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, 2016, 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, 2017, Level 3 invested assets comprised 3.1% 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, 2017
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Mortgage-backed securities	$	609,807	$	609,807	$	-	$	605,863	$	3,944
Other, including
U.S. Treasury securities		531,308		531,308		13,619		517,689		-
Municipal bonds		1,777,427		1,777,427		-		1,723,965		53,462
Foreign government bonds		99,686		99,686		-		99,686		-
Corporate bonds		2,837,173		2,837,173		14,173		2,740,505		82,495
Other mortgage-backed securities		1,655,349		1,655,349		-		1,546,499		108,850
Total fixed maturity securities		7,510,750		7,510,750		27,792		7,234,207		248,751
Equity securities		156,975		156,975		102,573		54,396		6
Short-term investments		81,064		81,064		79,859		1,205		-
Other investments		21,432		21,432		-		21,432		-
Totals	$	7,770,221	$	7,770,221	$	210,224	$	7,311,240	$	248,757
Financial Liabilities
Investment contract and life policy
reserves, embedded derivatives	$	236	$	236	$	-	$	236	$	-
Other policyholder funds,
embedded derivatives		64,261		64,261		-		-		64,261

December 31, 2016
Financial Assets
Investments
Fixed maturity securities
U.S. Government and federally
sponsored agency obligations:
Mortgage-backed securities	$	614,891	$	614,891	$	-	$	611,476	$	3,415
Other, including
U.S. Treasury securities		467,143		467,143		13,631		453,512		-
Municipal bonds		1,769,397		1,769,397		-		1,722,900		46,497
Foreign government bonds		98,669		98,669		-		98,669		-
Corporate bonds		2,810,221		2,810,221		13,532		2,736,498		60,191
Other mortgage-backed securities		1,696,387		1,696,387		-		1,595,143		101,244
Total fixed maturity securities		7,456,708		7,456,708		27,163		7,218,198		211,347
Equity securities		141,649		141,649		98,632		43,011		6
Short-term investments		44,918		44,918		44,167		-		751
Other investments		20,194		20,194		-		20,194		-
Totals	$	7,663,469	$	7,663,469	$	169,962	$	7,281,403	$	212,104
Financial Liabilities
Investment contract and life policy
reserves, embedded derivatives	$	158	$	158	$	-	$	158	$	-
Other policyholder funds,
embedded derivatives		59,393		59,393		-		-		59,393

During the three months ended March 31, 2017, an equity security was transferred into Level 1 from Level 2 as a result of increased liquidity in the market and a sustained increase in the market activity for this asset. 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)
	Municipal Bonds				Corporate Bonds				Other Mortgage- Backed Securities (2)				Total Fixed Maturity Securities				Equity Securities			Short-term Investments				Total

Beginning balance, January 1, 2017		$	46,497			$	60,191			$	104,659			$	211,347			$	6		$	751			$	212,104			$	59,393
Transfers into Level 3 (3)			5,214				29,918				15,039				50,171				-			-				50,171				-
Transfers out of Level 3 (3)			-				(6,110	)			-				(6,110	)			-			(751	)			(6,861	)			-
Total gains or losses
Net realized investment gains
(losses) included in net
income related to
financial assets			-				-				-				-				-			-				-				-
Net realized (gains) losses
included in net income
related to financial liabilities			-				-				-				-				-			-				-				2,308
Net unrealized investment gains
(losses) included in other
comprehensive income			1,871				96				(771	)			1,196				-			-				1,196				-
Purchases			-				-				-				-				-			-				-				-
Issuances			-				-				-				-				-			-				-				3,389
Sales			-				-				-				-				-			-				-				-
Settlements			-				-				-				-				-			-				-				-
Paydowns, maturities
and distributions			(120	)			(1,600	)			(6,133	)			(7,853	)			-			-				(7,853	)			(829	)
Ending balance, March 31, 2017		$	53,462			$	82,495			$	112,794			$	248,751			$	6		$	-			$	248,757			$	64,261

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 investment 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 investment 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

(1)

Represents embedded derivatives, all related to the Company’s 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, 2017 and 2016 were attributable to changes in the availability of observable market information for individual fixed maturity securities and short-term investments. 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, 2017 and 2016, there were no net realized investment 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, 2017 and 2016, net realized losses of $2,308 and $674, 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, 2016. 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 those used for fixed maturity securities.

The sensitivity of the estimated fair values to changes in the significant unobservable inputs for fixed maturity 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, 2017
Financial Assets
Investments
Other investments		$	151,537		$	156,089		$	-		$	-		$	156,089
Financial Liabilities
Investment contract and life policy
reserves, fixed annuity contracts			4,408,288			4,317,991			-			-			4,317,991
Investment contract and life policy
reserves, account values on life contracts			80,484			85,945			-			-			85,945
Other policyholder funds			647,134			647,134			-			575,342			71,792
Long-term debt			247,273			259,698			259,698			-			-

December 31, 2016
Financial Assets
Investments
Other investments		$	151,965		$	156,536		$	-		$	-		$	156,536
Financial Liabilities
Investment contract and life policy
reserves, fixed annuity contracts			4,360,456			4,280,528			-			-			4,280,528
Investment contract and life policy
reserves, account values on life contracts			79,591			85,066			-			-			85,066
Other policyholder funds			649,557			649,557			-			575,253			74,304
Long-term debt			247,209			248,191			248,191			-			-