Dividends in 2015 and 2013 include a special $2.00 per share cash dividend to Class A and B common shareholders.
Amounts are impacted by accumulated other comprehensive income totaling $114.5 million in 2015, $258.4 million in 2014, $119.1 million in 2013, $289.9 million in 2012, and $177.8 million in 2011. These amounts are net of deferred income taxes and other adjustments for assumed changes in deferred acquisition costs, unearned revenue reserve, value of insurance in force acquired and policyholder liabilities.
Finally, we discuss critical accounting policies and recently issued accounting standards. The critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult or complex judgment.
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 realized gains and losses on investments and changes in net unrealized gains and losses on derivatives that are included in net income. Operating income 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 performance since realized gains and losses on investments and the change in unrealized gains and losses on derivatives can fluctuate greatly from year to year. A view of our operating performance without the impact of these items enhances the analysis of our results, although it should not be viewed as a substitute for net income as a measure of financial performance. See Note 13 to our consolidated financial statements included in Item 8 for further information regarding how we define our segments and operating income.
Gross Domestic Product increased at an annual rate of 2.4% during 2015 based on recent estimates.
Global excess capacity has led to oversupply in energy and other commodity industries causing price declines and reduced revenues for producers.
Our operating income decreased in 2015, compared to 2014, primarily due to increases in death benefits and expenses, partially offset by the impact of an increase in the volume of business in force and higher investment fee income. Operating income increased in 2014, compared to 2013, primarily due to the impact of an increase in the volume of business in force, higher investment fee income and lower expenses, partially offset by the impact of unlocking assumptions used in the calculation of amortization of deferred acquisition costs and the value of insurance in force. Net income in 2015, compared to 2014, was also impacted by an increase in net realized gains, partially offset by a decrease in net unrealized gains/losses on derivatives. Net income in 2014, compared to 2013, was also impacted by a decrease in net realized gains from investment sales, partially offset by an increase in net unrealized gains/losses on derivatives.
Pre-tax operating income for the Annuity segment increased in 2015 and 2014 compared to prior periods. The increase in 2015 was primarily due to higher spread income earned from an increase in the volume of business in force, higher investment fee income and a benefit from unlocking, partially offset by an increase in other underwriting expenses. 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.
The average aggregate account value for individual annuity contracts in force increased in 2015 and 2014, compared to the prior periods, due to continued sales and the crediting of interest. Continued growth in our business in force contributes to the increase in revenues and expenses. The increase in other underwriting expenses in 2015 was also due to a $0.5 million increase in defined benefit plan expense primarily due to settlement charges and the impact of changes in pension assumptions. Premiums collected increased in 2015 compared to 2014 due to increased sales of fixed rate deferred annuity and indexed annuity products. Premiums collected increased in 2014 compared to 2013 primarily due to increased sales of indexed annuity products. Individual fixed rate deferred annuity collected premiums were $237.6 million in 2015, $210.5 million in 2014 and
$227.4 million in 2013. Indexed annuity collected premiums were $90.9 million in 2015, $78.8 million in 2014 and $23.4 million in 2013.
The Annuity segment also includes advances on our funding agreements with the Federal Home Loan Bank of Des Moines (FHLB). Outstanding funding agreements totaled $366.4 million at December 31, 2015, $362.9 million at December 31, 2014 and $322.3 million at December 31, 2013.
The weighted average yield on cash and invested assets for individual annuities decreased in 2015 and 2014, compared to the prior periods, 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 continued higher investment fee income. See the "Financial Condition" section which follows for additional information regarding the yields obtained on investment acquisitions. Weighted average interest crediting rates on our individual annuity products decreased due to crediting rate actions taken in 2015 and 2014 in response to the declining portfolio yield and a change in the underlying product mix.
Amortization of deferred acquisition costs, the value of insurance in force and unearned revenue reserves changed in 2015 and 2014, compared to prior periods, due to changes in actual and expected profits on the underlying business. Amortization, as well as reserves held on certain interest sensitive products, also changed due to the impact of unlocking. Unlocking generally reflects changes in our projected earned spreads, policy lapses and mortality assumptions. The impact of unlocking on pre-tax operating income was as follows:
The weighted average yield on cash and invested assets for interest sensitive life insurance products remained level in 2015 and decreased in 2014, compared to prior year periods. Average yields in 2015 and 2014 were impacted by lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield. The impact of lower yields on new investments in 2015 was offset by an increase in investment fee income from prepayment fees. See the "Financial Condition" section which follows for additional information regarding the yields obtained on investment acquisitions. Weighted average interest crediting rates on our interest sensitive life insurance products were impacted by crediting rate decreases taken on various products in 2015, 2014 and 2013 in response to the declining portfolio yield, partially offset by sales of products with higher crediting rates.
Pre-tax operating income for the Corporate and Other segment decreased in 2015, compared to 2014, primarily due to increases in pre-tax equity loss and in the amortization of deferred acquisition costs from the impact of unlocking and market performance on our variable business. Pre-tax operating income increased in 2014, compared to 2013, primarily due to an increase in investment fee income and decreases in interest expense, other expenses and death benefits, partially offset by a decrease in net investment income and an increase in the amortization of deferred acquisition costs from the impact of market performance and profits on our variable business.
Death benefits net of reinsurance and reserves released increased in 2015 compared to 2014 due to increases in the number of claims and in the average claim size. Death benefits decreased in 2014 compared to 2013 due to decreases in the number of claims and in the average claim size.
Amortization of deferred acquisition costs and unearned revenue reserves changed in 2015 and 2014, compared to prior periods, primarily due to the impact of market performance in the separate accounts as well as the impact of unlocking in 2015 compared to 2014. Unlocking generally reflects changes in projected earned spreads and withdrawal and mortality assumptions. The impact of unlocking on pre-tax operating income for the three years was as follows:
Equity loss, before tax, 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 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. Our low income housing tax credit investments 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:
The effective tax rate on operating income was 22.2% for 2015, 23.2% for 2014 and 25.3% for 2013. The effective tax rates differ from the federal statutory rate of 35% primarily due to the impact of low income housing credits from equity method investees and tax-exempt interest and dividend income. The 2015 and 2014 effective tax rates decreased, compared to prior periods, primarily due to increases in tax credits from low income housing tax credit investments. See Note 5 to our consolidated financial statements included in Item 8 for additional information on income taxes.
Income taxes on operating income adjustments on continuing operations are generally recorded at 35% as there are no permanent differences between book and taxable income relating to these adjustments. However, in 2015 income taxes on
Fixed maturity other-than-temporary credit losses for 2015 occurred in the residential mortgage-backed sector due to changes in the amount and timing of future cash flows resulting in a decline in the present value. An impairment charge was also recognized on a real estate investment due to an appraisal declining below our current carrying value.
Fixed maturity other-than-temporary credit losses for 2014 occurred in the manufacturing and other asset-backed sectors due to market valuation declines on securities we expected to sell in future periods. An impairment charge was also recognized on a real estate investment.
Our investment portfolio increased 0.5% to $7,722.8 million at December 31, 2015 compared to $7,681.0 million at December 31, 2014. The portfolio increased due to positive cash flows from operating and financing activities, offset by a reduction of $331.4 million of net unrealized appreciation of fixed maturities during 2015. Additional details regarding securities in an unrealized loss position at December 31, 2015 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 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 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.
A portion of the securities acquired during 2015 and 2014 were acquired with the proceeds from advances on our funding agreements with the FHLB. 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 4.70% in 2015 and 4.75% in 2014.
As of December 31, 2015, 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 December 31, 2015, 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 6.4% of total fixed maturities as of December 31, 2015 and 6.7% as of December 31, 2014. The exposures are primarily in the industrial, financial and utility sectors. We do not own any securities issued by European governments or companies based in Greece.
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" which provide sequential retirement of the bonds. We primarily invest in sequential tranches which provide cash flow stability in that principal payments do not occur until the previous tranches are paid off. In addition, to provide call protection and more stable average lives, we invest in CMOs such as planned amortization class and targeted amortization class securities. CMOs of these types provide more predictable cash flows within a range of prepayment speeds by shifting the prepayment risks to support tranches. We generally do not purchase certain types of CMOs that we believe would subject the investment portfolio to excessive risk.
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.
with a fair value of $7.6 million at December 31, 2015 and $14.2 million at December 31, 2014. We do not own any direct investments in subprime lenders.
The AAA, AA and A rated commercial mortgage-backed securities are broken down into categories based on subordination levels. Rating agencies disclose subordination levels, which measure the amount of credit support that the bonds (or tranches) have from subordinated bonds (or tranches). Generic is a term used for securities issued prior to 2005. The super senior securities have subordination levels greater than 27%, the mezzanine securities have subordination levels in the 17% to 27% range and the junior securities have subordination levels in the 9% to 16% range. Also included in the commercial mortgage- backed securities are military housing bonds totaling $122.5 million at December 31, 2015 and $120.5 million at December 31,
2014. 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.
State, municipal and other government securities totaled $1,472.4 million, or 22.2% of total fixed maturities at December 31, 2015, and $1,447.5 million, or 21.6% of total fixed maturities at December 31, 2014, 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 1.6% of our total fixed maturities at December 31, 2015. As of December 31, 2015, our Illinois-
Equity securities totaled $121.7 million at December 31, 2015 and $112.6 million at December 31, 2014. Gross unrealized gains totaled $6.5 million and gross unrealized losses totaled $1.2 million at December 31, 2015. At December 31, 2014, gross unrealized gains totaled $5.9 million and gross unrealized losses totaled $0.7 million on these securities. The unrealized losses during 2015 were primarily attributable to non-redeemable perpetual preferred securities from issuers in the financial sector. See Note 2 to our consolidated financial statements included in Item 8 for further discussion regarding our analysis of unrealized losses related to these securities.
As discussed in Note 7 to our consolidated financial statements included in Item 8, stockholders' equity was impacted by capital deployment actions during 2015. We paid a special cash dividend of $2.00 per share on Class A common stock and Class B common stock and increased our regular quarterly dividend by 14% to $0.40 per share.
Our stockholders' equity decreased 9.5% to $1,134.4 million at December 31, 2015, compared to $1,252.8 million at December 31, 2014, primarily due to the change in unrealized appreciation of fixed maturity securities during the period and dividends paid, partially offset by net income.
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 2016 and 2017 without any corresponding change in current investment 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.
prepayments. When the estimated durations of assets and liabilities are similar, exposure to interest rate risk is reduced because a change in the value of assets should be largely offset by a change in the value of liabilities.
If interest rates had increased 10% from levels at December 31, 2015 and 2014, the fair value of our fixed maturity securities and short-term investments would have decreased approximately $118.4 million at December 31, 2015 and $110.5 million at December 31, 2014. 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 had decreased 10% from levels at December 31, 2015 and 2014, the fair value of our debt would increase $2.6 million at December 31, 2015 and December 31, 2014.
Equity price risk is limited due to the relatively small equity portfolio held at December 31, 2015. However, we are exposed to equity price risk in the following ways:
As discussed in Note 7 to our consolidated financial statements included in Item 8, we have periodically taken advantage of opportunities to repurchase our outstanding Class A and Class B common stock through tender offers and Class A common stock repurchase plans approved by our Board of Directors. There was $39.0 million remaining available for repurchases at December 31, 2015, under the current $50 million Class A common stock repurchase plan. Upon expiration of the current plan on March 31, 2016, it is anticipated that a new $50.0 million Class A common stock repurchase plan will be approved with an expiration date of 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. We repurchased 0.1 million shares of Class A common stock for $3.7 million in 2015, 0.4 million shares of Class A common stock for $18.5 million in 2014 and 0.4 million shares of stock Class A and 1.0 million shares of Class B common shares for $60.6 million in 2013. These transactions were primarily funded with available cash and resources at the parent company, including dividends received from Farm Bureau Life of $50.0 million in 2015, $45.0 million in 2014 and $140.0 million in 2013.
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, 2015, Farm Bureau Life’s statutory unassigned surplus was $469.6 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 (the Iowa Insurance Division) as discussed in Note 7 to our consolidated financial statements included in Item 8. During 2016, the maximum amount legally available for distribution to the parent company without further regulatory approval is $100.0 million.
We manage the amount of capital held by our insurance subsidiaries to ensure we 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. As of December 31, 2015, our statutory total adjusted capital was $668.3 million, resulting in a RBC ratio of 570%, based on company action level capital of $117.3 million.
We do not have any off-balance sheet arrangements as of December 31, 2015 or 2014.
reserves for products such as annuities and universal life products are generally based on the account values of the contracts without taking into account surrender charges, while the contractual obligations table includes projected cash payments. The differences between contractual obligations and the account values are primarily the accumulation of interest and death benefits on universal life business in excess of projected account values;
Includes our estimated future contributions to defined and postretirement benefit plans. Contributions related to the qualified pension plan are included through 2016. No amounts related to the qualified pension plan are included beyond 2016 as the contribution amounts will be re-evaluated based on actual results.
We are also a party to other operating leases with total payments of approximately $0.1 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.
Fair values are obtained primarily from a variety of independent pricing sources, whose results we evaluate internally. Details regarding valuation techniques and processes are summarized in Notes 1 and 3 to our consolidated financial statements included in Item 8.
Amortization of deferred acquisition costs for participating life insurance and interest sensitive products is expected to total approximately $26.4 million for 2016, excluding the impact of new production in 2016.
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 2016 would result in $1.8 million of additional amortization expense. Correspondingly, a 10% decrease in estimated gross profits would result in a $1.8 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 2015 totaled $8.3 million.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a - 15(f). Under the supervision and the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2015.
We engage Ernst & Young LLP as the independent registered public accounting firm to audit our financial statements and internal control over financial reporting and express their opinion thereon. A copy of Ernst & Young LLP's audit opinions follows.
In our opinion, FBL Financial Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.
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, 2015, 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 3, 2016 expressed an unqualified opinion thereon.
In January 2016, the FASB issued guidance which amends certain aspects of the recognition and measurement of financial instruments. The new guidance primarily affects the accounting for equity investments, the presentation and disclosure requirements for financial instruments and the methodology for assessing the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale fixed maturity securities. The guidance becomes effective for fiscal years beginning after December 15, 2017. We are currently evaluating the impact of this guidance on our consolidated financial statements.
In February 2015, the Financial Accounting Standards Board (FASB) issued guidance that amends existing consolidation guidance. The new guidance modifies the consolidation framework for certain investment entities and all limited partnerships. It also eliminates certain criteria used to determine whether fees paid to a decision maker are a variable interest. The amendment allows for either a full retrospective or modified approach at adoption of the new standard, which becomes effective for fiscal years beginning after December 15, 2015. We do not believe adoption of the new guidance will have a material effect on our consolidated financial statements.
In January 2014, the FASB issued guidance, which became effective during the first quarter of 2015, related to accounting for low income housing tax credit investments (LIHTC). Historically we have applied the equity method of accounting for these limited partnership and limited liability company investments. The new guidance allowed us the option to account for these investments using the proportional amortization method, which amortizes the acquisition cost of the partnership in proportion to the recognition of the tax benefits associated with these projects. Under this option, the tax credits, net of the amortization of the partnership interest, would be recognized as a component of income taxes. This guidance did not impact us as we elected to continue using our historical equity method of accounting for these investments.
Fixed maturities, comprised of bonds and redeemable preferred stock, which may be sold, are designated as "available for sale." Available-for-sale securities, with the exception of interest-only bonds, are reported at fair value and unrealized gains and losses on these securities are included directly in stockholders' equity as a component of accumulated other comprehensive income. The unrealized gains and losses are reduced by a provision for deferred income taxes and adjustments to deferred acquisition costs, value of insurance in force acquired, unearned revenue reserves and policyholder liabilities that would have been required as a charge or credit to income had such amounts been realized. Interest-only bonds are considered to have an embedded derivative feature. Accordingly, unrealized gains and losses relating to these securities are recorded as a component of net investment income in the consolidated statements of operations.
ownership interest in aircraft acquired in a troubled debt restructuring with a bond issuer that filed for bankruptcy. The ownership interest in the aircraft is reported at cost, less accumulated depreciation.
We have embedded derivatives associated with modified coinsurance contracts, which are included within reinsurance recoverable. These instruments are carried at fair value with changes reflected in net investment income. See Note 2 for more information regarding our derivative instruments.
Securities and indebtedness of related parties include investments in corporations and partnerships over which we may exercise significant influence and those investments for which we are required or choose to use the equity method of accounting. These corporations and partnerships operate predominately in the investment company, real estate, broker/dealer and insurance industries and include LIHTC. Such investments are accounted for using the equity method. In applying the equity method, we record our share of income or loss reported by the equity investees. For partnerships operating in the investment company industry, this income or loss includes changes in unrealized gains and losses in the partnerships' investment portfolios.
Other assets at December 31, 2015 and 2014, also includes goodwill of $9.9 million related to the excess of the amounts paid to acquire companies over the fair value of the net assets acquired. Goodwill is not amortized but is subject to annual impairment testing. We evaluate our goodwill balance by comparing the fair value of our reporting units to the carrying value of the goodwill. We conduct a qualitative impairment review at least annually as well as when indicators suggest an impairment may have occurred to determine if indicators of deterioration in the business would suggest its value has declined below the carrying value of goodwill. Such circumstances include changes in the competitive or overall economic environment or other business condition changes that may negatively impact the value of the underlying business. On a periodic basis, as well as in the event circumstances indicate the value of the business may have declined significantly, we will estimate the value of the business using discounted cash flow techniques. We believe this approach better approximates the fair value of our goodwill than a market capitalization approach. A number of significant assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including future premiums, product lapses, investment yields and discount rate. Underlying assumptions are based on historical experience and our best estimates given information available at the time of testing. As a result of our impairment review, we have determined our goodwill was not impaired as of December 31, 2015 or 2014.
Future policy benefit reserves for interest sensitive products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. We also have additional benefit reserves that are established for annuity or universal life-type contracts that provide benefit guarantees, or for contracts that are expected to produce profits followed by losses. The liabilities are accrued in relation to estimated contract assessments. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances. Interest crediting rates for our interest sensitive products ranged from 1.00% to 5.50% in 2015, 2014 and 2013.
We have accrued dividends for participating business that are established for anticipated amounts earned to date that have not been paid. The declaration of future dividends for participating business is at the discretion of the Board of Directors of Farm
All insurance-related revenues, benefits and expenses are reported net of reinsurance ceded. The cost of reinsurance ceded is recognized over the contract periods of the reinsurance agreements. Policies and contracts assumed are accounted for in a manner similar to that followed for direct business.
Non-credit losses subsequent to the initial impairment measurement date on OTTIs are included in the gross unrealized gains and gross unrealized 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, 2015 and December 31, 2014 due to increases in estimated fair value subsequent to initial recognition of non-credit losses on such securities.
Equity securities: Our gross unrealized losses on equity securities were on investment grade non-redeemable perpetual preferred securities within the finance sector. These securities provide periodic cash flows, contain call features and are similarly rated and priced like other long-term callable bonds and are evaluated for OTTI similar to fixed maturities. The decline in fair value is primarily due to market concerns regarding the finance sector. We have evaluated the near-term prospects of our equity securities in relation to the severity and duration of their impairment as well as our intent and ability to hold these investments until recovery of fair value, and have concluded they are not other than temporarily impaired.
Any loan delinquent on contractual payments is considered non-performing. At December 31, 2015 and December 31, 2014, there were no non-performing loans over 90 days past due on contractual payments.
The loan-to-value ratio is determined using the most recent appraised value. Appraisals are updated periodically including when there is indication of a possible significant collateral decline or there are loan modifications or refinance requests.
Amount represents the credit-related losses recognized for fixed maturities which were impaired through income but not written down to fair value. As discussed above, the non-credit portion of the losses have been recognized in other comprehensive income (loss).
Amount represents credit-related losses for mortgage loans, other investments, real estate and fixed maturities written down to fair value through income.
Included in other realized gains, above, was a $6.5 million gain from the disposal of an interest in a partnership during 2015.
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 would therefore be required to consolidate it for financial reporting purposes. None of our VIE investees were required to be consolidated during 2015, 2014 or 2013. Our VIE investments are as follows:
The real estate limited partnerships had revenues totaling $4.6 million for 2015, $4.0 million for 2014 and $4.3 million for 2013. We may make commitments to fund partnership investments in the normal course of business. We did not have any commitments to investees designated as VIE's during the years ended December 31, 2015, 2014 or 2013.
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 $9.9 million at December 31, 2015 and $7.1 million at December 31, 2014. At December 31, 2015, we had master netting agreements with counterparties covering cash collateral payable totaling $0.4 million. This amount was invested and included in the consolidated balance sheets with corresponding amounts netted against the derivative instruments. We also received collateral of $2.2 million at December 31, 2015, which is held in a separate custodial account and not recorded on the balance sheet. Our derivative assets consist of an interest-only bond, derivatives embedded within our modified coinsurance agreements and call options which provide an economic hedge for our index products. Derivative liabilities totaled $9.4 million at December 31, 2015 and $8.7 million at December 31, 2014 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 ($0.3) million in 2015, $2.1 million in 2014 and ($1.5) million in 2013.
At December 31, 2015, affidavits of deposits covering investments with a carrying value totaling $7,148.2 million were on deposit with state agencies to meet regulatory requirements. Fixed maturities with a carrying value of $421.4 million were on deposit with the Federal Home Loan Bank of Des Moines (FHLB) as collateral for funding agreements.
At December 31, 2015, we had committed to provide additional funds for limited partnerships and limited liability companies in which we invest. The amounts of these unfunded commitments totaled $31.9 million, of which, $8.5 million represents LIHTC commitments which are summarized by year in the following table.
Level 1 fixed maturities consist of U.S. Treasury issues that are actively traded, allowing us to use current market prices as an estimate of their fair value.
Also included in Level 2 are private placement corporate bonds where quoted market prices are not available, for which an internal model using substantially all observable inputs or a matrix pricing valuation approach is used. In the matrix approach, securities are grouped into pricing categories that vary by sector, rating and average life. Each pricing category is assigned a risk spread based on studies of observable public market data. The expected cash flows of the security are then discounted back at the current Treasury curve plus the appropriate risk spread.
We follow a “pricing waterfall” policy, which establishes the pricing source preference for a particular security or security type. The order of preference is based on our evaluation of the valuation methods used, the source's
We compare period to period price trends to detect unexpected price fluctuation based on our knowledge of the market and the particular instrument. As fluctuations are noted, we will perform further research which may include discussions with the original pricing source or other external sources to ensure we are in agreement with the valuation.
Policy loans are not measured at fair value on a recurring basis. Policy loans are a Level 3 measurement as there is no current market since they are specifically tied to the underlying insurance policy. The loans are relatively risk free as they cannot exceed the cash surrender value of the insurance policy. Fair values are estimated by discounting expected cash flows using a
risk-free interest rate based on the U.S. Treasury curve. An increase in the risk-free interest rate would result in a decrease in discounted cash flows used, and accordingly the fair value of the loan.
Certain assets are measured at fair value on a nonrecurring basis, generally mortgage loans or real estate which have been deemed to be impaired during the reporting period. On May 22, 2015, one real estate property was impaired to a fair value totaling $1.0 million, which resulted in an impairment charge of $0.2 million. On December 2, 2014, one real estate property was impaired to a fair value totaling $1.0 million, which resulted in an impairment charge of $0.4 million.
In the normal course of business, we seek to limit our exposure to loss on any single insured or event and to recover a portion of benefits paid by ceding a portion of our exposure to other insurance companies. Our reinsurance coverage for life insurance varies according to the age and risk classification of the insured with retention limits ranging up to $1.5 million of coverage per individual life. Certain term life products are reinsured on a first dollar quota share basis. We do not use financial or surplus relief reinsurance.
We have assumed closed blocks of certain life and annuity business through coinsurance and modified coinsurance agreements. Life insurance in force assumed totaled $551.6 million (1.2% of total life insurance in force) at December 31, 2015 and $592.0 million (1.4% of total life insurance in force) at December 31, 2014. Premiums and product charges assumed totaled $2.8 million in 2015, $0.8 million and 2014 and 2013. Insurance benefits assumed totaled $1.2 million in 2015 and 2014 and $1.7 million in 2013.
We periodically revise key assumptions used in the calculation of the value of insurance in force acquired through an “unlocking” process, which increased amortization $0.1 million in 2015, $1.4 million in 2014 and $0.2 million in 2013. Net amortization, based on expected future gross profits/margins, for the next five years is expected to be as follows: 2016 - $2.4 million; 2017 - $2.4 million; 2018 - $2.3 million; 2019 - $2.2 million; and 2020 - $2.1 million.
Deferred income taxes have been established based upon the temporary differences between the financial statement and income tax bases of assets and liabilities. The reversal of the temporary differences will result in taxable or deductible amounts in future years when the related asset or liability is recovered or settled. A valuation allowance is required if it is more likely than not that a deferred tax asset will not be realized. In assessing the need for a valuation allowance we considered the scheduled reversal of deferred tax assets, projected future taxable income, taxable income from prior years available for recovery and tax planning strategies. Our tax planning strategies assume deferred tax assets related to unrealized losses on our investments are temporary as we have the ability to hold the investments until maturity, at which time the existing temporary difference is expected to reverse. As such, we have determined that the establishment of a valuation allowance was not necessary at December 31, 2015 and 2014.
We periodically repurchase our Class A common stock under plans approved by our Board of Directors. 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. Under these plans, we repurchased 0.1 million shares of stock for $3.7 million in 2015, 0.4 million shares of stock for $18.5 million in 2014 and 0.4 million shares of stock for $14.2 million in 2013. 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 $39.0 million remaining available for repurchases at December 31, 2015 under the active repurchase plan. It is anticipated that a new $50.0 million plan will be authorized upon expiration of the current plan, remaining open through March 31, 2018.
We have agreed that we will not pay dividends on the Class A or Class B Common Stock, nor on the Series B Preferred Stock, if we are in default of the Subordinated Deferrable Interest Note Agreement dated May 30, 1997 with FBL Financial Group Capital Trust. We are compliant with all terms of this agreement at December 31, 2015. See Note 6 for additional information regarding this agreement.
For all the Plans we participate in, the accumulated benefit obligation exceeds the fair value of plan assets. The projected benefit obligations, accumulated benefit obligation and fair value of plan assets are included above.
The Plans' prior service costs are amortized using a straight-line amortization method over the average remaining service period of the employees. For actuarial gains and losses, we use a corridor (10% of the greater of the projected benefit obligation or the market related value of plan assets) to determine the amounts to amortize. For the Multiemployer Plan it is expected that net periodic pension cost in 2016 will include $9.4 million for amortization of the actuarial loss and $0.1 million of prior service cost amortization. For the Other Plans it is expected that net periodic pension cost in 2016, included in accumulated other comprehensive income, will include $0.9 million for amortization of the actuarial loss and less than ($0.1) million of prior service cost (credit) amortization.
We estimate the discount rate by projecting and discounting future benefit payments inherent in the projected benefit obligation using a commercially available "spot" yield curve constructed using techniques and a bond universe specifically selected to meet the accounting standard requirements.
The discount rate was 4.05% for the nine months ended September 30, 2015 and 4.52% for the three months ended December 31, 2015 due to remeasurement at September 30, 2015 for settlement accounting. The discount rate was 4.99% for the nine months ended September 30, 2014 and 4.42% for the three months ended December 31, 2014 due to remeasurement at September 30, 2014 for settlement accounting. We also completed an actuarial study of our assumptions during 2015. At the remeasurement, this resulted in reducing the expected long-term return on plan assets from 7.00% to 6.75% and increasing assumed annual salary increases from 3.00% to 3.31%.
The Multiemployer Plan assets are primarily invested in annuity products and insurance company pooled separate accounts that invest predominately in equity securities and real estate. We have certain pension obligations that are fully funded through annuity contracts with Farm Bureau Life which are presented as funded annuity contracts below. For 2015, excluding the funded annuity contracts, we employed a long-term investment strategy of diversifying the Multiemployer Plan assets with 55% in fixed income investments, 40% in equities and 5% in alternative investments. At December 31, 2015, the Multiemployer Plan assets were invested approximately 59% in fixed income investments, 38% in diversified equities and 3% in alternative investments. The fixed income investments consist primarily of the group annuity contract and fixed income securities held in pooled separate accounts. The equity securities are in pooled separate accounts and mutual funds. The alternative investments consist of interests in limited partnerships that own various liquid and illiquid assets. Our investment strategy is to (1) achieve a long-term return sufficient to satisfy all Multiemployer Plan obligations, (2) assume a prudent level of risk and (3) maintain adequate liquidity. The expected return on Multiemployer Plan assets is set at the long-term rate expected to be earned based on the long-term investment strategy of the Multiemployer Plan. In estimating the expected rate of return for each asset class, we take into account factors such as historical rates of return, expected future risk-free rates of return and anticipated returns expected given the risk profile of each asset class.
Group and funded annuity contracts: contract value is equivalent to fair value, as the interest-crediting rates are periodically reset to market at the discretion of the issuer.
Alternative investments: the carrying value of the limited partnership interests reflects the Plan’s proportionate share of the net asset value of those partnerships which is derived from the fair value of the underlying holdings.
We participate with several affiliates in a 401(k) defined contribution plan which covers substantially all employees. We match employee contributions up to 2% or 4% of the eligible compensation contributed by the employee and at an amount equal to 50% of an employee's contributions on the next 2% of the eligible compensation contributed by the employee. As shown in the table below, certain employees will also receive an annual discretionary employer contribution based on age plus years of service ranging from 2.75% to 5.75% as a percent of pay. Costs are allocated among the affiliates on a basis of time incurred by the respective employees for each company. Our expense related to the plan totaled $2.2 million in 2015, $2.0 million in 2014 and $1.8 million in 2013.
In addition to benefits offered under the aforementioned benefit plans, we and several other affiliates participate in a plan that provides group term life insurance benefits to retirees who have worked full-time for ten years and attained age 55 while in service. Postretirement benefit expense for this plan is allocated in a manner consistent with pension expense discussed above. We also have two single-employer plans that provide health and medical benefits to a small group of retirees. Postretirement benefit expense totaled $0.1 million in 2015, 2014 and 2013. Changes in the underfunded portion of these plans, reported in other comprehensive income, aggregated less than ($0.1) million in 2015, $0.1 million in 2014 and $0.2 million in 2013.
The share-based payment arrangements under our Class A Common Stock Compensation Plan are described below. We allocate a portion of the expense for these arrangements to affiliates; expense amounts below represent our share of these expenses. Expenses have been fully recognized under this plan as of December 31, 2014. Compensation expense for these arrangements totaled $0.2 million for 2014 and $0.3 million for 2013. The income tax benefit recognized in the statements of operations for these arrangements totaled less than $0.1 million for 2014 and 2013.
We issue new shares to satisfy stock option exercises. Cash received from stock options exercised totaled $3.7 million for 2015, $10.5 million for 2014 and $19.4 million for 2013. The actual tax benefit realized from stock options exercised totaled $1.4 million for 2015, $2.2 million for 2014 and $2.3 million for 2013.
The final nonvested shares were vested and released in 2013 and the expense related to these shares has been fully recognized at December 31, 2013. The tax benefit realized from nonvested stock released to employees was $1.7 million in 2013. We have a policy of withholding shares to cover estimated future tax payments.
We annually grant cash-based restricted stock units to certain executives beginning in 2012. The restricted stock units will vest and be paid out in cash over 5 years, contingent on continued employment with us. Cash-based restricted stock units were also granted to certain executives in 2012 that were vested and paid out in cash after a two-year required service period.
We also issued performance cash-based restricted stock units to an executive in 2015, 2014 and 2013. These units will vest and be paid out in cash over 5 years, contingent upon meeting an earnings per share goal as well as continued employment with the Company.
The weighted average grant-date fair value per common share of restricted stock units granted was $52.19 in 2015, $38.63 in 2014 and $34.94 in 2013. Unrecognized compensation expense related to unvested restricted stock units based on the stock price at December 31, 2015 totaled $4.5 million. This expense is expected to be recognized over a weighted-average period of 2.03 years. Dividends are paid on restricted stock units upon vesting. Cash payments including dividends for restricted stock units totaled $1.8 million in 2015, $1.8 million in 2014 and $0.5 million in 2013.
We have a Director Compensation Plan under which non-employee directors on our Board may elect to receive a portion of their compensation in the form of cash or deferred cash-based stock units. Cash-based stock units outstanding totaled 22,874 at December 31, 2015 and 19,066 at December 31, 2014. Prior to 2012, deferred stock units were used instead of deferred cash-based stock units. Under this plan, we have deferred stock units outstanding totaling 56,868 at December 31, 2015 and 56,759 at December 31, 2014. At December 31, 2015, there were 114,179 shares of Class A common stock available for future issuance under the Director Compensation Plan. We also have an Executive Salary and Bonus Deferred Compensation Plan under which certain officers of the Company were allowed to use their base salary and annual cash bonus to purchase deferred cash-based stock units. Cash-based stock units outstanding total 16,679 at December 31, 2015 and 16,923 at December 31, 2014. Prior to 2012, deferred stock units were used instead of deferred cash-based stock units. Under this plan, we have deferred stock units outstanding totaling 66,621 at December 31, 2015 and 90,009 at December 31, 2014. At December 31,
We are licensed by the IFBF to use the "Farm Bureau" and "FB" designations in Iowa. In connection with this license, we incurred royalty expense totaling $0.6 million in 2015 and $0.5 million in 2014 and 2013. We have similar arrangements with other state Farm Bureau organizations in our market territory. Total royalty expense to Farm Bureau organizations other than the IFBF totaled $1.7 million in 2015 and 2014 and $1.8 million in 2013. The royalty agreement with the IFBF provides them an option to terminate the agreement when the quarterly common stock dividend is below $0.10 per share.
2014 and 2013 in amortization of a deferred gain on the exchange of our home office properties for common stock in 1998. The remaining unamortized deferred gain totaled $1.0 million at December 31, 2015 and $1.2 million at December 31, 2014.
From time to time, assessments are levied on our insurance subsidiaries by guaranty associations in most states in which the subsidiaries are licensed. These assessments, which are accrued for, are to cover losses of policyholders of insolvent or rehabilitated companies. In some states, these assessments can be partially recovered through a reduction in future premium taxes. Expenses for guaranty fund assessments, net of related premium tax offsets, totaled less than $0.1 million in 2015, 2014 and 2013.
Farm Bureau Life's ability to pay dividends to the parent company is restricted by the Iowa Insurance Holding Company Act to earned surplus arising from its business as of the date the dividend is paid. In addition, prior approval of the Iowa Insurance Commissioner is required for a dividend distribution of cash or other property whose fair value, together with that of other dividends made within the preceding 12 months, exceeds the greater of (i) 10% of policyholders' surplus as of the preceding year end, or (ii) the statutory net gain from operations of the insurer for the preceding calendar year. As shown in the tables above, at December 31, 2015, Farm Bureau Life’s net gain from operations, exceeded 10% of statutory surplus, therefore, the maximum amount available for distribution to FBL Financial Group, Inc. from Farm Bureau Life without regulatory approval during 2016 is $100.0 million.
We analyze our segment results based on pre-tax operating income. Accordingly, income taxes are not allocated to the segments. In addition, operating results are reported net of transactions between the segments. Operating income represents net income excluding the impact of realized gains and losses on investments and changes in net unrealized gains and losses on derivatives.
We use operating income, in addition to net income, to measure our performance since realized gains and losses on investments and the change in net unrealized gains and losses on derivatives can fluctuate greatly from year to year. A view of our operating performance without the impact of these items enhances the analysis of our results, although it should not be viewed as a substitute for net income as a measure of financial performance. Operating income is not a measure used in financial statements prepared in accordance with GAAP, but is a common industry measure of performance. We use operating income for goal setting, determining short-term incentive compensation and evaluating performance on a basis comparable to that used by many in the investment community.
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 $4.1 million for 2015, $3.1 million for 2014 and $2.2 million for 2013 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, 2015 and 2014 was allocated among the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).
Premiums collected, which is not a measure used in financial statements prepared according to GAAP, include premiums received on life insurance policies and deposits on annuities and universal life-type products. Premiums collected is a common industry measure of agent productivity. Net premiums collected totaled $683.1 million in 2015, $646.6 million in 2014 and $635.6 million in 2013.