to these arrangements.
In the normal course of business, we may be involved in litigation where damages are alleged that are substantially in excess of contractual policy benefits or certain other agreements. In recent years, companies in the life insurance and annuity business have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices and similar claims. We are not aware of any such matters threatened or pending against FBL Financial Group, Inc. or any of its subsidiaries.
The Annuity segment primarily consists of fixed rate annuities and supplementary contracts (some of which involve life contingencies). Fixed rate annuities provide for tax-deferred savings and supplementary contracts provide for the systematic repayment of funds that accumulate interest. Fixed rate annuities primarily consist of flexible premium deferred annuities, but also include single premium deferred and immediate contracts. With fixed rate annuities, we bear the underlying investment risk and credit interest to the contracts at rates we determine, subject to interest rate guarantees. We began selling our new index annuity product in 2012. With index annuity products, we bear the underlying investment risk and credit interest in an amount equal to a percentage of the gain in a specified market index, subject to minimum guarantees.
The Life Insurance segment consists of whole life, term life and universal life policies. These policies provide benefits upon the death of the insured and may also allow the customer to build cash value on a tax-deferred basis.
investments and related investment income not specifically allocated to our product segments,
Depreciation and amortization related to property and equipment are allocated to the product segments while the related property, equipment and capitalized software are allocated to the Corporate and Other segment. Depreciation and amortization for the Corporate and Other segment include $3.1 million for 2014, $2.2 million for 2013 and $2.4 million for 2012 relating to leases with affiliates. In the consolidated statements of operations, we record these depreciation amounts net of related lease income from affiliates.
Our investment in equity method investees, the related equity income and interest expense are attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at December 31, 2014 and 2013 was allocated among the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).
On December 30, 2011, we sold our wholly-owned subsidiary, EquiTrust Life. We recognized an additional loss on the sale of subsidiary of $2.3 million, net of tax, during the first quarter of 2012 as a result of post-closing sales price adjustments. As a result of the sale, our consolidated financial statements are presented to reflect the operations of the component sold as discontinued operations. A summary of loss from discontinued operations is as follows:
In connection with the EquiTrust Life Sale, during 2012, we completed the required redemption of $175.0 million of our long-term debt in accordance with the mandatory redemption provisions of the underlying notes. The make-whole redemption price of $210.9 million, which included repayment of principal, accrued interest and a make-whole premium, was funded from assets
held in two irrevocable defeasance trusts. The make-whole redemption premium was based on U.S. Treasury yields and considered an embedded derivative with a fair value of $33.1 million at December 31, 2011. The change in fair value during 2012 was offset by the write off of deferred debt issuance costs and reported with the loss on debt redemption in the consolidated statements of operations.