Reinsurance and Policy Provisions

Reinsurance

In the normal course of business, we seek to limit our exposure to loss on any single insured or event and to recover a portion of benefits paid by ceding a portion of our exposure to other insurance companies. Our reinsurance coverage for life insurance varies according to the age and risk classification of the insured with current retention limits ranging up to $1.0 million of coverage per individual life. Certain term life products are reinsured on a first dollar quota share basis. We do not use financial or surplus relief reinsurance. We have assumed closed blocks of certain life and annuity business through coinsurance and modified coinsurance agreements.

Farm Bureau Life may cede certain losses under an annual 100% quota share accidental death reinsurance agreement. Coverage includes all acts of terrorism including those of a nuclear, chemical or biological origin. Coverage is subject to an annual aggregate retention of $14.6 million. A maximum occurrence limit of $50.0 million per aircraft applies to policies written on agents of the Company who are participating in company-sponsored incentive trips. Additionally, a $200.0 million occurrence limit applies to employees in the home office building, net of reinsurance on group life policies. All other occurrence catastrophes are unlimited in amount.

Reinsurance contracts do not relieve us of our obligations to policyholders. To the extent that reinsuring companies are later unable to meet obligations under reinsurance agreements, our insurance subsidiaries would be liable for these obligations, and payment of these obligations could result in losses. To limit the possibility of such losses, we evaluate the financial condition of our reinsurers and monitor concentrations of credit risk. No allowance for uncollectible amounts has been established against our asset for reinsurance recoverable since none of our receivables are deemed to be uncollectible.

Ceded reinsurance reduces our revenues by the amount that we pay for premium or forego in product charges and reduces our benefits and expenses by reimbursements of claims by our reinsurers. Assumed reinsurance adds to our premiums or product charges and to benefits and expenses related to the business we assume. These impacts are shown in the table below.



Impact of Reinsurance on our Financial Statements
	Year ended December 31,
	2016		2015		2014
	(Dollars in thousands)
Ceded (reductions to financial statement items):
Premiums and product charges	$	33,058	$	33,462	$	32,513
Insurance benefits	22,515		26,183		16,972
Assumed (additions to financial statement items):
Premiums and product charges	2,670		2,751		783
Insurance benefits	2,302		1,231		1,667



Reinsurance In Force and Percentage of Direct Life Insurance In Force
	Year ended December 31,
	2016				2015
	(Dollars in millions)
Ceded reinsurance	$	14,258	23.5	%	$	14,263	24.1	%
Assumed reinsurance	524		0.9	%	552		0.9	%

Policy Provisions

Analysis of the Value of Insurance In Force Acquired



	Year ended December 31,
	2016			2015			2014
	(Dollars in thousands)
Balance at beginning of year	$	24,000		$	26,436		$	29,935
Amortization per fixed schedule	(2,198		)	(2,384		)	(2,090		)
Impact of unlocking actuarial assumptions	(194		)	(52		)	(1,409		)
Balance at end of year	21,608			24,000			26,436
Impact of net unrealized investment gains and losses	(12,382		)	(3,087		)	(3,939		)
Value of insurance in force acquired	$	9,226		$	20,913		$	22,497

We amortize the value of insurance in force based on a fixed amortization schedule. Net amortization, based on our fixed amortization schedules, for the next five years is expected to be as follows: 2017 - $2.2 million; 2018 - $2.2 million; 2019 - $2.1 million; 2020 - $2.2 million; and 2021 - $2.0 million.

Certain variable annuity and variable universal life contracts in our separate accounts and in variable business we have assumed through reinsurance partners have minimum interest guarantees on funds deposited in our general account. In addition, we have certain variable annuity contracts that include a) guaranteed minimum death benefits (GMDB), b) an incremental death benefit (IDB) rider that pays a percentage of the gain on the contract upon the death of the contract holder, and/or c) a guaranteed minimum income benefit (GMIB) that provides monthly income to the contract holder after the eighth policy year.



GMDB, IDB and GMIB Net Amount at Risk by Type of Guarantee

	December 31, 2016				December 31, 2015
	Separate Account Balance		Net Amount at Risk		Separate Account Balance		Net Amount at Risk
	(Dollars in thousands)
Guaranteed minimum death benefit:
Return of net deposits	$	159,617	$	543	$	175,286	$	623
Return the greater of highest anniversary value or net deposits	270,539		2,920		279,981		14,858
Incremental death benefit	241,142		53,933		256,929		50,159
Guaranteed minimum income benefit	32,733		—		37,334		—
Total			$	57,396			$	65,640

The separate account assets are primarily comprised of stock and bond mutual funds. The net amount at risk for these contracts is based on the amount by which GMDB, IDB or GMIB exceeds account value. The reserve for GMDBs, IDBs or GMIBs, determined using modeling techniques and industry mortality assumptions, that is included in future policy benefits, totaled $5.8 million at December 31, 2016 and $5.4 million at December 31, 2015. The weighted average age of the contract holders with GMDB, IDB or GMIB rider exposure was 62 years at December 31, 2016 and 57 years at December 31, 2015. Benefits paid for GMDBs, IDBs and GMIBs totaled $0.5 million for 2016, $0.4 million for 2015 and $0.2 million for 2014.