FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company determined the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosures Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company has adopted the provisions from the FASB guidance that is referenced in the Fair Value Measurements and Disclosures Topic for non-financial assets and liabilities (such as property and equipment, goodwill, and other intangible assets) that are required to be measured at fair value on a periodic basis. The effect on the Company’s periodic fair value measurements for non-financial assets and liabilities was not material.

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. 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). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

 Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized as follows:

•Level 1: Unadjusted quoted prices for identical assets or liabilities in an active market.

•Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:

a)    Quoted prices for similar assets or liabilities in active markets;

b)    Quoted prices for identical or similar assets or liabilities in non-active markets;

c)    Inputs other than quoted market prices that are observable; and

d)     Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

•Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own estimates about the assumptions a market participant would use in pricing the asset or liability.

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, 2020:

	Measurement Category	Level 1		Level 2		Level 3		Total
		(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	4	$	—	$	6,847,273	$	—	$	6,847,273
Commercial mortgage-backed securities	4	—		2,546,317		10,685		2,557,002
Other asset-backed securities	4	—		1,149,743		434,496		1,584,239
U.S. government-related securities	4	578,554		501,739		—		1,080,293
State, municipals, and political subdivisions	4	—		4,553,629		—		4,553,629
Other government-related securities	4	—		638,076		—		638,076
Corporate securities	4	—		48,626,474		1,357,544		49,984,018
Redeemable preferred stocks	4	67,329		—		—		67,329
Total fixed maturity securities - available-for-sale		645,883		64,863,251		1,802,725		67,311,859
Fixed maturity securities - trading
Residential mortgage-backed securities	3	—		207,507		—		207,507
Commercial mortgage-backed securities	3	—		208,036		—		208,036
Other asset-backed securities	3	—		87,848		62,442		150,290
U.S. government-related securities	3	21,761		15,230		—		36,991
State, municipals, and political subdivisions	3	—		288,085		—		288,085
Other government-related securities	3	—		29,571		—		29,571
Corporate securities	3	—		1,832,592		17,879		1,850,471
Redeemable preferred stocks	3	12,434		—		—		12,434
Total fixed maturity securities - trading		34,195		2,668,869		80,321		2,783,385
Total fixed maturity securities		680,078		67,532,120		1,883,046		70,095,244
Equity securities	3	452,042		—		86,343		538,385
Other long-term investments(1)	3 & 4	73,934		1,013,846		319,994		1,407,774
Short-term investments	3	1,156,203		82,825		—		1,239,028
Total investments		2,362,257		68,628,791		2,289,383		73,280,431
Cash	3	381,753		—		—		381,753
Assets related to separate accounts
Variable annuity	3	11,487,408		—		—		11,487,408
Variable universal life	3	1,144,474		—		—		1,144,474
Total assets measured at fair value on a recurring basis		$	15,375,892	$	68,628,791	$	2,289,383	$	86,294,066
Liabilities:
Annuity account balances(2)	3	$	—	$	—	$	67,591	$	67,591
Other liabilities(1)	3 & 4	9,480		675,209		1,718,905		2,403,594
Total liabilities measured at fair value on a recurring basis		$	9,480	$	675,209	$	1,786,496	$	2,471,185
(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 (Loss)

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, 2019:

	Measurement Category	Level 1		Level 2		Level 3		Total
		(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	4	$	—	$	5,931,341	$	—	$	5,931,341
Commercial mortgage-backed securities	4	—		2,629,639		10,029		2,639,668
Other asset-backed securities	4	—		1,360,016		421,219		1,781,235
U.S. government-related securities	4	662,581		369,815		—		1,032,396
State, municipals, and political subdivisions	4	—		4,638,850		—		4,638,850
Other government-related securities	4	—		597,169		—		597,169
Corporate securities	4	—		45,435,387		1,373,714		46,809,101
Redeemable preferred stocks	4	69,976		16,689		—		86,665
Total fixed maturity securities - available-for-sale		732,557		60,978,906		1,804,962		63,516,425
Fixed maturity securities - trading
Residential mortgage-backed securities	3	—		209,521		—		209,521
Commercial mortgage-backed securities	3	—		201,284		—		201,284
Other asset-backed securities	3	—		77,954		65,407		143,361
U.S. government-related securities	3	24,810		22,257		—		47,067
State, municipals, and political subdivisions	3	—		293,791		—		293,791
Other government-related securities	3	—		28,775		—		28,775
Corporate securities	3	—		1,579,565		11,371		1,590,936
Redeemable preferred stocks	3	12,832		—		—		12,832
Total fixed maturity securities - trading		37,642		2,413,147		76,778		2,527,567
Total fixed maturity securities		770,199		63,392,053		1,881,740		66,043,992
Equity securities	3	480,750		—		72,970		553,720
Other long-term investments(1)	3 & 4	52,225		733,425		209,843		995,493
Short-term investments	3	1,255,384		65,480		—		1,320,864
Total investments		2,558,558		64,190,958		2,164,553		68,914,069
Cash	3	171,752		—		—		171,752
Assets related to separate accounts
Variable annuity	3	12,730,090		—		—		12,730,090
Variable universal life	3	1,135,666		—		—		1,135,666
Total assets measured at fair value on a recurring basis		$	16,596,066	$	64,190,958	$	2,164,553	$	82,951,577
Liabilities:
Annuity account balances(2)	3	$	—	$	—	$	69,728	$	69,728
Other liabilities(1)	3 & 4	19,561		509,645		1,017,972		1,547,178
Total liabilities measured at fair value on a recurring basis		$	19,561	$	509,645	$	1,087,700	$	1,616,906
(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 (Loss)

Determination of Fair Values

The valuation methodologies used to determine the fair values of assets and liabilities reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices, where available. The Company also determines certain fair values based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s credit standing, liquidity, and where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments as listed in the above table.

The fair value of fixed maturity, short-term, and equity securities is determined by management after considering one of three primary sources of information: third party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for non-binding prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. Third party pricing services price 92.6% of the Company’s available-for-sale and trading fixed maturity securities. Based on the typical trading volumes and the lack of quoted market prices for available-for-sale and trading fixed maturities, third party pricing services derive the majority of security prices from observable market inputs such as recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information outlined above. If there are no recent reported trades, the third party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Certain securities are priced via independent non-binding broker quotations. When using non-binding independent broker quotations, when available the Company obtains two quotes per security. Where multiple broker quotes are obtained, the Company reviews the quotes and selects the quote that provides the best estimate of the price a market participant would pay for these specific assets in an arm’s length transaction. A pricing matrix is used to price securities for which the Company is unable to obtain or effectively rely on either a price from a third party pricing service or an independent broker quotation.

The pricing matrix used by the Company begins with current spread levels to determine the market price for the security. The credit spreads, assigned by brokers, incorporate the issuer’s credit rating, liquidity discounts, weighted-average of contracted cash flows, risk premium, if warranted, due to the issuer’s industry, and the security’s time to maturity. The Company uses credit ratings provided by nationally recognized rating agencies.

For securities that are priced via non-binding independent broker quotations, the Company assesses whether prices received from independent brokers represent a reasonable estimate of fair value. The Company’s assessment incorporates various metrics (yield curves, credit spreads, prepayment rates, etc.) along with other information available to the Company from both internal and external sources to determine the valuation of such holdings. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly. The Company did not adjust any quotes or prices received from brokers during the nine months ended September 30, 2020.

The Company has analyzed the third party pricing services’ valuation methodologies and related inputs and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs that is in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. Based on this evaluation and investment class analysis, each price was classified into Level 1, 2, or 3. Most prices provided by third party pricing services are classified into Level 2 because the significant inputs used in pricing the securities are market observable and the observable inputs are corroborated by the Company. Since the matrix pricing of certain debt securities includes significant non-observable inputs, they are classified as Level 3.

Asset-Backed Securities

This category mainly consists of residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). As of September 30, 2020, the Company held $11.0 billion of ABS classified as Level 2. These securities are priced from information provided by a third party pricing service and independent broker quotes. The third party pricing services and brokers mainly value securities using both a market and income approach to valuation. As part of this valuation process they consider the following characteristics of the item being measured to be relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, and 7) credit ratings of the securities.

After reviewing these characteristics of the ABS, the third party pricing service and brokers use certain inputs to determine the value of the security. For ABS classified as Level 2, the valuation would consist of predominantly market observable inputs such as, but not limited to: 1) monthly principal and interest payments on the underlying assets, 2) average life of the security, 3) prepayment speeds, 4) credit spreads, 5) treasury and swap yield curves, and 6) discount margin. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.

As of September 30, 2020, the Company held $507.6 million of Level 3 ABS, which included $445.2 million of other asset-backed securities classified as available-for-sale and $62.4 million of other asset-backed securities classified as trading. These securities are predominantly ARS whose underlying collateral is at least 97% guaranteed by the FFELP. The Company prices its ARS using an income approach valuation model. As part of the valuation process the Company reviews the following characteristics of the ARS in determining the relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, 7) credit ratings of the securities, 8) liquidity premium, and 9) paydown rate. In periods where market activity increases and there are transactions at a price that is not the result of a distressed or forced sale we consider those prices as part of our valuation. If the market activity during a period is solely the result of the issuer redeeming positions we consider those transactions in our valuation, but still consider them to be Level 3 measurements due to the nature of the transaction.

Corporate Securities, Redeemable Preferred Stocks, U.S. Government-Related Securities, States, Municipals, and Political Subdivisions, and Other Government-Related Securities

As of September 30, 2020, the Company classified approximately $56.5 billion of corporate securities, redeemable preferred stocks, U.S. government-related securities, states, municipals, and political subdivisions, and other government-related securities as Level 2. The fair value of the Level 2 securities is predominantly priced by broker quotes and a third party pricing service. The Company has reviewed the valuation techniques of the brokers and third party pricing service and has determined that such techniques used Level 2 market observable inputs. The following characteristics of the securities are considered to be the primary relevant inputs to the valuation: 1) weighted- average coupon rate, 2) weighted-average years to maturity, 3) seniority, and 4) credit ratings. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.

The brokers and third party pricing service utilize valuation models that consist of a hybrid methodology that utilizes a cash flow analysis and market approach to valuation. The pricing models utilize the following inputs: 1) principal and interest payments, 2) treasury yield curve, 3) credit spreads from new issue and secondary trading markets, 4) dealer quotes with adjustments for issues with early redemption features, 5) liquidity premiums present on private placements, and 6) discount margins from dealers in the new issue market.

As of September 30, 2020, the Company classified approximately $1.4 billion of securities as Level 3 valuations. Level 3 securities primarily represent investments in illiquid bonds for which no price is readily available. To determine a price, the Company uses a discounted cash flow model with both observable and unobservable inputs. These inputs are entered into an industry standard pricing model to determine the final price of the security. These inputs include: 1) principal and interest payments, 2) coupon rate, 3) sector and issuer level spread over treasury, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.

Equities

As of September 30, 2020, the Company held approximately $86.3 million of equity securities classified as Level 3. Of this total, $80.3 million represents Federal Home Loan Bank (“FHLB”) stock. The Company believes that the cost of the FHLB stock approximates fair value.

Other Long-Term Investments and Other Liabilities

Derivative Financial Instruments

Other long-term investments and other liabilities include free-standing and embedded derivative financial instruments. Refer to Note 7, Derivative Financial Instruments for additional information related to derivatives. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of September 30, 2020, 87.4% of derivatives based upon notional values were priced using exchange prices or independent broker quotations. The remaining derivatives were priced by pricing valuation models, which utilize observable market data inputs to the extent they are available. Inputs used to value derivatives include, but are not limited to, interest swap rates, credit spreads, interest rate and equity market volatility indices, equity index levels, and treasury rates. The Company performs monthly analysis on derivative valuations that includes both quantitative and qualitative analyses.

Derivative instruments classified as Level 1 generally include futures and options, which are traded on active exchange markets.

Derivative instruments classified as Level 2 primarily include swaps, options, and swaptions, which are traded over-the-counter. Level 2 also includes certain centrally cleared derivatives. These derivative valuations are determined using independent broker quotations, which are corroborated with observable market inputs.

Derivative instruments classified as Level 3 were embedded derivatives and include at least one significant non-observable input. A derivative instrument containing Level 1 and Level 2 inputs will be classified as a Level 3 financial instrument in its entirety if it has at least one significant Level 3 input.

The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the changes in fair value on derivatives reported in Level 3 may not reflect the offsetting impact of the changes in fair value of the associated assets and liabilities.

Embedded derivatives are carried at fair value in other long-term investments and other liabilities on the Company’s consolidated condensed balance sheet. The changes in fair value of embedded derivatives are recorded as realized gains (losses) - investments/derivatives. Refer to Note 7, Derivative Financial Instruments for more information.

The fair value of the guaranteed living withdrawal benefits (“GLWB”) embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using multiple risk neutral stochastic equity scenarios and policyholder behavior assumptions. The risk neutral scenarios are generated using the current swap curve and projected equity volatilities and correlations. The projected equity volatilities are based on a blend of historical volatility and near-term equity market implied volatilities. The equity correlations are based on historical price observations. For policyholder behavior assumptions, expected lapse and utilization assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the Ruark 2015 ALB table, with attained age factors varying from 88.0% - 100.0% based on company experience. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR plus a credit spread (to represent the Company’s non-performance risk). For expected lapse and utilization, assumptions are used and updated for actual experience, as necessary, using an internal predictive model developed by the Company. As a result of using significant unobservable inputs, the GLWB embedded derivative is categorized as Level 3. Policyholder assumptions are reviewed on an annual basis.

The balance of the fixed indexed annuity (“FIA”) embedded derivative is impacted by policyholder cash flows associated with the FIA product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the FIA embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior, assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the 2015 Ruark ALB mortality table with attained age factors varying from 88.0% - 100.0% based on company experience. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the FIA embedded derivative is categorized as Level 3.

The balance of the indexed universal life (“IUL”) embedded derivative is impacted by policyholder cash flows associated with the IUL product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the IUL embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the SOA 2015 VBT Primary Tables, with attained age factors varying from 36.0% - 161.0% based on company experience. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the IUL embedded derivative is categorized as Level 3.

The Company has assumed and ceded certain blocks of policies under modified coinsurance agreements in which the investment results of the underlying portfolios inure directly to the reinsurers. Funds withheld arrangements related to such agreements contain embedded derivatives that are reported at fair value. Changes in their fair value are reported in realized gains (losses) - investments/derivatives. The fair value of embedded derivatives related to funds withheld under modified coinsurance agreements are a function of the unrealized gains or losses on the underlying assets and are calculated in a manner consistent with the terms of the agreements. The investments supporting certain of these agreements are designated as “trading securities”; therefore changes in their fair value are also reported in realized gains (losses) - investments/derivatives. The fair value of embedded derivatives is estimated based on market standard valuation methodology and is considered a Level 3 valuation.

The Company and certain of its subsidiaries have entered into interest support, yearly renewable term (“YRT”) premium support, and portfolio maintenance agreements with PLC. These agreements meet the definition of a derivative and are accounted for at fair value and are considered Level 3 valuations. The fair value of these derivatives as of September 30, 2020 was $133.5 million and is included in other long-term investments. For information regarding realized gains on these derivatives please refer to Note 7, Derivative Financial Instruments.

The Interest Support Agreement provides that PLC will make payments to Golden Gate II Captive Insurance Company (“Golden Gate II”), a wholly owned subsidiary of the Company, if actual investment income on certain of Golden Gate II’s asset portfolios falls below a calculated investment income amount as defined in the Interest Support Agreement. The calculated investment income amount is a level of investment income deemed to be sufficient to support certain of Golden Gate II’s obligations under a reinsurance agreement with the Company, dated July 1, 2007. The derivative is valued using an internal valuation model that assumes a conservative projection of investment income under an adverse interest rate scenario and the probability that the expectation falls below the calculated investment income amount. This derivative had a fair value of $78.6 million as of September 30, 2020. Golden Gate II recognized $2.4 million in gains related to payments made under this agreement for the nine months ended September 30, 2020. As of September 30, 2020, certain interest support agreement obligations to Golden Gate II of approximately $5.5 million have been collateralized by PLC. Re-evaluation and, if necessary, adjustments of any support agreement collateralization amounts occur annually during the first quarter pursuant to the terms of the support agreement.

The YRT premium support agreements provide that PLC will make payments to Golden Gate Captive Insurance Company (“Golden Gate”), a wholly owned subsidiary of the Company, and Golden Gate II in the event that YRT premium rates increase. The derivatives are valued using an internal valuation model. The valuation model is a probability weighted discounted cash flow model. The value is primarily a function of the likelihood and severity of future YRT premium increases. The fair value of these derivatives as of September 30, 2020 was $53.2 million. Golden Gate II recognized $1.6 million in gains related to payments made under this agreement for the nine months ended September 30, 2020.

The portfolio maintenance agreements provide that PLC will make payments to Golden Gate, Golden Gate V, and West Coast Life Insurance Company (“WCL”), a wholly owned subsidiary of the Company, in the event of other-than-temporary impairments on investments, measured in accordance with Statutory Accounting Principles, that exceed defined thresholds. The derivatives are valued using an internal discounted cash flow model. The significant unobservable inputs are the projected probability and severity of credit losses used to project future cash flows on the investment portfolios. The fair value of the portfolio maintenance agreements as of September 30, 2020, was $1.7 million. As of September 30, 2020, no payments have been made under these agreements.

The Funds Withheld derivative results from reinsurance agreements with subsidiaries of PLC, where the economic performance of certain hedging instruments held by the Company are ceded to the subsidiaries. The value of the Funds Withheld derivative is directly tied to the value of the hedging instruments held in the funds withheld account. The hedging instruments predominantly consist of derivative instruments the fair values of which are classified as a Level 2 measurement; as such, the fair value of the Funds Withheld derivative has been classified as a Level 2 measurement. The fair value of the Funds Withheld derivative as of September 30, 2020, was a liability of $145.0 million.

Annuity Account Balances

The Company records a certain legacy block of FIA reserves at fair value. Based on the characteristics of these reserves, the Company believes that the fund value approximates fair value. The fair value measurement of these reserves is considered a Level 3 valuation due to the unobservable nature of the fund values.

Separate Accounts

Separate account assets are invested in open-ended mutual funds and are included in Level 1.

Valuation of Level 3 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 as of September 30, 2020:

	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Commercial mortgage-backed securities	$	10,685	Discounted cash flow	Spread over treasury	2.78%
Other asset-backed securities	434,496		Liquidation	Liquidation value	$95.75 - $97.00 ($96.40)
			Discounted cash flow	Liquidity premium	0.51% - 2.33% (1.61%)
				Paydown rate	8.75% - 12.55% (11.38%)
Corporate securities	1,357,544		Discounted cash flow	Spread over treasury	0.60% - 4.75% (2.24%)
Liabilities:(1)
Embedded derivatives - GLWB(2)	518,246		Actuarial cash flow model	Mortality	88% to 100% of Ruark 2015 ALB Table
				Lapse	PL-RBA Predictive Model
				Utilization	PL-RBA Predictive Model
				Nonperformance risk	0.22% - 0.88%
Embedded derivative - FIA	531,814		Actuarial cash flow model	Expenses	$207 per policy
				Withdrawal rate	0.4% - 2.4% prior to age 70, 100% of the RMD for ages 70+ or WB withdrawal rate. Assume underutilized RMD for non-WB policies ages 70-81.
				Mortality	88% to 100% of Ruark 2015 ALB table
				Lapse	0.2% - 50.0%, depending on duration/surrender charge period
					Dynamically adjusted for WB moneyness and projected market rates vs credited rates
				Nonperformance risk	0.22% - 0.88%
Embedded derivative - IUL	194,228		Actuarial cash flow model	Mortality	37% - 161% of 2015
					VBT Primary Tables
					94% - 248% of duration 8 point in scale 2015 VBT Primary Tables, depending on type of business
				Lapse	0.4% - 10%, depending on
					duration/distribution channel
					and smoking class
				Nonperformance risk	0.22% - 0.88%
(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.

The chart above excludes Level 3 financial instruments that are valued using broker quotes and for which book value approximates fair value. Unobservable inputs were weighted by the relative fair value of instruments, except for other asset-backed securities which were weighted by the relative par amounts.

The Company has considered all reasonably available quantitative inputs as of September 30, 2020, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $98.1 million of financial instruments being classified as Level 3 as of September 30, 2020, of which $79.3 million are other asset-backed securities, $12.8 million are corporate securities and $6.0 million are equity securities.

In certain cases the Company has determined that book value materially approximates fair value. As of September 30, 2020, the Company held $80.3 million of financial instruments where book value approximates fair value which was predominantly FHLB stock.

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 as of December 31, 2019:

	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Commercial mortgage-backed securities	$	10,029	Discounted cash flow	Spread over treasury	2.5%
Other asset-backed securities	421,219		Liquidation	Liquidation value	$95.39 - $99.99 ($97.95)
			Discounted cash flow	Liquidity premium	0.34% - 2.28% (1.44%)
				Paydown Rate	8.99% - 12.45% (11.28%)
Corporate securities	1,373,714		Discounted cash flow	Spread over treasury	0.00% - 4.03% (1.60%)
Liabilities:(1)
Embedded derivatives - GLWB(2)	$	186,038	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	0.12% - 0.82%
Embedded derivative - FIA	336,826		Actuarial cash flow model	Expenses	$195 per policy
				Withdrawal rate	0.4% - 1.2% prior to age 70 RMD for ages 70+ or WB withdrawal rate Assume underutilized RMD for non-WB policies age 70-81
				Mortality	87% to 100% or Ruark 2015 ALB table
				Lapse	0.5% - 50.0%, depending on duration/surrender charge period
				Nonperformance risk	0.12% - 0.82%
Embedded derivative - IUL	151,765		Actuarial cash flow model	Mortality	37% - 156% of 2015 VBT Primary Tables 94% - 248% of duration 8 point in scale 2015 VBT Primary Tables, depending on type of business
				Lapse	0.5% - 10%, depending on duration/distribution channel and smoking class
				Nonperformance risk	0.12% - 0.82%
(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.

The chart above excludes Level 3 financial instruments that are valued using broker quotes and for which book value approximates fair value.

The Company had considered all reasonably available quantitative inputs as of December 31, 2019, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $76.8 million of financial instruments being classified as Level 3 as of December 31, 2019, of which $65.4 million are other asset backed securities and $11.4 million are corporate securities.

In certain cases the Company has determined that book value materially approximates fair value. As of December 31, 2019, the Company held $73.0 million of financial instruments where book value approximates fair value which was predominantly FHLB stock.

The asset-backed securities classified as Level 3 are predominantly ARS. A change in the paydown rate (the projected annual rate of principal reduction) of the ARS can significantly impact the fair value of these securities. A decrease in the paydown rate would increase the projected weighted average life of the ARS and increase the sensitivity of the ARS’s fair value to changes in interest rates. An increase in the liquidity premium would result in a decrease in the fair value of the securities, while a decrease in the liquidity premium would increase the fair value of these securities. The liquidation values for these securities are sensitive to the issuer’s available cash flows and ability to redeem the securities, as well as the current holders’ willingness to liquidate at the specified price.

The fair value of corporate bonds classified as Level 3 is sensitive to changes in the interest rate spread over the corresponding U.S. Treasury rate. This spread represents a risk premium that is impacted by company-specific and market factors. An increase in the spread can be caused by a perceived increase in credit risk of a specific issuer and/or an increase in the overall market risk premium associated with similar securities. The fair values of corporate bonds are sensitive to changes in spread. When holding the treasury rate constant, the fair value of corporate bonds increases when spreads decrease and decreases when spreads increase.

The fair value of the GLWB embedded derivative is sensitive to changes in the discount rate which includes the Company’s nonperformance risk, volatility, lapse, and mortality assumptions. The volatility assumption is an observable input as it is based on market inputs. The Company’s nonperformance risk, lapse, and mortality are unobservable. An increase in the three unobservable assumptions would result in a decrease in the fair value of the liability and conversely, if there is a decrease in the assumptions the fair value would increase. The fair value is also dependent on the assumed policyholder utilization of the GLWB where an increase in assumed utilization would result in an increase in the fair value of the liability and conversely, if there is a decrease in the assumption, the fair value would decrease.

The fair value of the FIA and IUL embedded derivatives are predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the FIA and IUL embedded derivatives are sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and nonperformance risk. The value of the liability increases with increases in equity returns and the value of the liability decreases with a decrease in equity returns.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended September 30, 2020, 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 Operations related to Instruments still held at the  Reporting Date
	Beginning Balance		Included in Operations		Included in Other Comprehensive Income (Loss)		Included in Operations		Included in Other Comprehensive Income (Loss)		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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial mortgage-backed securities	9,971		—		740		—		1		—		(21)		—		—		—		(6)		10,685		—
Other asset-backed securities	430,964		—		4,383		(12)		(525)		—		(517)		—		—		—		203		434,496		—
Corporate securities	1,365,963		—		27,591		—		(2,937)		62,185		(125,885)		—		—		31,172		(545)		1,357,544		—
Total fixed maturity securities - available-for-sale	1,806,898		—		32,714		(12)		(3,461)		62,185		(126,423)		—		—		31,172		(348)		1,802,725		—
Fixed maturity securities - trading
Other asset-backed securities	60,622		2,706		—		(382)		—		1,031		(1,571)		—		—		—		36		62,442		2,681
Corporate securities	12,158		286		—		(12)		—		5,477		—		—		—		—		(30)		17,879		273
Total fixed maturity securities - trading	72,780		2,992		—		(394)		—		6,508		(1,571)		—		—		—		6		80,321		2,954
Total fixed maturity securities	1,879,678		2,992		32,714		(406)		(3,461)		68,693		(127,994)		—		—		31,172		(342)		1,883,046		2,954
Equity securities	78,613		780		—		—		—		6,950		—		—		—		—		—		86,343		780
Other long-term investments(1)	275,907		78,164		—		(34,077)		—		—		—		—		—		—		—		319,994		44,087
Total investments	2,234,198		81,936		32,714		(34,483)		(3,461)		75,643		(127,994)		—		—		31,172		(342)		2,289,383		47,821
Total assets measured at fair value on a recurring basis	$	2,234,198	$	81,936	$	32,714	$	(34,483)	$	(3,461)	$	75,643	$	(127,994)	$	—	$	—	$	31,172	$	(342)	$	2,289,383	$	47,821
Liabilities:
Annuity account balances(2)	$	68,064	$	—	$	—	$	(744)	$	—	$	—	$	—	$	37	$	1,254	$	—	$	—	$	67,591	$	—
Other liabilities(1)	1,664,251		130,913		—		(185,567)		—		—		—		—		—		—		—		1,718,905		(54,654)
Total liabilities measured at fair value on a recurring basis	$	1,732,315	$	130,913	$	—	$	(186,311)	$	—	$	—	$	—	$	37	$	1,254	$	—	$	—	$	1,786,496	$	(54,654)
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

For the three months ended September 30, 2020, there were $31.2 million of securities transferred into Level 3 from Level 2. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods but were priced internally using significant unobservable inputs where market observable inputs were not available as of September 30, 2020.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the nine months ended September 30, 2020, 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 Operations related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Operations		Included in Other Comprehensive Income (Loss)		Included in Operations		Included in Other Comprehensive Income (Loss)		Purchases		Sales		Issuances		Settlements		Transfers in/out of Level 3		Other		Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Commercial mortgage-backed securities	$	10,029	$	—	$	1,520	$	—	$	(784)	$	—	$	(62)	$	—	$	—	$	—	$	(18)	$	10,685	$	—
Other asset-backed securities	421,219		—		4,495		(33)		(12,978)		—		(1,034)		—		—		22,187		640		434,496		—
Corporate securities	1,373,714		—		112,592		—		(82,132)		365,449		(497,587)		—		—		88,107		(2,599)		1,357,544		—
Total fixed maturity securities - available-for-sale	1,804,962		—		118,607		(33)		(95,894)		365,449		(498,683)		—		—		110,294		(1,977)		1,802,725		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—		—		—		—		—		—		—		—		—		—
Other asset-backed securities	65,407		4,174		—		(8,696)		—		4,250		(2,023)		—		—		(766)		96		62,442		2,681
Corporate securities	11,371		773		—		(427)		—		8,798		(2,141)		—		—		(408)		(87)		17,879		273
Total fixed maturity securities - trading	76,778		4,947		—		(9,123)		—		13,048		(4,164)		—		—		(1,174)		9		80,321		2,954
Total fixed maturity securities	1,881,740		4,947		118,607		(9,156)		(95,894)		378,497		(502,847)		—		—		109,120		(1,968)		1,883,046		2,954
Equity securities	72,970		781		—		(1)		—		7,373		—		—		—		5,220		—		86,343		780
Other long-term investments(1)	209,843		171,097		—		(97,705)		—		40,831		—		—		(4,072)		—		—		319,994		69,320
Short-term investments	—		—		—		—		—		—		—		—		—		—		—		—		—
Total investments	2,164,553		176,825		118,607		(106,862)		(95,894)		426,701		(502,847)		—		(4,072)		114,340		(1,968)		2,289,383		73,054
Total assets measured at fair value on a recurring basis	$	2,164,553	$	176,825	$	118,607	$	(106,862)	$	(95,894)	$	426,701	$	(502,847)	$	—	$	(4,072)	$	114,340	$	(1,968)	$	2,289,383	$	73,054
Liabilities:
Annuity account balances(2)	$	69,728	$	—	$	—	$	(1,811)	$	—	$	—	$	—	$	366	$	4,314	$	—	$	—	$	67,591	$	—
Other liabilities(1)	1,017,972		387,386		—		(1,088,319)		—		—		—		—		—		—		—		1,718,905		(700,933)
Total liabilities measured at fair value on a recurring basis	$	1,087,700	$	387,386	$	—	$	(1,090,130)	$	—	$	—	$	—	$	366	$	4,314	$	—	$	—	$	1,786,496	$	(700,933)
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

For the nine months ended September 30, 2020, there were $115.5 million of securities transferred into Level 3. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods but were priced internally using significant unobservable inputs where market observable inputs were not available as of September 30, 2020.

For the nine months ended September 30, 2020, there were $1.2 million of securities transferred into Level 2 from Level 3.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended September 30, 2019, 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 Operations related to Instruments still held at the  Reporting Date
	Beginning Balance		Included  in Operations		Included  in Other Comprehensive Income (Loss)		Included  in Operations		Included  in Other Comprehensive Income (Loss)		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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial mortgage-backed securities	9,366		—		294		—		—		—		(19)		—		—		—		(6)		9,635		—
Other asset-backed securities	418,310		—		865		(14)		(3,276)		—		(8)		—		—		—		185		416,062		—
Corporate securities	1,328,491		—		22,910		—		(3,408)		9,150		(72,215)		—		—		41,319		(1,135)		1,325,112		—
Total fixed maturity securities - available-for-sale	1,756,167		—		24,069		(14)		(6,684)		9,150		(72,242)		—		—		41,319		(956)		1,750,809		—
Fixed maturity securities - trading
Other asset-backed securities	62,180		294		—		(34)		—		—		(879)		—		—		—		(34)		61,527		274
Corporate securities	5,294		67		—		—		—		1,700		—		—		—		—		(25)		7,036		6,906
Total fixed maturity securities - trading	67,474		361		—		(34)		—		1,700		(879)		—		—		—		(59)		68,563		7,180
Total fixed maturity securities	1,823,641		361		24,069		(48)		(6,684)		10,850		(73,121)		—		—		41,319		(1,015)		1,819,372		7,180
Equity securities	68,486		—		—		(2)		—		—		—		—		—		—		—		68,484		191
Other long-term investments(1)	143,583		49,457		—		—		—		—		—		—		—		—		—		193,040		49,457
Total investments	2,035,710		49,818		24,069		(50)		(6,684)		10,850		(73,121)		—		—		41,319		(1,015)		2,080,896		56,828
Total assets measured at fair value on a recurring basis	$	2,035,710	$	49,818	$	24,069	$	(50)	$	(6,684)	$	10,850	$	(73,121)	$	—	$	—	$	41,319	$	(1,015)	$	2,080,896	$	56,828
Liabilities:
Annuity account balances(2)	$	72,585	$	—	$	—	$	(523)	$	—	$	—	$	—	$	91	$	1,379	$	—	$	—	$	71,820	$	—
Other liabilities(1)	842,035		—		—		(191,572)		—		33,684		—		—		—		—		—		1,067,291		(191,572)
Total liabilities measured at fair value on a recurring basis	$	914,620	$	—	$	—	$	(192,095)	$	—	$	33,684	$	—	$	91	$	1,379	$	—	$	—	$	1,139,111	$	(191,572)
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

For the three months ended September 30, 2019, there were $52.1 million of securities transferred into Level 3. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods but were priced internally using significant unobservable inputs where market observable inputs were not available as of September 30, 2019.

For the three months ended September 30, 2019, there were $10.8 million of securities transferred into Level 2 from 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, 2019, 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 Operations related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Operations		Included in Other Comprehensive Income (Loss)		Included in Operations		Included in Other Comprehensive Income (Loss)		Purchases		Sales		Issuances		Settlements		Transfers in/out of Level 3		Other		Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Commercial mortgage-backed securities	$	—	$	—	$	310	$	—	$	—	$	9,359	$	(26)	$	—	$	—	$	—	$	(8)	$	9,635	$	—
Other asset-backed securities	421,642		446		11,525		(71)		(8,075)		—		(10,023)		—		—		—		618		416,062		—
Corporate securities	638,276		82		66,866		—		(6,917)		704,777		(157,171)		—		—		80,574		(1,375)		1,325,112		—
Total fixed maturity securities - available-for-sale	1,059,918		528		78,701		(71)		(14,992)		714,136		(167,220)		—		—		80,574		(765)		1,750,809		—
Fixed maturity securities - trading
Other asset-backed securities	26,056		4,300		—		(3,618)		—		15,463		(6,771)		—		—		26,267		(170)		61,527		(2,442)
Corporate securities	6,242		236		—		(31)		—		1,700		(1,035)		—		—		—		(76)		7,036		5,274
Total fixed maturity securities - trading	32,298		4,536		—		(3,649)		—		17,163		(7,806)		—		—		26,267		(246)		68,563		2,832
Total fixed maturity securities	1,092,216		5,064		78,701		(3,720)		(14,992)		731,299		(175,026)		—		—		106,841		(1,011)		1,819,372		2,832
Equity securities	63,421		1		—		(17)		—		5,079		—		—		—		—		—		68,484		345
Other long-term investments(1)	151,342		73,246		—		(31,419)		—		1,579		—		—		(1,708)		—		—		193,040		40,119
Short-term investments	—		—		—		—		—		—		—		—		—		—		—		—		—
Total investments	$	1,306,979	$	78,311	$	78,701	$	(35,156)	$	(14,992)	$	737,957	$	(175,026)	$	—	$	(1,708)	$	106,841	$	(1,011)	$	2,080,896	$	43,296
Total assets measured at fair value on a recurring basis	1,306,979		78,311		78,701		(35,156)		(14,992)		737,957		(175,026)		—		(1,708)		106,841		(1,011)		2,080,896		43,296
Liabilities:
Annuity account balances(2)	$	76,119	$	—	$	—	$	(1,675)	$	—	$	—	$	—	$	158	$	6,132	$	—	$	—	$	71,820	$	—
Other liabilities(1)	438,127		830		—		(559,106)		—		70,888		—		—		—		—		—		1,067,291		(558,276)
Total liabilities measured at fair value on a recurring basis	$	514,246	$	830	$	—	$	(560,781)	$	—	$	70,888	$	—	$	158	$	6,132	$	—	$	—	$	1,139,111	$	(558,276)
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

For the nine months ended September 30, 2019, there were $138.2 million of securities transferred into Level 3.

For the nine months ended September 30, 2019, there were $31.4 million of securities transferred into Level 2 from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of September 30, 2019.

Total realized and unrealized gains (losses) on Level 3 assets and liabilities are reported in either realized gains (losses) - investments/derivatives within the consolidated condensed statements of income or in change in net unrealized gains (losses) on investments within the consolidated condensed statements of other comprehensive income (loss) based on the appropriate accounting treatment for the item.

Purchases, sales, issuances, and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily relates to purchases and sales of fixed maturity securities and issuances and settlements of fixed indexed annuities.

The amount of total gains (losses) for assets and liabilities still held as of the reporting date primarily represents changes in fair value of trading securities and certain derivatives that exist as of the reporting date and the change in fair value of fixed indexed annuities.

Estimated Fair Value of 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, 2020				December 31, 2019
	Fair Value Level	Carrying Amounts		Fair Values		Carrying Amounts		Fair Values
		(Dollars In Thousands)
Assets:
Commercial mortgage loans(1)	3	$	9,765,312	$	10,522,036	$	9,379,401	$	9,584,487
Policy loans	3	1,640,147		1,640,147		1,675,121		1,675,121
Fixed maturities, held-to-maturity(2)	3	2,680,324		2,990,170		2,823,881		3,025,790
Other long-term investments(3)	2	1,286,291		1,206,966		1,216,996		1,246,889
Liabilities:
Stable value product account balances	3	$	6,017,259	$	6,180,630	$	5,443,752	$	5,551,195
Future policy benefits and claims(4)	3	1,604,174		1,615,924		1,701,324		1,705,235
Other policyholders’ funds(5)	3	103,280		107,319		127,084		130,259
Debt:(6)
Non-recourse funding obligations(7)	3	$	2,942,126	$	3,296,873	$	3,082,753	$	3,298,580
Subordinated funding obligations	3	110,000		117,216		110,000		113,286
Except as noted below, fair values were estimated using quoted market prices.
(1) The carrying amount is net of allowance for credit losses.
(2) Securities purchased from unconsolidated affiliates, Red Mountain, LLC and Steel City, LLC.
(3) Other long-term investments represents a Modco receivable, which is related to invested assets such as fixed income and structured securities, which are legally owned by the ceding company. The fair value is determined in a manner consistent with other similar invested assets held by the Company.
(4) Single premium immediate annuity without life contingencies.
(5) Supplementary contracts without life contingencies.
(6) Excludes capital lease obligations of $0.7 million and $1.0 million as of September 30, 2020 and December 31, 2019, respectively.
(7) As of September 30, 2020, carrying amount of $2.7 billion and a fair value of $3.0 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V. As of December 31, 2019, carrying amount of $2.8 billion and a fair value of $3.0 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V.

Fair Value Measurements

Commercial mortgage loans

The Company estimates the fair value of commercial mortgage loans using an internally developed model. This model includes inputs derived by the Company based on assumed discount rates relative to the Company’s current commercial mortgage loan lending rate and an expected cash flow analysis based on a review of the commercial mortgage loan terms. The model also contains the Company’s determined representative risk adjustment assumptions related to credit and liquidity risks.

Policy loans

The Company believes the fair value of policy loans approximates book value. Policy loans are funds provided to policyholders in return for a claim on the policy. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of repayments, the Company believes the carrying value of policy loans approximates fair value.

Fixed maturities, held-to-maturity

The Company estimates the fair value of its fixed maturity, held-to-maturity securities using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.

Other long-term investments

In addition to free standing and embedded derivative financial instruments discussed above, other long-term investments includes approximately $1.3 billion of amounts receivable under certain modified coinsurance agreements as of September 30, 2020 and December 31, 2019. These amounts represent funds withheld in connection with certain reinsurance agreements in which the Company acts as the reinsurer. Under the terms of these agreements, assets equal to statutory reserves are withheld and legally owned by the ceding company, and any excess or shortfall is settled periodically. In some cases, these modified coinsurance agreements contain embedded derivatives which are discussed in more detail above. The fair value of amounts receivable under modified coinsurance agreements, including the embedded derivative component, correspond to the fair value of the underlying assets withheld.

Stable value product and other investment contract balances

The Company estimates the fair value of stable value product account balances and other investment contract balances (included in Future policy benefits and claims as well as Other policyholders’ funds line items on our consolidated condensed balance sheet) using models based on discounted expected cash flows. The discount rates used in the models are based on a current market rate for similar financial instruments.

Funding obligations

The Company estimates the fair value of its subordinated and non-recourse funding obligations using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.