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Investments
 12 Months Ended
Dec. 31, 2022
Investments Debt And Equity Securities [Abstract]  
Investments

(4) Investments

AFS Securities. The period-end cost or amortized cost, gross unrealized gains and losses, and fair value of AFS fixed-maturity securities were as follows:

 

 

 

December 31, 2022

 

 

 

Amortized cost

 

 

Gross unrealized gains

 

 

Gross unrealized losses

 

 

Fair value

 

 

 

(In thousands)

 

Securities available-for-sale, carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

31,217

 

 

$

18

 

 

$

(767

)

 

$

30,468

 

Foreign government

 

 

163,725

 

 

 

780

 

 

 

(11,590

)

 

 

152,915

 

States and political subdivisions

 

 

142,189

 

 

 

112

 

 

 

(20,056

)

 

 

122,245

 

Corporates

 

 

1,665,962

 

 

 

2,439

 

 

 

(171,552

)

 

 

1,496,849

 

Residential mortgage-backed securities

 

 

473,309

 

 

 

370

 

 

 

(71,949

)

 

 

401,730

 

Commercial mortgage-backed securities

 

 

139,306

 

 

 

3

 

 

 

(16,342

)

 

 

122,967

 

Other asset-backed securities

 

 

185,707

 

 

 

108

 

 

 

(17,533

)

 

 

168,282

 

Total fixed-maturity securities

 

$

2,801,415

 

 

$

3,830

 

 

$

(309,789

)

 

$

2,495,456

 

Short-term investments

 

 

69,393

 

 

 

20

 

 

 

(7

)

 

 

69,406

 

Total fixed-maturity and short-term investments

 

$

2,870,808

 

 

$

3,850

 

 

$

(309,796

)

 

$

2,564,862

 

 

 

 

December 31, 2021

 

 

 

Amortized cost

 

 

Gross unrealized gains

 

 

Gross unrealized losses

 

 

Fair value

 

 

 

(In thousands)

 

Securities available-for-sale, carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

32,292

 

 

$

187

 

 

$

(79

)

 

$

32,400

 

Foreign government

 

 

147,288

 

 

 

6,283

 

 

 

(595

)

 

 

152,976

 

States and political subdivisions

 

 

147,455

 

 

 

6,326

 

 

 

(254

)

 

 

153,527

 

Corporates

 

 

1,649,334

 

 

 

72,418

 

 

 

(8,068

)

 

 

1,713,684

 

Residential mortgage-backed securities

 

 

373,753

 

 

 

5,108

 

 

 

(3,230

)

 

 

375,631

 

Commercial mortgage-backed securities

 

 

142,631

 

 

 

3,314

 

 

 

(420

)

 

 

145,525

 

Other asset-backed securities

 

 

128,635

 

 

 

1,409

 

 

 

(1,220

)

 

 

128,824

 

Total fixed-maturity securities

 

$

2,621,388

 

 

$

95,045

 

 

$

(13,866

)

 

$

2,702,567

 

Short-term investments

 

 

85,246

 

 

 

1

 

 

 

(4

)

 

 

85,243

 

Total fixed-maturity and short-term investments

 

$

2,706,634

 

 

$

95,046

 

 

$

(13,870

)

 

$

2,787,810

 

 

All of our AFS mortgage- and asset-backed securities represent beneficial interests in variable interest entities (“VIEs”). We are not the primary beneficiary of these VIEs because we do not have the power to direct the activities that most significantly impact the entities’ economic performance. The maximum exposure to loss as a result of our involvement in these VIEs equals the carrying value of the securities.

The scheduled maturity distribution of the AFS fixed-maturity securities portfolio as of December 31, 2022 was as follows:

 

 

 

Amortized cost

 

 

Fair value

 

 

 

(In thousands)

 

Due in one year or less

 

$

165,117

 

 

 

163,831

 

Due after one year through five years

 

 

783,376

 

 

 

740,167

 

Due after five years through 10 years

 

 

763,273

 

 

 

658,194

 

Due after 10 years

 

 

291,327

 

 

 

240,285

 

 

 

 

2,003,093

 

 

 

1,802,477

 

Mortgage- and asset-backed securities

 

 

798,322

 

 

 

692,979

 

Total AFS fixed-maturity securities

 

$

2,801,415

 

 

$

2,495,456

 

 

Expected maturities may differ from scheduled contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.

 

Trading Securities. The costs and fair values of the fixed-maturity securities classified as trading securities were as follows:

 

 

 

December 31, 2022

 

 

December 31, 2021

 

 

 

Cost

 

 

Fair value

 

 

Cost

 

 

Fair value

 

 

 

(In thousands)

 

Fixed-maturity securities

 

$

4,229

 

 

$

3,698

 

 

$

24,769

 

 

$

24,355

 

 

Held-to-maturity Security. Concurrent with the execution of the Vidalia Re Coinsurance Agreement, Vidalia Re entered into a Surplus Note Purchase Agreement (the “Surplus Note Purchase Agreement”) with Hannover Life Reassurance Company of America and certain of its affiliates (collectively, “Hannover Re”) and a newly formed limited liability company (the “LLC”) owned by a third- party service provider. Under the Surplus Note Purchase Agreement, Vidalia Re issued a surplus note (the “Surplus Note”) to the LLC in exchange for a credit enhanced note from the LLC with an equal principal amount (the “LLC Note”). The principal amount of both the LLC Note and the Surplus Note will fluctuate over time to coincide with the amount of reserves contractually supported under the Vidalia Re Coinsurance Agreement. Both the LLC Note and the Surplus Note mature on December 31, 2030 and bear interest at an annual interest rate of 4.50%. The LLC Note is guaranteed by Hannover Re through a credit enhancement feature in exchange for a fee, which is reflected in interest expense on our consolidated statements of income.

The LLC is a VIE as its owner does not have an equity investment at risk that is sufficient to permit the LLC to finance its activities without Vidalia Re or Hannover Re. The Parent Company, Primerica Life, and Vidalia Re share the power to direct the activities of the LLC with Hannover Re, but do not have the obligation to absorb losses or the right to receive any residual returns related to the LLC’s primary risks or sources of variability. Through the credit enhancement feature, Hannover Re is the ultimate risk taker in this transaction and bears the obligation to absorb the LLC’s losses in the event of a Surplus Note default in exchange for the fee. Accordingly, the Company is not the primary beneficiary of the LLC and does not consolidate the LLC within its consolidated financial statements.

The LLC Note is classified as a held-to-maturity debt security in the Company’s invested asset portfolio as we have the positive intent and ability to hold the security until maturity. As of December 31, 2022, the LLC Note had an estimated unrealized holding loss of $104.7 million based on its amortized cost and estimated fair value. The estimated fair value of the LLC Note is expected to be at least equal to the estimated fair value of the offsetting Surplus Note. See Note 5 (Fair Value of Financial Instruments) for information on the fair value of our financial instruments and see Note 10 (Debt) for more information on the Surplus Note.

As of December 31, 2022, no credit losses have been recognized on the LLC Note held-to-maturity security.

Investments on Deposit with Governmental Authorities. As required by law, we have investments on deposit with governmental authorities and banks for the protection of policyholders. The fair values of investments on deposit were $7.1 million and $7.6 million as of December 31, 2022 and 2021, respectively.

Securities Lending Transactions. We participate in securities lending transactions with broker-dealers and other financial institutions to increase investment income with minimal risk. We require minimum collateral on securities loaned equal to 102% of the fair value of the loaned securities. We accept collateral in the form of securities, which we are not able to sell or encumber, and to the extent the collateral declines in value below 100%, we require additional collateral from the borrower. Any securities collateral received is not reflected on our consolidated balance sheets. We also accept collateral in the form of cash, all of which we reinvest. For loans involving unrestricted cash collateral, the collateral is reported as an asset with a corresponding liability representing our obligation to return the collateral. We continue to carry the loaned securities as invested assets on our consolidated balance sheets during the terms of the loans, and we do not report them as sales. Cash collateral received and reinvested was $100.9 million and $94.5 million as of December 31, 2022 and 2021, respectively.

Investment Income. The components of net investment income were as follows:

 

 

 

Year ended December 31,

 

 

 

 

2022

 

 

2021

 

 

2020

 

 

 

 

(In thousands)

Fixed-maturity securities (available-for-sale)

 

$

90,975

 

 

$

80,362

 

 

$

82,805

 

 

Fixed-maturity security (held-to-maturity)

 

 

63,922

 

 

 

62,207

 

 

 

57,473

 

 

Equity securities

 

 

1,509

 

 

 

1,632

 

 

 

1,751

 

 

Policy loans and other invested assets

 

 

1,046

 

 

 

1,019

 

 

 

1,244

 

 

Cash, cash equivalent and short-term investments

 

 

5,943

 

 

 

456

 

 

 

1,202

 

 

Total return on deposit asset underlying 10% coinsurance
  agreement(1)

 

 

(65

)

 

 

1,875

 

 

 

4,253

 

 

Gross investment income

 

 

163,330

 

 

 

147,551

 

 

 

148,728

 

 

Investment expenses

 

 

(6,343

)

 

 

(4,756

)

 

 

(7,441

)

 

Investment income net of investment expenses

 

 

156,987

 

 

 

142,795

 

 

 

141,287

 

 

Interest expense on surplus note

 

 

(63,922

)

 

 

(62,207

)

 

 

(57,473

)

 

Net investment income

 

$

93,065

 

 

$

80,588

 

 

$

83,814

 

 

 

(1)
Includes $(3.8) million, $(2.5) million, and $2.0 million of net gains (losses) recognized for the change in fair value of the deposit asset underlying the 10% coinsurance agreement for the years ended December 31, 2022, 2021, and 2020, respectively.

The components of investment gains (losses), as well as details on gross realized investment gains (losses) and other investment gains (losses) were as follows:

 

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Realized investment gains (losses):

 

 

 

 

 

 

 

 

 

Gross gains from sales of available-for-sale fixed maturity securities

 

$

2,036

 

 

$

7,060

 

 

$

2,595

 

Gross gains from sales of equity securities

 

 

-

 

 

 

-

 

 

 

12

 

Gross losses from sales of available-for-sale fixed maturity securities

 

 

(592

)

 

 

(2,395

)

 

 

(955

)

Gross losses from sales of equity securities

 

 

-

 

 

 

-

 

 

 

(293

)

Net realized investment gains (losses):

 

 

1,444

 

 

 

4,665

 

 

 

1,359

 

Other investment gains (losses):

 

 

 

 

 

 

 

 

 

Credit losses impairment of available-for-sale securities

 

 

(57

)

 

 

(816

)

 

 

(4,254

)

Market gains (losses) recognized in net income during the period on equity securities

 

 

(2,375

)

 

 

2,362

 

 

 

(2,154

)

Gains (losses) from bifurcated options

 

 

-

 

 

 

(57

)

 

 

57

 

Gains (losses) on trading securities

 

 

(7

)

 

 

(282

)

 

 

(4

)

Other investment gains (losses):

 

 

(2,439

)

 

 

1,207

 

 

 

(6,355

)

Investment gains (losses)

 

$

(995

)

 

$

5,872

 

 

$

(4,996

)

 

The proceeds from sales or other redemptions of available-for-sale securities were as follows:

 

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Proceeds from sales or other redemptions

 

$

496,898

 

 

$

676,153

 

 

$

496,907

 

 

 

Accrued Interest. Accrued interest is recorded in accordance with the original interest schedule of the underlying security. In the event of default, the Company’s policy is to no longer accrue interest on these securities and to write off any remaining accrued interest. As a result, the Company has made the policy election to not record an allowance for credit losses on accrued interest.

 

Credit Losses for Available-for-sale Fixed-maturity Securities. The following tables summarizes all AFS securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of December 31, 2022, aggregated by major security type and by length of time such securities have continuously been in an unrealized loss position:

 

 

 

December 31, 2022

 

 

 

Less than 12 months

12 months or longer

 

 

 

Fair value

 

 

Unrealized losses

 

 

Fair value

 

 

Unrealized losses

 

 

 

(Dollars in thousands)

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

4,927

 

 

$

(204

)

 

$

25,209

 

 

$

(563

)

Foreign government

 

 

97,094

 

 

 

(4,430

)

 

 

38,085

 

 

 

(7,160

)

States and political subdivisions

 

 

71,131

 

 

 

(10,666

)

 

 

44,324

 

 

 

(9,390

)

Corporates

 

 

974,931

 

 

 

(69,726

)

 

 

452,541

 

 

 

(101,826

)

Residential mortgage-backed securities

 

 

187,158

 

 

 

(22,171

)

 

 

201,595

 

 

 

(49,778

)

Commercial mortgage-backed securities

 

 

65,165

 

 

 

(5,069

)

 

 

56,799

 

 

 

(11,273

)

Other asset-backed securities

 

 

81,907

 

 

 

(5,807

)

 

 

72,977

 

 

 

(11,726

)

Total fixed-maturity securities

 

 

1,482,313

 

 

 

(118,073

)

 

 

891,530

 

 

 

(191,716

)

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

 

28,379

 

 

 

(5

)

 

 

-

 

 

 

-

 

Foreign government

 

 

1,744

 

 

 

(2

)

 

 

-

 

 

 

-

 

Total Short Term Bonds

 

 

30,123

 

 

 

(7

)

 

 

-

 

 

 

-

 

Total fixed-maturity and Short Term securities

 

$

1,512,436

 

 

$

(118,080

)

 

$

891,530

 

 

$

(191,716

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

Less than 12 months

12 months or longer

 

 

 

Fair value

 

 

Unrealized losses

 

 

Fair value

 

 

Unrealized losses

 

 

 

(Dollars in thousands)

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

24,928

 

 

$

(45

)

 

$

1,557

 

 

$

(34

)

Foreign government

 

 

18,894

 

 

 

(384

)

 

 

3,335

 

 

 

(211

)

States and political subdivisions

 

 

15,909

 

 

 

(254

)

 

 

-

 

 

 

-

 

Corporates

 

 

341,963

 

 

 

(5,035

)

 

 

59,414

 

 

 

(3,033

)

Residential mortgage-backed securities

 

 

234,911

 

 

 

(3,131

)

 

 

2,707

 

 

 

(99

)

Commercial mortgage-backed securities

 

 

47,220

 

 

 

(419

)

 

 

117

 

 

 

(1

)

Other asset-backed securities

 

 

80,509

 

 

 

(1,037

)

 

 

3,779

 

 

 

(183

)

Total fixed-maturity securities

 

$

764,334

 

 

$

(10,305

)

 

$

70,909

 

 

$

(3,561

)

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

 

34,967

 

 

*

 

 

 

-

 

 

 

-

 

Foreign government

 

 

4,995

 

 

*

 

 

 

-

 

 

 

-

 

States and political subdivisions

 

 

11,394

 

 

 

(1

)

 

 

-

 

 

 

-

 

Corporates

 

 

23,891

 

 

 

(3

)

 

 

-

 

 

 

-

 

Total Short Term Bonds

 

 

75,247

 

 

 

(4

)

 

 

-

 

 

 

-

 

Total fixed-maturity and Short Term securities

 

$

839,581

 

 

$

(10,309

)

 

$

70,909

 

 

$

(3,561

)

* Less than $1 thousand

The amortized cost of AFS securities with a cost basis in excess of their fair values were $2,713.8 million and $924.4 million as of December 31, 2022 and 2021, respectively.

As of December 31, 2022, we did not recognize credit losses in the consolidated statements of income on available-for-sale securities with unrealized losses that were due to interest rate sensitivity and changes in credit spreads. We believe that fluctuations caused by movement in interest rates and credit spreads generally have little bearing on the recoverability of our investments. For those investments that remain in an unrealized loss position we have the ability to hold these investments until maturity or a market price recovery, and we have no present intention to dispose of them.

 

For the years ended December 31, 2022, 2021, and 2020, we recorded less than $0.1 million, $0.8 million, and $4.3 million respectively, for credit (gains) losses in the consolidated statements of income on available-for-sales securities. We recognized credit losses on securities due to: (i) our intent to sell them; (ii) adverse credit events indicating that we will not receive the security’s contractual cash flows when contractually due, such as news of an impending filing for bankruptcy; (iii) analyses of the issuer’s most recent financial statements or other information indicating that significant liquidity deficiencies, significant losses and large declines in capitalization exist; and (iv) analyses of rating agency information for issuances with severe ratings downgrades indicating a significant increase in the possibility of default.

 

The rollforward of the allowance for credit losses on available-for-sale securities was as follows:

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Allowance for credit losses, beginning of period

 

$

816

 

 

$

-

 

 

$

-

 

Additions to the allowance for credit losses on securities for which credit losses were not previously recorded

 

 

-

 

 

 

821

 

 

 

525

 

Additional increases (or decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period

 

 

(81

)

 

 

(5

)

 

 

(51

)

Write-offs charged against the allowance, if any

 

 

(735

)

 

 

-

 

 

 

(474

)

Allowance for credit losses, end of period

 

$

-

 

 

$

816

 

 

$

-

 

 

Derivatives. We have a deferred loss related to closed forward contracts, which were settled several years ago, that were used to mitigate our exposure to foreign currency exchange rates that resulted from the net investment in our Canadian operations. The amount of deferred loss included in accumulated other comprehensive income (loss) was $26.4 million as of December 31, 2022 and 2021. These deferred losses will not be recognized until such time as we sell or substantially liquidate our Canadian operations, although we have no such intention.