PENSION AND OTHER POSTRETIREMENT PLANS

(A) Defined Benefit Pension Plans

The Company sponsors a qualified defined benefit pension plan covering substantially all employees. The plan provides benefits based on the participants' years of service and compensation. The Company makes annual contributions to the plan that complies with the minimum funding provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). On October 19, 2007, the Company’s Board of Directors approved an amendment to freeze the Pension Plan as of December 31, 2007. The freeze ceased future benefit accruals to all participants and closed the Plan to any new participants. In addition, all participants became immediately 100% vested in their accrued benefits as of that date. As participants are no longer earning credit for service, future qualified defined benefit plan expense is projected to be minimal. Fair values of plan assets and liabilities are measured as of December 31 for each year. A detail of plan disclosures is provided below.

Obligations and Funded Status



	December 31,
	2014			2013
	(In thousands)

Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	21,187		23,535
Service cost	168			190
Interest cost	958			873
Actuarial gain (loss)	2,357			(2,088	)
Benefits paid	(1,342		)	(1,323	)

Projected benefit obligations at end of year	23,328			21,187

Changes in plan assets:
Fair value of plan assets at beginning of year	18,908			16,813
Actual return on plan assets	1,747			2,967
Contributions	333			451
Benefits paid	(1,342		)	(1,323	)

Fair value of plan assets at end of year	19,646			18,908

Funded status at end of year	$	(3,682	)	(2,279	)

The service cost of $168,000 for 2014 represents plan expenses expected to be paid out of plan assets. Under the new and clarified rules of the Pension Protection Act, plan expenses paid from plan assets are to be included in the plan's service cost component.



	December 31,
	2014			2013
	(In thousands)

Amounts recognized in the Company's consolidated financial statements:
Assets	$	—		—
Liabilities	(3,682		)	(2,279	)

Net amount recognized	$	(3,682	)	(2,279	)

Amounts recognized in accumulated other comprehensive income:
Net loss	$	8,017		6,551
Prior service cost	3			7

Net amount recognized	$	8,020		6,558

The accumulated benefit obligation was $23.3 million and $21.2 million at December 31, 2014 and 2013, respectively.

Components of Net Periodic Benefit Cost



	Years Ended December 31,
	2014			2013		2012
	(In thousands)

Components of net periodic benefit costs:
Interest cost	$	958		873		928
Service cost	168			190		174
Expected return on plan assets	(1,278		)	(1,134	)	(1,070	)
Amortization of prior service cost	4			4		4
Amortization of net loss	422			812		786

Net periodic benefit cost	274			745		822

Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net loss (gain)	1,888			(3,921	)
Amortization of prior service cost	(4		)	(4	)
Amortization of net loss (gain)	(422		)	(812	)

Total recognized in other comprehensive income	1,462			(4,737	)

Total recognized in net periodic benefit cost and other comprehensive income	$	1,736		(3,992	)

The estimated net loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost over 2015, based on the average expected future service of plan participants, is $509,300. The estimated prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over 2015 will be minimal.

Assumptions



	December 31,
	2014		2013

Weighted-average assumptions used to determine benefit obligations:
Discount rate	3.75	%	4.60	%
Rate of compensation increase	n/a		n/a



	December 31,
	2014		2013		2012

Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	4.25	%	3.75	%	4.25	%
Expected long-term return on plan assets	7.00	%	7.00	%	7.00	%
Rate of compensation increase	n/a		n/a		n/a

The assumed long-term rate of return on plan assets is generally set at the rate expected to be earned based on the long-term investment policy of the plan and the various classes of invested funds, based on the input of the plan’s investment advisors and consulting actuary and the plan’s historic rate of return. As of December 31, 2014, the plan’s average 10-year and inception-to-date returns were 6.14% and 7.28%, respectively.

In setting the annual discount rate assumption, the Pension Committee reviews the current 10 year and 30 year corporate bond yields, the current spread to treasuries and their relative change during the past twelve months. It also considers the present value of the projected benefit payment stream based on the Citigroup Pension Discount Curve. Based on the facts and circumstances currently existing, the Pension Committee elected to use the Citigroup Pension Discount Curve.

In setting the annual portfolio rate of return assumption, the Pension Committee considers the Plan’s actual long-term performance, the portfolio’s current allocation and individual investment holdings, the Committee’s and the investment manager’s expectations for future long term investment strategy and expected performance, and the advice of consultants knowledgeable about overall market expectations and benchmark rates of return used by comparable companies.

Plan Assets

As discussed in Note 14, Fair Values of Financial Instruments, the Company adopted GAAP guidance which defines fair value and establishes a framework for measuring fair value of financial assets. Using this guidance, the Company has categorized its pension plan assets into a three level hierarchy, based on the priority of inputs to the valuation process. The fair value hierarchy classifications are reviewed annually. Reclassification of certain financial assets and liabilities may result based on changes in the observability of valuation attributes. The following table sets forth the Company’s pension plan assets within the fair value hierarchy as of December 31, 2014.



	December 31, 2014
	Total		Level 1	Level 2	Level 3
	(In thousands)

Cash	$	678	678	—	—
Equity securities
Domestic	12,390		12,390	—	—
International	274		274	—	—
Debt securities
U.S. government agencies	—		—	—	—
Corporate bonds	6,304		—	6,304	—

Total	$	19,646	13,342	6,304	—

Investment securities. Fair values for investments in debt and equity securities are based on quoted market prices, where available. For securities not actively traded, fair values are estimated using values obtained from various independent pricing services. In the cases where prices are unavailable from these sources, values are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments.

Cash and cash equivalents. The carrying amounts reported in the balance sheet for these instruments approximate their fair values.

The plan’s weighted-average asset allocations by asset category are as follows:



	December 31,
	2014	2013	2012

Asset Category:
Equity securities	64%	70%	60%
Debt securities	32%	29%	35%
Cash and cash equivalents	4%	1%	5%

Total	100%	100%	100%

The Company has established and maintains an investment policy statement for the assets held in the plan's trust. The investment strategies are of a long-term nature and are designed to meet the following objectives:



Ÿ	ensure that funds are available to pay benefits as they become due
Ÿ	set forth an investment structure detailing permitted assets and expected allocation ranges among classes
Ÿ	ensure that plan assets are managed in accordance with ERISA

The Pension Plan is a highly diversified portfolio; the 96% of the pension assets not invested in cash or U.S. Government agencies are allocated among 225 different investments, with no single credit representing more than 2.1% of the fair value of the portfolio. The investment policy statement sets forth the following acceptable ranges for each asset's class.



	Acceptable Range

Asset Category:
Equity securities	55-70%
Debt securities	30-40%
Cash and cash equivalents	0-15%

Deviations from these ranges are permitted if such deviations are consistent with the duty of prudence under ERISA. Investments in natural resources, venture capital, precious metals, futures and options, real estate, and other vehicles that do not have readily available objective valuations are not permitted. Short sales, use of margin or leverage, and investment in commodities and art objects are also prohibited.

The investment policy statement is reviewed annually to ensure that the objectives are met considering any changes in benefit plan design, market conditions, or other material considerations.

Contributions

The Company expects to contribute $0 to the plan during 2015 although additional amounts may be contributed. The plan’s funding status is reviewed periodically throughout the year by the Company’s Pension Plan Committee. The Company intends to contribute at least the minimum amounts necessary for tax compliance and to maintain an Adjusted Funding Target Attainment Percentage (AFTAP) of over 80% to meet the Pension Protection Act Plan’s threshold.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):



2015	$	1,339
2016	1,347
2017	1,433
2018	1,402
2019	1,386
2019-2023	6,627

The Company also sponsors three nonqualified defined benefit pension plans. The first plan covers certain senior officers and provides benefits based on the participants' years of service and compensation. The primary pension obligations and administrative responsibilities of the plan are maintained by a pension administration firm, which is a subsidiary of American National Insurance Company ("ANICO"), a related party. ANICO has guaranteed the payment of pension obligations under the plan. However, the Company has a contingent liability with respect to the plan should these entities be unable to meet their obligations under the existing agreements. Also, the Company has a contingent liability with respect to the plan in the event that a plan participant continues employment with the Company beyond age seventy, the aggregate average annual participant salary increases exceed 10% per year, or any additional employees become eligible to participate in the plan. If any of these conditions are met, the Company would be responsible for any additional pension obligations resulting from these items. Amendments were made to this plan to allow an additional employee to participate and to change the benefit formula for the Chairman of the Company. As previously mentioned, these additional obligations are a liability to the Company. Effective December 31, 2004, this plan was frozen with respect to the continued accrual of benefits of the Chairman and the President of the Company in order to comply with law changes under the American Jobs Creation Act of 2004 ("Act").

Effective July 1, 2005, the Company established a second nonqualified defined benefit plan for the benefit of the Chairman of the Company. This plan is intended to provide for post-2004 benefit accruals that mirror and supplement the pre-2005 benefit accruals under the previously discussed nonqualified plan, while complying with the requirements of the Act.

Effective November 1, 2005, the Company established a third nonqualified defined benefit plan for the benefit of the President of the Company. This plan is intended to provide for post-2004 benefit accruals that supplement the pre-2005 benefit accruals under the first nonqualified plan as previously discussed, while complying with the requirements of the Act.

A detail of plan disclosures related to the amendments of the original plan and the additional two plans is provided below:

Obligations and Funded Status



	December 31,
	2014			2013
	(In thousands)

Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	19,870		22,525
Service cost	294			177
Interest cost	1,003			801
Actuarial (gain) loss	4,960			(1,652	)
Benefits paid	(1,982		)	(1,981	)

Projected benefit obligations at end of year	24,145			19,870

Change in plan assets:
Fair value of plan assets at beginning of year	—			—
Contributions	1,982			1,981
Benefits paid	(1,982		)	(1,981	)

Fair value of plan assets at end of year	—			—

Funded status at end of year	$	(24,145	)	(19,870	)



	December 31,
	2014			2013
	(In thousands)

Amounts recognized in the Company's consolidated financial statements:
Assets	$	—		—
Liabilities	(24,145		)	(19,870	)

Net amount recognized	$	(24,145	)	(19,870	)

Amounts recognized in accumulated other comprehensive income:
Net loss	$	11,959		8,293
Prior service cost	759			818

Net amount recognized	$	12,718		9,111

The accumulated benefit obligation was $17.7 million and $17.6 million at December 31, 2014 and 2013, respectively.

Components of Net Periodic Benefit Cost



	Years Ended December 31,
	2014			2013		2012
	(In thousands)

Components of net periodic benefit cost:
Service cost	$	294		177		168
Interest cost	1,003			801		912
Amortization of prior service cost	59			59		59
Amortization of net loss	1,294			1,173		1,142

Net periodic benefit cost	2,650			2,210		2,281

Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net (gain) loss	4,960			(1,652	)
Amortization of prior service cost	(59		)	(59	)
Amortization of net (gain) loss	(1,294		)	(1,173	)

Total recognized in other comprehensive income	3,607			(2,884	)

Total recognized in net periodic benefit cost and other comprehensive income	$	6,257		(674	)

The estimated net loss to be amortized from accumulated other comprehensive income into net periodic benefit cost over 2015, based on the average expected future service of plan participants, is $1,487,000. The estimated prior service cost to be amortized from accumulated other comprehensive income into net periodic benefit cost over 2015 will be $59,000.

Assumptions



	December 31,
	2014		2013

Weighted-average assumptions used to determine benefit obligations:
Discount rate	3.75	%	4.60	%
Rate of compensation increase	4.00	%	4.00	%



	December 31,
	2014		2013		2012

Weighted-average assumptions used to determine net periodic benefit costs:
Discount rate	4.60	%	3.75	%	4.25	%
Expected long-term return on plan assets	n/a		n/a		n/a
Rate of compensation increase	4.00	%	4.00	%	4.00	%

The plan is unfunded and therefore no assumption has been made related to the expected long-term return on plan assets.

Plan Assets

The plan is unfunded and therefore had no assets at December 31, 2014 or 2013.

Contributions

The Company expects to contribute approximately $2.0 million to the plan in 2015.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):



2015	$	1,982
2016	1,982
2017	1,982
2018	1,982
2019	1,982
2019-2023	9,908

(B) Defined Contribution Pension Plans

In addition to the defined benefit pension plans, the Company sponsors a qualified 401(k) plan for substantially all employees and a nonqualified deferred compensation plan primarily for senior officers. The Company made annual contributions to the 401(k) plan in 2014, 2013 and 2012, of up to three percent of each employee's compensation based on the employee's personal level of salary deferrals to the plan. All Company contributions are subject to a vesting schedule based on the employee's years of service. For the years ended December 31, 2014, 2013 and 2012, Company contributions totaled $491,000, $410,000 and $323,000, respectively.

The nonqualified deferred compensation plan was established to allow eligible employees to defer the payment of a percentage of their compensation and to provide for additional Company contributions. Company contributions are subject to a vesting schedule based on the employee's years of service. For the years ended December 31, 2014, 2013 and 2012, Company contributions totaled $99,000, $140,000, and $66,000, respectively.

The Company sponsors a health care plan that was amended in 2004 to provide postretirement benefits to certain fully-vested individuals. The plan is unfunded. The Company uses a December 31 measurement date for the plan. A detail of plan disclosures related to the plan is provided below:

Obligations and Funded Status



	December 31,
	2014			2013
	(In thousands)

Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	2,725		3,482
Interest cost	111			117
Actuarial loss (gain)	107			(827	)
Benefits paid	(53		)	(47	)

Projected benefit obligations at end of year	2,890			2,725

Changes in plan assets:
Fair value of plan assets at beginning of year	—			—
Contributions	53			47
Benefits paid	(53		)	(47	)

Fair value of plan assets at end of year	—			—

Funded status at end of year	$	(2,890	)	(2,725	)



	December 31,
	2014			2013
	(In thousands)

Amounts recognized in the Company's consolidated financial statements:
Assets	$	—		—
Liabilities	(2,890		)	(2,725	)

Net amount recognized	$	(2,890	)	(2,725	)

Amounts recognized in accumulated other comprehensive income:
Net loss	$	128		18
Prior service cost	464			567

Net amount recognized	$	592		585

Components of Net Periodic Benefit Cost



	Years Ended December 31,
	2014			2013		2012
	(In thousands)

Components of net periodic benefit cost:
Interest cost	$	111		117		129
Amortization of prior service cost	103			103		103
Amortization of net loss	(4		)	33		41

Net periodic benefit cost	210			253		273

Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net (gain) loss	107			(827	)
Amortization of prior service cost	(103		)	(103	)
Amortization of net (gain) loss	4			(33	)

Total recognized in other comprehensive income	8			(963	)

Total recognized in net periodic benefit cost and other comprehensive income	$	218		(710	)

The estimated net loss to be amortized from accumulated other comprehensive income into net periodic benefit cost over 2015, based on the average expected future service of plan participants, is $0. The estimated prior service cost to be amortized from accumulated other comprehensive income into net periodic benefit cost over 2015 will be $103,000.

Assumptions



	December 31,
	2014		2013

Weighted-average assumptions used to determine benefit obligations:
Discount rate	3.75	%	4.60	%
Expected long-term return on plan assets	n/a		n/a

For measurement purposes, a 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2015 and future years.

Assumed health care trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects for the years ended December 31:



	December 31, 2014				December 31, 2013
	1% Point Increase		1% Point Decrease		1% Point Increase	1% Point Decrease
	(In thousands)
Effect on total of service and interest cost components	$	22	(17	)	25	(20	)

Effect on postretirement benefit obligation	$	595	(466	)	575	(447	)

Plan Assets

The plans are unfunded and therefore had no assets at December 31, 2014 and 2013.

Contributions

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):



2015	$	70
2016	76
2017	82
2018	89
2019	96
2019-2023	607