FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2014

FAIR VALUE OF FINANCIAL INSTRUMENTS

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 March 31, 2014:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,438,756	$	17	$	1,438,773
Commercial mortgage-backed securities	—		1,023,366		—		1,023,366
Other asset-backed securities	—		311,940		548,805		860,745
U.S. government-related securities	1,214,490		296,751		—		1,511,241
State, municipalities, and political subdivisions	—		1,520,265		3,675		1,523,940
Other government-related securities	—		51,678		—		51,678
Corporate bonds	132		25,236,171		1,573,710		26,810,013
Total fixed maturity securities - available-for-sale	1,214,622		29,878,927		2,126,207		33,219,756
Fixed maturity securities - trading
Residential mortgage-backed securities	—		303,729		—		303,729
Commercial mortgage-backed securities	—		160,096		—		160,096
Other asset-backed securities	—		90,708		194,664		285,372
U.S. government-related securities	203,417		4,973		—		208,390
State, municipalities, and political subdivisions	—		274,605		—		274,605
Other government-related securities	—		55,044		—		55,044
Corporate bonds	—		1,519,622		30,946		1,550,568
Total fixed maturity securities - trading	203,417		2,408,777		225,610		2,837,804
Total fixed maturity securities	1,418,039		32,287,704		2,351,817		36,057,560
Equity securities	509,442		85,808		77,591		672,841
Other long-term investments(1)	71,677		62,239		75,713		209,629
Short-term investments	181,618		11,827		—		193,445
Total investments	2,180,776		32,447,578		2,505,121		37,133,475
Cash	274,514		—		—		274,514
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	12,946,329		—		—		12,946,329
Variable universal life	792,200		—		—		792,200
Total assets measured at fair value on a recurring basis	$	16,193,819	$	32,447,578	$	2,505,121	$	51,146,518
Liabilities:
Annuity account balances(2)	$	—	$	—	$	105,593	$	105,593
Other liabilities (1)	24,586		155,039		308,549		488,174
Total liabilities measured at fair value on a recurring basis	$	24,586	$	155,039	$	414,142	$	593,767

(1)Includes certain freestanding and embedded derivatives.

(2)Represents liabilities related to fixed indexed annuities.

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, 2013:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,445,040	$	28	$	1,445,068
Commercial mortgage-backed securities	—		970,656		—		970,656
Other asset-backed securities	—		326,175		545,808		871,983
U.S. government-related securities	1,211,141		296,749		—		1,507,890
State, municipalities, and political subdivisions	—		1,407,154		3,675		1,410,829
Other government-related securities	—		51,427		—		51,427
Corporate bonds	107		24,191,367		1,549,940		25,741,414
Total fixed maturity securities - available-for-sale	1,211,248		28,688,568		2,099,451		31,999,267
Fixed maturity securities - trading
Residential mortgage-backed securities	—		310,877		—		310,877
Commercial mortgage-backed securities	—		158,570		—		158,570
Other asset-backed securities	—		93,278		194,977		288,255
U.S. government-related securities	191,332		4,906		—		196,238
State, municipalities, and political subdivisions	—		260,892		—		260,892
Other government-related securities	—		57,097		—		57,097
Corporate bonds	—		1,497,362		29,199		1,526,561
Total fixed maturity securities - trading	191,332		2,382,982		224,176		2,798,490
Total fixed maturity securities	1,402,580		31,071,550		2,323,627		34,797,757
Equity securities	483,482		50,927		67,979		602,388
Other long-term investments (1)	56,469		54,965		98,886		210,320
Short-term investments	131,421		1,603		—		133,024
Total investments	2,073,952		31,179,045		2,490,492		35,743,489
Cash	345,579		—		—		345,579
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	12,791,438		—		—		12,791,438
Variable universal life	783,618		—		—		783,618
Total assets measured at fair value on a recurring basis	$	15,994,587	$	31,179,045	$	2,490,492	$	49,664,124
Liabilities:
Annuity account balances (2)	$	—	$	—	$	107,000	$	107,000
Other liabilities (1)	30,241		191,182		233,738		455,161
Total liabilities measured at fair value on a recurring basis	$	30,241	$	191,182	$	340,738	$	562,161

(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

	Fair Value
	As of		Valuation	Unobservable	Range
	March 31, 2014		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	548,805	Discounted cash flow	Liquidity premium	1.00% - 1.57% (1.13%)
				Paydown rate	8.57% - 17.42% (12.37%)
Corporate bonds	1,535,409		Discounted cash flow	Spread over treasury	0.70% - 6.75% (2.10%)
Embedded derivatives - GMWB(1)	66,607		Actuarial cash flow	Mortality	49% to 80% of 1994 MGDB
			model		table
				Lapse	0% - 24%, depending on product/duration/funded status of
					guarantee
				Utilization	97% - 103%
				Nonperformance risk	0.12% - 1.00%
Liabilities:
Annuity account balances(2)	$	105,593	Actuarial cash flow	Asset earned rate	5.37%
			model	Expenses	$88 - $102 per policy
				Withdrawal rate	2.20%
				Mortality	49% to 80% of 1994 MGDB table
				Lapse	2.2% - 33.0%, depending on product/duration/funded status of
					guarantee
				Return on assets	1.50% - 1.85% depending on surrender charge period
				Nonperformance risk	0.12% - 1.00%
Embedded derivative - FIA	35,894		Actuarial cash flow	Expenses	$83 - $97 per policy
			model	Withdrawal rate	1.1% - 4.5% depending on duration and tax qualification
				Mortality	49% to 80% of 1994 MGDB
					table
				Lapse	2.5% - 40.0%, depending on duration/surrender charge period
				Nonperformance risk	0.12% - 1.00%

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

(2)Represents liabilities related to fixed indexed annuities.

	Fair Value
	As of		Valuation	Unobservable	Range
	December 31, 2013		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	545,808	Discounted cash flow	Liquidity premium	1.00% - 1.68% (1.08%)
				Paydown rate	8.57% - 16.87% (12.05%)
Corporate bonds	1,555,898		Discounted cash flow	Spread over treasury	0.11% - 6.75% (2.06%)
Embedded derivatives - GMWB(1)	93,881		Actuarial cash flow model	Mortality	49% to 80% of 1994 MGDB
					table
				Lapse	0% - 24%, depending on
					product/duration/funded status of
					guarantee
				Utilization	97% - 103%
				Nonperformance risk	0.15% - 1.06%
Liabilities:
Annuity account balances(2)	$	107,000	Actuarial cash flow model	Asset earned rate	5.37%
				Expenses	$88 - $102 per policy
				Withdrawal rate	2.20%
				Mortality	49% to 80% of 1994 MGDB
					table
				Lapse	2.2% - 33.0%, depending on duration/surrender charge period
				Return on assets	1.50% - 1.85% depending on surrender charge period
				Nonperformance risk	0.15% - 1.06%
Embedded derivatives - FIA	25,324		Actuarial cash flow model	Expenses	$83 - $97 per policy
				Withdrawal rate	1.1% - 4.5% depending on
					duration and tax qualification
				Mortality	49% to 80% of 1994 MGDB
					table
				Lapse	2.5% - 40.0%, depending on
					product/duration/funded status of guarantee
				Nonperformance risk	0.15% - 1.06%

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

(2)Represents liabilities related to fixed indexed annuities.

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 three months ended March 31, 2014, for which the Company has used significant unobservable inputs (Level 3):

																													Total
																													Gains (losses)
			Total				Total																						included in
			Realized and Unrealized				Realized and Unrealized																						Earnings
			Gains				Losses																						related to
					Included in					Included in																			Instruments
					Other					Other												Transfers							still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of					Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3		Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	28	$	—	$	—	$	—		$	—		$	1	$	(11	)	$	—	$	—	$	—	$	(1	)	$	17	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	545,808		—		4,137		—			(1,129		)	—		(260		)	—		—		—		249			548,805		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals, and political subdivisions	3,675		—		—		—			—			—		—			—		—		—		—			3,675		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	1,549,940		895		27,017		—			(5,015		)	29,387		(37,867		)	—		—		12,185		(2,832		)	1,573,710		—
Total fixed maturity securities - available-for-sale	2,099,451		895		31,154		—			(6,144		)	29,388		(38,138		)	—		—		12,185		(2,584		)	2,126,207		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	194,977		727		—		(428		)	—			—		(812		)	—		—		—		200			194,664		468
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	29,199		538		—		(13		)	—			—		(63		)	—		—		1,272		13			30,946		(4		)
Total fixed maturity securities - trading	224,176		1,265		—		(441		)	—			—		(875		)	—		—		1,272		213			225,610		464
Total fixed maturity securities	2,323,627		2,160		31,154		(441		)	(6,144		)	29,388		(39,013		)	—		—		13,457		(2,371		)	2,351,817		464
Equity securities	67,979		—		227		—			(166		)	9,551		—			—		—		—		—			77,591		—
Other long-term investments(1)	98,886		111		—		(23,284		)	—			—		—			—		—		—		—			75,713		(23,173		)
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	2,490,492		2,271		31,381		(23,725		)	(6,310		)	38,939		(39,013		)	—		—		13,457		(2,371		)	2,505,121		(22,709		)
Total assets measured at fair value on a recurring basis	$	2,490,492	$	2,271	$	31,381	$	(23,725	)	$	(6,310	)	$	38,939	$	(39,013	)	$	—	$	—	$	13,457	$	(2,371	)	$	2,505,121	$	(22,709	)
Liabilities:
Annuity account balances(2)	$	107,000	$	—	$	—	$	(1,409	)	$	—		$	—	$	—		$	112	$	2,928	$	—	$	—		$	105,593	$	—
Other liabilities(1)	233,738		12		—		(74,823		)	—			—		—			—		—		—		—			308,549		(74,811		)
Total liabilities measured at fair value on a recurring basis	$	340,738	$	12	$	—	$	(76,232	)	$	—		$	—	$	—		$	112	$	2,928	$	—	$	—		$	414,142	$	(74,811	)

(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 March 31, 2013, for which the Company has used significant unobservable inputs (Level 3):

																													Total
																													Gains (losses)
			Total				Total																						included in
			Realized and Unrealized				Realized and Unrealized																						Earnings
			Gains				Losses																						related to
					Included in					Included in																			Instruments
					Other					Other												Transfers							still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of					Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3		Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	4	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	596,143		—		12		—			(27,548		)	—		(9,009		)	—		—		1,227		(157		)	560,668		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals, and political subdivisions	4,275		—		—		—			—			—		—			—		—		—		—			4,275		—
Other government-related securities	20,011		—		—		—			(3		)	—		—			—		—		—		(5		)	20,003		—
Corporate bonds	167,892		—		930		—			(2,364		)	—		(42,071		)	—		—		—		168			124,555		—
Total fixed maturity securities - available-for-sale	788,325		—		942		—			(29,915		)	—		(51,080		)	—		—		1,227		6			709,505		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	70,535		3,408		—		(259		)	—			—		(2,823		)	—		—		—		522			71,383		3,255
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	115		1		—		—			—			—		(17		)	—		—		5,013		—			5,112		29
Total fixed maturity securities - trading	70,650		3,409		—		(259		)	—			—		(2,840		)	—		—		5,013		522			76,495		3,284
Total fixed maturity securities	858,975		3,409		942		(259		)	(29,915		)	—		(53,920		)	—		—		6,240		528			786,000		3,284
Equity securities	65,527		—		—		—			—			—		—			—		—		—		—			65,527		—
Other long-term investments(1)	48,655		25,618		—		(3,869		)	—			—		—			—		—		—		—			70,404		21,749
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	973,157		29,027		942		(4,128		)	(29,915		)	—		(53,920		)	—		—		6,240		528			921,931		25,033
Total assets measured at fair value on a recurring basis	$	973,157	$	29,027	$	942	$	(4,128	)	$	(29,915	)	$	—	$	(53,920	)	$	—	$	—	$	6,240	$	528		$	921,931	$	25,033
Liabilities:
Annuity account balances(2)	$	129,468	$	—	$	—	$	(2,000	)	$	—		$	—	$	—		$	136	$	7,923	$	—	$	—		$	123,681	$	—
Other liabilities(1)	611,437		84,546		—		(12,923		)	—			—		—			—		—		—		—			539,814		71,623
Total liabilities measured at fair value on a recurring basis	$	740,905	$	84,546	$	—	$	(14,923	)	$	—		$	—	$	—		$	136	$	7,923	$	—	$	—		$	663,495	$	71,623

(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

		As of
		March 31, 2014				December 31, 2013
	Fair Value	Carrying				Carrying
	Level	Amounts		Fair Values		Amounts		Fair Values
		(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	5,390,844	$	5,909,438	$	5,486,417	$	5,949,058
Policy loans	3	1,793,110		1,793,110		1,815,744		1,815,744
Fixed maturities, held-to-maturity(1)	3	385,000		420,747		365,000		335,676
Liabilities:
Stable value product account balances	3	$	2,537,504	$	2,556,791	$	2,559,552	$	2,566,209
Annuity account balances	3	11,113,637		10,663,008		11,125,253		10,639,637
Debt:
Non-recourse funding obligations(2)	3	$	1,515,437	$	1,464,103	$	1,495,448	$	1,272,425

Except as noted below, fair values were estimated using quoted market prices.

(1) Security purchased from unconsolidated subsidiary, Red Mountain LLC.

(2) Of this carrying amount $385.0 million, fair value of $398.3 million, as of March 31, 2014, and $365.0 million, fair value of $321.5 million, as of December 31, 2013,  relates to non-recourse funding obligations issued by Golden Gate V.