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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-34257
36521257_ufglogo2016aa06.jpg
________________________
 UNITED FIRE GROUP, INC.
(Exact name of registrant as specified in its charter)
____________________________
 
 
 
Iowa
 
45-2302834
 
 
 
 
(State of Incorporation)
 
(IRS Employer Identification No.)
 
 

118 Second Avenue, S.E., Cedar Rapids, Iowa 52401
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (319) 399-5700

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES R NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES R NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer R 
 
Accelerated filer o 
 
Non-accelerated filer o 
 
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO R
As of October 31, 2016, 25,357,805 shares of common stock were outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

United Fire Group, Inc.
Index to Quarterly Report on Form 10-Q
September 30, 2016
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 4. Mine Safety Disclosures
 
 
 
 
 
 


Table of Contents

FORWARD-LOOKING INFORMATION
This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our"), the industry in which we operate, and beliefs and assumptions made by management. Words such as "expect(s)," "anticipate(s)," "intend(s)," "plan(s)," "believe(s)," "continue(s)," "seek(s)," "estimate(s)," "goal(s)," "target(s)," "forecast(s)," "project(s)," "predict(s)," "should," "could," "may," "will continue," "might," "hope," "can" and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. See Part I, Item 1A "Risk Factors" in our 2015 Annual Report on Form 10-K and Part II, Item 1A "Risk Factors" of this report for more information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.
Risks and uncertainties that may affect the actual financial condition and results of the Company include, but are not limited to, the following:

The frequency and severity of claims, including those related to catastrophe losses and the impact those claims have on our loss reserve adequacy; the occurrence of catastrophic events, including international events, significant severe weather conditions, climate change, acts of terrorism, acts of war and pandemics;
The adequacy of our reserves for property and casualty insurance losses and loss settlement expenses and our life insurance reserve for future policy benefits;
Geographic concentration risk in both property and casualty insurance and life insurance segments;
The potential disruption of our operations and reputation due to unauthorized data access, cyber-attacks or cyber-terrorism and other security breaches;
Developments in general economic conditions, domestic and global financial markets, interest rates and other-than-temporary impairment losses that could affect the performance of our investment portfolio;
Our ability to effectively underwrite and adequately price insured risks;
Changes in industry trends, an increase in competition and significant industry developments;
Litigation or regulatory actions that could require us to pay significant damages, fines or penalties or change the way we do business;
Lowering of one or more of the financial strength ratings of our operating subsidiaries or our issuer credit ratings and the adverse impact such action may have on our premium writings, policy retention, profitability and liquidity;
Governmental actions, policies and regulations, including, but not limited to, domestic health care reform, financial services regulatory reform, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions; laws, regulations and stock exchange requirements relating to corporate governance and the cost of compliance;
Our relationship with and the financial strength of our reinsurers; and
Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products through our independent agent/agency distribution network.

These are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission ("SEC"), we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.




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Table of Contents

PART I — FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
United Fire Group, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Data)
September 30,
2016
 
December 31,
2015
 
(unaudited)
 
 
ASSETS
 
 
 
Investments
 
 
 
Fixed maturities
 
 
 
Held-to-maturity, at amortized cost (fair value $655 in 2016 and $675 in 2015)
$
652

 
$
672

Available-for-sale, at fair value (amortized cost $2,801,074 in 2016 and $2,793,069 in 2015)
2,916,464

 
2,824,961

Trading securities, at fair value (amortized cost $11,587 in 2016 and $11,475 in 2015)
13,253

 
12,622

Equity securities
 
 
 
Available-for-sale, at fair value (cost $67,909 in 2016 and $68,514 in 2015)
251,101

 
236,247

Trading securities, at fair value (cost $4,410 in 2016 and $4,443 in 2015)
4,645

 
4,353

Mortgage loans
3,772

 
3,961

Policy loans
5,300

 
5,618

Other long-term investments
57,787

 
54,151

Short-term investments
175

 
175

 
3,253,149

 
3,142,760

Cash and cash equivalents
140,944

 
106,449

Accrued investment income
27,007

 
25,136

Premiums receivable (net of allowance for doubtful accounts of $1,248 in 2016 and $867 in 2015)
331,242

 
276,517

Deferred policy acquisition costs
157,238

 
168,264

Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $50,043 in 2016 and $46,590 in 2015)
54,994

 
53,241

Reinsurance receivables and recoverables
87,159

 
73,527

Prepaid reinsurance premiums
4,002

 
3,790

Income taxes receivable
11,732

 

Goodwill and intangible assets
24,932

 
25,509

Other assets
14,638

 
15,183

TOTAL ASSETS
$
4,107,037

 
$
3,890,376

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Future policy benefits and losses, claims and loss settlement expenses
 
 
 
Property and casualty insurance
$
1,090,167

 
$
1,003,895

Life insurance
1,355,639

 
1,372,358

Unearned premiums
468,745

 
415,057

Accrued expenses and other liabilities
189,519

 
200,599

Income taxes payable

 
4,917

Deferred income taxes
43,787

 
14,653

TOTAL LIABILITIES
$
3,147,857

 
$
3,011,479

Stockholders’ Equity
 
 
 
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,357,605 and 25,151,428 shares issued and outstanding in 2016 and 2015, respectively
$
25

 
$
25

Additional paid-in capital
213,957

 
207,426

Retained earnings
610,672

 
591,009

Accumulated other comprehensive income, net of tax
134,526

 
80,437

TOTAL STOCKHOLDERS’ EQUITY
$
959,180

 
$
878,897

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
4,107,037

 
$
3,890,376

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.


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United Fire Group, Inc.
Consolidated Statements of Income and Comprehensive Income (Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In Thousands, Except Share Data)
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Net premiums earned
$
260,069

 
$
239,421

 
$
754,854

 
$
681,817

Investment income, net of investment expenses
26,690

 
24,050

 
73,421

 
74,205

Net realized investment gains (includes reclassifications for net unrealized investment gains on available-for-sale securities of $2,320 and $4,666 in 2016 and $1,825 and $4,715 in 2015; previously included in accumulated other comprehensive income)
2,590


966

 
6,241

 
2,622

Other income
145

 
123

 
436

 
318

Total revenues
$
289,494

 
$
264,560

 
$
834,952

 
$
758,962

Benefits, Losses and Expenses
 
 
 
 
 
 
 
Losses and loss settlement expenses
$
176,555

 
$
144,526

 
$
499,095

 
$
421,297

Increase in liability for future policy benefits
14,091

 
12,784

 
42,645

 
32,503

Amortization of deferred policy acquisition costs
54,116

 
48,697

 
156,932

 
135,526

Other underwriting expenses (includes reclassifications for employee benefit costs of $1,371 and $4,113 in 2016 and $1,867 and $5,601 in 2015; previously included in accumulated other comprehensive income)
24,574

 
26,161

 
76,099

 
73,241

Interest on policyholders’ accounts
4,983

 
5,568

 
15,368

 
18,207

Total benefits, losses and expenses
$
274,319

 
$
237,736

 
$
790,139

 
$
680,774

Income before income taxes
$
15,175

 
$
26,824

 
$
44,813

 
$
78,188

Federal income tax expense (benefit) (includes reclassifications of ($332) and ($194) in 2016 and $15 and $310 in 2015; previously included in accumulated other comprehensive income)
2,807

 
7,290

 
6,904

 
19,957

Net income
$
12,368

 
$
19,534

 
$
37,909

 
$
58,231

Other comprehensive income (loss)
 
 
 
 
 
 
 
Change in net unrealized appreciation on investments
$
(9,440
)
 
$
(2,008
)
 
$
83,768

 
$
(25,131
)
Change in liability for underfunded employee benefit plans

 

 

 

Other comprehensive income (loss), before tax and reclassification adjustments
$
(9,440
)
 
$
(2,008
)
 
$
83,768

 
$
(25,131
)
Income tax effect
3,304

 
703

 
(29,320
)
 
8,795

Other comprehensive income (loss), after tax, before reclassification adjustments
$
(6,136
)
 
$
(1,305
)
 
$
54,448

 
$
(16,336
)
Reclassification adjustment for net realized investment gains included in income
$
(2,320
)
 
$
(1,825
)
 
$
(4,666
)
 
$
(4,715
)
Reclassification adjustment for employee benefit costs included in expense
1,371

 
1,867

 
4,113

 
5,601

Total reclassification adjustments, before tax
$
(949
)
 
$
42

 
$
(553
)
 
$
886

Income tax effect
332

 
(15
)
 
194

 
(310
)
Total reclassification adjustments, after tax
$
(617
)
 
$
27

 
$
(359
)
 
$
576

Comprehensive income
$
5,615

 
$
18,256

 
$
91,998

 
$
42,471

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
25,389,633

 
25,067,080

 
25,322,427

 
25,027,382

Basic earnings per common share
$
0.49

 
$
0.78

 
$
1.50

 
$
2.33

Diluted earnings per common share
0.48

 
0.77

 
1.47

 
2.31

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.


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United Fire Group, Inc.
Consolidated Statement of Stockholders’ Equity (Unaudited)

(In Thousands, Except Share Data)
Nine Months Ended September 30, 2016
 
 
Common stock
 
Balance, beginning of year
$
25

Shares repurchased (67,492 shares)

Shares issued for stock-based awards (292,440 shares)

Balance, end of period
$
25

 
 
Additional paid-in capital
 
Balance, beginning of year
$
207,426

Compensation expense and related tax benefit for stock-based award grants
2,249

Shares repurchased
(2,867
)
Shares issued for stock-based awards
7,149

Balance, end of period
$
213,957

 
 
Retained earnings
 
Balance, beginning of year
$
591,009

Net income
37,909

Dividends on common stock ($0.72 per share)
(18,246
)
Balance, end of period
$
610,672

 
 
Accumulated other comprehensive income, net of tax
 
Balance, beginning of year
$
80,437

Change in net unrealized investment appreciation(1)
51,415

Change in liability for underfunded employee benefit plans(2)
2,674

Balance, end of period
$
134,526

 
 
Summary of changes
 
Balance, beginning of year
$
878,897

Net income
37,909

All other changes in stockholders’ equity accounts
42,374

Balance, end of period
$
959,180

(1)
The change in net unrealized appreciation is net of reclassification adjustments and income taxes.
(2)
The change in liability for underfunded employee benefit plans is net of reclassification adjustments and income taxes.

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.



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United Fire Group, Inc.
Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30,
(In Thousands)
2016
 
2015
Cash Flows From Operating Activities
 
 
 
Net income
$
37,909

 
$
58,231

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Net accretion of bond premium
10,883

 
10,534

Depreciation and amortization
4,879

 
7,706

Stock-based compensation expense
2,731

 
1,817

Net realized investment gains
(6,241
)
 
(2,622
)
Net cash flows from trading investments
(36
)
 
2,663

Deferred income tax benefit
(2,187
)
 
(3,854
)
Changes in:
 
 
 
Accrued investment income
(1,871
)
 
(304
)
Premiums receivable
(54,725
)
 
(46,628
)
Deferred policy acquisition costs
(8,831
)
 
(16,884
)
Reinsurance receivables
(13,632
)
 
12,395

Prepaid reinsurance premiums
(212
)
 
(266
)
Income taxes receivable
(11,732
)
 
(1,928
)
Other assets
545

 
(1,561
)
Future policy benefits and losses, claims and loss settlement expenses
128,657

 
60,932

Unearned premiums
53,688

 
50,097

Accrued expenses and other liabilities
(6,966
)
 
811

Income taxes payable
(4,917
)
 
(5,012
)
Deferred income taxes
2,196

 
(499
)
Other, net
(2,069
)
 
(1,221
)
Total adjustments
$
90,160

 
$
66,176

Net cash provided by operating activities
$
128,069

 
$
124,407

Cash Flows From Investing Activities
 
 
 
Proceeds from sale of available-for-sale investments
$
5,049

 
$
8,228

Proceeds from call and maturity of held-to-maturity investments
20

 
108

Proceeds from call and maturity of available-for-sale investments
428,009

 
527,365

Proceeds from short-term and other investments
2,235

 
4,221

Purchase of available-for-sale investments
(446,156
)
 
(502,086
)
Purchase of short-term and other investments
(3,091
)
 
(4,643
)
Net purchases and sales of property and equipment
(6,090
)
 
(10,763
)
Net cash (used in) provided by investing activities
$
(20,024
)
 
$
22,430

Cash Flows From Financing Activities
 
 
 
Policyholders’ account balances
 
 
 
Deposits to investment and universal life contracts
$
63,967

 
$
78,733

Withdrawals from investment and universal life contracts
(123,071
)
 
(175,840
)
Payment of cash dividends
(18,246
)
 
(16,024
)
Repurchase of common stock
(2,867
)
 
(2,423
)
Issuance of common stock
7,149

 
2,679

Tax impact from issuance of common stock
(482
)
 
(475
)
Net cash used in financing activities
$
(73,550
)
 
$
(113,350
)
Net Change in Cash and Cash Equivalents
$
34,495

 
$
33,487

Cash and Cash Equivalents at Beginning of Period
106,449

 
90,574

Cash and Cash Equivalents at End of Period
$
140,944

 
$
124,061

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.


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UNITED FIRE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share amounts or as otherwise noted)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Business
United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance and life insurance and selling annuities through a network of independent agencies. We report our operations in two business segments: property and casualty insurance and life insurance. Our insurance company subsidiaries are licensed as a property and casualty insurer in 46 states and the District of Columbia, and as a life insurer in 37 states.
Basis of Presentation
The unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X promulgated by the SEC. Certain financial information that is included in our Annual Report on Form 10-K, including certain financial statement footnote disclosures, are not required by the rules and regulations of the SEC for interim financial reporting and have been condensed or omitted.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statement categories that are most dependent on management estimates and assumptions include: investments; deferred policy acquisition costs; reinsurance receivables and recoverables; future policy benefits and losses, claims and loss settlement expenses; and pension and postretirement benefit obligations.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Management of UFG believes the accompanying unaudited Consolidated Financial Statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All significant intercompany transactions have been eliminated in consolidation. The results reported for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The unaudited Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015. The review report of Ernst & Young LLP as of September 30, 2016 and for the three- and nine-month periods ended September 30, 2016 and 2015 accompanies the unaudited Consolidated Financial Statements included in Part I, Item 1 "Financial Statements."
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, and non-negotiable certificates of deposit with original maturities of three months or less.
For the nine-month periods ended September 30, 2016 and 2015, we made payments for income taxes totaling $24,026 and $31,724, respectively. We did not receive a tax refund during the nine-month periods ended September 30, 2016 and 2015.
For the nine-month periods ended September 30, 2016 and 2015, we made no interest payments (excluding interest credited to policyholders’ accounts).


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Deferred Policy Acquisition Costs ("DAC")

Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred. The following table is a summary of the components of DAC, including the related amortization recognized for the nine-month period ended September 30, 2016.
 
 
 
 
 
Property & Casualty Insurance
 
Life Insurance
 
Total
Recorded asset at beginning of period
$
90,547

 
$
77,717

 
$
168,264

Underwriting costs deferred
161,484

 
4,279

 
165,763

Amortization of deferred policy acquisition costs
(151,216
)
 
(5,716
)
 
(156,932
)
Ending unamortized deferred policy acquisition costs
$
100,815

 
$
76,280

 
$
177,095

Impact of unrealized gains and losses on available-for-sale securities

 
(19,857
)
 
(19,857
)
Recorded asset at September 30, 2016
$
100,815

 
$
56,423

 
$
157,238


Property and casualty insurance policy acquisition costs deferred are amortized as premium revenue is recognized. The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value. This takes into account the premium to be earned, losses and loss settlement expenses expected to be incurred and certain other costs expected to be incurred as the premium is earned.

For traditional life insurance policies, DAC is amortized to income over the premium-paying period in proportion to the ratio of the expected annual premium revenue to the expected total premium revenue. Expected premium revenue and gross profits are based on the same mortality and withdrawal assumptions used in determining future policy benefits. These assumptions are not revised after policy issuance unless the recorded DAC asset is deemed to be unrecoverable from future expected profits.

For non-traditional life insurance policies, DAC is amortized over the anticipated terms in proportion to the ratio of the expected annual gross profits to the total expected gross profits. Changes in the amount or timing of expected gross profits result in adjustments to the cumulative amortization of these costs. The effect on amortization of DAC for revisions to estimated gross profits is reported in earnings in the period the estimated gross profits are revised.

The effect on DAC that results from the assumed realization of unrealized gains (losses) on investments allocated to non-traditional life insurance business is recognized with an offset to net unrealized investment appreciation as of the balance sheet date. The impact of unrealized gains and losses on available-for-sale securities decreased the DAC asset by $21,860 and $2,003 at September 30, 2016 and December 31, 2015, respectively.
Income Taxes
Deferred tax assets and liabilities are established based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Deferred income tax expense is measured by the year-to-year change in the net deferred tax asset or liability, except for certain changes in deferred tax amounts that affect stockholders' equity and do not impact federal income tax expense.
We reported a federal income tax expense of $6,904 and $19,957 for the nine-month periods ended September 30, 2016 and 2015, respectively. Our effective tax rate is different than the federal statutory rate of 35.0 percent due principally to the effect of tax-exempt municipal bond interest income and non-taxable dividend income.
The Company performs a quarterly review of its tax positions and makes a determination of whether it is more likely than not that the tax position will be sustained upon examination. If based on review, it appears not more likely than


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not that the positions will be sustained, the Company will calculate any unrecognized tax benefits and, if necessary, calculate and accrue any related interest and penalties. We did not recognize any liability for unrecognized tax benefits at September 30, 2016 or December 31, 2015. In addition, we have not accrued for interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.
We file a consolidated federal income tax return. We also file income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examination for years before 2009. The Internal Revenue Service is conducting a routine examination of our income tax return for the 2011 tax year.

Subsequent Events

In the preparation of the accompanying financial statements, the Company has evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued for potential recognition or disclosure in the Company's financial statements. The Company concluded there are no material subsequent events or transactions that have occurred after the balance sheet date through the date on which the financial statements were issued.
Recently Issued Accounting Standards
Accounting Standards Adopted in 2016

Short-Duration Contracts

In May 2015, the Financial Accounting Standards Board ("FASB") issued guidance on disclosure requirements for short-duration contracts. The new guidance requires additional disclosures about the liability for unpaid loss and loss adjustment expenses and requires disclosure of any information about significant changes in methodologies and assumptions used to calculate the liability. The new guidance is effective for annual periods beginning after December 15, 2015 and interim periods beginning the following year. The Company will include the new annual disclosures beginning with the December 31, 2016 annual financial statements. The adoption of the new guidance will change disclosures regarding short- duration contracts, but management currently does not expect the adoption of the new guidance to have an impact on the Company's financial position or results of operations.

Other Internal Use Software

In April 2015, the FASB issued guidance which clarifies customers' accounting for fees paid for cloud computing arrangements. The new standard provides guidance to customers about whether a cloud computing arrangement includes a software license or whether the arrangement is considered a service contract. The new guidance is effective for annual and interim periods beginning after December 15, 2015. The Company adopted the new guidance as of January 1, 2016. The adoption of the new guidance had no impact on the Company's financial position or results of operations.

Debt Issuance Costs

In April 2015, the FASB issued new guidance on the presentation of debt issuance costs. The new guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. The new guidance is effective for annual and interim periods beginning after December 15, 2015. The Company adopted the new guidance as of January 1, 2016. The adoption of the new guidance had no impact on the Company's financial position or results of operations.

Consolidation

In February 2015, the FASB issued amendments to the consolidation guidance that a reporting entity follows to determine whether it should consolidate certain legal entities. Specifically, the new guidance modifies the evaluation


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of whether limited partnerships and similar legal entities are variable interest entities ("VIE"), eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that have VIE's, particularly those with fee arrangements and related party relationships. The new guidance is effective for annual and interim periods beginning after December 15, 2015. The Company adopted the guidance as of January 1, 2016. The adoption of the new guidance had no impact on the Company's financial position or results of operations.

Going Concern

In August 2014, the FASB issued new guidance on the disclosure of uncertainties about an entity's ability to continue as a going concern. The new guidance requires management to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern and, if so, to disclose the fact and what the entity's plans are to alleviate that doubt. The guidance is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. The Company adopted the guidance as of January 1, 2016. The adoption of the new guidance had no impact on the Company's financial position or results of operations.

Share-Based Payments

In June 2014, the FASB issued new guidance on the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The new guidance requires a performance target that affects vesting and that could be achieved after the service period, be treated as a performance condition. The guidance is effective for interim and annual periods beginning after December 15, 2015. The amendments can be applied prospectively or retrospectively and early adoption is permitted. The Company adopted the guidance as of January 1, 2016. The adoption of the new guidance had no impact on the Company's financial position or results of operations.
Pending Adoption of Accounting Standards
Share-Based Payments
In March 2016, the FASB issued new guidance on the accounting for share-based payments. The new guidance was issued to simplify the accounting of share-based payments, specifically in the areas of income taxes, classification on the balance sheets as liabilities or equity and classification in the cash flow statement. The new guidance is effective for annual periods beginning after December 15, 2016 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2017 and is currently evaluating the impact on the Company's financial position and results of operations.
Income Taxes
In December 2015, the FASB issued guidance on the balance sheet classification of deferred taxes. The new guidance eliminates the requirement to split deferred tax liabilities and assets between current and non-current in a classified balance sheet. The new guidance allows deferred tax liabilities and assets to be included in non-current accounts. The Company will adopt the new guidance as of January 1, 2017. The adoption will have no impact on the Company's financial position and results of operations.
Revenue Recognition
In May 2014, the FASB issued comprehensive new guidance on revenue recognition which supersedes nearly all existing revenue recognition guidance under GAAP. The new guidance requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard creates a five-step model that requires companies to exercise judgment when considering the terms of the contract(s) and all relevant facts and circumstances. Insurance contracts are not within the scope of this new guidance. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company will adopt the guidance as of January


9

Table of Contents

1, 2018 and is currently evaluating the impact on the Company's financial position and results of operations and considering which portions of the guidance, if any, apply to the Company.
Financial Instruments
In January 2016, the FASB issued guidance updating certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (for example, trading or available-for-sale) and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The new guidance also simplifies the impairment process for equity investments without readily determinable fair values. The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2018 and is currently evaluating the impact on the Company's financial position and results of operations.
Statement of Cash Flows - Classification of Certain Cash Receipts and Payments
In August 2016, the FASB issued an update that clarifies the classification of certain cash receipts and payments in the Statement of Cash Flows. The update addresses eight existing cash flow issues by clarifying the correct classification to establish uniformity in practice. The updated guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2018 and is currently evaluating the impact on the Company's financial position and results of operations.
Leases
In February 2016, the FASB issued guidance on the accounting for leases. The new guidance requires lessees to place most leases on their balance sheets with expenses recognized on the income statement in a similar manner as previous methods. The new guidance is effective for annual periods beginning after December 15, 2018 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2019 and is currently evaluating the impact on the Company's financial position and results of operations.
Financial Instruments - Credit Losses
In June 2016, the FASB issued new guidance on the measurement of credit losses for most financial instruments. The new guidance replaces the current incurred loss model for recognizing credit losses with an expected loss model for instruments measured at amortized cost and requires allowances to be recorded for available-for-sale debt securities rather than reduce the carrying amount. These allowances will be remeasured each reporting period. The new guidance is effective for annual periods beginning after December 15, 2020 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2021 and is currently evaluating the impact on the Company's financial position and results of operations.





10

Table of Contents

NOTE 2. SUMMARY OF INVESTMENTS
Fair Value of Investments
A reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities as of September 30, 2016 and December 31, 2015, is as follows:
September 30, 2016
 
Type of Investment
Cost or Amortized Cost
 
Gross Unrealized Appreciation
 
Gross Unrealized Depreciation
 
Fair Value
HELD-TO-MATURITY
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
Corporate bonds
 
 
 
 
 
 
 
Technology, media and telecommunications
$
450

 
$
2

 
$

 
$
452

Financial services
150

 

 

 
150

Mortgage-backed securities
52

 
1

 

 
53

Total Held-to-Maturity Fixed Maturities
$
652

 
$
3

 
$

 
$
655

AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
U.S. Treasury
$
21,966

 
$
281

 
$
1

 
$
22,246

U.S. government agency
71,717

 
2,893

 
3

 
74,607

States, municipalities and political subdivisions
 
 
 
 
 
 
 
General obligations:
 
 
 
 
 
 
 
Midwest
153,150

 
5,302

 
90

 
158,362

Northeast
58,373

 
2,836

 

 
61,209

South
132,843

 
4,444

 
314

 
136,973

West
123,845

 
4,631

 
180

 
128,296

Special revenue:
 
 
 
 
 
 
 
Midwest
161,368

 
6,799

 
56

 
168,111

Northeast
54,109

 
1,863

 
98

 
55,874

South
208,747

 
7,399

 
542

 
215,604

West
100,225

 
4,069

 
184

 
104,110

Foreign bonds
71,011

 
3,484

 
894

 
73,601

Public utilities
217,670

 
10,539

 
83

 
228,126

Corporate bonds

 

 

 

Energy
110,345

 
3,747

 
187

 
113,905

Industrials
232,088

 
12,192

 
668

 
243,612

Consumer goods and services
179,502

 
9,422

 

 
188,924

Health care
82,497

 
4,928

 

 
87,425

Technology, media and telecommunications
141,598

 
6,225

 
168

 
147,655

Financial services
266,576

 
12,262

 
20

 
278,818

Mortgage-backed securities
18,422

 
465

 
8

 
18,879



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Table of Contents

Collateralized mortgage obligations
 
 
 
 
 
 
 
Government national mortgage association
131,200

 
4,635

 
289

 
135,546

Federal home loan mortgage corporation
153,379

 
5,626

 
262

 
158,743

Federal national mortgage association
105,952

 
5,439

 
131

 
111,260

Asset-backed securities
4,491

 
318

 
231

 
4,578

Total Available-for-Sale Fixed Maturities
$
2,801,074

 
$
119,799

 
$
4,409

 
$
2,916,464

Equity securities:

 

 

 

Common stocks

 

 

 

Public utilities
$
6,394

 
$
13,718

 
$
198

 
$
19,914

Energy
6,514

 
7,988

 
39

 
14,463

Industrials
13,252

 
34,387

 
215

 
47,424

Consumer goods and services
10,324

 
15,059

 
43

 
25,340

Health care
7,763

 
21,100

 

 
28,863

Technology, media and telecommunications
5,931

 
9,214

 
37

 
15,108

Financial services
17,288

 
82,294

 
65

 
99,517

Nonredeemable preferred stocks
443

 
29

 

 
472

Total Available-for-Sale Equity Securities
$
67,909

 
$
183,789

 
$
597

 
$
251,101

Total Available-for-Sale Securities
$
2,868,983

 
$
303,588

 
$
5,006

 
$
3,167,565



































12

Table of Contents

December 31, 2015
 
Type of Investment
Cost or Amortized Cost
 
Gross Unrealized Appreciation
 
Gross Unrealized Depreciation
 
Fair Value
HELD-TO-MATURITY
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
Corporate bonds
 
 
 
 
 
 
 
Technology, media and telecommunications
$
450

 
$
1

 
$

 
$
451

Financial services
150

 

 

 
150

Mortgage-backed securities
72

 
2

 

 
74

Total Held-to-Maturity Fixed Maturities
$
672

 
$
3

 
$

 
$
675

AVAILABLE-FOR-SALE

 

 

 

Fixed maturities:

 

 

 

Bonds

 

 

 

U.S. Treasury
$
21,587

 
$
100

 
$
38

 
$
21,649

U.S. government agency
232,808

 
2,622

 
2,400

 
233,030

States, municipalities and political subdivisions
 
 
 
 
 
 
 
General obligations:
 
 
 
 
 
 
 
Midwest
160,484

 
4,990

 
18

 
165,456

Northeast
56,449

 
1,996

 

 
58,445

South
125,565

 
3,358

 
134

 
128,789

West
103,721

 
3,160

 
67

 
106,814

Special revenue:
 
 
 
 
 
 
 
Midwest
152,780

 
4,956

 
30

 
157,706

Northeast
23,892

 
919

 
212

 
24,599

South
144,183

 
4,281

 
27

 
148,437

West
78,935

 
3,150

 
44

 
82,041

Foreign bonds
82,580

 
2,405

 
2,457

 
82,528

Public utilities
213,233

 
3,701

 
1,251

 
215,683

Corporate bonds

 


 

 

Energy
116,800

 
1,032

 
4,713

 
113,119

Industrials
227,589

 
3,329

 
6,663

 
224,255

Consumer goods and services
172,529

 
2,844

 
776

 
174,597

Health care
92,132

 
2,168

 
791

 
93,509

Technology, media and telecommunications
142,431

 
1,972

 
2,003

 
142,400

Financial services
259,382

 
5,246

 
1,143

 
263,485

Mortgage-backed securities
16,413

 
376

 
51

 
16,738

Collateralized mortgage obligations
 
 
 
 
 
 
 
Government national mortgage association
120,220

 
1,391

 
1,985

 
119,626

Federal home loan mortgage corporation
137,874

 
2,377

 
1,342

 
138,909

Federal national mortgage association
106,021

 
2,400

 
941

 
107,480

Asset-backed securities
5,461

 
221

 
16

 
5,666



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Table of Contents

Total Available-for-Sale Fixed Maturities
$
2,793,069

 
$
58,994

 
$
27,102

 
$
2,824,961

Equity securities:

 

 

 

Common stocks

 

 

 

Public utilities
$
7,231

 
$
12,022

 
$
193

 
$
19,060

Energy
6,103

 
5,374

 
266

 
11,211

Industrials
13,251

 
31,872

 
313

 
44,810

Consumer goods and services
10,301

 
13,017

 
3

 
23,315

Health care
7,763

 
20,454

 

 
28,217

Technology, media and telecommunications
5,931

 
7,538

 
105

 
13,364

Financial services
17,392

 
78,411

 
109

 
95,694

Nonredeemable preferred stocks
542

 
34

 

 
576

Total Available-for-Sale Equity Securities
$
68,514

 
$
168,722

 
$
989

 
$
236,247

Total Available-for-Sale Securities
$
2,861,583

 
$
227,716

 
$
28,091

 
$
3,061,208

Maturities
The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at September 30, 2016, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.
 
Held-To-Maturity
 
Available-For-Sale
 
Trading
September 30, 2016
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
$
150

 
$
150

 
$
99,301

 
$
100,197

 
$
2,430

 
$
2,919

Due after one year through five years
450

 
452

 
820,503

 
851,672

 
6,036

 
6,905

Due after five years through 10 years

 

 
879,226

 
926,253

 
961

 
1,133

Due after 10 years

 

 
588,600

 
609,336

 
2,160

 
2,296

Asset-backed securities

 

 
4,491

 
4,578

 

 

Mortgage-backed securities
52

 
53

 
18,422

 
18,879

 

 

Collateralized mortgage obligations

 

 
390,531

 
405,549

 

 

 
$
652

 
$
655

 
$
2,801,074

 
$
2,916,464

 
$
11,587

 
$
13,253













14

Table of Contents

Net Realized Investment Gains and Losses
Net realized gains on disposition of investments are computed using the specific identification method and are included in the computation of net income. A summary of the components of net realized investment gains (losses) is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net realized investment gains (losses)
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Available-for-sale
$
945

 
$
407

 
$
2,307

 
$
2,363

Trading securities
 
 
 
 
 
 
 
Change in fair value
148

 
(999
)
 
519

 
(1,461
)
Sales
107

 
531

 
568

 
1,230

Equity securities:
 
 
 
 
 
 
 
Available-for-sale
1,375

 
1,418

 
2,359

 
2,352

Trading securities
 
 
 
 
 
 
 
Change in fair value
(5
)
 
(430
)
 
325

 
(634
)
Sales
20

 
39

 
(6
)
 
85

Other long-term investments

 

 

 
(1,313
)
Cash equivalents

 

 
169

 

Total net realized investment gains
$
2,590

 
$
966

 
$
6,241

 
$
2,622

The proceeds and gross realized gains (losses) on the sale of available-for-sale fixed maturity securities are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Proceeds from sales
$
2,007

 
$

 
$
5,049

 
$
8,228

Gross realized gains
11

 

 
986

 
1,030

There were no sales of held-to-maturity securities during the three- and nine-month periods ended September 30, 2016 and 2015.

Our investment portfolio includes trading securities with embedded derivatives. These securities are primarily convertible securities which are recorded at fair value. Income or loss, including the change in the fair value of these trading securities, is recognized currently in earnings as a component of net realized investment gains. Our portfolio of trading securities had a fair value of $17,898 and $16,975 at September 30, 2016 and December 31, 2015, respectively.

Funding Commitment

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through December 31, 2023 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $9,709 at September 30, 2016.







15

Table of Contents


Unrealized Appreciation
A summary of the changes in net unrealized investment appreciation during the reporting period is as follows:
 
Nine Months Ended September 30,
 
2016
 
2015
Change in net unrealized investment appreciation
 
 
 
Available-for-sale fixed maturities
$
83,498

 
$
(12,841
)
Available-for-sale equity securities
15,459

 
(19,119
)
Deferred policy acquisition costs
(19,857
)
 
2,113

Income tax effect
(27,685
)
 
10,447

Total change in net unrealized investment appreciation, net of tax
$
51,415

 
$
(19,400
)
We continually monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policy for impairment recognition requires other-than-temporary impairment ("OTTI") charges to be recorded when we determine that it is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on the fair value of the investments at the measurement date or based on the value calculated using a discounted cash flow model. Credit-related impairments on fixed maturity securities that we do not plan to sell, and for which we are not more likely than not to be required to sell, are recognized in net income. Any non-credit related impairment is recognized as a component of other comprehensive income. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; our intention to hold the investment; and the likelihood that we will be required to sell the investment.
The tables on the following pages summarize our fixed maturity and equity securities that were in an unrealized loss position at September 30, 2016 and December 31, 2015. The securities are presented by the length of time they have been continuously in an unrealized loss position. It is possible that we could recognize OTTI charges in future periods on securities held at September 30, 2016, if future events or information cause us to determine that a decline in fair value is other-than-temporary.
We have evaluated the near-term prospects of the issuers of our fixed maturity securities in relation to the severity and duration of the unrealized loss and determined that these losses did not warrant the recognition of an OTTI charge at September 30, 2016 or at September 30, 2015. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.
We have evaluated the near-term prospects of the issuers of our equity securities in relation to the severity and duration of the unrealized loss and determined that these losses did not warrant the recognition of an OTTI charge at September 30, 2016 or September 30, 2015. Our largest unrealized loss greater than 12 months on an individual equity security at September 30, 2016 was $198. We have no intention to sell any of these securities prior to a recovery in value, but will continue to monitor the fair value reported for these securities as part of our overall process to evaluate investments for OTTI recognition.







16

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2016
Less than 12 months
 
12 months or longer
 
Total
Type of Investment
Number
of Issues
 
Fair
Value
 
Gross Unrealized
Depreciation
 
Number
of Issues
 
Fair
Value
 
Gross Unrealized Depreciation
 
Fair
Value
 
Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
2

 
$
1,625

 
$
1

 

 
$

 
$

 
$
1,625

 
$
1

U.S. government agency
1

 
3,697

 
3

 

 

 

 
3,697

 
3

States, municipalities and political subdivisions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest
2

 
9,909

 
90

 

 

 

 
9,909

 
90

South
7

 
16,784

 
314

 

 

 

 
16,784

 
314

West
6

 
16,353

 
180

 

 

 

 
16,353

 
180

Special revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest
3

 
6,008

 
56

 

 

 

 
6,008

 
56

Northeast
6

 
13,978

 
98

 

 

 

 
13,978

 
98

South
14

 
$
37,375

 
542

 

 
$

 

 
$
37,375

 
542

West
9

 
19,130

 
184

 

 

 

 
19,130

 
184

Foreign bonds

 

 

 
3

 
6,929

 
894

 
6,929

 
894

Public utilities

 

 

 
5

 
3,097

 
83

 
3,097

 
83

Corporate bonds
 
 
 
 
 
 
 
 
 
 
 
 


 


Energy
3

 
5,345

 
40

 
4

 
9,209

 
147

 
14,554

 
187

Industrials

 

 

 
5

 
9,522

 
668

 
9,522

 
668

Technology, media and telecommunications
1

 
2,198

 
8

 
3

 
10,403

 
160

 
12,601

 
168

Financial services

 

 

 
2

 
8,036

 
20

 
8,036

 
20

Mortgage-backed securities

 

 

 
4

 
1,262

 
8

 
1,262

 
8

Collateralized mortgage obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government national mortgage association
5

 
12,340

 
88

 
9

 
14,097

 
201

 
26,437

 
289

Federal home loan mortgage corporation
7

 
31,530

 
175

 
3

 
5,977

 
87

 
37,507

 
262

Federal national mortgage association
1

 
5,001

 
21

 
4

 
4,712

 
110

 
9,713

 
131

Asset-backed securities
1

 
2,571

 
231

 

 

 

 
2,571

 
231

Total Available-for-Sale Fixed Maturities
68

 
$
183,844

 
$
2,031

 
42

 
$
73,244

 
$
2,378

 
$
257,088

 
$
4,409

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Public utilities

 
$

 
$

 
3

 
$
109

 
$
198

 
$
109

 
$
198

Energy
1

 
150

 
1

 
2

 
339

 
38

 
489

 
39

Industrials

 

 

 
6

 
197

 
215

 
197

 
215

Consumer goods and services
3

 
299

 
39

 
2

 
14

 
4

 
313

 
43

Technology, media and telecommunications
4

 
15

 
1

 
11

 
519

 
36

 
534

 
37

Financial services
1

 
80

 
1

 
4

 
451

 
64

 
531

 
65

Total Available-for-Sale Equity Securities
9

 
$
544

 
$
42

 
28

 
$
1,629

 
$
555

 
$
2,173

 
$
597

Total Available-for-Sale Securities
77

 
$
184,388

 
$
2,073

 
70

 
$
74,873

 
$
2,933

 
$
259,261

 
$
5,006




17

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
Less than 12 months
 
12 months or longer
 
Total
Type of Investment
Number
of Issues
 
Fair
Value
 
Gross Unrealized Depreciation
 
Number
of Issues
 
Fair
Value
 
Gross Unrealized Depreciation
 
Fair
Value
 
Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
6

 
$
6,408

 
$
26

 
2

 
$
1,634

 
$
12

 
$
8,042

 
$
38

U.S. government agency
38

 
104,621

 
1,771

 
6

 
18,821

 
629

 
123,442

 
2,400

States, municipalities and political subdivisions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General obligations