Investments

3 Months Ended

Mar. 31, 2017

Investments, Debt and Equity Securities [Abstract]

Investments

4. Investments

Fixed Maturity Securities Available-for-Sale

Fixed Maturity Securities Available-for-Sale by Sector

The following table presents the fixed maturity securities AFS by sector.Redeemable preferred stock is reported within U.S. corporate fixed maturity securities. Included within fixed maturity securities are structured securities including residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”).

	March 31, 2017										December 31, 2016
	Amortized Cost		Gross Unrealized						Estimated Fair Value		Amortized Cost		Gross Unrealized						Estimated Fair Value
			Gains		Temporary Losses		OTTI Losses						Gains		Temporary Losses		OTTI Losses
	(In thousands)
Fixed maturity securities:
U.S. corporate	$	717,002	$	21,341	$	6,249	$	—	$	732,094	$	709,694	$	20,400	$	8,283	$	—	$	721,811
U.S. government and agency	404,528		10,219		9,859		—		404,888		410,504		9,560		13,519		—		406,545
RMBS	216,834		2,541		2,122		—		217,253		238,676		2,033		2,322		—		238,387
Foreign corporate	237,844		3,396		6,874		—		234,366		237,412		2,998		8,070		—		232,340
CMBS	179,639		3,114		1,368		—		181,385		177,719		2,724		1,487		—		178,956
State and political subdivision	46,790		4,426		507		—		50,709		52,739		4,345		764		—		56,320
ABS	26,666		101		111		—		26,656		26,695		152		177		—		26,670
Foreign government	16,056		492		131		—		16,417		17,215		543		273		—		17,485
Total fixed maturity securities	$	1,845,359	$	45,630	$	27,221	$	—	$	1,863,768	$	1,870,654	$	42,755	$	34,895	$	—	$	1,878,514

The Company did not hold non-income producing fixed maturity securities at both March 31, 2017 and December 31, 2016.

Maturities of Fixed Maturity Securities

The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at March 31, 2017:

	Due in One Year or Less		Due After One Year Through Five Years		Due After Five Years Through Ten Years		Due After Ten Years		Structured Securities		Total Fixed Maturity Securities
	(In thousands)
Amortized cost	$	16,943	$	390,698	$	508,270	$	506,309	$	423,139	$	1,845,359
Estimated fair value	$	17,206	$	401,578	$	508,264	$	511,426	$	425,294	$	1,863,768

Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities not due at a single maturity date have been presented in the year of final contractual maturity. Structured Securities are shown separately, as they are not due at a single maturity.

Continuous Gross Unrealized Losses for Fixed Maturity Securities AFS by Sector

The following table presents the estimated fair value and gross unrealized losses of fixed maturity securities AFS in an unrealized loss position, aggregated by sector and by length of time that the securities have been in a continuous unrealized loss position at:

	March 31, 2017								December 31, 2016
	Less than 12 Months				Equal to or Greater than 12 Months				Less than 12 Months				Equal to or Greater than 12 Months
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
	(Dollars in thousands)
Fixed maturity securities
U.S. corporate	$	223,324	$	4,950	$	17,757	$	1,299	$	250,559	$	6,667	$	17,745	$	1,616
U.S. government and agency	201,323		9,859		—		—		342,150		13,519		—		—
RMBS	105,822		2,016		5,773		106		137,470		2,089		6,822		233
Foreign corporate	125,659		4,193		11,031		2,681		129,093		3,541		22,965		4,529
CMBS	38,901		948		3,727		420		42,661		1,068		3,729		419
State and political subdivision	15,466		507		—		—		20,709		764		—		—
ABS	16,575		111		—		—		17,504		177		—		—
Foreign government	4,299		48		911		83		7,189		148		868		125
Total fixed maturity securities	$	731,369	$	22,632	$	39,199	$	4,589	$	947,335	$	27,973	$	52,129	$	6,922
Total number of securities in an unrealized loss position	165				28				203				35

Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities

As described more fully in Notes 1 and 6 of the Notes to the Financial Statements included in the 2016 Annual Report, the Company performs a regular evaluation of all investment classes for impairment, including fixed maturity securities, in accordance with its impairment policy, in order to evaluate whether such investments are other-than-temporarily impaired.

Current Period Evaluation

Based on the Company’s current evaluation of its AFS securities in an unrealized loss position in accordance with its impairment policy, and the Company’s current intentions and assessments (as applicable to the type of security) about holding, selling and any requirements to sell these securities, the Company concluded that these securities were not other-than-temporarily impaired at March 31, 2017. Future OTTI will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to be collected), changes in credit ratings, collateral valuation, interest rates and credit spreads, as well as a change in the Company’s intention to hold or sell a security that is in an unrealized loss position. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods.

Gross unrealized losses on fixed maturity securities decreased$7.7 million during the three months endedMarch 31, 2017 to $27.2 million. The decrease in gross unrealized losses for the three months endedMarch 31, 2017 was primarily attributable to narrowing credit spreads and decreasing longer-term interest rates.

At March 31, 2017, there were no gross unrealized losses on fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for six months or greater.

Mortgage Loans

Mortgage Loans by Portfolio Segment

Mortgage loans are summarized as follows at:

	March 31, 2017					December 31, 2016
	Carrying Value			% of Total		Carrying Value			% of Total
	(Dollars in thousands)
Mortgage loans
Commercial	$	281,552		69.1	%	$	286,002		70.4	%
Agricultural	127,610			31.3		121,858			30.0
Subtotal	409,162			100.4		407,860			100.4
Valuation allowances	(1,772		)	(0.4	)	(1,775		)	(0.4	)
Total mortgage loans, net	$	407,390		100.0	%	$	406,085		100.0	%

Mortgage Loans, Valuation Allowance and Impaired Loans by Portfolio Segment

At both March 31, 2017 and December 31, 2016, the Company had no impaired mortgage loans and all mortgage loans were evaluated collectively for credit losses.

Valuation Allowance Rollforward by Portfolio Segment

The changes in the valuation allowance, by portfolio segment, were as follows:

	Three Months   Ended   March 31,
	2017								2016
	Commercial			Agricultural		Total			Commercial		Agricultural		Total
	(In thousands)
Balance, beginning of period	$	1,419		$	356	$	1,775		$	578	$	62	$	640
Provision (release)	(21		)	18		(3		)	80		—		80
Balance, end of period	$	1,398		$	374	$	1,772		$	658	$	62	$	720

Credit Quality of Commercial Mortgage Loans

The credit quality of commercial mortgage loans was as follows at:

	Recorded Investment
	Debt Service Coverage Ratios								% of Total
	> 1.20x		1.00x - 1.20x		< 1.00x		Total
	(Dollars in thousands)
March 31, 2017
Loan-to-value ratios:
Less than 65%	$	255,457	$	15,431	$	999	$	271,887	96.6	%
65% to 75%	9,665		—		—		9,665		3.4
Total	$	265,122	$	15,431	$	999	$	281,552	100.0	%
December 31, 2016
Loan-to-value ratios:
Less than 65%	$	259,711	$	15,614	$	999	$	276,324	96.6	%
65% to 75%	9,678		—		—		9,678		3.4
Total	$	269,389	$	15,614	$	999	$	286,002	100.0	%

Credit Quality of Agricultural Mortgage Loans

The credit quality of agricultural mortgage loans was as follows at: 

	March 31, 2017				December 31, 2016
	Recorded Investment		% of Total		Recorded Investment		% of Total
	(Dollars in thousands)
Loan-to-value ratios:
Less than 65%	$	125,752	98.5	%	$	119,974	98.4	%
65% to 75%	1,858		1.5		1,884		1.6
Total	$	127,610	100.0	%	$	121,858	100.0	%

Past Due and Nonaccrual Mortgage Loans

The Company has a high quality, well performing mortgage loan portfolio, with all mortgage loans classified as performing at both March 31, 2017 and December 31, 2016. The Company defines delinquency consistent with industry practice, when mortgage loans are past due as follows: commercial mortgage loans — 60 days and agricultural mortgage loans — 90 days. The Company had no past due and nonaccrual mortgage loans at both March 31, 2017 and December 31, 2016.

Mortgage Loans Modified in a Troubled Debt Restructuring

During both the three months ended March 31, 2017 and 2016, there were no mortgage loans modified in a troubled debt restructuring.

Cash Equivalents

The carrying value of cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time of purchase, was $17.2 million and $9.2 million at March 31, 2017 and December 31, 2016, respectively.

Net Unrealized Investment Gains (Losses)

Unrealized investment gains (losses) on fixed maturity securities AFS and the effect on DAC, deferred sales inducements (“DSI”) and future policy benefits, that would result from the realization of the unrealized gains (losses), are included in net unrealized investment gains (losses) in accumulated other comprehensive income (loss) (“AOCI”).

The components of net unrealized investment gains (losses), included in AOCI, were as follows:

	March 31, 2017			December 31, 2016
	(In thousands)
Fixed maturity securities	$	18,409		$	7,862
Derivatives	4,297			4,718
Subtotal	22,706			12,580
Amounts allocated from:
DAC and DSI	(9,600		)	(5,800		)
Deferred income tax benefit (expense)	(4,588		)	(2,373		)
Net unrealized investment gains (losses)	$	8,518		$	4,407

The changes in net unrealized investment gains (losses) were as follows:

	Three Months   Ended   March 31, 2017
	(In thousands)
Balance, beginning of period	$	4,407
Unrealized investment gains (losses) during the period	10,126
Unrealized investment gains (losses) relating to:
DAC and DSI	(3,800		)
Deferred income tax benefit (expense)	(2,215		)
Balance, end of period	$	8,518
Change in net unrealized investment gains (losses)	$	4,111

Concentrations of Credit Risk

There were no investments in any counterparty that were greater than 10% of the Company’s stockholder’s equity, other than the U.S. government and its agencies, at both March 31, 2017 and December 31, 2016.

Invested Assets on Deposit

Invested assets on deposit are presented below at estimated fair value for fixed maturity securities at:

	March 31, 2017		December 31, 2016
	(In thousands)
Invested assets on deposit (regulatory deposits)	$	1,513	$	1,507

Variable Interest Entities

The Company has invested in legal entities that are VIEs. In certain instances, the Company may hold both the power to direct the most significant activities of the entity, as well as an economic interest in the entity and, as such, it would be deemed to be the primary beneficiary or consolidator of the entity. The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and obligations associated with each party’s relationship with or involvement in the entity, an estimate of the entity’s expected losses and expected residual returns and the allocation of such estimates to each party involved in the entity.

Consolidated VIEs

There were no VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated at both March 31, 2017 and December 31, 2016.

Unconsolidated VIEs

The carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the primary beneficiary and which have not been consolidated were as follows at:

	March 31, 2017				December 31, 2016
	Carrying Amount		Maximum Exposure to Loss (1)		Carrying Amount		Maximum Exposure to Loss (1)
	(In thousands)
Fixed maturity securities AFS:
Structured Securities (2)	$	425,294	$	425,294	$	444,013	$	444,013
Foreign corporate	6,017		6,017		5,884		5,884
Total	$	431,311	$	431,311	$	449,897	$	449,897

______________

(1) The maximum exposure to loss relating to fixed maturity securities AFS is equal to their carrying amounts or the carrying amounts of retained interests. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee.

(2) For these variable interests, the Company’s involvement is limited to that of a passive investor in mortgage-backed or asset-backed securities issued by trusts that do not have substantial equity.

Net Investment Income

The components of net investment income were as follows:

	Three Months   Ended   March 31,
	2017		2016
	(In thousands)
Investment income:
Fixed maturity securities	$	17,592	$	12,150
Mortgage loans	4,388		1,746
Cash, cash equivalents and short-term investments	37		20
Other	149		125
Subtotal	22,166		14,041
Less: Investment expenses	758		441
Net investment income	$	21,408	$	13,600

See “— Related Party Investment Transactions” for discussion of affiliated investment expenses.

Net Investment Gains (Losses)

Components of Net Investment Gains (Losses)

The components of net investment gains (losses) were as follows:

		Three Months   Ended   March 31,
		2017			2016
	(In thousands)
Total gains (losses) on fixed maturity securities:
Total OTTI losses recognized — by sector and industry:
U.S. and foreign corporate securities — by industry:
Industrial		$	—		$	(870	)
Total U.S. and foreign corporate securities		—			(870		)
OTTI losses on fixed maturity securities recognized in earnings		—			(870		)
Fixed maturity securities — net gains (losses) on sales and disposals		(1,299		)	(798		)
Total gains (losses) on fixed maturity securities		(1,299		)	(1,668		)
Mortgage loans		(17		)	(92		)
Other		579			71
Total net investment gains (losses)		$	(737	)	$	(1,689	)

Gains (losses) from foreign currency transactions included within net investment gains (losses) were$544 thousandand($11) thousandfor thethree months endedMarch 31, 2017and2016, respectively.

Sales or Disposals and Impairments of Fixed Maturity Securities

Investment gains and losses on sales of securities are determined on a specific identification basis. Proceeds from sales or disposals of fixed maturity securities and the components of fixed maturity securities net investment gains (losses) were as shown in the table below.

	Three Months   Ended   March 31,
	2017			2016
	Fixed Maturity Securities
	(In thousands)
Proceeds	$	142,318		$	16,892
Gross investment gains	$	663		$	253
Gross investment losses	(1,962		)	(1,051		)
OTTI losses	—			(870		)
Net investment gains (losses)	$	(1,299	)	$	(1,668	)

Related Party Investment Transactions

The Company receives investment administrative services from an affiliate. The related investment administrative service charges were$691 thousandand$428 thousandfor thethree months endedMarch 31, 2017and2016, respectively.