INVESTMENT OPERATIONS

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Realized gains (losses) - investments includes realized gains and losses from the sale of investments, changes in fair value of equity securities, net credit losses, certain derivative and embedded derivative gains and losses, gains and losses on reinsurance-related embedded derivatives and trading securities. Realized gains and losses on investments are calculated on the basis of specific identification on the trade date.

Net realized gains (losses) - investments/derivatives are summarized as follows:


	For The Three Months Ended March 31,
	2020		2019
	(Dollars In Thousands)
Fixed maturities	$	39,170	$	5,137
Equity securities	(43,013)		30,635
Modco trading portfolio	(124,200)		94,902
Net credit losses recognized in operations ⁽¹⁾	(51,793)		—
Net impairment losses recognized in operations ⁽²⁾	—		(3,142)
Mortgage loans	(95,396)		(1,068)
Other investments	(1,019)		(78)
Realized gains (losses) - investments	(276,251)		126,386
Realized gains (losses) - derivatives⁽³⁾	238,140		(73,308)
Realized gains (losses) - investments/derivatives	$	(38,111)	$	53,078


(1) Represents credit losses recognized under FASB ASC 326-20
(2) Represents other-than-temporary impairment losses recognized in prior periods under FASB ASC 326-20
(3) See Note 7, Derivative Financial Instruments

Gross realized gains and gross realized losses on investments available-for-sale (fixed maturities and short-term investments) are as follows:


	For The Three Months Ended March 31,
	2020		2019
	(Dollars In Thousands)
Gross realized gains	$	39,968	$	7,870
Gross realized losses:
Credit losses⁽¹⁾	$	(51,793)	$	—
Impairment losses⁽²⁾	$	—	$	(3,142)
Other realized losses	$	(798)	$	(2,733)

(1) Represents credit losses recognized under FASB ASC 326-20
(2) Represents other-than-temporary impairment losses recognized in prior periods under FASB ASC 326-20

The chart below summarizes the fair value (proceeds) and the gains (losses) realized on securities the Company sold that were in an unrealized gain position and an unrealized loss position.


	For The Three Months Ended March 31,
	2020		2019
	(Dollars In Thousands)
Securities in an unrealized gain position:
Fair value proceeds	$	504,337	$	648,891
Gains realized	$	39,968	$	7,870

Securities in an unrealized loss position⁽¹⁾:
Fair value proceeds	$	15	$	171,302
Losses realized	$	(798)	$	(2,733)

(1) The Company made the decision to exit these holdings in conjunction with its overall asset/liability management process.

The chart below summarizes the realized gains (losses) on equity securities sold during the period and equity securities still held at the reporting date.


	For The Three Months Ended March 31,
	2020		2019
	(Dollars In Thousands)
Gains (losses) recognized during the period on equity securities still held	$	(43,131)	$	30,575
Net gains recognized on equity securities sold during the period	118		60
Net gains (losses) recognized during the period on equity securities	$	(43,013)	$	30,635

The amortized cost and fair value of the Company’s investments classified as available-for-sale are as follows:


As of March 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(Dollars In Thousands)
Fixed maturities:
Residential mortgage-backed securities	$	6,979,230	$	63,970	$	(112,660)	$	6,930,540
Commercial mortgage-backed securities	2,527,869		45,074		(66,893)		2,506,050
Other asset-backed securities	1,726,799		31,403		(103,164)		1,655,038
U.S. government-related securities	1,000,140		30,154		(38)		1,030,256
Other government-related securities	565,785		29,038		(15,422)		579,401
States, municipals, and political subdivisions	4,301,818		271,882		(10,081)		4,563,619
Corporate securities	44,352,067		1,681,608		(1,905,740)		44,127,935
Redeemable preferred stocks	87,124		8		(7,234)		79,898
	61,540,832		2,153,137		(2,221,232)		61,472,737
Short-term investments	929,966		—		—		929,966
	$	62,470,798	$	2,153,137	$	(2,221,232)	$	62,402,703

As of December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(Dollars In Thousands)
Fixed maturities:
Residential mortgage-backed securities	$	5,812,170	$	125,493	$	(6,322)	$	5,931,341
Commercial mortgage-backed securities	2,588,575		54,385		(3,292)		2,639,668
Other asset-backed securities	1,764,120		32,041		(14,926)		1,781,235
U.S. government-related securities	1,032,048		5,664		(5,316)		1,032,396
Other government-related securities	548,136		51,024		(1,991)		597,169
States, municipals, and political subdivisions	4,415,008		225,072		(1,230)		4,638,850
Corporate securities	44,493,799		2,603,636		(288,334)		46,809,101
Redeemable preferred stocks	87,237		6,677		(4,249)		89,665
	60,741,093		3,103,992		(325,660)		63,519,425
Short-term investments	1,229,651		—		—		1,229,651
	$	61,970,744	$	3,103,992	$	(325,660)	$	64,749,076

The Company holds certain investments pursuant to certain modified coinsurance (“Modco”) arrangements. The fixed maturities, equity securities, and short-term investments held as part of these arrangements are classified as trading securities. The fair value of the investments held pursuant to these Modco arrangements are as follows:


	As of
	March 31, 2020		December 31, 2019
	(Dollars In Thousands)
Fixed maturities:
Residential mortgage-backed securities	$	197,722	$	209,521
Commercial mortgage-backed securities	181,870		201,284
Other asset-backed securities	134,311		143,361
U.S. government-related securities	45,072		47,067
Other government-related securities	27,596		28,775
States, municipals, and political subdivisions	284,213		293,791
Corporate securities	1,552,707		1,590,936
Redeemable preferred stocks	10,015		12,832
	2,433,506		2,527,567
Equity securities	6,661		6,656
Short-term investments	91,371		91,213
	$	2,531,538	$	2,625,436

The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of March 31, 2020, by expected maturity, are shown below. Expected maturities of securities without a single maturity date are allocated based on estimated rates of prepayment that may differ from actual rates of prepayment.


	Available-for-Sale						Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars In Thousands)
Due in one year or less	$	1,951,249	$	1,934,451	$	—	$	—
Due after one year through five years	10,508,087		10,428,838		—		—
Due after five years through ten years	13,474,203		13,461,001		—		—
Due after ten years	35,607,293		35,648,447		2,775,710		2,930,737
	$	61,540,832	$	61,472,737	$	2,775,710	$	2,930,737

The following chart is a rollforward of available-for-sale allowance for credit losses on fixed maturities held by the Company:


	For The Three Months Ended March 31,
	2020
	(Dollars In Thousands)
Beginning balance in the allowance for credit losses	$	—
Additions for current-period expected credit losses	51,793
Reductions for write-offs charged against the allowance for credit losses	—
Recoveries of amounts previously written off	—
Ending balance	$	51,793

The allowance for credit losses includes $51.1 million of corporate securities and $0.7 million of other asset-backed securities.

The following table includes the gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2020:


	Less Than 12 Months						12 Months or More						Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(Dollars In Thousands)
Residential mortgage-backed securities	$	4,116,106	$	(111,887)	$	21,709	$	(773)	$	4,137,815	$	(112,660)
Commercial mortgage-backed securities	1,529,401		(65,325)		31,072		(1,568)		1,560,473		(66,893)
Other asset-backed securities	796,757		(59,430)		248,785		(43,734)		1,045,542		(103,164)
U.S. government-related securities	93		(2)		1,615		(36)		1,708		(38)
Other government-related securities	127,614		(13,108)		5,232		(2,314)		132,846		(15,422)
States, municipals, and political subdivisions	350,617		(10,003)		5,980		(78)		356,597		(10,081)
Corporate securities	18,116,030		(1,455,603)		1,253,783		(450,137)		19,369,813		(1,905,740)
Redeemable preferred stocks	58,610		(2,576)		16,280		(4,658)		74,890		(7,234)
	$	25,095,228	$	(1,717,934)	$	1,584,456	$	(503,298)	$	26,679,684	$	(2,221,232)

Residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”) had gross unrealized losses greater than twelve months of $0.8 million and $1.6 million, respectively, as of March 31, 2020. Factors such as the credit enhancement within the deal structure, the average life of the securities, and the performance of the underlying collateral support the recoverability of these investments.

The other asset-backed securities have a gross unrealized loss greater than twelve months of $43.7 million as of March 31, 2020. Of those losses, $0.7 million were considered credit related. This category predominately includes student loan backed auction rate securities (“ARS”) whose underlying collateral is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.

The other government-related securities had gross unrealized losses greater than twelve months of $2.3 million as of March 31, 2020. These declines were related to changes in interest rates.

The states, municipals, and political subdivisions category had gross unrealized losses greater than twelve months of $0.1 million as of March 31, 2020. The aggregate decline in fair value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information.

The corporate securities category had gross unrealized losses greater than twelve months of $450.1 million as of March 31, 2020. Of these losses, $51.1 million were considered credit related. The decline in fair value as of March 31, 2020, reflect deterioration in the macroeconomic environment as a result of the impact of COVID-19 as well as the continued pressure on commodity prices. Multiple sectors were affected with the largest impacts in the oil & gas, real estate, and consumer and retail industries. Fair values were also negatively affected by disruptions in capital markets activity during the quarter due to COVID-19. The aggregate decline in fair value of the remaining securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, interest rate movement, and other pertinent information.

As of March 31, 2020, the Company had a total of 2,450 positions that were in an unrealized loss position, including 16 positions for which an allowance for credit losses was established. For unrealized losses for which an allowance for credit losses was not established, the Company does not consider these unrealized loss positions to be credit-related. This is based on the aggregate factors discussed previously and because the Company has the ability and intent to hold these investments until the fair values recover, and the Company does not intend to sell or expect to be required to sell the securities before recovering the Company’s amortized cost of the securities.

The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2019:


	Less Than 12 Months						12 Months or More						Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(Dollars In Thousands)
Residential mortgage-backed securities	$	851,333	$	(4,231)	$	220,843	$	(2,091)	$	1,072,176	$	(6,322)
Commercial mortgage-backed securities	371,945		(1,721)		115,566		(1,571)		487,511		(3,292)
Other asset-backed securities	482,547		(6,516)		214,058		(8,410)		696,605		(14,926)
U.S. government-related securities	383,451		(3,373)		353,517		(1,943)		736,968		(5,316)
Other government-related securities	22,962		(669)		6,230		(1,322)		29,192		(1,991)
States, municipals, and political subdivisions	56,470		(1,001)		12,907		(229)		69,377		(1,230)
Corporate securities	3,176,489		(68,289)		2,886,648		(220,045)		6,063,137		(288,334)
Redeemable preferred stocks	—		—		16,689		(4,249)		16,689		(4,249)
	$	5,345,197	$	(85,800)	$	3,826,458	$	(239,860)	$	9,171,655	$	(325,660)

As of March 31, 2020, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $1.5 billion and had an amortized cost of $2.0 billion. In addition, included in the Company’s trading portfolio, the Company held $113.7 million of securities which were rated below investment grade. Approximately $196.2 million of below investment grade securities held by the Company were not publicly traded.

The change in unrealized gains (losses), net of income tax, on fixed maturities, classified as available-for-sale is summarized as follows:


	For The Three Months Ended March 31,
	2020		2019
	(Dollars In Thousands)
Fixed maturities	$	(2,246,307)	$	1,551,674

The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of March 31, 2020 and December 31, 2019, are as follows:


As of March 31, 2020	Amortized Cost		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses		Fair Value
	(Dollars In Thousands)
Fixed maturities:
Securities issued by affiliates:
Red Mountain, LLC	$	804,710	$	54,013	$	—	$	858,723
Steel City, LLC	1,971,000		101,014		—		2,072,014
	$	2,775,710	$	155,027	$	—	$	2,930,737

As of December 31, 2019	Amortized Cost		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses		Fair Value
	(Dollars In Thousands)
Fixed maturities:
Securities issued by affiliates:
Red Mountain, LLC	$	795,881	$	81,022	$	—	$	876,903
Steel City, LLC	2,028,000		120,887		—		2,148,887
	$	2,823,881	$	201,909	$	—	$	3,025,790

During the three months ended March 31, 2020 and 2019, the Company recorded no credit losses on held-to-maturity securities.

The Company’s held-to-maturity securities are issued by affiliates of the Company which are considered variable interest entities (“VIEs”). The Company is not the primary beneficiary of these entities and thus the securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are affiliates of the Company.