FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2018

Schedule of Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of September 30, 2018:



	Measurement Category	Level 1		Level 2		Level 3		Total
		(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	4	$	—	$	3,406,661	$	—	$	3,406,661
Commercial mortgage-backed securities	4	—		2,214,911		19,467		2,234,378
Other asset-backed securities	4	—		951,874		502,261		1,454,135
U.S. government-related securities	4	946,679		634,300		—		1,580,979
State, municipalities, and political subdivisions	4	—		3,558,073		—		3,558,073
Other government-related securities	4	—		527,646		—		527,646
Corporate securities	4	—		36,231,923		628,284		36,860,207
Redeemable preferred stock	4	69,550		17,589		—		87,139
Total fixed maturity securities - available-for-sale		1,016,229		47,542,977		1,150,012		49,709,218
Fixed maturity securities - trading
Residential mortgage-backed securities	3	—		254,037		—		254,037
Commercial mortgage-backed securities	3	—		135,403		—		135,403
Other asset-backed securities	3	—		83,758		28,012		111,770
U.S. government-related securities	3	26,859		31,222		—		58,081
State, municipalities, and political subdivisions	3	—		296,618		—		296,618
Other government-related securities	3	—		43,030		—		43,030
Corporate securities	3	—		1,564,429		5,223		1,569,652
Redeemable preferred stock	3	3,165		—		—		3,165
Total fixed maturity securities - trading		30,024		2,408,497		33,235		2,471,756
Total fixed maturity securities		1,046,253		49,951,474		1,183,247		52,180,974
Equity securities	3	559,750		—		63,451		623,201
Other long-term investments⁽¹⁾	3 & 4	52,728		402,312		180,578		635,618
Short-term investments	3	269,266		97,320		—		366,586
Total investments		1,927,997		50,451,106		1,427,276		53,806,379
Cash	3	161,173		—		—		161,173
Assets related to separate accounts	3
Variable annuity	3	13,555,469		—		—		13,555,469
Variable universal life	3	1,077,842		—		—		1,077,842
Total assets measured at fair value on a recurring basis		$	16,722,481	$	50,451,106	$	1,427,276	$	68,600,863
Liabilities:
Annuity account balances⁽²⁾	3	$	—	$	—	$	78,463	$	78,463
Other liabilities⁽¹⁾	3 & 4	8,243		333,156		460,373		801,772
Total liabilities measured at fair value on a recurring basis		$	8,243	$	333,156	$	538,836	$	880,235

(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
(3) Fair Value through Net Income
(4) Fair Value through Other Comprehensive Income

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2017:



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	2,318,493	$	—	$	2,318,493
Commercial mortgage-backed securities	—		1,860,488		—		1,860,488
Other asset-backed securities	—		745,184		504,365		1,249,549
U.S. government-related securities	958,775		264,477		—		1,223,252
State, municipalities, and political subdivisions	—		1,741,645		—		1,741,645
Other government-related securities	—		285,233		—		285,233
Corporate securities	—		28,910,645		626,901		29,537,546
Redeemable preferred stock	72,471		18,620		—		91,091
Total fixed maturity securities - available-for-sale	1,031,246		36,144,785		1,131,266		38,307,297
Fixed maturity securities - trading
Residential mortgage-backed securities	—		259,694		—		259,694
Commercial mortgage-backed securities	—		146,804		—		146,804
Other asset-backed securities	—		102,875		35,222		138,097
U.S. government-related securities	21,183		6,051		—		27,234
State, municipalities, and political subdivisions	—		326,925		—		326,925
Other government-related securities	—		63,925		—		63,925
Corporate securities	—		1,692,741		5,442		1,698,183
Redeemable preferred stock	3,327		—		—		3,327
Total fixed maturity securities - trading	24,510		2,599,015		40,664		2,664,189
Total fixed maturity securities	1,055,756		38,743,800		1,171,930		40,971,486
Equity securities	649,981		—		65,517		715,498
Other long-term investments⁽¹⁾	51,102		417,969		160,466		629,537
Short-term investments	394,394		132,750		—		527,144
Total investments	2,151,233		39,294,519		1,397,913		42,843,665
Cash	178,855		—		—		178,855
Assets related to separate accounts
Variable annuity	13,956,071		—		—		13,956,071
Variable universal life	1,035,202		—		—		1,035,202
Total assets measured at fair value on a recurring basis	$	17,321,361	$	39,294,519	$	1,397,913	$	58,013,793
Liabilities:
Annuity account balances⁽²⁾	$	—	$	—	$	83,472	$	83,472
Other liabilities⁽¹⁾	5,755		302,656		597,562		905,973
Total liabilities measured at fair value on a recurring basis	$	5,755	$	302,656	$	681,034	$	989,445

(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

Schedule of Valuation Method for Material Financial Instruments Included in Level 3, as Well as the Unobservable Inputs Used in the Valuation of Those Financial Instruments

The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:



	Fair Value As of September 30, 2018		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	502,020	Liquidation	Liquidation value	$90 - $97 ($94.92)
			Discounted cash flow	Liquidity premium	0.0% - 1.40% (0.62%)
				Paydown rate	11.09% - 13.15% (12.38%)
Corporate securities	621,392		Discounted cash flow	Spread over treasury	0.90% - 4.23% (1.51%)
Embedded derivatives - GLWB⁽²⁾	$	40,048	Actuarial cash flow model	Mortality	87% to 100% of Ruark 2015 ALB Table
				Lapse	Ruark Predictive Model
				Utilization	99%. 10% of policies have a one-time over-utilization of 400%
				Nonperformance risk	0.13% - 0.88%
Liabilities:⁽¹⁾
Embedded derivative - FIA	256,912		Actuarial cash flow model	Expenses	$145 per policy
				Withdrawal rate	1.5% prior to age 70, 100% of the RMD for ages 70+
				Mortality	1994 MGDB table with company experience
				Lapse	1.0% - 30.0%, depending on duration/surrender charge period
				Nonperformance risk	0.13% - 0.88%
Embedded derivative - IUL	95,739		Actuarial cash flow model	Mortality	37% - 577% of 2015
					VBT Primary Tables
				Lapse	0.5% - 0.10%, depending on
					duration/distribution channel
					and smoking class
				Nonperformance risk	0.13% - 0.88%

(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net asset.

The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:



	Fair Value As of December 31, 2017		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	504,228	Liquidation	Liquidation value	$90 - $97 ($94.91)
			Discounted cash flow	Liquidity premium	0.06% - 1.17% (0.75%)
				Paydown Rate	11.31% - 11.97% (11.54%)
Corporate securities	617,770		Discounted cash flow	Spread over treasury	0.31% - 4.50% (1.06%)
Liabilities:⁽¹⁾
Embedded derivatives - GLWB⁽²⁾	$	15,554	Actuarial cash flow model	Mortality	91.1% to 106.6% of Ruark 2015 ALB Table
				Lapse	1.0% - 30.0%, depending on product/duration/funded status of guarantee
				Utilization	99%. 10% of policies have a one-time over-utilization of 400%
				Nonperformance risk	0.11% - 0.79%
Embedded derivative - FIA	218,676		Actuarial cash flow model	Expenses	$146 per policy
				Withdrawal rate	1.5% prior to age 70, 100% of the RMD for ages 70+
				Mortality	1994 MGDB table with company experience
				Lapse	1.0% - 30.0%, depending on duration/surrender charge period
				Nonperformance risk	0.11% - 0.79%
Embedded derivative - IUL	80,212		Actuarial cash flow model	Mortality	34% - 152% of 2015 VBT Primary Tables
				Lapse	0.5% - 10.0%, depending on duration/distribution channel and smoking class
				Nonperformance risk	0.11% - 0.79%

(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.

Schedule of Reconciliation of the Beginning and Ending Balances for Fair Value Measurements, for Which the Company Has Used Significant Unobservable Inputs (Level 3)

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the nine months ended September 30, 2017, for which the Company has used significant unobservable inputs (Level 3):



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	83	$	—		$	—		$	11,862	$	(3	)	$	—	$	—	$	(11,944	)	$	(1	)	$	—	$	—
Other asset-backed securities	562,604		—		5,212		—			(7,374		)	100		(2,135		)	—		—		(6,643		)	1,385			553,149		—
Corporate securities	664,046		—		26,099		—			(2,764		)	85,822		(135,192		)	—		—		(10,353		)	(3,105		)	624,553		—
Total fixed maturity securities - available-for-sale	1,226,653		—		31,394		—			(10,138		)	97,784		(137,330		)	—		—		(28,940		)	(1,721		)	1,177,702		—
Fixed maturity securities - trading
Other asset-backed securities	84,563		3,679		—		(1,154		)	—			—		(52,516		)	—		—		—			918			35,490		3,397
Corporate securities	5,492		101		—		—			—			—		—			—		—		—			(69		)	5,524		101
Total fixed maturity securities - trading	90,055		3,780		—		(1,154		)	—			—		(52,516		)	—		—		—			849			41,014		3,498
Total fixed maturity securities	1,316,708		3,780		31,394		(1,154		)	(10,138		)	97,784		(189,846		)	—		—		(28,940		)	(872		)	1,218,716		3,498
Equity securities	65,786		1		—		—			—			—		(274		)	—		—		3			—			65,516		2
Other long-term investments⁽¹⁾	115,516		62,467		—		(28,249		)	—			—		—			—		—		—			—			149,734		34,218
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	1,498,010		66,248		31,394		(29,403		)	(10,138		)	97,784		(190,120		)	—		—		(28,937		)	(872		)	1,433,966		37,718
Total assets measured at fair value on a recurring basis	$	1,498,010	$	66,248	$	31,394	$	(29,403	)	$	(10,138	)	$	97,784	$	(190,120	)	$	—	$	—	$	(28,937	)	$	(872	)	$	1,433,966	$	37,718
Liabilities:
Annuity account balances⁽²⁾	$	87,616	$	—	$	—	$	(2,973	)	$	—		$	—	$	—		$	402	$	5,963	$	—		$	—		$	85,028	$	—
Other liabilities⁽¹⁾	405,803		21,982		—		(177,475		)	—			—		—			—		—		—			—			561,296		(155,493		)
Total liabilities measured at fair value on a recurring basis	$	493,419	$	21,982	$	—	$	(180,448	)	$	—		$	—	$	—		$	402	$	5,963	$	—		$	—		$	646,324	$	(155,493	)

(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended September 30, 2017, for which the Company has used significant unobservable inputs (Level 3):



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	11,862	$	—	$	83	$	—		$	—		$	—	$	—		$	—	$	—	$	(11,944	)	$	(1	)	$	—	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	552,963		—		1,682		—			(2,285		)	100		(109		)	—		—		—			798			553,149		—
Corporate securities	662,654		—		8,301		—			(2,222		)	5,071		(42,242		)	—		—		(5,486		)	(1,523		)	624,553		—
Total fixed maturity securities - available-for-sale	1,227,479		—		10,066		—			(4,507		)	5,171		(42,351		)	—		—		(17,430		)	(726		)	1,177,702		—
Fixed maturity securities - trading
Other asset-backed securities	54,923		—		—		(353		)	—			—		(19,188		)	—		—		—			108			35,490		(209		)
Corporate securities	5,520		27		—		—			—			—		—			—		—		—			(23		)	5,524		27
Total fixed maturity securities - trading	60,443		27		—		(353		)	—			—		(19,188		)	—		—		—			85			41,014		(182		)
Total fixed maturity securities	1,287,922		27		10,066		(353		)	(4,507		)	5,171		(61,539		)	—		—		(17,430		)	(641		)	1,218,716		(182		)
Equity securities	65,686		—		—		—			—			—		(170		)	—		—		—			—			65,516		—
Other long-term investments⁽¹⁾	93,245		56,491		—		(2		)	—			—		—			—		—		—			—			149,734		56,489
Total investments	1,446,853		56,518		10,066		(355		)	(4,507		)	5,171		(61,709		)	—		—		(17,430		)	(641		)	1,433,966		56,307
Total assets measured at fair value on a recurring basis	$	1,446,853	$	56,518	$	10,066	$	(355	)	$	(4,507	)	$	5,171	$	(61,709	)	$	—	$	—	$	(17,430	)	$	(641	)	$	1,433,966	$	56,307
Liabilities:
Annuity account balances⁽²⁾	$	86,094	$	—	$	—	$	(977	)	$	—		$	—	$	—		$	9	$	2,052	$	—		$	—		$	85,028	$	—
Other liabilities⁽¹⁾	532,763		6,702		—		(35,235		)	—			—		—			—		—		—			—			561,296		(28,533		)
Total liabilities measured at fair value on a recurring basis	$	618,857	$	6,702	$	—	$	(36,212	)	$	—		$	—	$	—		$	9	$	2,052	$	—		$	—		$	646,324	$	(28,533	)

(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended September 30, 2018, for which the Company has used significant unobservable inputs (Level 3):



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	21,780	$	—	$	—	$	—		$	(538	)	$	—	$	—		$	—	$	—	$	(21,281	)	$	39		$	—	$	—
Commercial mortgage-backed securities	47,227		—		—		—			(1,212		)	—		(151		)	—		—		(26,372		)	(25		)	19,467		—
Other asset-backed securities	515,701		—		17		(62		)	(14,802		)	—		(24		)	—		—		—			1,431			502,261		—
Corporate securities	644,811		—		1,422		—			(4,044		)	15,000		(47,935		)	—		—		19,903			(873		)	628,284		—
Total fixed maturity securities - available-for-sale	1,229,519		—		1,439		(62		)	(20,596		)	15,000		(48,110		)	—		—		(27,750		)	572			1,150,012		—
Fixed maturity securities - trading
Other asset-backed securities	24,852		84		—		(76		)	—			4,128		(926		)	—		—		—			(50		)	28,012		68
Corporate securities	5,254		—		—		(6		)	—			—		—			—		—		—			(25		)	5,223		(6		)
Total fixed maturity securities - trading	30,106		84		—		(82		)	—			4,128		(926		)	—		—		—			(75		)	33,235		62
Total fixed maturity securities	1,259,625		84		1,439		(144		)	(20,596		)	19,128		(49,036		)	—		—		(27,750		)	497			1,183,247		62
Equity securities	65,553		—		—		—			—			—		(2,102		)	—		—		—			—			63,451		287
Other long-term investments⁽¹⁾	170,594		11,899		—		(1,915		)	—			—		—			—		—		—			—			180,578		9,984
Total investments	1,495,772		11,983		1,439		(2,059		)	(20,596		)	19,128		(51,138		)	—		—		(27,750		)	497			1,427,276		10,333
Total assets measured at fair value on a recurring basis	$	1,495,772	$	11,983	$	1,439	$	(2,059	)	$	(20,596	)	$	19,128	$	(51,138	)	$	—	$	—	$	(27,750	)	$	497		$	1,427,276	$	10,333
Liabilities:
Annuity account balances⁽²⁾	$	80,098	$	—	$	—	$	(896	)	$	—		$	—	$	—		$	40	$	2,571	—			$	—		$	78,463	$	—
Other liabilities⁽¹⁾	457,008		38,249		—		(41,614		)	—			—		—			—		—		—			—			460,373		(3,365		)
Total liabilities measured at fair value on a recurring basis	$	537,106	$	38,249	$	—	$	(42,510	)	$	—		$	—	$	—		$	40	$	2,571	$	—		$	—		$	538,836	$	(3,365	)

(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the nine months ended September 30, 2018, for which the Company has used significant unobservable inputs (Level 3):



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																								Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements			Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	—	$	—	$	—	$	—		$	(995	)	$	22,225	$	—		$	—	$	—		$	(21,281	)	$	51		$	—	$	—
Commercial mortgage-backed securities	—		—		—		—			(2,496		)	48,621		(245		)	—		—			(26,372		)	(41		)	19,467		—
Other asset-backed securities	504,365		—		11,884		(62		)	(16,449		)	—		(47		)	—		—			222			2,348			502,261		—
Corporate securities	626,901		—		8,483		—			(22,973		)	93,491		(86,388		)	—		—			12,009			(3,239		)	628,284		—
Total fixed maturity securities - available-for-sale	1,131,266		—		20,367		(62		)	(42,913		)	164,337		(86,680		)	—		—			(35,422		)	(881		)	1,150,012		—
Fixed maturity securities - trading
Other asset-backed securities	35,222		278		—		(3,674		)	—			8,728		(12,595		)	—		—			164			(111		)	28,012		(3,337		)
Corporate securities	5,442		—		—		(145		)	—			—		—			—		—			—			(74		)	5,223		(145		)
Total fixed maturity securities - trading	40,664		278		—		(3,819		)	—			8,728		(12,595		)	—		—			164			(185		)	33,235		(3,482		)
Total fixed maturity securities	1,171,930		278		20,367		(3,881		)	(42,913		)	173,065		(99,275		)	—		—			(35,258		)	(1,066		)	1,183,247		(3,482		)
Equity securities	65,518		1		—		(1		)	—			36		(2,102		)	—		—			—			(1		)	63,451		224
Other long-term investments⁽¹⁾	160,466		34,303		—		(13,564		)	—			—		—			—		(627		)	—			—			180,578		20,112
Short-term investments	—		—		—		—			—			—		—			—		—			—			—			—		—
Total investments	1,397,914		34,582		20,367		(17,446		)	(42,913		)	173,101		(101,377		)	—		(627		)	(35,258		)	(1,067		)	1,427,276		16,854
Total assets measured at fair value on a recurring basis	$	1,397,914	$	34,582	$	20,367	$	(17,446	)	$	(42,913	)	$	173,101	$	(101,377	)	$	—	$	(627	)	$	(35,258	)	$	(1,067	)	$	1,427,276	$	16,854
Liabilities:
Annuity account balances⁽²⁾	$	83,472	$	—	$	—	$	(2,749	)	$	—		$	—	$	—		$	570	$	8,328		—			$	—		$	78,463	$	—
Other liabilities⁽¹⁾	597,562		226,359		—		(89,170		)	—			—		—			—		—			—			—			460,373		137,189
Total liabilities measured at fair value on a recurring basis	$	681,034	$	226,359	$	—	$	(91,919	)	$	—		$	—	$	—		$	570	$	8,328		$	—		$	—		$	538,836	$	137,189

(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

Schedule of the Carrying Amounts and Estimated Fair Value of the Company's Financial Instruments

The carrying amounts and estimated fair values of the Company’s financial instruments as of the periods shown below are as follows:



		As of
		September 30, 2018				December 31, 2017
	Fair Value Level	Carrying Amounts		Fair Values		Carrying Amounts		Fair Values
		(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	7,572,349	$	7,335,547	$	6,817,723	$	6,740,177
Policy loans	3	1,703,462		1,703,462		1,615,615		1,615,615
Fixed maturities, held-to-maturity⁽¹⁾	3	2,653,605		2,577,841		2,718,904		2,776,327
Liabilities:
Stable value product account balances	3	$	5,211,668	$	5,147,084	$	4,698,371	$	4,698,868
Future policy benefits and claims⁽²⁾	3	223,091		223,091		220,498		220,498
Other policyholders’ funds⁽³⁾	3	131,338		130,672		133,508		134,253
Debt:⁽⁴⁾
Non-recourse funding obligations⁽⁵⁾	3	$	2,890,435	$	2,814,355	$	2,952,822	$	2,980,495
Subordinated funding obligations	3	110,000		97,451		—		—

Except as noted below, fair values were estimated using quoted market prices.
(1) Securities purchased from unconsolidated affiliates, Red Mountain, LLC and Steel City, LLC.
(2) Single premium immediate annuity without life contingencies.
(3) Supplementary contracts without life contingencies.
(4) Excludes capital lease obligations of $1.4 million and $1.7 million as of September 30, 2018 and December 31, 2017, respectively.
(5) As of September 30, 2018, carrying amount of $2.6 billion and a fair value of $2.6 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V. As of December 31, 2017, carrying amount of $2.7 billion and a fair value of $2.8 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V.