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Fair Value of Assets and Liabilities (Tables)
 12 Months Ended
Dec. 31, 2017
Summary of Assets and Liabilities Measured at Fair Value on Recurring and Non-Recurring Basis

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2017. There were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2017.

 

($ in thousands)    Quoted prices
in active
markets for
identical
assets
(Level 1)		     Significant
other
observable
inputs
(Level 2)		     Significant
unobservable
inputs
(Level 3)		     Counterparty
and cash
collateral
netting		     Balance
as of
December 31,
2017		  

Assets

           

Fixed income securities:

           

U.S. government and agencies

    $ 42,427     $ 85,625     $ —       $ 128,052  

Municipal

      —       708,155       21,178         729,333  

Corporate—public

      —       2,565,223       7,312         2,572,535  

Corporate—privately placed

      —       1,167,218       55,978         1,223,196  

Foreign government

      —       179,765       —         179,765  

ABS—consumer and other

      —       26,603       15,205         41,808  

RMBS

      —       21,955       —         21,955  

CMBS

      —       11,408       —         11,408  

Redeemable preferred stock

      —       9,672       1         9,673  
  

 

 

    

 

 

    

 

 

      

 

 

  

Total fixed income securities

      42,427       4,775,624       99,674         4,917,725  

Equity securities

      186,446       928       7,159         194,533  

Short-term investments

      20,594       68,192       —         88,786  

Other investments: Free-standing derivatives

      —       2,885       336     $ (115 )      3,106  

Separate account assets

      293,836       —       —         293,836  

Other assets

      —       —       166,290         166,290  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total assets at fair value

    $ 543,303     $ 4,847,629     $ 273,459     $ (115 )    $ 5,664,276  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

% of total assets at fair value

      9.6 %      85.6 %      4.8 %      — %      100 % 

Liabilities

           

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ —     $ —     $ (4,796 )      $ (4,796 ) 

Other liabilities: Free-standing derivatives

      —       (1,601 )      —     $ 345       (1,256 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total liabilities at fair value

    $ —     $ (1,601 )    $ (4,796 )    $ 345     $ (6,052 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

% of total liabilities at fair value

      — %      26.5 %      79.2 %      (5.7 )%      100 % 

 

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2016. There were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2016.

 

($ in thousands)    Quoted prices
in active
markets for
identical
assets
(Level 1)		     Significant
other
observable
inputs
(Level 2)		     Significant
unobservable
inputs
(Level 3)		     Counterparty
and cash
collateral
netting		     Balance
as of
December 31,
2016		  

Assets

           

Fixed income securities:

           

U.S. government and agencies

    $ 14,008     $ 127,556     $ —       $ 141,564  

Municipal

      —       689,420       22,723         712,143  

Corporate—public

      —       2,478,958       4,091         2,483,049  

Corporate—privately placed

      —       1,159,461       75,713         1,235,174  

Foreign government

      —       192,854       —         192,854  

ABS—consumer and other

      —       33,277       14,803         48,080  

RMBS

      —       35,611       —         35,611  

CMBS

      —       13,796       —         13,796  

Redeemable preferred stock

      —       9,903       —         9,903  
  

 

 

    

 

 

    

 

 

      

 

 

  

Total fixed income securities

      14,008       4,740,836       117,330         4,872,174  

Equity securities

      211,521       637       5,920         218,078  

Short-term investments

      40,111       52,587       —         92,698  

Other investments: Free-standing derivatives

      —       2,414       311     $ (145 )      2,580  

Separate account assets

      290,798       —       —         290,798  

Other assets

      —       —       109,578         109,578  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring basis assets

      556,438       4,796,474       233,139       (145 )      5,585,906  

Non-recurring basis(1)

      —       —       —         —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total assets at fair value

    $ 556,438     $ 4,796,474     $ 233,139     $ (145 )    $ 5,585,906  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

% of total assets at fair value

      9.9 %      85.9 %      4.2 %      — %      100 % 

Liabilities

           

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ —     $ —     $ (7,177 )      $ (7,177 ) 

Other liabilities: Free-standing derivatives

      (1 )      (904 )      —     $ 145       (760 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total liabilities at fair value

    $ (1 )    $ (904 )    $ (7,177 )    $ 145     $ (7,937 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

% of total liabilities at fair value

      — %      11.4 %      90.4 %      (1.8 )%      100 % 
Summary of Quantitative Information About Significant Unobservable Inputs Used in Level Three Fair Value Measurements

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.

 

($ in thousands)    Fair
value		      Valuation
technique		      Unobservable
input		      Range      Weighted
average		  

December 31, 2017

               

Other assets—Structured
settlement annuity reinsurance agreement

    $ 166,290       
 Stochastic cash
flow model		  
 		     

 Ultimate
reinvestment
spreads		  
 
 		     
 129.8 - 218.6
basis points		  
 		     
 169.3 basis
points		  
 

December 31, 2016

               

Other assets—Structured settlement annuity reinsurance agreement

    $ 109,578       
 Stochastic cash
flow model		  
 		     

 Ultimate
reinvestment
spreads		  
 
 		     
 130.7 - 218.4
basis points		  
 		     
 169.6 basis
points		  
 
Schedule of Rollforward of Level Three Assets and Liabilities Held at Fair Value on Recurring Basis

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2017.

 

($ in thousands)    Balance as of
December 31,
2016		     Total gains (losses)
included in:		     Transfers
into
Level 3		     Transfers
out of
Level 3		  
     Net
income(1)		     OCI      

Assets

           

Fixed income securities:

           

Municipal

    $ 22,723     $ 15     $ 347     $       —     $ —  

Corporate—public

      4,091       —       (64 )      —       (1,565 ) 

Corporate—privately placed

      75,713       4,080       (4,520 )      —       —  

ABS—consumer and other

      14,803       —       402       —       —  

Redeemable preferred stock

      —       —       —       —       —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed income securities

      117,330       4,095       (3,835 )      —       (1,565 ) 

Equity securities

      5,920       585       492       —       (275 ) 

Free-standing derivatives, net

      311       (54 )      —       —       —  

Other assets

      109,578       56,712       —       —       —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ 233,139     $ 61,338     $ (3,343 )    $ —     $ (1,840 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities

           

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ (7,177 )    $ 2,381     $ —     $ —     $ —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ (7,177 )    $ 2,381     $ —     $ —     $ —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     Purchases     Sales     Issues     Settlements     Balance as of
December 31,
2017		  

Assets

           

Fixed income securities:

           

Municipal

    $ —     $ —     $ —     $ (1,907 )    $ 21,178  

Corporate—public

      4,989       —       —       (139 )      7,312  

Corporate—privately placed

      —       (18,000 )      —       (1,295 )      55,978  

ABS—consumer and other

      —       —       —       —       15,205  

Redeemable preferred stock

      1       —       —       —       1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed income securities

      4,990       (18,000 )      —       (3,341 )      99,674  

Equity securities

      1,018       (581 )      —       —       7,159  

Free-standing derivatives, net

      127       —       —       (48 )      336  

Other assets

      —       —       —       —       166,290  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ 6,135     $ (18,581 )    $ —     $ (3,389 )    $ 273,459  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities

           

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ —     $ —     $       —     $ —     $ (4,796 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ —     $ —     $ —     $ —     $ (4,796 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) 

The effect to net income totals $63.7 million and is reported in the Statements of Operations and Comprehensive Income as follows: $60.7 million in realized capital gains and losses, $606 thousand in net investment income, $(556) thousand in interest credited to contractholder funds and $2.9 million in contract benefits.

 

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2016.

 

($ in thousands)    Balance as of
December 31,
2015		     Total gains (losses)
included in:		     Transfers
into
Level 3		     Transfers
out of
Level 3		  
     Net
income(1)		     OCI      

Assets

           

Fixed income securities:

           

Municipal

    $ 32,286     $ 355     $ (495 )    $ —     $ —  

Corporate—public

      10,139       (2 )      (14 )      1,655       (7,479 ) 

Corporate—privately placed

      211,858       (4,074 )      7,947       —       (131,723 ) 

ABS—CDO

      9,650       —       350       —       —  

ABS—consumer and other

      15,704       —       (901 )      —       —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed income securities

      279,637       (3,721 )      6,887       1,655       (139,202 ) 

Equity securities

      6,935       (4,463 )      1,001       —       —  

Free-standing derivatives, net

      329       (30 )      —       —       —  

Other assets

      82,774       26,804       —       —       —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ 369,675     $ 18,590     $ 7,888     $ 1,655     $ (139,202 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities

           

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ (7,900 )    $ 723     $ —     $ —     $ —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ (7,900 )    $ 723     $ —     $ —     $ —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     Purchases     Sales     Issues     Settlements     Balance as of
December 31,
2016		  

Assets

           

Fixed income securities:

           

Municipal

    $ —     $ (7,515 )    $       —     $ (1,908 )    $ 22,723  

Corporate—public

      —       —       —       (208 )      4,091  

Corporate—privately placed

      697       —       —       (8,992 )      75,713  

ABS—CDO

      —       —       —       (10,000 )      —  

ABS—consumer and other

      —       —       —       —       14,803  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed income securities

      697       (7,515 )      —       (21,108 )      117,330  

Equity securities

      2,987       (540 )      —       —       5,920  

Free-standing derivatives, net

      103       —       —       (91 )      311  

Other assets

      —       —       —       —       109,578  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ 3,787     $ (8,055 )    $ —     $ (21,199 )    $ 233,139  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities

           

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ —     $ —     $ —     $ —     $ (7,177 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ —     $ —     $ —     $ —     $ (7,177 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) 

The effect to net income totals $19.3 million and is reported in the Statements of Operations and Comprehensive Income as follows: $18.6 million in realized capital gains and losses, $44 thousand in net investment income, $(702) thousand in interest credited to contractholder funds and $1.4 million in contract benefits.

 

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2015.

 

($ in thousands)    Balance as of
December 31,
2014		     Total gains (losses)
included in:		     Transfers
into
Level 3		     Transfers
out of
Level 3		  
     Net
income(1)		     OCI      

Assets

           

Fixed income securities:

           

Municipal

    $ 42,422     $ 336     $ (1,309 )    $ —     $ —  

Corporate—public

      16,035       —       (654 )      —       (4,642 ) 

Corporate—privately placed

      236,530       7,611       (5,368 )      —       (14,772 ) 

ABS—CDO

      9,525       —       125       —       —  

ABS—consumer and other

      15,820       —       (116 )      —       —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed income securities

      320,332       7,947       (7,322 )      —       (19,414 ) 

Equity securities

      5,000       14       (565 )      190       —  

Free-standing derivatives, net

      554       (178 )      —       —       —  

Other assets

      84,561       (1,787 )      —       —       —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ 410,447     $ 5,996     $ (7,887 )    $ 190     $ (19,414 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities

           

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ (7,391 )    $ (509 )    $ —     $ —     $ —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ (7,391 )    $ (509 )    $ —     $ —     $ —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     Purchases     Sales     Issues     Settlements     Balance as of
December 31,
2015		  

Assets

           

Fixed income securities:

           

Municipal

    $ —     $ (7,256 )    $       —     $ (1,907 )    $ 32,286  

Corporate—public

      —       —       —       (600 )      10,139  

Corporate—privately placed

      —       —       —       (12,143 )      211,858  

ABS—CDO

      —       —       —       —       9,650  

ABS—consumer and other

      —       —       —       —       15,704  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed income securities

      —       (7,256 )      —       (14,650 )      279,637  

Equity securities

      2,569       (273 )      —       —       6,935  

Free-standing derivatives, net

      62       —       —       (109 )      329  

Other assets

      —       —       —       —       82,774  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ 2,631     $ (7,529 )    $ —     $ (14,759 )    $ 369,675  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities

           

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ —     $ —     $ —     $ —     $ (7,900 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ —     $ —     $ —     $ —     $ (7,900 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) 

The effect to net income totals $5.5 million and is reported in the Statements of Operations and Comprehensive Income as follows: $(1.7) million in realized capital gains and losses, $7.7 million in net investment income, $283 thousand in interest credited to contractholder funds and $(792) thousand in contract benefits.
Schedule of Change in Unrealized Gains and Losses Included in Net Income for Level Three Assets and Liabilities Held

The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities held as of December 31.

 

($ in thousands)    2017      2016      2015  

Assets

         

Fixed income securities:

         

Municipal

    $ 15      $ 16      $ 71  

Corporate

      5        (4,079 )       7,611  
  

 

 

     

 

 

     

 

 

  

Total fixed income securities

      20        (4,063 )       7,682  

Free-standing derivatives, net

      (55 )       (30 )       (178 ) 

Equity securities

      586        —        —  

Other assets

      56,712        26,804        (1,787 ) 
  

 

 

     

 

 

     

 

 

  

Total recurring Level 3 assets

    $ 57,263      $ 22,711      $ 5,717  
  

 

 

     

 

 

     

 

 

  

Liabilities

         

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ 2,381      $ 723      $ (509 ) 
  

 

 

     

 

 

     

 

 

  

Total recurring Level 3 liabilities

    $ 2,381      $ 723      $ (509 ) 
  

 

 

     

 

 

     

 

 

  
Schedule of Carrying Values and Fair Value Estimates of Financial Instruments not Carried at Fair Value

Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.

 

Financial assets

 

($ in thousands)    December 31, 2017      December 31, 2016  
   Carrying
value		      Fair value      Carrying
value		      Fair value  

Mortgage loans

    $ 629,142      $ 655,601      $ 614,380      $ 616,368  

Cost method limited partnerships (1)

      80,472        88,758        72,477        77,122  

 

(1) 

Beginning January 1, 2018, due to the adoption of the new accounting standard for the recognition and measurement of financial assets and liabilities, cost method limited partnerships (excluding limited partnership interests accounted for on a cost recovery basis) will be measured at fair value with changes in fair value recognized in net income. The existing carrying value of these investments will increase to fair value with the offsetting adjustment recognized in retained income through a cumulative effect adjustment. See Note 2 for additional details on the new accounting standard.

Financial liabilities

 

($ in thousands)    December 31, 2017      December 31, 2016  
   Carrying
value		      Fair value      Carrying
value		      Fair value  

Contractholder funds on investment contracts

    $ 1,944,244      $ 2,062,405      $ 2,102,051      $ 2,220,926  

Liability for collateral

      59,067        59,067        60,931        60,931