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 our wealth management business, 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 adjusted operating income, which excludes the impact of certain items that are included in pre-tax net income. Pre-tax adjusted operating income is the same basis used for segment reporting under U.S. generally accepted accounting principles (GAAP). We also analyze operations using adjusted operating income on a post-tax basis, which excludes the initial impact from changes in tax laws. Adjusted operating income on a post-tax basis is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of performance. We have included a reconciliation to the comparable GAAP measure herein. See Note 13 to our consolidated financial statements included in Item 8 for further information regarding how we define our segments and pre-tax adjusted operating income.
Our profitability is also impacted by changes in accounting guidance that affect the timing of profit recognition. See Note 1 to our consolidated financial statements included in Item 8 for details on adopted and pending accounting pronouncements.
The U.S. 10-year Treasury yield decreased during 2019 from 2.69% at December 31, 2018 to 1.92% at December 31, 2019.
Gross Domestic Product increased at an annual rate of 2.3% during 2019 based on recent estimates.
The interest rate environment continues to impact our investment yields as well as the interest we credit on our interest sensitive products. After peaking at 3.24 percent in November of 2018, the 10-year Treasury yield reversed course, ending 2018 at 2.69 percent. Rates continued to move lower throughout 2019 and the 10-year Treasury yield ended the year at 1.92 percent. In addition, average corporate credit spreads decreased by 21 basis points in the fourth quarter of 2019 and 58 basis points for the year. We attempt to keep our crediting rates comparable to other insurance companies to maintain a competitive position within the market, however offering attractive annuity and universal life products is challenging with all-in yields remaining low. The fair value of our fixed maturity security portfolio increased throughout 2019 due to the decrease in market interest rates. See the segment discussion and “Financial Condition” section that follows for additional information regarding the impact of low market interest rates on our business.
Amount represents a change in our deferred tax assets and liabilities due to the initial impact of the enactment of the Tax Act. See Note 5 to our consolidated financial statements included in Item 8 for additional information.
Average invested assets and annualized yield, including investments held as securities and indebtedness of related parties.
Net income decreased in 2018, compared to 2017, primarily due to the adjustment made in 2017 for the initial impact of the Tax Act. Net income and adjusted operating income were positively impacted by reduced income tax rates related to changes under the Tax Act and increased earnings from an increase in the volume of business in force. These increases in income were partially offset by an increase in interest sensitive product benefits, an increase in expenses, lower other investment-related income and an increase in amortization of deferred acquisition costs from the impact of market performance on our variable business. Net income was also negatively impacted by net unrealized losses from investments and changes in fair value of derivatives.
We periodically revise key assumptions used in the calculation of the amortization of deferred acquisition costs, value of insurance in force acquired, deferred sales inducements, unearned revenue reserve for participating life insurance and interest sensitive products, as well as certain reserves on interest sensitive products, as applicable, through an unlocking process. These assumptions typically consist of withdrawal and lapse rates, earned spreads and mortality with revisions based on historical results and our best estimate of future experience. The impact of unlocking is recorded in the current period as an increase or decrease to amortization of the respective balances. While the unlocking process can take place at any time, as needs dictate, the process typically takes place annually. See the discussion that follows for further details of the unlocking impact to our operating segments.
The individual annuity withdrawal rate increased in 2019 and 2018, compared to prior year periods, due to certain policies reaching the end of their interest rate guarantee period and the competitiveness of our current crediting rates relative to other financial institutions.
Net investment income decreased in 2019, compared to 2018, due to decreases in yields on invested assets and investment income associated with purchased call options supporting our indexed annuity products. The decrease in interest sensitive product benefits in 2019, compared to 2018, was due to the impact of a decrease in the amount of fixed individual annuity business in force and the impact of changes in the underlying markets to our index credits and certain reserves associated with our indexed annuity products.
Pre-tax adjusted operating income for the Life Insurance segment increased in 2019, compared to 2018, primarily due to the impact of unlocking actuarial assumptions and the impact from an increase in the volume of business in force. Pre-tax adjusted operating income decreased in 2018, compared to 2017, primarily due to lower other investment-related income, an increase in interest sensitive death benefits and other underwriting expenses, partially offset by the impact of increases in the volume of business in force. Interest sensitive benefits were higher in 2018 due to a change in estimate of the impact of a prior period immaterial error.
Amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserves changed in 2019 and 2018, compared to prior periods, due to unlocking actuarial assumptions and 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, premium persistency and mortality assumptions. During 2019, unlocking also included the extension of the deferred acquisition cost amortization period for our participating whole life insurance business based on an increase in persistency rates. The impact of unlocking on pre-tax adjusted operating income was as follows:
Pre-tax adjusted operating income for the Corporate and Other segment increased in 2019, compared to 2018, primarily due to a decrease in amortization of deferred acquisition costs driven by the impact of favorable market performance on our variable
Amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserves decreased in 2019, compared to 2018, primarily due to favorable market performance on our variable business, partially offset by the impact of unlocking. Amortization of deferred acquisition costs, deferred sales inducements, and unearned revenue reserves increased in 2018, compared to 2017, primarily due to the unfavorable impact of market performance on our variable business. Unlocking generally reflects changes in projected earned spreads, separate account performance and withdrawal and mortality assumptions. The impact of unlocking on pre-tax adjusted operating income for the three years was as follows:
Other income and other expenses include fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries, including wealth management services, advisory, management and leasing activities. Other income and other expenses increased in 2019 and 2018, compared to the prior year periods, primarily due to expanding our wealth management business. The expansion of our wealth management business has increased administrative costs along with the costs of implementing a new delivery platform to allow for additional product offerings and an enhanced customer experience. Revenues associated with our wealth management expansion have increased modestly as we continue to be in the initial stages of developing this business, increasing $1.8 million in 2019 and $0.5 million in 2018 compared to the prior year periods. Expenses, including commissions, associated with our wealth management expansion have increased $3.7 million during 2018 and $2.8 million in 2018 compared to prior year periods. In 2018, we also offered a voluntary early retirement program to certain employees resulting in a $1.1 million increase in other expenses in the Corporate and Other segment.
The effective tax rate on adjusted operating income was 13.6% for 2019, 13.9% for 2018 and 28.7% for 2017. The 2019 and 2018 effective tax rates differ from the 2017 rate due to the decrease in the federal corporate income tax rate from 35% to 21% under the Tax Act, effective for 2018. As discussed in Note 13 to our consolidated financial statements included in Item 8, the impact related to the initial enactment of the Tax Act is excluded from adjusted operating income. The effective tax rates differ from the federal statutory rate of 21% in 2019 and 2018 and 35% in 2017 primarily due to the impact of low income housing tax credit (LIHTC) investments and tax-exempt investment income. The effective rate for 2019 also differs from the federal statutory rate due to non-recurring tax benefits of $2.5 million resulting from the execution of a tax planning strategy to adjust our tax-basis policy reserves. See Note 5 to our consolidated financial statements included in Item 8 for additional information on income taxes.
Income taxes on adjustments to net income have been recorded at 21% in 2019 and 2018 and 35% in 2017 as there are no permanent differences between book and taxable income relating to these adjustments.
Fixed maturity other-than-temporary credit losses for 2017 occurred in the construction sector due to an expected reduction in future revenue and the declining liquidity of an issuer.
Our investment portfolio increased 8.1% to $9,091.6 million at December 31, 2019, compared to $8,414.1 million at December 31, 2018. The portfolio increase is primarily due to $510.6 million of net unrealized appreciation of fixed maturities. Additional details regarding securities in an unrealized gain or loss position at December 31, 2019 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.”
We manage the investment portfolio to optimize risk-adjusted yield within the context of prudent asset-liability management. We evaluate multiple cash flow testing scenarios as part of this process. The Company’s investment policy calls for investing primarily in high-quality fixed maturities and commercial mortgage loans.
A portion of the securities acquired during 2019 and 2018 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 3.84% in 2019 and 4.19% in 2018.
The residential mortgage-backed portfolio includes government agency pass through and collateralized mortgage obligation (CMO) securities. With a government agency pass through security, we receive a pro-rata share of principal payments as payments are made on the underlying mortgage loans. CMOs consist of pools of mortgages divided into sections or “tranches” with varying stated maturities that provide sequential retirement of the bonds. While each tranche receives monthly interest payments, a subsequent tranche is not entitled to receive payment of principal until the entire principal of the preceding tranche is paid off. We primarily invest in sequential tranches, which allow us to manage cash flow stability and prepayment risk by the level of tranche in which we invest. In addition, to provide call protection and more stable average lives, we invest in CMOs such as planned amortization class (PAC) and targeted amortization class (TAC) securities. PAC bonds provide more predictable cash flows within a range of prepayment speeds and provide some protection against prepayment risk. TAC bonds provide protection from a rise in the prepayment rate due to falling interest rates. We generally do not purchase certain types of CMOs that we believe would subject the investment portfolio to excessive prepayment risk.
The CMBS portfolio included government agency-backed securities with a carrying value of $845.5 million at December 31, 2019 and $693.3 million at December 31, 2018. Also included in the CMBS portfolio are military housing bonds totaling $163.9 million at December 31, 2019 and $156.7 million at December 31, 2018. 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.
Mortgage loans totaled $1,011.7 million at December 31, 2019 and $1,039.8 million at December 31, 2018. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. The total number of commercial mortgage loans outstanding was 209 at December 31, 2019 and 208 at December 31, 2018. In 2019, new loans ranged from $1.6 million to $12.0 million in size, with an average loan size of $6.7 million, an average loan term of 16 years and an average net yield of 4.31%. 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 1.9% that are interest-only loans at December 31, 2019. At December 31, 2019, the average loan-to-value of the current outstanding principal balance using the most recent appraised value was 51.9% and the weighted average debt service coverage ratio was 1.7 based on the results of our 2018 annual study. See Note 2 to our consolidated financial statements included in Item 8 for further discussion regarding our mortgage loans.
Cash and cash equivalents decreased at December 31, 2019 compared to the prior year end primarily due to normal fluctuations in timing of payments made and received. Deferred acquisition costs decreased during the same period primarily due to a $153.5 million increase in the impact of the change in net unrealized appreciation on fixed maturity securities during the period. Other assets increased during the same period primarily due to adoption of new accounting guidance for leased assets and obligations as discussed in Notes 1 and 10 to our consolidated financial statements, partially offset by a decrease in LIHTC due to amortization. Assets and liabilities held in separate accounts increased during the same period due to market performance on the underlying investment portfolios.
Book value per share excluding accumulated other comprehensive income is a non-GAAP financial measure. Since accumulated other comprehensive income fluctuates from quarter to quarter due to unrealized changes in the fair value of investments caused principally by changes in market interest rates, we believe this non-GAAP financial measure provides useful supplemental information.
The amount and speed at which market interest rates rise or fall.
A prolonged period of low interest rates may result in increased downward pressure on average earned yields for the investment portfolios supporting our annuity and universal life business as higher-yielding fixed maturity securities and mortgages are sold, mature or are prepaid and replaced with lower-yielding investments. In addition, a flat yield curve reduces the benefit of taking incremental interest rate risk in the investment portfolio while also creating additional competition in the marketplace from certificates of deposit and short-term U.S. government securities. Lower investment income may cause us to lower crediting
minimizing the difference between them. 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 effective duration or key rate duration mismatches exceed acceptable tolerances.
Changes in the fair value of our equity securities are reported in earnings.
We also have limited equity price risk related to index product reserves related to guarantee living withdrawal benefits.
The amortization of deferred acquisition costs on our variable business can fluctuate with changes in the performance of the underlying separate accounts. See the Corporate and Other Segment discussion above for additional discussion of this amortization.
We have exposure to credit risk as it relates to the uncertainty associated with the continued ability of a given entity to make timely payments of principal and interest. See “Financial Condition - Investments” for additional information about credit risk in our investment portfolio.
During 2019, our operating activities generated cash flows totaling $213.1 million, consisting of net income of $126.3 million adjusted for non-cash operating revenues and expenses netting to $86.8 million. We used cash of $154.6 million in our investing activities during 2019. The primary uses were $993.0 million of investment acquisitions, mostly in fixed maturity securities, partially offset by $850.5 million in sales, maturities and repayments of investments. Our financing activities used cash of $60.2 million during 2019. The primary financing source was $606.9 million in receipts from interest sensitive products credited to policyholder account balances, which was partially offset by $577.2 million for return of policyholder account balances on interest sensitive products and $84.5 million for dividends paid to stockholders.
Parent company cash inflows from operations consist primarily of fees that it charges various subsidiaries and affiliates for management of their operations, expense reimbursements and tax settlements from subsidiaries and affiliates, investment income and dividends from subsidiaries, if declared and paid. Revenue sources for the parent company during 2019 included management fees from subsidiaries and affiliates totaling $8.3 million and dividends of $91.3 million. Cash outflows are principally for salaries, taxes and other expenses related to providing management services, dividends on outstanding stock, stock repurchases and interest on our parent company debt.
We paid regular cash dividends on our common and preferred stock totaling $47.5 million in 2019, $45.8 million in 2018 and $44.0 million in 2017. In addition, we paid a special $1.50 per common share cash dividend in March 2019, March 2018 and March 2017 totaling $37.0 million, $37.3 million, and $37.4 million, respectively. It is anticipated that quarterly cash dividend requirements for 2020 will be $0.0075 per Series B redeemable preferred share and $0.50 per common share. In addition, we expect to pay a special dividend of $1.50 per common share in the first quarter of 2020. The common stock dividend rates are analyzed quarterly and are dependent upon our capital and liquidity positions. In addition, alternative uses of excess capital may impact future dividend levels. Assuming these quarterly dividend rates and special dividend, the common and preferred dividends would total approximately $86.5 million in 2020. The parent company expects to have sufficient resources and cash flows to meet its interest and dividend payments throughout 2020. The parent company had available cash and investments totaling $48.8 million at December 31, 2019. The parent company expects to rely on available cash resources, dividends from Farm Bureau Life and management fee income to make dividend payments to its stockholders, interest payments on its debt and to fund any capital initiatives such as stock repurchases. In addition, our parent company and Farm Bureau Life have entered into a reciprocal line of credit arrangement, which provides additional liquidity for either entity up to $20.0 million. We had no other material commitments for capital expenditures as of December 31, 2019.
Interest payments on our debt totaled $4.9 million in 2019, 2018 and 2017. Interest payments on our debt outstanding at December 31, 2019 are estimated to be $4.9 million in 2020.
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, 2019, Farm Bureau Life’s statutory unassigned surplus was $508.9 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 2020, the maximum amount legally available for distribution to the parent company without further regulatory approval is $98.5 million. Timing of such dividends during the year is limited based on the timing of dividends paid within the preceding 12 months.
We manage the amount of capital held by our insurance subsidiaries to ensure they meet regulatory requirements. State laws specify regulatory actions if an insurer’s risk-based capital (RBC) ratio, a measure of solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC based on the various risk factors related to an insurance company’s
We do not have any off-balance sheet arrangements as of December 31, 2019 or 2018.
Amounts shown in this table are projected payments through the year 2069 that we are contractually obligated to pay to our life insurance and annuity contract holders. The payments are derived from actuarial models that 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:
Includes our estimated future contributions to defined and postretirement benefit plans. Contributions related to the qualified pension plan are included through 2020. No amounts related to the qualified pension plan are included beyond 2020 as the contribution amounts will be re-evaluated based on actual results.
Amortization of deferred acquisition costs for participating life insurance and interest sensitive products is expected to total approximately $26.4 million for 2020, excluding the impact of new production in 2020.
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 2020 would result in $2.0 million of additional amortization expense. Correspondingly, a 10% decrease in estimated gross profits would result in a $2.0 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.
To determine our net periodic pension costs for 2019, we assumed an expected long-term rate of return on plan assets of 6.00% and a discount rate of 4.24%. Details regarding the method used to determine the discount rate are summarized in Note 8 to our consolidated financial statements included in Item 8.
The long-term rate of return may fluctuate over time based on asset mix and if investment returns over a long period of time significantly differ from historical returns. The discount rate changes annually as it is based on current yields for high-quality corporate bonds with a maturity approximating the duration of our pension obligations. As fluctuations in the expected long-term rate of return and discount rate have been historically moderate and we have no current plans to change our investment strategy significantly, we believe a change of up to 100 basis points is reasonably likely. A 100 basis point decrease in the expected return on assets would result in a $1.2 million increase in pension expense and a 100 basis point increase would result in a $1.2 million decrease to pension expense. A 100 basis point decrease in the assumed discount rate would result in a $2.5 million increase in pension expense while a 100 basis point increase would result in a $2.2 million decrease to pension expense. The information above is for illustrative purposes only and does not reflect our expectations regarding future changes in the long-term rate of return or discount rates.
At December 31, 2019, we held gross deferred tax assets totaling $41.2 million, primarily related to future policy benefits, employee benefits and loss carryforwards. Utilization of these deferred tax assets is dependent on our future earnings. No valuation allowance has been established for these deferred tax assets, as we believe future earnings will be sufficient to ensure their utilization. If future earnings are no longer expected to be sufficient, a valuation allowance will need to be established. Given the number of variables that impact the level of future earnings, it is not practicable to estimate a range of possible outcomes to the valuation of the deferred tax assets. Future changes in tax rates and other tax laws may also impact the utilization of deferred tax assets.
During 2019, the company adopted new accounting guidance for leases, which primarily resulted in increases to both our assets and liabilities as discussed in Note 10 to our consolidated financial statements included in Item 8. This change and other accounting pronouncements recently adopted and not yet adopted are discussed further in Note 1 to our consolidated financial statements included in Item 8.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of FBL Financial Group, Inc. as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedules listed in the Index at Item 15(a) and our report dated February 26, 2020 expressed an unqualified opinion thereon.
The Company’s management 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, 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 February 26, 2020 expressed an unqualified opinion thereon.
Future policy benefits liabilities for secondary guarantees on universal life- type products
The Company’s future policy benefits totaled $7.4 billion at December 31, 2019, a portion of which represented liabilities for secondary guarantees on universal life- type products. The carrying amount of this product guarantee is based on estimates of how much the Company will need to pay for future benefits and claims in excess of the amount of fees which are expected to be collected from policyholders for the policy feature. As described in Note 1 to the consolidated financial statements, the liabilities are accrued in relation to estimated contract assessments. There is significant uncertainty inherent in estimating this liability because there is a significant amount of management judgment involved in developing certain assumptions that impact the liability balance, including expected mortality experience, policyholder lapse rates, premium persistency, and yield of investments.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the process to estimate the liability balance, including, among others, controls related to the review and approval processes that management has in place for the assumptions used in estimating the secondary guarantee liability. This included testing controls related to management’s evaluation of the need to update assumptions based on the comparison of actual Company experience to previous assumptions.
We involved specialists to assist with our audit procedures which included, among others, evaluating the significant assumptions used by management in estimating the secondary guarantee liability by performing a comparison of management’s assumptions used in their analysis, including expected mortality experience, policyholder lapse rates, premium persistency, and yield of investments with historical experience and observable market data. We also independently recalculated the secondary guarantee liability for a sample of contracts for comparison with the actuarial model used by management.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the process to estimate the deferred acquisition costs balance, including, among others, controls related to the review and approval processes that management has in place for the assumptions used in estimating the EGPs and EGMs. This included testing controls related to management’s evaluation of the need to update assumptions based on the comparison of actual Company experience to previous assumptions.
In February 2016, the FASB issued a new lease accounting standard, which, for most lessees, resulted in a gross-up of the balance sheet. Under the new standard, lessees recognize the leased assets on the balance sheet and a corresponding liability for the present value of lease payments over the lease term. The new standard requires the application of judgment and estimates. The standard allowed accounting policy elections to be made both at transition and for the accounting post-transition, including whether to adopt a short-term lease recognition exemption.
Upon adoption using the modified retrospective approach, a cumulative effect adjustment of $0.6 million was recorded to retained earnings, representing the elimination of a deferred gain on a sale-leaseback transaction, and both other assets and other liabilities increased by $7.2 million. We elected the practical expedients provided for under the guidance but did not use hindsight in determining lease term. We have no finance leases and have elected to treat leases with terms of twelve months or less as short-term leases. The impact to earnings per share due to adopting this guidance was ($0.01) per basic and diluted share for the year ended December 31, 2019. See Note 10 for additional discussion.
We will apply this guidance using a modified retrospective approach by recording a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption. This adjustment will be immaterial, primarily consisting of valuation allowances on commercial mortgage loans and, to a lesser extent, reinsurance recoverables, net of tax and other offsets.
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.
Policy loans are reported at unpaid principal balance. Short-term investments, which include investments with remaining maturities of one year or less, but greater than three months at the time of acquisition, are reported at cost adjusted for amortization of premiums and accrual of discounts. Other investments include common stock issued by the Federal Home Loan Bank of Des Moines (FHLB) carried at the current redemption value; call options carried at fair value; a promissory note acquired in a sale of a partnership interest carried at the remaining basis of the partnership; and ownership interest in aircraft carried at cost less accumulated depreciation.
to the ending date of the period for which we are reporting. 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 include non-guaranteed federal low income housing tax credit (LIHTC) investments. LIHTC investments take the form of limited partnerships or limited liability companies, which in turn invest in a number of low income housing projects. We use the proportional amortization method of accounting for these investments. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized along with the tax benefit as a component of federal income tax expense on our consolidated statements of operations. LIHTC investments had a carrying value of $42.9 million at December 31, 2019 and $54.0 million at December 31, 2018. See discussion on variable interest entities in Note 2 for further information.
Other assets at December 31, 2019 and 2018, 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 this analysis, we have determined our goodwill was not impaired as of December 31, 2019 or 2018.
Other income and other expenses primarily consist of revenue and expenses generated by our various non-insurance subsidiaries for our wealth management business, investment advisory, marketing and distribution, and leasing services. They also include revenues and expenses generated by our parent company for management services. Certain of these activities are performed on behalf of our affiliates. Revenues are recognized for the performance of these services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those services.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. For example, significant estimates and assumptions are utilized in the valuation of investments, determination of other-than-temporary impairments of investments, amortization of deferred acquisition costs, calculation of policyholder liabilities and accruals and determination of pension expense. It is reasonably possible that actual experience could differ from the estimates and assumptions utilized, which could have a material impact on the consolidated financial statements.
Non-credit losses subsequent to the initial impairment measurement date on OTTI losses are included in the gross unrealized gains and gross unrealized losses columns above. The non-credit loss component of OTTI losses for residential mortgage-backed and other asset-backed securities at December 31, 2019 and December 31, 2018 were in an unrealized gain position due to increases in estimated fair value subsequent to initial recognition of non-credit losses on such securities.
Fixed maturities in the above tables include 189 securities from 145 issuers at December 31, 2019 and 709 securities from 465 issuers at December 31, 2018.
Our commercial mortgage loan portfolio can include loans that have been modified. We assess loan modifications on a loan-by-loan basis to evaluate whether a troubled-debt restructuring 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 interest. The amount, timing and extent of the concession granted is considered in determining if an impairment loss is needed for the restructuring. There were no loan modifications during 2019 or 2018.
Proceeds from sales of fixed maturities were $34.6 million in 2019, $82.9 million in 2018 and $58.7 million in 2017.
We are exposed to credit losses in the event of nonperformance of the derivative counterparties. This credit risk is minimized by purchasing such agreements from financial institutions with high credit ratings (currently rated A or better by nationally recognized statistical rating organizations). We have also entered into credit support agreements with the counterparties requiring them to post collateral when net exposures exceed pre-determined thresholds that vary by counterparty. The net amount of such exposure is essentially the market value less collateral held for such agreements with each counterparty. The call options are supported by securities collateral received of $25.6 million at December 31, 2019, which is held in a separate custodial account. Subject to certain constraints, we are permitted to sell or re-pledge this collateral, but do not have legal rights to the collateral; accordingly, it has not been recorded on our balance sheet. At December 31, 2019, none of the collateral had been sold or re-pledged. As of December 31, 2019, our net derivative exposure was $7.0 million.
At December 31, 2019, affidavits of deposits covering investments with a carrying value totaling $8,452.0 million were on deposit with state agencies to meet regulatory requirements. Fixed maturities with a carrying value of $535.7 million were on deposit with the FHLB as collateral for funding agreements.
The carrying value of investments which have been non-income producing for the twelve months preceding December 31, 2019 includes real estate totaling $3.0 million.
No investment in any entity or its affiliates (other than bonds issued by agencies of the United States Government) exceeded 10.0% of stockholders’ equity at December 31, 2019.
The following methods and assumptions were used in estimating the fair value of our financial instruments measured at fair value on a recurring basis:
We evaluate third-party pricing source estimation methodologies to assess whether they will provide a fair value that approximates a market exit price.
A private equity fund with a fair value estimate of $8.4 million at December 31, 2019 and $3.3 million at December 31, 2018 using net asset value per share as a practical expedient, has not been classified in the fair value hierarchy above in accordance with fair value reporting guidance. This fund invests in senior secured middle market loans and had unfunded commitments totaling $1.7 million at December 31, 2019 and $6.8 million at December 31, 2018. The investment is not currently eligible for redemption.
The tables above exclude certain securities with the fair value based on non-binding broker quotes for which we could not reasonably obtain the quantitative unobservable inputs.
Transfers into Level 3 represent assets previously priced using an external pricing service with access to observable inputs no longer available and therefore, were priced using non-binding broker quotes. Transfers out of Level 3 include those assets that we are now able to obtain pricing from a third-party pricing vendor that uses observable inputs. The fair values of newly issued securities often require additional estimation until a market is created, which is generally within a few months after issuance. Once a market is created, as was the case for the majority of the security transfers out of the Level 3 category above, Level 2 valuation sources become available.
The Company has other financial assets and financial liabilities that are not carried at fair value but for which fair value disclosure is required. The following table presents the carrying value, fair value and fair value hierarchy level of these financial assets and financial liabilities.
During 2018, one mortgage loan was impaired to a fair value totaling $11.1 million which resulted in an impairment charge of $2.8 million.
The separate account assets are primarily comprised of stock and bond mutual funds. The net amount at risk for these contracts is based on the amount by which GMDB, IDB or GMIB exceeds account value. The reserve for GMDBs, IDBs or GMIBs, determined using modeling techniques and industry mortality assumptions, that is included in future policy benefits, totaled $8.3 million at December 31, 2019 and $7.7 million at December 31, 2018. The weighted average age of the contract holders with GMDB, IDB or GMIB rider exposure was 68 years at December 31, 2019 and 58 years at December 31, 2018. This average age fluctuates due to the small pool of participants that move in and out of exposure dependent upon market performance and terminations. Benefits paid for GMDBs, IDBs and GMIBs totaled $0.2 million for 2019, $0.2 million for 2018 and $0.8 million for 2017.
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 all or a portion of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, we considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Based on the available positive and negative evidence regarding future sources of taxable income, we have determined that the establishment of a valuation allowance was not necessary at December 31, 2019 and 2018.
We recognize the benefits of uncertain tax positions when the benefits are more-likely-than-not to be sustained. Our reserve for uncertain tax positions was $0.6 million at December 31, 2019. We had no reserve for uncertain tax positions at December 31, 2018. We recognize interest related to uncertain tax positions in interest expense and related penalties in other expenses. We paid no such interest or penalties during 2019, 2018 or 2017. We do not expect any significant changes in the amount of our reserve for uncertain tax positions within the next twelve months. We are generally no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years prior to 2016.
At December 31, 2019, we had non-life net operating loss carryforwards for federal income tax purposes totaling $11.9 million, which begin to expire after 2032. We also had non-life net operating loss carryforwards in several state jurisdictions, with varying expiration dates. State deferred taxes are not generally provided on any temporary differences or carryforwards, as state taxes have historically been insignificant.
Special cash dividends paid to our Class A and Class B common shareholders totaled $37.0 million in 2019, $37.3 million in 2018 and $37.4 million in 2017.
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, 2019. See Note 6 for additional information regarding this agreement.
The FBL Financial Group Retirement Plan (the Multiemployer Plan) is considered a multiemployer plan, with the participation of affiliated and unaffiliated employers along with FBL Financial Group, Inc. and its subsidiaries. Under the multiemployer plan structure, contributions are made each year and our contributions are commingled with those of the other employers to fund the payment of future 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, 2019.
The fair value of plan assets of the Multiemployer Plan exceeded the accumulated benefit obligation at December 31, 2019 and December 31, 2018.
Pension settlement charges were recognized after determining the total cash payments exceeded the sum of the service and interest cost for 2018. For years in which settlement charges occur, benefits paid as lump sum distributions are included with settlements. The special termination benefit represents a voluntary early retirement program offered in the Multiemployer Plan during 2018 that provided an additional two years of service and two years of age benefit enhancement.
We expect contributions to be paid to the Multiemployer Plan by us and our affiliated and unaffiliated employers for 2020 to be approximately $15.0 million, of which $4.8 million is expected to be contributed by us. Expected benefits to be paid under the Multiemployer Plan are as follows: 2020 - $16.5 million, 2021 - $18.7 million, 2022 - $19.1 million, 2023 - $20.9 million, 2024 - $20.7 million and 2025 through 2029 - $121.2 million. Since the Other Plans are not funded, contributions are made as benefit obligations become due. Expected benefits to be paid under the Other Plans are as follows: 2020 - $3.6 million, 2021 - $4.3 million, 2022 - $3.4 million, 2023 - $4.1 million, 2024 - $3.0 million and 2025 through 2029 - $10.0 million.
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, and as of December 31, 2019 and December 31, 2018, excludes the net asset value of one limited partnership because that partnership’s fair value is measured using the net asset value per share practical expedient. There are no redemption frequency or redemption notice period restrictions on the alternative investments.
Prior to 2012, we granted stock options for Class A common stock to officers and employees, which have a contractual term of 10 years. 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. Expenses have been fully recognized under this plan.
We issue new shares to satisfy stock option exercises. Cash received from stock options exercised totaled $0.1 million for 2019, $0.3 million for 2018 and $0.7 million for 2017. The actual tax benefit realized from stock options exercised totaled less than $0.1 million for 2019, $0.1 million for 2018 and $0.2 million for 2017.
The amount payable per unit awarded is equal to the price per share of the Company’s common stock at settlement of the award, and as such, we measure the value of the award each reporting period based on the current stock price. The effects of changes in the stock price during the service period are recognized as compensation expense over the service period. We allocate a portion of the expense for these arrangements to affiliates; expense amounts below represent our share of these expenses. Compensation expense for arrangements under this plan totaled $1.2 million for 2019, $1.7 million for 2018 and $1.9 million for 2017. The income tax benefit recognized in the statements of operations for this arrangement totaled $0.4 million in 2019, $0.6 million in 2018 and $1.0 million in 2017.
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 under this plan totaled 26,042 at December 31, 2019 and 25,016 at December 31, 2018. 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 47,092 at December 31, 2019 and 50,194 at December 31, 2018. At December 31, 2019, there were 103,003 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 under this plan totaled 8,478 at December 31, 2019 and 10,743 at December 31, 2018. 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 48,740 at December 31, 2019 and 48,312 at December 31, 2018. At December 31, 2019, shares of Class A common stock available for future issuance under this plan totaled 92,641. This plan was frozen to future deferrals on December 31, 2013.
We share certain office facilities and services with the IFBF and its affiliated companies. These expenses are allocated based on cost and time studies that are updated annually and consist primarily of rent, salaries and related expenses, travel and other operating costs. In addition, Farm Bureau Management Corporation, a wholly-owned subsidiary of the IFBF, provides certain services to us under a separate arrangement. Related expenses, net of reimbursements for certain services we provide, totaled $1.6 million in 2019, $1.5 million in 2018 and $1.3 million in 2017.
We have service agreements with the Farm Bureau-affiliated property-casualty companies operating within our marketing territory, including Farm Bureau Property & Casualty Insurance Company and another affiliate. Under the service agreements,
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 2019, 2018 and 2017. The royalty agreement with the IFBF provides IFBF an option to terminate the agreement if our quarterly common stock dividend is less than $0.10 per share. We have similar royalty 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 2019 and $1.8 million in 2018 and 2017. The loss of the right to use these designations in a state with a high premium concentration could have a material adverse effect on operating results.
We did not reassess initial direct costs for any existing leases.
We consider leases with original terms of one year or less to be short-term. We have elected not to carry short-term leases on our consolidated balance sheet. We have no agreements with lease and non-lease components. None of our leases are considered finance leases.
Lease expense and the related cash flows totaled $5.4 million in 2019. For our home office building, lease expense totaled $4.3 million in 2018 and $4.1 million in 2017. These amounts are net of $0.2 million in 2018 and 2017 in amortization of a deferred gain on the exchange of our home office properties for common stock in 1998. Upon adoption of the new leasing standard, the remaining unamortized deferred gain totaling $0.5 million at December 31, 2018 was eliminated.
Future remaining minimum lease payments for the long-term leases discussed above, as of December 31, 2019, are as follows:
At December 31, 2019, we have unfunded investment commitments to limited partnerships and limited liability companies of $56.6 million and privately placed corporate securities commitments of $11.0 million.
We self-insure our employee health and dental claims. However, claims in excess of our self-insurance limits are fully insured. We previously funded insurance claims through a self-insurance trust, which was dissolved as of December 31, 2019. Expenses equal to our best estimate of claims will continue to be reflected in operations and an allowance for incurred but not reported claims is now included in liabilities.
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, 2019, Farm Bureau Life’s net gain from operations of $98.5 million, exceeded 10% of statutory surplus; accordingly, that amount is the maximum available for distribution to FBL Financial Group, Inc. without regulatory approval during 2020. Timing of such dividends during the year is limited based on the timing of dividends paid within the preceding 12 months.
Interest expense is attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at December 31, 2019 and 2018 was allocated to the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).