INVESTMENT OPERATIONS

12 Months Ended

Dec. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Major categories of net investment income are summarized as follows:


	For The Year Ended December 31,
	2020		2019		2018
	(Dollars In Thousands)
Fixed maturities	$	2,475,295	$	2,465,902	$	2,043,183
Equity securities	24,492		30,647		35,282
Commercial mortgage loans	442,752		388,656		322,206
Investment real estate	989		1,045		1,778
Short-term investments	137,943		118,172		103,676
	3,081,471		3,004,422		2,506,125
Investment expenses	198,508		185,592		167,223
Net investment income	$	2,882,963	$	2,818,830	$	2,338,902

Net realized gains (losses) are summarized as follows:


	For The Year Ended December 31,
	2020		2019		2018
	(Dollars In Thousands)
Fixed maturities	$	45,324	$	47,711	$	9,851
Equity securities	13,092		46,989		(49,275)
Modco trading portfolio	182,591		247,330		(185,900)
Net credit losses recognized in operations(1)	(125,470)		—		—
Net impairment losses recognized in operations(2)	—		(34,453)		(29,724)
Commercial mortgage loans	(151,994)		(2,263)		(2,040)
Other investments	(3,349)		3,231		4,088
Realized gains (losses) - investments	(39,806)		308,545		(253,000)
Realized gains (losses) - derivatives(3)	8,679		(131,459)		79,097
Realized gains (losses)	$	(31,127)	$	177,086	$	(173,903)

(1) Represents net credit losses recognized under FASB ASC 326
(2) Represents other-than-temporary impairment losses recognized in prior periods under FASB ASC 320
(3) Refer to Note 6, 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 Year Ended December 31,
	2020		2019		2018
	(Dollars In Thousands)
Gross realized gains	$	50,247	$	61,608	$	28,034
Gross realized losses:
Credit losses(1)	$	(125,470)	$	—	$	—
Impairment losses(2)	$	—	$	(34,453)	$	(29,724)
Other realized losses	$	(4,923)	$	(13,897)	$	(18,183)

(1) Represents net credit losses recognized under FASB ASC 326
(2) Represents other-than-temporary impairment losses recognized in prior periods under FASB ASC 320

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 Year Ended December 31,
	2020		2019		2018
	(Dollars In Thousands)
Securities in an unrealized gain position:
Fair value proceeds	$	1,713,162	$	2,511,764	$	1,291,826
Gains realized	$	50,247	$	61,608	$	28,034

Securities in an unrealized loss position:
Fair value proceeds	$	33,816	$	542,733	$	472,371
Losses realized	$	(4,923)	$	(13,897)	$	(18,183)

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 Year Ended December 31,
	2020		2019		2018
	(Dollars In Thousands)
Net gains (losses) recognized during the period on equity securities still held	$	12,810	$	50,214	$	(43,110)
Net gains (losses) recognized on equity securities sold during the period	282		(3,225)		(6,165)
Net gains (losses) recognized during the period on equity securities	$	13,092	$	46,989	$	(49,275)

The amortized cost, gross unrealized gains, losses, allowance for expected credit losses, and fair value of the Company’s investments classified as available-for-sale are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Expected Credit Losses		Fair Value
	(Dollars In Thousands)
As of December 31, 2020
Fixed maturities:(1)
Residential mortgage-backed securities	$	6,501,358	$	158,468	$	(1,235)	$	—	$	6,658,591
Commercial mortgage-backed securities	2,403,218		126,871		(19,707)		(3,598)		2,506,784
Other asset-backed securities	1,546,204		40,368		(6,714)		(1,402)		1,578,456
U.S. government-related securities	1,341,599		26,110		(1,701)		—		1,366,008
Other government-related securities	621,247		95,743		(997)		—		715,993
States, municipals, and political subdivisions	3,900,517		519,227		(749)		—		4,418,995
Corporate securities	45,997,229		6,058,681		(99,415)		(17,742)		51,938,753
Redeemable preferred stocks	182,840		11,139		—		—		193,979
	62,494,212		7,036,607		(130,518)		(22,742)		69,377,559
Short-term investments	386,265		—		—		—		386,265
	$	62,880,477	$	7,036,607	$	(130,518)	$	(22,742)	$	69,763,824

(1) Included in the total above, as of December 31, 2020, the Company had public utility securities that had an amortized cost and fair value of $6.3 billion and $7.0 billion, respectively and foreign government securities that had an amortized cost and fair value of $555.6 million and $642.8 million, respectively.

As of December 31, 2019
Fixed maturities:(2)
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		3,677		(4,249)		—		86,665
	60,741,093		3,100,992		(325,660)		—		63,516,425
Short-term investments	1,229,651		—		—		—		1,229,651
	$	61,970,744	$	3,100,992	$	(325,660)	$	—	$	64,746,076

(2) Included in the total above, as of December 31, 2019, the Company had public utility securities that had an amortized cost and fair value of $6.3 billion and $6.5 billion, respectively and foreign government securities that had an amortized cost and fair value of $483.8 million and $528.4 million, respectively.

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 December 31,
	2020		2019
	(Dollars In Thousands)
Fixed maturities:(1)
Residential mortgage-backed securities	$	209,240	$	209,521
Commercial mortgage-backed securities	214,107		201,284
Other asset-backed securities	162,641		143,361
U.S. government-related securities	91,288		47,067
Other government-related securities	30,060		28,775
States, municipals, and political subdivisions	281,803		293,791
Corporate securities	1,860,273		1,590,936
Redeemable preferred stocks	12,956		12,832
	2,862,368		2,527,567
Equity securities	19,627		6,656
Short-term investments	76,150		91,213
	$	2,958,145	$	2,625,436

(1) Included in the total above, as of December 31, 2020, the Company had public utility and foreign government securities that had a fair value of $144.1 million and $30.1 million, respectively and as of December 31, 2019, the Company had public utility and foreign government securities that had a fair value of $111.2 million and $28.8 million, respectively.

The amortized cost and fair value of available-for-sale fixed maturities as of December 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
	Amortized Cost		Fair Value
	(Dollars In Thousands)
Due in one year or less	$	2,307,167	$	2,315,529
Due after one year through five years	12,633,015		13,265,798
Due after five years through ten years	13,900,080		15,225,192
Due after ten years	33,653,950		38,571,040
	$	62,494,212	$	69,377,559

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


	For The Year Ended December 31, 2020
	Corporate Securities		CMBS		ABS		Total
	(Dollars In Thousands)
Beginning balance	$	—	$	—	$	—	$	—
Additions for securities for which allowance was not previously recorded	62,442		3,598		658		66,698
Adjustments on previously recorded allowances due to change in expected cash flows	19,887		—		770		20,657
Reductions on previously recorded allowances due to disposal of security in the current period	(969)		—		(26)		(995)
Write-offs of previously recorded allowances due to intent or requirement to sell	(63,618)		—		—		(63,618)

Ending balance	$	17,742	$	3,598	$	1,402	$	22,742

The following chart is a rollforward of the available-for-sale credit losses on fixed maturities held by the Company for which a portion of an other-than-temporary impairment was recognized in other comprehensive income:


	For The Year Ended December 31,
	2019		2018
	(Dollars In Thousands)
Beginning balance	$	24,868	$	3,268
Additions for newly impaired securities	30,299		24,858
Additions for previously impaired securities	3,553		12
Reductions on previously impaired securities due to a change in expected cash flows	(21,332)		—
Reductions for previously impaired securities that were sold in the current period	(7,294)		(3,270)

Ending balance	$	30,094	$	24,868

The following table includes the gross unrealized losses for which an allowance for credit losses has not been recorded and fair value of the Company’s AFS fixed maturities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 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	$	386,013	$	(935)	$	9,096	$	(300)	$	395,109	$	(1,235)
Commercial mortgage-backed securities	262,752		(15,623)		30,239		(4,084)		292,991		(19,707)
Other asset-backed securities	146,141		(1,920)		326,132		(4,794)		472,273		(6,714)
U.S. government-related securities	162,293		(1,678)		736		(23)		163,029		(1,701)
Other government-related securities	18,622		(438)		6,975		(559)		25,597		(997)
States, municipalities, and political subdivisions	32,169		(692)		4,876		(57)		37,045		(749)
Corporate securities	1,058,838		(33,291)		726,481		(66,124)		1,785,319		(99,415)
Redeemable preferred stocks	—		—		—		—		—		—

	$	2,066,828	$	(54,577)	$	1,104,535	$	(75,941)	$	3,171,363	$	(130,518)

CMBS had gross unrealized losses greater than twelve months of $4.1 million, as of December 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 $4.8 million as of December 31, 2020. This category predominately includes student-loan backed auction rate securities, the underlying collateral, of which 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 corporate securities category has gross unrealized losses greater than twelve months of $66.1 million as of December 31, 2020, excluding losses of $17.7 million that were considered credit related. The overall deterioration in the macroeconomic environment as a result of the impact of COVID-19 as well as the continued pressure on commodity prices has negatively affected the values of certain of our investments. The largest impacts have been in the oil & gas, real estate, and consumer and retail industries. For the year ended December 31, 2020, we have recognized $125.5 million of impairments for the Company which primarily reflect declines in the value of certain oil and gas securities.

As of December 31, 2020, the Company had a total of 429 positions that were in an unrealized loss position, including 7 positions for which an allowance for expected 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, municipalities, 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 December 31, 2020, the Company had securities in its available-for-sale portfolio which were rated below investment grade with a fair value of $2.6 billion and had an amortized cost of $2.5 billion. In addition, included in the Company’s trading portfolio, the Company held $140.4 million of securities which were rated below investment grade. The Company held $493.2 million of the below investment grade securities that were not publicly traded.

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


	For The Year Ended December 31,
	2020		2019		2018
	(Dollars In Thousands)
Fixed maturities	$	3,263,298	$	4,210,114	$	(2,032,573)

The Company’s held-to-maturity securities were issued by affiliates of the Company which were considered VIEs. The Company is not the primary beneficiary of these entities and thus the securities were not eliminated in consolidation. These securities were collateralized by non-recourse funding obligations issued by captive insurance companies that were affiliates of the Company. As of December 31, 2020, the Company no longer held any held-to-maturity securities. Refer to Note 3, Significant Transactions for additional information on Red Mountain, LLC and Steel City, LLC.

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


	Amortized Cost		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses		Fair Value
As of December 31, 2019
	(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 years ended December 31, 2019 and 2018, the Company recorded no credit losses on held-to-maturity securities.

The Company held $28.3 million and $155.1 million of non-income producing securities for the years ended December 31, 2020 and 2019, respectively.

Included in the Company’s invested assets are $1.6 billion and $1.7 billion of policy loans as of December 31, 2020 and 2019. As of December 31, 2020 and 2019, the interest rates on standard policy loans range from 3.0% to 8.0% and the collateral loans on life insurance policies have an interest rate of 13.64%.