Our principal operations are conducted from property leased from a subsidiary of the Iowa Farm Bureau Federation under a 10 year operating lease that expires in 2021, with automatic five-year extensions unless terminated by one of the parties at least six months prior to the expiration date. Currently, the property leased primarily consists of approximately 141,000 square feet of a 400,000 square foot office building in West Des Moines, Iowa. We consider the current facilities to be adequate for the foreseeable future.
We analyze operations by reviewing financial information regarding our primary products that are aggregated in Annuity and Life Insurance product segments. In addition, our Corporate and Other segment includes various support operations, corporate capital and other product lines that are not currently underwritten by the Company. We use operating income, in addition to net income, to measure our performance. Operating income, for the periods presented, consists of net income adjusted to exclude the impact of realized gains and losses on investments and the change in net unrealized gains and losses on derivatives, which can fluctuate greatly from period to period. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income (loss). Specifically, call options relating to our indexed business are one-year assets while the embedded derivative in the indexed contacts represent the rights of the contract holder to receive index credits over the entire period the indexed annuities are expected to be in force. Operating income is not a measure used in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), but is a common life insurance industry measure of performance. A view of our operating performance without the impact of these items enhances the analysis of our results, although it should not be viewed as a substitute for net income as a measure of financial performance. See Note 13 to our consolidated financial statements included in Item 8 for further information regarding how we define our segments and operating income.
We also include within our analysis “premiums collected,” another measure that is not used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of agent productivity. See Note 13 to our consolidated financial statements included in Item 8 for further information regarding this measure and its relationship to GAAP revenues.
The volume of our life insurance and annuity business in force, which is driven by the level of our sales and the persistency of the business written.
Our profitability is also impacted by changes in accounting guidance that impact the timing of profit recognition. See Note 1 to our consolidated financial statements included in Item 8 for details on pending accounting pronouncements. In addition to guidance that has been adopted, the accounting standards setting bodies are currently working on other projects that could impact the timing of profit emergence including the accounting for insurance contracts. It is uncertain what the outcome of these or other projects will be or when they will be completed.
The impact of the recent United States presidential election on economic, trade, regulatory and tax policies is uncertain.
U.S. net farm income is estimated to have decreased 17.2% and farm real estate value is estimated to have decreased 0.5% during 2016 according to recent U.S. Department of Agriculture estimates.
The benchmark U.S. 10-Year Treasury yield spent most of 2016 below 2%, averaging 1.83% for the year. The yield rose after the U.S. presidential election to 2.45% at December 31, 2016, which partially offset tightening credit spreads during 2016. While the recent increase in yields is a positive sign, market yields remain low and continue to negatively impact our investment yields as well as the interest we credit on our interest-sensitive products. Our average investment portfolio yield declined during 2016 as yields on new acquisitions were generally lower than the average portfolio yield. Low crediting rates pose challenges to maintaining attractive annuity and universal life products, although our rates are comparable to other insurance companies, allowing us to maintain our competitive position within the market. During the second quarter of 2016, we unlocked assumptions used to amortize deferred policy acquisition costs to reflect the expectation of lower earned spread rates, primarily driven by the expected continuation of low 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.
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 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.
Pre-tax operating income for the Annuity segment decreased in 2016, compared to 2015, primarily due to the impact of unlocking and increases in interest sensitive benefits. Pre-tax operating income increased in 2015, compared to 2014, primarily due to higher spread income earned from an increase in the volume of business in force, higher investment fee income and a benefit from unlocking, partially offset by an increase in other underwriting expenses.
The average aggregate account value for individual annuity contracts in force increased in 2016 and 2015, compared to the prior periods, due to continued sales and the crediting of interest. Continued growth in our business in force contributes to the increase in revenues, benefits and expenses. Interest sensitive benefits in 2016 were also impacted by changes in the discount rate used in the calculation of interest sensitive product reserves resulting in a $0.9 million increase. The increase in other underwriting expenses in 2015 was partially due to a $0.5 million increase in defined benefit plan expense primarily due to settlement charges and the impact of changes in pension assumptions. Premiums collected increased in 2016 compared to 2015 due to increased sales of our indexed annuity product, partially offset by decreased sales of fixed rate deferred annuity products. Premiums collected increased in 2015 compared to 2014 due to increased sales of fixed rate deferred annuity and indexed annuity products. Individual fixed rate deferred annuity collected premiums were $213.3 million in 2016, $237.6 million in
2015 and $210.5 million in 2014. Indexed annuity collected premiums were $125.5 million in 2016, $90.9 million in 2015 and $78.8 million in 2014.
The weighted average yield on cash and invested assets for individual annuities decreased in 2016 and 2015, compared to the prior periods, primarily due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield. The decrease in 2016 was also impacted by lower other investment-related income. See the "Financial Condition" section that follows for additional information regarding the yields obtained on investment acquisitions. Weighted average interest crediting rates on our individual annuity products decreased due to crediting rate actions taken in 2016, 2015 and 2014 in response to the declining portfolio yield and a change in the underlying product mix.
Pre-tax operating income for the Life Insurance segment increased in 2016 and 2015, compared to prior periods. The increase in 2016 was primarily due to an increase in the volume of business in force and decreases in death benefits, partially offset by the impact of unlocking and lower other investment-related income. The increase in 2015 was primarily due to an increase in the volume of business in force, higher other investment-related income and the impact of unlocking, partially offset by increases in death benefits and other underwriting expenses.
Amortization of deferred acquisition costs, deferred sales inducements, the value of insurance in force and unearned revenue reserves changed in 2016 and 2015, compared to prior periods, due to changes in actual and expected profits on the underlying business. Amortization, as well as reserves held on certain interest sensitive products, also changed due to the impact of unlocking. Unlocking generally reflects changes in our projected earned spreads, policy lapses, premium persistency and mortality assumptions. During 2016 and 2014, we also unlocked our assumptions as a result of our analysis of the impact of the low interest rate environment on projected investment and spread income. The impact of unlocking on pre-tax operating income was as follows:
The weighted average yield on cash and invested assets for interest sensitive life insurance products decreased in 2016, compared to 2015, due to lower other investment-related income and lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield. The weighted average yield on cash and invested assets remained level in 2015, compared to 2014, as the impact of lower yields on new investment acquisitions was offset by higher other investment-related income from prepayment fees. See the "Financial Condition" section that follows for additional information regarding the yields obtained on investment acquisitions. Weighted average interest crediting rates on our interest sensitive life insurance products decreased due to crediting rate actions taken on various products in 2016, 2015 and 2014 in response to the declining portfolio yield.
Amortization of deferred acquisition costs, deferred sales inducements, and unearned revenue reserves changed in 2016 and 2015, compared to prior periods, primarily due to the impact of unlocking and market performance on our variable business. Unlocking generally reflects changes in projected earned spreads, separate account performance and withdrawal and mortality assumptions. During 2016 and 2014, we also unlocked our assumptions as a result of our analysis of the impact of the low
The effective tax rate on operating income was 22.0% for 2016, 22.2% for 2015 and 23.2% for 2014. The effective tax rates differ from the federal statutory rate of 35% primarily due to the impact of low income housing credits from equity method investees and tax-exempt interest and dividend income. The effective tax rate decreased in 2016 and 2015, compared to the prior year, primarily due to increases in tax credits from low income housing tax credit investments. See Note 5 to our consolidated financial statements included in Item 8 for additional information on income taxes.
Income taxes on operating income adjustments on continuing operations are generally recorded at 35% as there are no permanent differences between book and taxable income relating to these adjustments. However, in 2015 income taxes on operating income adjustments included a $1.8 million tax benefit resulting from the disposition of an equity method investment, for which the carrying value consisted solely of nondeductible goodwill.
Equivalent ratings are based on those provided by nationally recognized rating agencies with some exceptions for certain residential mortgage, commercial mortgage- and asset-backed securities where they are based on the expected loss of the security rather than the probability of default.
The table above reflects our exposure to non-sovereign European debt. This represents 5.9% of total fixed maturities as of December 31, 2016 and 6.4% as of December 31, 2015. The exposures are primarily in the industrial, financial and utility sectors. We do not own any securities issued by European governments or companies based in Greece.
Mortgage-backed and other asset-backed securities are purchased when we believe these types of investments provide superior risk-adjusted returns compared to returns of more conventional investments such as corporate bonds and mortgage loans. These securities are diversified as to collateral types, cash flow characteristics and maturity.
The CMBS portfolio included government agency-backed securities with a carrying value of $387.4 million at December 31, 2016 and $382.8 million at December 31, 2015.
Also included in the commercial mortgage-backed securities are military housing bonds totaling $148.0 million at December 31, 2016 and $122.5 million at December 31, 2015. 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.
Equity securities totaled $133.0 million at December 31, 2016 and $121.7 million at December 31, 2015. Gross unrealized gains totaled $4.2 million and gross unrealized losses totaled $1.7 million at December 31, 2016. At December 31, 2015, gross unrealized gains totaled $6.5 million and gross unrealized losses totaled $1.2 million on these securities. The unrealized losses during 2016 were primarily attributable to non-redeemable perpetual preferred securities from issuers in the financial sector. See Note 2 to our consolidated financial statements included in Item 8 for further discussion regarding our analysis of unrealized losses related to these securities.
Mortgage loans totaled $816.5 million at December 31, 2016 and $744.3 million at December 31, 2015. 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 178 at December 31, 2016 and 167 at December 31, 2015. In 2016, new loans ranged from $2.1 million to $14.0 million in size, with an average loan size of $5.3 million, an average loan term of 17 years and an average net yield of 4.04%. 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 7.0% that are interest-only loans at December 31, 2016. At December 31, 2016, 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 1.6 based on the results of our 2015 annual study. See Note 2 to our consolidated financial statements included in Item 8 for further discussion regarding our mortgage loans.
Assets held in separate accounts decreased 4.5% to $597.1 million primarily due to policy surrenders and product charges. Value of insurance in force acquired decreased 55.9% to $9.2 million primarily due to a $9.3 million increase in the impact of the change in net unrealized appreciation on fixed maturity securities during the period. Deferred acquisition costs decreased 1.6% to $330.3 million at December 31, 2016, primarily due to a $21.9 million increase in the impact of the change in net unrealized appreciation on fixed maturity securities during the period. Other assets increased 21.4% to $92.0 million primarily due to increases in prepaid pension assets, property and equipment and prepaid agreements.
Our stockholders' equity increased 4.7% to $1,188.2 million at December 31, 2016, compared to $1,134.4 million at December 31, 2015, primarily due to net income and the change in unrealized appreciation of fixed maturity securities during the period, partially offset by dividends paid.
At December 31, 2016, FBL's common stockholders' equity was $1,185.2 million, or $47.61 per share, compared to $1,131.4 million, or $45.61 per share at December 31, 2015. Included in stockholders' equity per common share is $6.01 at December 31, 2016 and $4.62 at December 31, 2015 attributable to accumulated other comprehensive income.
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 11.0 years at December 31, 2016 and 10.9 years at December 31, 2015. 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:
For a portion of our business in force, we have the ability to adjust interest or dividend crediting rates in response to changes in portfolio yield. However, the ability to adjust these rates is limited by competitive factors and contractual guarantees. Surrender rates could increase and new sales could be negatively impacted if the crediting rates are not competitive with the rates on similar products offered by other insurance companies and financial services institutions. In addition, if market rates were to stay at a low level for an extended period of time, our spread could be lowered due to interest rate guarantees on many of our interest sensitive products. See Part 1, Item 1 - Business, Business Segments for the ranges of guaranteed rates and where our products fall within those ranges.
The following is a hypothetical illustration of the potential impact to average investment yields of a static 2.00% 10-year U.S. Treasury rate during 2017 and 2018 without any corresponding change in current investment spreads. The level of investments maturing and requiring reinvestment are based on projections of the current investment portfolios supporting these blocks of business without incorporation of new business. We estimate that this scenario would decrease average investment yields supporting our annuity business by 0.10% to 0.15% and our universal life business by 0.05% to 0.10% annually over the near term. In addition to not incorporating the impact of new business, this hypothetical illustration does not reflect the potential impact of policyholder behavior. An increase in net cash flows from that modeled will accelerate the pace at which the portfolio yield will decrease, and a decrease in the net cash flows from that modeled will slow down the pace at which the portfolio yield will decrease. Accordingly, actual investment yields could differ materially from those presented. Furthermore, the impact of a decline in portfolio yield on net income is dependent on our ability and willingness to adjust crediting rates.
Equity price risk is limited due to the relatively small equity portfolio held at December 31, 2016. However, we are exposed to equity price risk in the following ways:
We have equity price risk to the extent we may owe amounts under the guaranteed minimum death benefit and guaranteed minimum income benefit provisions of our variable annuity contracts. See Note 4 to our consolidated financial statements included in Item 8 for additional discussion of these provisions.
We paid regular cash dividends on our common and preferred stock totaling $41.9 million in 2016, $39.8 million in 2015 and $34.7 million in 2014. In addition, we paid a special $2.00 per common share cash dividend in March 2016 totaling $49.7 million and in March 2015 totaling $49.5 million. It is anticipated that quarterly cash dividend requirements for 2017 will be $0.0075 per Series B redeemable preferred share and $0.44 per common share. In addition, we expect to pay a special dividend of $1.50 per common share in the first quarter of 2017. The level of common stock dividends will be analyzed quarterly and will be dependent upon our capital and liquidity positions. In addition, alternative uses of excess capital may impact future dividend levels. Assuming these quarterly dividend rates and special dividend, the common and preferred dividends would total approximately $81.3 million in 2017. The parent company expects to have sufficient resources and cash flows to meet its interest and dividend payments throughout 2017. The parent company had available cash and investments totaling $71.0 million at December 31, 2016. FBL Financial Group, Inc. expects to rely on available cash resources, dividends from Farm Bureau Life and management fee income to make dividend payments to its stockholders and interest payments on its debt, as well as fund any capital initiatives such as stock repurchases. As of December 31, 2016, we had no other material commitments for capital expenditures.
Interest payments on debt totaled $4.9 million in 2016, 2015 and 2014. Interest payments on our debt outstanding at December 31, 2016 are estimated to be $4.9 million in 2017.
Farm Bureau Life's cash inflows primarily consist of premiums, deposits to policyholder account balances, income from investments, sales, maturities and calls of investments; and repayments of investment principal. Farm Bureau Life's cash outflows are primarily related to withdrawals of policyholder account balances, investment purchases, payment of policy acquisition costs, policyholder benefits, income taxes, current operating expenses and dividends. Life insurance companies generally produce a positive cash flow that may be measured by the degree to which cash inflows are adequate to meet benefit obligations to policyholders and normal operating expenses as they are incurred. The remaining cash flow is generally used to increase the asset base to provide funds to meet the need for future policy benefit payments and for writing new business. Continuing operations and financing activities from Farm Bureau Life relating to interest sensitive products provided funds totaling $490.9 million in 2016, $385.3 million in 2015 and $410.3 million in 2014.
We manage the amount of capital held by our insurance subsidiaries to ensure we meet regulatory requirements. State laws specify regulatory actions if an insurer's risk-based capital (RBC) ratio, a measure of solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC based on the various risk factors related to an insurance company's capital and surplus, including insurance, business, asset and interest rate risks. The insurance regulators monitor the level of RBC against a statutory "authorized control level" RBC at which point regulators have the option to assume control of the insurance company. The company action level RBC is 200% of the authorized control level and is the first point at which any action would be triggered. As of December 31, 2016, our statutory total adjusted capital was $685.7 million, resulting in a RBC ratio of 544%, based on company action level capital of $126.0 million.
We do not have any off-balance sheet arrangements as of December 31, 2016 or 2015.
In the normal course of business, we enter into insurance contracts, financing transactions, lease agreements or other commitments that are necessary or beneficial to our operations. These commitments may obligate us to certain cash flows during future periods. The following table summarizes such obligations as of December 31, 2016:
Amounts shown in this table are projected payments through the year 2066 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:
The preparation of financial statements in conformity with 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. It is reasonably possible that actual experience could differ from the estimates and assumptions utilized, which could have a material impact on our consolidated financial statements. A summary of our significant accounting estimates and the hypothetical effects of changes in the material assumptions used to develop each estimate, are included in the following table. We have discussed the identification, selection and disclosure of these critical accounting estimates with the Audit Committee of the Board of Directors.
At December 31, 2016, we had 521 fixed maturity and equity securities with gross unrealized losses totaling $75.7 million. Included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as temporary credit issues. Details regarding these securities are included in the "Financial Condition - Investments" section above.
Amortization of deferred acquisition costs for participating life insurance and interest sensitive products is expected to total approximately $26.1 million for 2017, excluding the impact of new production in 2017.
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 $0.9 million increase in pension expense and a 100 basis point increase would result in a $0.9 million decrease to pension expense. A 100 basis point decrease in the assumed discount rate would result in a $2.4 million increase in pension expense while a 100 basis point increase would result in a $1.9 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 of 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, 2016.
At December 31, 2016, we held gross deferred tax assets totaling $48.4 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.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a - 15(f). Under the supervision and the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2016.
We have audited FBL Financial Group, Inc.'s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). FBL Financial Group, Inc.’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.
In our opinion, FBL Financial Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
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, 2016 and 2015, 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, 2016 of FBL Financial Group, Inc. and our report dated March 1, 2017 expressed an unqualified opinion thereon.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FBL Financial Group, Inc. at December 31, 2016 and 2015, and the consolidated results of its operations, comprehensive income (loss) and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
In January 2016, the FASB issued guidance that amends certain aspects of the recognition and measurement of financial instruments. The new guidance primarily affects the accounting for equity investments, the presentation and disclosure requirements for financial instruments and the methodology for assessing the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale fixed maturity securities. The guidance becomes effective for fiscal years beginning after December 15, 2017. We are currently evaluating the impact of this guidance on our consolidated financial statements. We currently anticipate that the primary impact will be in the recognition of gains or losses from changes in our equity security investments through the statement of operations rather than as unrealized gains or losses reflected in other comprehensive income. Note 2 provides further information as to our current level of unrealized gains or losses on these securities.
In May 2014, the FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which supersedes most current revenue recognition guidance, including industry-specific guidance. Although insurance contracts are specifically excluded from the scope of this guidance, almost all entities will be affected to some extent by the significant increase in required disclosures. The new guidance is based on the principle that an entity should recognize revenue to reflect the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer
Mortgage loans are reported at cost adjusted for amortization of premiums and accrual of discounts. If we determine that the value of any mortgage loan is impaired (i.e., when it is probable we will be unable to collect all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to its fair value, which may be based upon the present value of expected future cash flows from the loan, or the fair value of the underlying collateral. We evaluate each of our mortgage loans individually and establish an estimated loss, if needed, for each impaired loan identified. The carrying value of each specific loan is reduced by the estimated loss. Mortgage loans are placed on non-accrual status if we have concerns regarding the collectability of future payments. Interest income on non-performing loans is generally recognized on a cash basis. Once mortgage loans are classified as nonaccrual loans, the resumption of the interest accrual would commence only after all past due interest has been collected or the mortgage loan has been restructured such that the collection of interest is considered likely.
We have accrued dividends for participating business that are established for anticipated amounts earned to date that have not been paid. The declaration of future dividends for participating business is at the discretion of the Board of Directors of Farm Bureau Life. Participating business accounted for 32% of receipts from policyholders during 2016 (2015 - 31% and 2014 - 30%) and represented 11% of life insurance in force at December 31, 2016, 2015 and 2014.
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 $4.8 million in 2016, $4.9 million in 2015 and $3.1 million in 2014. Investment advisory fee income from affiliates totaled $2.5 million in 2016, $2.3 million in 2015 and $1.9 million in 2014. In addition, Farm Bureau Life has certain items, including fees earned from brokered products, reported as other income and other expense, which netted to $3.4 million in 2016 and $3.2 million in 2015 and 2014. We expense legal costs associated with a loss contingency as incurred.
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 other asset-backed securities were in an unrealized gain position at December 31, 2016 and corporate and other asset-backed securities at December 31, 2015 due to increases in estimated fair value subsequent to initial recognition of non-credit losses on such securities.
Corporate securities include hybrid preferred securities with a fair value of $23.3 million at December 31, 2016 and $43.5 million at December 31, 2015. Corporate securities also include redeemable preferred stock with a fair value of $24.5 million at December 31, 2016 and $24.8 million at December 31, 2015.
Unrealized losses decreased during 2016 primarily due to a decrease in overall spreads, offset slightly by an increase in treasury yields over the same period. We do not consider securities to be OTTI when the market decline is attributable to factors such as interest rate movements, market volatility, liquidity, spread widening and credit quality when recovery of all amounts due under the contractual terms of the security is anticipated. Based on our intent not to sell or our belief that we will not be required to sell these securities before recovery of their amortized cost basis, we do not consider these investments to be OTTI at December 31, 2016. We will continue to monitor the investment portfolio for future changes in issuer facts and circumstances that could result in future impairments beyond those currently identified.
Government, our largest aggregate unrealized loss from the same issuer at December 31, 2016 was $1.2 million, consisting of two different securities that are backed by different pools of Alt-A residential mortgage loans. Both securities are rated non-investment grade and the largest unrealized loss totaled $0.7 million.
Proceeds from sales of fixed maturities were $109.5 million in 2016, $108.5 million in 2015 and $67.2 million in 2014.
There were no circumstances that occurred during 2016 or 2015 that resulted in any changes in our decision not to consolidate any of our VIEs. We also have not provided additional support or other guarantees that was not previously contractually required (financial or otherwise) to any of the VIEs as of December 31, 2016 or December 31, 2015.
The call options are supported by securities collateral received of $6.3 million at December 31, 2016, 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, 2016, none of the collateral had been sold or re-pledged. All of our counterparties are rated A- or better by a nationally recognized statistical rating organization.
Level 2 fixed maturities consist of corporate, mortgage- and asset-backed, United States Government agencies, state and municipal and private placement corporate securities with observable market data, and in some circumstances recent trade activity. When quoted prices of identical assets in active markets are not available, our first priority is to obtain prices from third party pricing vendors. We have regular interaction with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information. Their methodologies vary by asset class and include inputs such as estimated cash flows, benchmark yields, reported trades, credit quality, industry events and economic events. Fixed maturities with validated prices from pricing services, which includes the majority of our public fixed maturities in all asset classes, are generally reflected in Level 2.
We follow a “pricing waterfall” policy, which establishes the pricing source preference for a particular security or security type. The order of preference is based on our evaluation of the valuation methods used, the source's knowledge of the instrument and the reliability of the prices we have received from the source in the past. Our valuation policy dictates that fair values are initially sought from third party pricing services. If our review of the prices received from our preferred source indicates an inaccurate price, we will use an alternative source within the waterfall and document the decision. In the event that fair values are not available from one of our external pricing services or upon review of the fair values provided it is determined that they may not be reflective of market conditions, those securities are submitted to brokers familiar with the security to obtain non-binding price quotes. Broker quotes tend to be used in limited circumstances such as for newly issued, private placement corporate bonds
We compare period to period price trends to detect unexpected price fluctuation based on our knowledge of the market and the particular instrument. As fluctuations are noted, we will perform further research, which may include discussions with the original pricing source or other external sources to ensure we are in agreement with the valuation.
Short-term debt is not measured at fair value on a recurring basis and is a Level 3 measurement. Short-term debt at December 31, 2015 consisted of advances with interest set at the debt issuer’s then-current lending rate. Since this short-term debt was repayable less than one month from the valuation date, its carrying value approximated fair value.
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. There were no transfers between Level 1 and Level 2 during the periods presented above.
Certain assets are measured at fair value on a nonrecurring basis, generally mortgage loans or real estate that have been deemed to be impaired during the reporting period. There were no mortgage loans or real estate impaired to fair value during 2016. On May 22, 2015, one real estate property was impaired to a fair value totaling $1.0 million, which resulted in an impairment charge of $0.2 million.
We amortize the value of insurance in force based on a fixed amortization schedule. Net amortization, based on our fixed amortization schedules, for the next five years is expected to be as follows: 2017 - $2.2 million; 2018 - $2.2 million; 2019 - $2.1 million; 2020 - $2.2 million; and 2021 - $2.0 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 $5.8 million at December 31, 2016 and $5.4 million at December 31, 2015. The weighted average age of the contract holders with GMDB, IDB or GMIB rider exposure was 62 years at December 31, 2016 and 57 years at December 31, 2015. Benefits paid for GMDBs, IDBs and GMIBs totaled $0.5 million for 2016, $0.4 million for 2015 and $0.2 million for 2014.
Deferred income taxes have been established based upon the temporary differences between the financial statement and income tax bases of assets and liabilities. The reversal of the temporary differences will result in taxable or deductible amounts in future years when the related asset or liability is recovered or settled. A valuation allowance is required if it is more likely than not that a deferred tax asset will not be realized. In assessing the need for a valuation allowance we considered the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income from prior years available for recovery 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, 2016 and 2015.
In 2015, the other items affecting the effective tax rate include a $1.8 million tax benefit resulting from the disposition of an equity method investment, for which the carrying value consisted solely of nondeductible goodwill.
We recognize the benefits of uncertain tax positions in accordance with the provisions of the FASB interpretation on accounting for uncertainty in income taxes. We had no reserve for uncertain tax positions at December 31, 2016, and less than $0.1 million at December 31, 2015. Unrecognized tax benefits included in our reserve, if recognized, would impact our effective tax rate, although we do not expect these impacts to be material. We recognize interest related to unrecognized tax benefits in interest expense and related penalties in other expenses. We paid no such interest and penalties related to federal income taxes during 2016 or 2015. We do not expect any significant increases or decreases in the amount of our reserve for uncertain tax positions within the next twelve months. We are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years prior to 2013.
At December 31, 2016, we had non-life net operating loss carryforwards for federal income tax purposes totaling $15.7 million, which expire beginning in 2033. 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.
Long-term debt includes $97.0 million of our subordinated debt obligation to FBL Financial Group Capital Trust (the Trust). We issued 5% Subordinated Deferrable Interest Notes due June 30, 2047 (the Notes) with a principal amount of $100.0 million to support $97.0 million of 5% Preferred Securities issued by the Trust. We also have a $3.0 million equity investment in the Trust, which is netted against the Notes on the consolidated balance sheets due to a contractual right of offset. The sole assets of the Trust are and will be the Notes and any interest accrued thereon. The interest payment dates on the Notes correspond to the distribution dates on the 5% Preferred Securities. The 5% Preferred Securities, which have a liquidation value of $1,000.00 per share plus accrued and unpaid distributions, mature simultaneously with the Notes. As of December 31, 2016 and 2015, 97,000 shares of 5% Preferred Securities were outstanding, all of which we unconditionally guarantee.
The Iowa Farm Bureau Federation (IFBF) owns our Series B preferred stock. Each share of Series B preferred stock has a liquidation preference of $0.60 and voting rights identical to that of Class A common stock with the exception that each Series B share is entitled to two votes while each Class A share is entitled to one vote. The Series B preferred stock pays cumulative annual cash dividends of $0.03 per share, payable quarterly, and is redeemable by us, at our option, at $0.60 per share plus unpaid dividends if the stock ceases to be beneficially owned by a Farm Bureau organization.
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. The IFBF's ownership in the three classes of stock results in IFBF owning 71% of our voting stock as of December 31, 2016, and 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.
For descriptions of the underfunded portion of our postretirement benefit plans, see Note 8 - Other Retirement Plans, and for certain other defined benefit plans, see Note 8 - Defined Benefit Plans.
The other defined benefit plans (the Other Plans) provide benefits in addition to those offered under the Multiemployer Plan to certain of our employees or those of our affiliates. These non-qualified benefit plans are not funded, contributions are provided as current benefit obligations become due. Net periodic pension cost of the Other Plans is allocated between the subsidiaries of FBL Financial Group, Inc. and the Farm Bureau affiliated property-casualty companies on a basis of time incurred by the respective employees for each company.
Pension settlement charges were recognized after determining the total cash payments exceeded the sum of the service and interest cost for 2015 and 2014.
The Plans' prior service costs are amortized using a straight-line amortization method over the average remaining service period of the employees. For actuarial gains and losses, we use a corridor (10% of the greater of the projected benefit obligation or the market value of plan assets) to determine the amounts to amortize. For the Multiemployer Plan it is expected that net periodic pension cost in 2017 will include $10.1 million for amortization of the actuarial loss and $0.1 million of prior service cost amortization. For the Other Plans it is expected that net periodic pension cost in 2017, included in accumulated other comprehensive income, will include $1.2 million for amortization of the actuarial loss.
We expect contributions to be paid to the Multiemployer Plan by us and affiliates for 2017 to be approximately $15.0 million, of which $4.8 million is expected to be contributed by us. We expect contributions to be paid to the Other Plans by us and affiliates for 2017 to be approximately $1.9 million, of which $0.9 million is expected to be contributed by us. Expected benefits to be paid under the Multiemployer Plan are as follows: 2017 - $14.4 million, 2018 - $16.8 million, 2019 - $17.3 million, 2020 - $19.6 million, 2021 - $19.4 million and 2022 through 2026 - $115.4 million. Expected benefits to be paid under the Other Plans are as follows: 2017 - $2.4 million, 2018 - $2.5 million, 2019 - $3.2 million, 2020 - $2.6 million, 2021 - $2.3 million and 2022 through 2026 - $9.4 million.
Level 2 - Inputs other than quoted prices in active markets for identical assets that are either directly or indirectly observable for substantially the full term of the asset or liability.
Represents mutual funds and pooled separate account investments with Principal Life Insurance Company.
We also have a Cash-Based Restricted Stock Unit Plan. Compensation expense for arrangements under this plan totaled $2.3 million for 2016, $1.7 million for 2015 and $1.0 million for 2014. The income tax benefit recognized in the statements of operations for this arrangement totaled $1.2 million in 2016, $0.9 million in 2015 and $0.6 million in 2014.
We annually grant performance and non-performance cash-based restricted stock units to certain executives. The restricted stock units will vest and be paid out in cash over 5 years, contingent on continued employment with us. The performance units have the same vesting requirements, but are also contingent upon meeting a financial goal. Non-performance based units were also granted to certain executives in 2012 that were vested and paid out in cash after a two-year required service period.
We 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 24,923 at December 31, 2016 and 22,874 at December 31, 2015. 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 57,876 at December 31, 2016 and 56,868 at December 31, 2015. At December 31, 2016, there were 110,864 shares of Class A common stock available for future issuance under the Director Compensation Plan.
We also have an Executive Excess 401(k) Plan under which officers of the Company who met salary guidelines and 401(k) contribution guidelines were allowed to purchase unregistered deferred cash-based stock units. Cash-based stock units outstanding under this plan totaled 89 at December 31, 2016 and 84 at December 31, 2015. 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 3,168 at December 31, 2016 and 2,991 at December 31, 2015. This plan was frozen to future deferrals on December 31, 2013.
We also have an expense allocation agreement with Farm Bureau Property & Casualty Insurance Company for the use of property and equipment. Expense relating to this agreement totaled $0.3 million in 2016, $0.7 million in 2015 and $0.9 million in 2014.
State laws specify regulatory actions if an insurer's risk-based capital (RBC) ratio, a measure of solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC based on the various risk factors related to an insurance company's capital and surplus, including insurance, business, asset and interest rate risks. The insurance regulators monitor the level of RBC against a statutory "authorized control level" RBC at which point regulators have the option to assume control of the insurance company. The company action level RBC is 200% of the authorized control level and is the first point at which any action would be triggered.
We analyze operations by reviewing financial information regarding our primary products that are aggregated into the Annuity and Life Insurance product segments. In addition, our Corporate and Other segment includes various support operations, corporate capital and other product lines that are not currently underwritten by the Company.
The Annuity segment primarily consists of fixed rate annuities and supplementary contracts (some of which involve life contingencies). Fixed rate annuities provide for tax-deferred savings and supplementary contracts provide for the systematic repayment of funds that accumulate interest. Fixed rate annuities primarily consist of flexible premium deferred annuities, but also include single premium deferred and immediate contracts. With fixed rate annuities, we bear the underlying investment risk and credit interest to the contracts at rates we determine, subject to interest rate guarantees. The Annuity segment also
includes indexed annuities. With indexed annuities, we bear the underlying investment risk and credit interest in an amount equal to a percentage of the gain in a specified market index, subject to minimum guarantees.
We use operating income (a non-GAAP measure), in addition to net income, to measure our performance. Operating income, for the periods presented, consists of net income adjusted to exclude the impact of realized gains and losses on investments and the change in net unrealized gains and losses on derivatives, which can fluctuate greatly from period to period. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income (loss). Specifically, call options relating to our indexed business are one-year assets while the embedded derivative in the indexed contacts represent the rights of the contract holder to receive index credits over the entire period the indexed annuities are expected to be in force.
settlements or judgments arising from lawsuits, net of any recoveries from third parties,
Our investment in equity method investees, the related equity income and interest expense are attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at December 31, 2016 and 2015 was allocated among the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).
Amortization of policy initiation fees decreased in 2016, compared to the prior year period, primarily due to the impact of unlocking assumptions used in the calculation of unearned revenue reserves.