Note 3. Investments

Fixed Maturity and Equity Securities

The amortized cost/cost, gross unrealized gains and losses, estimated fair values and impairments reflected in other comprehensive income of investments in fixed maturity and equity AFS securities at June 30, 2016 and December 31, 2015 were:


	June 30, 2016
			Gross Unrealized					Estimated
	Amortized Cost/Cost		Gains		Losses			Fair Value		OTTI in AOCI _(a)
Fixed maturity AFS securities
Corporate securities	$	943,739	$	84,492	$	(5,679	)	$	1,022,552	$	-
Asset-backed securities		82,028		2,780		(411	)		84,397		(11	)
Commercial mortgage-backed securities		77,311		4,217		(11	)		81,517		-
Residential mortgage-backed securities		158,469		3,562		(492	)		161,539		(27	)
Municipals		911		-		(104	)		807		-
Government and government agencies
United States		294,764		91,254		-			386,018		-
Foreign		6,551		1,691		-			8,242		-

Total fixed maturity AFS securities	$	1,563,773	$	187,996	$	(6,697)		$	1,745,072	$	(38	)


Equity AFS securities
Banking securities	$	26,757	$	1,794	$	(613	)	$	27,938	$	-
Industrial securities		5,791		98		-			5,889		-

Total equity AFS securities	$	32,548	$	1,892	$	(613	)	$	33,827	$	-


	December 31, 2015
			Gross Unrealized					Estimated
	Amortized Cost/Cost		Gains		Losses			Fair Value		OTTI in AOCI _(a)
Fixed maturity AFS securities
Corporate securities	$	977,900	$	57,648	$	(18,756	)	$	1,016,792	$	-
Asset-backed securities		118,993		4,140		(479	)		122,654		(42	)
Commercial mortgage-backed securities		70,083		1,904		(304	)		71,683		-
Residential mortgage-backed securities		56,527		2,819		(81	)		59,265		-
Municipals		913		-		(106	)		807		-
Government and government agencies
United States		339,686		46,634		(32	)		386,288		-
Foreign		6,591		1,257		-			7,848		-

Total fixed maturity AFS securities	$	1,570,693	$	114,402	$	(19,758)		$	1,665,337	$	(42	)


Equity AFS securities
Banking securities	$	27,986	$	1,769	$	(1,082	)	$	28,673	$	-
Industrial securities		5,791		203		-			5,994		-

Total equity AFS securities	$	33,777	$	1,972	$	(1,082)		$	34,667	$	-

(a) Represents other-than-temporary impairments (“OTTI”) in Accumulated Other Comprehensive Income (“AOCI”), which were not included in earnings. Amount excludes $1,837 and $2,515 of unrealized gains at June 30, 2016 and December 31, 2015, respectively.

Excluding investments in U.S. government and government agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturity securities portfolio.

The amortized cost and estimated fair value of fixed maturity AFS securities by investment grade at June 30, 2016 and December 31, 2015 were:


	June 30, 2016				December 31, 2015
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Investment grade	$	1,461,611	$	1,642,016	$	1,467,677	$	1,565,053
Below investment grade		102,162		103,056		103,016		100,284

Total fixed maturity AFS securities	$	1,563,773	$	1,745,072	$	1,570,693	$	1,665,337

At June 30, 2016 and December 31, 2015, the estimated fair value of fixed maturity securities rated BBB, which is the lowest investment grade rating given by S&P, was $68,640 and $79,958, respectively. Below investment grade securities are speculative and are subject to significantly greater risks related to the creditworthiness of the issuers and the liquidity of the market for such securities. The Company closely monitors such investments.

The amortized cost and estimated fair value of fixed maturity AFS securities at June 30, 2016 and December 31, 2015 by contractual maturities were:


	June 30, 2016				December 31, 2015
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity AFS securities
Due in one year or less	$	72,334	$	72,911	$	64,114	$	65,086
Due after one year through five years		535,068		577,160		564,707		599,965
Due after five years through ten years		151,972		163,110		230,858		230,815
Due after ten years		486,591		604,437		465,410		515,868

		1,245,965		1,417,618		1,325,089		1,411,734
Mortgage-backed securities and other asset-backed securities		317,808		327,454		245,604		253,603

Total fixed maturity AFS securities	$	1,563,773	$	1,745,072	$	1,570,693	$	1,665,337

In the preceding table, fixed maturity securities not due at a single maturity date have been included in the year of final maturity. 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.

Unrealized Losses on Fixed Maturity and Equity Securities

The Company’s investments in fixed maturity and equity securities classified as AFS are carried at estimated fair value with unrealized gains and losses included in stockholder’s equity as a component of accumulated other comprehensive income (“AOCI”), net of taxes.

The estimated fair value and gross unrealized losses and OTTI related to fixed maturity and equity AFS securities aggregated by length of time that individual securities have been in a continuous unrealized loss position at June 30, 2016 and December 31, 2015 were as follows:


	June 30, 2016
	Estimated Fair Value		Amortized Cost/Cost		Gross Unrealized Losses and OTTI ^(a)
Less than or equal to six months
Fixed maturity AFS securities
Corporate securities	$	8,146	$	8,604	$	(458	)
Asset-backed securities		24,005		24,164		(159	)
Commercial mortgage-backed securities		2,674		2,680		(6	)
Residential mortgage-backed securities		14,465		14,793		(328	)

Total fixed maturity and equity AFS securities	$	49,290	$	50,241	$	(951	)


Greater than six months but less than or equal to one year
Fixed maturity AFS securities
Corporate securities	$	24,978	$	27,383	$	(2,405	)
Asset-backed securities		6,734		6,887		(153	)
Commercial mortgage-backed securities		481		486		(5	)
Residential mortgage-backed securities		2,241		2,357		(116	)

Total fixed maturity and equity AFS securities	$	34,434	$	37,113	$	(2,679	)


Greater than one year
Fixed maturity AFS securities
Corporate securities	$	26,157	$	28,973	$	(2,816	)
Asset-backed securities		5,269		5,368		(99	)
Residential mortgage-backed securities		817		865		(48	)
Municipals		807		911		(104	)
Equity AFS securities - banking securities		9,683		10,296		(613	)

Total fixed maturity and equity AFS securities	$	42,733	$	46,413	$	(3,680	)

Total fixed maturity and equity AFS securities	$	126,457	$	133,767	$	(7,310)


	December 31, 2015
	Estimated Fair Value		Amortized Cost/Cost		Gross Unrealized Losses and OTTI ^(a)
Less than or equal to six months
Fixed maturity AFS securities
Corporate securities	$	130,718	$	139,846	$	(9,128	)
Asset-backed securities		59,051		59,312		(261	)
Commercial mortgage-backed securities		17,185		17,450		(265	)
Residential mortgage-backed securities		3,896		3,966		(70	)
Government and government agencies - United States		18,484		18,516		(32	)

Total fixed maturity and equity AFS securities	$	229,334	$	239,090	$	(9,756	)


Greater than six months but less than or equal to one year
Fixed maturity AFS securities
Corporate securities	$	27,872	$	30,597	$	(2,725	)
Asset-backed securities		455		463		(8	)
Commercial mortgage-backed securities		988		1,028		(40	)
Residential mortgage-backed securities		1,020		1,030		(10	)

Total fixed maturity and equity AFS securities	$	30,335	$	33,118	$	(2,783	)


Greater than one year
Fixed maturity AFS securities
Corporate securities	$	8,628		15,531	$	(6,903	)
Asset-backed securities		4,788		4,999		(211	)
Residential mortgage-backed securities		39		40		(1	)
Municipals		808		912		(104	)
Equity AFS securities - banking securities		9,214		10,296		(1,082	)

Total fixed maturity and equity AFS securities	$	23,477	$	31,778	$	(8,301	)

Total fixed maturity and equity AFS securities	$	283,146	$	303,986	$	(20,840)

(a)	Subsequent unrealized gains (losses) on OTTI securities are included in OCI-OTTI.

The total number of securities in an unrealized loss position was 68 and 133 at June 30, 2016 and December 31, 2015, respectively.

There was one security in a continuous unrealized loss position where fair value had declined below amortized cost by more than 20% at June 30, 2016. The security had an estimated fair value of $1,137 with an unrealized loss of ($575). There was one security in a continuous unrealized loss position where the fair value had declined below amortized cost by more than 40% at June 30, 2016. The security had an estimated fair value of $1,175 with an unrealized loss of ($814). There were five securities in a continuous unrealized loss position where fair value had declined below amortized cost by more than 20% at December 31, 2015. The securities had an estimated fair value of $11,372 with an unrealized loss of ($4,052). There were four securities in a continuous unrealized loss position where the fair value had declined below amortized cost by more than 40% at December 31, 2015. The securities had an estimated fair value of $5,357 with an unrealized loss of ($7,279).

Unrealized gains (losses) incurred during the first six months of 2016 and 2015 were primarily due to price fluctuations resulting from changes in credit spreads and interest rates in general. If the Company has the intent to sell or it is more likely than not that the Company will be required to sell these securities prior to the anticipated recovery of the amortized cost, securities are written down to fair value. If cash flow models indicate a credit event will impact future cash flows, the security is impaired to discounted cash flows. As the remaining unrealized losses in the portfolio relate to holdings where the Company expects to receive full principal and interest, the Company does not consider the underlying investments to be impaired.

The components of net unrealized gains (losses) and OTTI included in AOCI, net of taxes, at June 30, 2016 and December 31, 2015 were as follows:


	June 30, 2016			December 31, 2015
Assets
Fixed maturity AFS securities	$	181,297		$	94,644
Equity AFS securities		1,279			890
Cash flow hedges		4,660			4,202
Value of business acquired		(34,229	)		(21,812	)

	$	153,007		$	77,924


Liabilities
Income taxes - deferred	$	(21,333	)	$	(21,333	)

	$	(21,333	)	$	(21,333	)

Stockholder’s equity
Accumulated other comprehensive income, net of taxes	$	131,674		$	56,591

Mortgage Loans on Real Estate

Mortgage loans on real estate consist entirely of mortgages on commercial real estate. Prepayment premiums are collected when borrowers elect to prepay their debt prior to the stated maturity. There were no prepayment premiums collected during the three and six months ended June 30, 2016. There were $335 of prepayment premiums collected for the twelve months ended December 31, 2015. Prepayment premiums are included in net realized investment gains (losses), excluding OTTI on securities in the Statements of Income.

The fair values of mortgage loans on real estate are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and/or similar remaining maturities. The estimated fair value of the mortgages on commercial real estate at June 30, 2016 and December 31, 2015 was $111,646 and $92,923, respectively.

Loans are considered impaired when it is probable that based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. A valuation allowance is established when a loan is determined to be impaired for the excess carrying value of the loan over its estimated collateral value. There were no impaired mortgage loans at June 30, 2016 and December 31, 2015. In addition to the valuation allowance for specific loans, a generic reserve is established based on a percent of the outstanding loan balance. The generic reserve was $74 at June 30, 2016 and $78 at December 31, 2015. The change in the reserve is reflected in net realized investment gains (losses), excluding other-than-temporary impairments (OTTI) on securities in the Statements of Income.

The change in the credit loss allowances on mortgage loans by type of property at June 30, 2016 and December 31, 2015 was as follows:


	Six Months Ended June 30,			Twelve Months Ended December 31,
Commercial	2016			2015
Balance at beginning of period	$	78		$	36
Provision		(4	)		42

Balance at end of period	$	74		$	78

The commercial mortgages are geographically diversified throughout the United States with the largest concentrations in Pennsylvania, Washington, California, Missouri, Texas, Georgia, Virginia, New Hampshire, Florida, and Minnesota, which account for approximately 81% of mortgage loans at June 30, 2016.

The credit quality of mortgage loans by type of property at June 30, 2016 and December 31, 2015 was as follows:


Commercial	June 30, 2016			December 31, 2015
AAA - AA	$	35,841		$	31,835
A		59,153			49,084
BBB		12,029			9,090
BBB - BB		-			2,983

Total mortgage loans on real estate	$	107,023		$	92,992
Less: reserves		(74	)		(78	)

Total mortgage loans on real estate, net	$	106,949		$	92,914

The credit quality for the commercial mortgage loans was determined based on an internal credit rating model which assigns a letter rating to each mortgage loan in the portfolio as an indicator of the quality of the mortgage loan. The internal credit rating model was designed based on a rating agency methodology, then modified for credit risk associated with the Company’s mortgage lending process, taking into account such factors as projected future cash flows, net operating income, and collateral value. The model produces a rating score and an associated letter rating that is intended to align with S&P ratings as closely as possible. Information supporting the risk rating process is updated at least annually. While mortgage loans with a lower rating carry a higher risk of loss, adequate reserves for loan losses have been established to cover those risks.

Securities Lending

Financial assets that are lent to a third party or that are transferred subject to a repurchase agreement at a fixed price are not derecognized as the Company retains substantially all the risks and rewards of asset ownership. The loaned securities are included in fixed maturity AFS securities in the Balance Sheets. A liability is recognized for cash collateral received, required initially at 102%, on which interest is accrued. If the fair value of the collateral is at any time less than 102% of the fair value of the loaned securities, the counterparty is mandated to deliver additional collateral, the fair value of which, together with the collateral already held in connection with the lending transaction, is at least equal to 102% of the fair value of the loaned securities.

The following table provides a summary of the securities under securities lending agreements at June 30, 2016 and December 31, 2015:


	June 30, 2016		December 31, 2015
Payables for collateral under securities loaned	$	212,793	$	194,537
Amortized cost of securities out on loan		159,906		162,698
Estimated fair value of securities out on loan		205,204		188,689

Reverse Repurchase Agreements

The Company enters into dollar roll repurchase agreement transactions whereby the Company takes delivery of pools of mortgage-backed securities (“MBS”) and sells them to counterparty along with an agreement to repurchase substantially the same pools at some point in the future, typically one month forward. These transactions are accounted for as collateralized borrowings, and the repurchase agreement liability is included in the balance sheets in payables for collateral under securities loaned and reverse repurchase agreements. There is a risk that the MBS pools will not be delivered by the counterparty upon the maturity of the repurchase agreement. However, this risk is considered to be very low as the U.S. MBS market is a well-established, deep, and liquid for securities that the counterparty can utilize to source pools required to satisfy its obligation. Counterparties for MBS pools must pass internal credit underwriting standards prior to initiating repurchase agreement transactions. In addition, each month the value of the cash collateral is reset based on the change in the fair value of the MBS, thereby minimizing the amount of counterparty exposure.

The following table provides a summary of the securities under reverse repurchase agreements at June 30, 2016 and December 31, 2015:


	June 30, 2016		December 31, 2015
Payable for reverse repurchase agreements	$	66,390	$	-
Amortized cost of securities pledged		65,832		-
Estimated fair value of securities pledged		66,846		-

Collateral Maturities of Reverse Repurchase Agreements and Securities Lending Transactions

The following tables provide a summary of collateral maturities of reverse repurchase agreements and securities lending transactions for the periods ended at June 30, 2016 and December 31, 2015:


	June 30, 2016
	Overnight and Continuous		Up to 30 days		Total

Reverse repurchase agreements
Residential mortgage-backed securities	$	-	$	66,846	$	66,846

Total		-		66,846		66,846
Securities lending transactions
U.S. Treasury and agency securities	$	169,279	$	-	$	169,279
Corporate securities		35,169		-		35,169
Equity securities - banking		756		-		756

Total	$	205,204	$	-	$	205,204

Total Borrowings	$	205,204	$	66,846	$	272,050


Gross amount of recognized liabilities for reverse repurchase agreements and securities lending in balance sheets					$	279,183


	December 31, 2015
	Overnight and Continuous		Up to 30 days		Total

Securities lending transactions
U.S. Treasury and agency securities	$	155,586	$	-	$	155,586
Corporate securities		19,786		-		19,786
Equity securities - banking		13,317		-		13,317

Total Borrowings	$	188,689	$	-	$	188,689

Gross amount of recognized liabilities for securities lending in balance sheets					$	194,537

Derivatives and Hedge Accounting

The Company uses several types of derivatives to manage the capital market risk associated with the GMWB.

S&P futures contracts and interest rate futures contracts are used to hedge the equity risk and interest rate risk, respectively, associated with these types of variable guaranteed products, in particular the claim and/or revenue risks of the liability portfolio. Net settlements on the futures occur daily. The realized gains (losses) on settlement of these futures are recorded in net derivative gains (losses) in the Statements of Income.

The Company uses variance swaps to hedge equity risk. The Company has entered into total return swaps that are based on the S&P. The Company recognizes gains (losses) from the change in the fair value of the variance swaps and total return swaps in net derivative gains (losses) in the Statements of Income.

The Company has entered into cash flow hedging transactions on Treasury Inflation Protected Securities (“TIPS”) utilizing interest rate swaps to lengthen portfolio duration and to hedge the variability of cash flows due to changes in inflation. The Company recognizes hedge ineffectiveness gains (losses) from the difference of the change in fair value of the swap and the change in fair value of the underlying Treasury in net derivative gains (losses) in the Statements of Income.

The Company began writing credit default swaps enabling the Company to change the risk profile of the assets in the portfolio by enhancing the overall yield. As a writer of credit default swaps, the Company actively monitors the underlying asset, being careful to note any events (default or similar credit event) that would require the Company to perform on the credit default swap. If such events would take place, the Company has recourse provisions from the proceeds of the bankruptcy settlement of the underlying entity or by the sale of the underlying bond. In the event the representative issuer defaults on its debt obligation referenced in the contract, a payment equal to the notional amount of the contract will be made by the Company and recognized in net derivative gains (losses) in the Statement of Income.

During the fourth quarter of 2015, the Company entered into fixed-to-float and float-to-fixed interest rate swaps in order to hedge the interest rate risk on the underlying liability. The Company holds these contracts at fair value, and gains (losses) related to changes in fair value are recognized in net derivative gains (losses) in the Statements of Income.

The Company also utilizes put and call options which serve to hedge the risk of equity market declines. The Company recognizes gains (losses) from the change in fair value of the options in net derivative gains (losses) in the Statements of Income.

The following table presents the notional and fair value of non-qualifying hedging instruments and cash flow hedges at June 30, 2016 and December 31, 2015:


	Notional				Fair Value
	June 30,		December 31,		June 30,		December 31,
Derivative Type	2016		2015		2016		2015
Non-qualifying hedges
Short futures	$	27,173	$	47,221	$	-	$	-
Long futures		63,722		51,573		-		-
Interest rate swaps		244,000		192,000		11,541		(2,228	)
Variance swaps		580		675		(1,233)		(1,525	)
Total return swaps		686,440		1,315,900		585		(1,429	)
Options		145,727		587,046		836		11,055
Credit default swaps		210,000		210,000		(230)		65

Total non-qualifying hedges	$	1,377,642	$	2,404,415	$	11,499	$	5,938

Cash flow hedges
Interest rate swaps	$	49,884	$	49,884	$	3,427	$	3,285

Total cash flow hedges	$	49,884	$	49,884	$	3,427	$	3,285

Derivative Total	$	1,427,526	$	2,454,299	$	14,926	$	9,223

The following table presents the net derivative gains (losses) recognized in the Statements of Income:


	Net Derivative Gains (Losses) Recognized In Income
	Three Months Ended June 30,				Six Months Ended June 30,
Derivative Type	2016		2015		2016		2015
Short futures	$	(1,154)	$	(42)	$	(2,459)	$	(1,359)
Long futures		3,138		-		6,991		-
Variance swaps		(1,033)		(973)		(1,670)		(2,215)
Total return swaps		(10,996)		(15,173)		(17,039)		(34,425)
Options		(1,784)		2,455		(3,235)		2,455
Interest rate swaps		5,079		2		13,771		3
Credit default swaps		85		440		347		1,328

Total	$	(6,665)	$	(13,291)	$	(3,294)	$	(34,213)

The following table presents the maximum potential amount of future payments, credit rating, and maturity dates for the credit default swaps at June 30, 2016 and December 31, 2015:


	Maximum Potential Amount of Future Payments		Credit Rating	Maturity Date Range
Derivative Type	June 30, 2016
Credit default swaps
Corporate debt	$	120,000	A	June 2017 - December 2020
Sovereign debt		90,000	AA-A	June 2017 - March 2020

Credit default swaps total	$	210,000


	Maximum Potential Amount of Future Payments		Credit Rating	Maturity Date Range
Derivative Type	December 31, 2015
Credit default swaps
Corporate debt	$	120,000	A	June 2017 - December 2020
Sovereign debt		90,000	AA-A	June 2017 - March 2020

Credit default swaps total	$	210,000

The following tables present the components of the gain or loss on derivatives that qualify as cash flow hedges:


	Gain (Loss) Recognized in OCI on Derivative (Effective Portion)				Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Interest rate swaps	$	1,803	$	264	$	456	$	552

Total	$	1,803	$	264	$	456	$	552


	Net Realized Gains (Losses) Recognized in Income on Derivative (Ineffective Portion)				Net Realized Gains (Losses) Recognized in Income on Derivative (Ineffective Portion)
	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Interest rate swaps	$	1	$	2	$	3	$	3

Total	$	1	$	2	$	3	$	3


			Gain (Loss) Reclassified from AOCI into Income (Effective Portion)						Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
			Three Months Ended June 30,						Six Months Ended June 30,
	Location		2016			2015			2016			2015
Interest rate swaps		Net investment income	$	(513	)	$	(626	)	$	(316	)	$	174

Total			$	(513	)	$	(626	)	$	(316	)	$	174

All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

As of June 30, 2016, the amount of before-tax deferred net losses on derivatives recorded in AOCI that is expected to be reclassified to the Statements of Income during the next twelve months is $631. This expectation is based on the anticipated interest payments on the hedged investments in TIPS that will occur over the next twelve months, at which time the Company will recognize the deferred gains (losses) as an adjustment to interest income over the term of the investment cash flows.

The Company receives or pledges collateral related to these derivative transactions. The credit support agreement contains a fair value threshold of $1,000 over which collateral needs to be pledged by the Company or its counterparty. At June 30, 2016 and December 31, 2015, the Company received cash collateral from counterparties in the amount of $33,536 and $11,405, respectively.

In addition, in order to trade futures, the Company is required to post collateral to an exchange (sometimes referred to as margin). The fair value of collateral posted in relation to the futures margin was $6,168 and $4,136 at June 30, 2016 and December 31, 2015, respectively.

Offsetting of Financial Instruments

The Company has derivative instruments that are subject to master netting agreements. These agreements include provisions to setoff positions with the same counterparties in the event of default by one of the parties.

The following tables present the offsetting of derivative assets at June 30, 2016 and December 31, 2015:


	June 30, 2016
									Gross Amounts Not Offset in the Balance Sheet
Description	Gross Amounts of Recognized Assets		Gross Amounts of Recognized Financial Liabilities *Set Off* in the Balance Sheet		Derivative cash Collateral Held, Obligation to Return Cash		Net Amounts of Assets Presented in the Balance Sheet		Financial Instruments		Cash Collateral Received (excluding) Surplus Collateral)		Net Amount			Fair Value of Financial Instruments Received as Collateral *Not Set Off* in the Balance Sheet
Derivatives	$	25,776	$	8,380	$	16,273	$	1,123	$	1,123	$	—	$	(0	)	$	8,177

Total	$	25,776	$	8,380	$	16,273	$	1,123	$	1,123	$	—	$	(0	)	$	8,177


	December 31, 2015
									Gross Amounts Not Offset in the Balance Sheet
Description	Gross Amounts of Recognized Assets		Gross Amounts of Recognized Financial Liabilities *Set Off* in the Balance Sheet		Derivative cash Collateral Held, Obligation to Return Cash		Net Amounts of Assets Presented in the Balance Sheet		Financial Instruments		Cash Collateral Received (excluding) Surplus Collateral)		Net Amount			Fair Value of Financial Instruments Received as Collateral *Not Set Off* in the Balance Sheet
Derivatives	$	38,125	$	15,827	$	11,405	$	10,893	$	8,158	$	—	$	2,735		$	9,260

Total	$	38,125	$	15,827	$	11,405	$	10,893	$	8,158	$	—	$	2,735		$	9,260

The following tables present the offsetting of derivative liabilities at June 30, 2016 and December 31, 2015.


	June 30, 2016
									Gross Amounts Not Offset in the Balance Sheet
Description	Gross Amounts of Recognized Liabilities		Gross Amounts of Recognized Financial Assets *Set Off* in the Balance Sheet		Derivative cash Collateral Pledged, Right to Receive Cash		Net Amounts of Liabilities Presented in the Balance Sheet		Financial Instruments		Cash Collateral Pledged		Net Amount		Fair Value of Financial Instruments Pledged as Collateral *Not Set Off* in the Balance Sheet
Derivatives	$	10,850	$	8,380	$	0	$	2,470	$	521	$	-	$	1,949	$	1,417

Total	$	10,850	$	8,380	$	0	$	2,470	$	521	$	-	$	1,949	$	1,417


	December 31, 2015
									Gross Amounts Not Offset in the Balance Sheet
Description	Gross Amounts of Recognized Liabilities		Gross Amounts of Recognized Financial Assets Set Off in the Balance Sheet		Derivative cash Collateral Pledged, Right to Receive Cash		Net Amounts of Liabilities Presented in the Balance Sheet		Financial Instruments		Cash Collateral Pledged		Net Amount		Fair Value of Financial Instruments Pledged as Collateral *Not Set Off* in the Balance Sheet
Derivatives	$	28,902	$	15,827	$	0	$	13,075	$	10,847	$	-	$	2,228	$	16,440

Total	$	28,902	$	15,827	$	0	$	13,075	$	10,847	$	-	$	2,228	$	16,440

There were no other financial assets or financial liabilities at June 30, 2016 and December 31, 2015 that were subject to offsetting.

Net Investment Income

Net investment income by source for the three and six months ended June 30 was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
Net investment income	2016			2015			2016			2015
Fixed maturity AFS securities	$	16,863		$	17,863		$	34,230		$	35,924
Equity AFS securities		538			561			1,003			1,031
Limited partnerships		(90	)		429			(2,631	)		1,557
Mortgage loans on real estate		1,264			937			2,467			1,860
Policy loans on insurance contracts		8,382			8,808			16,991			17,610
Derivatives		1,857			929			3,769			1,830
Cash and cash equivalents		564			162			1,015			308
Other		106			(66	)		213			13

Gross investment income		29,484			29,623			57,057			60,133
Less investment expenses		(1,870	)		(1,207	)		(2,991	)		(2,190	)

Net investment income	$	27,614		$	28,416		$	54,066		$	57,943

Realized Investment Gains (Losses)

The Company considers fair value at the date of sale to be equal to proceeds received. Proceeds and gross realized investment gains (losses) from the sale of AFS securities for the three and six months ended June 30 were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Proceeds	$	97,888		$	26,696		$	199,431		$	92,215
Gross realized investment gains		1,064			1,057			4,943			2,952
Gross realized investment losses		(1	)		(403	)		(277	)		(2,151	)

Proceeds on AFS securities sold at a realized loss		16,830			10,993			24,745			27,695

Net realized investment gains (losses) for the three and six months ended June 30 were as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016			2015
Fixed maturity AFS securities	$	(481)	$	(1,387)		$	(754)		$	(1,240)
Equity AFS securities		-		175			207			175
Mortgages		12		4			3			7
Adjustment related to VOBA		526		62			467			55

Net realized investment gains	$	57	$	(1,146	)	$	(77	)	$	(1,003	)

OTTI

If management determines that a decline in the value of an AFS equity security is other-than-temporary, the cost basis is adjusted to estimated fair value and the decline in value is recorded as a net realized investment loss. For debt securities, the manner in which an OTTI is recorded depends on whether management intends to sell a security or it is more likely than not that it will be required to sell a security in an unrealized loss position before its anticipated recovery. If management intends to sell or more likely than not will be required to sell the debt security before recovery, the OTTI is recognized in earnings for the difference between amortized cost and fair value. If these criteria are not met, the OTTI is bifurcated into two pieces: a credit loss is recognized in earnings at an amount equal to the difference between the amortized cost of the debt security and the present value of the security’s anticipated cash flows, and a noncredit loss is recognized in OCI for any difference between the fair value and the net present value of the debt security at the impairment measurement date.

The following table sets forth the amount of credit loss impairments on fixed maturity securities held by the Company at the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts at June 30, 2016 and December 31, 2015:


	June 30, 2016			December 31, 2015
Balance at beginning of period	$	(935	)	$	(185	)
Additional credit loss impairments recognized in the current period on securities previously impaired through other comprehensive income		121			109
Accretion of credit loss impairments previously recognized		(502	)		(859	)

Balance at end of period	$	(1,316	)	$	(935	)

The components of OTTI reflected in the Statements of Income for the three and six months ended June 30 were as follows:


	Three Months Ended June 30, 2016								Six Months Ended June 30, 2016
	OTTI Losses on Securities			Net OTTI Losses Recognized in OCI		Net OTTI Losses Recognized in Income			OTTI Losses on Securities			Net OTTI Loss Recognized in OCI		Net OTTI Losses Recognized in Income
Gross OTTI losses	$	1,544		$	-	$	1,544		$	5,213		$	-	$	5,213
Value of business acquired amortization		(529	)		-		(529	)		(529	)		-		(529	)

Net OTTI losses	$	1,015		$	-	$	1,015		$	4,684		$	-	$	4,684


	Three Months Ended June 30, 2015								Six Months Ended June 30, 2015
	OTTI Losses on Securities			Net OTTI Losses Recognized in OCI		Net OTTI Losses Recognized in Income			OTTI Losses on Securities			Net OTTI Loss Recognized in OCI		Net OTTI Losses Recognized in Income
Gross OTTI losses	$	1,866		$	-	$	1,866		$	1,866		$	-	$	1,866

Net OTTI losses	$	1,866		$	-	$	1,866		$	1,866		$	-	$	1,866