Q02. Statement as of March 31, 2015 of the

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2 ASSETS Current Statement Net Admitted December 31 Nonadmitted Assets Prior Year Net Assets Assets (Cols. 1-2) Admitted Assets 1. Bonds ,388,081, ,388,081, ,336,783, Stocks: 2.1 Preferred stocks Common stocks ,583, ,132, ,450, ,173, Mortgage loans on real estate: 3.1 First liens ,298,944, ,298,944, ,224,813, Other than first liens Real estate: 4.1 Properties occupied by the company (less $...0 encumbrances) ,193, ,193, ,415, Properties held for the production of income (less $...0 encumbrances) ,592, ,592, ,607, Properties held for sale (less $...0 encumbrances) Cash ($...(1,303,194)), cash equivalents ($...2,076,392,230) and short-term investments ($...232,059,598) ,307,148, ,307,148, ,478, Contract loans (including $...0 premium notes) ,100,471, ,100,471, ,105,912, Derivatives ,789, ,789, ,295, Other invested assets ,884, ,518, ,365, ,862, Receivables for securities ,766, ,766, ,028, Securities lending reinvested collateral assets ,580, ,580, Aggregate write-ins for invested assets Subtotals, cash and invested assets (Lines 1 to 11) ,971,037, ,651, ,937,386, ,444,370, Title plants less $...0 charged off (for Title insurers only) Investment income due and accrued ,821, ,821, ,245, Premiums and considerations: 15.1 Uncollected premiums and agents' balances in the course of collection ,251, , ,130, ,007, Deferred premiums, agents' balances and installments booked but deferred and not yet due (including $...0 earned but unbilled premiums) ,757, ,757, ,015, Accrued retrospective premiums Reinsurance: 16.1 Amounts recoverable from reinsurers , , ,007, Funds held by or deposited with reinsured companies Other amounts receivable under reinsurance contracts ,211, ,211, ,564, Amounts receivable relating to uninsured plans Current federal and foreign income tax recoverable and interest thereon ,965, ,965, ,194, Net deferred tax asset ,770, ,806, ,964, ,678, Guaranty funds receivable or on deposit ,410, ,410, ,047, Electronic data processing equipment and software ,247, ,247, ,190, Furniture and equipment, including health care delivery assets ($...0) ,871, ,871, Net adjustment in assets and liabilities due to foreign exchange rates Receivables from parent, subsidiaries and affiliates ,187, ,172, ,014, ,214, Health care ($...0) and other amounts receivable Aggregate write-ins for other than invested assets ,128, ,659, ,468, ,362, Total assets excluding Separate Accounts, Segregated Accounts and Protected Cell Accounts (Lines 12 through 25) ,345,288, ,282, ,968,006, ,442,898, From Separate Accounts, Segregated Accounts and Protected Cell Accounts ,019,563, ,019,563, ,080,578, Total (Lines 26 and 27) ,364,852, ,282, ,987,570, ,523,476,934 DETAILS OF WRITE-INS Summary of remaining write-ins for Line 11 from overflow page Totals (Lines 1101 thru 1103 plus 1198) (Line 11 above) Cash value of company owned life insurance ,855, ,855, ,700, Goodwill ,476, ,476, ,333, Other receivables ,931, , ,786, ,320, Summary of remaining write-ins for Line 25 from overflow page ,865, ,515, ,350, ,008, Totals (Lines 2501 thru 2503 plus 2598) (Line 25 above) ,128, ,659, ,468, ,362,461 Q02

3 LIABILITIES, SURPLUS AND OTHER FUNDS 1 2 Current December 31 Statement Prior Year 1. Aggregate reserve for life contracts $...23,712,944,012 less $...0 included in Line 6.3 (including $...6,177,973,019 Modco Reserve) ,712,944, ,602,982, Aggregate reserve for accident and health contracts (including $...0 Modco Reserve) ,511, ,420, Liability for deposit-type contracts (including $...0 Modco Reserve) ,662, ,463, Contract claims: 4.1 Life ,138, ,676, Accident and health ,989, ,194, Policyholders' dividends $...0 and coupons $...0 due and unpaid Provision for policyholders' dividends and coupons payable in following calendar year - estimated amounts: 6.1 Dividends apportioned for payment (including $...0 Modco) ,190, ,377, Dividends not yet apportioned (including $...0 Modco) Coupons and similar benefits (including $...0 Modco) Amount provisionally held for deferred dividend policies not included in Line Premiums and annuity considerations for life and accident and health contracts received in advance less $...0 discount; including $...0 accident and health premiums ,368, ,893, Contract liabilities not included elsewhere: 9.1 Surrender values on canceled contracts Provision for experience rating refunds, including the liability of $...29,365,483 accident and health experience rating refunds of which $...0 is for medical loss ratio rebate per the Public Health Service Act ,525, ,034, Other amounts payable on reinsurance, including $...2,035,820 assumed and $...1,842,489 ceded ,878, ,091, Interest Maintenance Reserve ,813, ,016, Commissions to agents due or accrued - life and annuity contracts $...19,116,002, accident and health $...0 and deposit-type contract funds $ ,116, ,847, Commissions and expense allowances payable on reinsurance assumed General expenses due or accrued ,730, ,087, Transfers to Separate Accounts due or accrued (net) (including $...0 accrued for expense allowances recognized in reserves, net of reinsured allowances)......(1,383,010)...(1,401,387) 14. Taxes, licenses and fees due or accrued, excluding federal income taxes ,089, ,495, Current federal and foreign income taxes, including $...0 on realized capital gains (losses) Net deferred tax liability Unearned investment income ,792, ,106, Amounts withheld or retained by company as agent or trustee ,100, ,675, Amounts held for agents' account, including $...0 agents' credit balances Remittances and items not allocated ,379, ,377, Net adjustment in assets and liabilities due to foreign exchange rates Liability for benefits for employees and agents if not included above ,192, ,184, Borrowed money $...89,988,879 and interest thereon $ ,988, ,588, Dividends to stockholders declared and unpaid Miscellaneous liabilities: Asset valuation reserve ,067, ,407, Reinsurance in unauthorized and certified ($...0) companies , , Funds held under reinsurance treaties with unauthorized and certified ($...0) reinsurers Payable to parent, subsidiaries and affiliates ,278, ,724, Drafts outstanding Liability for amounts held under uninsured plans Funds held under coinsurance Derivatives ,341, ,180, Payable for securities ,841, ,812, Payable for securities lending ,580, Capital notes $...0 and interest thereon $ Aggregate write-ins for liabilities ,483,814, ,409, Total liabilities excluding Separate Accounts business (Lines 1 to 25) ,971,972, ,440,664, From Separate Accounts statement ,021,777, ,081,874, Total liabilities (Lines 26 and 27) ,993,749, ,522,539, Common capital stock ,032, ,032, Preferred capital stock Aggregate write-ins for other than special surplus funds Surplus notes ,852, ,845, Gross paid in and contributed surplus ,471, ,735, Aggregate write-ins for special surplus funds Unassigned funds (surplus)......(75,535,842)...(67,675,777) 36. Less treasury stock, at cost: shares common (value included in Line 29 $...0) shares preferred (value included in Line 30 $...0) Surplus (Total Lines ) (including $...(2,214,322) in Separate Accounts Statement) ,788, ,905, Totals of Lines 29, 30 and ,820, ,000,937, Totals of Lines 28 and 38 (Page 2, Line 28, Col. 3) ,987,570, ,523,476,934 DETAILS OF WRITE-INS Repurchase Agreements ,238,793, Other contract deposit funds ,195, ,806, Liability for pension and postretirement benefits ,492, ,492, Summary of remaining write-ins for Line 25 from overflow page ,332, ,109, Totals (Lines 2501 thru 2503 plus 2598) (Line 25 above) ,483,814, ,409, Summary of remaining write-ins for Line 31 from overflow page Totals (Lines 3101 thru 3103 plus 3198) (Line 31 above) Summary of remaining write-ins for Line 34 from overflow page Totals (Lines 3401 thru 3403 plus 3498) (Line 34 above) Q03

4 SUMMARY OF OPERATIONS Current Prior Prior Year Ended Year to Year to December Premiums and annuity considerations for life and accident and health contracts ,211,018, ,533,503, ,633,950, Considerations for supplementary contracts with life contingencies Net investment income ,404, ,529, ,206,997, Amortization of Interest Maintenance Reserve (IMR) ,817, ,420, ,029, Separate Accounts net gain from operations excluding unrealized gains or losses , , , Commissions and expense allowances on reinsurance ceded ,023, ,498, ,036, Reserve adjustments on reinsurance ceded......(46,931,027)...(34,619,426)...(240,247,648) 8. Miscellaneous Income: 8.1 Income from fees associated with investment management, administration and contract guarantees from Separate Accounts ,961, ,542, ,179, Charges and fees for deposit-type contracts Aggregate write-ins for miscellaneous income ,008, ,887, ,110, Totals (Lines 1 to 8.3) ,537,356, ,874,773, ,864,179, Death benefits ,657, ,638, ,909, Matured endowments (excluding guaranteed annual pure endowments) Annuity benefits ,763, ,530, ,164, Disability benefits and benefits under accident and health contracts ,571, ,604, ,866, Coupons, guaranteed annual pure endowments and similar benefits Surrender benefits and withdrawals for life contracts ,059,232, ,288,599, ,961,125, Group conversions Interest and adjustments on contract or deposit-type contract funds ,815, ,017, ,882, Payments on supplementary contracts with life contingencies , , ,828, Increase in aggregate reserves for life and accident and health contracts ,052, ,313, ,019,183, Totals (Lines 10 to 19) ,285,548, ,627,188, ,491,960, Commissions on premiums, annuity considerations and deposit-type contract funds (direct business only) ,044, ,506, ,994, Commissions and expense allowances on reinsurance assumed , , ,963, General insurance expenses ,762, ,137, ,199, Insurance taxes, licenses and fees, excluding federal income taxes ,326, ,202, ,071, Increase in loading on deferred and uncollected premiums ,601...(247,971)...1,753, Net transfers to or (from) Separate Accounts net of reinsurance ,173, ,037,898...(429,369,537) 27. Aggregate write-ins for deductions ,399, Totals (Lines 20 to 27) ,463,655, ,779,674, ,597,573, Net gain from operations before dividends to policyholders and federal income taxes (Line 9 minus Line 28) ,700, ,098, ,606, Dividends to policyholders ,574, ,349, ,443, Net gain from operations after dividends to policyholders and before federal income taxes (Line 29 minus Line 30) ,125, ,749, ,162, Federal and foreign income taxes incurred (excluding tax on capital gains)......(610,729)...23,908, ,037, Net gain from operations after dividends to policyholders and federal income taxes and before realized capital gains or (losses) (Line 31 minus Line 32) ,736, ,840, ,124, Net realized capital gains (losses) (excluding gains (losses) transferred to the IMR) less capital gains tax of $...(618,198) (excluding taxes of $...18,638,276 transferred to the IMR)......(1,148,084)...(1,904,697)...(6,033,888) 35. Net income (Line 33 plus Line 34) ,588, ,935, ,090,928 CAPITAL AND SURPLUS ACCOUNT 36. Capital and surplus, December 31, prior year ,000,937, ,200,609, ,200,609, Net income (Line 35) ,588, ,935, ,090, Change in net unrealized capital gains (losses) less capital gains tax of $...3,119, ,042, ,485, ,663, Change in net unrealized foreign exchange capital gain (loss) ,179...(34,254)...3, Change in net deferred income tax......(3,714,266)...11,886, ,358, Change in nonadmitted assets......(3,793,271)...4,072,011...(95,407,087) 42. Change in liability for reinsurance in unauthorized and certified companies......(86)...(190)...(23) 43. Change in reserve on account of change in valuation basis, (increase) or decrease Change in asset valuation reserve......(3,659,553)...(123,768)...2,788, Change in treasury stock Surplus (contributed to) withdrawn from Separate Accounts during period......(6,000)...16, , Other changes in surplus in Separate Accounts Statement......(970,642)...(220,142)...(1,846,653) 48. Change in surplus notes , , , Cumulative effect of changes in accounting principles Capital changes: 50.1 Paid in Transferred from surplus (Stock Dividend) Transferred to surplus Surplus adjustment: 51.1 Paid in , , ,676, Transferred to capital (Stock Dividend) Transferred from capital Change in surplus as a result of reinsurance Dividends to stockholders......(77,309,450)...(92,800,599)...(316,401,324) 53. Aggregate write-ins for gains and losses in surplus......(47,081) ,321, Net change in capital and surplus (Lines 37 through 53)......(7,117,192)...(22,389,543)...(199,671,642) 55. Capital and surplus as of statement date (Lines ) ,820, ,178,219, ,000,937,565 DETAILS OF WRITE-INS Other income ,375, ,385, ,903, Interest on intercompany loan , , ,207, Summary of remaining write-ins for Line 8.3 from overflow page Totals (Lines thru plus ) (Line 8.3 above) ,008, ,887, ,110, Change in provision for experience refunds ,399, Summary of remaining write-ins for Line 27 from overflow page Totals (Lines 2701 thru 2703 plus 2798) (Line 27 above) ,399, Change in pension and postretirement benefit liability, net of income taxes......(47,081) ,321, Summary of remaining write-ins for Line 53 from overflow page Totals (Lines 5301 thru 5303 plus 5398) (Line 53 above)......(47,081) ,321,853 Q04

5 CASH FROM OPERATIONS CASH FLOW Current Year Prior Year Prior Year Ended to To December Premiums collected net of reinsurance ,180,232, ,471,929, ,635,794, Net investment income ,918, ,705, ,130,204, Miscellaneous income ,416, ,309,409...(3,920,643) 4. Total (Lines 1 through 3) ,463,567, ,759,944, ,762,078, Benefit and loss related payments ,184,549, ,433,220, ,471,740, Net transfers to Separate Accounts, Segregated Accounts and Protected Cell Accounts ,155, ,020,769...(429,254,324) 7. Commissions, expenses paid and aggregate write-ins for deductions ,071, ,609, ,797, Dividends paid to policyholders ,761, ,431, ,863, Federal and foreign income taxes paid (recovered) net of $...18,638,276 tax on capital gains (losses) ,180,225...(74,713,731)...(47,492,433) 10. Total (Lines 5 through 9) ,428,718, ,506,568, ,571,653, Net cash from operations (Line 4 minus Line 10) ,848, ,376, ,190,424,361 CASH FROM INVESTMENTS 12. Proceeds from investments sold, matured or repaid: 12.1 Bonds ,165,382, ,874,576, ,173,224, Stocks , , ,670, Mortgage loans ,104, ,727, ,207, Real estate Other invested assets ,342, ,294, ,882, Net gains or (losses) on cash, cash equivalents and short-term investments Miscellaneous proceeds ,266,822, ,441,305, ,064, Total investment proceeds (Lines 12.1 to 12.7) ,487,815, ,366,381, ,587,049, Cost of investments acquired (long-term only): 13.1 Bonds ,206,087, ,068,623, ,897,662, Stocks , , , Mortgage loans ,235, ,435, ,430, Real estate , , ,020, Other invested assets , ,073, ,317, Miscellaneous applications ,738, ,818, Total investments acquired (Lines 13.1 to 13.6) ,339,545, ,174,092, ,504,222, Net increase or (decrease) in contract loans and premium notes......(5,440,495)...(3,112,622)...(56,433,520) 15. Net cash from investments (Line 12.8 minus Line 13.7 and Line 14) ,153,710, ,195,401,850...(860,738,943) 16. Cash provided (applied): CASH FROM FINANCING AND MISCELLANEOUS SOURCES 16.1 Surplus notes, capital notes , , , Capital and paid in surplus, less treasury stock , , ,676, Borrowed funds......(8,599,978)...(298,751)...(400,784) 16.4 Net deposits on deposit-type contracts and other insurance liabilities......(8,800,751)...(6,583,618)...(30,014,360) 16.5 Dividends to stockholders ,309, ,800, ,401, Other cash provided (applied) ,077, ,433,386...(18,850,180) 17. Net cash from financing and miscellaneous sources (Lines 16.1 through 16.4 minus Line 16.5 plus Line 16.6)......(7,889,931)...(55,856,824)...(362,962,738) RECONCILIATION OF CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS 18. Net change in cash, cash equivalents and short-term investments (Line 11 plus Line 15 plus Line 17) ,180,669, ,392,921,281...(33,277,320) 19. Cash, cash equivalents and short-term investments: 19.1 Beginning of year ,478, ,756, ,756, End of period (Line 18 plus Line 19.1) ,307,148, ,552,677, ,478,932 Note: Supplemental disclosures of cash flow information for non-cash transactions: Contingent consideration and other liabiliies assumed in other invested asset acquisition......(36,556,418) Share-based compensation expense......(461,137) Q05

6 EXHIBIT 1 DIRECT PREMIUMS AND DEPOSIT-TYPE CONTRACTS Current Year Prior Year Prior Year To To Ended December Industrial life Ordinary life insurance ,528, ,507, ,254,087, Ordinary individual annuities ,093, ,725, ,011, Credit life (group and individual) Group life insurance ,748, ,487, ,275, Group annuities ,770, ,179,463, ,136,329, A&H - group ,975, ,006, ,526, A&H - credit (group and individual) A&H - other Aggregate of all other lines of business Subtotal ,199,116, ,533,189, ,702,231, Deposit-type contracts ,014, ,907, ,505, Total ,202,130, ,538,097, ,726,736,430 DETAILS OF WRITE-INS Summary of remaining write-ins for Line 10 from overflow page Total (Lines 1001 thru 1003 plus 1098) (Line 10 above) Q06

7 NOTES TO FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies A. Accounting Practices The Company prepares its statutory financial statements in conformity with accounting practices prescribed or permitted by the Colorado Division of Insurance (the Division ). The Division requires that insurance companies domiciled in the State of Colorado prepare their statutory financial statements in accordance with the National Association of Insurance Commissioners Accounting Practices and Procedures Manual ( NAIC SAP ), subject to any deviations prescribed or permitted by the State of Colorado insurance commissioner. The only prescribed deviation that impacts the Company allows the Company to account for certain separate account products at book value instead of fair value. The Division has not permitted the Company to adopt any other accounting practices that have an impact on the Company s statutory financial statements as compared to NAIC SAP or the Division s prescribed accounting practices. There is no impact to either capital and surplus or net income as a result of the prescribed accounting practice. State of Domicile NET INCOME (1) state basis (Page 4, Line 35, Columns 1 & 3) Colorado 55,588, ,090,928 (2) State Prescribed Practices that increase/decrease NAIC SAP (3) State Permitted Practices that increase/decrease NAIC SAP (4) NAIC SAP (1 2 3 = 4) Colorado 55,588, ,090,928 SURPLUS (5) state basis (Page 3, line 38, Columns 1 & 2) Colorado 993,820, ,937,565 (6) State Prescribed Practices that increase/decrease NAIC SAP (7) State Permitted Practices that increase/decrease NAIC SAP (8) NAIC SAP (5 6 7 = 8) Colorado 993,820,373 1,000,937,565 Note 2 - Accounting Changes and Corrections of Errors No significant change. Note 3 - Business Combinations and Goodwill No significant change. Note 4 - Discontinued Operations No significant change. Note 5 Investments 5D Loan-backed Securities (1) Prepayment assumptions are based on the average of recent historical prepayments and are obtained from broker/dealer survey values or internal estimates. These assumptions are consistent with the current interest rate and economic environment. Significant changes in estimated cash flows from the original purchase assumptions are accounted for using the retrospective method. (2) The following table summarizes the Company s securities with a recognized other-than-temporary impairment during the period ended March 31, Q07

8 NOTES TO FINANCIAL STATEMENTS Amortized Cost Basis Before Other-Than- Other-Than- Temporary Impairment Recognized in Loss 2b Temporary Impairment 2a Interest Noninterest Fair Value 1 - (2a+2b) OTTI recognized 1st Quarter a. Intent to sell $ 1,312,522 $ - $ 449,542 $ 754,468 b. Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis $ - c. Total 1st Quarter $ 1,312,522 $ - $ 449,542 $ 754,468 OTTI recognized 2nd Quarter d. Intent to sell $ - $ - $ - $ - e. Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis $ - f. Total 2nd Quarter $ - $ - $ - $ - OTTI recognized 3rd Quarter g. Intent to sell $ - $ - $ - $ - h. Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis $ - i. Total 3rd Quarter $ - $ - $ - $ - OTTI recognized 4th Quarter j. Intent to sell $ - $ - $ - $ - k. Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis $ - l. Total 4th Quarter $ - $ - $ - $ - m. Annual Aggregate Total $ 1,312,522 $ - $ 449,542 $ 754,468 (3) The following table lists the loan-backed and structured securities currently held with a recognized other-than-temporary impairment to date, due to the present value of cash flows expected to be collected is less than the amortized cost basis of the securities: Book/Adjust ed Carrying Value Amortized Cost before Current Present Value of Projected Recognized Other-Than- Temporary Amortized Cost after Other-Than- Temporary Fair Value at Time of of Financial Statement where CUSIP Period OTTI Cash Flows Impairment Impairment OTTI Reported 76110WMF0 $ 1,312,522 $ 862,980 $ (449,542) $ 862,980 $ 754,468 3/31/2015 Total $ 1,312,522 $ 862,980 $ (449,542) $ 862,980 $ 754,468 (4) The following table summarizes unrealized investment losses at March 31, The Company considers these investments to be only temporarily impaired. a. The aggregate amount of unrealized losses: 1. Less than 12 Months $ 9,079, Months or Longer $ 12,075,799 b. The aggregate related fair value of securities with unrealized losses: 1. Less than 12 Months $ 1,916,159, Months or Longer $ 235,905,549 (5) The underlying collateral on the securities within the portfolio along with credit enhancement and/or guarantees is sufficient to expect full repayment of the principal. At March 31, 2015, the Company does not have the intent to sell the securities before the recovery of the cost of the securities and the Company has the intent and ability to hold the securities for a period of time sufficient to recover the amortized cost. Therefore, the Company does not consider these investments to be other-than-temporarily impaired. Q07.1

9 NOTES TO FINANCIAL STATEMENTS 5E Repurchase Agreements and/or Securities Lending Transactions (3) Collateral Received b. Fair value of the collateral and of the portion of the collateral that has been sold or repledged: Collateral received at March 31, 2015: Reverse repurchase agreements N/A Dollar repurchase agreements $2,253,640,024 Securities lending $157,580,960 Collateral received at December 31, 2014: Reverse repurchase agreements N/A Dollar repurchase agreements N/A Securities lending N/A Reinvested collateral at March 31, 2015: Reverse repurchase agreements N/A Dollar repurchase agreements $2,253,640,024 Securities lending $157,580,960 Reinvested collateral at December 31, 2014: Reverse repurchase agreements N/A Dollar repurchase agreements N/A Securities lending N/A Cash collateral related to the securities lending program and dollar repurchase agreement practices is primarily invested in U.S. Government or U.S. Government Agency securities. In addition, the securities lending agent indemnifies the Company against borrower risk, meaning that the lending agent agrees contractually to replace securities not returned due to a borrower default. The Company does not enter into these types of transactions for liquidity purposes, but rather for yield enhancement on its investment portfolio. 5(I) Working Capital Finance Transactions-NONE 5(J) Offsetting and Netting of Assets and Liabilities-NONE 5(K) Structured Notes-NONE Note 6 - Joint Ventures, Partnerships and Limited Liability Companies No significant change. Note 7 - Investment Income No significant change. Note 8 - Derivative Instruments No significant change. Note 9 - Income Taxes No significant change. Note 10 - Information Concerning Parent, Subsidiaries, Affiliates and Other Related Parties No significant change. Note 11 Debt - NONE Note 12 - Retirement Plans, Deferred Compensation, Postemployment Benefits and Compensated Absences and Other Postretirement Benefit Plans Net periodic cost (benefit) of the Post-Retirement Medical and Supplemental Executive Retirement plans included in general insurance expenses in the Summary of Operations for the periods ended March 31, 2015 and December 31, 2014 includes the following components: Q07.2

10 NOTES TO FINANCIAL STATEMENTS Supplemental Executive Post-Retirement Retirement Plan Medical Plan (4) Components of net periodic benefit cost a. Service cost $ 70,429 $ 586,176 $ 263,851 $ 984,783 b. Interest cost 530,591 2,528, , ,174 c. Expected return on plan assets d. Transition asset or obligation e. Gains and losses 165, ,999 (108,178) (249,978) f. Prior service cost or credit 233,178 4,844,009 (34,150) (73,442) g. Gain or loss recognized due to a settlement h. Total net periodic cost (benefit) $ 999,915 $ 8,240,235 $ 247,912 $ 1,235,537 Note 13 - Capital and Surplus, Shareholders Dividend Restrictions and Quasi-Reorganizations No significant change. Note 14 - Contingencies No significant change. Note 15 - Leases No significant change. Note 16 - Information About Financial Instruments With Off-Balance Sheet Risk and Financial Instruments With Concentrations of Credit Risk No significant change. Note 17 - Sale, Transfer and Servicing of Financial Assets and Extinguishments of Liabilities 17 (B) Transfer and Servicing of Financial Assets - NONE 17 (C) Wash Sales-NONE Note 18 - Gain or Loss to the Reporting Entity from Uninsured Plans and the Uninsured Portion of Partially Insured Plans No significant change. Note 19 - Direct Premium Written/Produced by Managing General Agents/Third Party Administrators No significant change. Note 20 - Fair Value 20. Fair Value Measurements A. Fair Value Disclosures (1) Fair Value Measurements at Reporting The following tables present information about the Company s financial assets and liabilities carried at fair value and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value: Q07.3

11 NOTES TO FINANCIAL STATEMENTS Fair Value Measurements at Reporting March 31, 2015 Total Assets: (Level 1) (Level 2) (Level 3) (All Levels) Bonds Industrial and miscellaneous $ - $ 754,468 $ 754,468 Derivatives Interest rate swaps - 10,527,453-10,527,453 Cross-currency swaps - 14,196,552-14,196,552 Interest rate swaptions - 243, ,638 Separate Account Assets 16,133,823,960 12,198,777,763 28,332,601,723 Total Assets: $ 16,133,823,960 $ 12,224,499,874 $ - $ 28,358,323,834 Liabilities: Derivatives Interest rate swaps $ - $ 3,320,971 $ - $ 3,320,971 Cross-currency swaps - 95,020,263-95,020,263 Separate Account Liabilities (1) 35, ,016, ,052,391 Total Liabilities: $ 35,880 $ 323,357,745 $ - $ 323,393,625 Fair Value Measurements at Reporting December 31, 2014 Total Assets: (Level 1) (Level 2) (Level 3) (All Levels) Bonds Industrial and miscellaneous $ - $ 367,399 $ 367,399 Derivatives Interest rate swaps - 6,245,887-6,245,887 Cross-currency swaps - 4,561,171-4,561,171 Interest rate swaptions - 271, ,360 Separate Account Assets 15,833,056,555 11,630,022,996 27,463,079,551 Total Assets: $ 15,833,056,555 $ 11,641,468,813 $ - $ 27,474,525,368 Liabilities: Derivatives Interest rate swaps $ - $ 1,844,219 $ - $ 1,844,219 Cross-currency swaps - 131,790,964 - $ 131,790,964 Separate Account Liabilities (1) 15, ,711, ,727,333 Total Liabilities: $ 15,706 $ 351,346,810 $ - $ 351,362,516 (1) Includes only separate account instruments which are carried at the fair value of the underlying invested assets owned by the separate accounts. (2) Fair Value Measurements in (Level 3) of the Fair Value Hierarchy The Company reported no Level 3 assets or liabilities at fair value at March 31, 2015 or December 31, (3) Policies for Determining When Transfers between Levels are Recognized Overall, transfers between levels are attributable to a change in the observability of inputs. Assets and liabilities are transferred to a lower level in the hierarchy when a significant input cannot be corroborated with market observable data. This may occur when market activity decreases and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred to a higher level in the hierarchy when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity including recent trades, a specific event, or one or more significant input(s) becoming observable. All transfers between levels are recognized at the beginning of the reporting period in which the transfer occurred. (4) Valuation Techniques and Inputs in Fair Value Measurements Certain assets and liabilities are recorded at fair value on the Company s Statutory Statements of Admitted Assets, Liabilities, Surplus and Other Funds. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company categorizes its assets and liabilities measured at fair value into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Company s assets and liabilities have been categorized based upon the following fair value hierarchy: Level 1 inputs, which are utilized for general and separate account assets and liabilities, utilize observable, quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Financial assets and liabilities utilizing Level 1 inputs include certain money market funds. Level 2 inputs utilize other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs, which are utilized for general and separate account Q07.4

12 NOTES TO FINANCIAL STATEMENTS assets and liabilities, include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. The fair values for some Level 2 securities were obtained from pricing services. The inputs used by the pricing services are reviewed at least quarterly or when the pricing vendor issues updates to its pricing methodology. For bond and separate account assets and liabilities, inputs include benchmark yields, trading activity, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, evaluated bids, offers and reference data including market research publications. Additional inputs utilized for assets and liabilities classified as Level 2 are: Asset-backed, residential mortgage-backed, commercial mortgage-backed securities and collateralized debt obligations new issue data, monthly payment information, collateral performance and third party real estate analysis. U.S. states and their subdivisions material event notices. Mortgage loans based on discounted cash flows. Cash equivalents, short-term investments, contract loans, collateral receivable and payable under securities lending agreements, dollar reverse repurchase agreements, receivable and payable for securities and commercial paper valued based on amortized cost. Real estate - the estimated fair value for real estate is based on the unadjusted annual appraised value which includes factors such as comparable property sales, property income analysis, and capitalization rates. Derivatives trading activity, swap curves, credit spreads, currency volatility, net present value of cash flows and news sources. Separate account assets and liabilities various index data and news sources, amortized cost (which approximates fair value), trading activity, swap curves, credit spreads, recovery rates, restructuring, net present value of cash flows and quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 inputs are unobservable and include situations where there is little, if any, market activity for the asset or liability. In general, the prices of Level 3 securities, which include both general and separate account assets and liabilities, were obtained from single broker quotes and internal pricing models. If the broker s inputs are largely unobservable, the valuation is classified as a Level 3. Broker quotes are validated through an internal analyst review process, which includes validation through known market conditions and other relevant data. Internal models are usually cash flow based utilizing characteristics of the underlying collateral of the security such as default rate and other relevant data. Inputs utilized for securities classified as Level 3 are as follows: Corporate debt securities single broker quotes which may be in an illiquid market or otherwise deemed unobservable. Asset-backed/residential mortgage backed securities - internal models utilizing asset-backed securities index spreads. Separate account assets - single broker quotes which may be in an illiquid market or otherwise deemed unobservable or net asset value per share of the underlying investments. Limited partnership interests determined by using the partnership financial statement reported capital account or an adjusted net asset value. Low-income housing tax credits - valued at amortized cost, which approximates fair value. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Changes in the value of separate account assets for realized and unrealized gains (losses) accrue directly to the policyholders and are not included in net income. The policies and procedures utilized to review, account for and report on the value and level of the Company s securities were determined and implemented by the Finance division. The Investments division is responsible for the processes related to security purchases and sales and provides valuation and leveling input to the Finance division when necessary. Both divisions within the Company have worked in conjunction to establish thorough pricing, review, approval, accounting and reporting policies and procedures around the securities valuation process. Internal pricing models may be used to value certain Level 3 securities. These models have been created by the Company based on specific characteristics of the portfolio, such as the high level of illiquidity, the low level of market making and trading activity and the collateralized nature of certain securities. These models are recalibrated monthly by adjusting the inputs based on current public security market conditions and how those conditions apply to the Company s portfolio. Internal model input assumptions may include: prepayment speeds, constant default rates and the Asset Backed Securities Index ( ABX Index ) spread adjusted by an Q07.5

13 NOTES TO FINANCIAL STATEMENTS internally calculated liquidity premium. The primary inputs into the internal pricing models are the constant default rate and the internally adjusted ABX Index spread. Additionally, a monthly comparison of the internally developed model prices to pricing vendor evaluations is performed and analyzed. The Company determined the use of internal models was more accurate for certain securities categorized as Level 3 primarily because the internally adjusted ABX Index spread is a better indication of fair value than spread assumptions used by external pricing models in illiquid markets. The internally adjusted ABX Index spread captures exposure to similar cash flows as the Company s portfolio in a liquid and actively traded market and includes additional spread assumptions for potential illiquidity of the underlying collateral. In some instances, securities are priced using external broker quotes. In most cases, when broker quotes are used as pricing inputs, more than one broker quote is obtained. External broker quotes are reviewed internally by comparing the quotes to similar securities in the public market and/or to vendor pricing, if available. Additionally, external broker quotes are compared to market reported trade activity to ascertain whether the price is reasonable, reflective of the current market prices and takes into account the characteristics of the Company s securities. B. Fair Value Reporting Under Other Accounting Pronouncements NONE C. Aggregate Fair Value for All Financial Instruments The following tables summarize the fair value hierarchy for all financial instruments: Fair Value Measurements at Reporting Type of financial instrument March 31, 2015 Not Practicable Aggregate Admitted (Carrying Assets: Fair Value Assets (Level 1) (Level 2) (Level 3) Value) Bonds $ 18,704,131,174 $ 17,388,081,644 $ - $ 18,655,326,886 $ 48,804,288 $ - Mortgage loans 3,539,481,314 3,298,944,389-3,539,481, Real Estate 138,896,400 40,786, ,896, Cash equivalents and short-term investments 2,308,453,072 2,308,451, ,440,580 2,090,012, Contract loans 4,100,471,937 4,100,471,937-4,100,471, Other long-term invested assets 407,353, ,578, ,383,310 49,970,020 - Securities lending reinvested collateral assets 157,580, ,580, ,580, Collateral under derivative counterparty collateral agreements 65,223,128 65,223,128 65,223, Receivable for securities 13,766,919 13,766,919-13,766, Derivatives 60,556,965 38,789,180 48,267 60,508, Assets from separate accounts 29,049,134,460 29,019,563,303 16,134,795,613 12,914,338, Total Assets: $ 58,545,049,659 $ 56,760,238,087 $ 16,418,507,588 $ 42,027,767,763 $ 98,774,308 $ - Liabilities: Deposit-type contracts $ 304,251,647 $ 272,662,993 $ - $ 304,251,647 $ - $ - Commercial paper 89,988,879 89,988,879-89,988, Payable under securities lending agreements 157,580, ,580, ,580, Collateral under derivative counterparty collateral agreements 7,780,000 7,780,000 7,780, Payable for securities 38,841,053 38,841,053-38,841, Derivatives 98,359,313 98,341,234 18,079 98,341, Dollar reverse repurchase agreements 2,238,793,314 2,238,793,312-2,238,793, Separate account liabilities 225,052, ,052,391 35, ,016,511 Total Liabilities: $ 3,160,647,557 $ 3,129,040,822 $ 7,833,959 $ 3,152,813,598 $ - $ - Fair Value Measurements at Reporting Type of financial instrument December 31, 2014 Not Practicable Aggregate Admitted (Carrying Assets: Fair Value Assets (Level 1) (Level 2) (Level 3) Value) Bonds $ 18,518,157,543 $ 17,336,783,602 $ - $ 18,467,021,217 $ 51,136,326 $ - Mortgage loans 3,419,618,705 3,224,813,155-3,419,618, Real Estate 133,396,400 42,023, ,396, Cash equivalents and short-term investments 141,121, ,121,582 99,105,511 42,016, Contract loans 4,105,912,432 4,105,912,432-4,105,912, Other invested assets 403,713, ,119, ,459,983 52,253,515 - Securities lending reinvested collateral assets Derivative collateral 106,901, ,901, ,901, Receivable for securities 8,028,498 8,028,498-8,028, Derivatives 33,946,207 17,295,108 64,787 33,881, Assets from separate accounts 28,101,281,303 28,080,578,710 15,833,192,365 12,268,088, Total Assets: $ 54,972,077,666 $ 53,394,577,212 $ 16,039,263,962 $ 38,829,423,864 $ 103,389,841 $ - Liabilities: Deposit-type contracts $ 308,765,440 $ 281,463,744 $ 308,765,440 Commercial paper 98,588,857 98,588,857-98,588, Collateral under derivative counterparty collateral agreements 791, , , Payable for securities 10,812,116 10,812,116-10,812, Derivatives instruments 134,875, ,180,235 12, ,863, Separate account liabilities 217,727, ,727,333 15, ,711, Total Liabilities: $ 771,560,761 $ 743,563,584 $ 819,072 $ 770,741,689 $ - $ - Bonds Q07.6

14 NOTES TO FINANCIAL STATEMENTS The fair values for bonds are based on quoted market prices from independent pricing services. However, in cases where quoted market prices are not readily available, such as for private bond investments, fair values are estimated. To determine estimated fair value for these instruments, the Company generally utilizes discounted cash flows calculated at current market rates on investments of similar quality and term. Fair value estimates are made at a specific point in time, based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit standing of the issuer or counterparty. Mortgage loans Mortgage loan fair value estimates are generally based on discounted cash flows. A discount rate matrix is incorporated whereby the discount rate used in valuing a specific mortgage generally corresponds to that mortgage s remaining term and credit quality. Management believes the discount rate used is comparable to the credit, interest rate, term, servicing costs and risks of loans similar to the portfolio loans that the Company would make today given its internal pricing strategy. Real estate The estimated fair value for real estate is based on the unadjusted annual appraised value which includes factors such as comparable property sales, property income analysis, and capitalization rates. Cash equivalents, short-term investments, collateral receivable and payable under securities lending agreements, receivable and payable for securities, commercial paper and dollar reverse repurchase agreements The amortized cost of cash equivalents, short-term investments, collateral receivable and payable under securities lending agreements, receivable and payable for securities, commercial paper and dollar reverse repurchase agreements is a reasonable estimate of fair value due to their short-term nature and the high credit quality of the issuers, counterparties and obligor. Contract loans The Company believes the fair value of contract loans approximates book value. Contract loans are funds provided to contract holders in return for a claim on the contract. The funds provided are limited to the cash surrender value of the underlying contract. The nature of contract loans is to have a negligible default risk as the loans are fully collateralized by the value of the contract. Contract loans do not have a stated maturity and the balances and accrued interest are repaid either by the contractholder or with proceeds from the contract. Due to the collateralized nature of contract loans and unpredictable timing of repayments, the Company believes the fair value of contract loans approximates carrying value. Other long-term invested assets The fair values of other long-term invested assets are based on the specific asset type. Other invested assets that are held as bonds, such as surplus notes, are primarily valued the same as bonds. For low-income housing tax credits amortized cost approximates fair value. Limited partnership interests represent the Company s minor ownership interests in pooled investment funds. These funds employ varying investment strategies that principally make private equity investments across diverse industries and geographical focuses. The estimated fair value was determined by using the partnership financial statement reported capital account or net asset value adjusted for other financial information or other relevant variables which may impact the exit value of the investments. Distributions by these investments are generated from investment gains, from operating income generated by the underlying investments of the funds and from liquidation of the underlying assets of the funds. It is estimated that the underlying assets of the funds will be liquidated over the next one to ten years. Collateral under derivative counterparty collateral agreements Included in other assets is cash collateral pledged to derivative counterparties. The carrying value of the collateral is a reasonable estimate of fair value. Derivatives instruments The estimated fair values of OTC derivatives, primarily consisting of cross-currency swaps, interest rate swaps and interest rate swaptions, are the estimated amount the Company would receive or pay to terminate the agreements at the end of each reporting period, taking into consideration current interest rates and other relevant factors. Separate account assets Separate account assets include investments in mutual funds, bonds and short-term securities. Mutual funds are recorded at net asset value, which approximates fair value, on a daily basis. The bonds and short-term investments are valued in the same manner, and using the same pricing sources and inputs as the bonds and short-term investments of the Company. Deposit-type contracts Fair values for liabilities under deposit-type insurance contracts are estimated using discounted liability calculations, adjusted to approximate the effect of current market interest rates for the assets supporting the liabilities. Q07.7