Amounts are impacted by accumulated other comprehensive income (loss) totaling $149.6 million in 2011, $39.9 million in 2010, ($118.7) million in 2009, ($649.8) million in 2008 and ($36.3) million in 2007. These amounts are net of deferred income taxes and other adjustments for assumed changes in the amortization of deferred acquisition costs, unearned revenue reserve and value of insurance in force acquired.
We sell individual life insurance and annuity products through an exclusive distribution channel. Our exclusive agency force consists of 1,937 Farm Bureau agents and managers operating in the Midwestern and Western sections of the United States. Several subsidiaries support various functional areas of Farm Bureau Life and other affiliates, by providing investment advisory, marketing and distribution, and leasing services. In addition, we manage two Farm Bureau affiliated property-casualty companies.
The fair value of our investment portfolio fluctuated during 2011 with the fluctuation in market yields. Additionally, certain sectors remain somewhat dislocated, making it difficult to value some securities. As a result, certain valuations require greater estimation and judgment, as well as valuation methods that are more complex. These values may not ultimately be realizable in a market transaction, and such values may change rapidly as market conditions change and valuation assumptions are modified. See Note 3 to our consolidated financial statements for details on the nature of our net unrealized gain position and Note 5 for discussion of our valuation methods.
Our products generally place strain on statutory capital when sold and add to capital in subsequent years. We maintain capital levels in accordance with certain statutory and rating agency requirements, and since early 2009 have continued to improve our capital levels. See the "Liquidity and Capital Resources" section below for additional details regarding our capital position.
Premiums collected represents cash premiums received on life insurance policies and deposits on annuity and universal life-type products. Premiums collected is not a measure used in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). See Note 15 to our consolidated financial statements included in Item 8 for a discussion of the most comparable GAAP financial measures and, as applicable, a reconciliation to such GAAP measures. We use premiums collected to measure the productivity of our agents. See the "Segment Information" section that follows for additional discussion of our premiums collected.
Net income attributable to FBL Financial Group, Inc. (FBL Net Income) was $31.3 million for 2011 compared to $120.7 million in 2010 and $69.8 million in 2009. As discussed in detail below, net income decreased in 2011 primarily due to the sale of our wholly-owned subsidiary, EquiTrust Life Insurance Company (EquiTrust Life), a related loss on debt redemption and increased mortality experience. These items were partially offset by improved results of the discontinued operations and increases in spreads earned and the volume of business in force on our continuing operations. Net income improved in 2010 primarily due to the impact of net realized gains/losses on investments, an improvement in the results of our discontinued
The increase in volume of business in force is quantified in the detailed discussion that follows by summarizing the face amount of insurance in force for life products or account values of contracts in force for interest sensitive products. The face amount of life insurance in force represents the gross death benefit payable to policyholders and account value represents the value of the contract to the contract holder before application of surrender charges or reduction for any policy loans outstanding. The following discussion provides additional details on the items impacting FBL Net Income.
We sold our wholly-owned subsidiary EquiTrust Life for $465.3 million in an all cash transaction that closed on December 30, 2011. The sales price reflects adjustments to the initial closing price determined on the closing date and is potentially subject to further post closing adjustments based on a final statutory net worth reconciliation. The transaction resulted in an after-tax loss on the sale of $68.5 million, or $2.23 per basic and $2.19 per diluted common share. The loss consists of the sales price less the net book value of the entity and one-time transaction costs and termination benefits totaling $12.5 million, before tax.
As a result of the sale, the operations of the component sold and the related loss on sale are reflected as discontinued operations for all periods presented, with financial information removed from the discussion that follows unless otherwise noted. Income generated from discontinued operations increased 22.7% in 2011 to $44.5 million and 87.4% in 2010 to $36.2 million. The increase in 2011 was primarily due to the impact of realized gains on investments and changes in assumptions used in the calculation of deferred acquisition costs (unlocking). The increase in 2010 was primarily due to an increase in spreads earned and the impact of unlocking.
The make-whole redemption premium was based on U.S. Treasury yields and considered an embedded derivative. This derivative liability had a fair value of $33.1 million at December 31, 2011. This change in fair value is reported as loss on debt redemption in continuing operations. See the "Liquidity and Capital" section that follows and Note 8 to our consolidated financial statements for additional details on our debt and capital management initiatives.
In 2011, refinements were made to the methods and assumptions used to calculate the amortization of value of insurance in force and deferred acquisition costs. Refinements were also made to the calculation of reserves for certain traditional life contracts in 2010 and for certain interest sensitive life insurance and annuity contracts in 2009. These refinements, along with associated adjustments to deferred acquisition costs and taxes, as applicable, resulted in an increase to after tax net income from continuing operations of $5.0 million ($0.16 per basic and diluted common share) in 2011, $3.0 million ($0.10 per basic and diluted common share) in 2010 and $7.2 million ($0.24 per basic and diluted common share) in 2009.
The weighted average yield on cash and invested assets represents the yield on cash and investments backing the universal life and traditional annuity products net of investment expenses. The yield also includes losses relating to our interest rate swap program for certain individual traditional annuities. In 2009, the weighted average crediting rate and spread are computed excluding the impact of refining certain reserve estimates. See the "Segment Information" section that follows for further discussion of our spreads.
As noted in the "Segment Information" section that follows, we use both net income (loss) and operating income to measure our operating results. Operating income for the years covered by this report equals net income (loss), excluding the impact of realized gains and losses on investments, discontinued operations, debt redemption and the change in net unrealized gains and losses on derivatives. The rationale for excluding these items from operating income is explained in Note 15 to our consolidated financial statements.
A detailed discussion of changes in net income from continuing operations follows.
The increases in interest sensitive product charges were primarily due to cost of insurance charges on universal and variable universal life policies. Cost of insurance charges increased primarily due to growth and aging of the business in force. Our average universal and variable universal life insurance in force totaled $3,036.1 million for 2011, $2,810.4 million for 2010 and $2,601.0 million for 2009. Aging of the insureds also contributed to the increase in the cost of insurance charges. The average age of our universal and variable universal life policyholders was 47.9 years in 2011, 47.3 years in 2010 and 46.6 years in 2009.
are principally due to positive cash flows from operating and financing activities which included the issuance of funding agreements to the Federal Home Loan Bank (FHLB) totaling $228.5 million during 2010.
The annualized yield earned on average invested assets decreased to 6.03% in 2011 from 6.15% in 2010 and 6.24% in 2009. The decreases in yields earned are primarily due to lower investment yields on new acquisitions compared to our yields on investments maturing or being paid down. The average yields on fixed maturity securities purchased were 5.10% for 2011, 4.67% for 2010 and 6.40% for 2009. The average yields on fixed maturity securities maturing or being paid down were 5.92% for 2011, 5.76% for 2010 and 5.97% for 2009. For more discussion on fixed maturity acquisition yields see the "Financial Condition" section below. The decrease in 2011 was partially offset by an increase in fee income from bond calls, tender offers and mortgage loan prepayments. Investment fee income totaled $4.6 million in 2011, $0.8 million in 2010 and $1.0 million in 2009. Net investment income also includes $0.6 million in 2011, $0.4 million in 2010 and $0.8 million in 2009 representing the change of net discount accretion on mortgage and asset-backed securities.
Interest sensitive product benefits increased 8.8% in 2011 to $192.1 million and 8.6% in 2010 to $176.6 million. The increase in 2011 is primarily due to an increase in death benefits and the volume of business in force, partially offset by reductions in interest crediting rates in 2011 and 2010. The increase in 2010 is primary due to refinements made to certain reserve estimates in 2009 and an increase in the volume of business in force, partially offset by reductions in interest crediting rates in 2010 and 2009.
The average account value of interest sensitive products in force increased in 2011 and 2010 primarily due to traditional deferred annuity sales and advances on our funding agreement with the FHLB. These average account values totaled $3,036.1 million in 2011, $2,810.4 million in 2010 and $2,601.0 million in 2009. The weighted average interest crediting rate and spread are computed excluding the impact of refining certain reserve estimates in 2009. The weighted average crediting rates were 3.55% for 2011, 3.78% for 2010 and 4.01% for 2009. See the "Segment Information" section that follows for additional details on these rates. As discussed above in "Results of Operations," during 2009 we refined the calculation of certain interest sensitive life reserves resulting in an $11.4 million decrease to interest credited.
Traditional life insurance death benefits, net of reserves released, increased 9.8% to $41.6 million in 2011 and 18.4% to $37.9 million in 2010. As discussed under "Premiums and Product Charges" above, the increase in business in force is primarily attributable to sales of traditional life products by our Farm Bureau Life agency force exceeding the loss of in force amounts through deaths, lapses and surrenders. The change in traditional life future policy benefits may not be proportional to the change in traditional premiums and benefits as reserves on term policies are generally less than reserves on whole life policies. Policyholder dividends continue to decrease due to reductions in our dividend crediting rates in response to the impact of declining market interest rates on our investment portfolio yield as discussed in the "Net Investment Income" section above. Traditional life insurance benefits can fluctuate from period to period primarily as a result of changes in mortality experience.
Underwriting, acquisition and insurance expenses decreased less than 0.1% in 2011 to $123.4 million and increased 3.6% in 2010 to $123.4 million. Amortization of deferred acquisition costs increased in 2011 and 2010 primarily due to the impact of market performance on our variable products, an increase in the volume of business in force and the impact of unlocking. These increases were partially offset by the impact of mortality and operating income adjustments in 2011 and reduced amortization on our traditional annuity products in 2010. Amortization of value of insurance in force decreased in 2011 primarily due to the impact of refinements and assumptions made to our valuation models totaling $6.9 million. See the "Impact of Operating Adjustments on FBL Net Income" and "Impact of Unlocking" sections above for a discussion of these items. In addition, the "Segment Information" section that follows provides further detail on the other items impacting amortization.
Other underwriting, acquisition and insurance expenses increased 2.4% in 2011 to $62.9 million and decreased 2.2% in 2010 to $61.4 million. The increase in 2011 is primarily due to an increase in employee benefit expenses and a reduction in expense reimbursement on reinsured business. The decrease in 2010 is due to the implementation of cost-saving measures and $1.8 million in associated one-time charges incurred in 2009.
Interest on debt required to be redeemed due to the sale of EquiTrust Life is reported in income from discontinued operations in our statements of operations and totaled $13.8 million in 2011 and $14.9 million in 2010 and 2009. See the "Liquidity and Capital Resources" section that follows for additional discussion on debt redemptions related to the EquiTrust Life sale.
Income tax expense totaled $20.5 million in 2011, $41.3 million in 2010 and $24.1 million in 2009. Tax expense (benefit) on discontinued operations are netted with those line items. The effective tax rate on continuing operations was 27.5% for 2011, 33.8% for 2010 and 32.7% for 2009. The effective tax rates differ from the federal statutory rate of 35% primarily due to the impact of tax-exempt dividend income, tax-exempt interest and incentive stock options. The permanent differences between book and tax income had a greater impact on the effective rate in 2011 due to the lower amount of pre-tax income and an increase in the amount of the permanent differences between book and taxable income.
Equity income decreased in 2011 due to increasing investments in entities that invest primarily in low income housing, which are expected to have operating losses that will be more than offset with an economic benefit provided through future tax credits. Equity income increased during 2010 due the impact of increased investments in limited partnerships and the sale of real estate by a limited partnership.
We analyze operations by reviewing financial information regarding our primary products that are aggregated into the Annuity (formerly known as "Traditional Annuity - Exclusive Distribution") and Life Insurance (formerly known as "Traditional and Universal 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.
The increase in the individual annuity weighted average yield on cash and invested assets in 2011 was primarily attributable to fees from bond calls, tender offers, mortgage loan prepayments and the change of net discount accretion on mortgage and asset-backed securities. These items totaled $3.8 million in 2011, $0.6 million in 2010 and $1.4 million in 2009. Weighted average yields were also impacted in 2011 by reinvestment rates being lower than yields on investments maturing or being paid down and decreases in the cost of our interest rate swaps which totaled $1.1 million in 2011, $2.6 million in 2010 and $4.8 million in 2009. See Note 4 to our consolidated financial statements for additional details on our interest rate swaps. The decreases in the weighted average interest crediting rates are due to decreases in the interest crediting rates on a significant portion of our annuity portfolio during 2011, 2010 and 2009.
Revenues, expenses and changes in policy liabilities and accruals increased in 2011 and 2010 due to an increase in business in force. Our traditional and universal life insurance in force increased 5.6% to $43,717.1 million in 2011 and 7.1% to $41,404.5 million in 2010 primarily due to sales by our Farm Bureau Life agency force exceeding the loss of in force amounts through deaths, lapses and surrenders.
Pre-tax operating income (loss) totaled ($0.5) million in 2011, $4.0 million in 2010 and ($2.8) million in 2009. The decrease in 2011 was primarily due to increased mortality experience and a decrease in equity income, partially offset by the impact of market performance on separate accounts, an increase in net investment income and a decrease in other expenses allocated to the segment. The improvement in 2010 was primarily due to a reduction in expenses allocated to the segment, an increase in equity income and improved mortality experience, partially offset by the impact of market performance on amortization of deferred acquisition costs.
During 2010, we discontinued underwriting new sales of variable products and terminated new sales with our variable alliance partners in 2010 and 2011. We continue to receive premiums from sales that occurred prior to this change. During 2010, we began selling variable products underwritten by a large well-known insurance company with variable product expertise. We earn fees from the sale of brokered products, a portion of which is passed on to the agents as commissions for the underlying sales. The decision to discontinue underwriting variable products was made because we lack the scale necessary to generate acceptable returns and be competitive in this product line over time. The existing in force business remains on our books and we continue to administer this business.
Our investment portfolio increased 9.3% to $6,397.2 million at December 31, 2011 compared to $5,853.3 million at December 31, 2010. While the portfolio increased due to positive cash flows from operating and financing activities, the primary drivers were the increase in the volume of annuity business and a $278.1 million increase in the fair market value of fixed maturity securities during 2011 to a net unrealized gain of $380.6 million at December 31, 2011. A decline in U.S. Treasury yields more than offset any widening in credit spreads that occurred across our fixed maturity portfolio during 2011. Moderately wide credit spreads in certain sectors continue to impact our investment portfolio. Additional details regarding securities in an unrealized loss position at December 31, 2011 are included in the discussion that follows and in Note 3 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."
A portion of the securities acquired during 2011 and 2010 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 relatively low interest rate paid on those advances. The
average yield of the securities acquired, excluding the securities supporting these funding agreements, was 5.14% during 2011 and 5.57% during 2010.
As of December 31, 2011, 95.0% (based on carrying value) of the available-for-sale fixed maturity securities were investment grade debt securities, defined as being in the highest two National Association of Insurance Commissioners (NAIC) designations. Non-investment grade debt securities typically provide higher yields and involve greater risks than investment grade debt securities because their issuers are often 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, 2011, the investment in non-investment grade debt was 5.0% of available-for-sale fixed maturity securities. At that time, no single non-investment grade holding exceeded 0.2% of total investments.
See Note 3 to our consolidated financial statements for a summary of fixed maturity securities by contractual maturity date.
Military housing fixed maturity securities with characteristics similar to commercial mortgage-backed securities with an estimated fair value of $73.2 million at December 31, 2010 were reclassified within the following schedules. These securities were previously included within the state, municipal and other governments category.
Mortgage and asset-backed securities comprised 27.6% at December 31, 2011 and 28.4% at December 31, 2010 of our total available-for-sale fixed maturity securities. These securities are purchased when we believe these types of investments provide superior risk-adjusted returns compared to returns of more conventional investments such as corporate bonds and mortgage loans. These securities are diversified as to collateral types, cash flow characteristics and maturity.
Our direct exposure to the Alt-A home equity and subprime first-lien sectors is limited to investments in structured securities collateralized by senior tranches of residential mortgage loans with this exposure. We also have a partnership interest in an investment grade securities fund that owns securities backed by Alt-A home equity, subprime first-lien and adjustable rate mortgage collateral. The fund is reported as securities and indebtedness of related parties in our consolidated balance sheets with a fair value of $16.5 million at December 31, 2011 and $14.7 million at December 31, 2010. We do not own any direct investments in subprime lenders or adjustable rate mortgages.
Insurance on 2006 Alt-A issues is provided by MBIA Insurance Corporation (100% in 2011 and 2010). Insurance on 2007 Alt-A issues is provided by Assured Guaranty Ltd. (35% in 2011 and 36% in 2010) and MBIA Insurance Corporation (45% in 2011 and 41% in 2010). There is no insurance coverage on Government & Prime investments or Alt-A investments with collateral originating prior to 2006 or after 2007.
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 $87.2 million at December 31, 2011 and $73.2 million at December 31, 2010. 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.
Insurance on 2006 Alt-A issues is provided by Financial Guaranty Insurance Co. (FGIC) (23% in 2011 and 25% in 2010) and AMBAC Assurance Corporation (Ambac) (36% in 2011 and 35% in 2010). Insurance on 2007 Alt-A issues is provided by Ambac (57% in 2011 and 55% in 2010), and FGIC (43% in 2011 and 45% in 2010). The 2006 and 2007 Government & Prime issues are 100% insured by Ambac (2006 issues) and MBIA Insurance Corporation (2007 issues). There is no insurance coverage on other asset-backed securities with subprime or non-mortgage collateral or on collateral originating prior to 2006 or after 2007.
The mortgage and asset-backed portfolios include securities wrapped by monoline bond insurers to provide additional credit enhancement for the investment. We believe these securities were underwritten at investment grade levels excluding any credit enhancing protection. At December 31, 2011, the fair value of our insured mortgage and asset-backed holdings totaled $33.3 million, or 2.2% of our mortgage and asset-backed portfolios and 0.6% of our total fixed income portfolio.
State, municipal and other government securities totaled $1.1 billion, or 19.5% of our portfolio and include investments in general obligation, revenue, military housing 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 school general obligation bonds. Our municipal bond exposure has an average rating of AA and is trading at 91.9% of amortized cost. The insolvency of one or more of the credit enhancing entities would be a meaningful short-term market liquidity event, but would not dramatically increase our investment portfolio's risk profile. During 2010, military housing fixed maturity securities with characteristics similar to commercial mortgage-backed securities were reclassified from state, municipal and other government securities to commercial mortgage-backed securities.
Mortgage loans totaled $552.4 million at December 31, 2011 and $552.3 million at December 31, 2010. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. There were three mortgage loans more than 90 days delinquent with a carrying value of $18.9 million at December 31, 2011 and one mortgage loan more than 90 days delinquent with a carrying value of $1.1 million at December 31, 2010. There was also one mortgage loan less than 90 days delinquent as of December 31, 2010 with a carrying value of $14.9 million. The total number of
commercial mortgage loans outstanding was 138 at December 31, 2011 and 187 at December 31, 2010. The average loan size increased as prior to the sale of EquiTrust Life during the fourth quarter of 2011, certain loans which were jointly owned by EquiTrust Life and Farm Bureau Life were exchanged so that each party owned whole loans and not a portion of individual loans. In 2011, new loans ranged from $1.8 million to $8.0 million in size, with an average loan size of $4.1 million and an average loan term of 15 years. 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 7.1% that are interest only loans at December 31, 2011. At December 31, 2011, the average loan-to-value of the current outstanding principal balance using the most recent appraised value was 56.1% and the weighted average debt service coverage ratio was 1.5 based on the results of our 2010 annual study. See Note 3 to our consolidated financial statements for further discussion regarding our mortgage loans.
At December 31, 2011, FBL's common stockholders' equity was $1,275.1 million, or $41.60 per share, compared to $1,143.3 million, or $36.95 per share at December 31, 2010. Included in stockholders' equity per common share is $4.88 at December 31, 2011 and $1.29 at December 31, 2010 attributable to accumulated other comprehensive income. Effective January 1, 2012, stockholders' equity will be decreased by approximately $75.8 million, or $2.47 per common share, upon adoption of a new standard regarding the accounting for deferred acquisition costs. See Note 1 to the consolidated financial statements for details regarding this accounting change.
A majority of our insurance liabilities are backed by fixed maturity securities and mortgage loans. The weighted average life of the fixed maturity and mortgage loan portfolio, based on fair values, was approximately 9.1 years at December 31, 2011 and
9.4 years at December 31, 2010. Accordingly, the earned rate on the portfolio lags behind changes in market yields. The extent that the portfolio yield lags behind changes in market yields generally depends upon the following factors:
We design our products to encourage persistency and manage our investment portfolio in a manner to help ensure targeted spreads are earned. In addition to the ability to change interest crediting rates on our products, certain interest sensitive contracts have surrender and withdrawal penalty provisions. Products such as supplementary contracts with life contingencies
are not subject to surrender or discretionary withdrawal. Depending on the product, surrender charge rates on annuity contracts range up to 10.0% and surrender charge periods range up to 10 years and typically decrease 1.0% for every one-to-two years the contract is in force.
Our exposure to interest rate risk stems largely from our annuity products as the cash flows of these products can vary significantly with changes in interest rates. We have holdings in fixed maturity and mortgage loan portfolios to offset the interest rate risk of our annuity products. We actively manage the projected cash flows and duration of these assets and liabilities by minimizing the difference between the two. While it can be difficult to maintain asset and liability durations that are perfectly matched in a dynamic environment, we have identified various strategies that can be implemented if duration mismatches exceed acceptable tolerances. The effective duration of the fixed maturity and mortgage loan portfolios backing our annuity products was 5.3 at December 31, 2011 and 2010. The effective duration of our annuity liabilities was approximately 6.3 at December 31, 2011 and 6.2 at December 31, 2010.
If interest rates were to increase 10% from levels at December 31, 2011 and 2010, the fair value of our fixed maturity securities and short-term investments would decrease approximately $70.2 million at December 31, 2011 and $99.8 million at December 31, 2010. 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 majority of the underlying contracts. If interest rates were to decrease 10% from levels at December 31, 2011 and 2010 the fair value of our debt would increase $1.6 million at December 31, 2011 excluding the short-term debt redeemed on January 30, 2012, and $4.0 million at December 31, 2010.
Parent company cash inflows primarily consist of (i) proceeds from the EquiTrust Life sale, (ii) dividends from subsidiaries, if declared and paid, (iii) fees that it charges the various subsidiaries and affiliates for management of their operations, (iv) expense reimbursements and tax settlements from subsidiaries or affiliates, (v) proceeds from the exercise of employee stock options and (vi) investment income. Revenue sources for the parent company during 2011 included management fees from subsidiaries and affiliates of $8.0 million. Cash outflows are principally for salaries, taxes and other expenses related to providing these management services, dividends on outstanding stock, stock repurchases and interest and principal repayments related to our parent company debt.
Farm Bureau Life's ability to pay dividends to FBL Financial Group, Inc. 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. During 2012, the maximum amount legally available for distribution to FBL Financial Group, Inc., without further regulatory approval, is $87.8 million.
As discussed in Notes 2 and 8 to our consolidated financial statements, in connection with the EquiTrust Life sale, we redeemed $50.0 million of our affiliate Senior Notes in December 2011 and $175.0 million of Senior Notes with non-affiliates in January 2012. On December 30, 2011, we exercised the provisions of the trust indentures and deposited $211.6 million into two irrevocable debt defeasance trusts for the principal, accrued interest and estimated make-whole premium on the Senior Notes with non-affiliates. Funds of $210.9 million from the trusts were used to pay-off the Senior Notes with non-affiliates on January 30, 2012 and the remaining balance in the trusts of $0.7 million was returned to us. Interest payments on all debt totaled $22.3 million in 2011, $24.4 million in 2010 and $25.3 million in 2009. Interest payments on our debt outstanding at December 31, 2011 are estimated to be $11.4 million in 2012, which includes $3.5 million in the debt defeasance trusts for the Senior Notes redeemed in 2012.
Excluding the debt defeasance trusts above, the parent company had available cash and investments totaling $239.4 million at December 31, 2011. FBL Financial Group, Inc. expects to rely on available cash resources and management fee income to make dividend payments to its stockholders and interest payments on its debt, as well as fund any capital initiatives such as the stock repurchases described above.
In the normal course of business, we enter into insurance contracts, financing transactions, lease agreements or other commitments which are necessary or beneficial to our operations. These commitments may obligate us to certain cash flows during future periods. The following table summarizes such obligations as of December 31, 2011:
Amounts shown in this table are projected payments through the year 2061 which we are contractually obligated to pay to our life insurance and annuity contract holders. The payments are derived from actuarial models which assume a level interest rate scenario and incorporate assumptions regarding mortality and persistency when applicable. These assumptions are based on our historical experience. The total of the contractual obligations relating to insurance contracts noted above differs from the liability balance on our consolidated balance sheet as follows:
Pension assets and liabilities are affected by the estimated market value of plan assets, estimates of the expected return on plan assets and/or discount rates. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets and the expected return on plan assets will affect the amount of pension expense ultimately recognized. The December 31, 2011 pension obligation was computed based on an average 4.67% discount rate, which was based on yields for high-quality corporate bonds with a maturity approximating the duration of our pension liability. The long-term return on plan assets is based upon the current market values of our pension investments. Declines in comparable bond and equity yields would increase our net pension liability. Our net pension liability could increase or decrease depending on the extent to which returns on pension plan assets are lower or higher than the discount rate.
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 5 to our consolidated financial statements.
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 2012 would result in $2.3 million of additional amortization expense. Correspondingly, a 10% decrease in estimated gross profits would result in $2.3 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 2011 totaled $6.8 million.
We assume an expected long-term rate of return on plan assets of 7.00% and a discount rate of 4.67%. Details regarding the method used to determine the discount rate are summarized in Note 10 to our consolidated financial statements.
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 $0.7 million increase in pension expense and a 100 basis point increase would result in a $0.7 million decrease to pension expense. A 100 basis point decrease in the assumed discount rate would result in a $1.5 million increase in pension expense while a 100 basis point increase would result in a $1.0 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.
The amount deferred tax assets we hold is dependent on our estimate of the future deductibility of certain items. A valuation allowance against deferred income tax assets is established if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. No valuation allowance was recorded on deferred tax assets at December 31, 2011.
See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements that have been implemented during 2011 and those that have been issued and will be implemented in the future.
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 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2011.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2011 of FBL Financial Group, Inc. and our report dated February 16, 2012 expressed an unqualified opinion thereon.
(a) Our consolidated statement of cash flows combines the cash flows from discontinued operations with the cash flows from continuing operations within each major category (operating, investing and financing) of the statement and supplemental disclosures.
See Note 2 for information on the recent sale of our former subsidiary, EquiTrust Life Insurance Company (EquiTrust Life). Financial results of this business component have been reclassified in the prior period financial statements and excluded from the notes to the consolidated financial statements, unless otherwise noted.
Effective January 1, 2011, we adopted guidance issued by the Financial Accounting Standards Board (FASB) which clarified that investments held within the separate accounts of an insurance entity should not be combined with the insurer's general account interest in the same investments when determining whether consolidation is required, unless the separate account interests are held for the benefit of a related party. The adoption of this guidance had no impact on our consolidated financial statements.
Effective July 1, 2011, we adopted guidance issued by the FASB related to the determination of whether a mortgage loan modification is a troubled debt restructuring. Under this guidance, if a restructuring constitutes a concession and the debtor is experiencing financial difficulties, a troubled debt restructuring has occurred. This guidance required retrospective application to any restructuring activities occurring since January 1, 2011. The adoption of this guidance had no impact on our consolidated financial statements.
Effective July 1, 2010, we adopted guidance issued by the FASB, which clarifies the type of embedded credit derivative that is exempt from bifurcation. This guidance requires that the only form of embedded credit derivatives that qualify for the exemption are credit derivatives related to the subordination of one financial instrument to another. For securities no longer exempt under the new guidance, companies may continue to forgo bifurcating the embedded derivatives if they elect, on an instrument-by-instrument basis, and report the security at fair value with changes in fair value reported through the statements of operations. Upon adoption of this guidance, we elected the fair value option for a synthetic collateralized debt obligation security, reclassifying $4.7 million of unrealized loss, net of offsets, from accumulated other comprehensive income (loss) to retained earnings.
Effective January 1, 2009, we adopted guidance that specifies criteria for determining whether impairments in debt securities are other than temporary and requires that the non-credit portion of an impairment be recorded in accumulated other comprehensive income (loss) rather than the statements of operations. The guidance also requires additional disclosures relating
Fixed maturity securities, comprised of bonds, redeemable preferred stock and certain non-redeemable preferred stock, which may be sold, are designated as "available for sale." Available-for-sale securities are reported at fair value and unrealized gains and losses on these securities, with the exception of unrealized gains and losses relating to the synthetic collateralized debt obligation in 2010 (see Note 1), are included directly in stockholders' equity as a component of accumulated other comprehensive income (loss). Beginning July 1, 2010, unrealized gains and losses relating to the synthetic collateralized debt obligation are recorded as a component of derivative income (loss) in the consolidated statements of operations. 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 and unearned revenue reserve that would have been required as a charge or credit to income had such amounts been realized.
We discontinue the accrual of investment income on invested assets when it is determined that collection is uncertain.
level of current market interest rates compared to market interest rates when the security was purchased;
After an other-than-temporary write down of all equity securities and any fixed maturity securities with a credit-only impairment, the cost basis is generally not adjusted for subsequent recoveries in fair value. For fixed maturity securities for which we can reasonably estimate future cash flows after a write down, the discount or reduced premium recorded, based on the new cost basis, is amortized over the remaining life of the security. Amortization in this instance is computed using the prospective method and the current estimate of the amount and timing of future cash flows.
Fair values for the embedded derivatives in our modified coinsurance contracts are based on the difference between the fair value and the cost basis of the underlying investments. See Note 4 for more information regarding derivatives and see Note 6 for additional details on our reinsurance agreements.
Deferred acquisition costs include certain costs of acquiring new insurance business, including commissions and other expenses related to the production of new business, to the extent recoverable from future policy revenues and gross profits. Also included are premium bonuses and bonus interest credited to contracts during the first contract year only. The value of insurance in force acquired represents the cost assigned to insurance contracts when an insurance company is acquired. The initial value is determined by an actuarial study using expected future gross profits as a measurement of the net present value of the insurance acquired. Interest accrued on the unamortized balance at a weighted average rate of 4.72% in 2011, 4.69% in 2010 and 4.85% in 2009.
Other assets include property and equipment, primarily comprised of capitalized software costs, furniture and equipment, which are reported at cost less allowances for depreciation and amortization. Depreciation and amortization expense is primarily computed using the straight-line method over the estimated useful lives of the assets, which range from two to twenty years. Property and equipment had a carrying value of $20.0 million at December 31, 2011 and $18.6 million at December 31, 2010, and accumulated depreciation and amortization of $61.8 million at December 31, 2011 and $61.7 million at December 31, 2010. Depreciation and amortization expense for furniture and equipment was $3.5 million in 2011, $4.2 million in 2010 and $5.9 million in 2009.
Future policy benefit reserves for interest sensitive products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. 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 2011 and from 1.55% to 5.50% in 2010 and 2009.
margins was 6.04% in 2011, 6.20% in 2010 and 6.18% in 2009. The liability for future policy benefits for non-participating traditional life insurance is computed using a net level method, including assumptions as to mortality, persistency and interest and includes provisions for possible unfavorable deviations.
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
Other income and other expenses primarily consist of revenue and expenses generated by our various non-insurance subsidiaries for 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. Lease income from leases with affiliates totaled $1.8 million in 2011, $2.0 million in 2010 and $3.6 million in 2009. Investment advisory fee income from affiliates totaled $1.2 million in 2011 and 2010 and $1.1 million in 2009. In addition, Farm Bureau Life has certain items reported as other income and other expense, which netted to $3.2 million in 2011, $2.1 million in 2010 and $2.0 million in 2009. We expense legal costs associated with a loss contingency as incurred.
We report the results of operations of a business as discontinued operations when the component is sold or expected to be sold, the operations and cash flows of the business have been or will be eliminated from the ongoing operations as a result of the disposal transaction, and we will not have any significant continuing involvement in the operations of the business after the disposal transaction. The results of discontinued operations are reported as income from discontinued operations in the consolidated statements of operations for current and prior periods commencing in the period in which the business is either disposed of or accounted for as a disposal group. Any gain or loss recognized on the disposal is also reported as a component of discontinued operations. Major classes of assets and liabilities of subsidiary held for sale and components of the income from discontinued operations are separately disclosed in Note 2.
Other significant accounting policies primarily applicable to assets and liabilities held for sale and discontinued operations, which are not discussed above include:
Derivative instruments, which include call options used to fund index credits on index annuities, are measured at fair value net of related collateral receivable or payable.
Call options used to fund index credits on the assumed index annuities are purchased by and maintained on the books of the ceding company. We record our proportionate share of the option value supporting the reinsured business as a reinsurance recoverable at fair value, based on quoted market prices adjusted for a credit risk component.
We also have three share-based payment arrangements under our Class A Common Stock Compensation Plan and a Cash-Based Restricted Stock Unit Plan. We recognize compensation expense for all share-based payments granted, modified or settled. The non-performance related stock-based expense is recognized over the shorter of our five-year vesting schedule or the period ending when the employee becomes eligible for retirement using the straight-line method. The performance related stock-based expense is based on the number of shares expected to vest and is recognized over the required service period. The impact of forfeitures is estimated and compensation expense is recognized only for those stock-based instruments expected to vest. We report tax deductions related to stock-based instruments in excess of recognized compensation expense as a financing cash flow.
EquiTrust Life retains all of its contingent liabilities after the sale. The Agreement contains customary representations, warranties and covenants of the parties, as well as post-closing indemnification obligations. The post-closing indemnification obligations may be triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. Certain of these obligations are subject to various time limitations and monetary thresholds and caps. In addition, we have entered into an agreement with EquiTrust Life to provide interim and transition services for a period of up to six months, beginning immediately after closing, with EquiTrust Life retaining the option to extend the agreement with respect to certain of the services for up to six additional months. We have also entered ongoing service agreements for the business being assumed by Farm Bureau Life. Future transition-related expenses, estimated to be approximately $3.1 million, will be reimbursed by the buyer.
In connection with the EquiTrust Life Sale, we are redeeming $225.0 million of our long-term debt in accordance with the mandatory redemption provisions of the underlying notes. This includes $50.0 million Senior Notes with our affiliate, Farm Bureau Property & Casualty Insurance Company (Farm Bureau Property & Casualty), which was extinguished on December 30, 2011. The remaining $175.0 million of unaffiliated debt was extinguished on January 30, 2012, at the make-whole redemption price of $210.9 million. On December 30, 2011, we exercised the provisions of the trust indentures and deposited $211.6 million into two irrevocable defeasance trusts for the principal, accrued interest and estimated make-whole premium. The trust funds were not withdrawable by us, and consisted of $126.4 million in cash and $85.2 million in short-term investments at December 31, 2011. The note holders were paid from assets in the trusts on January 30, 2012.
The make-whole redemption premium was based on U.S. Treasury yields and considered an embedded derivative. Due to the EquiTrust Life sale, this derivative liability had a fair value of $33.1 million at December 31, 2011. The change in fair value is reported as loss on debt redemption in the Consolidated Statements of Operations. In the first quarter of 2012, we will recognize a pre-tax loss of less than $0.1 million for the write-off of deferred debt issuance costs, mostly offset by the difference between the fair value of the make-whole embedded derivative at December 31, 2011 and the actual make-whole payment in January 2012. See Note 8 for additional details on our debt.
Corporate securities include certain hybrid preferred securities with a carrying value of $116.7 million at December 31, 2011 and $123.5 million at December 31, 2010. Corporate securities also include redeemable preferred stock with a carrying value of $5.5 million at December 31, 2011 and $5.2 million at December 31, 2010.
The collateralized debt obligation includes an embedded credit derivative, accordingly changes in its fair value are realized as derivative income which is included within other income in the consolidated statements of operations.
Net unrealized gains in accumulated other comprehensive income on investments of subsidiary held for sale at December 31, 2010 totaled $4.9 million. The change in unrealized appreciation/depreciation of investments held for sale, net of adjustments for amortization and taxes, totaled ($4.9) million in 2011, $52.9 million in 2010 and $338.5 million in 2009.
Included in fixed maturities in the above table are 249 securities from 204 issuers at December 31, 2011 and 290 securities from 259 issuers at December 31, 2010. The unrealized losses in fixed maturities are due to wider spreads between the risk-free and corporate and other bond yields relative to the spreads when the securities were purchased. Because we do not intend to sell or believe we will be required to sell these fixed maturity investments before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at December 31, 2011. The following summarizes the more significant unrealized losses of fixed maturity investments by investment category as of December 31, 2011.
Residential mortgage-backed securities: The unrealized losses on residential mortgage-backed securities represent 16.5% of our total unrealized losses, and were caused primarily by continued uncertainty regarding mortgage defaults on Alt-A loans. We purchased most of these investments at a discount to their face amount and the contractual cash flows of these investments are based on mortgages and other assets backing the securities.
Commercial mortgage-backed securities: The unrealized losses on commercial mortgage-backed securities represent 9.1% of our total unrealized losses, and were caused primarily by spread widening and industry concerns regarding the potential for future commercial mortgage defaults. There were also concerns regarding current and future downgrades by the three major rating agencies for tranches below the super senior AAA level. The contractual cash flows of these investments are based on mortgages backing the securities. Unrealized losses on military housing bonds were mainly attributed to a limited number of investors and negative publicity regarding the sector. The military housing bonds are also impacted by lack of printed underlying ratings on insured bonds.
State, municipal and other governments: The unrealized losses on state, municipal and other governments represent 5.2% of our total unrealized losses, and were primarily caused by general spread widening among lower-rated bonds or insured bonds with a lack of printed underlying ratings. The decline in fair value is primarily attributable to increased spreads of the lower-
rated bonds and market concerns regarding specific areas of the sector.
Equity securities: We had $0.5 million of gross unrealized losses on investment grade non-redeemable perpetual preferred securities within the financial sector as of December 31, 2011. 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 other-than-temporary impairment similar to fixed maturity securities. The decline in fair value is primarily attributable to market concerns regarding the sector. With respect to common stock holdings, the Company considers in its other-than-temporary impairment analysis its intent and ability to hold a particular equity security for a period of time sufficient to allow for the recovery of its value to an amount equal to or greater than cost. Based upon this evaluation, it was determined that the Company has the ability and intent to hold these investments until a recovery of fair value.
Excluding mortgage and asset-backed securities, no securities from the same issuer had an aggregate unrealized loss in excess of $4.8 million at December 31, 2011. The $4.8 million unrealized loss is from hybrid Tier 1 capital bonds in the financial sector. With respect to mortgage and asset-backed securities not backed by the United States Government, no securities from the same issuer had an aggregate unrealized loss in excess of $12.5 million at December 31, 2011. The $12.5 million unrealized loss from one issuer relates to three different securities that are backed by different pools of Alt-A residential mortgage loans. All three of the securities are rated non-investment grade and the largest unrealized loss totaled $5.6 million.
Our mortgage loan portfolio consists principally of commercial mortgage loans that we have originated. Our lending policies require that the loans be collateralized by the value of the related property, establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. We originate loans with an initial loan to value ratio that provides sufficient excess collateral to absorb losses should we be required to foreclose and take possession of the collateral. In order to identify impairment losses timely, management maintains and reviews a watch list of mortgage loans that have heightened risk. These loans may include those with: borrowers delinquent on contractual payments, borrowers experiencing financial difficulty, increases in rental real estate vacancies and significant declines in collateral value. We evaluate each of our mortgage loans individually and establish an allowance as needed for possible losses against our mortgage loan portfolio. An allowance is needed for loans for which we do not believe we will collect all amounts due according to the contractual terms of the respective loan agreements or a modification which has been classified as a troubled debt restructuring.
Any loan delinquent on contractual payments is considered non-performing. Non-performing loans totaled $18.9 million at December 31, 2011 and $16.0 million at December 31, 2010. At December 31, 2011 there were three non-performing loans over 90 days past due on contractual payments with a carrying value of $18.9 million. At December 31, 2010, there was one non-performing loan less than 90 days past due on contractual payments with a carrying value of $14.9 million and one non-performing loan over 90 days past due on contractual payments with a carrying value of $1.1 million. We discontinued the accrual of interest on two loans totaling $4.0 million at December 31, 2011 and one loan totaling $1.1 million at December 31, 2010. We continued to accrue for the other non-performing loan as we believe that we will collect all of the amounts due.
Proceeds from sales of fixed maturity securities-available for sale were $70.7 million in 2011, $257.9 million in 2010 and $244.5 million in 2009.
related to an equity method investment held as Securities and Indebtedness of related parties, which is undergoing financial difficulties as a result of class action litigation.
We evaluate our variable interest entity (VIE) investees to determine whether the level of our direct ownership interest, our rights to manage operations or our obligation to provide ongoing financial support are such that we are the primary beneficiary of the entity, and are then required to consolidate it for financial reporting purposes. None of our VIE investees were required to be consolidated during 2011, 2010 or 2009. Our VIE investments are as follows:
At December 31, 2011, we had committed to provide additional funds for investments in limited partnerships. The amounts of these unfunded commitments totaled $61.4 million.
The carrying value of investments which have been non-income producing for the twelve months preceding December 31, 2011 include fixed maturity, real estate, mortgage loans, short-term and equity securities totaling $5.4 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, 2011.
Other investments, cash and short-term investments and restricted debt defeasance trust assets: Fair values for call options are based on counterparty market prices adjusted for a credit component of the counterparty. Prices are verified internally using analytical tools. All other items are reported at historical cost, adjusted for amortization of premiums or accrual of discounts, as applicable, which approximates the fair values due to the nature of these assets.
Reinsurance recoverable: Fair values for the embedded derivatives in our modified coinsurance contracts under which we cede or assume business are based on the difference between the fair value and the cost basis of the underlying fixed maturity securities. We are not required to estimate fair value for the remainder of the reinsurance recoverable balance.
Future policy benefits, supplemental contracts without life contingencies and advance premiums and other deposits: Fair values of our liabilities under contracts not involving significant mortality or morbidity risks (principally deferred annuities, deposit administration funds, funding agreements and supplementary contracts) are estimated using one of two methods. For contracts with known maturities, fair value is determined using discounted cash flow valuation techniques based on current interest rates adjusted to reflect our credit risk and an additional provision for adverse deviation. For deposit liabilities with no defined maturities, fair value is the amount payable on demand. We are not required to estimate the fair value of our liabilities under other insurance contracts.
Short-term and long-term debt: Fair values are estimated using discounted cash flow analysis based on the market's assessment or our current incremental borrowing rate for similar types of borrowing arrangements adjusted, as needed, to reflect our credit risk. Fair value of the short-term debt in 2011 is equal to the par value as the related fair value for the make-whole redemption price is reflected as an embedded derivative in other liabilities.
Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories.
Level 3 - Pricing inputs are unobservable for the financial instrument and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments in this category include mortgage or other asset-backed securities and other publicly traded issues and private corporate securities for which non-binding broker and internally developed valuations are utilized.
Management takes into consideration several sources of data in determining the fair values of fixed maturity and equity securities. Our valuation policy dictates that prices are initially sought from third party pricing services. In the event that pricing is not available from these services or upon review of the prices provided it is determined the prices may not be reflective of market conditions, those securities are submitted to brokers to obtain quotes. Broker quotes tend to be used in limited circumstances such as for newly issued, private placement and other instruments that are not widely traded. Lastly, securities are priced using internal cash flow modeling techniques.
Certain assets are measured at fair value on a nonrecurring basis. During 2010, certain mortgage loans had been impaired or written down to a fair value totaling $1.1 million which resulted in an impairment of $0.8 million recorded in net realized capital gains (losses). These collateral dependent mortgage loans are a Level 3 fair value measurement, as fair value is based on the fair value of the underlying real estate collateral, which is estimated using appraised values that involve significant unobservable inputs. There were no mortgage loans impaired to fair value during 2011.
During 2010, real estate had been impaired or written down to a fair value totaling $1.1 million which resulted in an impairment of less than $0.1 million recorded in net realized capital gains (losses). These are a Level 3 fair value measurement, as the fair value of real estate is estimated using appraised values that involve significant unobservable inputs. There was no real estate impaired to fair value during 2011.
We participate in a reinsurance pool with various unaffiliated life insurance companies to mitigate the impact of a catastrophic event on our financial position and results of operations. Members of the pool share in the eligible catastrophic losses based on their size and contribution to the pool. The maximum loss we could incur as a result of losses assumed from other pool members is $7.2 million per event. As of the date of this filing, there have been no claims on the reinsurance pool.
In addition, Farm Bureau Life has an annual 100% quota share accidental death reinsurance agreement. Coverage includes all acts of terrorism including those of a nuclear, chemical or biological origin. Coverage is subject to an annual aggregate retention of $12.0 million. A maximum occurrence limit of $50.0 million applies to policies written on agents of the Company who are participating in Company-sponsored incentive trips. All other occurrence catastrophes are unlimited in amount.
As described in Note 1, during 2011, refinements were made to the methods and assumptions used to calculate the amortization of value of insurance in force acquired, resulting in a $6.9 million reduction in amortization. Net amortization, based on expected future gross profits/margins, for the next five years and thereafter is expected to be as follows: 2012 - $2.9 million; 2013 - $2.9 million; 2014 - $2.8 million; 2015 - $2.9 million; 2016 - $2.5 million and thereafter, through 2031 - $24.1 million.
The separate account assets are principally 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 $2.1 million at December 31, 2011 and $1.5 million at December 31, 2010. The weighted average age of the contract holders with GMDB, IDB or GMIB rider was 55 years at December 31, 2011 and 56 years at December 31, 2010. Benefits paid for GMDBs, IDBs and GMIBs totaled $0.3 million for 2011, $0.4 million for 2010 and $0.7 million for 2009.
The consolidated statements of changes in stockholders' equity also include tax reclassifications of $2.5 million in 2010 related to the reclassification of an embedded credit derivative loss and $8.4 million in 2009 related to the reclassification of non-credit impairment losses.
We recognize the benefits of uncertain tax positions in accordance with the provisions of the FASB interpretation on accounting for uncertainty in income taxes. At December 31, 2011 and 2010, we have recorded an insignificant reserve for uncertain tax positions. Unrecognized tax benefits included in our reserve, if recognized, would impact our effective tax rate, although we do not expect these impacts to be material. We recognized interest related to unrecognized tax benefits in interest expense and related penalties in other expenses.
We do not expect any significant increases or decreases in the amount of our reserve for uncertain tax positions within the next twelve months. We are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2005.
In March 2007, we issued $100.0 million of 5.875% Senior Notes due March 15, 2017 (2017 Senior Notes). Interest on the 2017 Senior Notes was payable semi-annually on March 15 and September 15 each year. The 2017 Senior Notes were redeemable in whole or in part at any time at our option at a make-whole redemption price equal to the greater of 100% of their principal amount or the sum of the present values of the remaining scheduled payments of principal and interest, discounted to the redemption date on a semiannual basis at the treasury rate plus 20 basis points. We received net proceeds of approximately $98.5 million from the issuance of the 2017 Senior Notes after underwriting fees, offering expenses and original issue discount, which were being amortized over the term of the 2017 Senior Notes, using the effective interest method.
As discussed in Note 2, on January 30, 2012 we extinguished the $175.0 million of unaffiliated Senior Notes in accordance with the mandatory redemption provisions at the make-whole redemption price of $210.9 million. This portion of the unaffiliated Senior Notes is classified as short-term debt at December 31, 2011, however we exercised the provisions of the trust indentures and deposited $211.6 million into irrevocable defeasance trusts on December 30, 2011 for the principal, accrued interest and estimated make-whole premium. The loss on debt redemption in 2011 represents the change in fair value of the make-whole premium liability. The trust deposits in excess of the final redemption price will be recognized in 2012, net of the write off of unamortized issuance costs.
Holders of the Class A common stock and Series B preferred stock vote together as a group in the election of Class A Directors (four to ten). The Class B common stock votes as a separate class to elect the Class B Directors (five to seven). Voting for the Directors is noncumulative. Ownership aspects of our Class B common stock are governed by a Class B Shareholder Agreement resulting in IFBF, which owns 64% of our voting stock as of December 31, 2011, having the ability to control the company. Holders of Class A common stock and Class B common stock receive equal per-share common stock dividends.
In the fourth quarter of 2011, the Board of Directors approved a plan to repurchase up to $200.0 million of Class A common stock. The repurchase plan authorizes 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. We repurchased 0.4 million shares of stock for $13.6 million in 2011. Completion of the program is dependent on market conditions and other
Contributions are made to FBL Financial Group Retirement Plan each year, resulting in this plan being partially funded against projected future benefit obligations. Contributions are made to the supplementary retirement plans as needed to fund current benefit payouts, accordingly these plans are not funded against projected future benefit obligations. None of the plans have been certified under the Pension Protection Act of 2006, which assigns funding status ratings as follows: "Red Zone," less than 65% funded, "Yellow Zone," 65% to 80% funded and "Green Zone," greater than 80% funded. Funding status based on the latest actuarial valuation of the Plans as well as other plan information is summarized below.
(A) These plans are unfunded and our contributions represent current period distributions.
Net periodic pension cost of the plans is allocated between participants on a basis of time incurred by the respective employees
for each employer. Such allocations are reviewed annually. Further information on the obligations of the three plans, the estimate of net periodic pension costs and the assumptions used is summarized below. We have also provided detail on the assets held by the FBL Financial Group Retirement Plan.
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 to determine the amounts to amortize. It is expected that combined net periodic pension cost in 2012 will include $10.6 million for amortization of the actuarial loss and $0.4 million of prior service cost amortization.
Expected benefits to be paid for us and affiliates are as follows: 2012 - $26.5 million, 2013 - $23.3 million, 2014 - $23.2 million, 2015 - $24.7 million, 2016 - $24.9 million and 2017 through 2021 - $113.8 million.
Mutual funds: the net asset value of our mutual funds is based on quoted market prices available on active markets.
(c) Represents pooled separate account investments with Principal Life Insurance Company.
In addition to benefits offered under the aforementioned benefit plans, we and several other affiliates sponsor 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 retirees. Postretirement benefit expense aggregated $0.1 million in 2011, 2010 and 2009.
We have three share-based payment arrangements under our Class A Common Stock Compensation Plan, which are described below. Compensation expense for these arrangements totaled $5.0 million for 2011 and $3.0 million for 2010 and 2009. The income tax benefit recognized in the statements of operations for these arrangements totaled $1.9 million for 2011, $0.9 million for 2010 and $1.0 million for 2009. In 2011, a Cash-Based Restricted Stock Unit Plan was also introduced. We recorded compensation expense for arrangements under this plan totaling $0.6 million and a related income tax benefit of $0.3 million in 2011.
As discussed above, cash-based restricted stock units will be granted to certain executives in 2012 as a modification of the 2011 nonvested stock grants. The restricted stock units will vest and be paid out in cash after a two-year required service period. The value of the awards is based on the grant date fair value and is adjusted each period to the current fair value. These awards are charged to expense and a liability is established using the straight-line method over the required service period. Unrecognized compensation expense related to unvested restricted stock units based on the stock price at December 31, 2011 totaled $1.6 million. Dividends will not be paid on restricted stock units.
We have management agreements, which include Farm Bureau Property & Casualty and other affiliates, under which we provide general business, administrative and management services. Fee income for these services totaled $3.7 million in 2011, $3.4 million in 2010 and $3.8 million in 2009. In addition, Farm Bureau Management Corporation, a wholly-owned subsidiary of the IFBF, provides certain management services to us under a separate arrangement. We incurred related expenses totaling $1.0 million in 2011 and 2010 and $0.8 million in 2009.
We have service agreements with the Farm Bureau property-casualty companies operating within our marketing territory, including Farm Bureau Property & Casualty and another affiliate. Under the service agreements, the property-casualty companies are responsible for development and management of our agency force for a fee. We incurred expense totaling $9.7 million in 2011, $8.7 million in 2010 and $8.6 million in 2009 relating to these arrangements.
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 $0.5 million in 2011, 2010 and 2009. 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 $1.5 million in 2011 and 2010 and $1.4 million in 2009. 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.
In the normal course of business, we may be involved in litigation where damages are alleged that are substantially in excess of contractual policy benefits or certain other agreements. In recent years, companies in the life insurance and annuity business have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices and similar claims. With the sale of EquiTrust Life, at December 31, 2011, we are not aware of any such matters threatened or pending against FBL Financial Group or any of its subsidiaries.
In 2006, Farm Bureau Life incurred a pre-tax charge of $4.9 million relating to the settlement of a lawsuit with a husband and wife who had applied for life insurance policies. The settlement ended litigation regarding the process we followed in denying insurance coverage for medical reasons. Insurance claims were filed under our professional liability and general liability insurance policies for reimbursement of the settlement amount, but coverage was denied. A lawsuit was filed against the insurer and the insurance broker to recover those damages. Claims against the insurer were dismissed in prior court rulings. Claims against the broker for failure to provide timely notice of our claim to said insurers were dismissed by the Polk County, Iowa, District Court, in a December 29, 2011 ruling, which found that even if the insurer had received timely notice, there would have been no coverage. We anticipate filing an appeal of that ruling during the first quarter of 2012. Any recoveries will be recorded in net income in the period the recovery is received.
We lease our home office properties under a 10-year operating lease from a wholly-owned subsidiary of the IFBF. Future remaining minimum lease payments under this lease, as of December 31, 2011, are as follows: 2012 - $2.5 million, 2013 - $2.5 million, 2014 - $2.5 million, 2015 - $2.5 million, 2016 - $2.5 million and thereafter, through 2021 - $12.6 million. Rent expense for the lease totaled $3.6 million in 2011 and $3.3 million in 2010 and 2009. These amounts are net of $1.4 million in 2011, 2010 and 2009 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 $1.7 million at December 31, 2011 and $3.1 million at December 31, 2010.
We use operating income (loss), 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 quarter to quarter. Also, the discontinued operations and related loss on debt redemption are nonrecurring items. A view of our operating performance without the impact of these items enhances the analysis of our results. 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.
In the fourth quarter of 2011, income (loss) from discontinued operations decreased $71.7 million from the loss on sale of subsidiary and net income (loss) from continuing operations decreased $21.6 million due to a loss on debt redemption required from the sale. Net income (loss) from continuing operations increased $5.0 million in the second quarter of 2011 and $3.0 million in the second quarter of 2010 due to the impact of refining actuarial estimates as discussed in Note 1.