Note 3 - Fair Value of Financial Instruments

The Company is required under GAAP to disclose estimated fair values for certain financial and nonfinancial assets and liabilities. Fair values of the Company’s insurance contracts other than annuity contracts are not required to be disclosed. However, the estimated fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk through the matching of investment maturities with amounts due under insurance contracts.

Information regarding the three-level hierarchy presented below and the valuation methodologies utilized by the Company to estimate fair values at a point in time is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, specifically in “Note 3 — Fair Value of Financial Instruments”.

Financial Instruments Measured and Carried at Fair Value

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured and carried at fair value on a recurring basis. At March 31, 2016, these Level 3 invested assets comprised 2.6% of the Company’s total investment portfolio fair value.

					Fair Value Measurements at
	Carrying		Fair		Reporting Date Using
	Amount		Value		Level 1		Level 2		Level 3
March 31, 2016
Financial Assets
Investments
Fixed maturities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	495,200	$	495,200	$	-	$	493,001	$	2,199
Other, including
U.S. Treasury securities		540,120		540,120		13,863		526,257		-
Municipal bonds		1,727,328		1,727,328		-		1,680,835		46,493
Foreign government bonds		74,087		74,087		-		74,087		-
Corporate bonds		2,833,931		2,833,931		8,711		2,755,149		70,071
Other mortgage-backed securities		1,545,836		1,545,836		-		1,464,214		81,622
Total fixed maturities		7,216,502		7,216,502		22,574		6,993,543		200,385
Equity securities		104,044		104,044		90,321		13,717		6
Short-term investments		216,204		216,204		210,320		5,884		-
Other investments		14,640		14,640		-		14,640		-
Totals		7,551,390		7,551,390		323,215		7,027,784		200,391
Financial Liabilities
Investment contract and life policy reserves, embedded derivatives		23		23		-		23		-
Other policyholder funds, embedded derivatives		42,085		42,085		-		-		42,085

December 31, 2015
Financial Assets
Investments
Fixed maturities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	504,414	$	504,414	$	-	$	504,414	$	-
Other, including
U.S. Treasury securities		546,111		546,111		14,258		531,853		-
Municipal bonds		1,708,943		1,708,943		-		1,678,564		30,379
Foreign government bonds		73,617		73,617		-		73,617		-
Corporate bonds		2,779,415		2,779,415		10,195		2,701,645		67,575
Other mortgage-backed securities		1,478,840		1,478,840		-		1,403,374		75,466
Total fixed maturities		7,091,340		7,091,340		24,453		6,893,467		173,420
Equity securities		99,797		99,797		86,088		13,703		6
Short-term investments		174,152		174,152		169,764		4,388		-
Other investments		14,001		14,001		-		14,001		-
Totals		7,379,290		7,379,290		280,305		6,925,559		173,426
Financial Liabilities
Investment contract and life policy reserves, embedded derivatives		14		14		-		14		-
Other policyholder funds, embedded derivatives		39,021		39,021		-		-		39,021

The Company did not have any transfers between Levels 1 and 2 during the three months ended March 31, 2016. The following table presents reconciliations for the periods indicated for all Level 3 assets and liabilities measured at fair value on a recurring basis.

													Financial
	Financial Assets												Liabilities(1)
					Mortgage-		Total
	Municipal		Corporate		Backed		Fixed		Equity
	Bonds		Bonds		Securities(2)		Maturities		Securities		Total

Beginning balance, January 1, 2016	$	30,379	$	67,575	$	75,466	$	173,420	$	6	$	173,426	$	39,021
Transfers into Level 3 (3)		14,751		6,059		11,642		32,452		-		32,452		-
Transfers out of Level 3 (3)		-		-		-		-		-		-		-
Total gains or losses
Net realized gains (losses) included in net income related to financial assets		-		-		-		-		-		-		-
Net realized (gains) losses included in net income related to financial liabilities		-		-		-		-		-		-		674
Net unrealized gains (losses) included in other comprehensive income		1,484		388		(7)		1,865		-		1,865		-
Purchases		-		-		-		-		-		-		-
Issuances		-		-		-		-		-		-		3,491
Sales		-		-		-		-		-		-		-
Settlements		-		-		-		-		-		-		-
Paydowns, maturities and distributions		(121)		(3,951)		(3,280)		(7,352)		-		(7,352)		(1,101)
Ending balance, March 31, 2016	$	46,493	$	70,071	$	83,821	$	200,385	$	6	$	200,391	$	42,085

Beginning balance, January 1, 2015	$	13,628	$	74,717	$	82,949	$	171,294	$	6	$	171,300	$	20,049
Transfers into Level 3 (3)		-		1,895		461		2,356		-		2,356		-
Transfers out of Level 3 (3)		-		-		(9,664)		(9,664)		-		(9,664)		-
Total gains or losses
Net realized gains (losses) included in net income related to financial assets		-		-		-		-		-		-		-
Net realized (gains) losses included in net income related to financial liabilities		-		-		-		-		-		-		(439)
Net unrealized gains (losses) included in other comprehensive income		380		352		3		735		-		735		-
Purchases		-		-		-		-		-		-		-
Issuances		-		-		-		-		-		-		2,964
Sales		-		-		-		-		-		-		-
Settlements		-		-		-		-		-		-		-
Paydowns, maturities and distributions		(123)		(4,686)		(1,155)		(5,964)		-		(5,964)		(534)
Ending balance, March 31, 2015	$	13,885	$	72,278	$	72,594	$	158,757	$	6	$	158,763	$	22,040

(1)	Represents embedded derivatives, all related to the Company’s fixed indexed annuity (“FIA”) products, reported in Other Policyholder Funds in the Company’s Consolidated Balance Sheets.

(2)

Includes U.S. Government and federally sponsored agency obligations for mortgage-backed securities and other mortgage-backed securities.

(3)

Transfers into and out of Level 3 during the three months ended March 31, 2016 and 2015 were attributable to changes in the availability of observable market information for individual fixed maturity securities. The Company’s policy is to recognize transfers into and transfers out of the levels as having occurred at the end of the reporting period in which the transfers were determined.

At March 31, 2016 and 2015, there were no realized gains or losses included in earnings that were attributable to changes in the fair value of Level 3 assets still held. For the three months ended March 31, 2016 and 2015, realized gains/(losses) of $(674) and $439, respectively, were included in earnings that were attributable to the changes in the fair value of Level 3 liabilities (embedded derivatives) still held.

The valuation techniques and significant unobservable inputs used in the fair value measurement for financial assets classified as Level 3 are subject to the control processes as described in “Note 3 — Fair Value of Financial Instruments — Investments” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Generally, valuation techniques for fixed maturity securities include spread pricing, matrix pricing and discounted cash flow methodologies; include inputs such as quoted prices for identical or similar securities that are less liquid; and are based on lower levels of trading activity than securities classified as Level 2. The valuation techniques and significant unobservable inputs used in the fair value measurement for equity securities classified as Level 3 use similar valuation techniques and significant unobservable inputs as fixed maturities.

The sensitivity of the estimated fair values to changes in the significant unobservable inputs for fixed maturities and equity securities included in Level 3 generally relates to interest rate spreads, illiquidity premiums and default rates. Significant spread widening in isolation will adversely impact the overall valuation, while significant spread tightening will lead to substantial valuation increases. Significant increases (decreases) in illiquidity premiums in isolation will result in substantially lower (higher) valuations. Significant increases (decreases) in expected default rates in isolation will result in substantially lower (higher) valuations.

Financial Instruments Not Carried at Fair Value; Disclosure Required

The Company has various other financial assets and financial liabilities used in the normal course of business that are not carried at fair value, but for which fair value disclosure is required. The following table presents the carrying value, fair value and fair value hierarchy of these financial assets and financial liabilities.

					Fair Value Measurements at
	Carrying		Fair		Reporting Date Using
	Amount		Value		Level 1		Level 2		Level 3
March 31, 2016
Financial Assets
Investments
Other investments	$	148,686	$	153,150	$	-	$	-	$	153,150
Financial Liabilities
Investment contract and life policy reserves, fixed annuity contracts		4,128,205		4,004,390		-		-		4,004,390
Investment contract and life policy reserves, account values on life contracts		77,562		81,486		-		-		81,486
Other policyholder funds		651,834		651,834		-		575,256		76,578
Long-term debt		247,022		254,700		254,700		-		-

December 31, 2015
Financial Assets
Investments
Other investments	$	148,759	$	153,228	$	-	$	-	$	153,228
Financial Liabilities
Investment contract and life policy reserves, fixed annuity contracts		4,072,102		4,049,840		-		-		4,049,840
Investment contract and life policy reserves, account values on life contracts		77,429		81,360		-		-		81,360
Other policyholder funds		653,631		653,631		-		575,104		78,527
Long-term debt		249,346		252,700		252,700		-		-