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Section 1: 10-Q (10-Q)

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Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 March 31, 2018
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-34257
393416042_ufglogo2017a13.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 NO

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 NO

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
NO
As of May 7, 2018, 24,926,648 shares of common stock were outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

United Fire Group, Inc.
Index to Quarterly Report on Form 10-Q
March 31, 2018
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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," "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 Annual Report on Form 10-K for the year ended December 31, 2017 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;
Geographic concentration risk in the property and casualty insurance business;
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; changes in 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)
March 31,
2018
 
December 31,
2017
 
(unaudited)
 
 
ASSETS
 
 
 
Investments
 
 
 
Fixed maturities
 
 
 
Held-to-maturity, at amortized cost (fair value $150 in 2018 and $150 in 2017)
$
150

 
$
150

Available-for-sale, at fair value (amortized cost $1,577,448 in 2018 and $1,516,610 in 2017)
1,563,996

 
1,535,070

Trading securities, at fair value (amortized cost $13,229 in 2018 and $14,582 in 2017)
15,379

 
16,842

Equity securities at fair value (cost $65,481 in 2018 and $63,275 in 2017)
280,362

 
287,344

Other long-term investments
44,998

 
49,352

Short-term investments
175

 
175

 
1,905,060

 
1,888,933

Cash and cash equivalents
316,852

 
95,562

Accrued investment income
15,083

 
13,841

Premiums receivable (net of allowance for doubtful accounts of $1,082 in 2018 and $1,255 in 2017)
339,007

 
328,513

Deferred policy acquisition costs
89,836

 
88,102

Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $52,693 in 2018 and $51,603 in 2017)
71,929

 
68,992

Reinsurance receivables and recoverables
63,506

 
63,194

Prepaid reinsurance premiums
4,002

 
3,749

Income taxes receivable

 
6,031

Goodwill and intangible assets
23,783

 
23,971

Other assets
16,306

 
16,409

Assets held for sale

 
1,586,134

TOTAL ASSETS
$
2,845,364

 
$
4,183,431

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Losses and loss settlement expenses
$
1,219,981

 
$
1,224,183

Unearned premiums
476,912

 
465,391

Accrued expenses and other liabilities
158,811

 
167,396

Income taxes payable
17,581

 

Deferred income taxes
1,386

 
5,953

Liabilities held for sale

 
1,347,135

TOTAL LIABILITIES
$
1,874,671

 
$
3,210,058

Stockholders’ Equity
 
 
 
Common stock, $0.001 par value; authorized 75,000,000 shares; 24,912,748 and 24,916,806 shares issued and outstanding in 2018 and 2017, respectively
$
25

 
$
25

Additional paid-in capital
194,504

 
196,334

Retained earnings
832,031

 
608,700

Accumulated other comprehensive income (loss), net of tax
(55,867
)
 
168,314

TOTAL STOCKHOLDERS’ EQUITY
$
970,693

 
$
973,373

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
2,845,364

 
$
4,183,431

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 March 31,
(In Thousands, Except Share Data)
2018
 
2017
Revenues
 
 
 
Net premiums earned
$
245,167

 
$
236,444

Investment income, net of investment expenses
13,492

 
12,585

Net realized investment gains (losses) (includes reclassifications for net unrealized investment gains on available-for-sale securities of $37 in 2018 and $3,405 in 2017; previously included in accumulated other comprehensive income)
(7,864
)
 
2,249

Total revenues
$
250,795

 
$
251,278

Benefits, Losses and Expenses
 
 
 
Losses and loss settlement expenses
$
144,728

 
$
156,552

Amortization of deferred policy acquisition costs
49,639

 
50,461

Other underwriting expenses (includes reclassifications for employee benefit costs of $1,660 in 2018 and $1,352 in 2017; previously included in accumulated other comprehensive income)
34,855

 
21,259

Total benefits, losses and expenses
$
229,222

 
$
228,272

Income from continuing operations before income taxes
$
21,573

 
$
23,006

Federal income tax expense (includes reclassifications of $341 in 2018 and ($718) in 2017; previously included in accumulated other comprehensive income)
1,209

 
4,422

Income from continuing operations
$
20,364

 
$
18,584

Income (loss) from discontinued operations, net of taxes
(1,912
)
 
1,352

Gain on sale of discontinued operations, net of taxes
27,307

 

Net income
$
45,759

 
$
19,936

Other comprehensive income
 
 
 
Change in net unrealized appreciation on investments
$
(51,814
)
 
$
14,966

Change in liability for underfunded employee benefit plans

 

Other comprehensive income, before tax and reclassification adjustments
$
(51,814
)
 
$
14,966

Income tax effect
10,881

 
(5,238
)
Other comprehensive income, after tax, before reclassification adjustments
$
(40,933
)
 
$
9,728

Reclassification adjustment for net realized investment gains included in income
$
(37
)
 
$
(3,405
)
Reclassification adjustment for employee benefit costs included in expense
1,660

 
1,352

Total reclassification adjustments, before tax
$
1,623

 
$
(2,053
)
Income tax effect
(341
)
 
718

Total reclassification adjustments, after tax
$
1,282

 
$
(1,335
)
Comprehensive income
$
6,108

 
$
28,329

 
 
 
 
Diluted weighted average common shares outstanding
25,458,090

 
25,854,181

Earnings per common share from continuing operations:
 
 
 
Basic
$
0.82

 
$
0.73

Diluted
0.80

 
0.72

Earnings per common share:
 
 
 
Basic
$
1.84

 
$
0.78

Diluted
1.80

 
0.77

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)
Three Months Ended March 31, 2018
 
 
Common stock
 
Balance, beginning of year
$
25

Shares repurchased (120,372 shares)

Shares issued for stock-based awards (116,314 shares)

Balance, end of period
$
25

 
 
Additional paid-in capital
 
Balance, beginning of year
$
196,334

Compensation expense and related tax benefit for stock-based award grants
1,281

Shares repurchased
(5,404
)
Shares issued for stock-based awards
2,293

Balance, end of period
$
194,504

 
 
Retained earnings
 
Balance, beginning of year
$
608,700

Cumulative effect of change in accounting principle
191,244

Net unrealized investment depreciation of discontinued operations, sold
(6,714
)
Net income
45,759

Dividends on common stock ($0.28 per share)
(6,958
)
Balance, end of period
$
832,031

 
 
Accumulated other comprehensive income (loss), net of tax
 
Balance, beginning of year
$
168,314

Cumulative effect of change in accounting principle
(191,244
)
Change in net unrealized investment appreciation(1)
(34,248
)
Change in liability for underfunded employee benefit plans(2)
1,311

Balance, end of period
$
(55,867
)
 
 
Summary of changes
 
Balance, beginning of year
$
973,373

Net income
45,759

All other changes in stockholders’ equity accounts
(48,439
)
Balance, end of period
$
970,693

(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)

Three Months Ended March 31,
(In Thousands)
2018
 
2017
Cash Flows From Operating Activities
 
 
 
Net income
$
45,759

 
$
19,936

Less net income (loss) from discontinued operations, net of taxes
(1,912
)
 
1,352

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Net accretion of bond premium
2,178

 
2,252

Depreciation and amortization
1,159

 
1,165

Stock-based compensation expense
1,281

 
1,044

Net realized investment (gains) losses
7,864

 
(2,249
)
Net cash flows from trading investments
383

 
(610
)
Deferred income tax benefit
(3,879
)
 
(975
)
Changes in:
 
 
 
Accrued investment income
(1,242
)
 
(1,329
)
Premiums receivable
(10,494
)
 
(18,226
)
Deferred policy acquisition costs
(1,734
)
 
(2,623
)
Reinsurance receivables
(312
)
 
(582
)
Prepaid reinsurance premiums
(253
)
 
(59
)
Income taxes receivable
6,031

 
4,751

Other assets
104

 
(341
)
Losses and loss settlement expenses
(4,202
)
 
16,823

Unearned premiums
11,521

 
23,231

Accrued expenses and other liabilities
(6,925
)
 
(9,065
)
Income taxes payable
17,581

 

Deferred income taxes
(14,039
)
 
2,526

Other, net
1,708

 
(1,504
)
Cash from operating activities - continuing operations
6,730

 
14,229

Cash from operating activities - discontinued operations
4,024

 
6,394

Cash from operating activities - gain on sale of discontinued operations
(34,851
)
 

Total adjustments
$
(24,097
)
 
$
20,623

Net cash provided by operating activities
$
23,574

 
$
39,207

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

 
$
1,096

Proceeds from call and maturity of available-for-sale investments
30,320

 
40,055

Proceeds from short-term and other investments
3,078

 
1,665

Proceeds from the sale of discontinued operations
276,055

 

Purchase of available-for-sale investments
(93,115
)
 
(80,097
)
Purchase of short-term and other investments
(676
)
 
(1,590
)
Net purchases and sales of property and equipment
(3,851
)
 
(1,392
)
Cash from investing activities - continuing operations
211,811

 
(40,263
)
Cash from investing activities - discontinued operations
14,343

 
12,035

Net cash provided by (used in) investing activities
$
226,154

 
$
(28,228
)
Cash Flows From Financing Activities
 
 
 
Payment of cash dividends
$
(6,960
)
 
$
(6,367
)
Repurchase of common stock
(5,404
)
 
(5,749
)
Issuance of common stock
2,293

 
1,244

Cash from financing activities - continuing operations
(10,071
)
 
(10,872
)
Cash from financing activities - discontinued operations
(11,547
)
 
(17,304
)
Net cash used in financing activities
$
(21,618
)
 
$
(28,176
)
Net Change in Cash and Cash Equivalents
$
228,110

 
$
(17,197
)
Less: increase in cash and cash equivalents - discontinued operations
(6,820
)
 
(1,125
)
Net increase (decrease) in cash and cash equivalents - continuing operations
221,290

 
(18,322
)
Cash and Cash Equivalents at Beginning of Period - Continuing Operations
95,562

 
89,194

Cash and Cash Equivalents at End of Period - Continuing Operations
$
316,852

 
$
70,872

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 through a network of independent agencies. Our insurance company subsidiaries are licensed as a property and casualty insurer in 46 states and the District of Columbia.
Discontinued Operations
We have historically reported our operations in two business segments: property and casualty insurance and life insurance. On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company ("United Life"), to Kuvare US Holdings, Inc. ("Kuvare") and on March 30, 2018 the sale closed. As a result, our life insurance business, previously a separate segment, was considered held for sale and reported as discontinued operations in the Consolidated Balance Sheets, Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows for all periods presented in this Form 10-Q (collectively, the "Consolidated Financial Statements"). Subsequent to the announcement of this sale, our continuing operations were reported as one business segment. All current and prior periods reflected in this Form 10-Q have been presented as continuing and discontinued operations, unless otherwise noted. For more information, refer to Note 11. Discontinued Operations.
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, 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, 2017. The review report of Ernst & Young LLP as of March 31, 2018 and for the three-month periods ended March 31, 2018 and 2017 accompanies the unaudited Consolidated Financial Statements included in Part I, Item 1 "Financial Statements."



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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 three-month periods ended March 31, 2018 and 2017, we made payments for income taxes for continuing operations totaling $19 and $9, respectively. We received a tax refund of $1,503 during the three-month period ended March 31, 2018. We did not receive a tax refund during the three-month period ended March 31, 2017.
For the three-month periods ended March 31, 2018 and 2017, we made no interest payments (excluding interest credited to policyholders’ accounts).
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 three-month period ended March 31, 2018.
 
 
 
 
 
Continuing Operations
 
Discontinued Operations
 
 
 
Property & Casualty Insurance
 
Life Insurance
 
Total
Recorded asset at beginning of period
$
88,102

 
$
71,151

 
$
159,253

Underwriting costs deferred
51,373

 
1,376

 
52,749

Amortization of deferred policy acquisition costs
(49,639
)
 
(1,895
)
 
(51,534
)
Ending unamortized deferred policy acquisition costs
$
89,836

 
$
70,632

 
$
160,468

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

 
7,274

 
7,274

Sale of discontinued operations

 
(77,906
)
 
(77,906
)
Recorded asset at March 31, 2018
$
89,836

 
$

 
$
89,836


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 $6,294 at December 31, 2017. There was no impact of unrealized gains and losses on available-for-sale


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securities on the DAC asset at March 31, 2018 because the non-traditional life insurance business is part of discontinued operations, which was sold on March 30, 2018.
Income Taxes

The Tax Cuts and Jobs Act of 2017 (the "Tax Act") was enacted on December 22, 2017. The Tax Act significantly revised the U.S. corporate income tax laws including lowering the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018.

In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. As of March 31, 2018 we had not completed accounting for the tax effects of enactment of the Tax Act, however for certain items, we have made a reasonable estimate of the effects on our deferred tax balances. For other items where we could not make a reasonable estimate, we are still using existing accounting guidance and the provisions of the tax laws that were in place prior to the enactment. The Company will continue to refine this estimated provisional adjustment as we gain a more thorough understanding of the tax law and the Company will take future guidance into consideration when it becomes available.
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 consolidated federal income tax expense from continuing and discontinued operations of $9,316 and $5,153 for the three-month periods ended March 31, 2018 and 2017, respectively. Our effective tax rate is different than the federal statutory rate of 21 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 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 March 31, 2018 or December 31, 2017. 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.

With regard to the sale of our life insurance subsidiary, federal income taxes were allocated to continuing and discontinued operations in accordance with the Company’s tax allocation agreement and the terms of the definitive agreement related to the sale.
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 2014.

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.


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Recently Issued Accounting Standards
Accounting Standards Adopted in 2018
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 adopted the guidance as of January 1, 2018. The adoption of the new guidance had no impact on the Company's reporting and disclosure of net premiums earned from insurance contracts, net investment income or net realized gains and losses, as these revenue streams are not within the scope of this new guidance. The remaining revenue streams are immaterial and not impacted by the new standard.
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 adopted the new guidance as of January 1, 2018. The adoption of the new guidance resulted in a reclassification from accumulated other comprehensive income to retained earnings of $191.2 million after tax, which is equal to the amount of net unrealized gains and losses on available-for-sale equity securities on January 1, 2018. Also, in the three months ended March 31, 2018, the Company recognized $8.1 million after-tax of net realized investment losses in net income from the change in value of equity securities due to the adoption of this new accounting guidance.
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 adopted the new guidance as of January 1, 2018. The adoption had no impact on the Company's financial position and results of operations.
Defined Benefit Retirement Plan Cost
In March 2017, the FASB issued guidance on the presentation of net periodic benefit costs of defined benefit retirement benefit plans in the Statements of Income. The new guidance requires the service cost component of net periodic benefit cost of defined benefit plans to be presented in the same line in the Statements of Income as other employee compensation expenses. Also, under the new guidance, the service cost component of the net periodic benefit costs will be the only portion of costs subject to be capitalized in assets. The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company adopted the new guidance as of January 1, 2018. The adoption of the new guidance resulted in a change in the capitalization of deferred acquisition costs to only include the pension and post retirement service costs in place of the total net periodic benefit costs. The adoption had an immaterial impact on the Company's financial position and results of operations. Additionally, the adoption did not impact the Company's presentation in the Statements of Income as all


9

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net periodic benefit costs and employee compensation expenses are included within the same category in the Statements of Income.
Share-Based Payments
In May 2017, the FASB issued new guidance which clarifies and addresses the diversity in practice when there is a change in the terms of a share-based payment award. The updated guidance clarifies when to use modification accounting when there is a change in the terms of a share-based payment and provides three conditions where modification accounting should not be applied. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company adopted the new guidance as of January 1, 2018. The adoption had no impact on the Company's financial position and results of operations.
Pending Adoption of Accounting Standards
Leases
In February 2016, the FASB issued guidance on the accounting for leases. The new guidance requires lessees to place a right-of-use asset and a lease liability, for all leases with terms greater than 12 months, on their balance sheets. The lease liability will be based on the present value of the future lease payments and the asset will be based on the liability. Expenses will be 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. The Company has created an inventory of its operating leases and has calculated the undiscounted future minimum lease payments, which are disclosed in Note 13. Lease Commitments of the Company's Annual Report on Form 10-K for the year ended December 31, 2017. The undiscounted future minimum lease payments at December 31, 2017 is $22.5 million, which represents less than 1.0 percent of the Company's total assets at December 31, 2017. The Company is reviewing and updating its processes and controls under the new guidance. Management currently believes that the adoption will not have a significant 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, results of operations and key processes.
Income Taxes - Intra-entity Transfers
In October 2016, the FASB issued new guidance on the income tax treatment of intra-entity transfers. The new guidance replaces the current guidance which prohibits the recognition of current and deferred income taxes of intra-entity transfers until the asset is sold externally. Under the new guidance, the exemption is eliminated and income taxes will be recognized on transfers of intra-entity assets. The new guidance is effective for annual periods beginning after December 15, 2018 and interim periods beginning after December 15, 2019. 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.
Goodwill
In January 2017, the FASB issued new guidance which simplifies the test for goodwill impairment. The new guidance eliminates the implied fair value calculation when measuring a goodwill impairment charge. Under the new guidance, impairment charges will be based on the excess of the carrying value over fair value of goodwill. The new guidance is effective for annual and interim periods beginning after December 15, 2019. The Company will


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adopt the new guidance as of January 1, 2020 and it currently believes the adoption will have no impact on the Company's financial position and results of operations.

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, presented on a consolidated basis, including both continuing and discontinued operations as of March 31, 2018 and December 31, 2017, is as follows:


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March 31, 2018
 
Type of Investment
Cost or Amortized Cost
 
Gross Unrealized Appreciation
 
Gross Unrealized Depreciation
 
Fair Value
HELD-TO-MATURITY
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
Corporate bonds - financial services
$
150

 
$

 
$

 
$
150

Mortgage-backed securities

 

 

 

Total Held-to-Maturity Fixed Maturities
$
150

 
$

 
$

 
$
150

AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
U.S. Treasury
$
15,995

 
$
1

 
$
270

 
$
15,726

U.S. government agency
135,379

 
606

 
1,556

 
134,429

States, municipalities and political subdivisions
 
 
 
 
 
 
 
General obligations:
 
 
 
 
 
 
 
Midwest
105,376

 
1,019

 
1,060

 
105,335

Northeast
46,132

 
468

 
196

 
46,404

South
134,796

 
916

 
1,993

 
133,719

West
112,871

 
976

 
1,516

 
112,331

Special revenue:
 
 
 
 
 
 
 
Midwest
143,823

 
1,495

 
1,188

 
144,130

Northeast
64,020

 
481

 
1,443

 
63,058

South
250,757

 
1,707

 
4,404

 
248,060

West
149,928

 
1,294

 
2,757

 
148,465

Foreign bonds
10,826

 
156

 

 
10,982

Public utilities
48,024

 
249

 
632

 
47,641

Corporate bonds

 

 

 

Energy
22,516

 
157

 
228

 
22,445

Industrials
33,214

 
200

 
427

 
32,987

Consumer goods and services
31,044

 
217

 
291

 
30,970

Health care
12,170

 
93

 
37

 
12,226

Technology, media and telecommunications
15,447

 
74

 
265

 
15,256

Financial services
55,489

 
226

 
1,203

 
54,512

Mortgage-backed securities
8,763

 
71

 
152

 
8,682

Collateralized mortgage obligations
 
 
 
 
 
 
 
Government national mortgage association
74,000

 
280

 
2,086

 
72,194

Federal home loan mortgage corporation
56,578

 
73

 
1,822

 
54,829

Federal national mortgage association
47,104

 
142

 
1,100

 
46,146

Asset-backed securities
3,196

 
318

 
45

 
3,469

Total Available-for-Sale Fixed Maturities
$
1,577,448

 
$
11,219

 
$
24,671

 
$
1,563,996





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Table of Contents

December 31, 2017
 
Type of Investment
Cost or Amortized Cost
 
Gross Unrealized Appreciation
 
Gross Unrealized Depreciation
 
Fair Value
HELD-TO-MATURITY
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
Corporate bonds - financial services
$
150

 
$

 
$

 
$
150

Mortgage-backed securities
34

 

 

 
34

Total Held-to-Maturity Fixed Maturities
$
184

 
$

 
$

 
$
184

AVAILABLE-FOR-SALE

 

 

 

Fixed maturities:

 

 

 

Bonds

 

 

 

U.S. Treasury
$
17,073

 
$
4

 
$
186

 
$
16,891

U.S. government agency
121,574

 
1,311

 
717

 
122,168

States, municipalities and political subdivisions
 
 
 
 
 
 
 
General obligations:
 
 
 
 
 
 
 
Midwest
107,689

 
2,446

 
439

 
109,696

Northeast
47,477

 
1,174

 
10

 
48,641

South
139,870

 
2,462

 
813

 
141,519

West
111,123

 
2,351

 
463

 
113,011

Special revenue:
 
 
 
 
 
 
 
Midwest
155,475

 
3,620

 
351

 
158,744

Northeast
79,028

 
1,351

 
619

 
79,760

South
260,145

 
5,218

 
1,851

 
263,512

West
156,576

 
2,929

 
1,198

 
158,307

Foreign bonds
51,361

 
1,441

 
49

 
52,753

Public utilities
206,028

 
3,386

 
270

 
209,144

Corporate bonds

 


 

 

Energy
93,191

 
1,972

 
110

 
95,053

Industrials
218,067

 
3,881

 
241

 
221,707

Consumer goods and services
183,253

 
3,498

 
494

 
186,257

Health care
74,125

 
1,312

 
29

 
75,408

Technology, media and telecommunications
146,853

 
2,376

 
250

 
148,979

Financial services
277,824

 
5,769

 
442

 
283,151

Mortgage-backed securities
13,828

 
101

 
238

 
13,691

Collateralized mortgage obligations
 
 
 
 
 
 
 
Government national mortgage association
157,836

 
1,921

 
2,274

 
157,483

Federal home loan mortgage corporation
201,320

 
1,879

 
4,047

 
199,152

Federal national mortgage association
104,903

 
1,703

 
1,174

 
105,432

Asset-backed securities
4,282

 
362

 
8

 
4,636

Total Available-for-Sale Fixed Maturities
$
2,928,901

 
$
52,467

 
$
16,273

 
$
2,965,095

Equity securities:

 

 

 

Common stocks

 

 

 



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Public utilities
$
6,394

 
$
16,075

 
$
30

 
$
22,439

Energy
6,514

 
8,171

 
120

 
14,565

Industrials
13,117

 
53,522

 
120

 
66,519

Consumer goods and services
10,110

 
15,742

 
164

 
25,688

Health care
7,763

 
32,340

 

 
40,103

Technology, media and telecommunications
6,067

 
11,556

 
115

 
17,508

Financial services
11,529

 
104,985

 
67

 
116,447

Nonredeemable preferred stocks
992

 
305

 

 
1,297

Total Available-for-Sale Equity Securities
$
62,486

 
$
242,696

 
$
616

 
$
304,566

Total Available-for-Sale Securities
$
2,991,387

 
$
295,163

 
$
16,889

 
$
3,269,661


The following table is 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 for continuing and discontinued operations by investment type at March 31, 2018 and December 31, 2017:

March 31, 2018
 
Type of Investment
Cost or Amortized Cost
 
Gross Unrealized Appreciation
 
Gross Unrealized Depreciation
 
Fair Value
HELD-TO-MATURITY
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Continuing operations
$
150

 
$

 
$

 
$
150

Discontinued operations

 

 

 

Total Held-to-Maturity Fixed Maturities
$
150

 
$

 
$

 
150

AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Continuing operations
$
1,577,448

 
$
11,219

 
$
24,671

 
$
1,563,996

Discontinued operations

 

 

 

Total Available-for-Sale Fixed Maturities
$
1,577,448

 
$
11,219

 
$
24,671

 
$
1,563,996

Note: The sale of our life insurance business was completed on March 30, 2018.




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Table of Contents

December 31, 2017
 
Type of Investment
Cost or Amortized Cost
 
Gross Unrealized Appreciation
 
Gross Unrealized Depreciation
 
Fair Value
HELD-TO-MATURITY
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Continuing operations
$
150

 
$

 
$

 
$
150

Discontinued operations
34

 

 

 
34

Total Held-to-Maturity Fixed Maturities
$
184

 
$

 
$

 
$
184

AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Continuing operations
$
1,516,610

 
$
27,412

 
$
8,952

 
$
1,535,070

Discontinued operations
1,412,291

 
25,055

 
7,321

 
1,430,025

Total Available-for-Sale Fixed Maturities
2,928,901

 
52,467

 
16,273

 
2,965,095

Equity securities:
 
 
 
 
 
 
 
Continuing operations
$
57,387

 
$
224,065

 
$
539

 
$
280,913

Discontinued operations
5,099

 
18,631

 
77

 
23,653

Total Available-for-Sale Equity Securities
62,486

 
242,696

 
616

 
304,566

Total Available-for-Sale Securities
$
2,991,387

 
$
295,163

 
$
16,889

 
$
3,269,661

Maturities
The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at March 31, 2018, by contractual maturity, are shown in the following tables. The table below includes investments from continuing operations. 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.
Maturities
 
 
 
 
 
 
 
 
 
 
 
 
Held-To-Maturity
 
Available-For-Sale
 
Trading
March 31, 2018
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
$

 
$

 
$
48,086

 
$
48,368

 
$
2,359

 
$
2,629

Due after one year through five years
150

 
150

 
187,837

 
189,107

 
8,750

 
10,497

Due after five years through 10 years

 

 
447,086

 
447,598

 
1,100

 
965

Due after 10 years

 

 
704,798

 
693,603

 
1,020

 
1,288

Asset-backed securities

 

 
3,196

 
3,469

 

 

Mortgage-backed securities

 

 
8,763

 
8,682

 

 

Collateralized mortgage obligations

 

 
177,682

 
173,169

 

 

 
$
150

 
$
150

 
$
1,577,448

 
$
1,563,996

 
$
13,229

 
$
15,379








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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 March 31,
 
2018
 
2017
Net realized investment gains (losses) from continuing operations:
 
 
 
Fixed maturities:
 
 
 
Available-for-sale
$
4

 
$
424

Trading securities
 
 
 
Change in fair value
(111
)
 
371

Sales
556

 
57

Equity securities
 
 
 
Change in fair value
(9,188
)
 
111

Sales
875

 
1,286

Total net realized investment gains (losses) from continuing operations
$
(7,864
)
 
$
2,249

Total net realized investment gains (losses) from discontinued operations
(1,057
)
 
1,705

Total net realized investment gains (losses)
$
(8,921
)
 
$
3,954

The proceeds and gross realized gains on the sale of available-for-sale fixed maturity securities from continuing operations are as follows:
 
Three Months Ended March 31,
 
2018
 
2017
Proceeds from sales
$

 
$
1,095

Gross realized gains

 
1,046

Gross realized losses

 

The proceeds and gross realized gains on the sale of available-for-sale fixed maturity securities from discontinued operations are as follows:
 
Three Months Ended March 31,
 
2018
 
2017
Proceeds from sales
$

 
$
3,964

Gross realized gains

 
1,254

Gross realized losses

 
(78
)
Note: The sale of our life insurance business was completed on March 30, 2018.
There were no sales of held-to-maturity securities during the three-month periods ended March 31, 2018 and 2017.

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 $15,379 and $16,842 at March 31, 2018 and December 31, 2017, 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 $1,499 at March 31, 2018.


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Table of Contents

Unrealized Appreciation
A summary of the changes in net unrealized investment appreciation during the reporting period is as follows:
 
Three Months Ended March 31,
 
2018
 
2017
Change in net unrealized investment appreciation
 
 
 
Available-for-sale fixed maturities
$
(59,126
)
 
$
7,043

Available-for-sale equity securities

 
5,795

Deferred policy acquisition costs
7,274

 
(1,277
)
Income tax effect
10,890

 
(4,046
)
Net unrealized investment depreciation of discontinued operations, sold
6,714

 

Cumulative change in accounting principles
(191,244
)
 

Total change in net unrealized investment appreciation, net of tax
$
(225,492
)
 
$
7,515

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 on a consolidated basis, including both continuing and discontinued operations at March 31, 2018 and December 31, 2017. 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 March 31, 2018, 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 March 31, 2018 or at March 31, 2017. 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.



17

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2018
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
5

 
$
10,263

 
$
141

 
1

 
$
4,711

 
$
129

 
$
14,974

 
$
270

U.S. government agency
15

 
81,651

 
1,232

 
2

 
7,675

 
324

 
89,326

 
1,556

States, municipalities and political subdivisions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest
12

 
15,917

 
144

 
3

 
19,209

 
916

 
35,126

 
1,060

Northeast
4

 
13,214

 
94

 
1

 
3,546

 
102

 
16,760

 
196

South
18

 
38,686

 
466

 
11

 
28,716

 
1,527

 
67,402

 
1,993

West
13

 
31,285

 
406

 
8

 
25,021

 
1,110

 
56,306

 
1,516

Special revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest
20

 
37,637

 
334

 
7

 
18,561

 
854

 
56,198

 
1,188

Northeast
4

 
12,466

 
162

 
11

 
27,722

 
1,281

 
40,188

 
1,443

South
24

 
50,787

 
866

 
27

 
67,940

 
3,538

 
118,727

 
4,404

West
16

 
30,075

 
331

 
21

 
52,243

 
2,426

 
82,318

 
2,757

Public utilities
13

 
33,171

 
632

 

 

 

 
33,171

 
632

Corporate bonds
 
 
 
 
 
 
 
 
 
 
 
 


 


Energy
5

 
10,567

 
228

 

 

 

 
10,567

 
228

Industrials
6

 
20,349

 
427

 

 

 

 
20,349

 
427

Consumer goods and services
5

 
15,823

 
291

 

 

 

 
15,823

 
291

Health care
2

 
3,694

 
37

 

 

 

 
3,694

 
37

Technology, media and telecommunications
3

 
9,745

 
265

 

 

 

 
9,745

 
265

Financial services
13

 
34,617

 
977

 
1

 
5,374

 
226

 
39,991

 
1,203

Mortgage-backed securities
16

 
2,828

 
70

 
10

 
2,123

 
82

 
4,951

 
152

Collateralized mortgage obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government national mortgage association
20

 
47,898

 
1,351

 
6

 
12,087

 
735

 
59,985

 
2,086

Federal home loan mortgage corporation
13

 
35,124

 
1,050

 
4

 
12,590

 
772

 
47,714

 
1,822

Federal national mortgage association
13

 
33,515

 
722

 
1

 
6,963

 
378

 
40,478

 
1,100

Asset-backed securities
1

 
2,837

 
45

 

 

 

 
2,837

 
45

Total Available-for-Sale Fixed Maturities
241

 
$
572,149

 
$
10,271

 
114

 
$
294,481

 
$
14,400

 
$
866,630

 
$
24,671















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Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
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
5

 
$
10,370

 
$
67

 
2

 
$
5,765

 
$
119

 
$
16,135

 
$
186

U.S. government agency
11

 
64,842

 
390

 
5

 
19,372

 
327

 
84,214

 
717

States, municipalities and political subdivisions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest
2

 
2,177

 
8

 
3

 
19,729

 
431

 
21,906

 
439

Northeast

 

 

 
1

 
3,644

 
10

 
3,644

 
10

South
3

 
7,959

 
32

 
11

 
29,545

 
781

 
37,504

 
813

West
2

 
5,944

 
18

 
8

 
25,755

 
445

 
31,699

 
463

Special revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest
2

 
3,486

 
15

 
7

 
19,130

 
336

 
22,616

 
351

Northeast
1

 
4,471

 
37

 
11

 
28,476

 
582

 
32,947

 
619

South
8

 
7,749

 
107

 
27

 
69,917

 
1,744

 
77,666

 
1,851

West
3

 
5,424

 
16

 
22

 
56,753

 
1,182

 
62,177

 
1,198

Foreign bonds
1

 
857

 
49

 

 

 

 
857

 
49

Public utilities
8

 
19,186

 
79

 
5

 
8,446

 
191

 
27,632

 
270

Corporate bonds